SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended March 29, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number 0-19292
BLUEGREEN CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 03-0300793
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4960 Blue Lake Drive, Boca Raton, Florida 33431
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (561) 912-8000
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, $.01 par value New York Stock Exchange,
8.25% Convertible Subordinated Pacific Stock Exchange
Debentures due 2012 New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None.
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. Yes _X_ No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the definitive proxy statement incorporated
by reference into Part III of this Form 10-K. [X]
State the aggregate market value of the voting stock held by non-affiliates
of the registrant: $163,267,104 based upon the closing sale price of the
Company's Common Stock on the New York Stock Exchange on June 17, 1998 ($8.00
per share). The market value of voting stock held by non-affiliates excludes any
shares issuable upon conversion of any 8.25% Convertible Subordinated Debentures
which are convertible at a current conversion price of $8.24 per share.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: 20,408,388 shares of
Common Stock, $.01 par value, outstanding as of June 17, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Specifically identified portions of the Company's 1998 Annual Report to
Shareholders (the "1998 Annual Report") are incorporated by reference into Part
II and IV hereof and specifically identified portions of the Company's
definitive proxy statement to be filed for its Annual Meeting of Shareholders to
be held on July 28, 1998 (the "Proxy Statement") are incorporated by reference
into Part III hereof.
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BLUEGREEN CORPORATION
INDEX TO ANNUAL REPORT ON FORM 10-K
PART I PAGE
Item 1. BUSINESS.......................................................... 1
Item 2. PROPERTIES........................................................15
Item 3. LEGAL PROCEEDINGS.................................................15
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............16
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER.....16
MATTERS
Item 6. SELECTED FINANCIAL DATA...........................................16
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION......................................16
Item 7.A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..........16
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.......................16
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE..........................................16
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.................17
Item 11. EXECUTIVE COMPENSATION.............................................17
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.....17
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.....................17
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K....17
Signatures................................................................... 19
Exhibit Index.................................................................20
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PART I
Item 1. BUSINESS.
Summary
Bluegreen Corporation, (the "Company") is a leading marketer of vacation
and residential lifestyle choices through its resorts and residential land
businesses. The Company's resorts business (the "Resorts Division") acquires,
develops and markets timeshare interests in resorts generally located in popular
high-volume, "drive-to" vacation destinations. Timeshare interests typically
entitle the buyer to a fully-furnished vacation residence for an annual one-week
period in perpetuity ("Timeshare Interests"), as well as access to over 1,500
resorts worldwide through the Company's participation in timeshare exchange
networks. The Company currently markets and sells Timeshare Interests in eight
resorts located in the United States and the Caribbean. Prior to investing in
new timeshare projects, the Company performs market research and testing and,
prior to completion of development, seeks to pre-sell a significant portion of
its Timeshare Interests inventory. The Company's residential land business (the
"Residential Land Division") acquires, develops and subdivides property and
markets the subdivided residential lots to retail customers seeking to build a
home in a high quality residential setting. The Residential Land Division's
strategy is to locate its projects near major metropolitan centers outside the
perimeter of intense subdivision development or in popular retirement areas. The
Company has focused the Residential Land Division's activities in certain core
markets in which the Company has developed substantial marketing expertise and
has a strong track record of success. Prior to acquiring residential land, the
Company typically utilizes market research, conducts due diligence and, in the
case of new project locations, engages in pre-marketing techniques to evaluate
market response and price acceptance. Once a parcel of property is acquired, the
Company pre-sells a significant portion of its planned residential lots on such
property prior to extensive capital investment as a result of the Company's
ability to bond its projects to completion. The Company also generates
significant interest income through its financing of individual purchasers of
Timeshare Interests and, to a lesser extent, land sold by the Residential Land
Division.
For the purposes of this discussion, "estimated remaining life-of-project
sales" assumes sales of the existing, currently under construction or
development, and planned Timeshare interests or residential lots, as the case
may be, at current retail prices.
The Resorts Division. The Company's Resorts Division was founded in 1994 to
capitalize on the growth of the timeshare industry. According to the American
Resort Development Association, ("ARDA"), a non-profit industry organization,
and other industry sources, timeshare industry sales and the number of Timeshare
Interest owners grew at compound annual rates of approximately 16% and 22%,
respectively, from 1980 to 1997. No assurances can be given that these industry
growth rates will continue. The Company currently markets and sells Timeshare
Interests in eight resorts located in the Smoky Mountains of Tennessee; Myrtle
Beach, South Carolina; Orlando, Florida; Branson, Missouri; Wisconsin Dells,
Wisconsin; and Aruba. As of March 29, 1998, the Company had existing completed
inventory of 20,172 Timeshare Interests at its resorts, 8,316 Timeshare
Interests under construction or development, and plans to develop approximately
48,978 additional Timeshare Interests at existing resorts. Based on the
foregoing, the Resorts Division's estimated remaining life-of-project sales were
approximately $663 million at March 29, 1998. The Company also manages 37
timeshare resorts (including seven of its own resorts) with an aggregate of
approximately 79,000 members, which the Company believes makes it the second
largest manager of timeshare resorts in North America (based on the number of
resorts managed).
The Resorts Division utilizes a variety of techniques to attract
prospective purchasers of Timeshare Interests, including targeted mailings,
direct mail mini-vacations, kiosks in retail locations, marketing to current
owners of Timeshare Interests and referrals. The majority of the Company's
Timeshare Interests are sold through on-site sales presentations. To support its
marketing and sales efforts, the Company has developed and continues to enhance
its database to track its timeshare marketing and sales programs. Management
believes that, as the Company's timeshare operations grow, this database will
become an increasingly significant asset, enabling it to take advantage of,
among other things, less costly marketing and referral opportunities.
According to ARDA, the primary reason cited by consumers for purchasing a
Timeshare Interest is the ability to exchange a Timeshare Interest for
accommodations at other resorts through worldwide exchange networks. Each of the
Company's timeshare resorts is affiliated with either Interval International
("II") or Resort Condominium International, Inc. ("RCI"), the two largest
worldwide timeshare exchange companies. Participation in an exchange network
entitles owners to exchange their annual Timeshare Interests for occupancy at
over 1,500 participating II resorts or over 3,200 participating RCI resorts
worldwide. To further enhance the ability of its Timeshare Interest owners to
customize their vacation experience, the Company also intends to expand the
points-based vacation club system it acquired in connection with its acquisition
(the "RDI Acquisition") effective September 30, 1997, of all of the capital
stock of RDI Group, Inc. and Resort Title Agency, Inc. and their subsidiaries
(collectively, "RDI") which, when completed, will permit its Timeshare Interest
owners to purchase an annual allotment of points which can be redeemed for
occupancy rights at all Company-owned and participating managed resorts.
Prior to acquiring property for resorts, the Resorts Division undertakes a
full property review, including an environmental assessment, which is presented
for approval to the Company's Investment Committee, which was established in
1990 and consists of certain key members of senior management. During the review
process, acquisition
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specialists analyze market, tourism and demographic data as well as the quality
and diversity of the location's existing amenities and attractions to determine
the potential strength of the timeshare market in such area and the availability
of a variety of recreational opportunities for prospective Timeshare Interest
purchasers.
The Company has historically provided financing to approximately 89% of its
timeshare customers, who are required to make a downpayment of at least 10% of
the Timeshare Interest sales price and who typically finance the balance of the
sales price over a period of seven to ten years. As of March 29, 1998, the
Company had a timeshare receivables portfolio totaling approximately $66.6
million in principal amount, with a weighted average contractual yield of
approximately 15.5% per annum. The Company is currently negotiating with a
financial institution to obtain a timeshare warehouse financing and separate
timeshare receivables purchase facility and a separate timeshare acquisition and
development facility. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition."
The Residential Land Division. The Residential Land Division is focused
primarily on land projects located in states in which the Company has developed
marketing expertise and has a track record of success, such as Texas, North
Carolina, New Mexico, Virginia, Tennessee, Colorado and Arizona. The aggregate
carrying amount of Residential Land Division inventory at March 29, 1998 was
$45.2 million. The Residential Land Division's estimated remaining
life-of-project sales were approximately $210 million at March 29, 1998. The
Company believes no other company in the United States of comparable size or
financial resources markets and sells residential land directly to retail
customers.
The Residential Land Division targets families seeking a quality lifestyle
improvement which is generally unavailable in traditional suburban developments.
Based on the Company's experience in marketing and selling residential lots to
its target customers, the Company has been able to develop a marketing and sales
program that generates a significant number of on-site sales presentations to
potential prospects through low-cost, high-yield newspaper advertising. In
addition, SIMS and the other Residential Land Division databases enable the
Company to compile, process and maintain information concerning future sales
prospects within each of its operating regions. Through the Company's targeted
sales and marketing program, the Company believes that it has been able to
achieve a very attractive conversion ratio of sales to prospects receiving
on-site sales presentations.
The Residential Land Division acquires and develops land in two markets:
(i) near major metropolitan centers outside the perimeter of intense subdivision
development; and (ii) popular retirement areas. Prior to acquiring undeveloped
land, the Company researches market depth and forecasts market absorption. In
new market areas, the Company typically supplements its research with a
structured classified ad test marketing system that evaluates market response
and price acceptance. The Company's sales and marketing efforts begin as soon as
practicable after the Company enters into an agreement to acquire a parcel of
land. The Company's ability to bond projects to completion allows it to sell a
significant portion of its residential land inventory on a pre-development
basis, thereby reducing the Company's need for external capital to complete
improvements. As is the case with the Resorts Division, all acquisitions of
residential land are subject to Investment Committee approval.
In fiscal 1997, the Company began construction of its first daily-fee golf
course as part of its long-term plan to participate in the growing daily-fee
golf market. The Company believes that because the demographics of this market
are similar to those of the Residential Land Division, daily-fee golf courses
are an attractive amenity that will increase the marketability of the Company's
adjacent residential lots in certain projects. The Company's first golf course,
the Carolina National Golf Club, is located near Southport, North Carolina, just
30 miles north of Myrtle Beach, South Carolina, one of the nation's most popular
golf destinations, and was designed by Masters Champion Fred Couples. Also, as
part of the RDI Acquisition, the Company acquired a daily-fee golf course
located in Wisconsin Dells, Wisconsin.
The Company's business includes certain risks and uncertainties. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition"
The Company's executive offices are located at 4960 Blue Lake Drive, Boca
Raton, Florida 33431. The Company's telephone number at such address is (561)
912-8000.
Industry Overviews
Resorts Division
The Market. The resort component of the leisure industry is serviced
primarily by two separate alternatives for overnight accommodations: commercial
lodging establishments and timeshare resorts. Commercial lodging consists
principally of hotels and motels in which a room is rented on a nightly, weekly
or monthly basis for the duration of the visit or rentals of privately-owned
condominium units or homes. For many vacationers, particularly those with
families, a lengthy stay at a quality commercial lodging establishment can be
expensive, and the space provided to such vacationers by these establishments
relative to the cost is often not economical. In addition, room rates at
commercial lodging establishments are subject to change periodically and
availability is often uncertain. The Company believes that Timeshare Interest
ownership presents an attractive vacation alternative to commercial lodging.
First introduced in Europe in the mid-1960's, Timeshare Interest ownership
has been one of the fastest growing segments of the hospitality industry over
the past two decades. According to ARDA (including unpublished ARDA estimates
with respect to 1995, 1996 and 1997), timeshare industry sales and the number of
Timeshare Interest owners
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have grown at compound annual rates of approximately 16% and 22%, respectively,
from 1980 to 1997. No assurances can be given that such industry growth rates
will continue.
The Company believes that, based on ARDA reports and other industry data,
the following factors have contributed to the increased acceptance of the
timeshare concept among the general public and the substantial growth of the
timeshare industry:
Consumer awareness of the value and benefits of Timeshare Interest
ownership, including the cost savings relative to other lodging
alternatives;
Flexibility of Timeshare Interest ownership due to the growth of
international exchange organizations such as II and RCI and points-based
vacation club systems;
The quality of the timeshare resorts and their management;
Consumer confidence resulting from consumer protection regulation of the
timeshare industry and an influx of brand name national lodging companies
to the timeshare industry; and
Availability of consumer financing for purchasers of Timeshare Interests.
The timeshare industry traditionally has been highly fragmented and
dominated by a large number of local and regional resort developers and
operators, each with small resort portfolios generally of differing quality. The
Company believes that one of the most significant factors contributing to the
current success of the timeshare industry is the entry into the market of some
of the world's major lodging, hospitality and entertainment companies, such as
Marriott, Disney, Hilton, Hyatt, Four Seasons and Inter-Continental. Although
timeshare operations currently comprise only a small portion of these companies'
overall operations, their involvement in the timeshare industry, together with
other publicly-traded timeshare companies, has enhanced the industry's image
with the general public.
The Consumer. According to information compiled by ARDA, customers in the
40-55 year age range represented approximately 45.1% of all Timeshare Interest
owners in 1997. During the past two years, the median age of a Timeshare
Interest buyer at the time of purchase was 48. The median annual household
income of current Timeshare Interest owners in the United States is
approximately $71,000, with approximately 24% of all Timeshare Interest owners
having annual household incomes greater than $100,000 and approximately 12% of
such owners having annual household incomes greater than $125,000. The Company
believes that, despite the industry's growth, Timeshare Interest ownership has
achieved only an approximate 5% market penetration among United States
households with incomes above $50,000 per year.
Timeshare Interest Ownership. The purchase of a Timeshare Interest
typically entitles the buyer to use a fully-furnished vacation residence,
generally for a one-week period each year in perpetuity. Typically, the buyer
acquires an ownership interest in the vacation residence, which is often held as
tenant-in-common with other buyers of interests in the property.
The owners of Timeshare Interests manage the property through a non-profit
homeowners' association, which is governed by a board of directors or trustees
consisting of representatives of the developer and owners of Timeshare Interests
at the resort. The board hires a management company to which it delegates many
of the rights and responsibilities of the homeowners' association, including
grounds landscaping, security, housekeeping and operating supplies, garbage
collection, utilities, insurance, laundry and repairs and maintenance.
Each Timeshare Interest owner is required to pay the homeowners'
association a share of all costs of maintaining the property. These charges can
consist of an annual maintenance fee plus applicable real estate taxes and
special assessments, assessed on an as-needed basis. If the Timeshare Interest
owner does not pay such charges, such owner's use rights may be suspended and
the homeowners' association may foreclose on the owner's Timeshare Interest.
Participation in Timeshare Interest Exchange Networks. The Company believes
that its Timeshare Interests are made more attractive by the Company's
affiliation with Timeshare Interest exchange networks operated by II and RCI,
the two largest worldwide, timeshare exchange companies. Six of the Company's
timeshare resorts (including the Aruba Resort) are affiliated with II and have
been awarded II's highest designation (five stars), while the two resorts
acquired in the RDI Acquisition are affiliated with RCI. A Timeshare Interest
owner's participation in the II or RCI exchange network (the fee for which is
paid by the Company in the first year of such owner's participation) allows such
owner to exchange his annual Timeshare Interest for occupancy at over 1,500
participating resorts in the case of II and over 3,200 participating resorts in
the case of RCI, based upon availability and the payment of a variable exchange
fee. A member may exchange his Timeshare Interest for an occupancy right in
another participating resort by listing his Timeshare Interest as available with
the exchange organization and by requesting occupancy at another participating
resort, indicating the particular resort or geographic area to which the member
desires to travel, the size of the unit desired and the period during which
occupancy is desired. The exchange network assigns ratings to each listed
Timeshare Interest, based upon a number of factors, including the location and
size of the unit, the quality of the resort and the period during which the
Timeshare Interest is available, and attempts to satisfy the exchange request by
providing an occupancy right in another Timeshare Interest with a similar
rating. If the exchange network is unable to meet the member's initial request,
it suggests alternative resorts based on availability. The failure of the
Company to
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participate in qualified exchange networks or the failure of such networks to
operate effectively could have a material adverse effect on the Company.
Residential Land Division
The Residential Land Division operates within a specialized niche of the
real estate industry which focuses on the sale of residential land to retail
customers who intend to build a home on such land at some point in the future.
The participants in this market niche are generally individual landowners who
are selling specific parcels of property and small developers who focus
primarily on projects in their region. Although no specific data is available
regarding this market niche, the Company believes that no other company in the
United States of comparable size or financial resources currently markets and
sells residential land to retail customers.
Unlike commercial homebuilders who focus on vertical development, the
Residential Land Division focuses primarily on horizontal development
activities, such as grading, roads and utilities. As a result, the projects
undertaken by the Company and other participants in this market niche are
significantly less capital intensive than those undertaken by the commercial
homebuilders, which reduces the Company's risk of holding a large inventory of
property. In addition, the Company believes that, through its financial and
marketing resources, it is able to acquire properties in attractive locations
throughout the United States on a cost-effective basis thereby enabling the
Company's projects to achieve desired cash flows and targeted gross margins. The
Company's market niche is also the beneficiary of a number of trends, including
the large number of people entering into the 40-55 year age bracket and the
economic and population growth in certain of its primary markets.
Recent Acquisitions and Transactions
Effective September 30, 1997, a wholly-owned subsidiary of the Company
acquired all of the issued and outstanding common stock of RDI Group Inc. and
Resort Title Agency, Inc. (collectively "RDI") for a purchase price of $7.5
million consisting of $6 million cash and a $1.5 million, 9% promissory note due
October 3, 1999 (the "RDI Acquisition"). The acquisition was accounted for using
the purchase method of accounting and, accordingly, the results of operations of
RDI have been included in the Company's consolidated financial statements from
September 30, 1997. Approximately $1.1 million of goodwill, which is included in
other assets on the consolidated balance sheet, was recognized in connection
with the acquisition of RDI. The goodwill is being amortized over 25 years.
Headquartered in Fort Myers, Florida, RDI was privately-held and presently owns
timeshare resorts in Orlando, Florida and Wisconsin Dells, Wisconsin, as well as
a points-based vacation club. In addition, RDI manages approximately 37 vacation
ownership resorts, located primarily in the southeastern sun-belt states,
including the resorts developed by the Company, with a member base of
approximately 79,000.
On December 15, 1997, the Company invested $250,000 of capital in Bluegreen
Properties N.V. ("BPNV"), an entity organized in Aruba that previously had no
operations, in exchange for a 50% ownership interest. Concurrently, the Company
and an affiliate of the other 50% owner of BPNV (who is not an affiliate of the
Company), each loaned BPNV $3 million pursuant to promissory notes due on
December 15, 2000 and bearing interest at the prime rate plus 1%. BPNV then
acquired from a third party approximately 8,000 unsold timeshare intervals at
the La Cabana Beach & Racquet Club (the "Aruba Resort"), a fully developed
timeshare resort in Oranjestad, Aruba in exchange for $6 million cash and the
assumption of approximately $16.6 million of interest-free debt from a bank in
Aruba (the "Aruba Transaction"). The debt is not guaranteed by the Company or
any of its wholly-owned subsidiaries. The debt was recorded by BPNV at
approximately $12.5 million, which reflects a discount based on an imputed
interest rate of 12%. The debt is to be repaid over five years through
release-prices as intervals are sold, subject to minimum monthly payments of
approximately $278,000. In addition to its 50% ownership interest, the Company
will receive a quarterly management fee from BPNV equal to 7% of BPNV's net
sales in exchange for the Company's involvement in the day-to-day operations of
BPNV. The Company also has majority control of BPNV's board of directors and has
a controlling financial interest in BPNV. Therefore, the accounts of BPNV are
included in the Company's consolidated financial statements as of March 29,
1998. The total assets and net revenues of BPNV for fiscal 1998 were
approximately $21.7 million and $4.6 million, respectively. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition".
The Company borrowed an aggregate of $22.1 million from two investment
banking firms pursuant to a short-term loan agreement dated December 15, 1997
(the "Bridge Loan"). The Bridge Loan bore interest at the greater of 10% or
prime plus 2.75%. In addition, the Company paid a fee equal to 1% of each
advance.
On April 1, 1998, the Company consummated a private placement offering (the
"Offering") of $110 million in aggregate principal amount of 10.5% senior
secured notes due April 1, 2008 (the "Notes"). The initial purchasers in the
Offering were the investment banking firms who provided the Company with the
Bridge Loan. Interest on the Notes is payable semiannually on April 1 and
October 1 of each year, commencing October 1, 1998. The Notes are redeemable at
the option of the Company, in whole or in part, in cash, on or after April 1,
2003, together with accrued and unpaid interest, if any, to the date of
redemption at the following redemption prices: 2003-105.25%; 2004-103.50%;
2005-101.75% and 2006 and thereafter-100.00%. In addition, prior to April 1,
2001, the Company may redeem up to 35% of the aggregate principal amount of the
Notes with the proceeds of one or more public equity offerings, at a redemption
price equal to 110.5% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of redemption, provided that at least $65 million
principal amount of Notes remains outstanding after any such redemption. The
Notes are senior obligations of the Company and rank pari passu in right of
payment with all existing and future senior
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indebtedness of the Company and rank senior in right of payment to all existing
and future subordinated obligations of the Company. None of the assets of
Bluegreen Corporation secure its obligations under the Notes, and the Notes are
effectively subordinated to secured indebtedness of the Company to any third
party to the extent of assets serving as security therefor. The Notes are
unconditionally guaranteed, jointly and severally, by each of the Company's
subsidiaries (the "Subsidiary Guarantors"), with the exception of Bluegreen
Properties N.V., any special purpose finance subsidiary, any subsidiary which is
formed and continues to operate for the limited purpose of holding a real estate
license and acting as a broker and certain other subsidiaries which have
individually less than $50,000 of assets.
The Note guarantees are senior obligations of each Subsidiary Guarantor and
rank pari passu in right of payment with all existing and future senior
indebtedness of each such Subsidiary Guarantor and senior in right of payment to
all existing and future subordinated indebtedness of each such Subsidiary
Guarantor. The Note guarantees of certain Subsidiary Guarantors are secured by a
first (subject to customary exceptions) mortgage or similar instrument (each, a
"Mortgage") on certain residential land properties of such Subsidiary Guarantors
(the "Pledged Properties"). Absent the occurrence and the continuance of an
event of default, the Notes trustee is required to release its lien on the
Pledged Properties as property is sold and the trustee will not have a lien on
the proceeds of any such sale. As of March 29, 1998, the Pledged Properties had
an aggregate book value of approximately $36.8 million. The Notes' indenture
(the "Indenture") contains certain covenants that, among other things, limit (i)
the incurrence of additional indebtedness by the Company and its subsidiaries
and the creation of liens, (ii) the payment of dividends on, and redemption of,
capital stock of the Company and the redemption of certain subordinated
obligations of the Company, (iii) investments, (iv) sales of assets and
subsidiary stock, (v) transactions with affiliates and (vi) consolidations,
mergers and transfers of all or substantially all of the assets of the Company.
The net proceeds of the Offering were approximately $106.3 million. In
connection with the Offering, the Company repaid the Bridge Loan, approximately
$28.9 million of various line-of-credit and notes payable balances and
approximately $36.3 million of the Company's receivable-backed notes payable
discussed more fully below. In addition, the Company paid aggregate accrued
interest on the repaid debt of approximately $1.0 million and $2.7 million of
prepayment penalties. The remaining net proceeds of the Offering will be used to
repay other obligations of the Company and for working capital purposes. In
connection with the Offering, the Company wrote-off approximately $692,000 of
debt issuance costs related to the extinguished debt.
Company Products
Timeshare Resorts
Set forth below is a description of each of the Company's timeshare
resorts. All units at each of the properties have certain standard amenities,
including a full kitchen, at least two televisions, a VCR player and a CD
player. Some units have additional amenities, such as larger televisions and
game systems. Each property offers guests a clubhouse (with an indoor/outdoor
pool, a game room, exercise facilities and a lounge) and a hotel-type staff. The
Company manages each resort other than the Aruba Resort.
MountainLoft Resort--Gatlinburg, Tennessee. The MountainLoft Resort in
Gatlinburg, Tennessee is located near the Great Smoky Mountains National Park
and is minutes from the family attractions of Pigeon Forge, Tennessee. Units are
located in individual chalets or mid-rise villa buildings. Each unit is fully
furnished with a whirlpool bath and private balconies, and certain units include
gas fireplaces.
Laurel Crest--Pigeon Forge, Tennessee. Laurel Crest is located in proximity
to the Great Smoky Mountains National Park and the Dollywood theme park. In
addition, visitors to Pigeon Forge can enjoy over 200 factory outlet stores and
music shows featuring renowned country music stars as well as partake in a
variety of outdoor activities, such as horseback riding, trout fishing, boating,
golfing and white water rafting.
Shore Crest Vacation Villas--Myrtle Beach, South Carolina. Shore Crest
Vacation Villas is located on the beach in the Windy Hill section of North
Myrtle Beach a mile from the famous Barefoot Landing, with its restaurants,
theaters, shops and outlet stores.
Harbour Lights--Myrtle Beach, South Carolina. Harbour Lights is located in
the Fantasy Harbour Complex in the center of Myrtle Beach. Nearby are Theater
Row, shopping, golf and restaurants. The resort's Activities Center overlooks
the Intracoastal Waterway.
The Falls Village--Branson, Missouri. The Falls Village is located in the
Ozark Mountains. Fishing, boating and swimming are available at nearby Table
Rock Lake and Lake Taneycomo, and area theaters feature shows by country music
stars. Most customers of the resort come from areas within an eight to ten hour
drive of Branson.
Christmas Mountain--Wisconsin Dells, Wisconsin. The Company acquired the
Christmas Mountain resort as part of the RDI Acquisition. Christmas Mountain
offers an 18-hole golf course and seven ski trails served by two chair lifts.
Other on-site amenities include horseback riding, tennis courts, a five-acre
lake with paddleboats and rowboats and four outdoor swimming pools. Christmas
Mountain attracts customers primarily from the greater Chicago area and other
locations within an eight to ten hour drive of Wisconsin Dells.
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Orlando Sunshine--Orlando, Florida. Orlando Sunshine was also acquired as
part of the RDI Acquisition. The resort is located on International Drive, near
Wet'n'Wild water park and Universal Studios.
La Cabana All Suite Beach Resort & Racquet Club--Aruba, Dutch Caribbean. BG
Aruba acquired the unsold Timeshare Interest inventory of the Aruba Resort
(approximately 8,000 Timeshare Interests) in December 1997. Established in 1989,
the Aruba Resort is a 449-suite ocean front property which offers one, two and
three bedroom suites, garden suites and penthouse accommodations. On-site
amenities include tennis, racquetball, squash, casino, two pools and private
beach cabanas, none of which are owned or managed by the Company.
The following table sets forth additional data with respect to each of the
properties managed under the Resorts Division.
<TABLE>
<CAPTION>
Laurel Shore Harbour Orlando
Crest Crest Lights The Falls Christmas Sunshine
MountainLoft Pigeon Myrtle Myrtle Village Mountain(1) (1) LaCabana
Gatlinburg, Forge, Beach, Beach, Branson, Wisconsin Orlando, Resort(2)
Location TN TN SC SC MO WI FL Aruba
- -------- -- -- -- -- -- -- -- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Date sales commenced 7/94 8/95 4/96 6/97 7/97 9/97 -- 1/98
Number of Timeshare Interests
completed as of March 29, 1998(3) 7,667 5,824 5,980 1,872 1,535 1,341 -- 8,030
Number of Timeshare Interests
under construction as of
March 29, 1998 (3) 936 1,560 -- 1,872 3,744 204 -- --
Number of additional Timeshare
Interests planned (3)(4) 4,309 4,507 5,108 11,091 12,765 8,702 2,496 --
Average Timeshare Interests selling
price - Year ended March 29,1998 $8,446 $8,561 $9,843 $8,033 $8,183 $8,768 $10,000(5) $11,082
Number of Timeshare Interests
sold through March 29, 1998 4,115 2,837 2,829 780 658 446 -- 412
</TABLE>
(1) Acquired by the Company in the RDI Acquisition on September 30, 1997.
(2) Bluegreen Properties N.V., in which the Company owns a 50% interest,
acquired unsold Timeshare Interests inventory at this resort in December,
1997.
(3) The number of Timeshare Interests completed, under construction or planned
are intended to be sold in 52 weekly intervals.
(4) There can be no assurance that the Company will have the resources to
complete all such planned Timeshare Interests or that such Timeshare
Interests will be sold at favorable prices.
(5) Anticipated average selling prices once sales commence.
Certain Residential Land Projects
Set forth below is a description of the four largest projects currently
marketed by the Residential Land Division, which are representative of the types
of projects that the Company has been focusing on since 1993. These properties
represented 46.4% of the Residential Land Division's estimated remaining
life-of-project sales at March 29, 1998.
River Mountain Ranch--San Antonio, Texas. The Company acquired 3,600 acres
located approximately 35 miles outside of San Antonio, Texas in fiscal 1997 for
$6.5 million. The property features frontage along the Guadalupe River and is
characteristic of the Texas Hill Country with its rolling meadows and mature
trees. The property also includes private river parks for picnics and outings.
The project includes 608 lots, with most ranging in size from three to five
acres. The Company began selling lots in October 1996 and aggregate sales
through March 29, 1998 were $17.7 million. Aggregate development costs through
March 29, 1998 were $4.9 million and the Company anticipates that the remaining
capital expenditures for the project will be $1.3 million. The Company
anticipates that the remaining lots will be sold-out over the next year.
Estimated remaining life-of-project sales for this project are approximately $8
million as of March 29, 1998.
Winding River Plantation--Southport, North Carolina. The Company acquired
approximately 1,300 acres located near Southport, North Carolina (and between
Myrtle Beach, South Carolina and Wilmington, North Carolina) for $3.4 million in
fiscal 1997. The property has frontage along the Lockwood Folly River, a
navigable waterway that leads to the Intercoastal Waterway and the Atlantic
Ocean. The project will include river amenities, a beach club and tennis courts.
In addition, the project is the site of the Company's first daily-fee golf
course, which opened for limited play in November 1997 and was developed by
Masters Champion Fred Couples. The Company anticipates that the project will
consist of a total of approximately 1,000 lots, which average approximately one
acre. The Company began selling lots in February 1997, and aggregate sales
through March 29, 1998 were $12.5 million. Aggregate development costs (net of
costs capitalized separately in the golf course) through March 29, 1998 were
$8.5 million and the Company
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anticipates that the aggregate capital expenditures to complete development at
the project will be $10.4 million. The Company anticipates that the remaining
lots will be sold-out over the next four years. Estimated remaining
life-of-project sales for this project are approximately $53.1 million as of
March 29, 1998.
Lake Ridge at Joe Pool Lake--Cedar Hill, Texas. The Company acquired 1,400
acres located approximately 19 miles outside of Dallas, Texas and 30 miles
outside of Fort Worth, Texas in April 1994 for $6.1 million. The property is
located at Joe Pool Lake and is atop the highest elevation within 100 miles. The
lake has in excess of 7,500 acres of water for boating, fishing, windsurfing and
other water activities. Adjacent amenities (not owned or managed by the Company)
include a 154 acre park with baseball, football and soccer fields, a fishing
pool with a pier, camping areas and an 18-hole golf course. The project includes
252 lots, with most ranging in size from 1/4 to five acres and 399 acres
available for future development. The Company began selling lots in April 1994
and aggregate sales through March 29, 1998 were $30.6 million. Aggregate
development costs through March 29, 1998 were $12.9 million and the Company
anticipates that the remaining capital expenditures will be $9.1 million. The
Company anticipates that unsold lots will be sold-out over the next two years.
Estimated remaining life-of-project sales for this project are approximately
$30.7 million as of March 29, 1998.
Crossroads Ranch--Prescott, Arizona. The Company acquired 6,500 acres
located 20 miles north of Prescott, Arizona in July 1995 for $6.0 million. The
property has elevations ranging from 4,600 to 5,600 feet and a four-season
climate. The terrain includes pasture lands with seasonal creeks and rolling
hills. The property is 95 miles north of Phoenix and Scottsdale, approximately 2
1/2 hours south of the Grand Canyon and approximately one hour away from Sedona.
The Company anticipates that the project will include 153 lots, each averaging
36 acres, and 26 lots, each averaging five acres. The Company provided gravel
roads and trails for hiking and horseback riding. Electric service was installed
underground so that utility poles would not spoil the views. The Company also
created deed restrictions designed to ensure that future development on the
property is compatible with the land's ranch character. The Company began
selling lots in January 1996 and aggregate sales through March 29, 1998 were
$19.9 million. Aggregate development costs through March 29, 1998 were $6.6
million and the Company anticipates that the remaining capital expenditures will
be $1.8 million. The Company anticipates that the unsold lots will be sold-out
over the next year. Estimated remaining life-of-project sales for this project
are approximately $5.7 million as of March 29, 1998.
Acquisition of Timeshare and Residential Land Inventory
In order to provide centralized and uniform controls on the type, location
and amount of timeshare and residential land inventory that the Company
acquires, all such inventory acquisitions have required the approval of the
Investment Committee since 1990. The Investment Committee consists of George F.
Donovan, President and Chief Executive Officer; John F. Chiste, Treasurer and
Chief Financial Officer; Patrick E. Rondeau, Senior Vice President, Director of
Legal Affairs; L. Nicolas Gray, Senior Vice President--Resorts Division; and
Daniel C. Koscher, Senior Vice President--Residential Land Division. The
Investment Committee reviews each proposed inventory acquisition to determine
whether the property meets certain criteria, including estimated cash flows and
gross profit margins.
Resorts Division
The Company obtains information with respect to resort acquisition
opportunities through interaction by the Company's management team with resort
operators, lodging companies and financial institutions with which the Company
has established business relationships. The four resorts acquired and directly
developed by the Company (the Tennessee and South Carolina resorts) were
specifically designed and built for timeshare use to appeal to the Company's
targeted customers. Prior to acquiring property for future resorts, the Resorts
Division undertakes a full property review, including an environmental
assessment, which is presented to the Investment Committee for approval. During
the review process, acquisition specialists analyze market, tourism and
demographic data as well as the quality and diversity of the location's existing
amenities and attractions to determine the potential strength of the timeshare
market in such area and the availability of a variety of recreational
opportunities for prospective Timeshare Interest purchasers. Specifically, the
Company evaluates the following factors, among others, to determine the
viability of a potential new timeshare resort: (i) supply/demand ratio for
Timeshare Interests in the relevant market, (ii) the market's growth as a
vacation destination, (iii) competitive accommodation alternatives in the
market, (iv) uniqueness of location, and (v) barriers to entry that would limit
competition. The Company anticipates that its timeshare resorts will generally
have a sell-out term of approximately seven years.
During fiscal 1998, the Company acquired the land and began development of
its Harbour Lights Resort in Myrtle Beach, South Carolina, acquired The Falls
Village Resort in Branson, Missouri and consummated the RDI Acquisition and the
Aruba Transaction. As a result of these transactions, the Company's Timeshare
Interest inventory increased from 9,935 unsold Timeshare Interests as of March
30, 1997 to 20,172 unsold Timeshare Interests as of March 29, 1998, an increase
of 103%.
The Company intends to continue to pursue growth by expanding or
supplementing the Company's existing resorts operations through acquisitions in
destinations that will complement such existing operations. Because the
timeshare industry is highly fragmented, the Company believes that significant
opportunities exist to make selected acquisitions at attractive valuations.
Acquisitions the Company may consider include acquiring additional Timeshare
Interest inventory, operating companies, management contracts, Timeshare
Interest mortgage portfolios and properties or other timeshare-related assets
which may be integrated into the Company's operations. In addition, the Company
intends to continue to pursue timeshare resort locations in areas outside the
United States, particularly in the Caribbean,
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as well as Central and South America. No assurances can be given that the
Company will be successful in its acquisition strategy.
Residential Land Division
The Residential Land Division, through the Company's regional offices, and
subject to Investment Committee review and approval, typically acquires
inventory that (i) is located near a major population center outside the
perimeter of intense subdivision development or in popular retirement areas,
(ii) is suitable for subdivision, (iii) has attractive topographical features
and (iv) the Company believes will result in an acceptable profit margin and
cash flow to the Company based upon anticipated retail value. Properties are
generally subdivided for resale into parcels typically ranging in size from two
to five acres. During the year ended March 29, 1998, the Company acquired 5,133
acres in ten separate transactions for a total purchase price of approximately
$12.2 million, or $2,386 per acre, and during fiscal 1997, the Company acquired
19,254 acres in 23 separate transactions for a total purchase price of $29.7
million, or $1,541 per acre.
In connection with its review of potential residential land inventory, the
Investment Committee considers such established criteria as the economic
conditions in the area in which the parcel is located, environmental
sensitivity, availability of financing, whether the property is consistent with
the Company's general policies and the anticipated ability of that property to
produce acceptable profit margins and cash flow. As part of its long-term
strategy for the Residential Land Division, the Company in recent years has
focused on fewer, more capital-intensive projects. The Company intends to
continue to focus the Residential Land Division on those regions where the
Company believes the market for its products is strongest, such as the
Southeast, Southwest, Rocky Mountain and Western regions of the United States
and to replenish its residential land inventory in such regions as existing
projects are sold-out.
The Residential Land Division has several specialists who assist regional
management in locating inventory for acquisition. The Company has established
contacts with numerous land owners and real estate brokers in many of its market
areas, and because of such contacts and its long history of acquiring
properties, the Company believes that it is generally in a favorable position to
learn of available properties, often before the availability of such properties
is publicly known. In order to ensure such access, the Company attempts to
develop and maintain strong relationships with major property owners and
brokers. Regional offices regularly contact property owners, such as timber
companies, financial institutions and real estate brokers, by a combination of
telephone, mail and personal visits. In addition, prior to acquiring property in
new areas, the Company will conduct test marketing for a prospective project
prior to entering into an acquisition agreement to determine whether sufficient
customer demand exists for the project. To date, the Company's regional offices
generally have been able to locate and acquire adequate quantities of inventory
which meet the criteria established by the Investment Committee to support their
operational activities. In certain cases, however, the Company has experienced
short-term shortages of ready-for-sale inventory due to either difficulties in
acquiring property or delays in the approval and/or development process.
Shortfalls in ready-for-sale inventory may materially adversely affect the
Company's business, operating results and financial condition. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition".
Once a desirable property is identified, the Company completes its initial
due diligence procedures and enters into a purchase agreement with the seller to
acquire the property. It is generally the Company's policy to advance only a
small downpayment of 1%-3% of the purchase price upon signing the purchase
agreement and to limit the liquidated damages associated with such purchase
agreement to the amount of its downpayment and any preliminary development
costs. In most cases, the Company is not required to advance the full purchase
price or enter into a note payable obligation until regulatory approvals for the
subdivision and sale of at least the initial phase of the project have been
obtained. While local approvals are being sought, the Company typically engages
in pre-marketing techniques and, with the consent of the seller and the
knowledge of prospective purchasers, occasionally attempt to pre-sell parcels,
subject to closing its purchase of the property. When the necessary regulatory
approvals have been received, the closing on the property occurs and the Company
obtains title to the property. The time between execution of a purchase
agreement and closing on a property has generally been six to 12 months.
Although the Company generally retains the right to cancel purchase agreements
without any loss beyond forfeiture of the downpayment and preliminary
development costs, few purchase agreements have been canceled historically.
By requiring, in most cases, that regulatory approvals be obtained prior to
closing and by making small downpayments upon signing purchase agreements, the
Company is typically able to place a number of properties under contract without
expending significant amounts of cash. This strategy enables the Residential
Land Division to reduce (i) the time during which it actually owns specific
properties, (ii) the market risk associated with holding such properties and
(iii) the risk of acquiring properties that may not be suitable for sale. It
also provides the Residential Land Division an additional source of available
properties to meet customer demand. In certain circumstances, however, the
Company has acquired properties and then held such properties until their prime
marketing seasons.
Prior to closing on a purchase of residential land, the Company's policy is
to complete its own environmental assessment of the property. The purpose of the
Company's assessment is to evaluate the impact the proposed subdivision will
have on such items as flora and fauna, wetlands, endangered species, open space,
scenic vistas, recreation, transportation and community growth and character. To
obtain this information, the Company's acquisition specialists typically consult
with various groups and agencies including the appropriate county and state
planning agencies, environmental groups, state heritage programs, soil
conservation agencies and forestry groups. If the Company's environmental
assessment indicates that the proposed subdivision meets environmental criteria
and complies with
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<PAGE>
zoning, building, health and other laws, the Company develops a formal land use
plan, which forms a basis for determining an appropriate acquisition price. The
Company attempts, where possible, to accommodate the existing topographical
features of the land, such as streams, hills, wooded areas, stone walls, farm
buildings and roads. Prior to closing on an acquisition, the Company will
typically have the property surveyed by a professional surveyor and have soil
analyses conducted to determine the suitability of the site for septic systems.
At closing, the Company also obtains title insurance on the property.
Marketing and Sale of Inventory
Resorts Division
The Resorts Division utilizes a variety of techniques to attract
prospective purchasers of Timeshare Interests, including targeted mailings,
direct mail mini-vacation invitations, kiosks in retail locations, marketing to
current owners and referrals. The Resorts Division provides hotel accommodations
to prospective purchasers at reduced prices in exchange for their touring the
timeshare resort. To support its marketing and sales efforts, the Company has
developed and continues to enhance its database to track its timeshare marketing
and sales programs. Management believes that, as the Resort Division's timeshare
operations grow, this database will become an increasingly significant asset,
enabling the Company to focus its marketing and sales efforts to take advantage
of, among other things, less costly marketing and referral opportunities.
Timeshare resorts are staffed with sales representatives, sales managers and an
on-site manager who oversees the day-to-day operations, all of whom are
employees of the Company. Sales personnel are generally experienced in resort
sales and undergo ongoing Company-sponsored training. During the year ended
March 29, 1998, total advertising expense for the Resorts Division was $14.6
million or 24.1% of the division's $60.8 million in sales, and during fiscal
1997, total advertising expense for the Resorts Division was $7.6 million or 28%
of such division's $27.4 million in sales.
The Company requires its sales staff to provide each timeshare customer
with a written disclosure statement regarding the Timeshare Interest to be sold
prior to the time the customer signs a purchase agreement. This disclosure
statement sets forth relevant information regarding timeshare ownership at the
resort and must be signed by every purchaser. The Company believes that this
information statement contains all material and relevant information a customer
requires to make an informed decision as to whether or not to purchase a
Timeshare Interest at one of its resorts.
After deciding to purchase a Timeshare Interest, a purchaser enters into a
purchase agreement and is required to pay the Company a deposit of at least 10%
of the purchase price. Purchasers are entitled to cancel purchase agreements
within specified periods after execution in accordance with statutory
requirements. Substantially all timeshare purchasers visit the resort prior to
purchasing.
The Company intends to expand the points-based vacation club system that it
acquired in the RDI Acquisition, which is currently only available to owners of
Timeshare Interests at the Company's Wisconsin Dells, Wisconsin and Orlando,
Florida resorts. Under a points-based vacation club system, members purchase an
annual allotment of points which can be redeemed for occupancy rights at
participating resorts. Compared to other vacation ownership arrangements, the
points-based system offers members significant flexibility in planning their
vacations. The number of points that are required for a stay at any one resort
varies, depending on a variety of factors, including the resort location, the
size of a unit, the vacation season and the days of the week used. Under this
system, members can select vacations according to their schedules, space needs
and available points. Subject to certain restrictions, members are typically
allowed to carry over for one year any unused points and to "borrow" points from
the forthcoming year. In addition, members are required to pay annual fees for
certain maintenance and management costs associated with the operation of the
resorts based on the number of points to which they are entitled. The Company's
expansion of the RDI points-based vacation club system involves certain risks
and uncertainties and no assurances can be given that the Company will be
successful.
The attractiveness of Timeshare Interest ownership has been enhanced
significantly by the availability of exchange networks that allow Timeshare
Interest owners to exchange the occupancy right in their Timeshare Interest in a
particular year, for an occupancy right at another participating network resort
at either the same or a different time. The two resorts acquired in the RDI
Acquisition are affiliated with the timeshare exchange network operated by RCI,
while the Company's six other resorts (including Aruba) are affiliated with II's
timeshare exchange network. In connection with the RDI Acquisition, the Company
has advised each of II and RCI of the existence of its agreement with the other
timeshare interest exchange network and of the potential conflict. Although the
Company believes this conflict will be resolved satisfactorily, no assurances
can be given. If the Company's resorts ceased to qualify for the exchange
networks or such networks ceased to operate effectively, the Company's sales of
Timeshare Interests and the performance of its timeshare receivables could be
materially adversely affected.
For further information on sales attributable to the Resorts Division, see
"Management's Discussion and Analysis of Results of Operations and Financial
Condition."
Residential Land Division
In general, as soon as practicable after agreeing to acquire a property and
during the time period that appropriate improvements are being completed, the
Company establishes selling prices for the individual parcels taking
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into account such matters as regional economic conditions, quality as a building
site, scenic views, road frontage and natural features such as lakes, mountains,
streams, ponds and wooded areas. The Company also considers recent sales of
comparable parcels in the area. Initial decisions on pricing of parcels in a
given area are made by the Company's regional managers and, in all cases, are
subject to approval by the Investment Committee. Once such selling prices are
established the Company commences its marketing efforts.
The most widely used marketing technique by the Residential Land Division
is advertising in major newspapers in metropolitan areas located within a one to
three hour drive from the property and local newspapers. In addition, the
Company uses its proprietary database and inventory management system, which
enables the Company to compile quickly information on the previously identified
prospects most likely to be interested in a particular project. The Residential
Land Division also conducts direct mail campaigns to market property through the
use of brochures describing available parcels, as well as television and radio
advertising. Through this sales and marketing program, the Company believes that
it has been able to achieve a high conversion ratio of sales to prospects
receiving on-site sales presentations. The conversion ratio of sales to
prospects receiving on-site sales presentations for the ten-month period ended
January 31, 1998 was approximately 20%. A sales representative who is
knowledgeable about the property answers each inquiry generated by the Company's
marketing efforts, discusses the property with the prospective purchaser,
attempts to ascertain the purchaser's needs and determine whether the parcel
would be suitable for that person, and arranges an appointment for the purchaser
to visit the property. Substantially all prospective purchasers inspect a
property before purchasing. During the year ended March 29, 1998, the
Residential Land Division incurred $7.6 million in advertising expenses, or 7.2%
of such division's $106.1 million in sales, and during fiscal 1997, the
Residential Land Division incurred $6.3 million in advertising expense, or 9% of
such division's $72.6 million in sales.
The success of the Company's marketing efforts depends heavily on the
knowledge and experience of its sales personnel. The Company requires that,
prior to initiating the marketing effort for a property, every sales
representatives walk the property and become knowledgeable about each parcel and
applicable zoning, subdivision and building code requirements. Continued
training programs are conducted, including training with regional office sales
managers, weekly sales meetings and frequent site visits by an executive officer
of the Company. The Company enhances its sales and marketing organization
through the Bluegreen Institute, a mandatory training program, which is designed
to instill the Company's marketing and customer service philosophy in middle and
lower-level management. Additionally, the sales staff is evaluated against
performance standards established by the executive officers of the Company.
Substantially all of a sales representative's compensation is commission-based.
The Company requires its sales staff to provide each prospective purchaser
with a written disclosure statement regarding the property to be sold prior to
the time such purchaser signs a purchase agreement. This information statement,
which is either in the form of a U.S. Department of Housing and Urban
Development ("HUD") lot information statement, where required, or a Company
generated "Vital Information Statement," sets forth relevant information with
respect to, and risks associated with, the property and must be signed by each
purchaser. The Company believes that these information statements contain all
material and relevant information necessary for a prospective purchaser to make
an informed decision as to whether or not to purchase such property, including
the availability and estimated cost of utilities, restrictions regarding
property usage, status of access roads and information regarding rescission
rights.
After deciding to purchase a parcel, a purchaser enters into a purchase
agreement and is required to pay the Company a deposit of at least 10% of the
purchase price. Purchasers are entitled to cancel purchase agreements within
specified periods after execution in accordance with statutory requirements. The
closing of a residential land sale usually occurs two to eight weeks after
payment of the deposit. Upon closing of a residential land sale, the Company
typically delivers a warranty deed and a recent survey of the property to the
purchaser. Title insurance is available at the purchaser's expense.
For further information on sales attributable to the Residential Land
Division, see "Management's Discussion and Analysis of Results of Operations and
Financial Condition."
Customer Financing
General
During fiscal 1996, 1997 and 1998, the Company financed 26%, 30% and 33%,
respectively, of the aggregate purchase price of its sales of Timeshare
Interests and residential land to customers that closed during these periods and
received cash for the remaining balance of the purchase price. The increase in
the percentage of sales financed by the Company since 1996 is primarily
attributable to an increase in the sales of Timeshare Interests over the same
period. Sales of Timeshare Interests accounted for 35% of consolidated sales of
real estate during the year ended March 29, 1998, compared to 12% and 25% of
consolidated sales during fiscal 1996 and 1997, respectively. Approximately 89%
of all Timeshare Interests finance with the Company (compared to 14% and 8% of
residential land purchasers in fiscal 1997 and fiscal 1998, respectively). In
recent years the percentage of residential land customers who utilized the
Company's financing has declined materially due, among other things, to an
increased willingness on the part of local banks to extend direct lot financing
to purchasers.
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The Company believes that its financing is attractive to purchasers who
find it convenient to handle all facets of the purchase of residential land and
Timeshare Interests through a single source and because the downpayments
required by the Company are similar to those required by banks and mortgage
companies which offer this type of credit.
The Company offers financing of up to 90% of the purchase price of its
Timeshare Interests. The typical financing extended by the Company on a
Timeshare Interest during fiscal 1997 and fiscal 1998 provides for a term of
seven years and a fixed interest rate. Historically, at the closing, the Company
and the purchaser have executed a contract for deed agreement. After the
obligation is paid in full, the Company delivers a deed to the purchaser. RDI
has historically delivered the deed to purchasers at the Closing of a sale,
while securing repayment of the purchaser's obligation by obtaining a mortgage
on the purchaser's Timeshare Interest. In connection with the expansion of its
points-based vacation club system, the Company anticipates that it will move to
a note and mortgage system. The Company does not believe that the transfer to a
note and mortgage system will have a material adverse effect on its servicing
operations or financial results.
The Company also offers financing of up to 90% of the purchase price of all
parcels sold under the Residential Land Division to all purchasers who qualify
for such financing. The term of repayment on such financing has historically
ranged from five to 15 years although the Company, by offering reduced interest
rates, has been successful in encouraging customers during recent years to
finance their purchases over shorter terms with increased downpayments.
Management believes such strategy has improved the quality of the notes
receivable generated by its Residential Land Division in recent years. An
average note receivable underwritten by the Company during fiscal 1997 and
fiscal 1998 has a term of ten years. Most notes receivable bear interest at a
fixed interest rate and are secured by a first lien on the land.
The weighted average interest rate on the Company's notes receivable was
12.4%, 13.3% and 14.9% at March 31, 1996, March 30, 1997 and March 29, 1998,
respectively.
Loan Underwriting
Resorts Division. Consistent with industry practice, Timeshare Interest
financing is not subject to extensive loan underwriting criteria. Customer
financing on sales of Timeshare Interests requires (i) receipt of a minimum
downpayment of 10% of the purchase price and (ii) a contract for deed and other
closing documents between the Company and the purchaser. The Company encourages
purchasers to make increased downpayments by offering a lower interest rate. In
addition, purchasers who do not elect to participate in the Company's
pre-authorized payment plan are charged interest at a rate which is one percent
greater than the otherwise prevailing rate. Historically, timeshare receivables
have had a higher default rate than residential land receivables.
Residential Land Division. The Company has established loan underwriting
criteria and procedures designed to reduce credit losses on its residential land
loan portfolio. The loan underwriting process undertaken by the Company's credit
department includes reviewing the applicant's credit history, verifying
employment and income as well as calculating certain debt-to-income ratios. The
primary focus of the Company's underwriting review is to determine the
applicant's ability to repay the loan in accordance with its terms. This
assessment is based on a number of factors, including the relationship of the
applicant's required monthly payment to disposable income. The Company also
examines the applicant's credit history through various credit reporting
agencies. In order to verify an applicant's employment status, the Company
generally contacts the applicant's employer. The Company also obtains current
pay stubs, recent tax returns and other tax forms from the applicant.
In order to obtain financing from the Residential Land Division, a
prospective purchaser must submit a completed and signed credit application,
purchase and sale agreement and pre-authorized checking agreement accompanied by
a voided check, if applicable, to the Company's credit department. All credit
decisions are made at the Company's corporate headquarters. Loan amounts under
$50,000 are approved by designated personnel located in the Company's corporate
headquarters, while loan amounts of $50,000 or more require approval from a
senior executive officer. In addition, rejected applications and any material
exceptions to the underwriting policy are also reviewed by senior management.
Customers are notified of the reasons for credit denial by mail.
The Company encourages customers to increase their downpayment and reduce
the loan term through the structure of its loan programs. Customers receive a
lower rate of interest as their downpayment increases and the loan term
shortens. Additionally, the Company encourages its customers to make timely
payments through a pre-authorized payment arrangement. Customers who do not
choose a pre-authorized payment plan are charged interest at a rate which is one
percent greater than the prevailing rate. Approximately 75% of purchasers using
the Company's financing have historically participated in the pre-authorized
payment plan.
After the credit decision has been made, the credit department categorizes
the file as either approved, pending or declined. Upon receipt of a credit
approval, the regional office schedules the closing with the customer. Closings
are typically conducted at the office of the Company's local attorney or
settlement agent, although in some cases the closing may take place at the sales
site or by mail.
When the original closing documents are received from the closing agent,
the Company verifies that the loan closed under terms approved by the Company's
credit department. A quality control audit is performed to verify that
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required documents have been received and that they have been prepared and
executed correctly. If any revisions are required, notification is sent to the
regional office.
A loan file typically includes a copy of the signed security instrument,
the mortgage note, a copy of the deed, Truth-in-Lending disclosure, purchase and
sale agreement, credit application, local counsel opinion, Vital Information
Statement or purchaser's acknowledgment of receipt of HUD lot information
statement, HUD settlement statement and a copy of the assignment of mortgage and
an original note endorsement from the Company's subsidiary originating the sale
and the loan to the Company (if applicable). After the initial closing documents
are received, the recorded mortgage and assignment and original title insurance
policy are obtained in order to complete the loan file.
Collection Policies
Resorts Division. The Company's timeshare receivables have been
historically documented by contracts for deed, which allows the Company to
retain title to the Timeshare Interest until the obligation is paid in full,
thereby eliminating the need to foreclose in the event of a default. Collection
efforts and delinquency information concerning the Resorts Division are managed
at the Company's corporate headquarters. Servicing of the division's receivables
is handled by a staff of experienced collectors, assisted by an on-line mortgage
collection computer system. Unless circumstances otherwise dictate, collection
efforts are generally made by mail and telephone. If a contract for deed becomes
delinquent for ten days, a reminder letter is mailed to the customer. If the
customer fails to bring the account current, a late notice is mailed when the
account is 15 days delinquent (and telephone contact commences). After an
account is 45 days delinquent, the Company typically sends a third letter
advising the customer that such customer has 15 days within which to bring the
account current. Under the terms of the contract for deed, the borrower is in
default when the account becomes 60 days delinquent. At this time a default
letter is sent advising the customer that he or she has 30 days to bring the
account current or lose his or her contractual interest in the timeshare unit.
When the account becomes 90 days delinquent, the Company forwards a final letter
informing the customer that the contract for deed has been terminated. At such
time, the Timeshare Interest can be resold to a new purchaser. In connection
with the expansion of its points-based vacation club system, the Company
anticipates moving to a note and mortgage system. To the extent that this change
occurs, the Company does not anticipate that the period of time for realizing on
a defaulted timeshare receivable will be materially longer, because title to the
applicable property will be held by the vacation club trust.
Residential Land Division. Collection efforts and delinquency information
concerning the Residential Land Division are also managed at the Company's
corporate headquarters. Servicing of the division's receivables is handled by a
staff of experienced collectors, assisted by an on-line mortgage collection
computer system. Unless circumstances otherwise dictate, collection efforts are
generally made by mail and telephone. Collection efforts begin when an account
is ten days past due, at which time the Company mails a reminder letter.
Attempts are then made to contact the customer via telephone to determine the
reason for the delinquency and to bring the account current. The determination
of how to handle a delinquent loan is based upon many factors, including the
customer's payment history and the reason for the current inability to make
timely payments. If no agreement is made or the customer does not abide by the
agreement, collection efforts continue until the account is either brought
current or legal action is commenced. If not accelerated sooner, the Company
declares the loan in default when the loan becomes 60 days delinquent. When the
loan is 90 days past due, the accrual of interest is stopped (unless the loan is
considered an in-substance foreclosure loan, in which case all accrued interest
is reversed since the Company's means of recovery is determined through the
resale of the underlying collateral and not through collection on the note) and
the Credit/Collection Manager determines the action to be taken.
Loan Loss Reserves. Reserve for loan losses as a percentage of period end
notes receivable was 2.4%, 3.4% and 1.9% at March 31, 1996, March 30, 1997 and
March 29, 1998, respectively. The adequacy of the Company's reserve for loan
losses is determined by management and reviewed on a regular basis considering,
among other factors, historical frequency of default, loss experience, present
and expected economic conditions as well as the quality of the receivables.
Sales of Receivables/Pledging of Receivables
Since 1986, the Company has sold or pledged substantially all of its
receivables, generally retaining the right and obligation to service such
receivables. In the case of residential land receivables, the Company typically
transfers the receivables to a special purpose finance subsidiary, which in turn
enters into a receivables securitization. The receivables are typically sold by
such subsidiary with limited or no recourse. In the case of receivables in
securitization transactions pledged to a financial institution, the Company
generally must maintain a debt to eligible collateral rate (based on outstanding
principal balance of the pledged loans) of 90%. The Company is obligated to
pledge additional eligible receivables or make additional principal payments in
order to maintain this collateralization rate. Repurchases and additional
principal payments have not been material to date.
Private placement REMIC financings have provided substantial capital
resources to the Company. Under the terms of these transactions, the receivables
are sold to a REMIC trust and the Company has no obligation to repurchase the
receivables due to default by the borrowers. The Company does, however, have the
obligation to repurchase the receivables in the event that there is any material
defect in the loan documentation and related representations and warranties as
of the time of sale.
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As discussed under "Management's Discussion and Analysis of Results of
Operations and Financial Condition," the Company is currently negotiating with a
financial institution to provide the Company with a warehouse financing and a
separate receivables purchase facility. The Company will have no obligation to
repurchase the receivables due to default by the borrowers under the proposed
purchase facility. The Company will, however, have the obligation to repurchase
the receivables in the event that there is any material defect in the loan
documentation and related representations and warranties as of the time of sale.
Receivables Servicing
Receivables servicing includes collecting payments from borrowers and
remitting such funds to the owners, lenders or investors in such receivables,
accounting for receivables principal and interest, making advances when
required, contacting delinquent borrowers, foreclosing in the event that
defaults are not remedied and performing other administrative duties. The
Company's obligation to provide receivables servicing and its rights to collect
fees are set forth in a servicing agreement. The Company has the obligation and
right to service all of the receivables it originates and retains the obligation
and right with respect to substantially all of the receivables it sells through
REMICs. The Company typically receives an annual servicing fee of approximately
.5% of the scheduled principal balance, which is deducted from payments
received.
Regulation
The real estate industry is subject to extensive and complex regulation.
The Company is subject to compliance with various federal, state and local
environmental, zoning and other statutes and regulations regarding the
acquisition, subdivision and sale of real estate and Timeshare Interests and
various aspects of its financing operations. On a federal level, the Federal
Trade Commission has taken an active regulatory role through the Federal Trade
Commission Act, which prohibits unfair or deceptive acts or competition in
interstate commerce. In addition to the laws applicable to the Company's
customer financing and other operations discussed below, the Company is or may
be subject to the Fair Housing Act and various other federal statutes and
regulations. The Company is also subject to various foreign laws with respect to
the Aruba Resort. The Company believes that it is in compliance in all material
respects with such regulations. However, no assurance can be given that the cost
of complying with applicable laws and regulations will not be significant or
that the Company is in fact in compliance with applicable law. Any failure to
comply with applicable laws or regulations could have a material adverse effect
on the Company.
The Company's sales and marketing of residential land are subject to
various consumer protection laws and to the Interstate Land Sales Full
Disclosure Act which establishes strict guidelines with respect to the marketing
and sale of land in interstate commerce. HUD has enforcement powers with respect
to this statute. In some instances, the Company has been exempt from HUD
registration requirements because of the size or number of the subdivided
parcels and the limited nature of its offerings. The Company, at its discretion,
may formally request an exemption advisory opinion from HUD to confirm the
exempt status of any particular offering. Several such exemption requests have
been submitted to, and approved by, HUD. In those cases where the Company and
its legal counsel determine parcels must be registered to be sold, the Company
files registration materials disclosing financial information concerning the
property, evidence of title and a description of the intended manner of offering
and advertising such property. The Company bears the cost of such registration,
which includes legal and filing fees. Many states also have statutes and
regulations governing the sale of real estate. Consequently, the Company
regularly consults with counsel for assistance in complying with federal, state
and local law. The Company must obtain the approval of numerous governmental
authorities for its acquisition and marketing activities and changes in local
circumstances or applicable laws may necessitate the application for, or the
modification of, existing approvals.
The Company's timeshare resorts are subject to various regulatory
requirements including state and local approvals. The laws of most states
require the Company to file with a designated state authority for its approval a
detailed offering statement describing the Company and all material aspects of
the project and sale of Timeshare Interests. Laws in each state where the
Company sells Timeshare Interests generally grant the purchaser of a Timeshare
Interest the right to cancel a contract of purchase at any time within a
specified period following the earlier of the date the contract was signed or
the date the purchaser has received the last of the documents required to be
provided by the Company. Most states have other laws which regulate the
Company's activities, such as real estate licensure; seller's of travel
licensure; anti-fraud laws; telemarketing laws; price, gift and sweepstakes
laws; and labor laws. In addition, certain state and local laws may impose
liability on property developers with respect to construction defects discovered
or repairs made by future owners of such property. Pursuant to such laws, future
owners may recover from the Company amounts in connection with the repairs made
to the developed property. In compliance with state laws, the Company provides
its timeshare purchasers with a public disclosure statement which contains,
among other items, detailed information about the surrounding vicinity, the
resort and the purchaser's rights and obligations as a Timeshare Interests
owner.
Under various federal, state and local laws, ordinances and regulations,
the owner of real property generally is liable for the costs of removal or
remediation of certain hazardous or toxic substances located on or in, or
emanating from, such property, as well as related costs of investigation and
property damage. Such laws often impose such liability without regard to whether
the owner knew of, or was responsible for, the presence of such hazardous or
toxic substances. The presence of such substances, or the failure to properly
remediate such substances, may adversely affect the owner's ability to sell or
lease a property or to borrow using such real property as collateral. Other
federal and state laws require the removal or encapsulation of
asbestos-containing material when such material is in poor condition or in
13
<PAGE>
the event of construction, demolition, remodeling or renovation. Other statutes
may require the removal of underground storage tanks. Noncompliance with these
and other environmental, health or safety requirements may result in the need to
cease or alter operations at a property.
The Company's customer financing activities are also subject to extensive
regulation, which may include, Truth-in-Lending Act and Regulation Z, the Fair
Housing Act, the Fair Debt Collection Practices Act, the Equal Credit
Opportunity Act and Regulation B, the Electronic Funds Transfer Act and
Regulation E, the Home Mortgage Disclosure Act and Regulation C, Unfair or
Deceptive Acts or Practices and Regulation AA and Right to Financial Privacy
Act.
Management is not aware of any pending regulatory contingencies that are
expected to have a materially adverse impact on the Company.
Competition
The real estate industry is highly competitive. In each of its markets, the
Company competes against numerous developers and others in the real estate
business. The Resorts Division competes with various high profile and
well-established operators. Many of the world's most recognized lodging,
hospitality and entertainment companies have begun to develop and sell Timeshare
Interests in resort properties. Major companies that now operate or are
developing or planning to develop timeshare resorts include Marriott, Disney,
Hilton, Hyatt, Four Seasons and Inter-Continental. The Company also competes
with other publicly traded timeshare companies, including Signature, Vistana,
Fairfield, Silverleaf and numerous other owners and operators of timeshare
resorts. The Residential Land Division competes with builders, developers and
others for the acquisition of property and with local, regional and national
developers, housebuilders and others with respect to the sale of residential
lots. Competition may be generally smaller with respect to the Company's
residential lot sales in the more rural markets in which it operates. The
Company believes that it can compete on the basis of its reputation and the
price, location and quality of the products it offers for sale, as well as on
the basis of its experience in land acquisition, development and sale. Although,
as noted above, the Resorts Division competes with various high profile and
well-established operators, the Company believes that it can compete on the
basis of its general reputation and the price, location and quality of its
timeshare resorts. The development and operation of additional timeshare resorts
in the Company's markets could have a material adverse impact on the demand for
the Company's Timeshare Interests and its results of operations. In its customer
financing activities, the Company competes with banks, mortgage companies, other
financial institutions and government agencies offering financing of real
estate. In recent years, the Company has experienced increased competition with
respect to the financing of Residential Land Division sales as evidenced by the
low percentage of residential land sales internally financed since 1995. The
Company believes that, based on its interest rates and repayment schedules, the
financing packages it offers are convenient for customers and competitive with
those of other institutions which offer such financing.
Personnel
As of March 29, 1998, the Company had 1,677 employees. Of the 1,677
employees, 94 were located at the Company's headquarters in Boca Raton, Florida,
109 at the Company's corporate office in Fort Myers, Florida and 1,474 in
regional offices throughout the United States and Canada (the field personnel
include 244 field employees supporting the Company's Residential Land Division
and 1,230 field employees supporting the Company's Resorts Division. None of the
Company's employees are represented by a collective bargaining unit, and the
Company believes that relations with its employees generally are excellent.
Executive Officers of the Company
The following table sets forth certain information regarding the executive
officers of the Company.
Name Age Position
---- --- --------
George F. Donovan 59 President and Chief Executive Officer
Daniel C. Koscher 41 Senior Vice President - Land Division
L. Nicolas Gray 51 Senior Vice President - Resorts Division
Patrick E. Rondeau 51 Senior Vice President, Director of Corporate
Legal Affairs and Clerk
John F. Chiste 42 Chief Financial Officer and Treasurer
Allan J. Herz 38 Vice President and Director of Mortgage
Operations
Joan A. McCormick 55 Vice President and Chief Information Officer
Susan J. Milanese 39 Vice President and Director of Human Resources
Anthony M. Puleo 30 Chief Accounting Officer
George F. Donovan joined the Company as a Director in 1991 and was appointed
President and Chief Operating Officer in October 1993. He became Chief Executive
Officer in December, 1993. Mr. Donovan has served as an officer of a number of
other recreational real estate corporations, including Leisure Management
International, of which he was President from 1991 to 1993, and Fairfield
Communities, Inc., of which he was President from April 1979 to December 1985.
Daniel C. Koscher joined the Company in 1986. During his tenure, he has served
in various financial management positions including Chief Accounting Officer,
Vice President and Director of Planning/Budgeting. In 1997, he became
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Senior Vice President, Residential Land Division. Prior to his employment with
the Company, Mr. Koscher was employed by the William Carter Company, a
manufacturing company located in Needham, Massachusetts. He has also been
employed by Cipher Data Products, Inc., a computer peripheral manufacturer
located in San Diego, California, as well as the State of Nevada as an audit
agent. Mr. Koscher holds an M.B.A. along with a B.B.A. in Accounting.
L. Nicolas Gray joined the Company in 1995 to oversee the Company's timeshare
resorts operation and was named Senior Vice President in 1997. Mr. Gray has over
25 years of experience in the hospitality, timeshare and related resort
industries. Mr. Gray served as Director of Development for Resort Condominium
International, a timeshare exchange organization from 1993 to 1995. Prior to
that time, Mr. Gray was Executive Vice President and General Manager for resort
developments of Thousand Trails from 1989 to 1991 and Fairfield Communities from
1979 to 1989.
Patrick E. Rondeau joined the Company in 1990 and was elected Vice President and
Director of Corporate Legal Affairs. He became Clerk in 1993 and Senior Vice
President in 1997. For more than five years prior to his employment with the
Company, Mr. Rondeau was a senior partner of Freedman, DeRosa & Rondeau, located
in North Adams, Massachusetts, which firm serves as legal counsel to the Company
on various matters. Mr. Rondeau holds a B.A. in Political Science along with a
J.D.
John F. Chiste joined the Company in July 1997 as Treasurer and Chief Financial
Officer. From January 1997 to June 1997, Mr. Chiste was employed by Compscript,
Inc. From December 1992 to January 1997, he served as the Chief Financial
Officer, Secretary and Treasurer of Computer Integration Corporation, a
publicly-held distribution company which provides information products and
services to corporations nationwide. From 1983 through 1992, Mr. Chiste held
various positions with Ernst & Young LLP, most recently serving as a Senior
Manager. Mr. Chiste holds a B.B.A. in Accounting and is a Certified Public
Accountant.
Allan J. Herz joined the Company in 1992 and was named Director of Mortgage
Operations in September, 1992. Mr. Herz was elected Vice President in 1993. From
1982 to 1992, Mr. Herz worked for AmeriFirst Federal Savings Bank based in
Miami, Florida. During his 10 year tenure with the bank, he held various lending
positions, the most recent being Division Vice President in Consumer Lending.
Mr. Herz holds a B.B.A. and a M.B.A.
Joan A. McCormick joined the Company in 1993 as its Director of Management
Information Systems and was elected Vice President in February, 1995. In 1998,
Ms. McCormick was named Chief Information Officer. Ms. McCormick has over 20
years of experience in information systems management in the real estate, hotel,
banking and manufacturing fields. Prior to joining the Company, Ms. McCormick
was Assistant Vice President MIS for Atlantic Gulf Communities Corporation. She
has also held management positions with Arvida/JMB Partners Ltd., Southeast
Banking Corporation and General Motors Corporation. She holds a B.A. in Business
Administration.
Susan J. Milanese joined the Company in 1988. During her tenure, she has held
various management positions in the Company including Assistant to the Chief
Financial Officer, Divisional Controller and Director of Accounting. In 1995,
she was elected Vice President and Director of Human Resources. From 1983 to
1988, Ms. Milanese was employed by General Electric Company in various financial
management positions including the corporate audit staff. Ms. Milanese holds her
B.B.A in Accounting.
Anthony M. Puleo joined the Company in October 1997 as Chief Accounting Officer.
From December 1990 through October 1997, Mr. Puleo held various positions with
Ernst & Young LLP, most recently serving as a Senior Manager in the Assurance
and Advisory Business Services group. Mr. Puleo holds a B.B.A. in Accounting and
is a Certified Public Accountant.
The Company's By-Laws provide that, except as otherwise provided by law or
the charter and by-laws of the Company, the President, Treasurer and the Clerk
hold office until the first meeting of the Board of Directors following the next
annual meeting of shareholders and until their respective successors are chosen
and qualified and that all other officers hold office for the same period unless
a shorter time is specified in the vote appointing such officer or officers.
Item 2. PROPERTIES.
The Company's principal executive office is located in Boca Raton,
Florida in approximately 53,000 square feet of leased space. On March 29, 1998,
the Company also maintained regional sales offices in the Northeastern,
Mid-Atlantic, Southeastern, Midwestern, Southwestern, Rocky Mountain and Western
regions of the United States as well as the Province of Ontario, Canada and the
island of Aruba.
Item 3. LEGAL PROCEEDINGS.
In the ordinary course of its business, the Company from time to time
becomes subject to claims or proceeding relating to the purchase, subdivision,
sale and/or financing of real estate. Additionally, from time to time, the
Company becomes involved in disputes with existing and former employees. The
Company believes that substantially all of the above are incidental to its
business.
On November 26, 1997, an action was filed in the U.S. District Court for
the Eastern District of Tennessee against the Company. The complaint purports to
be brought on behalf of a class of current and former timeshare sales
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<PAGE>
representative employees of the Company. It asserts claims for violations of the
minimum wage and overtime provisions of the Fair Labor Standards Act. The
Company is in the early stages of evaluating this litigation's potential impact,
if any, on the Company, and accordingly cannot predict the outcome with any
degree of certainty. Although no assurances can be given, the Company does not
believe that any likely outcome will have a material adverse effect on the
Company.
In May 1996, RDI and the RDI Stockholders entered into a letter agreement
(the "Letter Agreement") with certain individuals on behalf of an entity to be
formed by such individuals (the "Prospective Buyer") regarding the proposed
acquisition of RDI. The Letter Agreement indicated, among other things, that the
agreement was binding, the parties proposed to negotiate and execute a
definitive agreement consistent with the Letter Agreement by June 15, 1996 and
that the transaction would close by December 31, 1996. The Letter Agreement also
included an exclusivity provision pursuant to which the parties agreed to
negotiate in good faith exclusively with each other to enter into a definitive
agreement until June 30, 1996. On July 1, 1996, counsel for the Prospective
Buyer forwarded to RDI's counsel a letter which would have extended the June 15,
1996 and June 30, 1996 dates referred to above had it been executed by RDI and
the RDI Stockholders; the letter was not executed by RDI or the RDI
Stockholders. In September 1996, RDI informed the Prospective Buyer that RDI did
not wish to proceed with negotiations. The Prospective Buyer advised RDI in
writing shortly thereafter that, among other things, the Prospective Buyer
believed that the Letter Agreement was a binding agreement for the sale of RDI
and that the Prospective Buyer would assert its alleged right to prevent an
acquisition by RDI by any third party and take action against any such third
party and RDI and the RDI Stockholders. After September 1996, no further
negotiations with respect to the acquisition took place between RDI and the
Prospective Buyer. The Company executed and announced a purchase agreement for
the RDI Acquisition in July 1997 and closed this transaction on October 3, 1997.
To date, the Prospective Buyer has taken no further action. Although no
assurances can be given, the Company believes that any claim by the Prospective
Buyer would be meritless and the Company would defend any such claim vigorously.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The information provided on page 14 of the 1998 Annual Report is incorporated
herein by reference.
The Company has not paid any cash dividends during the last five years and has
not paid any stock dividends since fiscal 1996. The Company does not anticipate
paying any dividends in the foreseeable future. The Company currently
anticipates that it will retain any future earnings for use in its business.
Restrictions contained in the Indenture related to the Company's $110 million 10
1/2% Senior Secured Notes due 2008 issued in April 1998, and certain of the
Company's credit facilities may, in certain instances, limit the payment of cash
dividends on its common stock.
Item 6. SELECTED FINANCIAL DATA.
The information provided on page 15 of the 1998 Annual Report is incorporated
herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information provided under the heading "Management's Discussion and Analysis
of Financial Condition and Results of Operations" on pages 16 through 24 of the
1998 Annual Report is incorporated herein by reference.
Item 7.A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Consolidated Financial Statements of the Company and its subsidiaries and
the related Notes thereto and report of independent certified public accountants
on pages 25 through 38 of the 1998 Annual Report are incorporated herein by
reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
For information with respect to the Company's Directors, see the information
provided under the headings "Proposals 1 and 2 - Fixing of Number of Directors
at Seven and Election of Named Directors" and "Certain Transactions and Other
Information" in the Proxy Statement, which sections are incorporated herein by
reference. Information concerning the executive officers of the Company appears
in Part I of this Annual Report on Form 10-K. The present members of the Board
of Directors of the Company are:
Joseph C. Abeles, Private Investor
George F. Donovan, President and Chief Executive Officer,
Bluegreen Corporation
Ralph A. Foote, Esq., Senior Partner, Conley & Foote
Frederick M. Myers, Esq., Senior Partner, Cain, Hibbard, Myers & Cook
J. Larry Rutherford, President and Chief Executive Officer,
Atlantic Gulf Communities Corporation
Stuart A. Shikiar, President, Shikiar Asset Management Inc.
Bradford T. Whitmore, General Partner, Grace Brothers, Ltd.
Section 16 Compliance
The information provided under the heading "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Proxy Statement is incorporated herein by
reference.
Item 11. EXECUTIVE COMPENSATION.
The information provided under the headings "Proposals 1 and 2 - Fixing of
Number of Directors at Seven and Election of Named Directors," "Board of
Directors and its Committees," "Compensation Committee Report on Executive
Compensation", "Compensation of Chief Executive Officer", "Executive
Compensation" and "Certain Transactions and Other Information" in the Company's
Proxy Statement is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information provided under the heading "Proposals 1 and 2 - Fixing of
Number of Directors at Seven and Election of Named Directors" in the Proxy
Statement is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information provided under the headings "Proposals 1 and 2 - Fixing of
Number of Directors at Seven and Election of Named Directors," "Executive
Compensation" and "Certain Transactions and Other Information" in the Proxy
Statement is incorporated herein by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) and (a)(2) List of Financial Statements and Schedules.
1. The following Consolidated Financial Statements and Notes thereto of the
Company and its subsidiaries and the report of independent certified public
accountants relating thereto, included in the 1998 Annual Report on pages
25 through 38 are incorporated by reference into Item 8 hereof: Page
Consolidated Balance Sheets as of March 30, 1997 and March 29, 1998 25
Consolidated Statements of Operations for each of the three years
in the period ended March 29, 1998 26
Consolidated Statements of Shareholders' Equity for each of the
three years in the period ended March 29, 1998 27
Consolidated Statements of Cash Flows for each of the three years in
the period ended March 29, 1998 28
Notes to Consolidated Financial Statements 29
Report of Independent Certified Public Accountants 38
17
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2. All financial statement schedules are omitted because they are not
applicable, are not present in amounts sufficient to require submission of
the schedules or the required information is presented in the Consolidated
Financial Statements or related notes.
(a)(3) List of Exhibits.
The exhibits which are filed with this Annual Report on Form 10-K or which are
incorporated herein by reference are set forth in the Exhibit Index which
appears at pages 20 through 22 hereof.
(b) Reports on Form 8-K.
The Company filed a Current Report on Form 8-K dated March 12, 1998, reporting
under Item 5 thereof the issuance of a press release, pursuant to Rule 135c
under the Securities Act of 1933, in connection with a proposed unregistered
offering of $100 million in aggregate principal amount of Senior Secured Notes
due 2008.
The Company filed a Current Report on Form 8-K dated April 6, 1998, reporting
under Item 5 thereof that the proposed offering previously reported on March 12,
1998 had been consummated with $110 million of aggregate principal of Senior
Secured Notes being issued.
(c) Exhibits.
See (a)(3) above.
(d) Financial Statement Schedules.
All financial statement schedules are omitted because they are not applicable,
are not present in amounts sufficient to require submission of the schedules or
the required information is presented in the Consolidated Financial Statements
or related notes.
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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.
BLUEGREEN CORPORATION
(Registrant)
Date: June 26, 1998 By: /S/ GEORGE F. DONOVAN
-----------------------------------------
George F. Donovan
President and Chief Executive Officer
Date: June 26, 1998 By: /S/ JOHN F. CHISTE
-----------------------------------------
John F. Chiste,
Treasurer and Chief Financial Officer
(Principal Financial Officer)
Date: June 26, 1998 By: /S/ ANTHONY M. PULEO
-----------------------------------------
Anthony M. Puleo,
Chief Accounting Officer
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on the 26th day of June, 1998.
Signature Title
/S/ GEORGE F. DONOVAN President, Chief Executive Officer and Director
- ---------------------------
George F. Donovan
/S/ JOHN F. CHISTE Treasurer and Chief Financial Officer
- --------------------------- (Principal Financial Officer)
John F. Chiste
/S/ ANTHONY M. PULEO Chief Accounting Officer
- --------------------------- (Principal Accounting Officer)
Anthony M. Puleo
/S/ JOSEPH C. ABELES Director
- ---------------------------
Joseph C. Abeles
/S/ RALPH A. FOOTE Director
- ---------------------------
Ralph A. Foote
/S/ FREDERICK M. MYERS Director and Chairman of the Board
- ---------------------------
Frederick M. Myers
/S/ J. LARRY RUTHERFORD Director
- ---------------------------
J. Larry Rutherford
/S/ STUART A. SHIKIAR Director
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Stuart A. Shikiar
/S/ BRADFORD T. WHITMORE Director
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Bradford T. Whitmore
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Number Description
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3.1 Restated Articles of Organization, as amended (incorporated by
reference to exhibit of same designation to Annual Report on Form 10-K
for the year ended March 31, 1996).
3.2 Restated and amended By-laws of the Registrant (incorporated by
reference to exhibit 3.3 to Annual Report on Form 10-K for the fiscal
year ended April 2, 1995).
4.4 Specimen of Common Stock Certificate (incorporated by reference to
exhibit of same designation to Registration Statement on Form S-1,
File No. 33-13076).
4.6 Form of Indenture dated as of May 15, 1987 relating to the Company's
8.25% Convertible Subordinated Debentures Due 2012, including Form of
Debenture (incorporated by reference to exhibit of same designation to
Registration Statement on Form S-1, File No. 33-13753).
4.7 Indenture dated as of April 1, 1998 by and among the Registrant,
certain subsidiaries of the Registrant, and SunTrust Bank, Central
Florida, National Association, as trustee, for the 10 1/2% Senior
Secured Notes due 2008. (incorporated by reference to exhibit of same
designation to Registration Statement on Form S-4, File No. 333-50717)
10.24 Form of Agreement dated June 27, 1989 between the Registrant and
Peoples Heritage Savings Bank relating to sale of mortgage notes
receivable (incorporated by reference to exhibit of same designation
to Annual Report on Form 10-K for the fiscal year ended April 2,
1989).
10.47 Amended and Restated Loan and Security Agreement entered into as of
January 9, 1990 by Patten Receivables Finance Corporation VI, Finova
Capital Corporation (fka Greyhound Real Estate Finance Corporation)
and the Registrant as Guarantor (incorporated by reference to exhibit
of same designation to Annual Report on Form 10-K for the fiscal year
ended April 1, 1990).
10.53 Modification dated July 16, 1990 of Amended and Restated Loan and
Security Agreement entered into as of January 9, 1990 by Patten
Receivables Finance Corporation VI, Finova Capital Corporation (fka
Greyhound Real Estate Finance Corporation) and the Registrant as
Guarantor (incorporated by reference to exhibit of same designation to
Annual Report on Form 10-K for the fiscal year ended April 1, 1990).
10.58 Amendment No. 2 dated March 23, 1991 to the Amended and Restated Loan
and Security Agreement entered into as of January 9, 1990, by Patten
Receivables Finance Corporation VI, Finova Capital Corporation (fka
Greyhound Real Estate Finance Corporation) and The Registrant as
Guarantor (incorporated by reference to exhibit of same designation to
Annual Report on Form 10-K for the fiscal year ended March 31, 1991).
10.59 Amendment No. 3 dated November 21, 1991 to Amended and Restated Loan
and Security Agreement entered into as of January 9, 1990 by Patten
Receivables Finance Corporation VI, Finova Capital Corporation (fka
Greyhound Real Estate Finance Corporation) and the Registrant as
Guarantor (incorporated by reference to exhibit 10.100 to Annual
Report on Form 10-K for the year ended March 31, 1996).
10.60 Amendment No. 4 dated January 30, 1992 to Amended and Restated Loan
and Security Agreement entered into as of January 9, 1990 by Patten
Receivables Finance Corporation VI, Finova Capital Corporation (fka
Greyhound Real Estate Finance Corporation) and the Registrant as
Guarantor (incorporated by reference to exhibit 10.101 to Annual
Report on Form 10-K for the year ended March 31, 1996).
10.61 Amendment No. 5 dated October, 1992 to Amended and Restated Loan and
Security Agreement entered into as of January 9, 1990 by Patten
Receivables Finance Corporation VI, Finova Capital Corporation (fka
Greyhound Real Estate Finance Corporation) and the Registrant as
Guarantor (incorporated by reference to exhibit 10.102 to Annual
Report on Form 10-K for the year ended March 31, 1996).
10.62 Amendment No. 6 dated May 12, 1993 to Amended and Restated Loan and
Security Agreement entered into as of January 9, 1990 by Patten
Receivables Finance Corporation VI, Finova Capital Corporation (fka
Greyhound Real Estate Finance Corporation) and the Registrant as
Guarantor (incorporated by reference to exhibit 10.88 to Annual Report
on Form 10-K for the fiscal year ended March 27, 1994).
20
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10.63 Amendment No. 7 dated February 18, 1994 to Amended and Restated Loan
and Security Agreement entered into as of January 9, 1990 by Patten
Receivables Finance Corporation VI, Finova Capital Corporation (fka
Greyhound Real Estate Finance Corporation) and the Registrant as
Guarantor (incorporated by reference to exhibit 10.89 to Annual Report
on Form 10-K for the fiscal year ended March 27, 1994).
10.64 Amendment No. 8 dated March 25, 1994 to Amended and Restated Loan and
Security Agreement entered into as of January 9, 1990 by Patten
Receivables Finance Corporation VI, Finova Capital Corporation (fka
Greyhound Real Estate Finance Corporation) and the Registrant as
Guarantor (incorporated by reference to exhibit 10.103 to Annual
Report on Form 10-K for the year ended March 31, 1996).
10.65 Amendment No. 9 dated June 29, 1994 to Amended and Restated Loan and
Security Agreement entered into as of January 9, 1990 by Patten
Receivables Finance Corporation VI, Finova Capital Corporation (fka
Greyhound Real Estate Finance Corporation) and the Registrant as
Guarantor (incorporated by reference to exhibit 10.91 to Quarterly
Report on Form 10-Q for the period ended September 25, 1994).
10.66 Amendment No. 10 dated December 14, 1994 to Amended and Restated Loan
and Security Agreement entered into as of January 9, 1990 by Patten
Receivables Finance Corporation VI, Finova Capital Corporation (fka
Greyhound Real Estate Finance Corporation) and the Registrant as
Guarantor (incorporated by reference to exhibit 10.94 to Annual Report
on Form 10-K for the fiscal year ended April 2, 1995).
10.67 Amendment No. 11 dated October 31, 1995 to Amended and Restated Loan
and Security Agreement entered into as of January 9, 1990 by Patten
Receivables Finance Corporation VI, Finova Capital Corporation (fka
Greyhound Real Estate Finance Corporation) and the Registrant as
Guarantor (incorporated by reference to exhibit 10.104 to Annual
Report on Form 10-K for the year ended March 31, 1996).
10.68 Amendment No. 12 dated May 1, 1996 to Amended and Restated Loan and
Security Agreement entered into as of January 9, 1990 by Patten
Receivables Finance Corporation VI, Finova Capital Corporation (fka
Greyhound Real Estate Finance Corporation) and the Registrant as
Guarantor (incorporated by reference to exhibit 10.105 to Annual
Report on Form 10-K for the year ended March 31, 1996).
10.77 Registrant's Amended 1988 Outside Directors Stock Option Plan
(incorporated by reference to exhibit of same designation to Annual
Report on Form 10-K for the fiscal year ended March 29, 1992).
10.78 Registrant's 1988 Amended Outside Director's Stock Option Plan
(incorporated by reference to exhibit to Registration Statement on
Form S-8, File No. 33-61687 ).
10.79 Registrant's 1995 Stock Incentive Plan, as amended.
10.80 Registrant's Retirement Savings Plan (incorporated by reference to
Registration Statement on Form S-8, File No. 33-48075).
10.85 Loan and Security Agreement by and between the Registrant and Foothill
Capital Corporation dated as of October 29, 1993 (incorporated by
reference to exhibit of same designation to Annual Report on Form 10-K
for the fiscal year ended March 27, 1994).
10.93 Stock Purchase Agreement dated as of November 22, 1994 by and among
Harry S. Patten and the Purchasers named therein (incorporated by
reference to exhibit of same designation to Current Report on Form 8-K
dated November 22, 1994).
10.97 Pooling and Servicing Agreement dated as of April 15, 1994, among
Patten Receivables Finance Corporation IX, the Registrant, Patten
Corporation REMIC Trust, Series 1994-1 and First Trust National
Association, as Trustee (incorporated by reference to exhibit 10.84 to
Annual Report on Form 10-K for the fiscal year ended March 27, 1994).
10.98 Pooling and Servicing Agreement dated as of June 15, 1995, among
Patten Receivables Finance Corporation X, the Registrant, Patten
Corporation REMIC Trust, Series 1995-1 and First Trust National
Association, as Trustee (incorporated by reference to exhibit to
Current Report on Form 8-K dated July 12, 1995).
10.99 Pooling and Servicing Agreement dated as of April 15, 1996, among
Bluegreen Receivables Finance Corporation I, the Registrant, Bluegreen
Corporation REMIC Trust, Series 1996-1 and First Trust National
Association, as Trustee (incorporated by reference to exhibit to
Current Report on Form 8-K dated May 15, 1996).
21
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10.100 Pooling and Servicing Agreement dated as of November 15, 1996, among
Bluegreen Receivables Finance Corporation II, the Registrant,
Bluegreen Corporation REMIC Trust, Series 1996-2 and First Trust
National Association, as Trustee (incorporated by reference to exhibit
to Current Report on Form 8-K dated Decenber 11, 1996).
10.107 Loan and Security Agreement by and between Heller Financial, Inc. and
Bluegreen Resorts, Inc. (fka Patten Resorts, Inc.) dated February 28,
1996 (incorporated by reference to exhibit of same designation to
Annual Report on Form 10-K for the year ended March 31, 1996).
10.108 First Amendment dated February 27, 1997 to Loan and Security Agreement
by and between Heller Financial, Inc. and Bluegreen Resorts, Inc. (fka
Patten Resorts, Inc.) dated February 28, 1996 (incorporated by
reference to exhibit of same designation to Annual Report on Form 10-K
for the year ended March 31, 1996).
10.123 Exchange and Registration Rights Agreement dated April 1, 1998, by and
among the Registrant and the persons named therein, relating to the 10
1/2 % Senior Secured Notes due 2008. (incorporated by reference to
exhibit of same designation to Registration Statement on Form S-4,
File No. 333-50717)
10.124 Employment Agreement between George F. Donovan and the Company dated
March, 1998. (incorporated by reference to exhibit of same designation
to Registration Statement on Form S-4, File No. 333-50717)
10.125 Employment Agreement between John F. Chiste and the Company dated
March, 1998. (incorporated by reference to exhibit of same designation
to Registration Statement on Form S-4, File No. 333-50717)
10.126 Employment Agreement between L. Nicolas Gray and the Company dated
March, 1998. (incorporated by reference to exhibit of same designation
to Registration Statement on Form S-4, File No. 333-50717)
10.127 Employment Agreement between Daniel C. Koscher and the Company dated
March, 1998. (incorporated by reference to exhibit of same designation
to Registration Statement on Form S-4, File No. 333-50717)
10.128 Employment Agreement between Patrick E. Rondeau and the Company dated
March, 1998. (incorporated by reference to exhibit of same designation
to Registration Statement on Form S-4, File No. 333-50717)
10.129 Amended and Restated Credit Facility Agreement entered into as of
April 16, 1998 between Finova Capital Corporation and the Registrant.
(incorporated by reference to exhibit of same designation to
Registration Statement on Form S-4, File No. 333-50717)
10.130 Amended and Restated Loan and Security Agreement dated as of September
23, 1997 between Foothill Capital Corporation and the Registrant.
(incorporated by reference to exhibit of same designation to
Registration Statement on Form S-4, File No. 333-50717)
10.131 Registrant's 1998 Non-Employee Director Stock Option Plan.
13.1 Portions of the 1998 Annual Report.
21.1 List of Subsidiaries. (incorporated by reference to exhibit of same
designation to Registration Statement on Form S-4, File No. 333-50717)
23.1 Consent of Ernst & Young LLP.
27.1 Financial Data Schedule.
22
EXHIBIT 10.79
BLUEGREEN CORPORATION
1995 STOCK INCENTIVE PLAN
(as amended June 4, 1998)
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1. Purpose. The purpose of the Bluegreen Corporation 1995 Stock Incentive
Plan (the "Plan") is to advance the interests of Bluegreen Corporation (the
"Company") and its present and future Affiliates by strengthening the ability of
the Company and its Affiliates to attract, retain and motivate employee and
consultants to and independent contractors of the Company and its Affiliates by
providing incentives, opportunities and favorable terms for them to acquire
stock of the Company and to receive other Awards.
The Plan shall be administered by the Board of Directors of the Company
(the "Board"). The Board shall have the right, at its discretion, to delegate
any and all of its powers under the Plan to the Compensation Committee of the
Board, or such other committees or persons designated by the Board (such
Compensation Committee or other committee or persons designated by the Board is
hereinafter referred to as the "Committee"), as provided in and subject to
Section 14. In the event that the Board appoints a Committee to administer the
Plan, in whole or in part, the Committee's determinations with respect thereto
shall not be subject to approval by the Board. References in the Plan to the
Committee shall be deemed to refer to the Board to the extent the Board has not
delegated administration of the Plan to the Committee, and any references to the
Board shall be deemed references to the Committee if the Board has delegated its
powers.
2. Participation. The Committee shall have exclusive power (except as may
be delegated by the Committee as permitted herein) to select the employees and
other individuals performing services for the Company and its Affiliates who
shall be eligible individuals who may participate in the Plan and be granted
Awards under the Plan. Eligible individuals may be selected individually or by
groups or categories, as determined by the Committee in its discretion. As used
herein the term "Participant" means each eligible individual to whom an Award
has been made under any provision of the Plan.
3. Awards Under the Plan.
3.1 Types of Awards. Awards under the Plan ("Awards") may include, but need
not be limited to, one or more of the following types, either alone or in any
combination thereof: (i) Stock Options; (ii) Restricted Stock; (iii)
Unrestricted Stock; (iv) Performance Shares; (v) Loans; (vi) Supplemental Cash
Grants; and (viii) any other type of Award deemed by the Committee in its
discretion to be consistent with the purposes of the Plan.
Stock Options, which include "Nonqualified Stock Options" and "Incentive
Stock Options" or combinations thereof, are rights to purchase shares of the
common stock of the Company
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("Shares" or "Stock"). Nonqualified Stock Options and Incentive Stock Options
are subject to the terms, conditions and restrictions specified in Section 4.
Restricted Stock are Shares which are issued subject to terms, conditions and
restrictions specified in Section 5. Unrestricted Stock are Shares issued
without restrictions as described in Section 5. Performance Shares are
contingent awards, subject to terms, conditions and restrictions described in
Section 6, under which the Participant may become entitled to receive cash,
Shares, Other Securities, or other forms of payment, or any combination thereof,
as determined by the Committee. Loans and Supplemental Cash Grants are other
Awards which may be made subject to the terms described in Section 7.
3.2 Maximum Number of Shares That May be Issued. There may be issued under
the Plan (as Restricted Stock or Unrestricted Stock, in payment of Performance
Shares, pursuant to the exercise of Stock Options, or in payment of or pursuant
to the exercise of other Awards) up to an aggregate of 3,000,000 Shares, subject
to adjustment as provided in Section 12. Shares issued pursuant to the Plan may
be either authorized but unissued Shares, treasury Shares, reacquired Shares, or
any combination thereof. If any Shares issued as Restricted Stock or otherwise
subject to repurchase or forfeiture rights are reacquired by the Company
pursuant to such rights, or if any Stock Option or other Award (other than Stock
Options or other Awards issued in respect of such Assumed Options) is canceled,
terminates or expires unexercised, or if any Award payable in Stock or cash
(other than Stock Options or other Awards issued in respect of such Assumed
Options) is satisfied in cash rather than Stock, any Shares that would otherwise
have been issuable pursuant thereto will be available for issuance under new
Awards.
3.3 Rights With Respect to Shares and Other Securities.
(a) Unless otherwise determined by the Committee in its discretion, a
Participant to whom an Award of Restricted Stock has been made (and any person
succeeding to such a Participant's rights pursuant to the Plan) shall have,
after issuance of a certificate for the number of Shares awarded and prior to
the expiration of the Restricted Period (as defined in Section 5) or the earlier
repurchase of such Shares as herein provided, ownership of such Shares,
including the right to vote the same and to receive dividends or other
distributions made or paid with respect to such Shares (provided that such
Shares, and any new, additional or different Shares, or Other Securities, or
other forms of consideration which the Participant may be entitled to receive
with respect to such Shares as a result of a stock split, stock dividend or any
other change in the capital structure of the Company, shall be subject to the
restrictions hereinafter described as determined by the Committee in its
discretion), subject, however, to the options, restrictions and limitations
imposed thereon pursuant to the Plan. Notwithstanding the foregoing, a
Participant with whom any agreement is made to issue Shares in the future, shall
have no rights as a shareholder with respect to Shares related to such agreement
until issuance of a certificate to him.
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(b) Unless otherwise determined by the Committee in its discretion, a
Participant to whom a grant of Stock Options, Performance Shares or any other
Award is made (and any person succeeding to such a Participant's rights pursuant
to the Plan) shall have no rights as a shareholder with respect to any Shares or
as a holder with respect to Other Securities, if any, issuable pursuant to any
such Award until the date of the issuance of a stock certificate to him for such
Shares or other instrument of ownership, if any. Except as provided in Section
12, no adjustment shall be made for dividends, distributions or other rights for
which the record date is prior to the date such stock certificate or other
instrument of ownership, if any, is issued.
3.4 Definitions of Certain Terms. Whenever the "Fair Market Value" of
Shares or Other Securities or any other property must be determined pursuant to
any provisions of the Plan, "Fair Market Value" shall be the amount determined
by the Committee as follows:
(i) if the Stock or Other Securities or other property are then traded
on a securities exchange, the closing sale price on the principal market on
which the Stock or Other Securities or other property are traded on the
date in question (or if such price is not available on such date, on the
business day closest to such date for which such price is available); or
(ii) if the Stock or Other Securities or other property are then
traded in the over-the-counter market, the mean between the closing bid and
asked price of the Stock or Other Securities or other property on the date
in question (or if such prices are not available on such date, on the
business day closest to such date for which such prices are available), as
such price is reported in a publication of general circulation selected by
the Committee; or
(iii) if the Stock or Other Securities or other property are not then
actively traded on an exchange or in the over-the-counter market, the
amount determined in good faith by the Committee.
As used herein, a "subsidiary corporation" is any corporation of which the
Company is the owner of at least 50% of the total combined voting power of all
classes of stock of such corporation. "Affiliate" means any entity in which the
Company or any subsidiary corporation has a substantial direct or indirect
equity interest.
An "eligible individual" shall be deemed to refer to any person eligible to
receive an Award under the Plan and shall include (1) employees and (2)
individuals performing services as non-employee independent contractors.
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"Section 162(m) employee" means a Participant who, as of the date of
vesting and/or payout of an Award, is one of the group of "covered employees,"
as defined in regulations promulgated under Section 162(m) of the Code.
For purposes of this Plan, a Participant shall be deemed to have terminated
his employment or performance of services for the Company and its Affiliates by
reason of "Disability" if he is unable to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
which can be expected to result in death or which has lasted or can be expected
to last for a continuous period of not less than twelve (12) months, or the
Participant has incurred total and permanent disability as determined under the
provisions of a Company long-term disability program which is applicable to the
Participant.
"Cause" means a felony conviction of a Participant or the failure of a
Participant to contest prosecution for a felony, or a Participant's misconduct
or dishonesty, any of which is directly and materially harmful to the business
or reputation of the Company or any Affiliate.
"Retirement" means the Participant's retirement from active employment with
the Company or an Affiliate (or ceasing to provide services as an independent
contractor) within or after the calendar year the Participant attains age sixty
(60).
4. Stock Options. The Committee may grant Stock Options either alone, or in
conjunction with Performance Shares or other Awards, either at the time of grant
or by amendment thereafter, provided that an Incentive Stock Option may be
granted only to an employee of the Company or its parent or subsidiary
corporation. Incentive Stock Options are Stock Options which are intended to
meet the requirements of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"). Each Stock Option granted under the Plan shall be
evidenced by an instrument ("Option Agreement") in such form as the Committee
shall prescribe from time to time in accordance with the Plan which shall comply
with the terms and conditions specified in this Section 4 and with such other
terms and conditions, including, but not limited to, restrictions upon the Stock
Option or the Shares issuable upon exercise thereof, as the Committee, in its
discretion, shall establish.
4.1 Option Price. The option price may be less than, equal to, or greater
than, the Fair Market Value of the Shares subject to the option at the time the
Stock Option is granted, as determined by the Committee, but in no event will
the option price be less than 50% of the Fair Market Value of the underlying
Shares at the time the Stock Option is granted; provided, however, that in the
case of an Incentive Stock Option, the option price shall not be less than the
Fair Market Value of the Shares at the time the Incentive Stock Option is
granted, or if granted to an employee who owns stock representing more than ten
percent of the voting power of all classes of stock of the Company or of its
parent or subsidiary corporation (a "10% Employee"), such option price shall not
be less than 110% of such Fair Market Value at the time the Incentive
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Stock Option is granted; and provided, further, that in the case of any Stock
Option intended to satisfy the "performance-based" exemption under Section
162(m) of the Code, the option price shall not be less than the Fair Market
Value of the Share at the time the Stock Option is granted. However, in no event
will the option price be less than the par value of such Shares.
4.2 Number of Option Shares. The Committee shall determine the number of
Shares to be subject to each Stock Option; provided, however, that if the
Committee determines that a Stock Option should satisfy the "performance-based"
exemption under Section 162(m) of the Code, the maximum number of Shares subject
to Stock Options which may be granted to any single Participant during any
calendar year is one hundred fifty thousand (150,000). The number of Shares
subject to an outstanding Stock Option may be reduced on a share-for-share or
other appropriate basis, as determined by the Committee, to the extent that
Shares under the Stock Option are used to calculate the cash, Shares, Other
Securities, or other forms of payment, or any combination thereof, to the extent
that any other Award granted in conjunction with such Stock Option is paid.
4.3 Nontransferability of Stock Options. A Stock Option may not be sold,
assigned, transferred, pledged, or otherwise disposed of by the optionee, except
by will or the laws of descent and distribution, and shall be exercisable during
the optionee's lifetime only by the optionee.
4.4 Exercisability of Stock Options. A Stock Option shall not be
exercisable, as follows:
(a) in the case of any Incentive Stock Option granted to a 10%
Employee, after the expiration of five (5) years from the date it is
granted, and in the case of any other Incentive Stock Option or any
Nonqualified Stock Option, after the expiration of ten (10) years from the
date it is granted; any Stock Option may be exercised during such period
only at such time or times and in such installments as the Committee may
establish in the Option Agreement;
(b) unless payment in full is made for the Share at the time of
exercise and such payment shall be made in such form (including, but not
limited to, cash, check, or, if permitted by the Committee in the Option
Agreement, by delivery to the Company of Shares, or a promissory note, or
an irrevocable undertaking by a broker to deliver to the Company sufficient
funds to pay the exercise price, or the surrender of another outstanding
Award under the Plan, or any combination thereof) as the Committee may
determine in its discretion;
(c) unless the person exercising the Stock Option has been, at all
times during the period beginning with the date of the grant of the Stock
Option and ending on the date of such exercise, employed by, otherwise
performing services for the Company or
5
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an Affiliate, or a corporation substituting or assuming the Stock Option in
a transaction to which Section 424(a) of the Code is applicable, except
that:
(i) unless otherwise provided in the Option Agreement, if the
optionee ceases to perform services for the Company or an Affiliate
because of Retirement or Disability, any unvested Stock Option or
portion thereof shall fully vest, and following such Retirement or
Disability the Participant may at any time within a period of three
(3) years from the date of such Retirement or Disability exercise the
Stock Option;
(ii) unless otherwise provided in the Option Agreement, if the
optionee ceases to perform services for the Company or an Affiliate
because of his death, any unvested Stock Option or portion thereof
shall fully vest, and his estate, personal representative or
Beneficiary to whom it has been transferred pursuant to Section 13 may
at any time within a period of three (3) years from the date of the
Participant's death exercise the Stock Option;
(iii) if the optionee ceases to perform services for the Company
or an Affiliate for Cause, all Stock Options shall immediately expire
and cease to be vested or exercisable, and the optionee shall have no
further rights or claims with respect thereto; and
(iv) unless otherwise provided in the Option Agreement, if the
optionee ceases to perform services for the Company or an Affiliate
for any reason other than death, Disability or Retirement, or for
Cause, any Stock Option or portion thereof which was not vested and
exercisable shall immediately terminate and the optionee shall have no
further rights or claims with respect thereto, and the Participant may
at any time within a period of thirty (30) days from the date of such
termination exercise the Stock Option to the extent that the Stock
Option was exercisable by him on the date he ceased to perform
services;
provided, however, that the Committee may provide specifically in the
Option Agreement for such other period of time during which an optionee may
exercise a Stock Option after termination of the optionee's services,
subject to the overriding limitation that no Stock Option may be exercised
to any extent by anyone after the date of expiration of the Stock Option.
In the event that an Incentive Stock Option is exercised by an optionee
after the exercise period that applies for purposes of treatment as an incentive
stock option under Section 422 of the Code, such Stock Option shall thereafter
be treated as a Nonqualified Stock Option.
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4.5. Restrictions on Incentive Stock Options. In the case of an Incentive
Stock Option, the amount of aggregate Fair Market Value of Shares (determined at
the time of grant of the Stock Option pursuant to Section 4.1) with respect to
which incentive stock options are exercisable for the first time by an employee
during any calendar year (under all such plans of the Company) shall not exceed
$100,000. To the extent the limitation in the preceding sentence would be
exceeded with respect to any portion of a Stock Option otherwise first becoming
exercisable for any year in accordance with the vesting schedule established for
an optionee, the Committee may determine at the time of grant that vesting with
respect to such excess amount shall be deferred until the first subsequent year
that such excess amount (or any part thereof) can become exercisable within the
limitation of the preceding sentence or, in the alternative, that such excess
amount become vested as a Nonqualified Stock Option.
4.6. Restrictions on Shares. Shares purchased by an optionee upon exercise
of a Stock Option may be subject to such transfer and repurchase restrictions
(including without limitation transfer and repurchase restrictions like those
which may be applicable to Restricted Stock under the provisions of Section 5)
as the Committee in its sole discretion shall establish in the Option Agreement.
5. Restricted Stock and Unrestricted Stock. Each Award of Restricted Stock
under the Plan shall be evidenced by an instrument ("Restricted Stock
Agreement") in such form as the Committee shall prescribe from time to time in
accordance with the Plan which shall comply with the terms and conditions
specified in this Section 5, and with such other terms and conditions as the
Committee, in its discretion, shall establish.
5.1. Number of Shares of Restricted Stock. The Committee shall determine
the number of Shares to be issued to a Participant pursuant to the Award of
Restricted Stock, and the extent, if any, to which they shall be issued in
exchange for cash, other consideration, or both; provided, however, that if the
Committee determines that an Award of Restricted Stock should satisfy the
"performance-based" exemption under Section 162(m) of the Code, the maximum
number of Shares of Restricted Stock which may be granted to any single
Participant during any calendar is one hundred fifty thousand (150,000) and
provided further that Restricted Stock may not be issued for a price which is
less than the par value of the Shares.
5.2. Restriction on Transfer; Repurchase Option. Shares issued to a
Participant in accordance with the Award of Restricted Stock may not be sold,
assigned, transferred, pledged or otherwise disposed of, except by will or the
laws of descent and distribution, or as otherwise determined by the Committee in
the Restricted Stock Agreement, for such period as the Committee shall determine
from the date on which the Award is granted (the "Restricted Period").
7
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The Company will have the option to repurchase the Shares subject to the
Award at such price as the Committee shall have fixed in the Restricted Stock
Agreement which option will be exercisable:
(i) if the Participant's continuous employment or performance of
services for the Company and its Affiliates shall terminate for any reason
or except as otherwise provided in Section 5.3, prior to the expiration of
the Restricted Period;
(ii) if, on or prior to the expiration of the Restricted Period or the
earlier lapse of such repurchase option, the Participant has not paid to
the Company an amount equal to any federal, state, local or foreign income
or other taxes which the Company determines is required to be withheld in
respect of such Shares; or
(iii) under such other circumstances as determined by the Committee in
its discretion.
Such repurchase option shall be exercisable on such terms, in such manner and
during such period as shall be determined by the Committee in the Restricted
Stock Agreement.
Each certificate for Shares issued pursuant to an Award of Restricted Stock
shall bear an appropriate legend referring to the foregoing repurchase option
and other restrictions; shall be deposited by the awardholder with the Company,
together with a stock power endorsed in blank; or shall be evidenced in such
other manner permitted by applicable law as determined by the Committee in its
discretion. Any attempt to dispose of any such Shares in contravention of the
foregoing repurchase option and other restrictions shall be null and void and
without effect.
If Shares issued pursuant to an Award of Restricted Stock shall be
repurchased pursuant to the repurchase option described above, the Participant,
or in the event of his death, his personal representative, shall forthwith
deliver to the Secretary or Clerk of the Company the certificates for the Shares
awarded to the Participant, accompanied by such instrument of transfer, if any,
as may reasonably be required by the Secretary of the Company. If the repurchase
option described above is not exercised by the Company, such option and the
restrictions imposed pursuant to the first paragraph of this Section 5.2 shall
terminate and be of no further force and effect.
5.3. Termination of Services Under Certain Circumstances. If a Participant
who has been in continuous employment or performance of services for the Company
or an Affiliate since the date on which an Award of Restricted Stock was granted
to him shall, while in such employment, performance of services, die, or
terminate such employment, or performance of services by reason of Disability or
Retirement and any of such events shall occur prior to the end of the Restricted
Period of such Award, the Committee may determine to cancel the repurchase
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option (and any and all other restrictions) on any or all of the Shares subject
to such Award; and the repurchase option shall become exercisable at such time
as to the remaining Shares, if any.
5.4. Other Restrictions. The Committee shall impose such other conditions
and/or restrictions on Restricted Stock as it may deem advisable including,
without limitation, a requirement that Participants pay a stipulated purchase
price therefor, restrictions based upon the achievement of specific performance
goals (Company-wide, divisional and/or individual) and/or restrictions under
applicable federal or state securities laws.
Unless and until the Committee proposes for stockholder vote a change in
the general performance measures set forth below, the attainment of which shall
determine the number of Shares of Restricted Stock that become vested under the
Plan, the performance measure(s) to be used for purposes of grants to Section
162(m) employees shall be selected from among the following alternatives:
(a) Return on invested capital in relation to target objectives.
(b) Share earnings/earnings growth in relation to target objectives.
(c) Cash flow/cash flow growth in relation to target objectives.
In the event that applicable tax and/or securities laws change to permit
Committee discretion to alter the governing performance measures without
obtaining stockholder approval of such changes, the Committee shall have sole
discretion to make such changes without obtaining stockholder approval. In
addition, in the event that the Committee determines that it is advisable to
grant Restricted Stock that shall not qualify for the "performance-based"
exemption under Section 162(m) of the Code, the Committee may make grants which
do not qualify for such exemption.
5.5. Notice of Election Under Section 83(b). A Participant making an
election under Section 83(b) of the Code with respect to Restricted Stock must
provide a copy thereof to the Company within ten (10) days of the filing of such
election with the Internal Revenue Service.
5.6. Unrestricted Stock. The Committee may, in its discretion, approve the
sale and transfer to a Participant of Shares free of any transfer restriction or
repurchase options ("Unrestricted Stock") for a price which is not less than the
par value of the Shares.
6. Performance Shares. The Award of Performance Shares ("Performance Share
Grant") to a Participant will entitle him to receive a specified amount
determined by the Committee (the "Value"), if the terms and conditions specified
herein and in the Award are satisfied. Each Performance Share Grant shall be
subject to the terms and conditions specified in this Section 6, and to such
other terms and conditions, including but not limited to, restrictions
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upon any cash, Shares, Other Securities, or other forms of payment, or any
combination thereof, issued in respect of the Performance Share Grant, as the
Committee, in its discretion, shall establish, and shall be embodied in an
instrument (a "Performance Share Agreement") in such form and substance as is
determined by the Committee.
6.1. Description of Performance Shares. The Committee shall determine the
Value or range of a Performance Share Grant to be awarded to each Participant
selected for such an Award and whether or not such a Performance Share Grant is
granted in conjunction with an Award of Stock Options, Restricted Stock or other
Award, or any combination thereof, under the Plan (which may include, but need
not be limited to, deferred Awards) concurrently or subsequently granted to the
Participant (the "Associated Award"). If the Committee determines that a grant
of Performance Shares should satisfy the "performance-based" exemption under
Section 162(m) of the Code, the maximum payout to any Section 162(m) employee
with respect to Performance Shares granted in any one calendar year shall be
five hundred thousand dollars ($500,000).
As determined by the Committee in the Performance Share Agreement, the
maximum value of each Performance Share Grant (the "Maximum Value") shall be:
(i) an amount fixed by the Board at the time the Award is made or amended
thereafter; (ii) an amount which varies from time to time based in whole or in
part on the then current value of a Share, Other Securities or property, or any
combination thereof; or (iii) an amount that is determinable from criteria
specified by the Committee.
Performance Share Grants may be issued in different classes or series
having different names, terms and conditions. In the case of a Performance Share
Grant awarded in conjunction with an Associated Award, the Performance Share
Grant may be reduced on an appropriate basis to the extent that the Associated
Award has been exercised, paid to or otherwise received by the Participant, as
determined by the Committee.
6.2. Performance Objectives. The award period in respect of any Performance
Share Grant shall be a period determined by the Committee. At the time each
Award is made, the Committee shall establish performance objectives to be
attained within the award period as the means of determining the Value of such a
Performance Share Grant. The performance objectives shall be based on such
measure or measures of performance, which may include, but need not be limited
to, the performance of the Participant, the Company, one or more of its
subsidiaries or one or more of their divisions or units, or any combination of
the foregoing, as the Committee shall determine, and may be applied on an
absolute basis or be relative to industry or other indices, or any combination
thereof.
The Value of a Performance Share Grant shall be equal to its Maximum Value
only if the performance objectives are attained in full, but the Committee shall
specify the manner in which the Value of Performance Share Grants shall be
determined if the performance objectives are met
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in part. Such performance measures, the Value or the Maximum Value, or any
combination thereof, may be adjusted in any manner by the Committee in its
discretion at any time and from time to time during or as soon as practicable
after the award period, if it determines that such performance measures, the
Value or the Maximum Value, or any combination thereof, are not appropriate
under the circumstances.
Notwithstanding the foregoing, unless and until the Committee proposes for
stockholder vote a change in the general performance measures set forth below,
the attainment of which shall serve as a basis for the determination of the
number and/or value of Performance Shares granted under the Plan, the
performance measure(s) to be used for purposes of grants to Section 162(m)
employees shall be selected from among the following alternatives:
(a) Return on invested capital in relation to target objectives.
(b) Share earnings/earnings growth in relation to target objectives.
(c) Cash flow/cash flow growth in relation to target objectives.
In the event that applicable tax and/or securities laws change to
permit Committee discretion to alter the governing performance measures without
obtaining stockholder approval of such changes, the Committee shall have sole
discretion to make such changes without obtaining stockholder approval. In
addition, in the event that the Committee determines that it is advisable to
grant Restricted Stock that shall not qualify for the "performance-based"
exemption under Section 162(m) of the Code, the Committee may make grants which
do not qualify for such exemption.
6.3. Effect of Termination of Services. The rights of a Participant in
Performance Shares awarded to him shall be provisional and may be canceled or
paid in whole or in part, all as determined by the Committee, if the
Participant's employment or performance of services for the Company and its
Affiliates shall terminate for any reason prior to the end of the award period.
6.4. Payment of Performance Shares. The Committee shall determine whether
the conditions of Section 6.1 or 6.2 have been met and, if so, shall ascertain
the Value of the Performance Share Grants. If the Performance Share Grants have
no Value, the Award and such Performance Share Grants shall be deemed to have
been canceled and the Associated Award, if any, may be canceled or permitted to
continue in effect in accordance with its terms. If the Performance Share Grants
have any Value and:
(i) were not awarded in conjunction with an Associated Award, the
Committee shall cause an amount equal to the Value of the Performance Share
Grants earned by the Participant to be paid to him or his Beneficiary as
provided below; or
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(ii) were awarded in conjunction with an Associated Award, the
Committee shall determine, in accordance with criteria specified by the
Board, (A) to cancel the Performance Share Grants, in which event no amount
in respect thereof shall be paid to the Participant or his Beneficiary, and
the Associated Award may be permitted to continue in effect in accordance
with its terms, (B) to pay the Value of the Performance Share Grants to the
Participant or his Beneficiary as provided below, in which event the
Associated Award may be canceled, or (C) to pay to the Participant or his
Beneficiary as provided below, the Value of only a portion of the
Performance Share Grants, in which event all or a portion of the Associated
Award may be permitted to continue in effect in accordance with its terms
or be canceled, as determined by the Committee.
Such determination by the Committee shall be made as promptly as practicable
following the end of the award period or upon the earlier termination of
employment or performance of services, or at such other time or times as the
Committee shall determine, and shall be made pursuant to criteria specified by
the Committee.
Payment of any amount in respect of the Performance Shares which the
Committee determines to pay as provided above shall be made by the Company as
promptly as practicable after the end of the award period or at such other time
or times as the Committee shall determine, and may be made in cash, Shares,
Other Securities, or other forms of payment, or any combination thereof, or in
such other manner, as determined by the Committee in its discretion.
Notwithstanding anything in this Section 6 to the contrary, the Committee may,
in its discretion, determine and pay out the Value of the Performance Shares at
any time during the award period.
7. Loans; Supplemental Cash Grants; Other Awards.
7.1. Loans. The Company may make a loan to a Participant ("Loan"), either
on the date of or after the grant of any Award to the Participant. A Loan may be
made either in connection with the purchase of Stock under the Award or with the
payment of any federal, state and local income tax with respect to income
recognized as a result of the Award. The Committee will have full authority to
decide whether to make a Loan and to determine the amount, terms and conditions
of the Loan, including the interest rate, whether the Loan is to be secured or
unsecured or with or without recourse against the borrower, the terms on which
the Loan is to be repaid and the conditions, if any, under which it may be
forgiven. However, no Loan may have a term (including extensions) exceeding ten
(10) years in duration.
7.2. Supplemental Cash Grants. In connection with any Award, the Committee
may at the time such Award is made or at a later date, provide for and grant a
cash award to the Participant ("Supplemental Cash Grant") not to exceed an
amount equal to (i) the amount of any federal, state and local income tax on
ordinary income for which the Participant may be liable
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with respect to the Award, determined by assuming taxation at the highest
marginal rate, plus (ii) an additional amount on a grossed-up basis intended to
make the Participant whole on an after-tax basis after discharging all the
Participant's income tax liabilities arising from all payments under this
Section 7.2. Any payments under this Section 7.2 will be made at the time the
Participant incurs federal income tax liability with respect to the Award.
7.3. Other Awards. In addition to the types of Awards specifically
described in the foregoing provisions of the Plan, the Committee may in its
discretion determine, describe and award or grant any other type of Award which
is consistent with the terms and purposes of the Plan. Such Awards may include
special Awards relating to a single eligible individual and Awards made pursuant
to special or recurring plans or programs covering groups of eligible
individuals.
8. Deferral of Compensation. The Committee shall determine whether or not
an Award shall be made in conjunction with deferral of the Participant's salary,
bonus or other compensation, or any combination thereof, and whether or not such
deferred amounts may be (i) forfeited to the Company or to other Participants,
or any combination thereof, under certain circumstances (which may include, but
need not be limited to, certain types of termination of employment or
performance of services for the Company and its Affiliates), (ii) subject to
increase or decrease in value based upon the attainment of or failure to attain,
respectively, certain performance measures, and/or (iii) credited with
investment equivalents (which may include, but need not be limited to, interest,
dividends or other rates of return) until the date or dates of payment of the
Award, if any.
9. Deferred Payment of Awards. The Committee may specify that the payment
of all or any portion of cash, Shares, Other Securities, or any other form of
payment, or any combination thereof, under an Award shall be deferred until a
later date. Deferrals shall be for such periods or until the occurrence of such
events, and upon such terms, as the Committee shall determine in its discretion.
Deferred payments of Awards may be made by undertaking to make payment in the
future based upon the performance of certain investment equivalents (which may
include, but need not be limited to, government securities, Shares, Other
Securities, other property, or any combination thereof), together with such
additional amounts of investment equivalents as may be determined by the
Committee in its discretion.
10. Amendment or Substitution of Awards Under the Plan. The terms of any
outstanding Award under the Plan as provided in any instrument may be amended
from time to time by the Committee in its discretion in any manner that it deems
appropriate (including, but not limited to, acceleration of the date of exercise
of any Award and/or payments thereunder); provided that no such amendment shall
adversely affect in a material manner any right of a Participant under the Award
without his written consent, unless the Committee determines in its discretion
that there have occurred or are about to occur significant changes in the
economic,
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legislative, regulatory, tax, accounting or cost/benefit conditions which are
determined by the Committee in its discretion to have or to be expected to have
a substantial effect on the performance of the Company, or any subsidiary,
Affiliate, division or department thereof, on the Plan, or on any Award under
the Plan. The Committee may, in its discretion, permit holders of Awards under
the Plan to surrender outstanding Awards in order to exercise or realize the
rights under other Awards, or in exchange for the grant of new Awards, or
require holders of Awards to surrender outstanding Awards as a condition
precedent to the grant of new Awards under the Plan.
11. Termination of Services by a Participant. For all purposes under the
Plan, the Committee shall determine whether a Participant has terminated
employment by or the performance of services for the Company and its Affiliates;
provided, however, that transfers between the Company and an Affiliate or
between Affiliates, and approved leaves of absence shall not be deemed such a
termination.
12. Changes in the Company's Capital Structure. The existence of
outstanding Awards shall not affect in any way the right or power of the Company
or its stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's capital
structure or its business or any merger or consolidation of the Company or any
issue of capital stock, bonds, debentures, or Other Securities ahead of or
affecting the Shares or the rights thereof, or the dissolution or liquidation of
the Company, or any sale or transfer of all or any part of its assets or
business, or any other corporate act or proceeding, whether of a similar
character or otherwise.
The number of Shares covered by any outstanding Award and the price per
share thereof shall be appropriately adjusted for any increase or decrease in
the number of issued Shares resulting from the subdivision or consolidation of
Shares or any other similar capital adjustment, the payment of a stock dividend
or any other increase in such Shares effected without receipt of consideration
by the Company or any other decrease therein effected without a distribution of
cash or property in connection therewith, or any other extraordinary or unusual
event similarly affecting the Shares. Any such adjustment shall be made by the
Committee, in its discretion, and such adjustment shall be final, conclusive and
binding for all purposes of the Plan.
In the event the Company merges or consolidates with one or more
corporations and the Company is the surviving corporation, thereafter upon any
exercise of an Award, the holder thereof shall be entitled to purchase or
receive in lieu of the number of Shares as to which the Award relates, the
number and class of shares of stock or securities to which the holder would have
been entitled pursuant to the terms of the agreement of merger or consolidation
if immediately prior to such merger or consolidation, the holder had been the
holder of record of Shares as to which the Award related.
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If the Company is merged into or consolidated with another corporation
under circumstances where the Company is not the surviving corporation, or if
the Company is liquidated or sells or otherwise disposes of substantially all of
its assets to another corporation while unexercised Stock Options or other
Awards remain outstanding under the Plan:
(i) subject to the provisions of clauses (iii), (iv) and (v) below,
after the effective date of such merger, consolidation or sale, as the case
may be, each holder of an outstanding Stock Option or other Award shall be
entitled, upon exercise of such Stock Option or other Award, to receive in
lieu of Shares of the Company, shares of such stock or other securities as
the holders of Shares received pursuant to the terms of the merger,
consolidation or sale; or
(ii) the Committee may waive any discretionary limitations imposed
with respect to the exercise of the Stock Option or other Award so that all
Stock Options or other Awards from and after a date prior to the effective
date of such merger, consolidation, liquidation or sale, as the case may
be, specified by the Committee, shall become fully vested or be exercisable
in full; or
(iii) any or all outstanding Stock Options or other Awards may be
canceled by the Committee as of the effective date of any such merger,
consolidation, liquidation or sale, provided that notice of such
cancellation shall be given to each holder of a Stock Option or other
Award, and each such holder thereof shall have the right to exercise such
Stock Option or other Award in full (without regard to any discretionary
limitations imposed with respect to the Stock Option or other Award) during
a 30-day period preceding the effective date of such merger, consolidation,
liquidation or sale; or
(iv) any or all outstanding Stock Options or other Awards may be
canceled by the Committee as of the date of any such merger, consolidation,
liquidation or sale, provided that notice of such cancellation shall be
given to each holder of a Stock Option or other Award, and each such holder
thereof shall have the right to exercise such Stock Option or other Award
but only to the extent exercisable in accordance with any discretionary
limitations imposed with respect to the Stock Option or other Award prior
to the effective date of such merger, consolidation, liquidation or sale;
or
(v) the Committee may provide for the cancellation of any or all
outstanding Stock Options or other Awards and for the payment to the
holders thereof of some part or all of the amount by which the value
thereof exceeds the payment, if any, which the holder would have been
required to make to exercise such Stock Option or other Award.
Except as hereinbefore expressly provided, the issuance by the Company of
shares of capital stock of any class or securities convertible into shares of
capital stock of any class for cash
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or property or for labor or services either upon direct sale or upon the
exercise of rights or warrants to subscribe therefor, or upon conversion of
shares or obligations of the Company convertible into such shares or other
securities, shall not affect, and no adjustment by reason thereof shall be made
with respect to, the number, class or price of Shares then subject to
outstanding Stock Options or other Awards.
13. Designation of Beneficiary by Participant. Subject to compliance with
applicable securities laws and to the other provisions of this Plan (including
without limitation Section 4.3), a Participant may name a Beneficiary to receive
any benefit or payment to which he may be entitled in respect of any Award under
the Plan in the event of his death, on a written form to be provided by and
filed with the Company, and in a manner determined by the Committee. A
Participant may change his Beneficiary from time to time in the same manner,
unless such Participant has made an irrevocable designation. Any designation of
Beneficiary under the Plan (to the extent it is valid and enforceable under
applicable law) shall be controlling over any other disposition, testamentary or
otherwise, as determined by the Committee in its discretion. If no designated
Beneficiary survives the Participant or is otherwise in existence on the date on
which any amount becomes payable to such Participant's Beneficiary, such payment
will be made to the legal representatives of the Participant's estate, and the
term "Beneficiary" as used in the Plan shall be deemed to include such person or
persons.
14. Administration. The Plan shall be administered by the Compensation
Committee of the Board, or by any other Committee appointed by the Board
consisting of not less than two (2) non-employee Directors (such Compensation
Committee or other Committee appointed by the Board is herein referred to as the
"Committee"). The members of the Committee shall be appointed from time to time
by, and shall serve at the discretion of, the Board. The Committee shall be
comprised solely of Directors who are eligible to administer the Plan pursuant
to Rule 16b-3(c)(2) under the Exchange Act and Prop. Treas. Reg. 1.162-27(e)(3).
However, if for any reason the Committee does not qualify to administer the
Plan, as contemplated by Rule 16b-3(c)(2) under the Exchange Act or Prop. Treas.
Reg. 1.162-27(e)(3), the Board may appoint a new Committee so as to comply with
Rule 16b-3(c)(2) and Prop. Treas. Reg. 1.162-27(e)(3).
The Board or the Committee may delegate the administration of the Plan in
whole or in part, on such terms and conditions, and to such person or persons as
it may determine in its discretion, as it relates to Awards to persons not
subject to Section 16 of the Exchange Act (or any successor provisions) and to
persons who are not Section 162(m) employees.
The Committee shall have full power, except as limited by law, the Articles
of Organization and/or By-Laws of the Company, subject to such other restricting
limitations or directions as may be imposed by the Board from time to time, to
exercise all of the powers vested in it by the terms of the Plan set forth
herein, such powers to include exclusive authority (except as may be delegated
as permitted herein) to select the employees and other individuals
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<PAGE>
to be granted Awards under the Plan, to determine the type, size and terms of
the Award to be made to each individual selected, to modify the terms of any
Award that has been granted, to determine the time when Awards will be granted,
to establish performance objectives, and to prescribe the form of the
instruments embodying Awards made under the Plan. The Committee is authorized to
interpret the Plan and the Awards granted under the Plan, to establish, amend
and rescind any rules and regulations relating to the Plan, and to make any
other determinations which it deems necessary or desirable for the
administration of the Plan.
The Committee may correct any defect or supply any omission or reconcile
any inconsistency in the Plan or in any Award in the manner and to the extent
the Committee deems necessary or desirable to carry it into effect. Any decision
of the Committee (or its delegate as permitted herein) in the interpretation and
administration of the Plan, as described herein, shall lie within its sole and
absolute discretion and shall be final, conclusive and binding on all parties
concerned.
No member of the Board or the Committee and no officer of the Company shall
be liable for anything done or omitted to be done by him, by any other member of
the Board or the Committee or by any officer of the Company in connection with
the performance of duties under the Plan, except for his own willful misconduct
or as expressly provided by statute.
15. Miscellaneous Provisions.
15.1. No Rights to Awards or Employment. No employee or other person shall
have any claim or right to be granted an Award under the Plan. Determinations
made by the Committee under the Plan need not be uniform and may be made
selectively among eligible individuals under the Plan, whether or not such
eligible individuals are similarly situated. Neither the Plan nor any action
taken hereunder shall be construed as giving any employee or other person any
right to continue to be employed by or perform services for the Company or any
Affiliate, and the right to terminate the employment of or performance of
services by any Participant at any time and for any reason is specifically
reserved.
15.2. Delivery of Written Instruments. No Participant or other person shall
have any right with respect to the Plan, the Shares reserved for issuance under
the Plan or in any Award, contingent or otherwise, until written evidence of the
Award shall have been delivered to the recipient and all the terms, conditions
and provisions of the Plan and the Award applicable to such recipient (and each
person claiming under or through him) have been met.
15.3. Assignment Prohibition. Notwithstanding anything contained in this
Plan to the contrary, except as may be approved by the Committee where such
approval shall not adversely affect compliance of the Plan with Rule 16b-3, a
Participant's rights and interest under the Plan may not be assigned or
transferred, hypothecated or encumbered in whole or in part either directly
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or by operation of law or otherwise (except in the event of a Participant's
death) including, but not by way of limitation, execution, levy, garnishment,
attachment, pledge, bankruptcy or in any other manner; provided, however, that
any Stock Option or similar right offered pursuant to the Plan shall not be
transferable other than by will or the laws of descent and distribution and
shall be exercisable during the Participant's lifetime only by him.
15.4. Compliance With Applicable Laws. No Shares, Other Securities, or
other forms of payment shall be issued hereunder with respect to any Award
unless counsel for the Company shall be satisfied that such issuance will be in
compliance with applicable federal, state, local and foreign legal, securities
exchange and other applicable requirements.
15.5. Rule 16b-3 and Section 162(m). It is the intent of the Company that
the Plan comply in all respects with Rule 16b-3, that any ambiguities or
inconsistencies in construction of the Plan be interpreted to give effect to
such intention and that if any provision of the Plan is found not to be in
compliance with Rule 16b-3, such provision shall be deemed null and void to the
extent required to permit the Plan to comply with Rule 16b-3. It is the intent
of the Company that Awards to Section 162(m) employees may satisfy for
"performance-based" compensation under Section 162(m) of the Code to the extent
that the Committee shall make Awards which the Committee intends to satisfy such
exemption; any ambiguities or inconsistencies in the Plan shall be interpreted
to give effect to such intention.
15.6. Tax Withholding. The Company and its Affiliates shall have the right
to deduct from any payment made under the Plan any federal, state, local or
foreign income or other taxes required by law to be withheld with respect to
such payment. It shall be a condition to the obligation of the Company to issue
Shares, Other Securities, or other forms of payment, or any combination thereof,
upon exercise, settlement or payment of any Award under the Plan, that the
Participant (or any Beneficiary or person entitled to act) pay to the Company,
upon its demand, such amount as may be requested by the Company for the purpose
of satisfying any liability to withhold federal, state, local or foreign income
or other taxes. If the amount requested is not paid, the Company may refuse to
issue Shares, Other Securities, or other forms of payment, or any combination
thereof.
Notwithstanding anything in the Plan to the contrary the Committee may, in
its discretion, permit an eligible Participant (or any Beneficiary or person
entitled to act) to elect to pay a portion or all of the amount requested by the
Company for such taxes with respect to such Award, at such time and in such
manner as the Committee shall deem to be appropriate including, but not limited
to, by authorizing the Company to withhold, or agreeing to surrender to the
Company on or about the date such tax liability is determinable, Shares, Other
Securities, or other forms of payment, or any combination thereof, owned by such
person or a portion of such forms of payment that would otherwise be
distributed, or have been distributed, as the case may be, pursuant to such
Award to such person, having a Fair Market Value equal to the amount of such
taxes.
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15.7. Plan Not Funded. The Plan shall be unfunded. The Company shall not be
required to establish any special or separate fund or to make any other
segregation of assets to assure the payment of any Award under the Plan, and
rights to the payment of Awards shall be no greater than the rights of the
Company's general creditors.
15.8. Consent of Participant. By accepting any Award or other benefit under
the Plan, each Participant and each person claiming under or through him shall
be conclusively deemed to have indicated his acceptance and ratification of, and
consent to, any action taken under the Plan by the Company, the Committee, or
the delegates of the Committee.
15.9. Rules of Construction. The masculine pronoun includes the feminine
and the singular includes the plural wherever appropriate. The validity,
construction, interpretation, administration and effect of the Plan, and of its
rules and regulations, and rights relating to the Plan and to Awards granted
under the Plan, shall be governed by the substantive laws but not the choice of
law rules, of The Commonwealth of Massachusetts.
16. Plan Amendment or Suspension. The Plan may be amended or suspended in
whole or in part at any time and from time to time by the board, provided that
no amendment shall be effective unless and until the same is approved by
shareholders of the Company where the failure to obtain such approval would
adversely affect the compliance of the Plan with Rule 16b-3 or the amendment
would (i) increase the total number of Shares reserved for issuance under the
Plan, (ii) decrease the option price of any Nonqualified Stock Option to less
than 50% of Fair Market Value on the date of granting the option, (iii) change
the class of persons who may be eligible individuals, or (iv) extend the
termination date of the Plan beyond the date determined in accordance with
Section 17. No amendment of the Plan shall adversely affect in a material manner
any right of any Participant with respect to any Award theretofore granted
without such Participant's written consent, except as permitted under Section
10.
17. Plan Termination. This Plan shall terminate upon the earlier of the
following dates or events to occur:
(a) upon the adoption of a resolution of the Board terminating the
Plan; or
(b) ten (10) years from the date the Plan is initially approved and
adopted by the shareholders of the Company in accordance with Section 18.
No Award of an Incentive Stock Option may be granted under the Plan more
than ten (10) years after the date of adoption of this Plan by the Board.
No termination of the Plan shall materially alter or impair any of the
rights or obligations of any person, without his consent, under any Award
theretofore granted under the Plan, except
19
<PAGE>
that subsequent to termination of the Plan, the Board may make amendments
permitted under Section 10.
19. Effective Date and Shareholder Adoption. The Plan shall become
effective upon the date of its adoption by the Board, subject, however, to its
approval by the shareholders of the Company within 12 months of such date.
EXHIBIT 10.131
BLUEGREEN CORPORATION
1998 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
1. Purpose. This 1998 Non-Employee Director Stock Option Plan (hereinafter,
the "Plan") is intended to promote the interests of Bluegreen Corporation, a
Massachusetts corporation (the "Company"), by providing an inducement to obtain
and retain the services of qualified persons who are not employees or officers
of the Company to serve as members of its Board of Directors (the "Board").
2. Available Shares. The total number of shares of Common Stock, $.01 par
value per share, of the Company (the "Common Stock"), for which options may be
granted under the Plan shall not exceed 500,000 shares subject to adjustment in
accordance with paragraph 10 of the Plan. Shares subject to the Plan are
authorized but unissued shares or shares that were once issued and subsequently
reacquired by the Company. If any options granted under the Plan are surrendered
before exercise or lapse without exercise, in whole or in part, the shares
reserved therefor shall continue to be available under the Plan.
3. Administration. The Plan shall be administered by the Board or by a
committee appointed by the Board (the "Committee"). In the event the Board fails
to appoint or refrains from appointing a Committee, the Board shall have all
power and authority to administer the Plan. In such event, the word "Committee"
wherever used herein shall be deemed to mean the Board. The Committee shall,
subject to the provisions of the Plan, have the power to construe the Plan, to
determine all questions hereunder, and to adopt and amend such rules and
regulations for the administration of the Plan as it may deem desirable. No
member of the Board or the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any option granted
under it.
4. Granting of Options. During the term of the Plan and subject to the
availability of shares under the Plan, on the day following each Annual Meeting
of the Company's Stockholders occurring after 1998, each person who is then
serving on the Board, and who is not a current or former employee or officer of
the Company, shall automatically be granted an option to purchase 15,000 shares
of the Common Stock. Except for the specific options referred to above, no other
options shall be granted under the Plan.
5. Option Price. The purchase price of the stock covered by an option
granted pursuant to this Plan shall be 100% of the fair market value of such
shares on the day the option is granted. The option price will be subject to
adjustment in accordance with the provisions of Section 10 below. For purposes
of this Plan, if, at the time an option is granted under the Plan, the Company's
Common Stock is publicly traded, "fair market value" shall be determined as of
the last business day for which the prices or quotes discussed in this sentence
are available the date such option is granted and shall mean (i) the closing
sales price of the Common Stock on the
<PAGE>
principal national securities exchange on which the Common Stock is traded, if
the Common Stock is then traded on a national securities exchange; (ii) the last
reported sale price (on that date) of the Common Stock on the Nasdaq National
Market, if the Common Stock is not then traded on a national securities
exchange; or (iii) the closing bid price (or average of bid prices) last quoted
(on that date) by an established quotation service for over-the-counter
securities, if the Common Stock is not reported on the Nasdaq National Market or
on a national securities exchange. If, at the time an option is granted under
this Plan, the Company's stock is not publicly traded, "fair market value" shall
be the fair market value on the date the option is granted as determined by the
Board in good faith.
6. Period of Option. Unless sooner terminated in accordance with the
provisions of Section 8 below, an option granted hereunder shall expire on the
date which is ten (10) years after the date of grant of the option.
7. Vesting of Shares and Non-transferability of Options.
(a) Vesting. Options granted under this Plan shall not be exercisable until
they become vested. Options granted under this Plan shall vest in the Optionee
and thus become exercisable by the Optionee in three equal annual installments
commencing on the first anniversary of the date of grant.
(b) Legend on Certificates. The certificates representing such shares shall
carry such appropriate legend and such written instructions shall be given to
the Company's transfer agent as may be deemed necessary or advisable by counsel
to the Company in order to comply with the requirements of the Securities Act of
1933, as amended, or any state securities laws.
(c) Non-transferability. Any option granted pursuant to this Plan shall not
be assignable or transferable other than by will or the laws of descent and
distribution and shall be exercisable during the Optionee's lifetime only by him
or her.
8. Termination of Option Rights.
(a) In the event an Optionee ceases to be a member of the Board for any
reason other than death or permanent disability, any then unexercised portion of
options granted to such Optionee shall, to the extent not then vested,
immediately terminate and become void; any portion of an option which is then
vested but has not been exercised at the time the Optionee so ceases to be a
member of the Board may be exercised, to the extent it is then vested, by the
Optionee until the earlier of the scheduled expiration date of the option and 90
days after the date the Optionee ceased to be a member of the Board.
(b) In the event that an Optionee ceases to be a member of the Board by
reason of his or her death or permanent disability, any option granted to such
Optionee shall be
2
<PAGE>
immediately and automatically accelerated and become fully vested and all
unexercised options shall be exercisable by the Optionee (or by the optionee's
personal representative, heir or legatee, in the event of death) until the
earlier of the scheduled expiration date of the option or one year after the
death or disability of the Optionee.
(c) Notwithstanding the provisions in this Section 8, the Committee may, in
its sole discretion, establish different terms and conditions pertaining to the
effect of a participant's ceasing to be a member of the Board.
9. Exercise of Option. An option granted hereunder shall, to the extent
then exercisable, be exercisable in whole or in part by giving written notice to
the Company at its principal office address, stating the number of shares with
respect to which the option is being exercised, accompanied by payment in full
for such shares. Payment may be (a) in United States dollars in cash or by
check, (b) in whole or in part in shares of Common Stock of the Company already
owned by the person or persons exercising the option or shares subject to the
option being exercised (subject to such restrictions and guidelines as the Board
may adopt from time to time), valued at fair market value determined in
accordance with the provisions of Section 5 or (c) consistent with applicable
law, through the delivery of an assignment to the Company of a sufficient amount
of the proceeds from the sale of the Common Stock acquired upon exercise of the
option and an authorization to the broker or selling agent to pay that amount to
the Company, which sale shall be at the participant's direction at the time of
exercise. There shall be no such exercise at any one time as to fewer than one
hundred (100) shares or all of the remaining shares then purchasable by the
person or persons exercising the option, if fewer than one hundred (100) shares.
The Company's transfer agent shall, on behalf of the Company, prepare a
certificate or certificates representing such shares acquired pursuant to
exercise of the option, shall register the optionee as the owner of such shares
on the books of the Company and shall cause the fully executed certificates(s)
representing such shares to be delivered to the optionee as soon as practicable
after payment of the option price in full. The holder of an option shall not
have any rights of a stockholder with respect to the shares covered by the
option except to the extent that one or more certificates for such shares shall
be delivered to him or her upon the due exercise of the option.
10. Adjustments Upon Changes in Capitalization and Other Matters. Upon the
occurrence of any of the following events, an Optionee's rights with respect to
options granted to him or her hereunder shall be adjusted as hereinafter
provided:
(a) Stock Dividends. In the event the Company shall issue any of its shares
as a stock dividend upon or with respect to the shares of stock of the class
which shall at the time be subject to option hereunder, each Optionee upon
exercising an option shall be entitled to receive (for the purchase price paid
upon such exercise) the shares as to which he is exercising his option and, in
addition thereto (at no additional cost), such number of shares of the class or
classes in which such stock dividend or dividends were declared or paid, and
such amount of cash in lieu of fractional shares, as he would have received if
he had been the holder of the shares as
3
<PAGE>
to which he is exercising his option at all times between the date of grant of
such option and the date of its exercise.
(b) Merger; Consolidation; Liquidation; Sale of Assets. In the event the
Company is merged into or consolidated with another corporation under
circumstances where the Company is not the surviving corporation or if the
Company is liquidated or sells or otherwise disposes of all or substantially all
of its assets to another corporation while unexercised options remain
outstanding under this Plan, (i) subject to the provisions of clauses (iii),
(iv) and (v) below, after the effective date of such merger, consolidation or
sale, as the case may be, each holder of an outstanding option shall be
entitled, upon exercise of such option, to receive in lieu of shares of Common
Stock, shares of such stock or other securities as the holders of shares of
Common Stock received pursuant to the terms of the merger, consolidation or
sale; or (ii) the Board may waive any discretionary limitations imposed with
respect to the exercise of the option so that all options from and after a date
prior to the effective date of such merger, consolidation, liquidation or sale,
as the case may be, specified by the Board, shall be exercisable in full; or
(iii) all outstanding options may be cancelled by the Board as of the effective
date of any such merger, consolidation, liquidation or sale, provided that
notice of such cancellation shall be given to each holder of an option, and each
such holder thereof shall have the right to exercise such option in full
(without regard to any discretionary limitations imposed with respect to the
option) during a 30-day period preceding the effective date of such merger,
consolidation, liquidation or sale; or (iv) all outstanding options may be
cancelled by the Board as of the date of any such merger, consolidation,
liquidation or sale, provided that notice of such cancellation shall be given to
each holder of an option and each such holder thereof shall have the right to
exercise such option but only to the extent exercisable in accordance with any
discretionary limitations imposed with respect to the option prior to the
effective date of such merger, consolidation, liquidation or sale; or (v) the
Board may provide for the cancellation of all outstanding options and for the
payment to the holders thereof of some part or all of the amount by which the
value of the Common Stock issuable upon the exercise thereof exceeds the
payment, if any, which the holder would have been required to make to exercise
such option.
(c) Issuance of Securities. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
subject to options. No adjustments shall be made for dividends paid in cash or
in property other than securities of the Company.
(d) No Fractional Shares. No fractional shares shall actually be issued
under the Plan. Any fractional shares which, but for this subparagraph (d),
would have been issued to an Optionee pursuant to an option, shall be deemed to
have been issued and immediately sold to the Company for their fair market
value, and the Optionee shall receive from the Company cash in lieu of such
fractional shares.
4
<PAGE>
(e) Adjustments. Upon the happening of any of the foregoing events, the
class and aggregate number of shares set forth in Section 2 above that are
subject to options which previously have been or subsequently may be granted
under the Plan shall also be appropriately adjusted to reflect such events. The
Board shall determine the specific adjustments to be made under this Section 10
and its determination shall be conclusive.
11. Restrictions on Issuance of Shares. Notwithstanding the provisions of
Sections 4 and 9 above, the Company shall have no obligation to deliver any
certificate or certificates upon exercise of an option until one of the
following conditions shall be satisfied:
(i) The shares with respect to which the option has been exercised are
at the time of the issue of such shares effectively registered under
applicable federal and state securities laws as now in force or hereafter
amended; or
(ii) Counsel for the Company shall have given an opinion that such
shares are exempt from registration under federal and state securities laws
as now in force or hereafter amended; and the Company has complied with all
applicable laws and regulations with respect thereto, including without
limitation all regulations required by any stock exchange upon which the
Company's outstanding Common Stock is then listed.
12. Representation of Optionee. If requested by the Company, the Optionee
shall deliver to the Company written representations and warranties upon
exercise of the option that are necessary to show compliance with federal and
state securities laws, including representations and warranties to the effect
that a purchase of shares under the option is made for investment and not with a
view to their distribution (as that term is used in the Securities Act of 1933).
13. Option Agreement. Each option granted under the provisions of this Plan
shall be evidenced by an option agreement, which agreement shall be duly
executed and delivered on behalf of the Company and by the Optionee to whom such
option is granted. The option agreement shall contain such terms, provisions and
conditions not inconsistent with this Plan as may be determined by the officer
executing it.
14. Term and Amendment of Plan. This Plan was adopted by the Board
effective as of June 4, 1998, subject to approval by the stockholders of the
Company. Options may no longer be granted under the Plan after June 4, 2003, and
the Plan shall terminate when all options granted or to be granted hereunder are
no longer outstanding. Subject to the provisions of Section 4 above, options may
be granted under the Plan prior to the date of stockholder approval of the Plan.
If the approval of stockholders is not obtained by June 4, 1999, any grants of
options under the Plan made prior to that date will be rescinded. The Board may
at any time terminate the Plan or make such modification or amendment thereof as
it deems advisable; provided, however, that the Board may not, without approval
by the stockholders, (a) increase the maximum number of shares for which options
may be granted under the Plan (except by adjustment pursuant to Section 10), (b)
materially modify the requirements as to eligibility to participate in the Plan,
(c)
5
<PAGE>
materially increase benefits accruing to option holders under the Plan or (d)
amend the Plan in any manner which would cause Rule 16b-3 to become inapplicable
to the Plan; and provided further that the provisions of this Plan specified in
Rule 16b-3(c)(2)(ii)(A) (or any successor or amended provision thereof) under
the Securities Exchange Act of 1934 (including without limitation, provisions as
to eligibility, amount, price and timing of awards) may not be amended more than
once every six months, other than to comport with changes in the Internal
Revenue Code, the Employee Retirement Income Security Act or the rules
thereunder. Termination or any modification or amendment of the Plan shall not,
without consent of a participant, affect his or her rights under an option
previously granted to him or her.
15. Compliance with Regulations. It is the Company's intent that this Plan
comply in all respects with Rule 16b-3 under the Securities Exchange Act of 1934
(or any successor or amended version thereof) and any applicable Securities and
Exchange Commission interpretations thereof. If any provision of the Plan is
deemed not to be in compliance with Rule 16b-3, the provision shall be null and
void.
16. Governing Law. The validity and construction of this Plan and the
instruments evidencing options shall be governed by the laws of The Commonwealth
of Massachusetts, without giving effect to the principles of conflicts of law
thereof.
6
dollars in
thousands, except
per share data Selected Consolidated Financial Data
The selected consolidated financial data set forth below should be read in
conjunction with the Consolidated Financial Statements, related notes, and other
financial information appearing elsewhere in this Annual Report.
<TABLE>
<CAPTION>
As of or for the Year Ended,
---------------------------------------------------------------------------
March 27, April 2, March 31, March 30, March 29,
1994 1995 1996 1997 1998
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Sales of real estate $ 63,389 $ 91,922 $ 113,422 $ 109,722 $ 172,659
Other resort services revenue -- -- -- -- 4,113
Interest income and other 7,952 7,264 7,388 6,159 10,819
---------------------------------------------------------------------------
Total revenues 71,341 99,186 120,810 115,881 187,591
Income (loss) from operations 6,778 10,030 10,794 (7,649) 16,691
Net income (loss) 4,931 6,137 6,467 (4,360) 10,000
Earnings (loss) per common share:
Basic 0.24 0.30 0.32 (0.21) 0.49
Diluted 0.23 0.29 0.30 (0.21) 0.46
Balance Sheet Data:
Notes receivable, net $ 44,203 $ 40,311 $ 37,014 $ 34,619 $ 79,785
Inventory, net 38,793 62,345 73,595 86,661 107,198
Total assets 139,617 152,222 154,963 169,627 272,963
Shareholders' equity 51,854 58,040 64,698 59,243 69,993
Book value per common share $ 2.91 $ 2.98 $ 3.15 $ 2.94 $ 3.37
Other Data:
EBITDA(1) $ 16,164 $ 18,522 $ 18,978 $ 8,291 $ 29,897
Weighted-average interest rate on notes
receivable at period end 10.9% 12.4% 12.4% 13.3% 14.9%
Resorts division statistics:
Total resorts division sales $ -- $ 5,886 $ 13,825 $ 27,425 $ 60,751
Number of resorts at period end 1 2 3 4 8
Gross margin on resort sales -- 62.2% 67.1% 71.0% 74.0%
Number of timeshare intervals sold(2) -- 952 1,865 3,195 6,904
Residential land division statistics:
Total residential land division sales $ 60,300 $ 72,621 $ 84,859 $ 72,621 $ 106,071
Gross margin on sales of land 51.5% 57.2% 51.1% 45.2% 50.3%
Number of land parcels sold(2) 2,489 2,397 2,347 2,057 2,377
(1) The following table reconciles EBITDA to net income (loss) (amounts in
thousands). EBITDA should not be considered in isolation or construed as a
substitute for the Company's net income, income from operations, cash flows
from operating activities or liquidity in analyzing the Company's operating
performance, financial position or cash flows. EBITDA is not necessarily
comparable to other similarly titled captions of other companies due to
potential inconsistencies in the method of calculation.
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended,
--------------------------------------------------------------------
March 27, April 2, March 31, March 30, March 29,
1994 1995 1996 1997 1998
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net income (loss) $ 4,931 $ 6,137 $ 6,467 $(4,360) $10,000
Interest expense 6,551 6,737 6,276 5,459 9,281
Capitalized interest expense included in
cost of real estate sold -- 82 149 956 2,565
Income taxes 3,022 4,265 4,449 (3,030) 6,803
Provision for non-recurring costs(a) -- -- -- 8,200 --
Depreciation and amortization 1,660 1,301 1,637 1,066 1,248
--------------------------------------------------------------------
EBITDA $16,164 $18,522 $18,978 $ 8,291 $29,897
</TABLE>
(a) The provision for non-recurring costs, which is included in Provisions for
Losses on the Consolidated Statement of Operations, represents the
Company's $8.2 million write-down of certain Communities Division and
Residential Land Division properties in the first quarter of fiscal 1997.
See Note 6 to the Consolidated Financial Statements and "Management's
Discussion and Analysis of Results of Operations and Financial Condition."
(2) Unit sales data includes those sales made during the applicable period
where recognition of revenue is deferred under the percentage of completion
method of accounting. See "Contracts Receivable and Revenue Recognition"
under Note 1 to the Consolidated Financial Statements.
FIFTEEN
<PAGE>
1998 Annual Report
Management's Discussion and Analysis of
Results of Operations and Financial Condition
The following discussion of the results of operations and financial condition of
the Company should be read in conjunction with the Company's Consolidated
Financial Statements and related Notes and the other financial information
included elsewhere in this Annual Report. Unless otherwise indicated in this
discussion, references to "real estate" and to "inventories" collectively
encompass the Resorts Division, Residential Land Division and the Company's
other inventories held for sale. Timeshare Interests typically entitle the buyer
to a fully-furnished vacation residence for an annual one-week period in
perpetuity ("Timeshare Interests").
The Company desires to take advantage of the "safe harbor" provisions of the
Private Securities Reform Act of 1995 (the "Act") and is making the following
statements pursuant to the Act in order to do so. Certain statements herein and
elsewhere in this report constitute "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended. Such forward-looking statements are
risks and uncertainties, many of which are beyond the Company's control, that
could cause the actual results, performance or achievements of the Company, or
industry trends, to differ materially from any future results, performance or
achievements expressed or implied by such forward-looking statements. Given
these uncertainties, investors are cautioned not to place undue reliance on such
forward-looking statements and no assurance can be given that the plans,
estimates and expectations reflected in such statements will be achieved. The
Company wishes to caution readers that the following important factors, among
others, in some cases have affected, and in the future could affect, the
Company's actual results and could cause the Company's actual consolidated
results to differ materially from those expressed in any forward-looking
statements made by, or on behalf of, the Company:
a) Changes in national, international or regional economic conditions that can
affect the real estate market, which is cyclical in nature and highly
sensitive to such changes, including, among other factors, levels of
employment and discretionary disposable income, consumer confidence,
available financing and interest rates.
b) The imposition of additional compliance costs on the Company as the result
of changes in any environmental, zoning or other laws and regulations that
govern the acquisition, subdivision and sale of real estate and various
aspects of the Company's financing operation.
c) Risks associated with a large investment in real estate inventory at any
given time (including risks that real estate inventories will decline in
value due to changing market and economic conditions and that the
development and carrying costs of inventories may exceed those
anticipated).
d) Risks associated with an inability to locate suitable inventory for
acquisition.
e) Risks associated with delays in bringing the Company's inventories to
market due to, among other things, changes in regulations governing the
Company's operations, adverse weather conditions or changes in the
availability of development financing on terms acceptable to the Company.
f) Changes in applicable usury laws or the availability of interest deductions
or other provisions of federal or state tax law.
g) A decreased willingness on the part of banks to extend direct customer lot
financing, which could result in the Company receiving less cash in
connection with the sales of real estate and/or lower sales.
h) The inability of the Company to find external sources of liquidity on
favorable terms to support its operations, acquire, carry and develop land
and timeshare inventories and satisfy its debt and other obligations.
i) The inability of the Company to find sources of capital on favorable terms
for the pledge of land and timeshare notes receivable.
j) An increase in prepayment rates, delinquency rates or defaults with respect
to Company-originated loans or an increase in the costs related to
reacquiring, carrying and disposing of properties reacquired through
foreclosure or deeds in lieu of foreclosure.
k) Costs to develop inventory for sale and/or selling, general and
administrative expenses exceed those anticipated.
l) An increase or decrease in the number of land or resort properties subject
to percentage of completion accounting which requires deferral of profit
recognition on such projects until development is substantially complete.
m) The failure of the Company to satisfy the covenants contained in the
indentures governing certain of its debt instruments and other credit
agreements which, among other things, place certain restrictions on the
Company's ability to incur debt, incur liens and pay dividends.
General
Real estate markets are cyclical in nature and highly sensitive to changes in
national and regional economic conditions, including, among other factors,
levels of employment and discretionary disposable income, consumer confidence,
available financing and interest rates. A downturn in the economy in general or
in the market for real estate could have a material adverse effect on the
Company.
The Company recognizes revenue on residential land and Timeshare Interest sales
when a minimum of 10% of the sales price has been received in cash, the refund
or rescission period has expired, collectibility of the receivable representing
the remainder of the sales price is reasonably assured and the Company has
completed substantially all of its obligations with respect to any development
relating to the real estate sold. In cases where
SIXTEEN
<PAGE>
all development has not been completed, the Company recognizes revenue in
accordance with the percentage of completion method of accounting. Under this
method of revenue recognition, income is recognized as work progresses. Measures
of progress are based on the relationship of costs incurred to date to expected
total costs. The Company has been dedicating greater resources to more capital
intensive residential land and timeshare projects. As a result, the results for
fiscal 1998 reflect an increased amount of revenue deferred under the percentage
of completion method of accounting. See "Contracts Receivable and Revenue
Recognition" under Note 1 to the Consolidated Financial Statements.
Costs associated with the acquisition and development of timeshare resorts and
residential land properties, including carrying costs such as interest and
taxes, are capitalized as real estate and development costs and allocated to
cost of real estate sold as the respective revenue is recognized.
Effective September 30, 1997, a wholly-owned subsidiary of the Company acquired
all of the issued and outstanding common stock of RDI Group Inc. and Resort
Title Agency, Inc. (collectively "RDI") for a purchase price of $7.5 million
consisting of $6 million cash and a $1.5 million, 9% promissory note due October
3, 1999. The acquisition was accounted for using the purchase method of
accounting and, accordingly, the results of operations of RDI have been included
in the Company's condensed consolidated financial statements from September 30,
1997. Approximately $1.1 million of goodwill, which is included in other assets
on the consolidated balance sheet, was recognized in connection with the
acquisition of RDI. The goodwill is being amortized over 25 years. Headquartered
in Fort Myers, Florida, RDI was privately-held and presently owns timeshare
resorts in Orlando, Florida and Wisconsin Dells, Wisconsin, as well as a
points-based vacation club. In addition, RDI manages approximately 37 vacation
ownership resorts, located primarily in the southeastern sun-belt states,
including the resorts developed by the Company, with a member base of
approximately 79,000.
On December 15, 1997, the Company invested $250,000 of capital in Bluegreen
Properties N.V. ("BPNV"), an entity organized in Aruba that previously had no
operations, in exchange for a 50% ownership interest. Concurrently, the Company
and an affiliate of the other 50% owner of BPNV (who is not an affiliate of the
Company), each loaned BPNV $3 million pursuant to promissory notes due on
December 15, 2000 and bearing interest at the prime rate plus 1%. BPNV then
acquired from a third party approximately 8,000 unsold timeshare intervals at
the La Cabana Beach & Racquet Club (the "Aruba Resort"), a fully developed
timeshare resort in Oranjestad, Aruba in exchange for $6 million cash and the
assumption of approximately $16.6 million of interest-free debt from a bank in
Aruba. The debt is not guaranteed by the Company or any of its wholly-owned
subsidiaries. The debt was recorded by BPNV at approximately $12.5 million,
which reflects a discount based on an imputed interest rate of 12%. The debt is
to be repaid over five years through release-prices as intervals are sold,
subject to minimum monthly payments of approximately $278,000. As of March 29,
1998, the outstanding principal amount of the assumed debt was $12 million. In
addition to its 50% ownership interest, the Company will receive a quarterly
management fee from BPNV equal to 7% of BPNV's net sales in exchange for the
Company's involvement in the day-to-day operations of BPNV. The Company also has
majority control of BPNV's board of directors and has a controlling financial
interest in BPNV. Therefore, the accounts of BPNV are included in the Company's
consolidated financial statements as of March 29, 1998. The total assets and net
revenues of BPNV for fiscal 1998 were approximately $21.7 million and $4.6
million, respectively.
The Company has historically experienced and expects to continue to experience
seasonal fluctuations in its gross revenues and net earnings. This seasonality
may cause significant fluctuations in the quarterly operating results of the
Company. As the Company's timeshare revenues grow as a percentage of total
revenues, the Company believes that the fluctuations in revenues due to
seasonality may be mitigated. In addition, other material fluctuations in
operating results may occur due to the timing of development and the Company's
use of the percentage of completion method of accounting. Management expects
that the Company will continue to invest in projects that will require more
substantial development (with greater capital requirements) than in years prior
to fiscal 1997. No assurances can be given that the amount of revenue deferred
under the percentage of completion accounting method will not increase.
The Company believes that inflation and changing prices have not had a material
impact on its revenues and results of operations during any of fiscal 1996,
1997, or 1998. Based on the current economic climate, the Company does not
expect that inflation and changing prices will have a material impact on the
Company's revenues or results of operations. To the extent inflationary trends
affect short term interest rates, a portion of the Company's debt service costs
may be affected as well as the rate the Company charges on its new receivables.
During the periods covered by this discussion, the Company's real estate
operations were managed under three divisions and much of this discussion is
organized by such divisions. The Resorts Division manages the Company's
timeshare operations and the Residential Land Division acquires large tracts of
real estate which are subdivided, improved and sold, typically on a retail
basis. The Company's Communities Division markets factory built manufactured
home and lot packages and undeveloped lots. In the first quarter of fiscal 1997
(June 1996), the Company decided to focus on the expansion of the Resorts
Division and the Residential Land Division in certain locations. Consistent with
this strategy, the Company does not intend to acquire any additional
communities-related inventories and present Communities Division inventories are
being liquidated through a combination of bulk sales and retail sales. As of and
for the year ended March 29, 1998, the Communities Division comprised
approximately 2.5% and 3.4% of consolidated inventory and sales of real estate,
respectively. Therefore, there is minimal discussion of the Communities
Division's results of operations and financial condition in the following
analysis.
SEVENTEEN
<PAGE>
Inventory is carried at the lower of cost, including costs of improvements and
amenities incurred subsequent to acquisition, or fair value, net of costs to
dispose. See Note 1 of Notes to Consolidated Financial Statements. During the
first quarter of fiscal 1997, management changed its focus for marketing certain
of the Company's inventories in conjunction with a plan to accelerate the sale
of properties managed under the Communities Division and certain properties
managed under the Residential Land Division. This decision was largely the
result of management's focus on expansion of the Resort Division and Residential
Land Division in certain locations. Because of the strategy to accelerate sales,
management determined that inventories with a carrying value of $23.2 million
should be written-down by $8.2 million during the first quarter of fiscal 1997.
The $8.2 million provision included $4.8 million for certain Communities
Division inventories and $3.4 million for certain Residential Land Division
inventories. Management adopted a plan to aggressively pursue opportunities for
the bulk sale of a portion of the written-down assets and has reduced retail
prices on others to increase sales activity. At the time of the writedown, the
Company's Communities Division primarily consisted of three North Carolina
properties acquired in 1988. The Company began marketing home/lot packages in
1995 to accelerate sales at the properties. However, the projects had been slow
moving and yielded low gross profits and little to no operating profits. A
majority of the Residential Land Division parcels subject to write-down were
scattered lots acquired through foreclosure or deedback in lieu of foreclosure,
and odd lots from former projects or properties located in parts of the country
where the Company has no plans for expansion. As of March 29, 1998,
approximately 79% (as measured by historical cost basis) of the inventories
subject to write-down had been sold with no material additional losses incurred.
See Note 6 of Notes to Consolidated Financial Statements. The remaining unsold
inventory represents less than 3% of total inventory as of March 29, 1998.
A portion of the Company's revenues historically has been comprised of gains on
sales of loans, and, although no assurances can be given, assuming the proposed
timeshare receivables facility that the Company is currently negotiating is
consummated (see Liquidity and Capital Resources), the portion of the Company's
revenues comprising such gains on sales is expected to increase significantly.
The gains are recorded in the Company's revenues and on its consolidated balance
sheet (as retained interests on loan sales) at the time of sale, and the amount
of gains recorded is based in part on management's estimates of future
prepayment and default rates and other considerations in light of then-current
conditions. If actual prepayments with respect to loans occur more quickly than
was projected at the time such loans were sold, as can occur when interest rates
decline, interest would be less than expected and earnings would be charged in
the current period. If actual defaults with respect to loans sold are greater
than estimated, charge-offs would exceed previously estimated amounts and
earnings would be charged in the current period.
<TABLE>
<CAPTION>
Results of Operations
(Dollars in Thousands) Resorts Residential Land Communities Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended March 31, 1996
Sales of real estate ..................... $ 13,825 100.0% $ 84,859 100.0% $ 14,738 100.0% $113,422 100.0%
Cost of real estate sold(1) .............. 4,550 32.9% 41,510 48.9% 13,333 90.5% 59,393 52.4%
--------------------------------------------------------------------------------------
Gross profit ............................. 9,275 67.1% 43,349 51.1% 1,405 9.5% 54,029 47.6%
Field selling, general and
administrative expense(2) .............. 8,591 62.1% 24,649 29.0% 2,727 18.5% 35,967 31.7%
--------------------------------------------------------------------------------------
Field operating profit (loss)(3) ......... $ 684 5.0% $ 18,700 22.1% $ (1,322) (9.0)% $ 18,062 15.9%
======================================================================================
Year Ended March 30, 1997
Sales of real estate ..................... $ 27,425 100.0% $ 72,621 100.0% $ 9,676 100.0% $109,722 100.0%
Cost of real estate sold(1) .............. 7,947 29.0% 39,792 54.8% 9,352 96.7% 57,091 52.0%
--------------------------------------------------------------------------------------
Gross profit ............................. 19,478 71.0% 32,829 45.2% 324 3.3% 52,631 48.0%
Field selling, general and
administrative expense(2) .............. 17,806 64.9% 23,297 32.1% 820 8.5% 41,923 38.2%
--------------------------------------------------------------------------------------
Field operating profit (loss)(3) ......... $ 1,672 6.1% $ 9,532 13.1% $ (496) (5.2)% $ 10,708 9.8%
======================================================================================
Year Ended March 29, 1998
Sales of real estate ..................... $ 60,751 100.0% $106,071 100.0% $ 5,837 100.0% $172,659 100.0%
Cost of real estate sold(1) .............. 15,808 26.0% 52,703 49.7% 5,928 101.6% 74,439 43.1%
--------------------------------------------------------------------------------------
Gross profit (loss) ...................... 44,943 74.0% 53,368 50.3% (91) (1.6)% 98,220 56.9%
Field selling, general and
administrative expense(2) .............. 38,794 63.9% 29,476 27.8% 179 3.1% 68,449 39.6%
--------------------------------------------------------------------------------------
Field operating profit (loss)(3) ......... $ 6,149 10.1% $ 23,892 22.5% $ (270) (4.7)% $ 29,771 17.3%
======================================================================================
</TABLE>
(1) Cost of sales represents the cost of inventory including the cost of
improvements, amenities and in certain cases capitalized interest.
(2) General and administrative expenses attributable to corporate overhead have
been excluded from the tables. Corporate general and administrative
expenses totaled $7.8 million, $9.5 million and $12.5 million for 1996,
1997 and 1998, respectively.
(3) The tables presented above outline selected financial data. Accordingly,
interest income, interest expense, provisions for losses, other income and
income taxes have been excluded.
EIGHTEEN
<PAGE>
Sales
Consolidated sales of real estate were $113.4 million for the year ended March
31, 1996 ("fiscal 1996") compared to $109.7 million for the year ended March 30,
1997 ("fiscal 1997") and $172.7 million for the year ended March 29, 1998
("fiscal 1998") representing a decrease of 3.3% from fiscal 1996 to fiscal 1997
and an increase of 57.4% from fiscal 1997 to fiscal 1998.
Resorts Division
During fiscal 1996, 1997 and 1998, sales of Timeshare Interests contributed
$13.8 million or 12%, $27.4 million or 25%, and $60.8 million or 35%,
respectively, of the Company's total consolidated revenues from the sale of real
estate.
The following table sets forth certain information for sales of Timeshare
Interests associated with the Company's Resorts Division for the periods
indicated, before giving effect to the percentage of completion method of
accounting.
Years Ended,
------------------------------
March 31, March 30, March 29,
1996 1997 1998
------------------------------
Number of Timeshare
Interests sold............. 1,865 3,195 6,904
Average sales price per
Timeshare Interest......... $7,325 $8,362 $8,799
Gross margin................. 67% 71% 74%
During fiscal 1996, 1,374 Timeshare Interests were sold from the Gatlinburg,
Tennessee resort, 484 Timeshare Interests were sold from the Company's resort in
neighboring Pigeon Forge, Tennessee and seven Timeshare Interests were sold from
the Company's resort in Myrtle Beach, South Carolina. During fiscal 1997, 1,451
Timeshare Interests were sold from the Gatlinburg resort, 976 Timeshare
Interests were sold from the Company's resort in Pigeon Forge, Tennessee and 768
Timeshare Interests were sold from the Company's resort in Myrtle Beach, South
Carolina.
The increase in the number of Timeshare Interests sold during fiscal 1998 as
compared to fiscal 1997 was primarily due to the acquisition of RDI, which
generated sales of 1,101 Timeshare Interests since acquisition, the Aruba
Resort, which generated sales of 412 Timeshare Interests since the related
inventory was acquired, and two new resorts opened for sales by the Company
during fiscal 1998, Harbour Lights in Myrtle Beach, South Carolina, and The
Falls Village in Branson, Missouri, which generated sales of 732 and 627
Timeshare Interests, respectively, during fiscal 1998. The remaining increase is
due to increased Timeshare Interest sales at the Company's Shore Crest resort in
Myrtle Beach, South Carolina (increase of 667 Timeshare interests) and its
resorts in Tennessee (increase of 170 Timeshare Interests).
The improvement in gross margins from the Company's resorts was primarily the
result of increases to the retail selling prices, particularly at Laurel Crest,
and inventory sold through the Vacation Club acquired with RDI, which generated
average gross margins of 76% and 77%, respectively.
Residential Land Division
During fiscal 1996, 1997 and 1998, residential land sales contributed $84.9
million or 75%, $72.6 million or 66%, and $106.1 million or 61%, respectively,
of the Company's total consolidated revenues from the sale of real estate.
The table set forth below outlines the number of parcels sold and the average
sales price per parcel for the Residential Land Division for the periods
indicated, before giving effect to the percentage of completion method of
accounting.
Years Ended,
------------------------------
March 31, March 30, March 29,
1996 1997 1998
------------------------------
Number of parcels sold...... 2,347 2,057 2,377
Average sales price
per parcel................ $34,856 $38,572 $44,620
Gross margin................ 51% 45% 50%
1996 vs. 1997 Comparison of Residential Land Division Parcels Sold and Average
Sales Prices. Lower parcel sales in fiscal 1997 reflect reduced inventory
holdings in the Company's Pennsylvania, West Virginia, Idaho, Canada,
Northeastern and Montana properties. The Company does not expect to expand
operations in these areas beyond the properties currently being marketed. In
addition, the number of parcels sold decreased during fiscal 1997 due to a
shortage of inventory in Tennessee, one of the Company's planned areas of
Residential Land Division expansion. The Company acquired two Tennessee
properties during the fourth quarter of fiscal 1997 and sales activity at the
projects commenced March 1997.
Higher average sales prices in fiscal 1997 are indicative of the Company's
subdivision in Arizona gaining more momentum as it matures. The majority of the
Arizona property is being marketed in parcels of 36 acres at retail prices
during such periods from $130,000 to $150,000, although certain five acre lots
are also being marketed. The number of parcels sold in the Company's Western
region increased from 19 in fiscal 1996 to 34 in fiscal 1997.
As mentioned above, the Company plans to continue to dedicate greater resources
to residential land properties located in areas with proven records of success.
1997 vs. 1998 Comparison of Residential Land Division Parcels Sold and Average
Sales Prices. Increases in number of lots sold are primarily due to two new
projects in Texas which opened in fiscal 1998 (Bentwater and White Oak Estates);
200 lots sold in fiscal 1998 vs. 16 lots sold in fiscal 1997 at Winding River
Plantation located in North Carolina, the Company's first residential community
featuring a 27-hole championship golf course designed by Masters champion Fred
Couples, and approximately 180 lots sold at the Company's Woodlake and Crystal
Cove properties in Tennessee, both of which were acquired in March, 1997. These
increases were partially offset by decreased lot sales in certain markets where
the Company does not intend to expand.
The increase in average selling price during fiscal 1998 was due to increased
sales at the Company's Crossroads
NINETEEN
<PAGE>
Ranch property in Arizona and at Winding River Plantation in North Carolina,
which experienced average selling prices of approximately $176,000 and $57,000,
respectively, during fiscal 1998.
Comparison of Residential Land Division Gross Margins. The decrease in the gross
margin from fiscal 1996 to 1997 was attributable to the continued liquidation of
properties where the Company is discontinuing residential land operations (and
experiencing sub-par operating results) in locations such as the Northeast,
Pennsylvania, West Virginia, Montana and Idaho (see discussion of 1997 inventory
write-down under "General" and in Note 6 of Notes to Consolidated Financial
Statements.) The increase from fiscal 1997 to 1998 was due primarily to average
gross margins of 73% generated at the Company's Winding River Plantation
property and other gross margin increases in the Company's Southwestern region.
The Company's Investment Committee, consisting of certain of the Company's
executive officers, approves all property acquisitions. In order to be approved
for purchase by the Investment Committee, all residential land (and resort)
properties are expected to achieve certain minimum economics including a minimum
gross margin. No assurances can be given that such minimum economics will be
achieved.
Communities Division
During fiscal 1996, 1997 and 1998, the Communities Division generated
approximately $14.7 million or 13%, $9.7 million or 9%, and $5.8 million or 3%,
respectively, of the Company's total consolidated revenues from the sale of real
estate. As previously discussed, the Company intends to market its remaining
Communities Division inventory with no further expansion in this area.
Other Resort Services
Other resort services include the resort property management services, resort
title services and certain retail amenity and lodging operations acquired with
RDI. From September 30, 1997 (the date of acquisition) through March 29, 1998,
other resort services revenue and related costs were approximately $4.1 million
and $3.2 million, respectively. There were no such other resort service
operations during fiscal 1996 or fiscal 1997.
Interest Income and Other
Interest income and other was $7.4 million, $6.2 million, and $10.8 million for
fiscal 1996, 1997 and 1998, respectively. The Company's interest income is
earned from its notes receivable, securities retained pursuant to REMIC
financings and cash and cash equivalents. Interest income for each year was also
affected by the sale of receivables in REMIC transactions, which resulted in a
gain of $1.1 million in fiscal 1996 and a loss of $96,211 in fiscal 1997. There
were no REMIC transactions during fiscal 1998. The increase in interest income
during fiscal 1998 was primarily due to an increase in the average notes
receivable balance from $35.8 million to $57.2 million during fiscal 1997 and
1998, respectively. The increased average notes receivable balance was primarily
due to increased financed sales of Timeshare Interests during the year.
Approximately 89% of all of the Company's Timeshare Interest buyers finance
their purchase with the Company compared to 8% of residential land buyers.
Selling, General and Administrative Expenses
(S, G & A Expenses)
The Company's S, G & A expenses consist primarily of marketing costs,
advertising expenses, sales commissions and corporate overhead. S, G & A
expenses totaled $43.7 million, $51.4 million, and $81.0 million for fiscal
1996, 1997 and 1998, respectively. As a percentage of total revenues, S, G & A
expenses were 36.2% for fiscal 1996, 44.4% for fiscal 1997 and 43.2% for fiscal
1998. The increase as a percent of sales in fiscal 1997 was largely the result
of higher S, G & A expenses for the Resorts Division as well as higher corporate
general and administrative expenses. The Company invested in human resources and
other infrastructure during fiscal 1997 to support the anticipated long-term
growth of its Resorts Division. Furthermore, marketing expense tends to be
higher during the early years of a resort project and decreases as the property
matures.
Interest Expense
Interest expense totaled $6.3 million, $5.5 million, and $9.3 million for fiscal
1996, 1997 and 1998, respectively. The 13% decrease in interest expense for
fiscal 1997 was primarily attributable to an increase in the amount of interest
capitalized to inventory. The Company capitalized interest totaling $1.9 million
during fiscal 1996, compared to $3.0 million for 1997. The increase in
capitalized interest is the direct result of the Company acquiring certain
inventory which required significant development with longer sell-out periods
(and therefore qualifying for interest capitalization). The 70% increase in
interest expense during fiscal 1998 was primarily due to an increase in the
average debt balance outstanding from $81.7 million during fiscal 1997 to $112.1
million (net of non-interest bearing debt related to receivables previously sold
by RDI with recourse) during fiscal 1998. The increase in the average
outstanding debt balance was primarily due to $15.4 million of debt incurred in
connection with the acquisition of Timeshare Interests at the Aruba Resort,
approximately $17.6 million of debt incurred or assumed in connection with the
acquisition of RDI, $22.1 million of short-term borrowings from certain
investment banking firms, and various other borrowings incurred to support the
growth of the Company's receivables portfolio along with the expansion of the
Resorts Division during the year. See also "Liquidity and Capital Resources."
The effective cost of borrowing (when adding back capitalized interest) was
11.1%, 10.2%, and 9.7% for fiscal 1996, 1997 and 1998, respectively.
Provisions for Losses
As noted above, the Company wrote down certain inventory in fiscal 1997. As of
March 29, 1998, approximately 79% of the inventories subject to write-down had
been sold (as measured by historical cost basis) with no material additional
losses incurred.
TWENTY
<PAGE>
The Company recorded provisions for loan losses (or related advanced real estate
taxes for delinquent customers) totaling $612,000, $1.3 million, and $3.0
million during fiscal 1996, 1997 and 1998, respectively. The 131% increase in
the provision during fiscal 1998 is due to the corresponding 130% increase in
the note receivable portfolio. The increase in the portfolio is due to increased
timeshare loans (where historical default rates exceed those for land loans),
and therefore higher provisions were recorded. See the discussion below under
"--Liquidity and Capital Resources."
Summary
Based on the factors discussed above, the Company's net income decreased from
$6.5 million in fiscal 1996 to a net loss of $(4.4) million in 1997, and
increased to net income of $10.0 million in 1998.
Changes in Financial Condition
Cash and cash equivalents increased $3.8 million, $200,000, and $19.5 million
during fiscal 1996, 1997, and 1998, respectively.
Net cash provided by the Company's operations was $15.0 million for fiscal 1996.
Net cash used by the Company's operations was $8.2 million for fiscal 1997. Net
cash provided by the Company's operations was $16.1 million for fiscal 1998. The
decrease in cash flow from operations during fiscal 1997 was due to increased
funding of approximately $13.2 million related to increased notes receivable,
$7.1 million related to increased inventory, and $2.5 million related to
increased contracts receivable. The increase in cash flow from operations during
fiscal 1998 was primarily due to a $14.4 million increase in net income and a
$10.9 million increase in net borrowings collateralized by notes receivable.
Net cash used by investing activities was $830,000 for fiscal 1996. Net cash
provided by investing activities was $1.5 million for fiscal 1997. Net cash used
by investing activities was $9.8 million for fiscal 1998. The increase in cash
provided by investing activities during fiscal 1997 was primarily due to $1.4
million of additional cash received from sales of investments in securities and
an $854,000 decrease in purchases of property and equipment as compared to
fiscal 1996. The increase in net cash used by investing activities during fiscal
1998 was due to $2.5 million of cash used to acquire RDI, net of cash acquired,
and an additional $9.3 million of cash used to acquire property and equipment,
primarily due to development spending on the Company's Carolina National golf
course in North Carolina.
Net cash used by financing activities was $10.4 million for fiscal 1996. Net
cash provided by financing activities was $6.9 million and $13.1 million for
fiscal 1997 and 1998, respectively. The increase in net cash provided by
financing activities during fiscal 1997 was due to an $18.5 million increase in
net borrowings under the Company's lines of credit and other notes payable,
partially offset by $1.4 million of cash paid to buy treasury stock. The
increase in net cash provided by financing activities during fiscal 1998 was due
to $6 million of proceeds received from the issuance of the Company's 8%
convertible subordinated notes payable to related parties in connection with the
acquisition of RDI.
Liquidity and Capital Resources
The Company's capital resources are provided from both internal and external
sources. The Company's primary capital resources from internal operations are:
(i) cash sales of real estate, (ii) down payments on real estate and timeshare
sales which are financed, (iii) principal and interest payments on the purchase
money mortgage loans arising from residential land sales and contracts for deed
arising from sales of Timeshare Interests (collectively "Receivables") and (iv)
proceeds from the sale of, or borrowings collateralized by, Receivables.
Historically, external sources of liquidity have included borrowings under
secured lines-of-credit, seller and bank financing of inventory acquisitions and
the issuance of debt securities. The Company's capital resources are used to
support the Company's operations, including (i) acquiring and developing
inventory, (ii) providing financing for customer purchases, (iii) meeting
operating expenses and (iv) satisfying the Company's debt and other obligations.
The Company anticipates that it will continue to require external sources of
liquidity to support its operations and satisfy its debt and other obligations.
Subsequent Note Offering and
Related Bridge Financing
The Company borrowed an aggregate of $22.1 million from two investment banking
firms pursuant to a short-term loan agreement dated December 15, 1997 (the
"Bridge Loan"). The Bridge Loan bore interest at the greater of 10% or prime
plus 2.75%. In addition, the Company paid a fee equal to 1% of each advance.
On April 1, 1998, the Company consummated a private placement offering (the
"Offering") of $110 million in aggregate principal amount of 10.5% senior
secured notes due April 1, 2008 (the "Notes"). The initial purchasers in the
Offering were the investment banking firms who provided the Company with the
Bridge Loan. Interest on the Notes is payable semiannually on April 1 and
October 1 of each year, commencing October 1, 1998. The Notes are redeemable at
the option of the Company, in whole or in part, in cash, on or after April 1,
2003, together with accrued and unpaid interest, if any, to the date of
redemption at the following redemption prices: 2003-105.25%; 2004-103.50%;
2005-101.75% and 2006 and thereafter--100.00%. In addition, prior to April 1,
2001, the Company may redeem up to 35% of the aggregate principal amount of the
Notes with the proceeds of one or more public equity offerings, at a redemption
price equal to 110.5% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the date of redemption, provided that at least $65 million
principal amount of Notes remains outstanding after any such redemption. The
Notes are senior obligations of the Company and rank pari passu in right of
payment with all existing and future senior indebtedness of the Company and rank
senior in right of payment to all existing and future subordinated obligations
of the Company. None of the assets of Bluegreen
TWENTY-ONE
<PAGE>
Corporation secure its obligations under the Notes, and the Notes are
effectively subordinated to secured indebtedness of the Company to any third
party to the extent of assets serving as security therefor. The Notes are
unconditionally guaranteed, jointly and severally, by each of the Company's
subsidiaries (the "Subsidiary Guarantors"), with the exception of Bluegreen
Properties N.V., any special purpose finance subsidiary, any subsidiary which is
formed and continues to operate for the limited purpose of holding a real estate
license and acting as a broker, and certain other subsidiaries which have
individually less than $50,000 of assets.
The Note guarantees are senior obligations of each Subsidiary Guarantor and rank
pari passu in right of payment with all existing and future senior indebtedness
of each such Subsidiary Guarantor and senior in right of payment to all existing
and future subordinated indebtedness of each such Subsidiary Guarantor. The Note
guarantees of certain Subsidiary Guarantors are secured by a first (subject to
customary exceptions) mortgage or similar instrument (each, a "Mortgage") on
certain residential land properties of such Subsidiary Guarantors (the "Pledged
Properties"). Absent the occurrence and the continuance of an event of default,
the Notes trustee is required to release its lien on the Pledged Properties as
property is sold and the Trustee will not have a lien on the proceeds of any
such sale. As of March 29, 1998, the Pledged Properties had an aggregate book
value of approximately $36.8 million. The Notes' indenture (the "Indenture")
contains certain covenants that, among other things, limit (i) the incurrence of
additional indebtedness by the Company and its subsidiaries and the creation of
liens, (ii) the payment of dividends on, and redemption of, capital stock of the
Company and the redemption of certain subordinated obligations of the Company,
(iii) investments, (iv) sales of assets and subsidiary stock, (v) transactions
with affiliates and (vi) consolidations, mergers and transfers of all or
substantially all of the assets of the Company.
The net proceeds of the Offering were approximately $106.3 million. In
connection with the Offering, the Company repaid the Bridge Loan, approximately
$28.9 million of various line-of-credit and notes payable balances and
approximately $36.3 million of the Company's receivable-backed notes payable
discussed more fully below. In addition, the Company paid aggregate accrued
interest on the repaid debt of approximately $1.0 million and $2.7 million of
prepayment penalties. The remaining net proceeds of the Offering will be used to
repay other obligations of the Company and for working capital purposes. In
connection with the Offering, the Company wrote-off approximately $692,000 of
debt issuance costs related to the extinguished debt.
Credit Facilities for Timeshare Receivables and Timeshare Inventories
The Company has maintained various credit facilities with financial institutions
that provided for receivable financing for its timeshare projects. The interest
rates charged under these facilities range from the three-month London Interbank
Offered Rate ("LIBOR") plus 4.25% to the prime lending rate plus 3.75%. At March
29, 1998, the aggregate outstanding principal balance under the credit
facilities was $40.5 million, including approximately $7.2 million of debt
associated with receivables previously sold by RDI to financial institutions
with recourse. In addition, the Company has various credit facilities with
financial institutions that provide for the financing of acquisition and
development of certain of its timeshare projects. In addition, the Company has
acquired certain resort properties by obtaining financing from the previous
property owners. At March 29, 1998, the aggregate outstanding balances under
such credit facilities and seller-financed arrangements were approximately $8.8
million and $20.5 million, respectively. In connection with the Offering, the
Company retired all outstanding indebtedness related to timeshare receivable and
inventory financings, except for $7.2 million of debt associated with
receivables previously sold to financial institutions with recourse and
approximately $15.0 million of debt related to Aruba. The Company terminated the
existing credit facilities for timeshare receivable and inventory financings
concurrent with the closing of the Offering.
The Company is currently negotiating a two-year $35 million timeshare
receivables warehouse loan facility with a financial institution. Loans under
the warehouse facility are anticipated to bear interest at LIBOR plus 2.35%. The
warehouse facility will have detailed requirements with respect to the
eligibility of receivables for inclusion and other conditions to funding. The
borrowing base under the warehouse facility is anticipated to be 95% of the
outstanding principal balance of eligible notes arising from the sale of
completed Timeshare Interests. The warehouse facility will include affirmative,
negative and financial covenants, and events of default. The Company is also
negotiating a timeshare receivables purchase facility from the same financial
institution. Under the anticipated purchase facility (the "Purchase Facility"),
a special purpose finance subsidiary of the Company will sell up to $100 million
aggregate principal amount of timeshare receivables to the financial institution
in a securitization transaction. The Purchase Facility has detailed requirements
with respect to the eligibility of receivables for purchase. Under the Purchase
Facility, a purchase price equal to approximately 97% (subject to adjustment in
certain circumstances) of the principal balance of the receivables sold will be
paid at closing in cash, with a portion deferred until such time as the
purchaser has received a return equal to the weighted-average term treasury rate
plus 1.4% and all servicing, custodial and similar fees and expenses have been
paid. Should the Company fail to sell to such financial institution during the
term of the Purchase Facility notes receivable with cumulative present value of
at least $100 million, the return to the purchaser will increase by .05% for
each $10 million shortfall, to a maximum applicable margin of 1.60%. The
Company's special purpose finance subsidiary will be required to maintain a
specified overcollateralization level and a cash reserve account. Receivables
will be sold without recourse to the Company or its special purpose finance
subsidiary except for breaches of representations and warranties made at
TWENTY-TWO
<PAGE>
the time of sale. The financial institution's obligation to purchase under the
Purchase Facility will terminate upon the occurrence of specified trigger
events. The Company will act as servicer under the Purchase Facility and will be
required to make advances to the financial institution to the extent it believes
such advances will be recoverable. The Purchase Facility includes various
conditions to purchase and other provisions customary for a securitization of
this type. The Purchase Facility has a term of two years. There can be no
assurances that the final warehouse facility and Purchase Facility will be
obtained or that the final negotiated terms will be identical to the terms
described above.
In addition, the Company is currently negotiating with the same financial
institution referred to in the preceding paragraph to provide the Company with a
$25 million acquisition and development facility for its timeshare inventories.
The facility would include a two-year draw down period and have a term of seven
years. Principal would be repaid through agreed-upon release prices as Timeshare
Interests are sold at the financed resort, subject to minimum required
amortization. It is anticipated that the indebtedness under the facility would
bear interest at the three-month LIBOR plus 3.0%. With respect to any inventory
financed under the facility, the Company will be required to have provided
equity of at least 15% of the approved project costs. In connection with the
facility, the Company will also be required to pay certain fees and expenses to
the financial institution.
Credit Facilities for Residential Land Receivables and Residential Land
Inventories
Prior to the Offering, the Company had a credit facility with a financial
institution for the pledge of land receivables. The Company used this facility
as a warehouse until it accumulated a sufficient quantity of land receivables to
sell under private placement REMIC transactions. Under the terms of this
facility, the Company was entitled to advances secured by Receivables equal to
90% of the outstanding principal balance of eligible pledged Receivables. The
interest rates charged on outstanding borrowings ranged from the prime lending
rate plus 0.50% to prime plus 2.25%. At March 29, 1998, the aggregate
outstanding principal balance under this facility was $3.1 million. In
connection with the Offering, the Company retired this indebtedness.
The Company has an existing $20.0 million revolving credit facility with a
financial institution for the pledge of Residential Land Division Receivables.
The Company uses the facility as a temporary warehouse until it accumulates a
sufficient quantity of residential land receivables to sell under private
placement REMIC transactions. Under the terms of this facility, the Company is
entitled to advances secured by Residential Land Division receivables up to 90%
of the outstanding principal balance of eligible pledged Residential Land
Division receivables. In addition, up to $8.0 million of the facility can be
used for land acquisition and development purposes. The interest rate charged on
outstanding borrowings ranges from prime plus 0.5% to 1.5%. At March 29, 1998,
the outstanding principal balance under the facility was $5.1 million. All
principal and interest payments received on pledged Receivables are applied to
principal and interest due under the facility. The ability to borrow under the
facility expires in September 2000. Any outstanding indebtedness is due in
September 2002. This facility was retained by the Company following the
Offering.
Over the past three years, the Company has received 80% to 90% of its land sales
in cash. Accordingly, in recent years the Company has reduced the borrowing
capacity under credit agreements secured by land receivables. The Company
attributes the significant volume of cash sales to an increased willingness on
the part of certain local banks to extend more direct customer lot financing. No
assurances can be given that local banks will continue to provide such customer
financing.
Historically, the Company has funded development for road and utility
construction, amenities, surveys, and engineering fees from internal operations
and has financed the acquisition of residential land property through seller,
bank or financial institution loans. Terms for repayment under these loans
typically call for interest to be paid monthly and principal to be repaid
through lot releases. The release price is usually defined as a pre-determined
percentage of the gross selling price (typically 25% to 50%) of the parcels in
the subdivision. In addition, the agreements generally call for minimum
cumulative annual amortization. When the Company provides financing for its
customers (and therefore the release price is not available in cash at closing
to repay the lender), it is required to pay the creditor with cash derived from
other operating activities, principally from cash sales or the pledge of
Receivables originated from earlier property sales.
At March 29, 1998, the aggregate outstanding balance on the Company's
residential land acquisition and development loans was approximately $11.8
million. In connection with the Offering, the Company retired all outstanding
indebtedness under such loans. In addition, the Company has obtained from a
financial institution a $35 million revolving credit facility. The Company
expects to use this facility to finance the acquisition and development of
residential land projects and to finance land receivables. The facility when
drawn upon will be secured by the real property (and personal property related
thereto) with respect to which borrowings are made, with the lender to advance
up to a specified percentage of the value of the mortgaged property and eligible
pledged receivables, provided that the maximum outstanding amount secured by
pledged receivables may not exceed $20.0 million. The interest charged on
outstanding borrowings is expected to be approximately prime plus 1.5%. The
facility includes customary conditions to funding, eligibility requirements for
collateral, affirmative, negative and financial covenants and events of default.
The Company estimates that the total cash required to complete preparation for
the sale of its residential land and timeshare property inventory as of March
29, 1998 was approximately $177.9 million, expected to be incurred over a
five-year period. The Company plans to fund these
TWENTY-THREE
<PAGE>
expenditures primarily with available capacity on existing or proposed credit
facilities and cash generated from operations. There can be no assurances that
the Company will be able to obtain the financing necessary to complete the
foregoing plans.
The Indenture and the Company's other credit facilities include certain
covenants restricting, among other things, the incurrence of debt, the payment
of dividends and other restricted payments, the incurrence of liens, and
transactions with affiliates. Certain current and future credit facilities do or
will include financial covenants. No assurances can be given that such covenants
will not limit the Company's ability to satisfy or refinance its obligations or
otherwise adversely affect the Company's operations.
Summary
The Company intends to continue to pursue a growth oriented strategy,
particularly with respect to its Resorts Division. In connection with this
strategy, the Company may from time to time acquire, among other things,
additional resort properties and completed Timeshare Interests; land upon which
additional resorts may be built; management contracts; loan portfolios of
Timeshare Interest mortgages; portfolios which include properties or assets
which may be integrated into the Company's operations; and operating companies
providing or possessing management, sales, marketing, development,
administration and/or other expertise with respect to the Company's operations
in the timeshare industry. In addition, the Company intends to continue to focus
the Residential Land Division on larger more capital intensive projects
particularly in those regions where the Company believes the market for its
products is strongest, such as the Southeast, Southwest, Rocky Mountains and
Western regions of the United States and to replenish its residential land
inventory in such regions as existing projects are sold-out.
The Company believes that the net proceeds from the Offering and anticipated
cash generated from operations and anticipated future permitted borrowings under
existing or proposed credit facilities will be sufficient to meet the Company's
working capital, capital expenditures and debt service requirements for the
foreseeable future. The Company may, in the future, require additional credit
facilities or issuances of other corporate debt or equity securities in
connection with acquisitions or otherwise. Any debt incurred or issued by the
Company may be secured or unsecured, fixed or variable rate interest and may be
subject to such terms as management deems prudent. There can be no assurance
that the proposed credit facilities will be consummated on the terms described
herein, if at all, or that sufficient funds will be available from operations or
under existing, proposed or future revolving credit or other borrowing
arrangements to meet the Company's cash needs, including, without limitation,
its debt service obligations. As noted above the Indenture and the Company's
other credit facilities include customary conditions to funding, eligibility
requirements for collateral, certain financial and other affirmative and
negative covenants, including, among others, limits on the incurrence of
indebtedness, covenants concerning net worth and fixed charge coverage
requirements and debt to equity ratios and events of default. In addition, the
Company's future operating performance and ability to meet its financial
obligations will be subject to future economic conditions and to financial,
business and other factors, many of which will be beyond the Company's control.
Impact of Year 2000
Some of the Company's older computer programs were written using two digits
rather than four to define the applicable year. As a result, those computer
programs have time-sensitive software that recognizes a date using "00" as the
year 1900 rather than the year 2000. This could cause a system failure and
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
The Company has completed an assessment relative to the modification or
replacement of portions of its software so that its computer systems will
function properly with respect to dates in the year 2000 and thereafter. The
total "Year 2000" project cost is estimated at approximately $400,000, which
consists of costs to be incurred to acquire upgraded software that will be
capitalized. It is anticipated that these costs will be paid for using cash from
operations.
The project is estimated to be completed not later than June 30, 1999, which is
prior to any anticipated impact on the Company's operating systems. The Company
believes that with modifications to existing software and conversions to new
software, the Year 2000 issue will not pose significant operational problems for
its computer systems. However, if such modifications and conversions are not
made, or are not completed timely, the Year 2000 issue could have a material
impact on the operations of the Company.
The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources and other factors. However,
there can be no guarantee that these estimates will be achieved and actual
results could differ materially from those anticipated. Specific factors that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.
TWENTY-FOUR
<PAGE>
amounts in
thousands, except
per share data Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 30, March 29,
1997 1998
---------------------
ASSETS
<S> <C> <C>
Cash and cash equivalents (including restricted cash of approximately $8.0 million and
$13.2 million at March 30, 1997 and March 29, 1998, respectively) ............................... $ 11,597 $ 31,065
Contracts receivable, net.......................................................................... 14,308 15,484
Notes receivable, net.............................................................................. 34,619 79,785
Investments in securities.......................................................................... 11,067 10,941
Inventory, net..................................................................................... 86,661 107,198
Property and equipment, net........................................................................ 4,949 17,223
Other assets....................................................................................... 6,426 11,267
---------------------
Total assets................................................................................... $169,627 $272,963
=====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable................................................................................... $ 1,918 $ 5,265
Accrued liabilities and other...................................................................... 10,118 19,023
Short-term borrowings from underwriters............................................................ -- 22,149
Receivable-backed notes payable.................................................................... 21,055 48,694
Lines-of-credit and notes payable.................................................................. 35,906 50,247
Deferred income.................................................................................... 3,792 8,392
Deferred income taxes.............................................................................. 2,856 8,011
8.00% convertible subordinated notes payable to related parties.................................... -- 6,000
8.25% convertible subordinated debentures.......................................................... 34,739 34,739
---------------------
Total liabilities.............................................................................. 110,384 202,520
Minority interest.................................................................................. -- 450
Shareholders' Equity
Preferred stock, $.01 par value, 1,000 shares authorized; none issued.............................. -- --
Common stock, $.01 par value, 90,000 shares authorized; 20,602 and 20,761 shares
outstanding at March 30, 1997 and March 29, 1998, respectively................................... 206 208
Additional paid-in capital......................................................................... 71,411 71,932
Accumulated deficit................................................................................ (11,163) (1,163)
Treasury stock, 443 and 450 common shares at March 30, 1997 and March 29, 1998,
respectively, at cost............................................................................ (1,370) (1,389)
Net unrealized gains on investments available-for-sale, net of income taxes........................ 159 405
---------------------
Total shareholders' equity....................................................................... 59,243 69,993
---------------------
Total liabilities and shareholders' equity..................................................... $169,627 $272,963
=====================
</TABLE>
See accompanying notes to consolidated financial statements.
TWENTY-FIVE
<PAGE>
amounts in
thousands, except
per share data Consolidated Statements of Operations
<TABLE>
<CAPTION>
Years Ended,
-----------------------------------
March 31, March 30, March 29,
1996 1997 1998
-----------------------------------
<S> <C> <C> <C>
Revenues:
Sales of real estate................................................................. $ 113,422 $ 109,722 $ 172,659
Other resort services revenue........................................................ -- -- 4,113
Interest income and other............................................................ 7,388 6,159 10,819
-----------------------------------
120,810 115,881 187,591
Costs and expenses:
Cost of real estate sold............................................................. 59,393 57,091 74,439
Cost of other resort services........................................................ -- -- 3,219
Selling, general and administrative expenses......................................... 43,735 51,441 80,959
Interest expense..................................................................... 6,276 5,459 9,281
Provisions for losses................................................................ 612 9,539 3,002
-----------------------------------
110,016 123,530 170,900
-----------------------------------
Income (loss) from operations.......................................................... 10,794 (7,649) 16,691
Other income........................................................................... 122 259 312
-----------------------------------
Income (loss) before income taxes and minority interest................................ 10,916 (7,390) 17,003
Provision (benefit) for income taxes................................................... 4,449 (3,030) 6,803
Minority interest in income of consolidated subsidiary................................. -- -- 200
-----------------------------------
Net income (loss)...................................................................... $ 6,467 $ (4,360) $ 10,000
===================================
Earnings (loss) per common share:
Basic ............................................................................... $ .32 $ (.21) $ .49
===================================
Diluted.............................................................................. $ .30 $ (.21) $ .46
===================================
Weighted-average number of common and common equivalent shares:
Basic................................................................................ 20,508 20,319 20,219
===================================
Diluted.............................................................................. 21,775 20,319 25,746
===================================
</TABLE>
See accompanying notes to consolidated financial statements.
TWENTY-SIX
<PAGE>
amounts in Consolidated Statements of Shareholders' Equity
thousands Years Ended March 31, 1996, March 30, 1997 and March 29, 1998
<TABLE>
<CAPTION>
Net
Unrealized
Gains on
Investments
Available-
for-Sale,
Common Additional Treasury Net of
Shares Common Paid-in Accumulated Stock at Income
Issued Stock Capital Deficit Cost Taxes Total
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at April 3, 1995........ 19,471 $194 $66,840 $ (8,994) $ -- $ -- $58,040
5% stock dividend............... 976 10 4,262 (4,272) -- -- --
Cash payment for
dividends in lieu of
fractional shares............... -- -- -- (4) -- -- (4)
Shares issued to employees
upon exercise of qualified
stock options................... 86 1 194 -- -- -- 195
Net income...................... -- -- -- 6,467 -- -- 6,467
----------------------------------------------------------------------------------------
Balance at March 31, 1996....... 20,533 205 71,296 (6,803) -- -- 64,698
Net unrealized gains
on investments
available-for-sale,
net of income taxes............. -- -- -- -- -- 159 159
Shares issued to employees
and directors upon
exercise of qualified
stock options................... 69 1 115 -- -- -- 116
Shares repurchased for
treasury stock................ -- -- -- -- (1,370) -- (1,370)
Net loss........................ -- -- -- (4,360) -- -- (4,360)
----------------------------------------------------------------------------------------
Balance at March 30, 1997....... 20,602 206 71,411 (11,163) (1,370) 159 59,243
Net unrealized gains
on investments
available-for-sale,
net of income taxes............. -- -- -- -- -- 246 246
Shares issued to employees
upon exercise of
qualified stock options......... 159 2 377 -- -- -- 379
Income tax benefit from
stock options exercised....... -- -- 144 -- -- -- 144
Shares repurchased for
treasury stock................ -- -- -- -- (19) -- (19)
Net income...................... -- -- -- 10,000 -- -- 10,000
----------------------------------------------------------------------------------------
Balance at March 29, 1998....... 20,761 $208 $71,932 $ (1,163) $(1,389) $405 $69,993
========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
TWENTY-SEVEN
<PAGE>
amounts in
thousands Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended,
-----------------------------------
March 31, March 30, March 29,
1996 1997 1998
-----------------------------------
<S> <C> <C> <C>
Net income (loss) .................................................................. $ 6,467 $ (4,360) $ 10,000
Adjustments to reconcile net income (loss) to net cash provided (used) by
operating activities:
Minority interest in income of consolidated subsidiary ......................... -- -- 200
Depreciation and amortization .................................................. 1,637 1,066 2,306
Loss (gain) on REMIC transactions .............................................. (1,120) 96 --
(Gain) loss on sale of property and equipment .................................. 49 (82) (196)
Provisions for losses .......................................................... 612 9,539 3,002
Interest accretion on investments in securities ................................ (1,170) (997) (1,416)
Proceeds from borrowings collateralized by notes receivable .................... 19,438 18,157 26,495
Payments on borrowings collateralized by notes receivable ...................... (19,229) (16,826) (14,282)
Provision (benefit) for deferred income taxes .................................. 998 (3,419) 3,333
(Increase) decrease in operating assets and liabilities:
Contracts receivable ......................................................... 600 (1,857) (1,175)
Inventory .................................................................... (2,003) (9,126) 10,104
Other assets ................................................................. 274 (1,076) (2,869)
Notes receivable ............................................................. 10,446 (2,798) (31,821)
Accounts payable, accrued liabilities and other .............................. (1,981) 3,478 12,408
-----------------------------------
Net cash provided (used) by operating activities ................................... 15,018 (8,205) 16,089
-----------------------------------
Investing activities:
Acquisition of RDI Group, Inc. and Resort Title Agency, Inc., net of cash acquired -- -- (2,453)
Purchases of property and equipment .............................................. (1,895) (1,042) (10,337)
Sales of property and equipment .................................................. 789 844 1,038
Cash received from investments in securities ..................................... 276 1,699 1,959
-----------------------------------
Net cash (used) provided by investing activities ................................... (830) 1,501 (9,793)
-----------------------------------
Financing activities:
Payment of debt issuance costs ................................................... (411) (181) (1,440)
Proceeds from issuance of 8% convertible subordinated notes payable .............. -- -- 6,000
Borrowings under line-of-credit facilities and notes payable ..................... 5,796 20,688 32,613
Short-term borrowings from underwriters .......................................... -- -- 22,149
Payments under line-of-credit facilities and notes payable ....................... (15,963) (12,340) (46,760)
Proceeds from exercise of employee stock options ................................. 195 115 379
Payments for treasury stock ...................................................... -- (1,370) (19)
Capital contribution by minority interest .......................................... -- -- 250
Payment for stock dividends in lieu of fractional shares ........................... (4) -- --
-----------------------------------
Net cash (used) provided by financing activities ................................... (10,387) 6,912 13,172
-----------------------------------
Net increase in cash and cash equivalents .......................................... 3,801 208 19,468
Cash and cash equivalents at beginning of year ..................................... 7,588 11,389 11,597
-----------------------------------
Cash and cash equivalents at end of year ........................................... 11,389 11,597 31,065
Restricted cash and cash equivalents end of year ................................... (7,684) (7,978) (13,153)
-----------------------------------
Unrestricted cash and cash equivalents at end of year .............................. $ 3,705 $ 3,619 $ 17,912
===================================
Supplemental schedule of non-cash operating and financing activities
Inventory acquired through financing ............................................. $ 6,595 $ 10,031 $ 22,974
===================================
Inventory acquired through foreclosure or deedback in lieu of foreclosure ........ $ 1,610 $ 1,958 $ 3,558
===================================
Property and equipment acquired through financing ................................ $ -- $ -- $ 902
===================================
Investment in securities retained in connection with REMIC transactions .......... $ 2,044 $ 1,774 $ --
===================================
Net change in unrealized gains on investments .................................... $ -- $ 270 $ 418
===================================
Supplemental schedule of operating cash flow information
Interest paid .................................................................... $ 5,919 $ 4,964 $ 11,736
===================================
Income taxes paid ................................................................ $ 3,316 $ 1,678 $ 2,338
===================================
</TABLE>
See accompanying notes to consolidated financial statements.
TWENTY-EIGHT
<PAGE>
1998
Annual
Report Notes to Consolidated Financial Statements
1. Significant Accounting Policies
Organization
Bluegreen Corporation (the "Company") is a leading marketer of vacation and
residential lifestyle choices through its resort and residential land businesses
which are located predominantly in the Southeastern, Southwestern and Midwestern
United States. The Company's resort business (the "Resorts Division")
strategically acquires, develops and markets Timeshare Interests in resorts
generally located in popular, high-volume, "drive-to" vacation destinations.
Timeshare Interests typically entitle the buyer to a fully-furnished vacation
residence for an annual one-week period in perpetuity ("Timeshare Interests").
The Company currently markets and sells Timeshare Interests in eight resorts
located in the United States and the Caribbean. The Company's residential land
business (the "Residential Land Division") strategically acquires, develops and
subdivides property and markets the subdivided residential lots to retail
customers seeking to build a home in a high quality residential setting. During
the year ended March 29, 1998, sales of real estate generated by the Company's
Resorts Division and Residential Land Division comprised approximately 35% and
61%, respectively, of the Company's total sales of real estate. The Company also
generates significant interest income by providing financing to individual
purchasers of Timeshare Interests and, to a lesser extent, land sold by the
Residential Land Division.
Principles of Consolidation
The consolidated financial statements include the accounts of Bluegreen
Corporation, all of its wholly owned subsidiaries and entities in which the
Company holds a controlling financial interest. All significant intercompany
balances and transactions are eliminated.
Use of Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Cash and Cash Equivalents
The Company invests cash in excess of immediate operating requirements in
short-term time deposits and money market instruments generally with original
maturities of three months or less. The Company maintains cash and cash
equivalents with various financial institutions. These financial institutions
are located throughout the country and Company policy is designed to limit
exposure to any one institution. However, a significant portion of the Company's
unrestricted cash is maintained with a single bank and, accordingly, the Company
is subject to credit risk. Periodic evaluations of the relative credit standing
of financial institutions maintaining Company deposits are performed to evaluate
and mitigate, if necessary, credit risk.
Restricted cash consists of funds collected as servicer under receivable-backed
note agreements and customer deposits held in escrow accounts.
Contracts Receivable and Revenue Recognition
In accordance with the requirements of Statement of Financial Accounting
Standards ("SFAS") No. 66 "Accounting for Sales of Real Estate," the Company
recognizes revenue on retail land sales and sales of Timeshare Interests when a
minimum of 10% of the sales price has been received in cash, the refund period
has expired, collectibility of the receivable representing the remainder of the
sales price is reasonably assured and the Company has completed substantially
all of its obligations with respect to any development related to the real
estate sold. In cases where all development has not been completed, the Company
recognizes revenue in accordance with the percentage of completion method of
accounting.
Sales which do not meet the criteria for revenue recognition described above are
deferred using the deposit method. Under the deposit method, cash received from
customers is classified as a refundable deposit in the liability section of the
consolidated balance sheet and profit recognition is deferred until the
requirements of SFAS No. 66 are met.
Contracts receivable is net of an allowance for cancellations of residential
land sale contracts amounting to approximately $451,000 and $779,000 at March
30, 1997 and March 29, 1998, respectively.
Notes Receivable
Notes receivable are carried at amortized cost. Interest income is suspended on
all notes receivable when principal or interest payments are more than three
months contractually past due and not resumed until such loans become
contractually current.
Investments in Securities
The Company's investments in securities are considered available-for-sale and
are carried at fair value in accordance with SFAS No. 115 "Accounting for
Certain Investments in Debt and Equity Securities." Accordingly, unrealized
holding gains or losses on available-for-sale investments are recorded as
adjustments to shareholders' equity, net of income taxes. Declines in fair value
that are determined to be other than temporary are charged to operations.
Interest on the Company's securities is accreted at effective yield rates which
reflect interest at pass-through rates, the arbitrage resulting from rate
differentials between the notes in the REMIC pool and pass-through rates, along
with the effect of estimated prepayments and foreclosure losses.
Inventory
Inventory consists of Timeshare Interests and residential land acquired or
developed for sale and is carried at the lower of cost, including costs of
improvements and amenities incurred subsequent to acquisition, capitalized
TWENTY-NINE
<PAGE>
interest and other costs incurred during construction, or estimated fair value,
less costs to dispose. Real estate reacquired through foreclosure or deedback in
lieu of foreclosure is recorded at the lower of fair value, net of costs to
dispose, or the carrying value of the loan. The Company periodically evaluates
the recovery of the carrying amount of individual resort and residential land
properties.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed on the
straight-line method based on the estimated useful lives of the related assets.
Goodwill
Goodwill is amortized over 25 years using the straight-line method and is
included in other assets on the consolidated balance sheet. The Company
periodically evaluates the recovery of the carrying amount of goodwill by
determining if any impairment indicators are present. These indicators include
duplication of resources resulting from acquisitions, income derived from
businesses acquired, the estimated undiscounted cash flows of the entity over
the remaining amortization period and other factors.
Treasury Stock
The Company accounts for repurchases of common stock using the cost method with
common stock in treasury classified in the consolidated balance sheets as a
reduction of common shareholders' equity.
Advertising Expense
The Company expenses advertising costs as incurred. Advertising expense was
$10.0 million, $13.9 million, and $22.1 million for the years ended March 31,
1996, March 30, 1997 and March 29, 1998, respectively, and is included in
selling, general and administrative expenses in the consolidated statements of
operations.
Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation," encourages, but does
not require companies to record compensation cost for employee stock options at
fair value. The Company has elected to continue to account for stock options
using the intrinsic value method pursuant to Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees," and related Interpretations.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the quoted market price of the Company's stock at the date of the grant
over the exercise price of the option.
Earnings (Loss) Per Common Share
In February, 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 128, "Earnings Per Share," which became effective for the Company's quarter
ended December 28, 1997. Basic earnings (loss) per common share is computed by
dividing net income (loss) by the weighted-average number of common shares
outstanding during the period. Diluted earnings (loss) per common share is
computed in the same manner as basic earnings per share, but also gives effect
to all dilutive stock options using the treasury stock method and includes an
adjustment, if dilutive, to both net income and weighted-average common shares
outstanding as if the Company's 8.00% convertible subordinated notes payable and
8.25% convertible subordinated debentures were converted into common stock on
April 3, 1995 or the date of issuance, if later. The earnings (loss) per common
share and weighted-average number of common and common equivalent shares for
each of the two years in the period ended March 30, 1997 have been restated in
accordance with SFAS No. 128.
The following table sets forth the computation of basic and diluted earnings
(loss) per share (amounts in thousands, except per share data):
<TABLE>
<CAPTION>
Year Ended,
-----------------------------------
March 31, March 30, March 29,
1996 1997 1998
-----------------------------------
<S> <C> <C> <C>
Numerator:
Numerator for basic earnings (loss) per share--net income (loss) ........................... $ 6,467 $ (4,360) $ 10,000
Effect of dilutive securities (net of tax effects):
8.25% convertible subordinated debentures .................................................. -- -- 1,702
8.00% convertible subordinated notes payable ............................................... -- -- 157
-----------------------------------
-- -- 1,859
-----------------------------------
Numerator for diluted earnings (loss) per share--net income (loss) after assumed conversions . $ 6,467 $ (4,360) $ 11,859
===================================
Denominator:
Denominator for basic earnings (loss) per share--weighted-average shares ................... 20,508 20,319 20,219
Effect of dilutive securities:
8.25% convertible subordinated debentures .................................................. -- -- 4,216
8.00% convertible subordinated notes payable ............................................... -- -- 839
Stock options .............................................................................. 1,267 -- 472
-----------------------------------
Dilutive potential common shares ............................................................. 1,267 -- 5,527
-----------------------------------
Denominator for diluted earnings (loss) per share--adjusted weighted-average shares
and assumed conversions .................................................................... 21,775 20,319 25,746
===================================
Basic earnings (loss) per share .............................................................. $ .32 $ (.21) $ .49
===================================
Diluted earnings (loss) per share ............................................................ $ .30 $ (.21) $ .46
===================================
</TABLE>
THIRTY
<PAGE>
Impact of Recently Issued Accounting Standards
Certain receivables have been securitized and sold to investors through Real
Estate Mortgage Investment Conduits ("REMIC"s). To date, the servicing rights to
securitized receivables have been retained by the Company. SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" establishes new criteria for determining whether a transfer of
financial assets occurring after December 31, 1997 in exchange for cash or other
consideration should be accounted for as a sale or as a pledge of collateral in
a secured borrowing. It also establishes new accounting requirements for pledged
collateral and new criteria for the extinguishment of liabilities. The adoption
of SFAS No. 125 in fiscal 1998 had no affect on the Company's operations or
financial condition as no transfers of financial assets occurred during fiscal
1998.
In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive Income" and
SFAS No. 131 "Disclosure about Segments of an Enterprise and Related
Information" which are effective for fiscal years beginning after December 15,
1997. Accordingly, the Company plans to adopt SFAS No. 130 and SFAS No. 131 with
the fiscal year beginning March 30, 1998. SFAS No. 130 and SFAS No. 131 will not
have any impact on the results of operations or financial condition of the
Company, but will result in the disclosure of the components of comprehensive
income and in certain changes in required disclosures of segment information.
Reclassifications
Certain reclassifications of prior period amounts have been made to conform to
the current year presentation.
2. Acquisition
Effective September 30, 1997, a wholly-owned subsidiary of the Company acquired
all of the issued and outstanding common stock of RDI Group Inc. and Resort
Title Agency, Inc. (collectively "RDI") for a purchase price of $7.5 million
consisting of $6 million cash and a $1.5 million, 9% promissory note due October
3, 1999. The acquisition was accounted for using the purchase method of
accounting and, accordingly, the results of operations of RDI have been included
in the Company's consolidated financial statements since September 30, 1997.
Approximately $1.1 million of goodwill, which is included in other assets on the
consolidated balance sheet, was recognized in connection with the acquisition of
RDI. The goodwill is being amortized over 25 years.
The Company financed the cash portion of the purchase price by issuing two 8%
convertible subordinated promissory notes in the aggregate principal amount of
$6 million (the "8% Notes") to a member of the Board of Directors of the Company
(the "Board") and an affiliate of a Board member. The 8% Notes, which were
executed on September 11, 1997, are due on September 11, 2002, and are
convertible into shares of the Company's common stock at a conversion price of
$3.92 per share.
Headquartered in Fort Myers, Florida, RDI was privately-held and presently owns
timeshare resorts in Orlando, Florida and Wisconsin Dells, Wisconsin, as well as
a points-based vacation club. In addition, RDI manages approximately 37 vacation
ownership resorts located primarily in the southeastern sun-belt states,
including the resorts developed by the Company, with a member base of
approximately 79,000.
The Company intends to close RDI's corporate offices and relocate or eliminate
the majority of RDI's corporate employees. The Company's plans include providing
severance compensation to terminated employees, incurring relocation costs for
certain employees and attempting to sublease duplicate facilities at RDI's
corporate offices. The Company anticipates that its plans to terminate and
relocate RDI employees will be completed by June 30, 1998. In connection with
the Company's plans to consolidate RDI's corporate functions with its own, the
Company has estimated that it will incur approximately $550,000 of severance,
relocation and duplicate facility costs. These items have been accrued in
connection with recording the purchase of RDI. No significant amounts related to
the termination of activities at RDI's corporate offices have been paid as of
March 29, 1998.
The following pro forma financial information presents the combined results of
operations of the Company and RDI as if the acquisition had occurred on April 1,
1996, after giving effect to certain adjustments, including increased interest
expense on debt related to the acquisition, and related income tax effects. The
pro forma financial information does not necessarily reflect the results of
operations that would have occurred had the Company and RDI constituted a single
entity during such periods.
Year Ended,
---------------------------
(unaudited--amounts in thousands, March 30, March 29,
except per share data) 1997 1998
- ------------------------------------------------------------------------
Net revenues......................... $138,612 $202,160
============================
Net income (loss).................... $ (5,277) $ 10,464
============================
Earnings (loss) per share:
Basic.............................. $ (.26) $ .52
============================
Diluted............................ $ (.26) $ .47
============================
3. Joint Venture
On December 15, 1997, the Company invested $250,000 of capital in Bluegreen
Properties N.V. ("BPNV"), an entity organized in Aruba that previously had no
operations, in exchange for a 50% ownership interest. Concurrently, the Company
and an affiliate of the other 50% owner of BPNV (who is not an affiliate of the
Company), each loaned BPNV $3 million pursuant to promissory notes due on
December 15, 2000 and bearing interest at the prime rate plus 1%. BPNV then
acquired from a third party approximately 8,000 unsold timeshare intervals at
the La Cabana Beach & Racquet Club, a fully developed timeshare resort in
Oranjestad, Aruba in exchange for $6 million cash and the assumption of
approximately $16.6 million of interest-free debt from a bank in Aruba. The debt
was recorded by BPNV at approximately $12.5 million, which reflects a discount
based on an imputed interest rate of 12%. The debt is to be repaid over five
years through release-prices as intervals are sold, subject to minimum monthly
principal payments of approximately $278,000.
THIRTY-ONE
<PAGE>
In addition to its 50% ownership interest, the Company will receive a quarterly
management fee from BPNV equal to 7% of BPNV's net sales in exchange for the
Company's involvement in the day-to-day operations of BPNV. The Company also has
majority control of BPNV's board of directors and has a controlling financial
interest in BPNV. Therefore, the accounts of BPNV are included in the Company's
consolidated financial statements as of March 29, 1998. The total assets and net
revenues of BPNV for fiscal 1998 were approximately $21.7 million and $4.6
million, respectively.
4. Notes Receivable
The weighted-average interest rate on notes receivable was 13.3% and 14.9% at
March 30, 1997 and March 29, 1998, respectively. The table below sets forth
additional information relating to the Company's notes receivable (in
thousands).
March 30, March 29,
1997 1998
-----------------------
Notes receivable secured by land....... $12,334 $14,698
Notes receivable secured by
Timeshare Interests.................. 23,501 66,621
-----------------------
Notes receivable, gross................ 35,835 81,319
Reserve for loan losses................ (1,216) (1,534)
-----------------------
Notes receivable, net.................. $34,619 $79,785
=======================
Approximately 42% of the Company's notes receivable secured by land bear
interest at variable rates, while approximately 58% bear interest at fixed
rates. The average interest rate charged on loans secured by land was 11.8% at
March 29, 1998. All of the Company's timeshare loans bear interest at fixed
rates. The average interest rate charged on loans secured by Timeshare Interests
was 15.5% at March 29, 1998.
The Company's timeshare receivables are secured by property located in
Tennessee, Missouri, Aruba, Wisconsin, Florida and South Carolina. No
concentrations of credit risk exist for the Company's notes receivable secured
by land.
The table below sets forth activity in the reserve for estimated loan losses (in
thousands).
Reserve for loan losses, March 31, 1996............ $ 896
Provision for loan losses.......................... 1,008
Charge-offs........................................ (688)
-------
Reserve for loan losses, March 30, 1997............ 1,216
Provision for loan losses.......................... 2,610
Charge-offs........................................ (2,292)
-------
Reserve for loan losses, March 29, 1998............ $ 1,534
=======
Installments due on notes receivable held by the Company during each of the five
fiscal years subsequent to 1998, and thereafter, are set forth below (in
thousands).
1999............................................... $13,927
2000............................................... 11,616
2001............................................... 11,805
2002............................................... 11,249
2003............................................... 10,358
Thereafter......................................... 22,364
-------
Total.............................................. $81,319
=======
5. Investments in Securities
The Company's investments in securities, which are classified as
available-for-sale, and associated unrealized gains and losses are set forth
below (in thousands).
<TABLE>
<CAPTION>
Cost Gross Unrealized Gain Gross Unrealized Loss Fair Value
------------------------------------------------------------------------
<C> <C> <C> <C> <C>
March 30, 1997
- --------------
1994 REMIC debt securities............................. $ 3,893 $ -- $23 $ 3,870
1995 REMIC debt securities............................. 5,000 199 -- 5,199
1996 REMIC debt securities............................. 1,904 94 -- 1,998
------------------------------------------------------------------------
Total.................................................. $10,797 $293 $23 $11,067
========================================================================
March 29, 1998
- --------------
1994 REMIC debt securities............................. $ 4,432 $ -- $19 $ 4,413
1995 REMIC debt securities............................. 3,477 618 -- 4,095
1996 REMIC debt securities............................. 2,344 89 -- 2,433
------------------------------------------------------------------------
Total.................................................. $10,253 $707 $19 $10,941
========================================================================
Contractual maturities and yield of investments are set forth below (in
thousands).
<CAPTION>
Fair Value
----------
<S> <C>
After one year but within five......................................................................................... $ 4,413
After five years but within ten........................................................................................ 6,528
-------
Total.................................................................................................................. $10,941
=======
</TABLE>
THIRTY-TWO
<PAGE>
6. Inventory
The Company's net inventory holdings as of March 30, 1997 and March 29, 1998,
summarized by division, are set forth below (amounts in thousands).
<TABLE>
<CAPTION>
Geographic Region Residential Land Resorts(1) Communities(2) Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
March 30, 1997
- --------------
Southeast........................................................ $12,030 $27,524 $5,685 $ 45,239
Southwest........................................................ 19,959 -- -- 19,959
Rocky Mountains.................................................. 7,534 -- -- 7,534
West............................................................. 5,512 -- -- 5,512
Mid-Atlantic..................................................... 4,016 -- -- 4,016
Midwest.......................................................... 4,019 -- -- 4,019
Other........................................................... 382 -- -- 382
----------------------------------------------------------------
Totals......................................................... $53,452 $27,524 $5,685 $ 86,661
================================================================
March 29, 1998
- --------------
Southeast........................................................ $12,911 $35,846 $2,674 $ 51,431
Southwest........................................................ 22,163 -- -- 22,163
Aruba............................................................ -- 17,113 -- 17,113
Rocky Mountains.................................................. 4,654 -- -- 4,654
West............................................................. 2,196 -- -- 2,196
Mid-Atlantic..................................................... 3,009 -- -- 3,009
Midwest.......................................................... 6 6,316 -- 6,322
Other............................................................ 310 -- -- 310
----------------------------------------------------------------
Totals......................................................... $45,249 $59,275 $2,674 $107,198
================================================================
</TABLE>
(1) Resorts Division inventory as of March 30, 1997, consists of land inventory
of $5.4 million and $22.1 million of unit construction-in-progress. Resorts
Division inventory as of March 29, 1998, consists of land inventory of
$13.4 million, $21.3 million of unit construction-in-progress, and $24.6
million of completed units.
(2) Communities Division inventory as of March 30, 1997, consists of land
inventory of $1.5 million and $4.2 million of housing unit
construction-in-progress. Communities Division inventory as of March 29,
1998, consists of land inventory of approximately $500,000 and $2.2 million
of housing unit construction-in-progress.
Interest capitalized during fiscal 1997 and fiscal 1998 totaled approximately
$3.0 million and $3.2 million, respectively. Interest expense in the
Consolidated Statements of Operations is net of capitalized interest.
During the first quarter of fiscal 1997, management changed its focus for
marketing certain of the Company's inventories in conjunction with a plan to
accelerate the sale of properties managed under the Communities Division and
certain properties managed under the Residential Land Division. This decision
was largely the result of management's focus on expansion of the Company's
Resorts Division and Residential Land Division in certain locations. Because of
the strategy to accelerate sales, management determined that inventories with a
carrying value of $23.2 million should be written-down by $8.2 million during
fiscal 1997. The $8.2 million in provisions included $4.8 million for certain
Communities Division inventories and $3.4 million for certain Residential Land
Division inventories. Management adopted a plan to aggressively pursue
opportunities for the bulk sale of a portion of the written-down assets and has
reduced retail prices on others to increase sales activity. The Company's
Communities Division primarily consists of three North Carolina properties
acquired in 1988. The Company began marketing home/lot packages in 1995 to
accelerate sales at the properties. However, the projects had been slow moving
and yielded low gross profits and little to no operating profits. A majority of
the Residential Land Division parcels subject to write-down were scattered lots
acquired through foreclosure or deedback in lieu of foreclosure, odd lots from
former projects and properties located in parts of the country where the Company
has no plans for expansion. As of March 29, 1998, approximately 79% (measured by
historical cost basis) of the inventories subject to write-down had been sold.
7. Property and Equipment
The table below sets forth the property and equipment held by the Company (in
thousands).
Useful March 30, March 29,
Life 1997 1998
---------------------------------------
Land, buildings and
building improvements.......... 30 years $ 3,162 $14,016
Office equipment,
furniture and fixtures......... 3-5 years 4,127 9,004
Aircraft......................... 3-5 years 1,154 1,297
Vehicles and equipment........... 3-5 years 435 801
---------------------------------------
8,878 25,118
Accumulated depreciation......... (3,929) (7,895)
------------------------
Total........................ $ 4,949 $17,223
========================
Depreciation expense included in the consolidated statements of operations
totaled approximately $1.0 million, $811,000 and $1.2 million for fiscal 1996,
1997 and 1998, respectively.
THIRTY-THREE
<PAGE>
8. Short-term Borrowings from Underwriters and Subsequent Note Offering
The Company borrowed an aggregate of $22.1 million from two investment banking
firms pursuant to a short-term loan agreement dated December 15, 1997 (the
"Bridge Loan"). The Bridge Loan bore interest at a rate equal to the greater of
10% or prime plus 2.75%. In addition, the Company paid a fee equal to 1% of each
advance.
On April 1, 1998, the Company consummated a private placement offering (the
"Offering") of $110 million in aggregate principal amount of 10.5% senior
secured notes due April 1, 2008 (the "Notes"). The initial purchasers in the
Offering were the investment banking firms who provided the Company with the
Bridge Loan. Interest on the Notes is payable semiannually on April 1 and
October 1 of each year, commencing October 1, 1998. The Notes are redeemable at
the option of the Company, in whole or in part, in cash, on or after April 1,
2003, together with accrued and unpaid interest, if any, to the date of
redemption at the following redemption prices: 2003--105.25%; 2004--103.50%;
2005--101.75% and 2006 and thereafter--100.00%. In addition, prior to April 1,
2001, the Company may redeem up to 35% of the aggregate principal amount of the
Notes with the proceeds of one or more public equity offerings, at a redemption
price equal to 110.5% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the date of redemption, provided that at least $65 million
principal amount of Notes remains outstanding after any such redemption. The
Notes are senior obligations of the Company and rank pari passu in right of
payment with all existing and future senior indebtedness of the Company and rank
senior in right of payment to all existing and future subordinated obligations
of the Company. None of the assets of Bluegreen Corporation secure its
obligations under the Notes, and the Notes are effectively subordinated to
secured indebtedness of the Company to any third party to the extent of assets
serving as security therefor. The Notes are unconditionally guaranteed, jointly
and severally, by each of the Company's subsidiaries (the "Subsidiary
Guarantors"), with the exception of Bluegreen Properties N.V., any special
purpose finance subsidiary, any subsidiary which is formed and continues to
operate for the limited purpose of holding a real estate license and acting as a
broker, and certain other subsidiaries which have individually less than $50,000
of assets.
The Note guarantees are senior obligations of each Subsidiary Guarantor and rank
pari passu in right of payment with all existing and future senior indebtedness
of each such Subsidiary Guarantor and senior in right of payment to all existing
and future subordinated indebtedness of each such Subsidiary Guarantor. The Note
guarantees of certain Subsidiary Guarantors are secured by a first (subject to
customary exceptions) mortgage or similar instrument (each, a "Mortgage") on
certain residential land properties of such Subsidiary Guarantors (the "Pledged
Properties"). Absent the occurrence and the continuance of an event of default,
the Notes trustee is required to release its lien on the Pledged Properties as
property is sold and the Trustee will not have a lien on the proceeds of any
such sale. As of March 29, 1998, the Pledged Properties had an aggregate book
value of approximately $36.8 million. The Notes' indenture includes certain
financial covenants including the restriction of future payments of cash
dividends.
The net proceeds of the Offering were approximately $106.3 million. In
connection with the Offering, the Company repaid the Bridge Loan, approximately
$28.9 million of the line-of-credit and notes payable balances discussed in Note
9 and approximately $36.3 million of the Company's receivable-backed notes
payable discussed in Note 11. In addition, the Company paid aggregate accrued
interest on the repaid debt of approximately $1 million and $2.7 million of
prepayment penalties. The remaining net proceeds of the Offering will be used to
repay other obligations of the Company and for working capital purposes. In
connection with the Offering, the Company wrote-off approximately $692,000 of
debt issuance costs related to the extinguished debt.
9. Lines-of-Credit and Notes Payable
The Company has outstanding borrowings with various financial institutions and
other lenders which have been used to finance the acquisition and development of
inventory and to fund operations. Significant financial data related to the
Company's borrowing facilities is set forth below.
March 30, March 29,
(amounts in thousands) 1997 1998
- ---------------------------------------------------------------------------
Lines-of-credit secured by inventory
and property and equipment with
a carrying value of $25.7 million
at March 29, 1998. Interest rates
range from 10.25% to 10.75% at
March 30, 1997 and 9.5% to
11.25% at March 29, 1998.
Maturities range from May 1998
to March 2001.......................... $17,798 $13,551
Notes and mortgage notes secured
by certain inventory, property
and equipment and investments
with an aggregate carrying value
of $47.1 million at March 29, 1998.
Interest rates ranging from 7.5% to
11.25% at March 30, 1997 and
7.9% to 11.0% at March 29, 1998.
Maturities range from April 1998
to November 2019....................... 17,961 36,018
Lease obligations with a weighted-
average imputed interest rate of
11.0% and 10.4% at March 30, 1997
and March 29, 1998, respectively.
Maturities range from 1999 to 2002..... 147 678
------------------------------
Total.............................. $35,906 $50,247
==============================
The table on the following page sets forth the contractual minimum principal
payments required on the Company's lines-of-credit and notes payable that were
not repaid in connection with the Offering and the principal payment on the
Notes for each of the five fiscal years subsequent to
THIRTY-FOUR
<PAGE>
fiscal 1998, and thereafter. Such minimum contractual payments may differ from
actual payments due to the effect of principal payments required on a lot or
timeshare interval release basis for certain of the above obligations (amounts
in thousands).
1999.................................................... $ 4,862
2000.................................................... 5,631
2001.................................................... 2,528
2002.................................................... 2,830
2003.................................................... 5,472
Thereafter.............................................. 110,000
--------
Total................................................... $131,323
========
10. Convertible Subordinated Debentures
The Company has $34.7 million of its 8.25% Convertible Subordinated Debentures
(the "Debentures") outstanding at March 30, 1997 and March 29, 1998. The
Debentures are convertible at any time prior to maturity (2012), unless
previously redeemed, into common stock of the Company at a current conversion
price of $8.24 per share, subject to adjustment under certain conditions. The
Debentures are redeemable at any time, at the Company's option, in whole or in
part. On March 29, 1998, the redemption price was 100% of the face amount. The
Company is obligated to redeem annually 10% of the principal amount of the
Debentures originally issued, commencing May 15, 2003. Such redemptions are
calculated to retire 90% of the principal amount of the Debentures prior to
maturity. The Debentures are unsecured and subordinated to all senior
indebtedness of the Company. Interest is payable semi-annually on May 15 and
November 15.
Under financial covenants of the Indenture pursuant to which the Debentures were
issued, the Company is required to maintain net worth of not less than $29.0
million. Should net worth fall below $29.0 million for two consecutive quarters,
the Company is required to make an offer to purchase 20% of the outstanding
Debentures at par, plus accrued interest.
11. Receivable-Backed Notes Payable
The Company has various credit facilities for the pledge of residential land and
resort receivables. The interest rates range from the three-month London
Interbank Offered Rate plus 4.25% to prime plus 2%. At March 30, 1997, the $21.1
million in receivable-backed notes payable were collateralized by $27.1 million
in receivables. At March 29, 1998, the $48.7 million in receivable-backed notes
payable were secured by $58.3 million in receivables. Payments received on the
receivables are applied to reduce principal and pay interest monthly.
As discussed in Note 8, $36.3 million of the outstanding receivable-backed notes
payable balance was repaid on April 1, 1998 in connection with the Offering.
Approximately $7.2 million of the remaining $12.4 million receivable-backed
notes payable balance relates to receivables previously sold by RDI with
recourse.
12. Income Taxes
The provision (benefit) for income taxes consists of the following (in
thousands):
Years Ended,
------------------------------------------
March 31, March 30, March 29,
1996 1997 1998
------------------------------------------
Federal:
Current.......................... $2,591 $ 270 $1,802
Deferred......................... 1,208 (3,193) 3,093
------------------------------------------
3,799 (2,923) 4,895
State and other:
Current.......................... 860 119 1,668
Deferred......................... (210) (226) 240
------------------------------------------
650 (107) 1,908
------------------------------------------
Total.............................. $4,449 $(3,030) $6,803
==========================================
The reasons for the difference between the provision (benefit) for income
taxes and the amount which results from applying the federal statutory tax rate
in fiscal 1996, 1997 and 1998 to income (loss) before income taxes are as
follows (in thousands):
Years Ended,
------------------------------------------
March 31, March 30, March 29,
1996 1997 1998
------------------------------------------
Income tax expense (benefit)
at statutory rate........... $3,721 $(2,512) $5,952
Effect of state taxes, net of
federal tax benefit......... 728 (518) 851
------------------------------------------
$4,449 $(3,030) $6,803
==========================================
At March 30, 1997 and March 29, 1998, deferred income taxes consist of the
following components (in thousands):
March 30, March 29,
1997 1998
---------------------
Deferred federal and state tax (assets) liabilities:
Installment sales treatment of notes $ 8,932 $18,095
Deferred federal and state loss
carryforwards/AMT credits........... (5,126) (6,245)
Other................................. (950) (3,839)
---------------------
Deferred income taxes................... $ 2,856 $ 8,011
=====================
As of March 29, 1998, the Company had $3 million of AMT credit carryforwards
which have no expiration period and approximately $5 million of federal net
operating loss ("NOL") that may be offset against future taxable income through
2012.
13. Commitments and Contingencies
At March 29, 1998, the estimated cost to complete development work in
subdivisions from which lots have been sold totaled $18.5 million. Development
is estimated to be completed within the next two years as follows: 1999--$17.1
million; 2000--$1.4 million.
THIRTY-FIVE
<PAGE>
In connection with the acquisition of RDI, the Company (a) was granted an option
(the "Amclub Option") to acquire the capital stock or assets of AmClub, Inc.
("AmClub"), a corporation owned by the former shareholders of RDI (the "RDI
Stockholders"), which owns a timeshare resort in Virginia known as Shenandoah
Crossing Farm & Club (the "Virginia Resort"), and (b) agreed to indemnify the
RDI Stockholders from any obligations in respect of guarantees executed by the
RDI Stockholders of indebtedness of RDI and its affiliates (including
indebtedness of AmClub). Although all AmClub indebtedness covered by such
guarantees is collateralized by notes receivable, there can be no assurance that
the Company will not be required to make payments with respect to such
indemnification obligation. Pursuant to the AmClub Option the exercise price for
the purchase of AmClub's capital stock is $10,000, while the exercise price for
any assets of AmClub is equal to the fair market value of such assets at the
time of exercise. As of March 29, 1998, AmClub's total liabilities were $15.3
million, and the total indebtedness guaranteed by the Company was $2.3 million.
The Company manages the Virginia Resort through RDI.
On November 26, 1997, an action was filed in the U.S. District Court for the
Eastern District of Tennessee against the Company. The complaint purports to be
brought on behalf of a class of current and former timeshare sales
representative employees of the Company. It asserts claims for violations of the
minimum wage and overtime provisions of the Fair Labor Standards Act. The
Company is in the early stages of evaluating the potential impact of this
litigation, if any, on the Company, and accordingly cannot predict the outcome
with any degree of certainty. Although no assurances can be given, the Company
does not believe that any likely outcome will have a materially adverse effect
on the Company.
The Company is party to certain litigation in the ordinary course of business.
Although no assurances can be given, in the opinion of management, based on the
advice of counsel, the potential outcomes are not expected to have materially
adverse effects on the operations or financial condition of the Company.
14. Stock Option Plans and Employee Retirement Savings Plan
Under the Company's stock option plans, options vest ratably over a five-year
period and expire ten years from the date of grant. All options were granted at
exercise prices which equaled fair market value at the respective dates of
grant. A summary of stock option activity for each plan is presented below (in
thousands, except per share data).
<TABLE>
<CAPTION>
Number of Option Price Number of
Shares Reserved Options Per Share Shares Exercisable
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1985 Employee Stock Option Plan
Balance at April 2, 1995.............................. 1,839 962 $1.25-$12.26 287
Granted............................................. -- 250 $ 4.51
Forfeited........................................... -- (96) $1.25-$12.26
Exercised........................................... (82) (82) $1.25-$ 3.28
Expiration of plan.................................. (723) --
Stock dividends..................................... 52 52
-----------------------------
Balance at March 31, 1996............................. 1,086 1,086 $1.25-$11.64 382
Forfeited........................................... (97) (97) $1.25-$11.64
Exercised........................................... (45) (45) $1.25-$ 4.16
-----------------------------
Balance at March 30, 1997............................. 944 944 $1.25-$11.64 566
Forfeited........................................... (60) (60) $2.29-$11.64
Exercised........................................... (145) (145) $1.25-$ 4.51
-----------------------------
Balance at March 29, 1998............................. 739 739 $1.25-$ 4.51 529
=============================
1995 Stock Incentive Plan
Balance at March 31, 1996............................. 1,000 -- -- --
Granted............................................. -- 75 $ 4.25
-----------------------------
Balance at March 30, 1997............................. 1,000 75 $ 4.25 --
Granted............................................. -- 925 $2.75-$ 4.88
Forfeited........................................... (15) $ 3.13
Exercised........................................... (15) (14) $ 4.25
-----------------------------
Balance at March 29, 1998............................. 985 971 $2.75-$ 4.88 12
=============================
</TABLE>
THIRTY-SIX
<PAGE>
Outside Directors Plan
A stock option plan covering the Company's non-employee Directors (the "Director
Plan") provides for the grant to the Company's non-employee directors (the
"Outside Directors") of non-qualified stock options which vest ratably over a
three-year period and expire ten years from the date of grant. The Director Plan
expired on April 22, 1998. A summary of stock option activity related to the
Company's Director Plan is presented below (in thousands, except per share
data).
<TABLE>
<CAPTION>
Number of Option Price Number of
Shares Reserved Options Per Share Shares Exercisable
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at April 2, 1995.............................. 341 337 $0.83-$ 4.78 186
Additional shares issuable.......................... 200 --
Granted............................................. -- 75 $ 3.80
Stock dividends..................................... 17 21
-----------------------------
Balance at March 31, 1996............................. 558 433 $0.83-$ 4.78 276
Granted............................................. -- 75 $ 3.13
Exercised........................................... -- (24) $0.83-$ 1.46
-----------------------------
Balance at March 30, 1997............................. 558 484 $0.83-$ 4.78 328
Granted............................................. -- 74 $ 3.13
Forfeited........................................... -- --
Exercised........................................... -- --
-----------------------------
Balance at March 29, 1998............................. 558 558 $0.83-$ 4.78 408
=============================
</TABLE>
The weighted-average fair value of options granted during the year ended March
29, 1998 was: employees--$1.69, Directors--$1.42.
The weighted-average exercise price and weighted- average remaining contractual
life of the Company's outstanding stock options at March 29, 1998 (grouped by
range of exercise price) was:
Weighted- Weightable
Average Weighted- Average
Remaining Average Exercise
Contractual Exercise Price
Life Price (vested only)
- --------------------------------------------------------------------------
Employees:
$1.25-$1.46............. 4.5 years $1.35 $1.35
$2.29-$3.13............. 8.7 years $3.02 $2.82
$3.58-$4.88............. 8.5 years $4.25 $3.83
Directors:
$0.83................... 4.0 years $0.83 $0.83
$1.46-$1.77............. 4.1 years $1.47 $1.65
$2.81-$3.80............. 7.6 years $3.28 $3.30
$4.78................... 1.0 years $4.78 $4.78
Pro forma information regarding net income (loss) and earnings (loss) per share
as if the Company had accounted for its employee stock options under the fair
value method of SFAS 123 is presented below. The fair value for these options
was estimated at the date of grant using a Black-Scholes option pricing model
with the following weighted-average assumptions for fiscal 1996, 1997, and 1998
respectively: risk free investment rates of 5%, 5% and 5%, dividend yields of
1%, 1% and 0%, a volatility factor of the expected market price of the Company's
common stock of .369, .369 and .440; and a weighted-average life of the options
of 10 years, 10 years and 5 years, respectively.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows (in thousands, except per share data).
1996 1997 1998
-----------------------------------
Pro forma net income (loss).......... $6,339 $(4,562) $9,736
===================================
Pro forma earnings (loss) per share:
Basic.............................. $ .31 $ (.22) $ .48
Diluted............................ $ .29 $ (.22) $ .45
Employee Retirement Savings Plan
The Company's Employee Retirement Plan is a code section 401(k) Retirement
Savings Plan (the "Plan"). All employees at least 21 years of age with one year
of employment with the Company are eligible to participate in the Plan. Employer
contributions to the Plan are at the sole discretion of the Company and were not
material to the operations of the Company for fiscal 1996, 1997 and 1998.
15. Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in estimating the
fair values of its financial instruments:
Cash and cash equivalents: The amount reported in the balance sheets for cash
and cash equivalents approximate fair value.
Contracts receivable: The amount reported in the balance sheets for contracts
receivable approximate fair value. Contracts receivable are non-interest bearing
and generally convert into cash or an interest bearing mortgage note receivable
within thirty days.
Notes receivable: The carrying amounts reported in the balance sheets for notes
receivable approximate fair value based on (i) prices established by loan
pricing services and (ii) discounted future cash flows using current rates at
which similar loans with similar maturities would be made to borrowers with
similar credit risk.
THIRTY-SEVEN
<PAGE>
Investments in securities: Investment in securities are carried at fair value
based on estimates from dealers.
Lines-of-credit, notes payable, short-term borrowings from underwriters and
receivable-backed notes payable: The carrying amounts reported in the balance
sheets approximate their fair value based upon short-term maturities of the
indebtedness which provide for variable interest rates.
8.00% convertible subordinated notes payable to related parties: The fair value
of the Company's $6 million notes payable were estimated using discounted cash
flow analysis, based on the Company's current incremental borrowing rates for
similar types of borrowing arrangements.
8.25% convertible subordinated debentures: The fair value of the Company's 8.25%
convertible subordinated debentures is based on the quoted market price as
reported on the New York Stock Exchange.
<TABLE>
<CAPTION>
March 30, March 29,
1997 1998
---------------------- -------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents..................................................... $11,597 $11,597 $31,065 $31,065
Contracts receivable.......................................................... 14,308 14,308 15,484 15,484
Notes receivable.............................................................. 34,619 34,619 79,785 79,785
Investments in securities..................................................... 11,067 11,067 10,941 10,941
Lines-of-credit, notes payable, short-term borrowings from underwriters and
receivable-backed notes payable............................................. 56,961 56,961 121,090 121,090
8.00% convertible subordinated notes payable to related parties............... -- -- 6,000 5,779
8.25% convertible subordinated debentures..................................... 34,739 29,832 34,739 34,739
</TABLE>
1998
Annual Report of Independent Certified
Report Public Accountants
The Board of Directors and Shareholders
Bluegreen Corporation
We have audited the accompanying consolidated balance sheets of Bluegreen
Corporation as of March 30, 1997 and March 29, 1998, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended March 29, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, present fairly, in
all material respects, the consolidated financial position of Bluegreen
Corporation at March 30, 1997 and March 29, 1998, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended March 29, 1998, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
West Palm Beach, Florida
May 6, 1998
THIRTY-EIGHT
<PAGE>
The Company's common stock is traded on the New York Stock Exchange ("NYSE") and
the Pacific Stock Exchange under the symbol "BXG". The following table sets
forth, for the periods indicated, the high and low closing price of the common
stock as reported on the NYSE:
Price Range
High Low
- --------------------------------------------------------------------
Fiscal 1997
First Quarter $4 5/8 $3 3/4
Second Quarter 4 1/8 2 7/8
Third Quarter 3 3/8 2 3/8
Fourth Quarter 3 3/8 2 5/8
Fiscal 1997
First Quarter $3 3/4 $2 3/4
Second Quarter 4 1/4 2 3/4
Third Quarter 5 1/8 4 1/8
Fourth Quarter 8 5/8 4 1/4
THIRTY-NINE
EXHIBIT 23.1
Consent of Independent Certified Public Accountants
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Bluegreen Corporation of our report dated May 6, 1998, included in the 1998
Annual Report to Shareholders of Bluegreen Corporation.
We also consent to the incorporation by reference in (i) the Registration
Statement (Form S-8 No. 33-48075) pertaining to the Registrant's Retirement
Savings Plan and in the related Prospectus and (ii) the Registration Statement
(Form S-8 No. 33-61687) pertaining to the 1988 Amended Outside Directors Stock
Option Plan and the 1995 Stock Incentive Plan of the Registrant and in the
related Prospectus of our report dated May 6, 1998, with respect to the
consolidated financial statements of Bluegreen Corporation incorporated herein
by reference for the year ended March 29, 1998.
ERNST & YOUNG LLP
West Palm Beach, Florida
June 22, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-29-1998
<PERIOD-START> MAR-31-1997
<PERIOD-END> MAR-29-1998
<CASH> 31,065
<SECURITIES> 10,941
<RECEIVABLES> 97,582
<ALLOWANCES> 2,313
<INVENTORY> 107,198
<CURRENT-ASSETS> 0<F1>
<PP&E> 25,118
<DEPRECIATION> 7,895
<TOTAL-ASSETS> 272,963
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 161,829
0
0
<COMMON> 208
<OTHER-SE> 69,785
<TOTAL-LIABILITY-AND-EQUITY> 272,963
<SALES> 172,659
<TOTAL-REVENUES> 187,591
<CGS> 74,439
<TOTAL-COSTS> 77,658
<OTHER-EXPENSES> 80,959
<LOSS-PROVISION> 3,002
<INTEREST-EXPENSE> 9,281
<INCOME-PRETAX> 17,003
<INCOME-TAX> 6,803
<INCOME-CONTINUING> 10,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,000
<EPS-PRIMARY> 0.49
<EPS-DILUTED> 0.46
<FN>
<F1>THE COMPANY HAS AN UNCLASSIFIED BALANCE SHEET.
</FN>
</TABLE>
