-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C4II2Goes2yN9hwfj7DfOdEU5x6tcaxSpunCLxl/POPOaZhOmy7dK4rjdoO7AcG6 MwHzkUMflz7NaPSSQI8AYg== 0001019056-97-000214.txt : 19970918 0001019056-97-000214.hdr.sgml : 19970918 ACCESSION NUMBER: 0001019056-97-000214 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970916 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATLANTIC GULF COMMUNITIES CORP CENTRAL INDEX KEY: 0000771934 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE DEALERS (FOR THEIR OWN ACCOUNT) [6532] IRS NUMBER: 590720444 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 001-08967 FILM NUMBER: 97681285 BUSINESS ADDRESS: STREET 1: 2601 S BAYSHORE DR CITY: MIAMI STATE: FL ZIP: 33133-5461 BUSINESS PHONE: 3058594000 MAIL ADDRESS: STREET 1: 2601 S BAYSHORE DR CITY: MIAMI STATE: FL ZIP: 33133 10-Q/A 1 FORM 10-Q/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------------- FORM 10-Q/A AMENDMENT NO. 1 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1997 Commission File Number: 1-8967 ATLANTIC GULF COMMUNITIES CORPORATION (Exact name of Registrant as specified in its charter) DELAWARE 59-0720444 - --------- ---------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 2601 South Bayshore Drive MIAMI, FLORIDA 33133-5461 - --------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number: (305) 859-4000 -------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. [X] Yes [ ] No APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date. There are 11,509,077 shares of the Registrant's Common Stock outstanding as of August 12, 1997. TABLE OF CONTENTS ----------------- PAGE NO. ---- PART I. - FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets as of June 30, 1997 and December 31, 1996 ................................... 1 Consolidated Statements of Operations for the Three and Six Months Ended June 30, 1997 and 1996 ......... 2 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1997 and 1996 ................. 3 Notes to Consolidated Financial Statements .......... 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ...... 7 PART II. - OTHER INFORMATION Item 1. Legal Proceedings ................................... 26 Item 2. Change in Securities ................................ 27 Item 4. Submission of Matters to a Vote of Security Holders . 28 Item 6. Exhibits and Reports on Form 8-K .................... 29 PART I. - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS -------------------- ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets June 30, 1997 and December 31, 1996 (in thousands of dollars) June 30, December 31, 1997 1996 --------- ----------- ASSETS (unaudited) ------ Cash and cash equivalents $ 4,461 $ 7,050 Restricted cash and cash equivalents 3,971 6,034 Contracts receivable, net 7,979 9,649 Mortgages, notes and other receivables, net 41,119 63,800 Land and residential inventory 140,066 153,417 Property, plant and equipment, net 2,730 2,911 Other assets, net 25,704 20,532 --------- --------- Total assets $ 226,030 $ 263,393 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Accounts payable and accrued liabilities $ 11,408 $ 16,914 Customers' and other deposits 4,369 5,483 Other liabilities 12,378 15,393 Notes, mortgages and capital leases 130,241 169,215 --------- --------- 158,396 207,005 --------- --------- Cumulative Redeemable Convertible Preferred Stock Series A preferred stock 7,796 -- Series B preferred stock 9,055 -- --------- --------- 16,851 -- --------- --------- Stockholders' equity Common stock, $.10 par value; 70,000,000 and 15,665,000 shares authorized; 11,595,354 and 9,795,642 shares issued 1,160 980 Contributed capital 132,284 122,123 Accumulated deficit (76,652) (60,706) Minimum pension liability adjustment (6,000) (6,000) Treasury stock, 86,277 shares, at cost (9) (9) --------- --------- Total stockholders' equity 50,783 56,388 --------- --------- Total liabilities and stockholders' equity $ 226,030 $ 263,393 ========= ========= See accompanying notes to consolidated financial statements. 1
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations Three and Six Months Ended June 30, 1997 and 1996 (in thousands, except per share data) (unaudited) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, --------------------- ------------------- Revenues: 1997 1996 1997 1996 -------- ------- -------- ------- Real estate sales: Homesite $ 9,532 $ 9,627 $ 12,082 $24,225 Tract 6,042 30,204 12,706 35,949 Residential 2,201 6,451 9,271 9,321 -------- ------- -------- ------- Total real estate sales 17,775 46,282 34,059 69,495 Other operating revenue 852 1,149 1,445 2,282 Interest income 1,517 1,789 2,889 3,130 Other income: Reorganization reserves 1,365 -- 1,794 1,267 Other income 530 2,509 530 7,329 -------- ------- -------- ------- Total revenues 22,039 51,729 40,717 83,503 -------- ------- -------- ------- Costs and expenses: Cost of real estate sales: Homesite 9,268 7,494 11,256 18,413 Tract 5,538 24,906 11,693 29,609 Residential 3,082 4,896 8,398 7,071 -------- ------- -------- ------- Total cost of real estate sales 17,888 37,296 31,347 55,093 Selling expense 1,889 3,272 4,018 5,824 Other operating expense 298 558 628 1,257 Other real estate costs 2,896 4,435 5,802 8,692 General and administrative expense 2,456 2,256 4,656 5,386 Depreciation 169 223 353 472 Cost of borrowing, net of amounts capitalized 4,471 3,098 8,506 6,386 Other expense 642 95 1,353 302 -------- ------- -------- ------- Total costs and expenses 30,709 51,233 56,663 83,412 -------- ------- -------- ------- Income (loss) before extraordinary item (8,670) 496 (15,946) 91 Extraordinary gain on extinguishment of debt -- -- -- 3,770 -------- ------- -------- ------- Net income (loss) $ (8,670) $ 496 $(15,946) $ 3,861 ======== ======= ======== ======= Net income (loss) before extraordinary item per common share $ (.88) $ .05 $ (1.63) $ .01 ======== ======= ======== ======= Net income (loss) per common share $ (.88) $ .05 $ (1.63) $ .40 ======== ======= ======== ======= Weighted average common shares outstanding 9,863 9,699 9,793 9,716 ======== ======= ======== ======= See accompanying notes to consolidated financial statements. 2
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows Six Months Ended June 30, 1997 and 1996 (in thousands of dollars) (unaudited)
SIX MONTHS ENDED JUNE 30, -------------------- 1997 1996 -------- -------- Cash flows from operating activities: Net income (loss) $(15,946) $ 3,861 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 2,998 2,605 Gain from utility condemnations or sales -- (5,684) Extraordinary gain from extinguishment of debt -- (3,770) Other income (1,337) (1,881) Reorganization items 179 (882) Land acquisitions (5,572) (7,903) Other net changes in assets and liabilities: Restricted cash 2,063 2,738 Receivables 11,697 10,002 Land and residential inventory 19,197 37,295 Other assets (8,668) (6,462) Accounts payable and accrued liabilities (5,252) (4,867) Customer deposits (1,114) (1,638) Other liabilities (483) (1,060) Other, net -- (261) -------- -------- Net cash provided by (used in) operating activities (2,238) 22,093 -------- -------- Cash flows from investing activities: Additions to property, plant and equipment, net (172) (167) Proceeds from sale of property, plant and equipment, net -- 773 Proceeds from utility condemnations or sales -- 25,690 Funds withdrawn from utility trust accounts 12,109 -- -------- -------- Net cash provided by investing activities 11,937 26,296 -------- -------- Cash flows from financing activities: Borrowings under credit agreements 59,738 25,448 Repayments under credit agreements (99,683) (66,081) Principal payments on other liabilities (1,218) (2,380) Proceeds from issuance of common stock 10,000 -- Proceeds from issuance of preferred stock 18,875 -- -------- -------- Net cash used in financing activities (12,288) (43,013) -------- -------- Increase (decrease) in cash and cash equivalents (2,589) 5,376 Cash and cash equivalents at beginning of period 7,050 3,560 -------- -------- Cash and cash equivalents at end of period $ 4,461 $ 8,936 ======== ======== Supplemental cash flow information: Interest payments, net of amounts capitalized $ 4,889 $ 3,827 ======== ======== Reorganization item payments $ 900 $ 2,861 ======== ========
See accompanying notes to consolidated financial statements. 3 ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 1997 (unaudited) (1) The June 30, 1997 financial statements are unaudited and subject to year-end adjustments. In management's opinion, the interim financial statements reflect all adjustments, principally consisting of normal recurring accruals, necessary for a fair presentation of the financial position and results of operations. Results for interim periods are not necessarily indicative of results for the full year. For a complete description of the Company's accounting policies, see "Notes to Consolidated Financial Statements" included in the Company's Annual Report on Form 10-K for the year ended December 31, 1996 ("1996 Annual Report"). Certain prior year amounts have been reclassified to conform with the 1997 presentation. (2) The net income (loss) per common share is based on the weighted average number of shares of common stock outstanding during the periods. The effect of any outstanding warrants and options to purchase common stock on the per share computation was anti-dilutive or not material during the periods. (3) The Company capitalizes interest primarily on land inventory being developed for sale which is subsequently charged to income when the related asset is sold. Capitalized interest was $1,447,000 and $2,722,000 for the three and six-month periods ended June 30, 1997, respectively, and $1,369,000 and $3,261,000 for the three and six-month periods ended June 30, 1996, respectively. (4) Revenue from the sale of residential units other than Regency Island Dunes ("Regency") condominium units is recognized when the earnings process is complete. Revenue from the sale of Regency condominium units is recognized using the percentage-of-completion method. Earned revenue is based on the percentage of costs incurred to date to total estimated costs to be incurred. This percentage is then applied to the expected revenue associated with units that have been sold to date. Revenue from the sale of land is recognized when the cash received, as a percentage of the sales price, is at least 20% for land sales other than retail land sales and 10% for retail land sales, the earnings process is complete and the collection of any remaining receivable is reasonably assured. (5) Due to the necessity to establish reserves against future mandatory debt, and capital and operating expenditures, the Company did not have Available Cash, as defined in the Company's loan agreements, at June 30, 1997, to enable it to make any interest payments on the Cash Flow Notes for the six-month period commencing January 1, 1997 and ending June 30, 1997. In addition, the Company did not have any Available Cash enabling it to make any interest payments for the year ended December 31, 1996. Interest on the Cash Flow Notes is noncumulative. Therefore, the Company has not recorded interest expense associated with the Cash Flow Notes during the six months ended June 30, 1997 and 1996. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." (6) Pursuant to the Company's 1996 Non-Employee Directors' Stock Plan, the Company issued 12,355 shares of Atlantic Gulf's common stock to the Non-Employee Directors at a price of $4.3125 per share for the first quarter of 1997 and 11,158 shares at a price of $5.50 per share for the second quarter of 1997. 4 ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 1997 (unaudited) (7) The Company and AP-AGC, LLC a Delaware limited liability company ("Apollo"), entered into an Amended and Restated Investment Agreement dated as of February 7, 1997, amended as of March 20, 1997, and amended and restated as of May 15, 1997 (the "Investment Agreement"). In addition, the Company, certain of its subsidiaries and Apollo entered into a Secured Agreement dated as of February 7, 1997, and amended and restated as of May 15, 1997 (the "Secured Agreement" and, together with the Investment Agreement, the "Agreements"). Apollo is an affiliate of Apollo Real Estate Investment Fund II, L.P. ("Apollo Fund II"), a private real estate investment fund, the general partner of which is Apollo Real Estate Advisors II, L.P., a New York-based investment fund. Pursuant to the Agreements, Apollo agreed to purchase from the Company up to 2,500,000 shares of 20% Series A Cumulative Redeemable Convertible Preferred Stock (the "Series A Preferred Stock") at a per share price of $9.88, and 5,000,000 warrants to purchase up to 5,000,000 shares of Common Stock (the "Investor Warrants"), at a per warrant price of $.06, for an aggregate purchase price of up to $25 million (the "Apollo Transaction"). See Part II. Item 2. CHANGES IN SECURITIES. On June 24, 1997, pursuant to the Agreements, Apollo purchased 553,475 shares of Series A Preferred Stock and Investor Warrants to purchase an additional 1,106,950 shares of Common Stock, for an aggregate purchase price of $5,534,752. Also on June 24, 1997, the Company and certain purchasers (the "Private Purchasers") consummated a private placement pursuant to which the Private Purchasers purchased for an aggregate price of $20 million; (a) 1,776,199 shares of Common Stock for $10 million, and (b) 1,000,000 shares of 20% Series B Cumulative Redeemable Convertible Preferred Stock (the "Series B Preferred Stock"), at a per share price of $9.88, and 2,000,000 Series B Warrants to purchase 2,000,000 shares of Common Stock at a per warrant price of $.06 for an aggregate purchase price of $10 million. The Series B Preferred Stock balance at June 30, 1997 is the total aggregate purchase price of $10 million net of corresponding Series B Warrants purchased - $0.120 million and net of Series B issuance costs - $0.825 million for a net Series B Preferred Stock balance of $9.055 million. The Series A Preferred Stock, Investor Warrants, Series B Preferred Stock and Series B Warrants are convertible or exercisable into Common Stock, at $5.75 per share, subject to certain adjustments. Of the total proceeds of approximately $25.5 million from the above-mentioned transactions, $13.3 million were used to reduce the amount outstanding under the Term Loan and $7.9 million were used to reduce the amount outstanding under the Reducing Revolving Loan. On June 30, 1997, pursuant to the Agreements, Apollo purchased, for an aggregate purchase price of $3,340,000, an additional 334,000 shares of Series A Preferred Stock and Investor Warrants to purchase an additional 668,000 shares of Common Stock. The Company used approximately $3.0 million of these proceeds plus an acquisition loan of $2.6 million to acquire a 2.9-acre parcel in the 5 ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 1997 (unaudited) downtown business district of Fort Lauderdale, Florida upon which the Company plans to construct a high-rise luxury apartment complex to be called Las Olas Tower. The Series A Preferred Stock balance at June 30, 1997 is the total aggregate purchase price of Series A Preferred Stock issued to Apollo as of that date - $8.875 million, net of corresponding Investor Warrants purchased - $.106 million and net of Series A issuance costs - $.973 million for a net Series A Preferred Stock balance of $7.796 million. On July 31, 1997, pursuant to the Agreements, Apollo purchased, for an aggregate purchase price of $8.5 million, an additional 850,000 shares of Series A Preferred Stock and Investor Warrants to purchase an additional 1,700,000 shares of Common Stock. On July 31, 1997, approximately $7.5 million of these proceeds were used to acquire approximately 600 acres in Frisco, Texas which is near Dallas, Texas. This property is anticipated to yield approximately 1,725 single family units. On August 7, 1997, pursuant to the Agreements, Apollo purchased, for an aggregate purchase price of $2,590,000, an additional 259,000 shares of Series A Preferred Stock and Investor Warrants to purchase an additional 518,000 shares of Common Stock. On August 7, 1997, the Company utilized approximately $2.5 million of these proceeds plus a purchase money mortgage of $8.0 million to acquire approximately 515 acres of residential property in the Fort Myers, Florida area in a project known as West Bay Club. Subsequent to this acquisition, the Company owns a total of approximately 841 acres in West Bay Club and is planning to assemble a total of 879 acres in this project which is anticipated to yield approximately 545 single family homes and 520 high-rise condominium units. The holders of the Series A Preferred Stock and the Series B Preferred Stock are entitled to receive, when, as and if declared by the Board of Directors, out of funds legally available therefore, cash dividends on each share of preferred stock at an annual rate equal to 20% of the Liquidation Preference in effect from time to time. All dividends are cumulative, whether or not declared, on a daily basis from the date on which the preferred stock is originally issued by the Company, and will be payable quarterly in arrears on March 31, June 30, September 30, and December 31 of each year commencing on September 30, 1997. As of June 30, 1997, the Series A Preferred Stock Liquidation Preference was $8.875 million and the corresponding undeclared but accumulated and unpaid dividends were $0.023 million. As of June 30, 1997, the Series B Preferred Stock Liquidation Preference was $10 million and the corresponding undeclared but accumulated and unpaid dividends were $0.038 million. The total undeclared but accumulated dividends as of June 30, 1997 did not materially affect the net income (loss) per common share. Following an Event of Default (as defined in the respective Statement of Designation with respect to the Series A Preferred Stock or the Series B Preferred Stock, dividends accumulate at an annual rate equal to 23% of the Liquidation Preference. 6 PART I. - FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ------------------------------------------------------------- AND RESULTS OF OPERATIONS ------------------------- CURRENT BUSINESS - ---------------- Atlantic Gulf Communities Corporation is a Florida-based real estate development and asset management company. The Company's primary lines of business are acquisition, development and sale of new subdivision and scattered developed homesites, sale of land tracts and residential construction and sales. Additional lines of business which contribute to the Company's overall operations include portfolio management of mortgages and contracts receivable and environmental services. The Company acquires and develops real estate to: (i) enhance the value of certain properties, (ii) maintain a continuing inventory of marketable tracts and (iii) supply finished homesites to independent builders in Florida's fastest growing markets and in other related markets. The Company's acquisition and development activities are comprised of four primary functions: business development, planning, community development and residential construction. See Item 1. Business in the 1996 Annual Report for a more detailed description of the Company's current business. BUSINESS PLAN - ------------- The Company's goal is to produce superior returns for stockholders by liquidating predecessor assets, paying off debt, matching overhead to development and construction activities, and becoming the leading supplier of finished homesites to independent homebuilders in Florida's fastest growing markets and in selected primary markets in the southeastern United States, including North Carolina and Texas. Predecessor assets are those real estate assets inherited by the Company from its predecessor company and consist of tracts and scattered homesites located in secondary markets throughout Florida and in one community in Tennessee. The Company's business plan is centered on its three principal lines of business: (i) sales of finished homesites to independent homebuilders, (ii) sales of tract land to end users as well as to investors and (iii) residential construction and sales. The intent of the plan is to monetize the Company's predecessor assets as rapidly as market conditions permit while entering into new markets with a higher risk-adjusted return potential. The business plan also contemplates modifying the Company's capital structure by reducing debt, improving financial flexibility, and reducing overhead by focusing on the Company's core assets and businesses. The Company is also actively marketing predecessor assets on a bulk sale basis as well as on an individual tract/lot basis through the Company's Atlantic Gulf Land Company. The Company currently has approximately $23.4 million in pending contracts and letters of intent on predecessor assets. There are no assurances that the above-mentioned negotiations, pending contracts and letters of intent will result in material sales or in material sales at prices which, in the aggregate, equal the Company's book value in the properties sold. See Item 1. Business in the 1996 Annual Report for additional information on the Company's business plan. 7 This Quarterly Report includes "forward looking" statements that are subject to risks and uncertainties. Such forward-looking statements include (a) expectations and estimates as to the Company's future financial performance, including growth and opportunities for growth in revenues, net income and cash flow; (b) estimated and targeted annual unit sales, sales prices, and margins and (c) those other statements preceded by, followed by or that include the words "believes," "expects," "intends," "anticipate," "potential" or similar expressions. For these statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. The following important factors, in addition to those discussed elsewhere in this Quarterly Report, could affect the Company's future results and could cause those results to differ materially from those expressed in the forward-looking statements: (a) the inability to generate growth in revenues and net income; (b) the inability to generate sufficient cash flows from operations to fund capital expenditures and debt service; (c) unanticipated capital expenditures, including costs associated with real estate development projects; (d) unanticipated costs, difficulties or delays in completing or realizing the intended benefits of development projects; (e) adverse changes in current financial markets and general economic conditions, including interest rate increases; (f) adverse changes in current real estate markets and the real estate industry; and (g) actions by competitors. 8 Results of Operations --------------------- Comparison of the Six Months Ended June 30, 1997 and 1996 --------------------------------------------------------- The Company's results of operations for the six months ended June 30, 1997 and 1996 are summarized by line of business, as follows:
Combining Results of Operations by Line of Business --------------------------------------------------- Six Months Ended June 30, 1997 (in thousands of dollars) (unaudited) HOMESITE TRACT RESIDENTIAL OTHER BUSINESS ADMINISTRATIVE SALES SALES SALES OPERATIONS DEVELOPMENT & OTHER TOTAL ----- ----- ----- ---------- ----------- -------------- ----- Revenues: Real estate sales $ 12,082 $ 12,706 $ 9,271 $ $ $ $ 34,059 Other operating revenues 401 1,044 1,445 Interest income 2,198 691 2,889 Other income: Reorganization reserves 532 1,262 1,794 Other income 530 530 ----------------------------------------------------------------------------------- Total revenues 12,483 12,706 9,271 3,774 2,483 40,717 ----------------------------------------------------------------------------------- Costs and expenses: Cost of real estate sales 11,256 11,693 8,398 31,347 Selling expense 2,116 1,631 239 32 4,018 Other operating expense 628 628 Other real estate costs: Property tax, net 1,731 1,731 Other real estate overhead 650 699 138 348 1,347 889 4,071 General and administrative expense 4,656 4,656 Depreciation 7 31 2 62 251 353 Cost of borrowing, net 8,506 8,506 Other expense 96 462 795 1,353 ----------------------------------------------------------------------------------- Total costs and expenses 14,029 14,054 8,777 1,134 1,841 16,828 56,663 ----------------------------------------------------------------------------------- Net income (loss) $ (1,546) $ (1,348) $ 494 $ 2,640 $ (1,841) $ (14,345) $ (15,946) =================================================================================== 9
Combining Results of Operations by Line of Business --------------------------------------------------- Six Months Ended June 30, 1996 (in thousands of dollars) (unaudited) HOMESITE TRACT RESIDENTIAL OTHER BUSINESS ADMINISTRATIVE SALES SALES SALES OPERATIONS DEVELOPMENT & OTHER TOTAL ----- ----- ----- ---------- ----------- ------- ----- Revenues: Real estate sales $ 24,225 $ 35,949 $ 9,321 $ $ $ $ 69,495 Other operating revenue 2,282 2,282 Interest income 2,079 1,051 3,130 Other income: Reorganization reserves 1,267 1,267 Other income 5,675 1,654 7,329 ---------------------------------------------------------------------------------------- Total revenues 24,225 35,949 9,321 10,036 3,972 83,503 ---------------------------------------------------------------------------------------- Costs and expenses: Cost of real estate sales 18,413 29,609 7,071 55,093 Selling expense 2,881 2,037 906 5,824 Other operating expense 1,257 1,257 Other real estate costs: Property tax, net 30 2,902 2,932 Other real estate overhead 935 864 533 623 1,587 1,218 5,760 General and administrative 5,386 5,386 Depreciation 18 45 14 188 207 472 Cost of borrowing, net 6,386 6,386 Other expense (11) 313 302 ---------------------------------------------------------------------------------------- Total costs and expenses 22,236 32,555 8,524 2,098 1,900 16,099 83,412 ---------------------------------------------------------------------------------------- Income (loss) before extraordinary item 1,989 3,394 797 7,938 (1,900) (12,127) 91 Extraordinary gain on extinguishment of debt 3,770 3,770 ---------------------------------------------------------------------------------------- Net income (loss) $ 1,989 $ 3,394 $ 797 $ 7,938 $(1,900) $ (8,357) $ 3,861 ========================================================================================
During the first six months of 1997, the Company incurred a net loss of $15.9 million compared to net income of $3.9 million during the first six months of 1996 primarily due to an $11.7 million decrease in the gross margins generated from real estate sales, a $6.3 million decrease in other income and a $3.8 million extraordinary gain in the first quarter of 1996 resulting from the cancellation of debt. The lower gross margins resulted from lower real estate sales revenues and lower gross margin percentages. Gross margin represents 10 the difference between the Company's real estate revenue and related cost of sales. The decrease in other income was principally attributable to a gain of approximately $4.1 million in the first quarter of 1996 from an $18.75 million settlement of the Port St. Lucie condemnation litigation. Homesite Sales -------------- The net operating results from homesite sales decreased $3.5 million during the first six months of 1997 compared to the first six months of 1996 primarily due to lower gross margins generated from homesite sales in 1997 resulting from lower homesite sales revenues and lower gross margin percentages. Revenues from homesite sales decreased $12.1 million in the first six months of 1997 from the first six months of 1996. The decrease resulted from a 44% decrease in the average sales price per homesite and a 10% decrease in the number of homesites sold. The decrease in the average sales price was primarily due to a change in the sales mix. The following table summarizes homesite sales activity for the six months ended June 30 (in thousands of dollars):
1997 1996 ------------------------------------ ------------------------------------- Number Average Number Average of lots Revenue sales price of lots Revenue sales price ------- ------- ----------- ------- ------- ----------- Subdivision homesite sales 270 $ 8,468 $31.4 542 $18,455 $34.0 Scattered homesite sales 872 3,614 4.1 730 5,770 7.9 ----- ------- ----- ----- ------- ----- 1,142 $12,082 $10.6 1,272 $24,225 $19.0 ===== ======= ===== ===== ======= =====
The decrease in subdivision homesite sales revenue is primarily due to approximately $7.6 million of sales in the first six months of 1996 in Julington Creek Plantation, a project in Jacksonville, Florida, including a bulk sale of the remaining 126 homesites in this project for $5.6 million in June 1996. In addition, there was a $3.6 million decrease in sales in Windsor Palms, a project located in southwest Broward County, Florida. The Company sold the remaining 102 homesites in Windsor Palms for approximately $4.5 million in June 1997. Partially offsetting these decreases were sales of 41 homesites for $1.3 million in the first six months of 1997 in West Meadows, a project in Tampa, Florida. Subdivision revenues for the full year of 1997 are anticipated to be lower than 1996 due to the bulk sale of Julington Creek Plantation in 1996 and the sale of 75% of the inventory in Windsor Palms in 1996, which represented the Company's two largest subdivision projects at that time. Current subdivision projects under development along with recently acquired projects and projects to be acquired, utilizing in part, proceeds from the issuance of Series A Preferred Stock to Apollo, are anticipated to generate increased subdivision revenues beginning in 1998. The decrease in the average sales price of subdivision homesite sales is primarily due to the homesite sales in Julington Creek Plantation in the first six months of 1996 which yielded an average sales price of approximately $43,000. Revenues from scattered homesite sales decreased in the first six months of 1997 compared to the first six months of 1996 due to a 48% decrease in the average sales price per homesite, partially offset by a 19.5% increase in the number of homesites sold. The decrease in the average sales price is principally due to a 37% decrease in the average sales price in the Company's Cumberland Cove community in Tennessee and to an increase in bulk sales of scattered homesites in secondary markets in Florida which yield a lower sales price. The decrease in the average sales price in Cumberland Cove is primarily due to the mix of homesites sold. The volume of scattered homesites sales increased primarily due to the increase in the number of bulk homesites sold. The Company anticipates it will continue to supplement scattered homesite sales volume in secondary markets through bulk homesite sales and through the marketing activities of the Atlantic Gulf Land Company as part of its plan to accelerate the disposition of assets in secondary real estate markets in Florida. 11 Other income in the first six months of 1997 included a $322,000 management fee received from Country Lakes, Ltd., a Virginia limited partnership, of which the Company is a limited partner. This partnership was formed to acquire, plan, develop and market approximately 1,750 acres located in Dade and Broward counties Florida, formerly known as Viacom/Blockbuster Park. The Company provides the day-to-day management, development, marketing and sales coordination for the partnership. The $322,000 management fee represented 3.5% of $9.2 million of revenues from a sale of 280 acres in this project in June 1997. As of June 30, 1997, the Company had under contract approximately 2,768 scattered homesite lots for $5.9 million and approximately 344 subdivision homesites for $6.3 million which are anticipated to close in 1997. Substantially, all of the Company's subdivision homesites currently under development are under "contract" for sale. As of June 30, 1996, the Company had approximately 1,030 total homesites under contract totaling approximately $8.6 million. The homesite sales gross margin percentages were 6.8% in 1997 compared to 24.0% in 1996. The gross margin percentage in the first six months of 1996 reflects targeted gross margins of 20% to 30% for this line of business. The lower gross margin percentage in the first six months of 1997 is attributable to a negative 10% gross margin on the Windsor Palms sales and to an increase in bulk homesite sales which are priced to sell and therefore yield lower gross margins. The negative gross margin in Windsor Palms was due to the realization of a lower than expected sales price for the remaining 102 lots sold in 1997 and to higher than anticipated costs associated with the entire project. The Company realized a gross margin of approximately 6.5% on the Windsor Palms project in its entirety. The gross margin in the first six months of 1997 was 23.0% for sales other than Windsor Palms and bulk homesite sales. Homesite selling expense decreased primarily due to a decrease in direct selling expenses resulting from the decrease in revenues and to a reduction in costs in Cumberland Cove. Homesite selling expense as a percentage of revenues increased from 11.9% in 1996 to 17.5% in 1997, primarily due to the decreased revenues over which to spread fixed selling costs. Homesite sales other real estate overhead decreased in the first six months of 1997 compared to the first six months of 1996 primarily due to lower overhead costs associated with managing the Company's subdivision homesite projects in Florida's primary real estate markets. Tract Sales ----------- The net operating results from tract sales decreased in the first six months of 1997 compared to the first six months of 1996 primarily due to lower gross margins generated from tract sales in 1997 resulting from lower tract sales revenues and lower gross margin percentages. Revenues from tract sales decreased $23.2 million in the first six months of 1997 compared to the first six months of 1996 primarily due to several large sales in 1996 including the sale of the Company's Julington Creek Plantation project which included $11.6 million of tract acreage and a $9.0 million bulk sale of Summerchase, a project consisting of 320 acres in southwest Broward County. Tract sales acreages and corresponding revenues from such sales often vary significantly from quarter to quarter depending on the timing and size of individual sales. Despite the decrease in tract sales in the first six months of 1997, tract sales are expected to be a significant source of revenue for the Company in 1997 due to the Company's plan to monetize the Company's predecessor assets located in secondary markets. As of June 30, 1997, there were pending tract sales contracts totaling approximately $15.5 million which, subject to certain contingencies, are anticipated to close in 1997. Pending sales contracts increased to approximately $19.1 million as of July 31, 1997 primarily due to the addition of an anticipated sale in 1997 for $5.1 million of the remaining 1,200 acres 12 of a parcel known as River Trace in Port St. Lucie. As of June 30, 1996, there were pending tract sales contracts totaling approximately $15 million. Tract sales gross margins are summarized as follows for the six months ended June, 30:
1997 1996 ----------------------- ---------------------- Targeted Actual Targeted Actual Margins Margins Margins Margins ------- ------- ------- ------- Port LaBelle agricultural acreage 0% (2.3)% 5% - Julington Creek bulk sale - - - 6.3% Other tract acreage 5-10% 10.6% 20% 23.0%
The targeted gross margin is lower for Port LaBelle agricultural acreage as management has determined that approximately 18,000 acres of the Port LaBelle agricultural property is not an integral part of the Company's long-term business strategy. In order to accelerate the disposal of this property, the sales value for this property was adjusted from a "retail" to a "wholesale" basis, which reduced the targeted gross margin for this property. During the first six months of 1997 the Company sold 2,156 acres of Port LaBelle agricultural property for approximately $2.5 million. The low gross margin in Julington Creek in 1996 resulted from the bulk sale of this project in June 1996 as part of the Company's business plan to monetize certain assets to generate cash to retire debt. The actual gross margins for other tract acreage in 1997 and 1996 generally reflect the targeted gross margins. The targeted gross margins have been reduced primarily due to the Company's plan to accelerate land sales in secondary real estate market locations. Tract sales selling expenses decreased in the first six months of 1997 compared to the first six months of 1996 primarily due to lower direct selling expenses resulting from a decrease in revenues. Tract sales selling expense as a percentage of revenues increased from 5.7% in the first six months of 1996 to 12.8% in the first six months of 1997 primarily due to lower direct selling expenses associated with several large sales in 1996 including the Summerchase and Julington Creek sales and to lower revenues in 1997 over which to spread fixed selling costs. Residential Sales ----------------- Net income from residential sales, which includes single family homes and condominiums, decreased $303,000 during the six months ended June 30, 1997 compared to the corresponding prior year period principally due to a decrease in the gross margin generated from the Company's Regency Island Dunes condominium project, partially offset by decreases in selling and other real estate overhead costs. 13 Residential sales are summarized as follows for the six months ended June 30 (in thousand of dollars): 1997 1996 ----- ----- Condominium sales - Regency Island Dunes: First Building $1,310 $2,015 Second Building 7,885 4,526 ----- ----- Total condominium sales 9,195 6,541 Single family home sales 76 2,780 ----- ----- $9,271 $9,321 ====== ====== The revenues and profits associated with Regency Island Dunes condominium sales are recorded using the percentage of completion method. The Regency Island Dunes condominium project consists of two 72-unit buildings. As of December 31, 1995, the Company recorded 97% of the expected revenues and profits on 61 units that were under contract in the first building as of December 31, 1995 based on a construction completion percentage of 97%. The condominium revenues of $2.0 million in the first building during the first six months of 1996 represent the incremental revenue earned upon the completion of 59 of the 61 units in the first six months of 1996 and the sale and closing of an additional five units in 1996. The condominium revenues of $1.3 million in the first building in 1997 represent revenue earned upon the closing of an additional four units in 1997. As of June 30, 1997, 71 of the 72 units in the first building have been sold and closed. The revenues of approximately $4.5 million in the second building in the first six months of 1996 were derived from 45 units under contract as of June 30, 1996 with construction on the second building 30% complete. As of December 31, 1996, the Company recorded 79% of the expected revenues and profits on 56 units that were under contract in the second building as of December 31, 1996 based on a construction completion percentage of 79%. The revenues of approximately $7.9 million in the second building in the first six months of 1997 were derived from an increase in the completion percentage from 79% as of December 31, 1996 to 100% as of June 30, 1997 and to an additional twelve units sold during the first six months of 1997 for a total of 68 units sold in the second building. As of June 30, 1997, 24 of the 72 units in the second building have closed and the Company anticipates that all 72 units in the second building will be sold and closed in 1997. Single family home sales revenues decreased during the first six months of 1997 compared to the first six months of 1996 due a decrease in closings from 32 in 1996 to one in 1997. Closings decreased as a result of the Company's decision in mid-1995 to begin phasing out its single family home business in predecessor communities and substantially completed the withdrawal in 1996. The Company may seek to re-enter the single family home business in primary markets where this business would complement current or potential land development activities. As of June 30, 1997, the Company had two single family home residential units in inventory, neither of which were under contract. As of June 30, 1996, the Company had two single family home residential units under contract totalling $168,000. Residential sales gross margins are summarized as follows for the six months ended June 30: 1997 1996 ---- ---- Condominiums 9.6% 29.7% Single family homes (15.8)% 11.1% The gross margin for condominiums in the first six months of 1997 was low due to project-to-date adjustments made in the second quarter of 1997 affecting both current and prior period profits resulting from higher than anticipated construction costs associated with Regency Island Dunes. The overall gross margin 14 for this project is anticipated to be approximately 16.5% which is lower than the targeted gross margin of approximately 20% to 25% for this line of business due to the higher than anticipated construction costs. The single family home gross margin in the first six months of 1997 was generated from one unit which was priced to sell as the Company has withdrawn from this line of business. Residential selling expense decreased $667,000 or 74% and decreased as a percentage of revenues from 9.7% in the first six months of 1996 to 2.6% in the first six months of 1997. The decreases were due to closing costs incurred in the first six months of 1996 associated with the closing of 64 condominium units compared to 28 units closed in the first six months of 1997, an adjustment to reduce incentive expenses as a result of the decrease in profits associated with Regency Island Dunes and to a decrease in fixed selling costs as a result of the phasing-out of the single family home operations. Other real estate overhead decreased $395,000 or 74% in the first six months of 1997 compared to the first six months of 1996 primarily due to a $313,000 reduction in overhead costs associated with the Regency Island Dunes condominium project, most notably due to a reduction in condominium association costs. In addition, single family overhead costs decreased due to the phasing-out of this operation. Other Operations ---------------- Net income from other operations decreased $5.3 million in the first six months of 1997 compared to the first six months of 1996 primarily due to a $5.1 million decrease in other income. Other operating revenues and expenses decreased in the first six months of 1997 from the same prior year period primarily due to the absence of revenues and expenses from the Port LaBelle utility system sold in February 1996 and the Julington Creek utility system sold in June 1996. Interest income increased in the first six months of 1997 from the corresponding prior year period primarily due to adjustments in the first quarter of 1996 associated with the Company's land mortgage receivable portfolio, partially offset by a lower average balance of contracts receivable during the periods under review. Other income of $532,000 in the first six months of 1997 represents the amortization of the Company's utility connections reserve. Other income in the first six months of 1996 included a gain of approximately $4.1 million on an $18.75 million settlement in March 1996 with the City of Port St. Lucie regarding litigation pursuant to condemnation proceedings associated with the taking of the Company's Port St. Lucie system. In addition, other income in the first six months of 1996 consisted of a gain of $686,000 on the sale of the Company's Port LaBelle utility system which was sold in February 1996 for $4.5 million and a gain of $865,000 on the sale of the Company's Julington Creek utility system sold in June 1996 for $6.0 million. Other operations other real estate overhead decreased 44% in the first six months of 1997 compared to the first six months of 1996 primarily due to lower community operations costs associated with the Company's predecessor assets located in secondary markets in Florida. Business Development -------------------- Total business development expenditures were similar in the first six months of 1997 compared to the first six months of 1996. Business development expenditures consist primarily of costs associated with the pursuit of business opportunities in primary market locations within Florida and other southeastern United States locations. 15 Business development other expenses included $405,000 in the first six months of 1997 and $313,000 in the first six months of 1996 representing the Company's 50% share of the net loss of the Ocean Grove joint venture. The loss resulted from pre-sales advertising and other selling and overhead costs. Administrative & Other ---------------------- The net loss from administrative & other activities increased $6.0 million in the first six months of 1997 from the first six months of 1996 principally due to an extraordinary gain of $3.8 million in 1996 resulting from the cancellation of debt and to a $2.1 million increase in borrowing costs. Interest income decreased in the first six months of 1997 from the corresponding prior year period primarily due to a decrease in short term investment interest income. Other income included gains of $1.3 million in the first six months of 1997 and $1.3 million in the first six months of 1996 resulting from the resolution of certain reorganization items. This process is expected to continue during the remainder of the year with adjustments to be recorded as the final disposition of various claims and other liabilities is concluded. Other income also included gains of $250,000 in the first six months of 1997 and approximately $1.0 million in the first six months of 1996 due to reductions in the Company's environmental reserve and gains of $250,000 in the first six months of 1997 and approximately $600,000 in the first six months of 1996 due to reductions in the Company's land mortgages receivable valuation reserve. Property tax, net of capitalized property taxes decreased in the first six months of 1997 compared to the first six months of 1996 primarily due to a reduction of land inventory not under development. The decrease in inventory under development corresponds to sales activity and to the completion of various projects during the intervening period. Other real estate overhead decreased 27% in the first six months of 1997 compared to the same period in 1996 primarily due to a decrease in legal costs associated with supporting increased real estate sales activity. General and administrative expenses decreased $730,000 or 14% in the first six months of 1997 compared to the first six months of 1996 principally due to financial advisory and due diligence costs incurred in the first six months of 1996 associated with the Company's recapitalization efforts. Cost of borrowing, net of capitalized interest increased $2.1 million in the first six months of 1997 compared to the same period in 1996 primarily due to a $1.3 million increase in debt issue costs including a $1.0 million fee paid to Foothill in 1997 pursuant to an amendment of the Revolving Loan Agreement on March 31, 1997. Additionally, there was a $539,000 decrease in interest capitalized to land inventory corresponding to a decrease in land under development. During the six months ended June 30, 1997 and 1996, the Company did not accrue interest on its Cash Flow Notes because of the absence of Available Cash during the periods. See "LIQUIDITY AND CAPITAL RESOURCES." Other expense in the first six months of 1997 included a $468,000 loss on the sale of $9.3 million of land mortgage receivables to the First Bank of Boston in March 1997 for an initial cash distribution of $7.0 million plus a residual interest in the portfolio. The proceeds were used to reduce corporate debt and to fund ongoing operations. In February 1996, the Company recorded an extraordinary gain of approximately $3.8 million due to the cancellation of approximately $1.9 million of Unsecured 12% Notes and $1.9 million of Unsecured Cash Flow Notes. These notes, held in the disputed claims reserve account, were in excess of the requirements necessary to satisfy the Company's obligations in accordance with the Company's plan of reorganization (the "POR"). 16 Comparison of the Three Months Ended June 30, 1997 and 1996 ----------------------------------------------------------- The comparison of the three months ended June 30, 1997 and 1996 should be read in conjunction with the comparison of the six months ended June 30, 1997 and 1996 for a more comprehensive discussion of the result of operations. The Company's results of operations for the three months ended June 30, 1997 and 1996 are summarized by line of business, as follows:
Combining Results of Operations by Line of Business Three Months Ended June 30, 1997 (in thousands of dollars) (unaudited) HOMESITE TRACT RESIDENTIAL OTHER BUSINESS ADMINISTRATIVE SALES SALES SALES OPERATIONS DEVELOPMENT & OTHER TOTAL ----- ----- ----- ---------- ----------- ------- ----- Revenues: Real estate sales $ 9,532 $ 6,042 $ 2,201 $ $ $ $ 17,775 Other operating revenue 391 461 852 Interest income 1,080 437 1,517 Other income: Reorganization reserves 265 1,100 1,365 Other income 530 530 ----------------------------------------------------------------------------------------- Total revenues 9,923 6,042 2,201 1,806 2,067 22,039 ----------------------------------------------------------------------------------------- Costs and expenses: Cost of real estate sales 9,268 5,538 3,082 17,888 Selling expense 1,205 828 (168) 24 1,889 Other operating expense 298 298 Other real estate costs: Property tax, net 820 820 Other real estate overhead 287 355 115 160 690 469 2,076 General and administrative 2,456 2,456 Depreciation 3 16 33 117 169 Cost of borrowing, net 4,471 4,471 Other expense 287 355 642 ----------------------------------------------------------------------------------------- Total costs and expenses 10,763 6,737 3,029 491 1,001 8,688 30,709 ----------------------------------------------------------------------------------------- Net income (loss) $ (840) $ (695) $ (828) $ 1,315 $(1,001) $ (6,621) $ (8,670) =========================================================================================
17
Combining Results of Operations by Line of Business --------------------------------------------------- Three Months Ended June 30, 1996 (in thousands of dollars) (unaudited) HOMESITE TRACT RESIDENTIAL OTHER BUSINESS ADMINISTRATIVE SALES SALES SALES OPERATIONS DEVELOPMENT & OTHER TOTAL ----- ----- ----- ---------- ----------- ------- ----- Revenues: Real estate sales $ 9,627 $ 30,204 $ 6,451 $ $ $ $ 46,282 Other operating revenue 1,149 1,149 Interest income 1,265 524 1,789 Other income: Reorganization reserves Other income 855 1,654 2,509 -------------------------------------------------------------------------------------------- Total revenues 9,627 30,204 6,451 3,269 2,178 51,729 -------------------------------------------------------------------------------------------- Costs and expenses: Cost of real estate sales 7,494 24,906 4,896 37,296 Selling expense 1,496 1,394 382 3,272 Other operating expense 558 558 Other real estate costs: Property tax, net 20 1,473 1,493 Other real estate overhead 385 369 111 372 1,003 702 2,942 General and administrative 2,256 2,256 Depreciation 9 27 2 81 104 223 Cost of borrowing, net 3,098 3,098 Other expense (23) 118 95 -------------------------------------------------------------------------------------------- Total costs and expenses 9,361 26,696 5,391 1,031 1,121 7,633 51,233 -------------------------------------------------------------------------------------------- Net income (loss) $ 266 $ 3,508 $ 1,060 $ 2,238 $ (1,121) $ (5,455) $ 496 ============================================================================================
During the second quarter of 1997, the Company incurred a net loss of $8.7 million compared to net income of $496,000 in the second quarter of 1996 primarily due to a $9.1 million decrease in the gross margins generated from real estate sales. The lower gross margins resulted from lower real estate sales revenues and lower gross margin percentages. 18 Homesite Sales -------------- The net operating results from homesite sales decreased $1.1 million in the second quarter of 1997 compared to the second quarter of 1996 despite similar revenues, primarily due to lower gross margin percentages in the second quarter of 1997. Revenues from homesite sales were similar in the second quarter of 1997 compared to the second quarter of 1996 despite a 49% increase in the number of homesites sold due to a 34% decrease in the average sales price per homesite. The following table summarizes homesite activity for the three months ended June 30 (in thousands of dollars):
1997 1996 ------------------------------------ ------------------------------------- Number Average Number Average of lots Revenue sales price of lots Revenue sales price ------- ------- ----------- ------- ------- ----------- Subdivision homesite sales 203 $6,999 $34.5 158 $6,373 $40.3 Scattered homesite sales 695 2,533 3.6 445 3,254 7.3 --- ----- --- --- ----- --- 898 $9,532 $10.6 603 $9,627 $16.0 === ====== ===== === ====== =====
The increase in subdivision homesite sales revenue is primarily due to sales in the second quarter of 1997 of $4.5 million in Windsor Palms and $1.1 million in West Meadows and to a $553,000 increase in sales in Lakeside Estates, partially offset by the bulk sale of the remaining 126 subdivision homesites in Julington Creek Plantation for $5.6 million in June 1996. The decrease in the average sales price of subdivision homesite sales is primarily due to the sales in Julington Creek Plantation in the second quarter of 1996 which yielded an average selling price of approximately $44,600. Revenues from scattered homesite sales decreased in the second quarter of 1997 compared to the second quarter of 1996 due to a 51% decrease in the average selling price, partially offset by a 56% increase in the number of homesites sold. The decrease in the average sales price is principally due to a 41.5% decrease in the average sales price in the Company's Cumberland Cove community in Tennessee and to an increase in bulk sales of scattered homesites in secondary markets in Florida which yield a lower sales price. The average sales price in Cumberland Cove decreased from $20,700 in the second quarter of 1996 to $12,100 in the second quarter of 1997 primarily due to the mix of homesites sold. The volume of scattered homesite sales increased due to the increase in the number of bulk homesites sold. Other income in the second quarter of 1997 included a $322,000 management fee received from Country Lakes, Ltd., a Virginia limited partnership, of which the Company is a limited partner. This partnership was formed to acquire, plan, develop and market approximately 1,750 acres located in Dade and Broward counties Florida, formerly known as Viacom/Blockbuster Park. The Company provides the day-to-day management, development, marketing and sales coordination for the partnership. The $322,000 management fee represented 3.5% of $9.2 million of revenues from a sale of 280 acres in this project in June 1997. The homesite sales gross margin percentages were 2.8% in the second quarter of 1997 compared to 22.2% in the second quarter of 1996. The gross margin percentage in the second quarter of 1996 reflects targeted gross margins of 20% to 30% for this line of business. The lower gross margin percentage in the second quarter of 1997 is attributable to a negative 10% gross margin on the Windsor Palms sales and to an increase in bulk homesite sales which are priced to sell and therefore yield lower gross margins. The negative 19 gross margin in Windsor Palms was due to the realization of a lower than expected sales price for the remaining 102 lots sold in the second quarter of 1997 and to higher than anticipated costs associated with the entire project. The Company realized a gross margin of approximately 6.5% on the Windsor Palms project in its entirety. The gross margin in the second quarter of 1997 was 22.3% for sales other than Windsor Palms and bulk homesite sales. Homesite selling expense decreased $291,000 or 19.5% in the second quarter of 1997 and as a percentage of sales from 15.5% in the second quarter of 1996 to 12.6% in the second quarter of 1997 primarily due a decrease in fixed selling costs, most particularly in the Cumberland Cove community in Tennessee. Tract Sales ----------- The net operating results from tract sales decreased $4.2 million in the second quarter of 1997 compared to the second quarter of 1996 primarily due to lower gross margins generated from tract sales in 1997 resulting from lower tract sales revenues and lower gross margin percentages. Revenues from tract sales decreased $24.2 million in the second quarter of 1997 compared to the second quarter of 1996 primarily due to several large sales during the second quarter of 1996 including the sale of the Company's Julington Creek Plantation project which included $11.6 million of tract acreage and a $9.0 million bulk sale of Summerchase, a project consisting of 320 acres in southwest Broward County. Tract sales acreages and corresponding revenues from such sales often vary significantly from quarter to quarter depending on the timing and size of individual sales. Tract sales gross margins are summarized as follows for the three months ended June 30: 1997 1996 ----------------------- ---------------------- Targeted Actual Targeted Actual Margins Margins Margins Margins -------- ------- ------- ------- Julington Creek bulk sale - - - 6.3% Other tract acreage 5-10% 8.3% 20% 24.5% The lower gross margin in Julington Creek resulted from the bulk sale of this project in June 1996 as part of the Company's business plan to monetize certain assets to generate cash to retire debt. The actual gross margins in the second quarter of 1997 and the second quarter of 1996 for other tract acreage generally reflect the targeted gross margins. The targeted gross margins have been reduced primarily due to the Company's plan to accelerate land sales in secondary real estate market locations. Tract sales selling expense decreased in the second quarter of 1997 compared to the second quarter of 1996 primarily due to lower direct selling expenses due to a decrease in revenues and to a decrease in fixed selling costs. Tract sales selling expense as a percentage of revenues increased from 4.6% in the second quarter of 1996 to 13.7% in the second quarter of 1997 due to lower direct selling expenses associated with several large sales in the second quarter of 1996 including the Summerchase and Julington Creek sales and to lower revenues over which to spread fixed selling costs in the second quarter of 1997. 20 Residential Sales ----------------- The net operating results from residential sales, which includes single family homes and condominiums, decreased $1.9 million during the second quarter of 1997 compared to the corresponding prior year period. This decrease corresponds to a decrease in the gross margin generated from the Company's Regency Island Dunes condominium project, partially offset by a decrease in selling costs. Residential sales are summarized as follows for the three months ended June 30 (in thousand of dollars): 1997 1996 ------- ------- Condominium sales - Regency Island Dunes: First Building $ - $ 1,105 Second Building 2,201 4,526 ------- ------- Total condominium sales 2,201 5,631 Single family home sales - 820 ------- ------- $ 2,201 $ 6,451 ======= ======= The revenues and profits associated with Regency Island Dunes condominium sales are recorded using the percentage of completion method. The Regency Island Dunes condominium project consists of two 72-unit buildings. The condominium revenues of $2.2 million in the second building in the second quarter of 1997 were derived from an increase in the second building completion percentage during the quarter from 96% as of March 31, 1997 to 100% as of June 30, 1997 and to four additional units under contract during the quarter from 64 units as of March 31, 1997 to 68 units as of June 30, 1997. The revenues of $4.5 million in the second building in the second quarter of 1996 were derived from 45 units under contract in the second building as of June 30, 1996 with construction on the second building 30% complete. The condominium revenues of $1.1 million from the first building in the second quarter of 1996 were generated primarily from the closing of three units in the second quarter of 1996 which were sold in 1996. Single family home sales revenues in the second quarter of 1996 were generated from 10 closings with an average selling of price of $82,000. There were no closings in the second quarter of 1997 due to the Company's decision in mid-1995 to withdraw from the single family home business. Residential sales gross margins are summarized as follows for the three months ended June 30: 1997 1996 ---- ---- Condominiums (40.0)% 27.0% Single family homes - 4.4% The gross margin for condominiums in the second quarter of 1997 was negative due to project-to-date adjustments made in the second quarter of 1997 affecting both current and prior period profits resulting from higher than anticipated construction costs associated with Regency Island Dunes. The overall gross margin for this project is anticipated to be approximately 16.5% which is lower than the targeted gross margin of approximately 20% to 25% for this line of business due to the higher than anticipated construction costs. The single family home gross margins in the second quarter of 1996 were low due to the mix of product sold and to the winding down of this operation. 21 Residential selling expense decreased in the second quarter of 1997 compared to the second quarter of 1996 and was negative in the second quarter of 1997 primarily due to an adjustment made in the second quarter of 1997 to reduce incentive expenses, some of which were accrued in prior periods, as a result of the decrease in profits associated with Regency Island Dunes. Also contributing to the decrease in selling expenses were lower direct selling expenses due to lower revenues in the second quarter of 1997 and to a decrease in fixed selling costs as a result of the phasing-out of the single family home operations. Other Operations ---------------- Net income from other operations decreased in the second quarter of 1997 compared to the second quarter of 1996 primarily due to an decrease in other income. Other operating revenues and expenses decreased in the second quarter of 1997 from the second quarter of 1996 primarily due to the absence of revenues and expenses from the Julington Creek utility system sold in June 1996. Interest income decreased in the second quarter of 1997 from the corresponding prior year period primarily due to a lower average balance of contracts receivable during the periods under review. Other income of $265,000 in the second quarter of 1997 represents the amortization of the Company's utility connections reserve. Other income in the second quarter of 1996 consisted primarily of a gain of $865,000 on the sale of the Company's Julington Creek utilities system sold in June 1996 for $6.0 million. Other operations other real estate overhead decreased 57% in the second quarter of 1997 compared to the second quarter of 1996 primarily due to lower community operations costs associated with the Company's predecessor assets located in secondary markets in Florida. Business Development -------------------- Total business development expenditures were similar in the second quarter of 1997 compared to the second quarter of 1996. Business development expenditures consist primarily of costs associated with the pursuit of business opportunities in primary market locations within Florida and other southeastern United States locations. Business development other expenses in the second quarter of 1997 and in the second quarter of 1996 consisted of the Company's 50% share of the net loss of the Ocean Grove joint venture. The loss resulted from pre-sales advertising and other selling and overhead costs. Administrative & Other ---------------------- The net loss from administrative & other activities increased $1.2 million in the second quarter of 1997 from the second quarter of 1996 principally due to a $1.4 million increase in borrowing costs. Other income in the second quarter of 1997 included gains of $1.1 million resulting from the resolution of certain reorganization items. This process is expected to continue during the remainder of the year with adjustments to be recorded as the final disposition of various claims and other liabilities is concluded. Other income also included gains of $250,000 in the second quarter of 1997 and approximately $1.0 million in the second quarter of 1996 due to reductions in the Company's environmental reserve and gains of $250,000 in the second quarter of 1997 and approximately $600,000 in the second quarter of 1996 due to reductions in the 22 Company's land mortgages receivable valuation reserve. Property tax, net decreased in the second quarter of 1997 compared to the second quarter of 1996 primarily due to a reduction of land inventory not under development. This decrease in inventory corresponds to sales activity in the intervening period. Other real estate overhead decreased 33% in the second quarter of 1997 compared to the same period in 1996 primarily due to a decrease in legal costs associated with supporting increased real estate sales activity. Cost of borrowing, net of capitalized interest increased $1.4 million in the second quarter of 1997 compared to the same period in 1996 primarily due to the $1.0 million fee paid to Foothill in 1997 pursuant to an amendment of the Revolving Loan Agreement on March 31, 1997. During the three months ended June 30, 1997 and 1996, the Company did not accrue interest on its Cash Flow Notes because of the absence of Available Cash during the periods. See "LIQUIDITY AND CAPITAL RESOURCES." Liquidity & Capital Resources - ----------------------------- As of June 30, 1997, the Company's cash and cash equivalents totaled approximately $4.5 million. The Company also had restricted cash and cash equivalents of $4.0 million, which consisted primarily of escrows for the sale and development of real estate properties, funds held in trust to pay certain bankruptcy claims and various other escrow accounts. Of the $2.6 million decrease in cash and cash equivalents during the first six months of 1997, $2.2 million was used in operating activities and $12.3 million was used in financing activities, partially offset by $11.9 million provided by investing activities. Cash used in operating activities includes approximately (i) $7.6 million for interest payments, (ii) $5.4 million for property tax payments, (iii) $9.8 million for construction and development expenditures and (iv) $4.2 million of fees associated with the Company's refinancing and recapitalization efforts. These uses were offset in part by net cash generated through real estate sales and other operations. Cash provided by investing activities consisted of $12.1 million of funds released on January 2, 1997 from various utility trust accounts which were funded by the Company during the reorganization proceedings. The terms of these trusts require the Company to periodically assess the adequacy of the property in these trusts. Pursuant to a review of these trusts in December 1996, it was determined that approximately $12.1 million in cash and $6.2 million of notes could be released from these trust accounts. Cash used in financing activities includes $37.5 million of principal payments on January 3, 1997 to repay in full the Company's Unsecured 12% Notes, a scheduled principal payment of $13.3 million on the Company's Term Loan and $1.2 million in net principal payments related to the Company's deferred property tax and Section 365(j) lien obligations arising out of the reorganization proceedings. These payments were partially offset by proceeds of $10.0 million from the issuance of Common Stock and approximately $18.9 million from the issuance of Series A and B Preferred Stock as more fully described below. In addition, the Company had net borrowings of $5.8 million under the Reducing Revolving Loan, $2.2 million associated with the financing of the Company's mortgage and contract receivables and $2.8 million on new project financings. The Company has, pursuant to a Revolving Loan Agreement dated as of September 30, 1996 with Foothill Capital Corporation ("Foothill"), (i) a $20 million working capital facility maturing December 1, 1998 ("Working Capital Facility"), and a $25 million reducing revolving loan maturing June 30, 1998 ("Reducing Revolving Loan "), with principal reductions as set forth below. Amounts under the Reducing Revolving Loan are available only when (i) the Working Capital Facility is fully utilized, and (ii) the Company is in compliance with, among other conditions, a "borrowing base" formula based on the value of certain of the Company's 23 assets. Amounts outstanding under the Working Capital Facility bear variable interest at a rate equal to the variable interest rate, per annum, announced by Northwest Bank of Minnesota, N.A., as its "base rate" plus two percentage points. The Reducing Revolving Loan bears variable interest at the "base rate" plus four percentage points. As of June 30, 1997, the Working Capital Facility was fully drawn and there was $7.6 million outstanding on the Reducing Revolving Loan. The Company's remaining material obligations for 1997 include (i) principal repayments on the Foothill debt up to $21.7 million as more fully described below, and (ii) the final principal and interest payments on the Company's Section 365(j) lien and deferred property tax liabilities totaling approximately $1.5 million which are due in the third quarter of 1997. The Company's 1997 business plan also contemplates full year expenditures for development, construction and other capital improvements estimated at approximately $50 million, of which a substantial portion will require funding through individual project development loans or joint venture arrangements, many of which are already in place. If the Company is unable to obtain the capital resources to fund these expenditures, the implementation of the Company's business plan will be adversely affected, thus slowing the Company's expected revenue growth and increasing the expected time necessary for the Company to achieve profitability. On September 30, 1996, the Company closed on three credit facilities totalling $85.0 million with Foothill (the "Foothill Refinancing"). Pursuant to the Foothill Refinancing, Foothill has provided the Company with (i) an extension to December 1, 1998 of the $20 million Working Capital Facility as discussed above; (ii) a $40 million Term Loan at an interest rate of 15% per annum, maturing June 30, 1998; and (iii) a Reducing Revolving Loan of up to $25 million maturing on June 30, 1998, as discussed above. The Term Loan requires principal repayments of one-third on each of December 31, 1997 and June 30, 1998. The commitment under the Reducing Revolving Loan will also be reduced by one-third on each of December 31, 1997 and June 30, 1998, and the Company will be required to repay on those dates any amounts outstanding under the Reducing Revolving Loan in excess of the new commitment amount. At June 30, 1997, the Company had outstanding the full $20 million under the Working Capital Facility, approximately $26.7 million under the Term Loan and approximately $7.6 million of the $16.7 million currently available under the Reducing Revolving Loan. The Company does not currently have sufficient liquid capital resources to satisfy the up to $21.7 million of Foothill debt due on December 31, 1997. However, management believes that the Company, through a combination of sources as more fully described below, will be able to obtain sufficient liquidity and capital resources necessary to continue implementing its business plan and to satisfy its debt obligations as they become due. The Company's ongoing business plan is to continue to monetize its non-core tract and scattered homesite assets ("Predecessor assets") to reduce corporate debt. The Company made substantial progress in this regard as it sold $55.6 million of tract and scattered homesite assets in 1996 and $15.7 in the first six months of 1997. In addition, the Company currently has pending under contract or letter of intent a combination of Predecessor asset sale transactions which would generate, if consummated, approximately $23.4 million of cash and notes. The transactions under contract are subject to a variety of customary conditions, in some cases including a financing condition. Transactions subject to a letter of intent are also subject to further negotiation and documentation and there are no assurances that any particular transaction under contract or letter of intent will be consummated. As part of the effort to monetize the Predecessor assets pursuant to its business plan, the Company is actively monetizing mortgage and note receivables generated from the sale of Predecessor tracts and scattered homesites. The Company raised approximately $17.8 million of cash proceeds in 1996 and an additional $14.6 million in the first six months of 1997, and received certain residual interests, from the sale 24 or refinancing of mortgages or other receivables generated from the sale of Predecessor real estate assets. These cash proceeds, along with the net cash proceeds from Predecessor real estate sales, were applied to the reduction of corporate debt and to fund ongoing operations. The Company plans to continue to sell or finance mortgages and other receivables generated from the future sale of Predecessor real estate assets going forward. As disclosed in Note 7 in the Notes to Consolidated Financial Statements, the Company closed on a series of preferred and common stock transactions with (i) Apollo to purchase up to $25 million of Series A Preferred Stock and warrants to purchase 5,000,000 shares of common stock; and (ii) through a private placement, the issuance of 1,776,199 shares of Common Stock for $10 million and $10 million of Series B Preferred Stock with Series B Warrants to purchase 2,000,000 shares of Common Stock. As of June 30, 1997, the entire $20 million purchase price for the full private placement of Series B Preferred Stock, Series B Warrants and Common Stock was paid as well as $8.9 million of the aggregate $25 million purchase price corresponding to 887,475 shares of Series A Preferred Stock with Investor Warrants to purchase 1,774,950 shares of Common Stock. As of August 8, 1997, an additional $11.1 million was paid by Apollo to purchase 1,109,000 shares of Series A Preferred Stock with warrants to purchase 2,218,000 shares of Common Stock for a total outstanding of $20 million of the aggregate $25 million purchase price of the Series A Preferred Stock and Investor Warrants. As required by the Agreements, these funds have been and will be used primarily to acquire and develop properties in certain wholly owned subsidiaries of the Company where Apollo has a first lien over the assets and stock of such subsidiaries securing the Company's repurchase and redemption obligations in respect of the Series A Preferred Stock. The Company plans to issue up to an additional $10 million of Series B Preferred Stock along with Series B Warrants to purchase up to 2,000,000 shares of Common Stock to be offered through a rights offering to existing stockholders and to the holders of warrants issued by the Company in September 1996 to purchase up to 1,500,000 shares of Common Stock. An S-3 registration statement has been filed and is currently pending with the Securities and Exchange Commission. The Company expects to close the transaction October, 1997. Available Cash is defined in the Company's POR with respect to any payment period (generally, any six-month period ending June 30 or December 31), as the sum of all cash receipts (exclusive of borrowed money and certain delineated cash items) less the sum of payments for operating expenses, all debt payments (including repurchases of indebtedness), capital expenditures, tax payments, payments to creditors under the plan of reorganization and creation of reserves for working capital and other expenses for the next two payment periods. Pursuant to the Company's debt agreements, the Company must apply any Available Cash (i) to the payment of interest due on the Company's unsecured cash flow notes due December 31, 1998 ("Cash Flow Notes"); (ii) to payments of outstanding amounts under the Working Capital Facility; and (iii) to repayments of principal on the Cash Flow Notes. If there is no Available Cash on a payment date, the then current interest on the Cash Flow Notes is not due or payable on that payment date or at any time thereafter. Due to the necessity to establish reserves against future mandatory debt, capital and operating expenditures, the Company did not have any Available Cash to enable it to make payments on the Cash Flow Notes through June 30, 1997. Accordingly, the Company did not accrue any interest on the Cash Flow Notes during the six months ended June 30, 1997 and 1996. Also, based upon the Company's existing debt obligations, its anticipated net cash flows and its business plan, management does not anticipate the Company having, in respect of the Cash Flow Notes, Available Cash on a payment date in the foreseeable future. 25 PART II. - OTHER INFORMATION Item 1. Legal Proceedings ----------------- FLORIDA HOME FINDERS, INC. In March, 1995, the Company sold Florida Home Finders, Inc. ("Florida Home Finders") to the FHF Trust, owned by Ian R. Law and Benjamin Schiff, for $3.5 million. It has been alleged in litigation filed against Florida Home Finders that FHF Trust withdrew escrow deposits held by Florida Home Finders for the benefit of tenant and owner clients and utilized those funds to purchase a certificate of deposit. It is further alleged that the certificate of deposit was pledged as security to County National Bank for a personal loan to Messrs. Law and Schiff, and that a portion of the proceeds of that loan were utilized to pay the Company approximately $2.0 million of the amount due under the purchase money note given by FHF Trust in favor of the Company at the time of the sale of Florida Home Finders. The Company had no knowledge of the source of the payment. Subsequent to the foregoing alleged events, the Florida Real Estate Commission discovered that escrow deposits were missing from Florida Home Finder's accounts and brought an action in St. Lucie County circuit court seeking the appointment of a receiver for the property and business of Florida Home Finders. State of Florida, Department of Business and Professional Regulation v. Florida Home Finders, Inc. et al., Case No. 95-1092-CA 17 (St. Lucie Cty. Cir. Ct.) A receiver was appointed for Florida Home Finders in October 1995. In November 1995, the Company intervened in the receivership proceeding to (i) protect the Company's interest in the $2.0 million paid under the purchase money note given by FHF Trust in favor of the Company, and (ii) assert claims against the receivership estate for money owed to the Company in connection with the sale of Florida Home Finders to Messrs. Law and Schiff. The receivers have sold the Florida Home Finders' assets (other than litigation claims against third parties, which have been retained by the receiver) to All Florida Property Management, Inc., a Florida corporation; however the sales proceeds are being held by the receiver pending the court's order directing disbursement. In November 1995, the receiver filed a lawsuit against several parties, including the Company, seeking a return and recovery of the missing escrow deposits. Spire v. Ian R. Law et al., Case No. 95-1300-CA 17 (St. Lucie Cty. Cir. Ct.). The Company filed a motion to dismiss the complaint, contending that the complaint failed to identify any knowledge, notice or wrongdoing on the part of the Company. This case was voluntarily dismissed without prejudice on February 6, 1997. The Company agreed with the receiver on May 5, 1997 to a tentative settlement of all matters pending final documentation, the satisfaction of certain conditions and court approval. The documentation of the settlement was finalized and submitted to the court for approval on or about August 6, 1997. At a hearing on August 26, 1997, the court indicated that it would approve the terms of the settlement agreement, although no such Order has been entered by the court at this time. If a final Order is entered by the court approving the settlement agreement, the terms of the settlement will not have a material, adverse financial affect on the Company. REGENCY ISLAND DUNES. In connection with the construction of the Regency Island Dunes Condominium Project in Jensen Beach, Florida, various disputes have arisen between the Company's subsidiary, Regency Island Dunes, Inc. ("Regency"), and the general contractor, Foley and Associates Construction Company, Inc. ("Foley"), regarding completion of the first phase of the project containing 72 units. As a result, Foley filed suit in the Circuit Court of St. Lucie County under the caption of Foley and Associates Construction, Inc. v. Regency Island Dunes, Inc. and Atlantic Gulf Communities Corporation, Case No. 96-1569-CA-03 (St. Lucie Cty. Cir. Ct.) alleging breach of the construction contract, claims for lost profits and delay damages as well as various counts claiming fraudulent transfers of funds from Regency to the Company. This case was filed by Foley in addition to Foley's demand for arbitration before the American Arbitration Association as required pursuant to the terms of the construction contract between Regency and Foley. Regency has asserted counterclaims for Foley's failure to properly staff the job and refusal to perform corrective work which was performed at Regency's expense, and all such sums incurred by Regency would offset Foley's contract claim. The costs of corrective work already incurred together with Regency's claims for delay damages and penalties exceed Foley's claims for the unpaid contract balance. In addition, in the case 26 styled Regency Island Dunes Inc. v. Foley and Associates Construction Company, Inc., Case No. 96-1532 CA-17 (St. Lucie Cty. Cir. Ct.), Regency filed its action to discharge the construction lien filed by Foley on the basis that the lien claim was inflated and was recorded against units which had previously been conveyed to third party purchasers as well as additional lands not included within the construction contract between the parties. The preceding two cases have been consolidated and partially stayed pending resolution of the contract disputes in arbitration. In Regency Island Dunes, Inc. v. National Fire Insurance Company of Hartford and Foley and Associates Construction Company, Inc., refiled under Case No. 97-14075, U.S.D.C., Southern District of Florida, Regency filed suit to recover damages against Foley's surety for corrective work performed by Regency as well as various other claims for damages asserted by Regency in the arbitration described above. The Federal Court dismissed this action because the arbitration proceeding will be dispositive of the issues against the surety. The arbitration proceeding commenced on July 1, 1997 and was completed on July 28, 1997. The arbitration panel entered an award on August 26,1997, in which $2,839,546 was awarded Foley on its claims and $442,000 was awarded Regency on its counterclaims. The Company intends to vigorously contest the arbitration panel's award. In addition, based upon a separate construction contract between Regency and Foley for the construction of the second phase of the Regency Island Dunes Condominium Project, Foley filed a demand for arbitration in March 1997 asserting breach of contract relating to change orders, release of retainage and Foley's requests for extensions of time. The dispute with Foley in connection with the second phase has escalated and Foley has filed a claim of lien, which includes retainage, overhead and unauthorized change orders. The Company continues discussions with Foley to resolve the phase two matters. In the event the settlement discussions are unsuccessful, the Company and Regency will vigorously defend the claims asserted by Foley and aggressively pursue their claims against Foley and the surety. Item 2. Changes in Securities --------------------- (a) Effective June 24, 1997, as approved by the Company's stockholders, the Company's certificate of incorporation was amended to repeal the right of the holders of its Common Stock to receive, semiannually, mandatory dividends equal to 25% of the Company's Available Cash (as defined in the Company's POR). (b) Effective June 24, 1997, as approved by the Company's stockholders, the Company's certificate of incorporation was amended to authorize the issuance of Series A Preferred Stock and Series B Preferred Stock. The holders of each series are entitled to preferential receipt of dividends and preferential distribution from the assets of the Company upon liquidation, dissolution or winding up as compared to holders of Common Stock. Holders of the Series A Preferred Stock, voting as a single class, are entitled to elect three members of the Company's seven-member Board of Directors. (c) On June 25, 1997, the Company sold and issued an aggregate of 553,475 shares of Series A Preferred Stock, together with Investor Warrants to purchase 1,106,950 shares of Common Stock, divided evenly among Class A Warrants, Class B Warrants and Class C Warrants, to Apollo, for an aggregate purchase price of $5,534,752 in a private placement exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"). Apollo is an accredited investor as defined in Rule 501 promulgated under the Securities Act. On June 30, 1997, the Company sold and issued to Apollo an additional 334,000 shares of Series A Preferred Stock and Investor Warrants to purchase 668,000 shares of Common Stock, for an aggregate purchase price of $3,340,000. On June 25, 1997, the Company sold and issued an aggregate of 1,000,000 shares of its Series B Preferred Stock, together with 1,776,199 shares of Common Stock and Series B Warrants to purchase 2,000,000 shares of Common Stock, divided evenly among Series B Class A Warrants, Series B Class B Warrants and Series B Class C Warrants, to a group of institutional and other sophisticated investors, for an aggregate purchase price of $20,000,000, in a private placement exempt from registration pursuant to Section 4(2) of the Securities Act and Rule 506 promulgated thereunder. 27 The Series A Preferred Stock and the Series B Preferred Stock are each convertible at $5.75 per share, at the option of the holder thereof, in whole or in part, into Common Stock, subject to certain adjustments as provided in the applicable Certificate of Designations. The Investor Warrants and Series B Warrants may be exercised at the option of the holder thereof, in whole or in part, to purchase Common Stock at $5.75 per share, subject to certain adjustments, at any time within seven years of their respective dates of issuance, subject to certain terms and conditions set forth in the warrants, and in the case of the Series B Warrants, in the related Warrant Agreement. Item 4. Submission of Matters to a vote of Security Holders --------------------------------------------------- The annual meeting of stockholders was held at the Hyatt Regency Miami, 400 S.E. Second Avenue, Miami, Florida on June 23, 1997. The stockholders voted on the following matters as set forth in the Company's Proxy Statement dated May 21, 1997: 1. APOLLO TRANSACTION. The stockholders approved the proposal to (a) amend the Company's restated certificate of incorporation, in the form attached as Appendix A to the Proxy Statement, to, among other things (i) increase the Common Stock from 15,665,000 shares to 70,000,000 shares and (ii) authorize the Company's issuance of 4,500,000 shares of preferred stock with a liquidation preference of $10 per share, of which (x) 2,500,000 shares would be 20% cumulative redeemable convertible preferred stock, designated as Series A Preferred Stock, and (y) 2,000,000 shares would be 20% cumulative redeemable convertible preferred stock, designated as Series B Preferred Stock; (b) approve certain investment transactions involving, among other things, (i) the issuance to Apollo of up to 2,500,000 shares of Series A Preferred Stock in the aggregate amount of $25,000,000 and warrants to purchase 5,000,000 shares of Common Stock, (ii) the granting to Apollo of representation on the Company's board of directors (the "Board"), (iii) the issuance and sale in a potential private placement to certain other investors of up to 1,000,000 shares of Series B Preferred Stock in the aggregate amount of $10,000,000, newly issued Common Stock with a fair market value of up to $10,000,000, and warrants to purchase up to 2,000,000 shares of Common Stock and (iv) subject to compliance with securities registration and other laws, the making available for sale to stockholders in a rights offering up to 1,000,000 shares of Series B Preferred Stock in the aggregate amount of $10,000,000 and warrants to purchase up to 2,000,000 shares of Common Stock; and (c) amend the 1994 non-employee directors' stock option plan to provide for the extension of the exercise period of those options held by directors who will resign upon consummation of certain of the investment transactions. The voting tabulation was as follows: 5,627,429 votes in favor of the proposal; 654,155 votes against the proposal; and 44,954 abstentions. 2. ELECTION OF DIRECTORS. The stockholders voted to elect three class 2 directors, James W. Apthorp, Jerome J. Cohen and Lawrence B. Seidman, to three-year terms expiring at the annual meeting of stockholders in 2000 or until their successors are duly elected and qualified. The voting tabulation for each nominee was as follows: James W. Apthorp -- 6,036,163 votes in favor of election; 1,121,729 votes withheld. Jerome J. Cohen -- 6,069,626 votes in favor of election; 1,088,266 votes withheld. Lawrence B. Seidman -- 6,442,212 votes in favor of election; 715,680 votes withheld. Upon consummation of the Apollo Transaction on June 24, 1997, the Board was reduced from ten to seven 28 members. James W. Apthorp, Allen A. Blase, Jerome J. Cohen, Raymond Ehrlich, W.D. Frederick, Jr., Lawrence B. Seidman and John W. Temple resigned as directors of the Company. To fill the vacancies, the Board appointed the following directors: Charles K. MacDonald as a class 1 director whose term expires at the annual meeting in 1999; James M. DeFrancia as a class 3 director whose term expires at the annual meeting in 1998; and Ricardo Koenigsberger and Lee Neibart as directors elected by the holders of the Series A Preferred Stock. J. Larry Rutherford, W. Edward Scheetz and Gerald N. Agranoff also resigned as directors of the Company so that they could be reappointed to the Board. The Board reappointed Gerald N. Agranoff as a class 1 director, J. Larry Rutherford as a Class 2 director and W. Edward Scheetz as a director elected by the holders of the Company Series A Preferred Stock. 3. REVERSE STOCK SPLIT AND SUBSEQUENT FORWARD SPLIT OF THE COMPANY'S COMMON STOCK. The stockholders approved the proposal to amend the Company's restated certificate of incorporation (a) to effect, as determined by the Board in its discretion, either of two different reverse stock splits of the outstanding Common Stock as of 5:00 p.m. (Florida time) on the effective date of the amendment (the "Effective Date"), pursuant to which either (i) each 100 shares then outstanding will be converted into one share (the "1-for-100 Reverse Split") , or (ii) each 200 shares then outstanding will be converted into one share (the "1-for-200 Reverse Split" and together with the 1-for-100 Reverse Split, the "Reverse Split" or "Reverse Splits") and (b) to effect a forward split of the Common Stock as of 6:00 a.m. (Florida time) on the day following the Effective Date of the Reverse Split, pursuant to which each share of Common Stock then outstanding as of such date will be converted into the number of shares of the Common Stock that each share represented immediately prior to the Effective Date ("Forward Split"). The voting tabulation was as follows: 6,886,682 votes in favor of the amendment; 98,084 votes against the amendment; and 47,203 abstentions. Consummation of the Reverse Split would be subject to, among other things, the approval of Foothill and Apollo, and the availability of sufficient funds. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - ------ -------------------------------- (a) Exhibits required by Item 601 of Regulation S-K 10 (a) Form of Mortgage and Security Agreement, as of June 23, 1997, to the Bank of New York. (b) Form of Personal Property Security Agreement, as of June 23, 1997, in favor of The Bank of New York. (c) Form of Stock Pledge Agreement, as of June 23, 1997, in favor of The Bank of New York. (d) Form of Junior Mortgage and Security Agreement, as of June 23, 1997, to Foothill Capital Corporation. (e) Form of Junior Personal Property Security Agreement, as of June 23, 1997, in favor of Foothill Capital Corporation. (f) Form of Junior Stock Pledge Agreement, as of June 23, 1997, in favor of Foothill Capital Corporation. 27 Financial Data Schedule. (b) Reports on Form 8-K The Company filed a report on Form 8-K on June 5, 1997, pursuant to Item 5, Other Events, reporting that the Company and Apollo entered into an Amended and Restated Investment Agreement dated as of February 7, 1997, amended as of March 20, 1997, and amended and restated as of May 15, 1997. 29 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this amendment to be signed on its behalf by the undersigned thereunto duly authorized. ATLANTIC GULF COMMUNITIES CORPORATION Date: September 16, 1997 /s/ J. LARRY RUTHERFORD ---------------------------------- J. Larry Rutherford Chairman of the Board, President, and Chief Executive Officer Date: September 16, 1997 /s/ CALLIS N. CARLETON ---------------------------------- Callis N. Carleton Vice President and Controller (Principal Accounting Officer) 30 EXHIBIT INDEX EXHIBIT DESCRIPTION ------- ----------- 10 (a) Form of Mortgage and Security Agreement, as of June 23, 1997, to the Bank of New York. (b) Form of Personal Property Security Agreement, as of June 23, 1997, in favor of The Bank of New York. (c) Form of Stock Pledge Agreement, as of June 23, 1997, in favor of The Bank of New York. (d) Form of Junior Mortgage and Security Agreement, as of June 23, 1997, to Foothill Capital Corporation. (e) Form of Junior Personal Property Security Agreement, as of June 23, 1997, in favor of Foothill Capital Corporation. (f) Form of Junior Stock Pledge Agreement, as of June 23, 1997, in favor of Foothill Capital Corporation. 27 Financial Data Schedule. EX-10.A 2 EXHIBIT 10(A) THIS INSTRUMENT WAS PREPARED BY: PAULA MCDONALD RHODES, ESQUIRE CARLTON, FIELDS, WARD, EMMANUEL, SMITH & CUTLER, P.A. P.O. BOX 3239 TAMPA, FLORIDA 33601 MORTGAGE AND SECURITY AGREEMENT THIS MORTGAGE AND SECURITY AGREEMENT ("MORTGAGE"), is made effective as of the 23rd day of June, 1997, from WEST BAY CLUB DEVELOPMENT CORPORATION, a Florida corporation, formerly known as Estero Pointe Development Corporation ("WEST BAY CLUB"), having an office at 2601 South Bayshore Drive, Miami, Florida 33133 ("MORTGAGOR"), to THE BANK OF NEW YORK, a New York banking corporation, and its successors and assigns, having an office at Towermarc Plaza, 2nd Floor, 10161 Centurion Parkway, Jacksonville, Florida 32256 ("MORTGAGEE"), as collateral agent for AP-AGC, LLC, a Delaware limited liability company ("OBLIGEE"). W I T N E S S E T H: -------------------- WHEREAS, Mortgagor owns the parcels of real property (the "LAND") described in EXHIBIT A attached hereto and hereby made a part hereof, together with all buildings and improvements presently located thereon; THIS MORTGAGE IS ONE OF SEVERAL MORTGAGES SECURING THE OBLIGATIONS SECURED HEREBY, WHICH SECURED OBLIGATIONS ARE THE JOINT AND SEVERAL PRIMARY OBLIGATIONS OF THE MORTGAGORS HEREUNDER AND UNDER THAT CERTAIN JUNIOR MORTGAGE AND SECURITY AGREEMENT GIVEN BY ATLANTIC GULF COMMUNITIES CORPORATION, ENVIRONMENTAL QUALITY LABORATORY, INCORPORATED, GENERAL DEVELOPMENT UTILITIES, INC., FIVE STAR HOMES, INC., AND ATLANTIC GULF OF TAMPA, INC. IN FAVOR OF FOOTHILL CAPITAL CORPORATION, AS COLLATERAL AGENT FOR OBLIGEE ("AG AGENT"), BEING RECORDED CONTEMPORANEOUSLY HEREWITH IN THE FLORIDA COUNTIES OF BREVARD, BROWARD, CHARLOTTE, CITRUS, DESOTO, GLADES, HENDRY, HILLSBOROUGH, INDIAN RIVER, LEE, MARION, PALM BEACH, ST. LUCIE AND SARASOTA ("COMPANION MORTGAGE"). DOCUMENTARY STAMP TAXES IN THE AMOUNT OF $87,500.00 DUE ON THE OBLIGATIONS SECURED HEREBY AND BY THE COMPANION MORTGAGE ARE BEING PAID UPON RECORDATION OF THIS MORTGAGE IN LEE COUNTY, FLORIDA. NO INTANGIBLE PERSONAL PROPERTY TAXES ARE DUE UPON RECORDATION OF THIS MORTGAGE OR THE COMPANION MORTGAGE AS THE OBLIGATIONS SECURED HEREBY AND THEREBY ARE CONTINGENT IN NATURE. WHEREAS, pursuant to that certain Investment Agreement dated as of February 7, 1997, amended as of March 20, 1997, and amended and restated as of May 15, 1997 (together with any and all modifications, amendments, replacements, renewals and extensions thereof, the "INVESTMENT AGREEMENT") among Obligee, Atlantic Gulf Communities Corporation, a Delaware corporation ("COMPANY"), and the subsidiaries of the Company, Obligee has agreed to purchase up to $25,000,000 in the aggregate of preferred stock to be issued by the Company; WHEREAS, Obligee, the Company, and the Mortgagor, among others, are parties to that certain Secured Agreement dated February 7, 1997, and amended and restated as of May 15, 1997 (together with any and all modifications, amendments, replacements, renewals and extensions thereof, the "SECURED AGREEMENT"); WHEREAS, all capitalized terms used herein and not otherwise defined shall have the meaning given such terms in the Secured Agreement; WHEREAS, pursuant to the Secured Agreement and the Investment Agreement, the Company, the Mortgagor, and the other subsidiaries of the Company have executed and delivered to the Obligee that certain Secured Evidence of Joint and Several Repurchase Obligations (together with any and all additions, modifications, amendments, renewals, extensions thereof, the "INSTRUMENT"), evidencing (a) after the issuance of the Preferred Stock, the joint and several obligations of the Company, the Mortgagor and other subsidiaries of the Company pursuant to Section 8 of the Certificate of Designation to repurchase Preferred Stock on the happening of certain conditions set forth in the Certificate of Designation at a repurchase price equal to the Liquidation Preference in respect thereof, as defined in the Certificate of Designation, consisting of, at any time, $10.00 per share of Preferred Stock, plus accumulated and unpaid dividends thereon through the date of such determination, whether or not funds are legally available therefor, the aggregate amount of which, upon issuance of the 2,500,000 shares of Preferred Stock to be issued pursuant to the Investment Agreement, shall be $25,000,000, plus accumulated and unpaid dividends, and (b) after the occurrence of an Event of Default, as defined in the Certificate of Designation, the joint and several obligations of the Company, Mortgagor and other subsidiaries of the Company to indemnify Obligee from and against any and all losses, claims, damages, expenses (including reasonable fees, disbursements and other charges of counsel) or other liabilities resulting from any breach of any covenant, agreement, representation or warranty of the Company in this Mortgage or in any other Secured Instrument Document pursuant to Section 7.2 of the Investment Agreement (collectively, the "OBLIGATIONS"); WHEREAS, it is a condition precedent to Obligee making the investment contemplated by the Investment Agreement that the Mortgagor provide, as collateral security for the payment of the Obligations, a mortgage lien upon the Mortgaged Property (as such term is hereinafter defined). NOW, THEREFORE, in order to induce Obligee to make the investment contemplated by the Investment Agreement and for the purpose of securing payment of the Secured Obligations, Mortgagor hereby agrees as follows: 2 TO SECURE, a. the Obligations, whether or not from time to time decreased or extinguished and later increased, created or incurred and all or any portion of such obligations that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from Obligee or Mortgagee as a preference, fraudulent transfer or otherwise, b. all obligations of every nature (whether of payment, of performance or otherwise) of the Company, the Mortgagor and other subsidiaries of the Company from time to time owed to Obligee or Mortgagee or either of them under the Secured Agreement or any other Secured Instrument Document other than any Subsidiary Guaranty, whether for principal, interest (including interest accruing after the commencement of a bankruptcy case, whether or not enforceable in such case), repurchase or redemption obligations, dividend obligations, fees, costs, expenses, indemnification liabilities or other obligations, of whatsoever nature and whether now or hereafter made, incurred or created, whether absolute or contingent, liquidated or unliquidated, regardless of class, whether due or not due, and however arising, c. all future or additional advances as described in Article 38 of this Mortgage as and when the same shall be made with the same force and effect as if such future or additional advances had been made on the date hereof, and d. any amounts advanced by Mortgagee pursuant to paragraph 17 or any other paragraph of this Mortgage (the foregoing being hereinafter collectively referred to as the "SECURED OBLIGATIONS"), Mortgagor does hereby convey, grant, assign, transfer, mortgage and set over to Mortgagee, all of Mortgagor's right, title and interest in and to the following (collectively, the "MORTGAGED PROPERTY"): The Land; TOGETHER with the right, title and interest if any of Mortgagor, now owned or hereafter acquired, in and to the streets, the land lying in the bed of any streets, roads or avenues, opened or proposed, in front of, adjoining, or abutting the Land to the center line thereof and strips and gores within or adjoining the Land, the air space and right to use said air space above the Land, all rights of way, privileges, liberties, hereditaments, all easements or rights-of-way now or hereafter affecting the Land, all royalties and all rights appertaining to the use and enjoyment of said Land, including, without limitation, all alley, vault, drainage, mineral, water, oil and gas rights; TOGETHER with the buildings, structures and improvements now or hereafter erected or located on the Land (the "IMPROVEMENTS") (the Land, together with the Improvements are hereinafter collectively called the "REAL ESTATE"); 3 TOGETHER with all and singular the tenements, hereditaments and appurtenances belonging or in anywise appertaining to the Real Estate, and the reversion or reversions, remainder or remainders, rents, issues, profits and revenue thereof; and also all the estate, right, title, interest, dower and right of dower, curtesy and rights of curtesy, property, possession, claim and demand whatsoever, both in law and equity, of Mortgagor, of, in and to the Real Estate and of, in and to every part and parcel thereof, with the appurtenances, at any time belonging or in anywise appertaining thereto; TOGETHER with all of the fixtures of every kind and nature whatsoever currently owned or hereafter acquired by Mortgagor, and all appurtenances and additions thereto and substitutions or replacements thereof, now or hereafter attached to, the Real Estate (said fixtures of every kind and nature whatsoever, and all appurtenances thereof, are hereinafter collectively referred to as the "FIXTURES"), including, but without limiting the generality of the foregoing, all plumbing, ventilating, air conditioning and air-cooling apparatus, refrigerating, incinerating, and escalator, elevator, power, loading and unloading equipment and systems, sprinkler systems and other fire prevention and extinguishing apparatus and pipes, pumps, tanks, conduits, fittings and fixtures; it being understood and agreed that all Fixtures are appropriated to the use of the Real Estate and, whether affixed or annexed or not, for the purposes of this Mortgage shall be deemed conclusively to be Real Estate and mortgaged hereby; and Mortgagor hereby agrees to execute and deliver, from time to time, such further instruments (including financing statements), as may be requested by Mortgagee to confirm the lien of this Mortgage on the Fixtures; TOGETHER with all unearned premiums, accrued, accruing or to accrue under insurance policies now or hereafter obtained by Mortgagor and Mortgagor's interest in and to all proceeds of the conversion and the interest payable thereon, voluntary or involuntary, of the Mortgaged Property, or any part thereof, into cash or liquidated claims, including, without limiting the generality of the foregoing, proceeds of casualty insurance, title insurance or any other insurance maintained on the Real Estate and the Fixtures, and the right to collect and receive the same, and all awards and/or other compensation including the interest payable thereon and the right to collect and receive the same (in the alternative and collectively, "AWARDS"), heretofore and hereafter made to the present and all subsequent owners of the Real Estate and the Fixtures by the United States, the State of Florida or any political subdivision thereof, or any agency, department, bureau, board, commission, or instrumentality of any of them, now existing or hereafter created (collectively, "GOVERNMENTAL AUTHORITY") for the taking by eminent domain, condemnation or otherwise, of all or any part of the Real Estate and Fixtures or any easement or other right therein, including, without limiting the generality of the foregoing, Awards for any change or changes of grade or the widening of streets, roads or avenues affecting the Real Estate, to the extent of all amounts which may be secured by this Mortgage as of the date of receipt, notwithstanding the fact that the amount thereof may not then be due and payable, and to the extent of reasonable attorneys' fees, costs and disbursements incurred by Mortgagee in connection with the collection of such Awards. Mortgagor hereby assigns to Mortgagee, and Mortgagee is hereby authorized to collect and receive such Awards (subject to any Mortgagor's right to be paid directly and apply certain Awards as expressly provided by this Mortgage), and to give proper receipts and acquittances therefor and, subject to the other provisions hereof, to apply the same toward the Secured Obligations, notwithstanding the fact 4 that the full amount thereof may not then be due and payable; Mortgagor hereby agrees, upon demand of Mortgagee, to make, execute and deliver, from time to time, such further instruments as may be reasonably requested by Mortgagee to confirm such assignment of said Awards to Mortgagee, free and clear and discharged of any encumbrances of any kind or nature whatsoever; TOGETHER with all right, title and interest of Mortgagor in and to all substitutes and replacements of, and all additions and appurtenances to, the Real Estate and the Fixtures, hereafter acquired by or released to Mortgagor or constructed, assembled or placed by Mortgagor on the Real Estate, and all conversions of the security constituted thereby, immediately upon such acquisition, release, construction, assembling, placement or conversion, as the case may be, and in each such case, without any further mortgage, conveyance, assignment or other act by Mortgagor, shall become subject to the lien of this Mortgage as fully and completely, and with the same effect, as though now owned by Mortgagor and specifically described herein; TOGETHER with all of the rights and interest of Mortgagor as the declarant and as the developer under any document affecting the Land including, but not limited to, any condominium documents or property association documents. Notwithstanding the foregoing, Mortgagee shall not have any obligation as the developer or declarant unless Mortgagee executes an agreement expressly assuming such obligation; TOGETHER with all proceeds, both cash and noncash, of the foregoing which may be sold or otherwise be disposed of; TOGETHER with any and all monies now or hereafter on deposit for the payment of real estate taxes or special assessments against the Real Estate or for the payment of premiums on policies of fire and other hazard insurance covering the Mortgaged Property. TO HAVE AND TO HOLD the Mortgaged Property, together with all and singular of the rights, privileges, tenements, hereditaments and appurtenances thereto in any way incident or belonging unto Mortgagee and to its successors and assigns forever, subject to the terms and conditions herein: PROVIDED, HOWEVER, that this Mortgage shall be void upon the payment, when the same shall become due, of the Secured Obligations and the payment and performance of all other covenants, agreements, obligations and liabilities secured hereby. Mortgagor represents, warrants, covenants and agrees as follows: 1. WARRANTIES OF TITLE. ------------------- Mortgagor warrants that Mortgagor has and owns good and marketable fee simple title in and to the Land and the Improvements thereon and has the right to mortgage the same; that Mortgagor owns the Fixtures on the Land free and clear of all liens, claims or other encumbrances except as set forth in Schedule B, Section 2 of the title insurance commitment issued by Lawyers Title Insurance Corporation in connection with this Mortgage 5 (the "TITLE COMMITMENT"); and that this Mortgage is a valid and enforceable lien on the Mortgaged Property of the Mortgagor, the covenants, restrictions, reservations, conditions, and easements approved by the Mortgagee. Mortgagor covenants that it shall (a) preserve such title and the validity and priority of the lien hereof and shall forever warrant and defend the same to Mortgagee against the claims of all and every person or persons, corporation or corporations and parties whomsoever claiming or threatening to claim the same or any part thereof, and (b) make, execute, acknowledge, and deliver all such further or other mortgages, documents, instruments or assurances, and cause other mortgages, documents, instruments or assurances, and cause to be done all such further acts and things as may at any time hereafter be reasonably desired or required by Mortgagee to fully protect the lien of this Mortgage. 2. PAYMENT OF SECURED OBLIGATIONS. Mortgagor shall pay the Secured Obligations at the times and places and in the manner specified in the relevant Secured Instrument Documents. 3. PROPER CARE AND USE. ------------------- a. Mortgagor shall: (i) not abandon the Mortgaged Property, (ii) maintain the Mortgaged Property and any future abutting grounds, sidewalks, roads, parking and landscape areas in good repair, order and condition, except as otherwise may be permitted pursuant to Subsection 3a(iii) hereof, (iii) keep all Improvements and all personal property comprising the Mortgaged Property in good working order and condition, in the ordinary course of business and in a manner consistent with the prior practice of Mortgagor, (iv) not commit or suffer waste with respect to the Mortgaged Property, (v) diligently pursue to completion, without interruption (other than interruptions due to force majeure) and in a good and workmanlike manner, any future Improvements constructed on the Land, (vi) not commit, suffer or permit any act to be done in or upon the Mortgaged Property in violation of any law, ordinance or regulation, PROVIDED, HOWEVER, that the Company may contest any such law, ordinance or regulation in any reasonable manner which shall not, in the sole opinion of the Mortgagee, adversely affect the Mortgagee's rights or the priority of its lien on the Mortgaged Property, (vii) refrain from impairing or diminishing the value or integrity of the Mortgaged Property or the security value of this Mortgage, 6 (viii) not remove, demolish or in any material respect alter any of the Improvements or Fixtures unless such Improvement or Fixture is of a temporary nature (temporary meaning that it is an Improvement intended to be removed within a year after its placement on the Land), the removal or demolition would benefit the Mortgaged Property, the removal is of land fill only for sale in the ordinary course of Mortgagor's business, or the removal or demolition is not inconsistent with the Business Plan (as such term is defined in the Secured Agreement), without the prior written consent of the Mortgagee, which consent shall not be unreasonably withheld or delayed, PROVIDED, HOWEVER, Mortgagor may without the necessity of any consent perform or cause to be performed alterations to the Improvements and Fixtures which do not materially impair the value of the Mortgaged Property and (a) are not inconsistent with the Business Plan, or (b) do not cost more than $500,000 or, if the cost of such alterations exceeds $500,000, the cost of which when added to the cost of other alterations not requiring consent previously made during the calendar year in which Mortgagor is making such alterations to the Mortgaged Property, does not result in an aggregate cost in excess of $1,000,000. Failure by the Mortgagee to deny any requested consent by Mortgagor pursuant to this clause (viii) within thirty (30) days following the date such request is telecopied to and confirmed received by Mortgagee shall be deemed to constitute a consent to such request by the Mortgagee. For purposes of determining the cost of any alteration to the Mortgaged Property, all aspects of the proposed alteration as a whole shall be taken into account regardless of when made and by whom the work may be performed, (ix) not make, install or permit to be made or installed, any additions thereto if doing so will materially impair the value of the Mortgaged Property, without the prior written consent of the Mortgagee, and (x) not make, suffer or permit any nuisance to exist on any of the Real Estate. b. Mortgagee and any persons authorized by Mortgagee shall have the right to enter and inspect the Mortgaged Property at reasonable times upon written notice. When so requested by Mortgagor, Mortgagee and its representatives shall be accompanied by Mortgagor or its representative. If an Event of Default shall have occurred and be continuing, or in the event of an emergency, Mortgagee and any persons authorized by Mortgagee, without any notice and without escort (and without being obligated to do so) may enter or cause entry to be made upon the Real Estate and repair and/or maintain the same as Mortgagee may reasonably deem necessary or advisable, and may (without being obligated to do so) make such expenditures and outlays of money as Mortgagee may reasonably deem appropriate for the preservation of the Mortgaged Property. All expenditures and outlays of money made by Mortgagee pursuant hereto shall be secured hereby and shall be payable on demand together with interest at the Default Rate (as such term is defined in the Secured Agreement). 4. HAZARDOUS MATERIALS. Except as otherwise disclosed in the Secured Agreement or the Business Plan, Mortgagor represents, warrants and covenants that to the best of its knowledge Mortgagor has not used Hazardous Materials (as defined hereinafter) on, from, or affecting the Mortgaged Property in any manner which violates Federal, state or local laws, 7 ordinances, rules, regulations, or policies governing the use, storage, treatment, transportation, manufacture, refinement, handling, production or disposal of Hazardous Materials, and that, to the best of Mortgagor's knowledge, no prior owner of the Mortgaged Property or any tenant, subtenant, prior tenant or prior subtenant have used Hazardous Materials on, from, affecting, or related to the Mortgaged Property in any manner which violates Federal, state or local laws, ordinances, rules, regulations or policies governing the use, storage, treatment, transportation, manufacture, refinement, handling, production or disposal of Hazardous Materials. Mortgagor shall use its best efforts to keep or cause the Mortgaged Property to be kept free of Hazardous Materials. Without limiting the foregoing, Mortgagor shall not cause or permit the Mortgaged Property to be used to generate, manufacture, refine, transport, treat, store, handle, dispose, transfer, produce or process Hazardous Materials, except in compliance with all applicable Federal, state or local laws or regulations, nor shall Mortgagor cause or permit, as a result of any intentional or unintentional act or omission on the part of Mortgagor or any tenant or subtenant, a release of Hazardous Materials onto the Mortgaged Property or onto any other property. Mortgagor shall comply with and shall, by covenants in all future leases, seek to ensure compliance by all tenants and subtenants with all applicable Federal, state and local laws, ordinances, rules and regulations, whenever and by whomever triggered, and shall obtain and comply with, and by covenants in all future leases, seek to ensure that all tenants and subtenants obtain and comply with, any and all approvals, registrations or permits required thereunder. Mortgagor shall (a) conduct and complete all investigations, studies, sampling, and testing, and all remedies, removal, and other actions necessary to clean up and remove all Hazardous Materials on, from, or affecting the Mortgaged Property (i) in accordance with all applicable Federal, state and local laws, ordinances, rules, regulations and policies, and (ii) in accordance with the orders and directives of all Federal, state, and local governmental authorities, and (b) defend, indemnify, and hold harmless Mortgagee, Obligee and their respective employees, agents, officers, and directors, from and against any claims, demands, penalties, fines, liabilities, settlements, damages, costs or expenses of whatever kind or nature, known or unknown contingent or otherwise arising out of, or in any way related to, (i) the presence, disposal, release, or threatened release of any Hazardous Materials which are on, from, affecting, or related to the soil, water, vegetation, buildings, personal property, persons, animals, of or otherwise on, the Mortgaged Property; (ii) any personal injury (including wrongful death) or property damage (real or personal arising out of or related to such Hazardous Materials; (iii) any lawsuit brought or threatened, settlement reached, or government order relating to such Hazardous Materials, and/or (iv) any violation of any laws, orders, regulations, requirement, or demands of Governmental Authorities, which are based upon or in any way related to such Hazardous Materials including, without limitation, attorney and consultant fees, investigation and laboratory fees, court costs, and litigation expenses; provided, in any event, that the foregoing arises out of the Mortgaged Property. In the event this Mortgage is foreclosed, or Mortgagor tenders a deed in lieu of foreclosure, Mortgagor shall deliver the Mortgaged Property to Mortgagee free of any and all Hazardous Materials so that the conditions of the Mortgaged Property shall conform with all applicable Federal, state and local laws, ordinances, rules or regulations affecting the Mortgaged Property. For purposes of this Paragraph, "Hazardous Materials" includes, without limit, any flammable explosives, radioactive materials, hazardous materials, hazardous wastes, solvent mixtures, hazardous or toxic substances, or related materials defined in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as 8 amended (42 U.S.C. Section 9601, et. seq.), the Hazardous Materials Transportation Act, as amended (49 U.S.C. Sections 1810 et seq.), the Resource Conservation and Recovery Act, as amended (42 U.S.C. Section 9601, et seq.) and in the regulations adopted and publications promulgated pursuant thereto, or any other applicable Federal, state or local environmental law, ordinance, rule, or regulation. The provisions of this paragraphs shall be in addition to any and all other obligations and liabilities Mortgagor may have to Mortgagee and/or Obligee, at common law, and shall survive the transactions contemplated herein. 5. COMPLIANCE. Mortgagor shall comply with any and all material obligations affecting its Mortgaged Property which could adversely affect title to, or the value of, the Mortgaged Property including, but not limited to, all agreements, covenants, and restrictions of record. Mortgagor shall have the right, at Mortgagor's sole cost and expense, to contest or object to any such obligations of Mortgagor affecting the Mortgaged Property by appropriate legal proceedings, but such right shall not be deemed or construed in any way as relieving, modifying or extending Mortgagor's covenant to comply with such obligations on a timely basis unless Mortgagor has given prior written notice to Mortgagee of Mortgagor's intent so to contest or object to such obligations, and unless (i) non-compliance with such obligations shall not under any circumstances potentially subject Mortgagor to any criminal liability or to any fine or monetary liability exceeding $25,000 to which effect Mortgagor shall certify to Mortgagee at the time of Mortgagor's notice, and (ii) the legal proceedings shall operate conclusively to prevent, prior to final determination of such proceedings, (y) any loss or forfeiture of title to, or the imposition of any lien upon, the Mortgaged Property, or any part thereof and (z) the impairment of the validity, priority and enforceability of this Mortgage. Mortgagor shall and do hereby agree to defend, save and hold Mortgagee harmless from any loss and/or liability (including reasonable attorneys' fees and disbursements) by reason of such non-compliance or contest, and Mortgagor shall keep Mortgagee regularly advised in writing as to the status of such proceedings. 6. REQUIREMENTS. Mortgagor, at Mortgagor's sole cost and expense, shall promptly comply with, or cause to be complied with, and conform to all present and future laws, statutes, codes, ordinances, orders, judgments, decrees, injunctions, rules, regulations and requirements pertaining to the Mortgaged Property, including any applicable environmental, zoning or building, use and land use laws, ordinances, rules or regulations and all covenants, restrictions and conditions now or hereafter of record, and shall keep in full force and effect all permits which may be applicable to it or to any of the Mortgaged Property, or to the use, manner of use, occupancy, possession, operation, maintenance, alteration, repair or reconstruction of any of the Mortgaged Property (collectively, the "LEGAL REQUIREMENTS"). Mortgagor shall have the right, at Mortgagor's sole cost and expense, to contest or object to any Legal Requirements affecting the Mortgaged Property by appropriate legal proceedings, but such right shall not be deemed or construed in any way as relieving, modifying or extending Mortgagor's covenant to comply with any Legal Requirements on a timely basis unless Mortgagor has given prior written notice to Mortgagee of Mortgagor's intent so to contest or object to such Legal Requirements and unless (i) non-compliance with such Legal Requirements shall not under any circumstances potentially subject Mortgagor to any criminal liability or to any fine or liability exceeding $25,000 to which effect Mortgagor shall certify to Mortgagee at the time of Mortgagor's notice, and (ii) the legal proceedings shall operate conclusively to prevent, prior to final determination of such proceedings, 9 (y) any loss or forfeiture of title to, the imposition of any lien upon, or the condemnation of, the Mortgaged Property, or any part thereof and (z) the impairment of the validity, priority and enforceability of this Mortgage. Mortgagor shall and does hereby agree to defend, save and hold Mortgagee harmless from any loss and/or liability (including reasonable attorney's fees and disbursements) by reason of such non-compliance or contest, and Mortgagor shall keep Mortgagee regularly advised in writing as to the status of such proceedings. 7. PAYMENT OF IMPOSITIONS. ---------------------- a. Mortgagor shall pay and discharge prior to delinquency all taxes of every kind and nature (including, without limitation, all real and personal property, income, franchise, withholding, profits and gross receipts taxes), all charges for any easement or agreement maintained for the benefit of any of the Mortgaged Property, all general and special assessments, levies, permits, inspection and license fees, all water and sewer rents and charges and all other public charges whether of a like or different nature, even if unforeseen or extraordinary, imposed upon or assessed of or against Mortgagor or any of the Mortgaged Property, together with any penalties or interest on any of the foregoing (all of the foregoing are hereinafter collectively referred to as the "IMPOSITIONS"). Mortgagor shall have the right, at Mortgagor's sole cost and expense, to contest or object to the amount or validity of any such Imposition by appropriate legal proceedings, but such right shall not be deemed or construed in any way as relieving, modifying or extending Mortgagor's covenant to pay any such Imposition at the time and in the manner provided in this Article 7, unless Mortgagor has given prior written notice to Mortgagee of Mortgagor's intent so to contest or object to an Imposition, and unless, (i) legal proceedings shall operate conclusively to prevent the sale of the Mortgaged Property, or any part thereof, to satisfy such Impositions prior to final determination of such proceedings; or (ii) Mortgagor shall furnish a good and sufficient bond or surety or other security reasonably satisfactory to Mortgagee in the amount of the Impositions which are being contested plus any interest and penalty which may be imposed thereon and which could become a lien against the Mortgaged Property; or (iii) Mortgagor shall have provided a good and sufficient undertaking as may be required or permitted by law to accomplish a stay of such proceedings. Subject to the foregoing, and if Mortgagee shall so request, within ten (10) days after the date when an Imposition is due and payable, Mortgagor shall deliver to Mortgagee evidence acceptable to Mortgagee showing the payment of such Imposition. b. Mortgagee shall have the right, after demand to Mortgagor, to pay any Impositions after the date such Imposition shall have become due (subject to Mortgagor's right to contest such Impositions as hereinbefore provided), and to add to the Secured Obligations the amount so paid, together with interest thereon from the date of such payment at Default Rate and nothing herein contained shall affect such right and such remedy. Any sums paid by Mortgagee in discharge of any Impositions shall be (i) a lien on the Real Estate secured hereby prior to any right or title to, interest in, or claim upon the Real Estate subordinate to the lien of this Mortgage, and (ii) payable on demand. c. Following the occurrence of an Event of Default specified in subsection (a) of Article 20 of this Mortgage or upon any failure on the part of Mortgagor to pay any Imposition as and when required to be paid pursuant to this Mortgage (subject to 10 applicable grace periods), Mortgagor, upon Mortgagee's request, shall hereafter pay to Mortgagee, on a monthly basis, an amount equal to one-twelfth of the annual Impositions reasonably estimated by Mortgagee so that Mortgagee shall have sufficient funds to pay the Impositions on the first day of the month preceding the month in which they become due. In such event Mortgagor further agrees to cause all bills, statements or other documents relating to Impositions to be sent or mailed directly to Mortgagee. Upon receipt of such bills, statements or other documents, and providing Mortgagor has deposited sufficient funds with Mortgagee pursuant to this Article 7, Mortgagee shall pay such amounts as may be due thereunder out of the funds so deposited with Mortgagee. If at any time and for any reason the funds deposited with Mortgagee are or will be insufficient to pay such amounts as may then or subsequently be due, Mortgagee shall notify Mortgagor and Mortgagor shall immediately deposit an amount equal to such deficiency with Mortgagee. Notwithstanding the foregoing, nothing contained herein shall cause Mortgagee to be deemed a trustee of said funds or to be obligated to pay any amounts in excess of the amount of funds deposited with Mortgagee pursuant to this Article 7. If amounts collected by Mortgagee under this paragraph (c) exceed amounts necessary in order to pay Impositions, Mortgagee may impound or reserve for future payment of Impositions such portion of such excess payments as Mortgagee in its absolute reasonable discretion may deem proper. Should Mortgagor fail to deposit with Mortgagee sums sufficient to pay such Impositions in full at least thirty (30) days before delinquency thereof, Mortgagee may, at Mortgagee's election, but without any obligation so to do, advance any amounts required to make up any deficiency, which advances, if any, shall be added to the Secured Obligations and shall be secured hereby and shall be repayable to Mortgagee with interest at Default Rate, as herein elsewhere provided, or at the option of Mortgagee the latter may, without making any advance whatever, apply any sums held by it upon any obligation of Mortgagor secured hereby. 8. INSURANCE. --------- a. As to any portion of the Land improved with Improvements having a value in excess of $500,000 (an "IMPROVED PARCEL"), Mortgagor shall, (i) keep such Improved Parcel (A) insured against loss or damage by fire, lightning, windstorm, tornado and by such other further and additional risks and hazards as now are or hereafter may be covered by extended coverage and "all risk" endorsements (flood and earthquake excepted), (B) insured against loss or damage by any other risk commonly insured against by persons occupying or using like properties in the locality in which the Improved Parcel is situate, (C) if appropriate, insured by a policy of business interruption and/or loss of rental insurance in amounts which shall be subject to review annually, and (D) insured by a policy of boiler and machinery insurance covering pressure vessels, air tanks, boilers, machinery, pressure piping, heating, air conditioning and elevator equipment, provided that the Improvements on the Improved Parcel contain equipment of such nature, and insurance against loss of occupancy or use arising from the breakdown of such machinery, (ii) keep the Fixtures on such Improved Parcel insured against loss or damage by fire, lightning, vandalism, windstorm, tornado, malicious mischief, and theft and by such other further and additional risks as now or hereafter may be covered by extended coverage and "all risk" endorsements (flood and earthquake' excepted) and (iii) to the extent the Land lies within an area identified by the Secretary of Housing and Urban Development as an area having special flood hazards, keep the Real Estate insured under a policy of flood insurance in an amount no less than the 11 maximum list of coverage available under the National Flood Insurance Act of 1968, as amended. In addition, Mortgagor shall obtain and maintain (A) comprehensive public liability insurance on an occurrence basis (to the extent available) against claims for personal injury including bodily injury, death or property damage occurring on, in or about the Mortgaged Property and the adjoining streets, sidewalks and passageways, such insurance to afford primary coverage of not less than $10,000,000 combined single limit for personal injury or death to one or more persons or damage to property and (B) workmen's compensation insurance (including employer's liability insurance if requested by Mortgagee) for all employees of Mortgagor engaged on or with respect to the Mortgaged Property in such amounts as are required to be maintained by law, or if no amounts are established by law, then in such amounts as are reasonably satisfactory to Mortgagee. Each insurance policy (other than flood insurance written under the National Flood Insurance Act of 1968, as amended, in which case to the extent available) shall (i) be noncancelable (which term shall include any reduction in the scope or limits of coverage) without at least thirty days' prior written notice to Mortgagee or the maximum notice period then available, whichever is shorter, (ii) except in the case of worker's compensation and comprehensive public liability insurance, be endorsed to name Mortgagee as its interest may appear, with loss payable to Mortgagee, without contribution, under a standard mortgagee clause, (iii) in the case of public liability insurance, provide for broad form coverage, including liquor liability coverage, (iv) in the case of property insurance contain a satisfactory "Replacement Cost Endorsement", (v) be written by Lloyds of London or by companies having an Alfred M. Best Company, Inc. rating of A or higher and a financial size category of not less than VII with respect to primary coverage and (and A/XII with respect to excess coverage) unless waived in writing by Mortgagee, and (vi) contain an endorsement or agreement by the insurer that any loss shall be payable in accordance with the terms of such policy notwithstanding any act or negligence of Mortgagor which might otherwise result in forfeiture of said insurance and the further agreement of the insurer waiving all rights of set-off, counterclaim, deduction or subrogation against Mortgagor. If said insurance or any part thereof shall expire, be withdrawn, become void by breach of any condition thereof by Mortgagor or otherwise, or if for any reason said insurance shall become unsatisfactory, Mortgagor shall immediately obtain new or additional insurance complying with the requirements of this Mortgage. Mortgagor shall not take out any separate or additional insurance which is contributing in the event of loss unless it is properly compatible with all other insurance carried by it with respect to the Mortgaged Property. b. Mortgagor shall (i) pay as they become due all premiums for such insurance, (ii) not later than twenty (20) days prior to the expiration of each policy to be furnished pursuant to the provisions of this Article 7, deliver a valid certificate of insurance, (or if such certificate is not then available, a renewal binder) evidencing a renewed policy or policies marked "premium paid," or accompanied by such other evidence of payment satisfactory to Mortgagee with standard noncontributory mortgagee clauses in favor of, and acceptable to, Mortgagee. Such certificate of insurance (or renewal binder) shall be accompanied by a written statement of Mortgagor certifying that the insurance coverage evidenced thereby complies with the requirements of this Article 8. c. If Mortgagor shall be in default of its obligations to so insure or deliver any such prepaid certificate or insurance or renewal binder then Mortgagee, at Mortgagee's 12 option (without obligation to do so) and without prior notice, may effect such insurance from year to year, and pay the premium or premiums therefor, and following notice from Mortgagee that such insurance has been effected and paid for, Mortgagor shall pay to Mortgagee such premium or premiums so paid by Mortgagee with interest from the time of payment at Default Rate on demand, and the same shall be deemed added to the Secured Obligations and shall be secured by this Mortgage. d. Mortgagor promptly shall comply with and conform to (i) all provisions of each such insurance policy and (ii) all requirements of the insurers thereunder applicable to Mortgagor or to any of its Mortgaged Property or to the use, manner of use, occupancy, possession, operation, maintenance, alteration or repair of any of this Mortgaged Property. If Mortgagor shall use any of the Mortgaged Property in any manner which would permit the insurer to cancel any insurance policy, Mortgagor immediately shall obtain a substitute policy to be effective at or prior to the time of any such cancellation. e. If any Improvement on an Improved Parcel, or any portion thereof, the value of which is $100,000 or less, shall be destroyed or damaged by fire or any other casualty, whether insured or uninsured, and regardless of any amount of proceeds of insurance which are available to Mortgagor, and provided no Event of Default has occurred or is continuing, Mortgagor shall elect whether to repair or replace such Improvement or any portion thereof; provided, however, in the event Mortgagor elects not to repair or replace such Improvement or portion thereof, the proceeds shall be applied by Mortgagee to the Secured Obligations in whatever manner Mortgagee, in its sole discretion, may determine. Mortgagor shall give immediate notice of any such destruction or damage to Mortgagee who may make proof of loss if not promptly made by Mortgagor and except as may otherwise be provided herein each insurance company concerned is hereby authorized and directed to make payment for any loss directly to Mortgagee. Mortgagee shall have the right, at its option, (but not the obligation) to participate in the adjustment of any loss with any insurer or insurers. The insurance proceeds or any part thereof received by Mortgagee, if paid as a result of a damage or destruction in the amount of $100,000 or less, shall be paid by Mortgagee to Mortgagor so long as no Event of Default has occurred or is continuing. The insurance proceeds or any part thereof received by Mortgagee, if paid as a result of a damage or destruction in an amount greater than $100,000, may be applied by Mortgagee toward reimbursement of all costs and expenses of Mortgagee in collecting such proceeds, and the balance shall be applied in the following order: (i) first, to the payment of any Secured Obligations or any other amount secured hereby which has become due prior to the date application of the insurance proceeds has been made and remains unpaid; (ii) next, to the restoration and repair of the affected Improvement pursuant to the provisions of Article 9 of this Mortgage; and (iii) finally, if conditions (i) and (ii) above have been satisfied and funds remain, said balance shall be returned to Mortgagor. f. The property insurance required by this Mortgage may be effected by blanket policies issued to Mortgagor covering the Mortgaged Property and other properties (real and personal) owned or leased by Mortgagor, provided that such policies otherwise comply with the provisions of this Mortgage and allocate with respect to the Mortgaged Property the coverage specified form time to time, without possibility of reduction or coinsurance by reason of, or damage to, any other property (real or personal) named therein, 13 and if the insurance required by this Mortgage shall be effected by any such blanket or umbrella policies, Mortgagor shall furnish to Mortgagee valid certificates of insurance evidencing such policies, with schedules attached thereto showing the amount of insurance afforded by such policies applicable to the Mortgaged Property and a certification from Mortgagor to the effect that such insurance coverage complies in all respects with the requirements of this Mortgage. g. Any transfer of the Mortgaged Property by foreclosure or deed in lieu of foreclosure shall transfer therewith all of Mortgagor's interest, including any unearned premiums, in all insurance policies then in force covering the Mortgaged Property, subject to all of the terms and conditions of such policies. h. Following the occurrence of an Event of Default specified in subsection (a) of Article 20 of this Mortgage or upon any failure on the part of Mortgagor to pay any insurance premiums as and when required to be paid pursuant to this Mortgage (subject to applicable grace periods), Mortgagor, upon Mortgagee's request, shall thereafter pay to Mortgagee an amount equal to one-twelfth of the estimated aggregate annual insurance premiums on all policies of insurance required by this Mortgage on a specified date each month. Upon Mortgagee's request, Mortgagor shall cause copies of all bills, statements or other documents relating to the foregoing insurance premiums to be sent or mailed directly to Mortgagee. Upon receipt of such bills, statements or other documents by Mortgagee, and providing Mortgagor has deposited sufficient funds with Mortgagee pursuant to this Article 8, Mortgagee shall pay such amounts as may be due thereunder out of the funds so deposited with Mortgagee. If at any time and for any reason the funds deposited with Mortgagee are or will be insufficient to pay such amounts as may be or subsequently are due, Mortgagee shall notify Mortgagor and Mortgagor shall immediately deposit an amount equal to such deficiency with Mortgagee. Notwithstanding the foregoing, nothing contained herein shall cause Mortgagee to be deemed a trustee of said funds or to be obligated to pay any amounts in excess of the amount of funds deposited with Mortgagee pursuant to this Article 8. Should Mortgagor fail to deposit with Mortgagee sums sufficient to pay in full such insurance premiums at least thirty (30) days before delinquency thereof, Mortgagee may, at Mortgagee's election, but without any obligation so to do, advance any amounts required to make up the deficiency, which advances, if any, with interest thereon at Default Rate, from the date of advance thereof shall be secured hereby and shall be repaid to Mortgagee on demand or at the option of Mortgagee the latter may, without making any advance whatever, apply any sums held by it upon any obligation of Mortgagor secured hereby. i. Any provision of this Article 8 to the contrary notwithstanding, so long as no Event of Default shall have occurred and be continuing, Mortgagor shall have the right to receive the proceeds from any business interruption and/or loss of rentals insurance policy. 9. RESTORATION. ----------- a. Funds in excess of $100,000 made available by Mortgagee to Mortgagor for restoration of any of the Mortgaged Property pursuant to the provisions of 14 Article 8 hereof shall be disbursed by Mortgagor only in accordance with the following conditions: (i) prior to the commencement of restoration, the contracts, contractors, architects, plans and specifications for the restoration shall have been approved by the Consulting Professional (as such term is defined in subsection (c) of this Article 9), and the Consulting Professional shall have the right to require an acceptable surety bond insuring satisfactory completion of the restoration; (ii) at the time of any disbursement of the restoration funds, (A) no Event of Default shall then exist, (B) no mechanics' or materialmen's liens shall have been filed and remain undischarged, except those bonded while being contested and those discharged by the disbursement of the requested restoration funds and (C) a satisfactory continuation of title insurance on the Real Estate shall be delivered to Mortgagee; (iii) disbursements shall be made monthly in an amount not exceeding the cost of the work completed since the last disbursement, upon receipt of a certificate from an architect approved to do the plans and specifications; (iv) there shall, at all times, remain adequate funds to complete the restoration so that the remaining amount of available proceeds received from insurance and otherwise pursuant to paragraph (b) below equals or exceeds the contracted cost of construction less the amount paid for work that has been certified as having been completed; (v) such other reasonable conditions may be imposed and as are customarily imposed by construction lenders for borrowers having a similar financial position as then existing for the Mortgagor, including but not limited to, the maintenance of a policy of builders risk insurance with completed value and extended coverage endorsements and worker's compensation coverage as shall be required by law; and (vi) any restoration funds remaining after the application thereof in accordance with the provisions hereof shall be disbursed to Mortgagor provided no Event of Default shall have occurred and then be continuing. b. Mortgagor shall pay the cost of the restoration to the extent that it exceeds the amount of insurance proceeds or condemnation proceeds awarded. Mortgagor (i) shall evidence to Mortgagee a source of funds to pay for such restoration, and (ii) agree to use said funds to complete restoration of the Improvements. Any sum so added by Mortgagor which remains in the restoration fund upon completion of restoration shall be refunded to Mortgagor. c. The administration of the restoration procedures set forth in subsection (a) of this Article 9 shall be delegated by Mortgagee to, and performed by, an independent bonded consulting professional experienced in the administration of such procedures who shall be designated by Mortgagor and approved by Mortgagee (the "CONSULTING PROFESSIONAL"). The failure by Mortgagee to approve or disapprove any Consulting Professional proposed by Mortgagor within fifteen (15) Business Days following 15 request for such a approval shall be deemed approved by Mortgagee. All fees, costs and expenses of such Consulting Professional shall be borne and timely paid by Mortgagor. d. In the event of any fire or casualty where the cost of repair and restoration of the Mortgaged Property does not exceed $100,000 as determined by Mortgagor's insurance carrier for the Improvements, the proceeds of insurance shall be collected and applied by Mortgagor (rather than disbursed by Mortgagee). e. In the event Mortgagor receives any condemnation award the actual proceeds of which do not exceed $100,000, Mortgagor shall retain such amount and use such amount to the extent necessary to repair and restore the Mortgaged Property. 10. CONDEMNATION/EMINENT DOMAIN. --------------------------- a. Immediately upon obtaining knowledge of the institution of any proceedings of the condemnation of the Mortgaged Property, or any portion thereof, Mortgagor will notify Mortgagee of the pendency of such proceedings. Mortgagee may (but shall not be obligated to) participate in any such proceedings and Mortgagor shall from time to time deliver to Mortgagee all instruments requested by it to permit such participation. Mortgagor shall, at its expense, diligently prosecute any such proceeding and shall consult with Mortgagee, its attorneys and experts and cooperate with it in any defense of any such proceedings. Except as otherwise expressly provided in paragraph (e) of Article 9 above, all awards and proceeds of condemnation shall be assigned to Mortgagee to be applied in the same manner as insurance proceeds, and Mortgagor agrees to execute any such assignments of all such awards as Mortgagee may request. b. After application of all awards and proceeds of condemnation toward all practical repair and restoration of the Mortgaged Property as directed by the Consulting Professional, any remaining funds shall be applied as follows: (i) in the event that value and utility of the Mortgaged Property shall have been substantially restored as determined by the Consulting Professional, any remaining funds shall be returned to Mortgagor, or (ii) in the event the value and utility of the Mortgaged Property shall not have been substantially restored as determined by the Consulting Professional, any remaining funds shall, at the option of Mortgagee, be applied in reduction of the Secured Obligations. 11. HOMESTEAD EXEMPTIONS. Mortgagor hereby represents and declares that the Mortgaged Property forms no part of any property owned, used or claimed by Mortgagor as exempted from forced sale under the laws of the State of Florida, and disclaims, waives and renounces all and every claim to exemption under any homestead exemption law or other similar laws. 12. DISCHARGE OF LIENS, UTILITIES. ----------------------------- a. Mortgagor shall not, without the prior written consent of the Obligee, create, consent to or suffer the creation of any liens, charges or encumbrances, on any of the Mortgaged Property (each, a "PROHIBITED LIEN"), whether or not such Prohibited Lien is subordinate to this Mortgage, except for the Junior Mortgages as described in Article 41 16 hereof, and except as permitted by the Secured Agreement and those liens arising by operation of law which secure obligations not yet due and payable, nor shall Mortgagor fail to have any Prohibited Lien which may be imposed without Mortgagor's consent discharged and satisfied of record within 10 days after it is imposed, except those liens bonded while being contested. Mortgagor shall pay prior to delinquency all lawful claims and demands of mechanics, materialmen, laborers and others which, if unpaid, might result in, or permit the creation of a Prohibited Lien, except that Mortgagor shall have the right to contest such claims or demands, provided that Mortgagor shall furnish a good and sufficient bond, surety or other security as requested by, and found satisfactory to, Mortgagee. b. Mortgagor shall pay prior to delinquency all utility charges which are incurred by it for gas, electricity, water or sewer services to its Mortgaged Property and all other assessments or charges of a similar nature, whether public or private and whether or not such taxes, assessments or charges are liens on the Mortgaged Property. 13. BOOKS AND RECORDS. Mortgagor shall at all times keep and maintain or cause to be kept and maintained records and books of account with respect to its Mortgaged Property. 14. ESTOPPEL CERTIFICATES. Mortgagee and Mortgagor within 10 days following written request, shall deliver to the requesting party, a written statement, duly acknowledged, setting forth (i) the amount of the Obligations, and (ii) that there exist no offsets, claims, counterclaims or defenses against the Obligations or describe in detail the nature of any such offset, claim, counterclaim or defense. 15. EXPENSES. Mortgagor shall pay, together with any interest or penalties imposed in connection therewith, all expenses incident to the preparation, execution, acknowledgement, delivery and/or recording of this Mortgage, including all filing registration or recording fees and all federal, state, county and municipal, internal revenue or other stamp taxes and other taxes duties, imposts, assessments and charges now or hereafter required by the federal, state, county or municipal government. 16. MORTGAGEE'S COSTS AND EXPENSES. Upon the occurrence of any Event of Default or the exercise by Mortgagee of any of Mortgagee's rights hereunder, or if any action or proceeding be commenced, to which action or proceeding Mortgagee is or becomes party or in which it becomes necessary to defend or uphold the lien of this Mortgage, or if the taking, holding or servicing of this Mortgage by Mortgagee is alleged to subject Mortgagee to any civil fine, or if Mortgagee's review and approval of any document is requested by Mortgagor or required by Mortgagee, all reasonable costs, out-of-pocket expenses and fees incurred by Mortgagee in connection therewith (including any civil fines and reasonable attorneys' fees and disbursements) shall, on notice and demand, be paid by Mortgagor, together with interest thereon from the date of disbursement until paid at the Default Rate and shall be a lien on the Mortgaged Property and shall be secured by this Mortgage; and, in any action to foreclose this Mortgage, or to recover or collect the Secured Obligations, the provisions of this Article 16 with respect to the recovery of costs, disbursements and allowances shall prevail unaffected by the provisions of any law with 17 respect to the same to the extent that the provisions of this Article 16 are not inconsistent therewith or violative thereof. 17. MORTGAGEE'S RIGHT TO PERFORM. If any Event of Default shall have occurred hereunder and be continuing, Mortgagee, without waiving or releasing Mortgagor from any obligation or default under this Mortgage, may (but shall be under no obligation to), at any time perform the same, and the cost thereof, with interest at Default Rate, shall immediately be due from Mortgagor to Mortgagee, and the same shall be a lien on the Mortgaged Property prior to any right, title to, interest in, or claim upon, the Mortgaged Property attaching subsequent to the lien of this Mortgage. No payment or advance of money by Mortgagee under this Article 17 shall be deemed or construed to cure Mortgagor's default or waive any right or remedy of Mortgagee hereunder. 18. FURTHER ASSURANCES. Mortgagor and Mortgagee agree, upon demand of the other, to promptly correct any defect, error or omission which may be discovered in the contents of this Mortgage or in the execution or acknowledgment hereof or in any other instrument executed in connection herewith or in the execution or acknowledgment of such instrument, or do any act or execute any additional documents (including, but not limited to, security agreements on any Fixtures or personal property included or to be included in the Mortgaged Property) as may be reasonably required by Mortgagee to confirm the lien of this Mortgage. 19. ASSIGNMENT OF RENTS. All of the rents, royalties, issues, profits, revenue, income and other benefits of the Mortgaged Property arising from the use and enjoyment of all or any portion thereof or from any lease or agreement pertaining thereto (the "RENTS AND PROFITS") are hereby absolutely and unconditionally assigned, transferred, conveyed and set over to Mortgagee to be applied by Mortgagee in payment of the principal and interest and all other sums payable on the Obligations, and of all other sums payable under this Mortgage. Until such time as an Event of Default shall have occurred, Mortgagor shall collect and receive all Rents and Profits. 20. EVENTS OF DEFAULT. The occurrence of any one or more of the following events shall constitute an Event of Default by Mortgagor hereunder: a. the occurrence of any Event of Default under the Instrument or the Secured Agreement (whether or not any Obligations or other Secured Obligations shall be at the time outstanding under the Secured Agreement, or the Instrument or the Secured Agreement shall have terminated for other purposes) or the occurrence of any Event of Default under the Certificate of Designation; or b. a failure to make payment of any sums required to be paid to Mortgagee other than the Obligations pursuant to the terms of this Mortgage within five days after the same shall become due hereunder; or c. if any default shall occur in the performance of any covenant contained in this Mortgage not elsewhere specified in this Article 20 which shall continue for thirty (30) days after notice from Mortgagee or if such default cannot be cured in such 30-day 18 period, such longer period as shall be necessary to cure such default, provided that Mortgagor shall commence curing such default within such 30-day period and thereafter shall prosecute such cure diligently to completion; or d. (i) if Mortgagor shall commence any case, proceeding or other action (a) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (b) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or Mortgagor shall make a general assignment for the benefit of its creditors, (ii) if there shall be commenced against Mortgagor any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of sixty (60) days, (iii) if there shall be commenced against Mortgagor any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof, (iv) if Mortgagor shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii) or (iii) above, (v) if Mortgagor shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due (provided that Mortgagor may admit in writing that it is "insolvent" as such term is defined in, and for purposes of, Section 108(a)(1)(8) of the Code); or (vi) Mortgagor shall cause to be reinstated the Reorganization Proceedings, as such term is defined in the Secured Agreement; or e. the occurrence of any default or event of default (and the expiration of applicable grace periods) pursuant to any mortgage encumbering the Mortgaged Property or any portion thereof, or pursuant to any note or other evidence of indebtedness secured thereby. 21. DUE ON SALE. Except as otherwise expressly provided in the Secured Agreement or Article 35 hereof, in the event that, without the prior written consent of the Mortgagee, Mortgagor shall, either directly or indirectly, convey, grant, assign or transfer all or any portion of its right, title or interest in the Mortgaged Property, whether legal or equitable, by outright sale, deed, installment sale contract, land contract, contract for deed, option, lease option, leasehold interest, contract, or any other method of conveyance of real property interests, to any person or entity, then in any such event, Mortgagee shall have the right, at its sole option, to declare the entire Secured Obligations, immediately due and payable. The foregoing notwithstanding, Mortgagor shall have the right without Mortgagee's consent to sell worn and obsolete Fixtures in conjunction with the replacement thereof in the ordinary course of Mortgagor's business where (x) such replacements are in quantity and of quality not less than that of the Fixtures being sold when originally new and (y) title to the replacement Fixtures is owned by Mortgagor at the time of such sale. 19 22. REMEDIES. Upon the occurrence of an Event of Default hereunder, (y) if such event is an Event of Default specified in paragraph (d) of Article 20 above, automatically the Secured Obligations and all amounts owing under this Mortgage shall immediately become due and payable, and (z) if such event is an Event of Default other than those specified in paragraph (d) of Article 20 above, Mortgagee may in Mortgagee's sole discretion declare the Secured Obligations and all amounts owing under this Mortgage to be immediately due and payable without presentment, demand, protest or notice of any kind, and Mortgagee may take such action, without notice or demand, as it deems advisable to protect and enforce Mortgagee's rights in and to the Mortgaged Property, including, but not limited to, the following actions: a. (i) To the extent permitted by law, the Mortgagee itself, or by such officers or agents as it may appoint, may enter and take possession of all the Mortgaged Property and may exclude Mortgagor and its agents and employees wholly therefrom and may have joint access with Mortgagor to the books, papers and accounts of Mortgagor; and Mortgagor will pay monthly in advance to Mortgagee, on Mortgagee's entry into possession, or to any receiver appointed to collect the rents, income and other benefits of the Mortgaged Property and the businesses conducted thereon or thereat, the fair and reasonable rental value for the use and occupation of such part of the Mortgaged Property as may be in possession of Mortgagor, and upon default in any such payment will vacate and surrender possession of such part of the Mortgaged Property to Mortgagee or to such receiver and, in default thereof, Mortgagor may be evicted by summary proceedings or otherwise. (ii) If Mortgagor shall for any reason fail to surrender or deliver the Mortgaged Property or any part thereof after Mortgagee's demand, Mortgagee may obtain a judgment or decree conferring on Mortgagee the right to immediate possession or requiring Mortgagor to deliver immediate possession of all or part of the Mortgaged Property to Mortgagee, to the entry of which judgment or decree Mortgagor hereby specifically consents. Mortgagor shall pay to Mortgagee, upon demand, all costs and expenses of obtaining such judgment or decree and reasonable compensation to Mortgagee, its attorneys and agents, and all such costs, expenses and compensation shall, until paid, be secured by the lien of this Mortgage. (iii) Upon every such entering upon or taking of possession, Mortgagee may hold, store, use, operate, manage and control the Mortgaged Property and conduct the business thereof, and, from time to time: (A) make all necessary and proper maintenance, repairs, renewals, replacements, additions, betterments and improvements thereto and thereon and purchase or otherwise acquire additional fixtures, personal and other mortgaged property; (B) insure or keep the Mortgaged Property insured; (C) manage and operate the Mortgaged Property and exercise all the rights and powers of Mortgagor in its name or otherwise with respect to the same; and 20 (D) enter into agreements with others to exercise the powers herein granted Mortgagee, all as Mortgagee from time to time may determine; and Mortgagee may collect and receive all the rents, income and other benefits thereof, including those past due as well as those accruing thereafter; and shall apply the monies so received by Mortgagee in such priority as Mortgagee may determine to (1) the payment of interest, principal, and other payments due and payable on the Obligations, or pursuant to this Mortgage, (2) the deposits for taxes and assessments and insurance premiums due, (3) the cost of insurance, taxes, assessments and other proper charges upon the Mortgaged Property or any part thereof, (4) any sums due and payable on any approved prior encumbrance; and (5) the compensation, expenses and disbursements of the agents, attorneys and other representatives of Mortgagee. b. Institute an action of mortgage foreclosure, or take action as the law may allow, at law or in equity, for enforcement of this mortgage, and proceed there onto final judgment and execution of the entire unpaid balance of the Obligations including costs of suit, interest and reasonable attorneys' fees. In case of any sale of the Mortgaged Property by virtue of judicial proceedings, the Mortgaged Property may be sold in one parcel and as an entirety or in such parcels, manner or order as the Mortgagee, in its sole discretion, may elect. c. Institute partial foreclosure proceedings with respect to the portion of the Secured Obligations so in default, as if under a full foreclosure, and without declaring the entire Secured Obligations due, PROVIDED that if foreclosure sale is made because of default of a part of the Secured Obligations, such sale may be made subject to the continuing lien of this Mortgage for the unmatured part of the Secured Obligations; and it is agreed that such sale pursuant to a partial foreclosure, if so made, shall not in any manner affect the unmatured part of this Mortgage and the lien thereof shall remain in full force and effect just as though no foreclosure sale had been made under the provisions of this subsection. Notwithstanding the filing of any partial foreclosure or entry of a decree of a sale therein, Mortgagee may elect at any time prior to a foreclosure sale pursuant to such decree, to discontinue such partial foreclosure and to accelerate the Secured Obligations by reason of any uncured default or defaults upon which such partial foreclosure was predicated or by reason of any other defaults, and proceed with full foreclosure proceedings. It is further agreed that several foreclosure sales may be made pursuant to partial foreclosures without exhausting the right of full or partial foreclosure sale for any unmatured part of the Secured Obligations, it being the purpose to provide for a partial foreclosure sale of any matured portion of the Secured Obligations without exhausting the power to foreclose and to sell the Mortgaged Property pursuant to any such partial foreclosure for any other part of the Secured Obligations whether matured at the time or subsequently maturing; and without exhausting any right of acceleration and full foreclosure. d. Appoint a receiver of the rents, issues and profits of the Mortgaged Property and of the businesses conducted thereon and therefrom, without the necessity of proving the depreciation or the inadequacy of the value of the security or the insolvency of Mortgagor or any person who may be legally or equitably liable to pay moneys secured hereby, and Mortgagor and each such person waive such proof and hereby consent to the appointment of a receiver, to enter upon and take possession of the Mortgaged Property and 21 to collect all rents, income and other benefits thereof and apply the same as the court may direct and any such receiver shall be entitled to hold, store, use, operate, manage and control the Mortgaged Property and conduct the business thereof as would Mortgagee pursuant to paragraph a above. The expenses, including receiver's fees, attorneys' fees, costs and agent's compensation, incurred pursuant to the powers herein contained shall be secured by this Mortgage. The right to enter and take possession of, and to manage and operate, the Mortgaged Property and to collect all rents, income and other benefits thereof, whether by a receiver or otherwise, shall be cumulative to any other right or remedy hereunder or afforded by law and may be exercised concurrently therewith or independently thereof. Mortgagee shall be liable to account only for such rents, income and other benefits actually received by the Mortgagee, whether received pursuant to this paragraph or paragraph a above. Notwithstanding the appointment of any receiver or other custodian, Mortgagee shall be entitled as pledgee to the possession and control of any cash, deposits, or instruments at the time held by, or payable or deliverable under the terms of this Mortgage to, Mortgagee. e. Institute an action for specific performance of any covenant contained herein or in aid of the execution of any power herein granted. f. Apply on account of the unpaid Secured Obligations and the interest thereon or on account of any arrearages of interest thereon, or on account of any balance due to the Mortgagee after a foreclosure sale of the Mortgaged Property, or any part thereof, any unexpended moneys still retained by the Mortgagee that were paid by Mortgagor to the Mortgagee pursuant to Article 7(c) or Article 8(h) hereof. g. Exercise any and all other rights and remedies granted under this Mortgage or now or hereafter existing in equity, at law, by virtue of statute or otherwise. 23. DISCONTINUANCE OF PROCEEDINGS. If Mortgagee has proceeded to enforce any right under the Obligations or this Mortgage and such proceedings have been discontinued or abandoned for any reason, then in every such case, Mortgagor and Mortgagee will be restored to their former positions and the rights, remedies and powers of Mortgagee will continue as if no such proceedings had been taken. 24. SALE OF THE PROPERTIES; APPLICATION OF PROCEEDS. Subject to the requirements of applicable law, the proceeds or avails of foreclosure sale and all moneys received by Mortgagee pursuant to any right given or action taken under the provisions of Article 22 of this Mortgage shall be applied as follows: First: To the payment of the costs and expenses of any such sale or other enforcement proceedings in accordance with the terms hereof and of any judicial proceeding wherein the same may be made, and in addition thereto, all actual out-of-pocket expenses, advances, liabilities and sums made or furnished or incurred by Mortgagee or the holder of the Obligations under this Mortgage including, without limitation, attorneys fees and costs, and fees and costs incurred by other professionals and consultants retained by Mortgagee, together with interest at the Default Rate (or such lesser amount as may be the maximum amount permitted by law), and all taxes, assessments or other charges in connection with 22 such foreclosure, except any taxes, assessments or other charges subject to which the Mortgaged Property shall have been sold; Second: To the payment of the amount then due, owing or unpaid upon the Obligations for principal and interest on such amount; and in case such proceeds shall be insufficient to pay in full the whole amount so due and unpaid, then first, to the payment of all amounts of interest at the time due and payable on the Obligations, without preference or priority of any installment of interest over any other installment of interest, and second, to the payment of all amounts of principal without preference or priority of any amount of principal over any other amount of principal, or any part of the Secured Obligations over any other part of the Secured Obligations; Third: To the payment of any other sums required to be paid by Mortgagor pursuant to any provision of this Mortgage; and Fourth: To the payment of all other Secured Obligations; and Fifth: With payment of the surplus, if any, to whomsoever may be lawfully entitled to receive the same. 25. REMEDIES NOT EXCLUSIVE. Mortgagee shall be entitled to enforce payment and performance of the Secured Obligations or any obligations secured hereby and to exercise all rights and powers under this Mortgage or other agreement or any laws now or hereafter in force, notwithstanding some or all of the Secured Obligations and obligations may now or hereafter be otherwise secured, whether by mortgage, deed of trust, pledge, lien, assignment or otherwise. Neither the acceptance of this Mortgage nor its enforcement, whether by court action or pursuant to the power of sale or the powers herein contained, shall prejudice or in any manner affect Mortgagee's right to realize upon or enforce any other security now or hereafter held by Mortgagee it being agreed that Mortgagee shall be entitled to enforce this Mortgage and any other security now or hereafter held by Mortgagee in such order as it may in its absolute discretion determine. No remedy herein conferred upon or reserved to Mortgagee is intended to be exclusive of any other remedy given hereunder or now or hereafter existing at law or in equity or by statute. Every power or remedy given to Mortgagee or to which Mortgagee may be otherwise entitled, may be exercised concurrently or independently, from time to time and as often as may be deemed expedient by Mortgagee. 26. EXTENSION, RELEASE, ETC. Without affecting the lien or charge of this Mortgage upon any portion of the Mortgaged Property not then or theretofore released as security for the full amount of all unpaid obligations, Mortgagee may, subject to the Secured Agreement, from time to time and without notice, agree to (i) extend the maturity or alter any of the terms of any such obligation, (ii) grant other indulgences, (iii) release or reconvey, or cause to be released or reconveyed at any time at Mortgagee's option any parcel, portion or all of the Mortgaged Property, (iv) take or release any other or additional security for any obligation herein mentioned, or (v) make compositions or other arrangements with debtors in relation thereto. 23 27. WAIVER OF APPRAISEMENT, VALUATION. Mortgagor hereby waives, to the full extent that it may lawfully do so, the benefit of all appraisement, valuation, stay and extension laws now or hereafter in force and all rights of marshalling of assets in the event of any sale of the Mortgaged Property, any part thereof or any interest therein, and any court having jurisdiction to foreclose the lien hereof may sell the Mortgaged Property (real or personal, or both) as an entirety or in such parcels, lots, manner or order as the Mortgagee in its sole discretion may elect. 28. SUCCESSOR MORTGAGOR. In the event ownership of the Mortgaged Property or any portion thereof becomes vested in a person other than Mortgagor, except as permitted by the Secured Agreement or Section 35 of this Mortgage, Mortgagee may, without notice to the Mortgagor herein named, whether or not Mortgagee has given written consent to such change in ownership, deal with such successor or successors in interest with reference to this Mortgage and the Secured Obligations, and in the same manner as with the Mortgagor herein named, without in any way vitiating or discharging Mortgagor's liability hereunder or under the Secured Obligations. 29. SECURITY AGREEMENT UNDER UNIFORM COMMERCIAL CODE. It is the intention of the parties hereto that this Mortgage shall constitute a Security Agreement within the meaning of the Uniform Commercial Code. Notwithstanding the filing of a financing statement covering any of the Mortgaged Property in the records normally pertaining to personal property, all of the Mortgaged Property, for all purposes and in all proceedings, legal or equitable, shall be regarded, at Mortgagee's option (to the extent permitted by law), as part of the Real Estate whether or not such item is physically attached to the Real Estate or serial numbers are used for the better identification of certain items. The mention in any such financing statement of any of the Mortgaged Property shall never be construed as in any way derogating from or impairing this declaration and hereby stated intention of the parties that such mention in the financing statement is hereby declared to be for the protection of Mortgagee in the event any court shall at any time hold that notice of Mortgagee's priority of interest to be effective against any third party, including the federal government and any authority or agency thereof, must be filed in the Uniform Commercial Code records. Pursuant to the provision of the Uniform Commercial Code, Mortgagor hereby authorizes Mortgagee, without the signature of Mortgagor, to execute and file financing and continuation statements if Mortgagee shall determine, in its sole discretion, that such are necessary or advisable in order to perfect its security interest in the Fixtures covered by this Mortgage, and Mortgagor shall pay to Mortgagee, on demand, any reasonable out-of-pocket expenses incurred by Mortgagee in connection with the preparation, execution, and filing of such statements that may be filed by Mortgagee. 30. INDEMNIFICATION; WAIVER OF CLAIM. -------------------------------- a. If Mortgagee is made a party defendant to any litigation, mediation, arbitration, administrative or bankruptcy proceedings and any appeals therefrom, concerning this Mortgage or the Mortgaged Property or any part thereof or interest therein, or the occupancy thereof by Mortgagor, then Mortgagor shall indemnify, defend and hold Mortgagee harmless from all liability by reason of said action other than that arising solely from Mortgagee's own willful misconduct or gross negligence, including reasonable 24 attorneys' fees and paralegals' fees and reasonable out-of-pocket expenses incurred by Mortgagee in any such action, whether or not any such action is prosecuted to judgment, including, without limitation reasonable attorneys' fees and paralegals' fees and reasonable out-of-pocket expenses incurred in connection with any such action. If Mortgagee commences an action against Mortgagor to enforce any of the terms hereof or because of the breach by Mortgagor of any of the terms hereof, or for the recovery of any sum secured hereby, Mortgagor shall pay to Mortgagee reasonable attorneys' fees and paralegals' fees and reasonable out-of-pocket expenses, including, without limitation reasonable attorneys' fees and paralegals' fees and reasonable out-of-pocket expenses incurred in connection with any litigation, mediation, arbitration, administrative or bankruptcy proceedings and any appeals therefrom, together with interest thereon at the rate provided in the Secured Agreement from the date the same are paid by Mortgagee to the date of reimbursement by Mortgagor, and the right to such reasonable attorneys' fees and paralegals' fees and reasonable out-of-pocket expenses shall be deemed to have accrued on the commencement of such action, and shall be enforceable whether or not such action is prosecuted to judgment. If an Event of Default shall have occurred, Mortgagee may engage an attorney or attorneys to protect its rights hereunder, and in the event of such engagement, Mortgagor shall pay Mortgagee reasonable attorneys' fees and paralegals' fees and reasonable out-of-pocket expenses incurred by Mortgagee, whether or not an action is actually commenced against Mortgagor by reason of breach, including, without limitation reasonable attorneys' and paralegals' fees and reasonable out-of-pocket expenses incurred in connection with any litigation, mediation, arbitration, administrative or bankruptcy proceedings and any appeals therefrom. b. Mortgagor waives any and all right to claim or recover against Mortgagee, its officers, employees, agents and representative, for loss of or damage to Mortgagor, the Mortgaged Property, Mortgagor's property or the property of others under Mortgagor's control from any cause whatsoever, except for the willful misconduct or gross negligence of Mortgagee, its officers, employees, agent or representatives. c. The obligations of Mortgagor in this Article 30 hereof shall survive satisfaction of this Mortgage and the discharge of Mortgagor's other obligations under this Mortgage, the Secured Agreement and the other Secured Instrument Documents. 31. NO WAIVERS, ETC. Any failure by Mortgagee to insist upon the strict performance by Mortgagor of any of the terms and provisions of this Mortgage shall not be deemed to be a waiver of any of the terms and provisions hereof, and Mortgagee, notwithstanding any such failure, shall have the right thereafter to insist upon the strict performance by Mortgagor of any and all of the terms and provisions of this Mortgage to be performed by Mortgagor; Mortgagee may release, regardless of consideration and without the necessity for any notice to, or consent by, the holder of any subordinate lien on the Mortgaged Property, any part of the security held for the obligations secured by this Mortgage without, as to the remainder of the security, in anywise impairing or affecting the lien of this Mortgage or the priority of such a lien over any subordinate lien. Mortgagee may resort for the payment of the Secured Obligations secured by this Mortgage to any other security therefor held by Mortgagee in such order and manner as Mortgagee may elect. 25 32. WAIVERS BY MORTGAGOR. Upon the happening and continuation of an Event of Default hereunder, Mortgagor hereby waives, to the extent permitted by applicable law, all errors and imperfections in any proceedings instituted by Mortgagee under this Mortgage and all notices of any Event of Default (except as may be provided for under the terms hereof or of the Secured Agreement) or of Mortgagee's election to exercise or its actual exercise of any right, remedy or recourse provided for under this Mortgage and Mortgagor shall not at any time insist upon or plead, or in any manner whatever claim or take any benefit or advantage of, any present or future statute, law, regulation or judicial decision which (a) exempts any of the Mortgaged Property or any other property, real or personal, or any part of the proceeds arising from any sale thereof from attachment, levy or sale under execution, (b) provides for any stay of execution, moratorium, marshalling of assets, exemption from civil process, redemption, extension of time for payment or valuation or appraisement of any of the Mortgaged Property, or (c) conflicts with any provision, covenant or term of this Mortgage. 33. SURRENDER. Upon the occurrence of any Event of Default and pending the exercise by Mortgagee or its agents or attorneys of its right to exclude Mortgagor from all or any part of the Mortgaged Property, Mortgagor agrees to vacate and surrender possession of the Mortgaged Property to Mortgagee or to a receiver, if any, and in default thereof may be evicted by any summary action or proceeding for the recovery of possession of premises for nonpayment of rent, however designated. 34. NOTICES. All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing, and unless otherwise expressly provided herein, shall be considered to have been duly given or made when received by receipted hand delivery, or by facsimile or telecopy transmission, receipt confirmed, addressed as follows, or to such other address as may be hereafter notified by the respective parties thereto: The Mortgagor: Atlantic Gulf Communities Corporation 2601 South Bayshore Drive Miami, Florida 33133-5461 Attention: John H. Fischer Vice President Telecopy: (305) 859-4623 Copy to: Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. 1221 Brickell Avenue Miami, Florida 33131 Attn: Matthew B. Gorson, Esq. The Mortgagee: The Bank of New York Towermarc Plaza, 2nd Floor 10161 Centurion Parkway Jacksonville, Florida 32256 Attn: Janalee R. Scott Telecopy: (904) 645-1998 26 Copy to: Apollo Real Estate Advisors II, L.P. 1301 Avenue of the Americas New York, New York 10019 Attn: Rick Koenigsberger Telecopy: (212) 459-3301 Copy to: Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, New York 10019 Attn: Philip Mindlin, Esq. Telecopy: (212) 403-2000 Copy to: Carlton, Fields, Ward, Emmanuel, Smith & Cutler, P.A. Post Office Box 3239 Tampa, Florida 33601 Attn: Paula McDonald Rhodes, Esq. Telecopy: (813) 229-4133 provided, that any notice, request or demand to or upon Mortgagor pursuant to Article 20 shall be effective two (2) days after being deposited in the mail, postage prepaid, PROVIDED FURTHER, that in the case at any such notice, request or demand to or upon Mortgagor pursuant to Article 20, Mortgagee shall use its best efforts to notify Mortgagor concurrently with any notice by mail, by telecopy transmission or hand delivery, it being agreed that the failure to give any such notice, request or demand by telecopy transmission shall not have any adverse effect upon the effectiveness of any such notice, request or demand given by mail. 35. PARTIAL RELEASES. Mortgagee shall release parcels of the Mortgaged Property or otherwise subordinate this Mortgage upon the terms and conditions set forth in the Secured Agreement and whenever required pursuant to the Intercreditor Agreement (as defined in Article 51). The Mortgagee shall execute such partial releases, in form and substance satisfactory to Mortgagee, prepared by Mortgagor at its expense. Parcels to be released need not be contiguous to any of the parcels previously released from this Mortgage. Mortgagee agrees that notwithstanding anything to the contrary contained herein, the lien of this Mortgage is subordinate and inferior to the contract rights of any purchaser of any lot in which the subject property has been platted, and Mortgagee shall release any such lot from the lien and operation of this Mortgage upon the sole condition that such purchaser has complied with the terms and provisions of his purchase agreement with Mortgagor. Mortgagee further agrees that in the event of default by Mortgagor, the aforesaid provisions of this Article 35 shall survive the final judgment in the event this Mortgage is foreclosed and shall be binding on any purchaser in a foreclosure sale. Such releases from the lien hereof shall not affect the lien hereby granted as to the remainder of the Mortgaged Property. 36. REACQUISITION OF RELEASED LOTS. The lien of this Mortgage shall encumber, and the Mortgaged Property shall include, any and all portions of the Mortgaged Property which may hereafter be released from the lien hereof in connection with the sale of lots by 27 Mortgagor ("RELEASED LOTS") if such Released Lots are reacquired by Mortgagor at any time prior to the satisfaction of this Mortgage in full. 37. DEVELOPMENT MATTERS. To the extent required by applicable law, the Mortgagee, without incurring any obligation to file or record any documentation and at Mortgagor's cost and expense, shall join in the execution of subdivision plats, easements and declarations covering all or any part of the Mortgaged Property and other documents with respect to which Mortgagee's joinder is necessary for the development of the Mortgaged Property as contemplated in the Business Plan, PROVIDED that such subdivision plats, easements, declarations and other documents are in form and substance reasonably satisfactory to Mortgagee and Mortgagor shall have complied in all respects with all applicable provisions of law with respect thereto. 38. COUNTERPARTS. This Mortgage is being executed in multiple counterparts, all of which shall for all purposes constitute one agreement binding on all the parties hereto, in order to permit its being recorded concurrently in all of the counties in which the Mortgaged Property is located. 39. FUTURE ADVANCES. This Mortgage shall secure not only the Secured Obligations described hereinabove, but also such future or additional advances as may be made by Obligee (including its successors and assigns) from time to time, whether obligatory or at its option, for any purpose, provided that all those advances are to be made within 20 years from the date of this Mortgage or within such lesser period of time as may be provided hereafter by law as a prerequisite for the sufficiency and actual notice or record notice of the optional future or additional advances as against the rights of creditors or subsequent purchases for valuable consideration. The total amount of the Secured Obligations secured by this Mortgage may decrease or increase from time to time but the total unpaid indebtedness (exclusive of any interest and expenses included as part of the Secured Obligations) as secured at any one time by this Mortgage shall not exceed the maximum principal amount of ONE HUNDRED MILLION AND NO/100 DOLLARS ($100,000,000.00), plus interest, and any disbursements made for the payment of taxes, levies, or insurance on the property covered by the lien of this Mortgage with interest on those disbursements. It shall be a default hereunder if Mortgagor shall file for record a notice limiting the maximum principal amount which may be secured by this Mortgage if the effect of the filing of such notice would in any way prohibit Mortgagee from making future advances to be secured by this Mortgage in the full amount hereinabove set forth. 40. TAXES ON MORTGAGEE. ------------------ a. If any Governmental Authority shall levy, assess, or charge any tax, assessment or imposition upon this Mortgage, the Secured Obligations, the interest of Mortgagee in the Mortgaged Property, or Mortgagee by reason of or as holder of any of the foregoing, Mortgagor shall pay (or provide funds to Mortgagee for such payment), to the extent required in the Secured Agreement, all such taxes, assessment and impositions to, for, or on account of Mortgagee (other than federal, state or local income taxes of Mortgagee or franchise taxes imposed on the Mortgagee or the holder of the Obligations assessed other than on the basis of Mortgagee's or such holder's holding this Mortgage) as they become due 28 and payable and on demand shall furnish proof of such payment to Mortgagee. In the event of passage of any law or regulation permitting, authorizing or requiring the tax, assessment or imposition to be levied, assessed or charged, which law or regulation prohibits Mortgagor from paying the tax, assessment or imposition to or for Mortgagee (and from providing funds to the Mortgagee to pay any such tax, assessment or imposition), or which shall make such payment by Mortgagor result in the imposition of interest exceeding the maximum permitted by law, then, unless the affected portion of the Mortgaged Property is released from the lien of this Mortgage pursuant to the terms hereof and of the Secured Agreement, Mortgagee may declare the Secured Obligations secured hereby immediately due and payable. b. In the event of the passage after the date of this Mortgage of any law of the jurisdiction in which the Real Estate is located deducting from the value of the Real Estate for the purposes of taxation any lien thereon or changing in any way the laws for the taxation of mortgages or debts secured by mortgages for state or local purposes or the manner of the collection of any such taxes and imposing a tax, either directly or indirectly, on this Mortgage or any Secured Instrument Document, as defined in the Secured Agreement, Mortgagee shall have the right to declare all sums outstanding secured by this Mortgage immediately due and payable, provided, however, that such election shall be ineffective if (i) Mortgagor is exempt from such tax or, if not exempt from such tax, is permitted by law to pay the whole of such tax (or to provide funds to Mortgagee to pay such taxes) in addition to all other payments required hereunder and if Mortgagor pays such tax (or provides funds to Mortgagee to pay such tax) when the same is due and payable and agrees in writing to pay such tax when the same is due and payable and agrees in writing to pay such tax when thereafter levied or assessed against the Real Estate; or (ii) the affected portion of the Mortgaged Property is released from the lien of this Mortgage in accordance with the terms hereof and of the Secured Agreement. 41. JUNIOR MORTGAGES; NOTICES. Mortgagor agrees to forward to Mortgagee copies of all correspondence to or from the holder of all junior mortgages promptly after mailing or receiving same, either constituting notices of a material default thereunder or relating to payment of principal and/or interest in respect of all junior mortgages. 42. NO MODIFICATION; BINDING OBLIGATIONS. This Mortgage may not be modified, amended, discharged or waived in whole or in part except by an agreement in writing signed by the party against whom enforcement of any such modification, amendment, discharge or waiver is sought. The covenants of this Mortgage shall run with the land and bind Mortgagor, the heirs, distributees, personal representatives, successors and assigns of Mortgagor, and all present and subsequent encumbrancers, lessees and sublessees of any of the Mortgaged Property, and shall inure to the benefit of Mortgagee and its successors, assigns and endorsees. 43. MISCELLANEOUS. As used in this Mortgage, the singular shall include the plural as the context requires and the following words and phrases shall have the following meanings: (a) "including" shall mean "including but not limited to"; (b) "provisions" shall mean "provisions, terms, covenants and/or conditions"; (c) "lien" shall mean "lien, charge, encumbrance, security interest, mortgage and/or deed of trust"; (d) "obligation" shall mean "obligation, duty, covenant and/or condition"; and (e) "any of the Mortgaged Property" shall 29 mean "the Mortgaged Property or any part thereof or interest therein." Capitalized terms not defined herein shall have the meanings give them in the Secured Agreement. Any act which Mortgagee is permitted to perform hereunder may be performed at any time and from time to time by Mortgagee or any person or entity designated by Mortgagee. Any act which is prohibited to Mortgagor hereunder is also prohibited to all lessees of any of the Mortgaged Property. Each appointment of Mortgagee as attorney-in-fact for Mortgagor under the Mortgage is irrevocable and coupled with an interest. 44. CAPTIONS. The captions or headings at the beginning of each Article hereof are for the convenience of the parties and are not a part of this Mortgage. 45. SUCCESSORS AND ASSIGNS. The covenants contained herein shall run with the land and bind Mortgagor, its successors and assigns, and all subsequent owners, encumbrances and tenants of the Mortgaged Property, and shall inure to the benefit of the Mortgagee. 46. ENFORCEABILITY. The validity and enforceability of this Mortgage shall be construed and interpreted according to the laws of the State of Florida; provided, however, that nothing in this Section shall be construed to affect in any way the intent of the parties that the Instrument and the Secured Agreement, and the rights and obligations of the parties thereto and thereunder, shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York where the Instrument, this Mortgage, the Secured Agreement and the other Secured Instrument Documents were negotiated and the payment of amounts due in respect of the Secured Obligations shall be made and rendered to Mortgagee. 47. SEVERABILITY. Whenever possible, each provision of this Mortgage shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Mortgage shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remaining provisions of this Mortgage. 48. AUTHORITY OF MORTGAGEE. The rights and responsibilities of Mortgagee under this Mortgage with respect to any action taken by Mortgagee or the exercise or non-exercise by Mortgagee of any option, right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Mortgage shall, as among Mortgagee and Obligee, be governed by the Secured Agreement, and by such other agreements with respect thereto as may exist from time to time among them, but, as among Mortgagee and Mortgagor, Mortgagee shall be conclusively presumed to be acting as agent for the holder of the Obligations with full and valid authority so to act or refrain from acting, and Mortgagor shall not be under any obligation, or entitlement, to make any inquiry respecting such authority. 49. RECEIPT OF COPY. Mortgagor acknowledges that it has received a true copy of this Mortgage. 50. SUBORDINATION AND ADDITIONAL PARTIAL RELEASE OF MORTGAGE LIENS. Mortgagee shall release or subordinate parcels of the Mortgaged Property from the lien of this Mortgage upon the terms and conditions set forth in the Secured Agreement pursuant to partial releases 30 or subordinations, in form and substance satisfactory to Mortgagee, prepared by Mortgagor at its expense. 51. INTERCREDITOR AGREEMENT. All of the Mortgaged Property is subject to other mortgages given to other lenders and more particularly identified in Schedule 1 attached hereto (the "JUNIOR MORTGAGES"). The relative priority of the mortgages is governed by the terms and provisions of that certain Intercreditor Agreement ("INTERCREDITOR AGREEMENT"), pursuant to the terms of which Obligee has agreed to permit, and consents to, the placing of mortgage liens upon the Land and all Improvements, Fixtures and tangible personal property located thereon or used in connection therewith to secure certain obligations of the Company as more particularly described in, and subject to the terms and conditions of, the Intercreditor Agreement. The terms of this Mortgage are subject to the terms and provisions of the Intercreditor Agreement. IN WITNESS WHEREOF, Mortgagor has executed this Mortgage and Security Agreement effective as of the date first set forth above. Witnesses: MORTGAGOR: WEST BAY CLUB DEVELOPMENT CORPORATION, a Florida corporation, formerly known as Estero Pointe Development Corporation - ------------------------------------ Signature (Corporate Seal) - ------------------------------------ Printed Name By: --------------------------------------- John H. Fischer - ------------------------------------ Vice President Signature - ------------------------------------ Printed Name Address: 2601 South Bayshore Drive Miami, Florida 33133-5461 31 STATE OF FLORIDA COUNTY OF HILLSBOROUGH The foregoing instrument was acknowledged before me this ___ day of June, 1997, by John H. Fischer, as Vice President of WEST BAY CLUB DEVELOPMENT CORPORATION, a Florida corporation, formerly known as Estero Pointe Development Corporation, behalf of the corporation, who is personally known to me or has produced a Florida driver's license number F260-468-57-430-0 as identification. --------------------------------- NOTARY PUBLIC Name: ---------------------------- Serial #: ------------------------ My Commission Expires: 32 EXHIBIT A (Land) SCHEDULE 1 ---------- 1. That certain Junior Mortgage and Security Agreement (Revolving Loan) dated of even date herewith, executed by Mortgagors to and for the benefit of The Bank of New York, as collateral agent for the Banks, as defined therein, and 2. That certain Junior Mortgage and Security Agreement (Secured Floating Rate) dated of even date herewith, executed by Mortgagors to and for the benefit of The Bank of New York, as collateral agent for the Banks, as defined therein, both of which are recorded immediately subsequent to this Mortgage. EX-10.B 3 EXHIBIT 10(B) PERSONAL PROPERTY SECURITY AGREEMENT THIS PERSONAL PROPERTY SECURITY AGREEMENT (the "SECURITY AGREEMENT") is dated effective as of June 23, 1997, and is entered into by AGC-SP, INC., a Delaware corporation ("AGC-SP"), and each of the undersigned Subsidiaries of AGC-SP (the "SUBSIDIARY GRANTORS;" AGC-SP and the Subsidiary Grantors each individually a "GRANTOR" and collectively, the "GRANTORS"), in favor of THE BANK OF NEW YORK, a New York banking corporation, as collateral agent (in such capacity herein called "COLLATERAL AGENT"), for AP-AGC, LLC, a Delaware limited liability company ("OBLIGEE"). R E C I T A L S --------------- WHEREAS, Atlantic Gulf Communities Corporation, a Delaware corporation ("COMPANY"), Grantors, Obligee and Collateral Agent are parties to that certain Secured Agreement dated February 7, 1997 and amended and restated as of May 15, 1997 (as hereafter amended, supplemented or otherwise modified from time to time, the "SECURED AGREEMENT"; capitalized terms used herein without definition shall have the meanings given such terms in the Secured Agreement); WHEREAS, Company, Grantors and Obligee are parties to that certain Investment Agreement dated February 7, 1997, amended as of March 20, 1997, and amended and restated as of May 15, 1997 (as hereafter amended, supplemented or otherwise modified from time to time, the "INVESTMENT AGREEMENT"); WHEREAS, Company and Obligee are parties to that certain Due Diligence Fee Agreement dated of even date herewith (as hereafter amended, supplemented or otherwise modified from time to time, the "FEE AGREEMENT"); WHEREAS, it is a condition precedent to Obligee entering into the Secured Agreement, the Investment Agreement and the Fee Agreement and all other and investing capital thereunder that the Grantors herein execute and deliver this Security Agreement, and the Grantors desire to enter into this Security Agreement. NOW, THEREFORE, in consideration of the premises set forth herein and in order to induce Obligee to enter into the Secured Agreement, the Investment Agreement, the Fee Agreement, and all other Secured Instrument Documents, the Grantors hereby agree as follows: SECTION 1. DEFINED TERMS. The following terms shall have the following meanings: "BANK ACCOUNTS" means any and all deposit accounts, money market accounts and any other deposits and investments of Grantors held in any bank or other financial institution, any brokerage firm or any other Person and all money, instruments, securities, documents and other investments held pursuant thereto, whether now existing or owned or hereafter created or acquired (exclusive of all but the residual, remainder or beneficial interest of Grantors in all escrow, restricted, custodial and 1 fiduciary accounts the pledge of which by Grantors is prohibited by agreements existing as of the date hereof or by law, as set forth in Schedule 7.17 to the Secured Agreement and hereby made a part hereof (which may be amended from time to time by written notice to Collateral Agent and Obligee to include other restricted accounts)). "CAPITAL STOCK" means any and all shares, interests, or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants or options to purchase any of the foregoing. "COLLATERAL" has the meaning assigned such term in SECTION 2 of this Agreement. "COMMERCIAL RECEIVABLES" means all promissory notes and mortgages and deeds of trust payable to, or held by, Grantors, and all other documents, instruments and agreements executed in connection therewith, whether currently existing or hereafter created or acquired, arising from the sale of single-family homesites (as defined in the Secured Agreement) or arising from the sale of other Real Property and all cash and non-cash proceeds thereof. "CONDEMNATION AWARDS" means any and all proceeds (including, without limitation, proceeds in the form of promissory notes or other agreements for the payment of proceeds) from (a) the taking by eminent domain, condemnation or otherwise, or acquisition pursuant to contract, of any property of any Grantor by the United States of America, the State of Florida or any political subdivision thereof, or any agency, department, bureau, board, commission or instrumentality of any of them, including, without limitation, any awards and/or other compensation awarded to any Grantor whether as a result of litigation, arbitration, settlement or otherwise, or (b) any sale by any Grantor of a water and utility system to a Person, whether now owned or hereafter created or acquired. "EXCLUDED PROPERTY" means any portions of payments made on Homesite Contracts Receivable which are, as a matter of law or pursuant to such Homesite Contracts Receivable, required to be placed in a restricted account for the payment of utility charges or paid toward real estate taxes on the lots subject to the respective Homesite Contracts Receivable giving rise to such payments. "HOMESITE CONTRACTS RECEIVABLE" means all contracts for deed, unsecured promissory notes, and other agreements, currently existing or hereafter created or acquired, pursuant to which any Grantor has the right to receive payment in any form whatsoever for the sale of single-family homesites (excluding Commercial Receivables), including any and all accounts, contract rights, chattel paper, general intangibles and unpaid seller's rights, relating to the foregoing or arising therefrom, reserves and credit balances arising thereunder and cash and non-cash proceeds of any and all of the foregoing. 2 "INTELLECTUAL PROPERTY" means all now existing or hereafter created or acquired trademarks, trade names, copyrights, technology, know-how and processes necessary for the conduct of any Grantor's business, and any and all licenses to use any of the foregoing. "INVESTMENTS" means any and all promissory notes, Capital Stock (other than Subsidiary Stock), bonds, debentures and securities, held by Grantors, whether now owned or hereafter acquired. "PERSONAL PROPERTY" means the following personal property of Grantors: (a) the Bank Accounts; (b) the Investments; (c) any and all accounts, contract rights, chattel paper, instruments and documents, including, without limitation, any right to payment for goods sold or leased or services rendered, whether now owned or hereafter acquired; (d) any and all machinery, apparatus, equipment, fittings, furniture, fixtures, motor vehicles and other tangible personal property of every kind and description, whether now owned or hereafter acquired, and wherever located, and all parts, accessories and special tools and replacements therefor (collectively, "EQUIPMENT"); (e) any and all general intangibles, whether now owned or hereafter created or acquired, including, without limitation, all choses in action, causes of action, rights in and to any and all Condemnation Awards, corporate or other business records, deposit accounts, inventions, designs, patents, patent applications, trademarks, trade names, trade secrets, goodwill, copyrights, registrations, licenses, franchises, customer lists, tax refund claims, computer programs, any other Intellectual Property, all claims under guaranties, security interests or other security to secure payment of any accounts by an account debtor, all rights to indemnification and all other intangible property of every kind and nature, including, without limitation, any proceeds or choses in action with respect to, or rights to receive proceeds from, any condemnation of any Real Property or Personal Property of any Grantor, whether now in existence or hereafter created or acquired; (f) any and all goods which are, or may at any time be, goods held for sale or lease or furnished under contracts of service or raw materials, work-in-process or materials used or consumed in business, wheresoever located and whether now owned or hereafter created or acquired, including, without limitation, all such property the sale or other disposition of which has given rise to accounts and which has been returned to or repossessed or stopped in transit (collectively, "INVENTORY"); 3 (g) all monies, cash, residues and property of any kind, now or at any time hereafter in the possession or under the control of Collateral Agent or Obligee or any agent or bailee of Collateral Agent or Obligee; (h) all Homesite Contracts Receivable and Commercial Receivables; (i) all accessions to, all substitutions for, and all replacements, products and proceeds of, the foregoing, including, without limitation, proceeds of insurance policies insuring the aforesaid property and documents covering the aforesaid property, all property received wholly or partly in trade or exchange for such property, and all rents, revenues, issues, profits and proceeds arising from the sale, lease, license, encumbrance, collection or any other temporary or permanent disposition of such items or any interest therein whether or not they constitute "PROCEEDS" as defined in the Code; and (j) all books, records, documents and ledger receipts pertaining to any of the foregoing, including, without limitation, customer lists, credit files, computer records, computer programs, storage media and computer software used or acquired in connection with generating, processing and storing such books and records or otherwise used or acquired in connection with documenting information pertaining to the aforesaid property. "REAL PROPERTY" means any and all real property and fixtures and interests in real property and fixtures now owned or hereafter acquired by any Grantor. "SUBSIDIARY" means, as to any Person, a corporation, partnership, trust or other entity of which shares of stock, partnership interests, beneficial interests or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership, trust or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly, through one or more intermediaries, or both, by such Person. Unless otherwise qualified, all references to a "SUBSIDIARY" or to "SUBSIDIARIES" in this Agreement shall refer to a Subsidiary or Subsidiaries of Company. Unless otherwise indicated, all references to a Subsidiary or Subsidiaries of Company shall not mean, include, or refer to the Unrestricted Subsidiaries or the Joint Ventures. "SUBSIDIARY STOCK" means the Capital Stock of any and all Subsidiaries. SECTION 2. GRANT OF SECURITY. (a) Each Grantor, in order to secure the Secured Obligations (as defined in SECTION 3), hereby assigns and pledges to Collateral Agent for benefit of Obligee and hereby grants to Collateral Agent for the benefit of Obligee a first-priority security interest, subject to Permitted Liens (as hereinafter defined in SECTION 5(C) hereof), in all of the Grantor's right, title and interest in and to the following, in each case 4 whether now or hereafter existing or in which the Grantor now has or hereafter acquires an interest and wherever the same may be located and all proceeds thereof (the "COLLATERAL"): (i) All of the Personal Property (other than the Excluded Property); and (ii) All proceeds of any and all of the foregoing Collateral and, to the extent not otherwise included, all payments under insurance (whether or not Collateral Agent or Obligee is the loss payee thereof), or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing Collateral. For purposes of this Agreement, the term "proceeds" includes whatever is receivable or received when Collateral or proceeds are sold, collected, exchanged or otherwise disposed of, whether such disposition is voluntary or involuntary, and includes, without limitation, all rights to payment, including returned premiums, with respect to any insurance relating thereto. (b) At such time as any Personal Property comprising Excluded Property is freed of contractual or legal restrictions against becoming subject to a Lien to secure the Secured Obligations, such Excluded Property shall, automatically, become subject to the Lien hereof. SECTION 3. SECURITY FOR OBLIGATIONS. This Agreement secures, and the Collateral is collateral security for, (a) after the issuance of the Preferred Stock, the joint and several obligations of the Company, the Grantors and other subsidiaries of the Company pursuant to Section 8 of the Certificate of Designation to repurchase Preferred Stock on the happening of certain conditions set forth in the Certificate of Designation at a repurchase price equal to the Liquidation Preference in respect thereof, as defined in the Certificate of Designation, consisting of, at any time, $10.00 per share of Preferred Stock, plus accumulated and unpaid dividends thereon through the date of such determination, whether or not funds are legally available therefor, the aggregate amount of which, upon issuance of the 2,500,000 shares of Preferred Stock to be issued pursuant to the Investment Agreement, shall be $25,000,000, plus accumulated and unpaid dividends, and (b) after the occurrence of an Event of Default, as defined in the Certificate of Designation, the joint and several obligations of the Company, Grantors and other subsidiaries of the Company to indemnify Obligee from and against any and all losses, claims, damages, expenses (including reasonable fees, disbursements and other charges of counsel) or other liabilities resulting from any breach of any covenant, agreement, representation or warranty of the Company in this Security Agreement or in any other Secured Instrument Document pursuant to Section 7.2 of the Investment Agreement, as evidenced by that certain Secured Evidence of Joint and Several Repurchase Obligations dated of even date herewith, executed by the Company, Grantors, and other subsidiaries of the Company to and for the benefit of Obligee (together with any and all additions, modifications, amendments, renewals, and extensions thereof, the "INSTRUMENT"), whether or not from time to time decreased or extinguished and later increased, created or incurred and all or any portion of such obligations that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from Obligee or Collateral Agent as a preference, fraudulent transfer or otherwise, and all obligations of every nature (whether of payment, of performance or otherwise) of the Company, the Grantors and other subsidiaries of the Company from time to time owed to Obligee or Collateral Agent or either of them 5 under the Secured Agreement or any other Secured Instrument Document, whether for principal, interest (including interest accruing after the commencement of a bankruptcy case, whether or not enforceable in such case), repurchase or redemption obligations, dividend obligations, fees, costs, expenses, indemnification liabilities or other obligations, of whatsoever nature and whether now or hereafter made, incurred or created, whether absolute or contingent, liquidated or unliquidated, regardless of class, whether due or not due, and however arising (the foregoing being hereinafter collectively referred to as the "SECURED OBLIGATIONS"). SECTION 4. GRANTORS REMAIN LIABLE. Anything herein to the contrary notwithstanding, (a) each Grantor shall remain liable under any contracts and agreements included in the Collateral, to the extent set forth therein, to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by Collateral Agent of any of the rights hereunder shall not release the Grantor from any of its duties or obligations under the contracts and agreements included in the Collateral and (c) Collateral Agent or Obligee shall not have any obligation or liability under any contracts and agreements included in the Collateral by reason of this Agreement, nor shall Collateral Agent or Obligee be obligated to perform any of the obligations or duties of the Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder. SECTION 5. REPRESENTATIONS AND WARRANTIES. Each Grantor represents and warrants as follows: (a) LOCATION OF EQUIPMENT AND INVENTORY; OFFICE LOCATIONS; FICTITIOUS NAMES. As of the Effective Date, all of the Equipment and Inventory of Grantor is located at the places specified on SCHEDULE I hereto. As of the Effective Date, the chief place of business and the chief executive office of the Grantor is specified on SCHEDULE I hereto. As of the Effective Date, the offices where the Grantor keeps its material records regarding the Collateral and all originals of all chattel paper that evidence Collateral are set forth on SCHEDULE II hereto. As of the Effective Date, the Grantor does not do business under any trade name or fictitious business name except as set forth on SCHEDULE II hereto. (b) DELIVERY OF CERTAIN COLLATERAL. All chattel paper, notes and other instruments (excluding checks) comprising any or all of the items of Collateral of Grantor have been delivered to Collateral Agent duly endorsed and accompanied by duly executed instruments of transfer or assignment in blank. (c) OWNERSHIP OF COLLATERAL. Except for the security interest created by this Agreement and Liens permitted by each of the agreements governing the Secured Obligations from time to time in effect, including, without limitation, Liens of The Bank of New York, as SP Collateral Agent, as defined in the Intercreditor Agreement (collectively, "PERMITTED LIENS"), the Grantor owns the Collateral pledged by the Grantor hereunder free and clear of any Lien. Except as may have been filed in 6 favor of Collateral Agent relating to this Agreement or in connection with Permitted Liens, no effective financing statement or other instrument similar in effect covering all or any part of the Collateral is on file in any filing or recording office. (d) PERFECTION. Subject only to Permitted Liens, in the case of existing Collateral, this Agreement creates, and in the case of after acquired Collateral, at the time the Grantor first has rights in such after acquired Collateral, this Agreement will create, in each case upon the making of the filings described in clause (e) below or the taking of possession by Collateral Agent with respect to security interests in Collateral which can only be perfected by taking possession of such Collateral, for all Collateral, a valid, perfected, first priority security interest, in each case securing the payment and performance of the Secured Obligations. Upon making the filings described in clause (e) below or the taking of possession by Collateral Agent with respect to security interests in Collateral which can only be perfected by taking possession of such Collateral, in each case for all Collateral, all filings and other actions necessary or desirable to protect and to perfect the security interests referenced above shall have been duly taken. (e) GOVERNMENTAL AUTHORIZATIONS. No authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required either (i) for the grant by the Grantor of the security interest granted hereby or for the execution, delivery or performance of this Agreement by the Grantor or (ii) for the perfection of (except as otherwise specified in paragraph (d) of this SECTION 5), or the exercise by, Collateral Agent of its rights and remedies hereunder, except for the filing of (x) a Uniform Commercial Code financing statement with the appropriate authorities in the jurisdictions listed on SCHEDULE III hereto, (y) certificates of title with respect to motor vehicles of the Grantor in the appropriate jurisdictions and (z) notifications and/or transfer documents with respect to certain regulatory permits of the Grantor in the appropriate jurisdictions. (f) OTHER INFORMATION. All information heretofore, herein or hereafter supplied to Collateral Agent by, or on behalf of, the Grantor with respect to the Collateral (in each case as such information has been amended, supplemented or updated as of the date this representation is deemed made) is accurate and complete in all material respects. SECTION 6. FURTHER ASSURANCES. (a) Each Grantor agrees that from time to time, at the expense of the Grantor, the Grantor will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that Collateral Agent may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable Collateral Agent to exercise and enforce its rights and remedies hereunder with respect to any Collateral. Without limiting the generality of the foregoing, each Grantor will: (i) at the reasonable request of Collateral Agent, mark conspicuously each chattel paper and each material contract included in the Collateral and each of its 7 material records pertaining to the Collateral with a legend, in form and substance reasonably satisfactory to Collateral Agent, indicating that such items are subject to the security interest granted hereby; (ii) if any Collateral shall be evidenced by a promissory note or other instrument (excluding checks), deliver and pledge to Collateral Agent hereunder for the benefit of Obligee such note or instrument duly endorsed and accompanied by duly executed instruments of transfer or assignment, all in form and substance satisfactory to Collateral Agent; (iii) at the request of Collateral Agent, deliver and pledge to Collateral Agent all promissory notes and other instruments (including checks if an Event of Default shall have occurred and be continuing) and all original counterparts of chattel paper constituting Collateral duly endorsed and accompanied by duly executed instruments of transfer or assignment, all in form and substance satisfactory to Collateral Agent; (iv) upon the reasonable request of Collateral Agent, execute and file with the registrar of motor vehicles or other appropriate authority of any jurisdiction under the law of which indication of a security interest on a certificate of title is required as a condition of perfection an application or other document requesting the notation or other indication of the security interest created hereunder on such certificate of title and will deliver to Collateral Agent copies of all such applications or other documents filed and copies of all such certificates of title issued indicating the security interest created hereunder in such Collateral; (v) execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices, as may be necessary or desirable, or as Collateral Agent may reasonably request, in order to perfect and preserve the security interests granted or purported to be granted hereby; (vi) at any reasonable time and upon reasonable notice, upon demand by Collateral Agent exhibit the Collateral to and allow inspection of the Collateral by Collateral Agent, or persons designated by Collateral Agent; and (vii) at Collateral Agent's reasonable request, appear in and defend any action or proceeding that may affect the Grantor's title to or Collateral Agent's security interest in the Collateral. (b) Each Grantor hereby authorizes Collateral Agent to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Collateral without the signature of the Grantor where permitted by law. A carbon, photographic or other reproduction of this Agreement or a financing statement signed by such Grantor shall be sufficient as a financing statement where permitted by law. (c) Each Grantor will furnish to Collateral Agent from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as Collateral Agent may reasonably request, all in reasonable detail. SECTION 7. COVENANTS OF THE GRANTORS. Each Grantor shall: (a) Not use or permit any Collateral to be used in violation of any provision of this Agreement, or any applicable statute, regulation or ordinance or any policy of insurance covering the Collateral (unless such violation together with all other violations does not and could not reasonably be expected to have a material adverse effect on the value or use of any material portion of the Collateral); 8 (b) Notify Collateral Agent of any change in the Grantor's name, trade names, fictitious business names, identity or corporate structure at least 30 days prior to such change; (c) Give Collateral Agent 30 days' prior written notice of any change in the location of the Grantor's (i) chief place of business, (ii) chief executive office and (iii) offices where the Grantor's records regarding Collateral and the originals of all chattel paper that evidence Collateral are kept; (d) Keep the Equipment and Inventory (other than Inventory sold in the ordinary course of business and other than such Equipment and Inventory which, either singly or in the aggregate, is not material) at the places therefor specified on SCHEDULE I hereto or at such other places in jurisdictions where all action has been taken that may be necessary or desirable, or that Collateral Agent may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable Collateral Agent to exercise and enforce its rights and remedies hereunder with respect to such Equipment and Inventory; (e) Keep records of the Inventory which are correct and accurate in all material respects, itemizing and describing the kind, type and quantity of Inventory and the Grantor's cost therefor all in accordance with the past practices of the Grantor; (f) If any Inventory is in possession or control of any of the Grantor's agents or processors, then upon the occurrence of an Event of Default, at the request of Collateral Agent, instruct such agent or processor to hold all such Inventory for the account of Collateral Agent and subject to the instructions of Collateral Agent; (g) Keep its chief place of business and chief executive office and the office where it keeps its material records concerning the Collateral, and all originals of all chattel paper that evidence Collateral, at the location therefor specified in SECTION 5(A) or at such other locations in a jurisdiction where all action that may be necessary or desirable, or that Collateral Agent may request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable Collateral Agent to exercise and enforce its rights and remedies hereunder with respect to such Collateral has been taken. Each Grantor will hold and preserve such material records and chattel paper in accordance with Grantor's past practice and will permit representatives of Collateral Agent at any time during normal business hours and upon reasonable notice to inspect and make abstracts from such material records and chattel paper and each Grantor agrees to render to Collateral Agent, at the Grantor's cost and expense, such clerical and other assistance as may be reasonably requested with regard thereto; and (h) Perform and comply in all material respects with all contractual obligations relating to the Collateral. 9 SECTION 8. INSURANCE. (a) Unless otherwise agreed in writing by Collateral Agent, each insurance policy covering the Collateral shall in addition (i) name the Grantor and Collateral Agent as insured parties thereunder (without any representation or warranty by or obligation upon Collateral Agent) as their interests may appear, (ii) contain an agreement by the insurer that, to the extent provided in the Collateral Documents, any loss thereunder shall be payable to Collateral Agent notwithstanding any action, inaction or breach of representation or warranty by the Grantor, (iii) have attached thereto a lender's loss payable endorsement or its equivalent, or a loss payable clause acceptable to Collateral Agent, for the benefit of Obligee, (iv) provide that there shall be no recourse against Collateral Agent for payment of premiums or other amounts with respect thereto and (v) provide that at least 30 days' prior written notice of cancellation or lapse, material amendment, or material reduction in scope or limits of coverage shall be given to Collateral Agent by the insurer. Each Grantor shall, if so requested by Collateral Agent, deliver to Collateral Agent original or duplicate policies of such insurance and, as often as Collateral Agent may reasonably request (but, unless an Event of Default shall have occurred and be continuing, in no event more than once each calendar year), a report of a reputable insurance broker with respect to such insurance. Further, each Grantor shall, at the request of Collateral Agent, duly execute and deliver instruments of assignment of such insurance policies to comply with the requirements of SECTION 6 hereof and use its best efforts to cause the respective insurers to acknowledge notice of such assignment. (b) Reimbursement under any liability insurance maintained by a Grantor pursuant to this SECTION 8 may be paid directly to the person who shall have incurred liability covered by such insurance. In case of any material loss involving damage to Equipment or Inventory when subsection (c) of this SECTION 8 is not applicable, any proceeds of insurance maintained by the Grantor shall be paid to the Grantor and the Grantor shall use such proceeds to make necessary repairs or replacements of such Equipment and Inventory or to purchase additional Equipment or Inventory or other property of equivalent value and constituting Collateral hereunder. (c) Upon the occurrence and during the continuance of an Event of Default, at the request of Collateral Agent, all insurance payments in respect of such Equipment and Inventory shall be paid to and applied by Collateral Agent as specified in SECTION 16. (d) Prior to the expiration of each insurance policy with respect to the Equipment and Inventory, upon written request of Collateral Agent, each Grantor shall furnish Collateral Agent with evidence satisfactory to Collateral Agent of the reissuance of a policy continuing insurance in force as required by this Agreement and at or prior to the date payment of the premium therefor is due, evidence satisfactory to Collateral Agent of such payment. In the event a Grantor fails to provide, maintain, keep in force or deliver and furnish to Collateral Agent the policies of insurance required by this SECTION 8, Collateral Agent, upon 30 days' prior written notice to such Grantor, may (but shall not be obligated to) procure such insurance or single interest insurance for such risks covering Obligee's interests, and such Grantor will pay all premiums thereon promptly upon demand by Collateral Agent, together 10 with interest thereon at the Default Rate, from the date of expenditure by Collateral Agent until reimbursement by such Grantor. SECTION 9. LICENSE OF TRADEMARKS AND TRADE NAMES. Each Grantor hereby assigns, transfers and conveys to Collateral Agent, effective upon the occurrence of, and during the continuance of, any Event of Default, the nonexclusive right and license to use all trademarks, trade names and copyrights owned or used by the Grantor that relate to the Collateral and any other collateral granted by the Grantor as security for the Secured Obligations, together with any goodwill associated therewith, all to the extent necessary to enable Collateral Agent to use, possess and realize on the Collateral and any successor or assignee to enjoy the benefits of the Collateral. This right and license shall inure to the benefit of Collateral Agent and its successors, assigns and transferees, whether by voluntary conveyance, operation of law, assignment, transfer, foreclosure, deed in lieu of foreclosure or otherwise. Such right and license is granted free of charge, without requirement that any monetary payment whatsoever be made to the Grantor. If (a) an Event of Default shall have occurred and, by reason of waiver, modification, amendment or otherwise, no longer be continuing, (b) no other Event of Default shall be continuing, (c) an assignment to Collateral Agent shall have been previously made pursuant to this SECTION 9, and (d) the Secured Obligations shall not have become immediately due and payable, upon the written request of the Grantor, Collateral Agent shall promptly execute and deliver to the Grantor such assignments as may be necessary to reassign to the Grantor any rights, title and interests as may have been assigned pursuant to this SECTION 9, subject to any disposition thereof that may have been made by Collateral Agent pursuant hereto; PROVIDED that, after giving effect to such reassignment, Collateral Agent's security interest and conditional assignment granted pursuant to this SECTION 9, as well as all other rights and remedies of Collateral Agent granted hereunder, shall continue to be in full force and effect; and PROVIDED, FURTHER, that the rights, title and interests so reassigned shall be free and clear of all Liens other than Liens (if any) encumbering such rights, title and interest at the time of their assignment to Collateral Agent. SECTION 10. TRANSFERS AND OTHER LIENS. Each Grantor shall not: (a) Except as permitted by the Secured Agreement, sell, assign (by operation of law or otherwise) or otherwise dispose of any of the Collateral. (b) Except for the Permitted Liens, create or suffer to exist any Lien upon or with respect to any of the Collateral to secure the indebtedness or other obligations of any person or entity. SECTION 11. COLLATERAL AGENT. Collateral Agent has been appointed as Collateral Agent hereunder pursuant to the Secured Agreement. Collateral Agent shall be obligated, and shall have the right hereunder, to make demands, to give notices, to exercise or refrain from exercising any rights, and to take or refrain from taking action (including, without 11 limitation, the release or substitution of Collateral) in accordance with the Secured Agreement and the Intercreditor Agreement. Collateral Agent may resign and a successor Collateral Agent may be appointed in the manner provided for in the Secured Agreement for resignation and appointment of a successor Collateral Agent. Upon the acceptance of any appointment as Collateral Agent by a successor Collateral Agent, the successor Collateral Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Collateral Agent under this Agreement, and the retiring Collateral Agent shall thereupon be discharged from its duties and obligations under this Agreement and shall deliver any Collateral in its possession to the successor Collateral Agent. After any retiring Collateral Agent's resignation, the provisions of this Agreement shall inure to its benefit as to any actions taken or omitted to be taken by it under this Agreement while it was Collateral Agent. SECTION 12. COLLATERAL AGENT APPOINTED ATTORNEY-IN-FACT. Each Grantor hereby irrevocably appoints Collateral Agent the Grantor's attorney-in-fact, with full authority in the place and stead of the Grantor and in the name of the Grantor, Collateral Agent or otherwise, from time to time in Collateral Agent's reasonable discretion to take any action and to execute any instrument that Collateral Agent may deem necessary or advisable, subject to the terms and conditions of this Agreement, to accomplish the purposes of this Agreement, including, without limitation: (a) Subject to the last sentence of SECTION 8(D) hereof, to obtain and adjust insurance required to be maintained by the Grantor or paid to Collateral Agent pursuant to SECTION 8 hereof; (b) Upon the occurrence of, and during the continuance of, an Event of Default, to ask, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral; (c) Upon the occurrence of, and during the continuance of, an Event of Default, to receive, endorse, and collect any drafts or other instruments, documents and chattel paper, in connection with clauses (a) and (b) above; (d) Upon the occurrence of, and during the continuance of, an Event of Default, to file any claims or take any action or institute any proceedings that Collateral Agent may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce the rights of Collateral Agent with respect to any of the Collateral; (e) To pay or discharge taxes (other than taxes not then required to be paid or discharged by any of the agreements governing the Secured Obligations, from time to time in effect including without limitation the Secured Agreement) or Liens (other than Permitted Liens), levied or placed upon or threatened against the Collateral, the legality or validity thereof and the amounts necessary to discharge the same to be determined by Collateral Agent in its reasonable discretion, and such payments made 12 by Collateral Agent to become obligations of the Grantor to Collateral Agent, due and payable immediately without demand; (f) Upon the occurrence of, and during the continuance of, an Event of Default, to sign and endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications and notices in connection with accounts and other documents relating to the Collateral; and (g) Upon the occurrence of, and during the continuance of, an Event of Default, generally to sell, transfer, pledge, make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though Collateral Agent were the absolute owner thereof for all purposes, and to do, at Collateral Agent's option and the Grantor's expense, at any time, or from time to time, all acts and things that Collateral Agent deems necessary to protect, preserve or realize upon the Collateral and Collateral Agent's security interest therein, in order to effect the intent of this Agreement, all as fully and effectively as the Grantor might do. The Grantors hereby ratify all that said attorneys shall lawfully do or cause to be done by virtue hereof. This power of attorney is a power coupled with an interest and shall be irrevocable. SECTION 13. COLLATERAL AGENT MAY PERFORM. If any Grantor fails to perform any agreement contained herein, Collateral Agent may, upon 30 days' notice to the Grantor (unless otherwise expressly set forth in this Agreement or an Event of Default shall have occurred and be continuing, in which case, no such notice shall be required), itself perform, or cause performance of, such agreement, and the expenses of Collateral Agent incurred in connection therewith shall be payable by such Grantor under SECTION 17 hereof. SECTION 14. COLLATERAL AGENT'S DUTIES AND LIABILITIES. (a) The powers conferred on Collateral Agent hereunder are solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any such powers. Except for the safe custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder, Collateral Agent shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. Collateral Agent shall be deemed to exercise reasonable care in the custody and preservation of such Collateral if such Collateral is accorded treatment substantially equivalent to that which Collateral Agent accords its own property. (b) Collateral Agent shall not be liable to any Grantor (i) for any loss or damage sustained by it, or (ii) for any loss, damage, depreciation or other diminution in the value of any of the Collateral, that may occur as a result of, in connection with or that is in any way related to (x) any exercise by Collateral Agent of any right or remedy under this Agreement or (y) any other act of or failure to act by Collateral Agent, except to the extent that the 13 same shall be determined by a judgment of a court of competent jurisdiction to be the result of acts or omissions on the part of Collateral Agent constituting gross negligence or willful misconduct. (c) Except to the extent resulting from acts or omissions on the part of Collateral Agent or its affiliates, directors, officers, employees, attorneys, or agents constituting gross negligence or willful misconduct, no claim may be made by any Grantor against Collateral Agent or its affiliates, directors, officers, employees, attorneys or agents for any special, indirect, or consequential damages in respect of any breach or wrongful conduct (whether the claim therefor is based on contract, tort or duty imposed by law) in connection with, arising out of or in any way related to the transactions contemplated and relationship established by this Agreement, or any act, omission or event occurring in connection therewith. Except to the extent resulting from acts or omissions on the part of Collateral Agent or its affiliates, directors, officers, employees, attorneys, or agents constituting gross negligence or willful misconduct, each Grantor hereby waives, releases and agrees not to sue upon any such claim for any such damages, whether or not accrued and whether or not known or suspected to exist in its favor. SECTION 15. REMEDIES UPON DEFAULT. (a) EVENTS OF DEFAULT. The occurrence of any "EVENT OF DEFAULT" as defined in the Secured Agreement (whether or not any Secured Obligations shall be at the time outstanding thereunder or the Secured Agreement shall have terminated for some other purpose) or the occurrence of any default under the Certificate of Designation between the Company and Obligee dated of even date herewith which default has continued beyond any applicable cure period, shall constitute an Event of Default under this Agreement. (b) REMEDIES UPON AN EVENT OF DEFAULT. If any Event of Default shall have occurred and be continuing, Collateral Agent may exercise in respect of the Collateral, (i) all the rights and remedies of a secured party on default under the Uniform Commercial Code of the State of New York (the "CODE") (whether or not the Code applies to the affected Collateral), (ii) all of the rights and remedies provided for in this Agreement, the Secured Agreement, and any other agreement between any Grantor and Obligee and (iii) such other rights and remedies as may be provided by law or otherwise (such rights and remedies of Obligee to be cumulative and non-exclusive). If an Event of Default shall have occurred and be continuing, Collateral Agent also may (i) require each Grantor to, and each Grantor hereby agrees that it will, at its expense and upon request of Collateral Agent forthwith, assemble all or part of the Collateral as directed by Collateral Agent and make it available to Collateral Agent at a place to be designated by Collateral Agent that is reasonably convenient to both parties, (ii) enter onto the property where any Collateral is located and take possession thereof with or without judicial process, (iii) prior to the disposition of the Collateral, store, process, repair or recondition the Collateral or otherwise prepare the Collateral for disposition in any manner to the extent Collateral Agent deems appropriate, (iv) take possession of any Grantor's premises or place custodians in exclusive control thereof, remain on such premises and use the same and any of such Grantor's equipment for the purpose of completing any work in process, taking any actions described in the preceding clause (iii) and collecting any Secured Obligation, and (v) without notice except as specified 14 below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of Collateral Agent's offices or elsewhere, for cash, on credit or for future delivery, and at such price or prices and upon such other terms as Collateral Agent may deem commercially reasonable. Each Grantor agrees that, to the extent notice of sale shall be required at law, at least 10 days' notice to the Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. Collateral Agent shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. Collateral Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. If an Event of Default shall have occurred and be continuing, Collateral Agent may retain any of the directors, officers and employees of any Grantor, in each case upon such terms as Collateral Agent and any such person may agree, notwithstanding the provisions of any employment, confidentiality or non-disclosure agreement between any such person and any such Grantor, and each Grantor hereby waives its rights under any such agreement and consents to each such retention. SECTION 16. APPLICATION OF PROCEEDS. All proceeds received by Collateral Agent in respect of any sale of, collection from or other realization upon all or any part of the Collateral may, in the discretion of Collateral Agent, be held by Collateral Agent as Collateral for, and/or then, or at any other time thereafter applied, in full or in part by Collateral Agent against the Secured Obligations in the following order of priority: FIRST: To the payment of all costs and expenses of such sale, collection or other realization and all other expenses, liabilities and advances made or incurred by Collateral Agent in connection therewith and all amounts for which Collateral Agent is entitled to indemnification hereunder and all advances made by Collateral Agent hereunder for the account of the Grantors and for the payment of all costs and expenses paid or incurred by Collateral Agent in connection with the exercise of any right or remedy hereunder, all in accordance with SECTION 17 hereof; SECOND: To the payment of the Secured Obligations in the order set forth in the Secured Agreement and in accordance with the Intercreditor Agreement; and THIRD: After payment in full of the amounts specified in the preceding subparagraphs, to the payment to, or upon the order of, the Grantors, or whosoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct, of any surplus then remaining from such proceeds. SECTION 17. INDEMNITY AND EXPENSES. (a) Each Grantor agrees to indemnify Collateral Agent and Obligee and each of the officers, directors, agents, employees and affiliates of each of them (each an "INDEMNITEE") from and against any and all claims, losses and liabilities growing out of or 15 resulting from this Agreement (including, without limitation, enforcement of this Agreement), except claims, losses or liabilities resulting from the gross negligence or willful misconduct of the Indemnitee seeking indemnification. (b) Each Grantor will upon demand pay to Collateral Agent the amount of any and all reasonable expenses, including the reasonable fees and disbursements of its counsel and of any experts and agents, that Collateral Agent may incur in connection with (i) the administration of this Agreement, (ii) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any of the Collateral, (iii) the exercise or enforcement of any of the rights of Collateral Agent hereunder or (iv) the failure by the Grantor to perform or observe any of the provisions hereof. (c) The obligations of Grantor in this SECTION 17 hereof shall survive termination of this Agreement and the discharge of Grantor's other obligations under this Agreement, the Secured Agreement and the other Secured Instrument Documents. SECTION 18. CONTINUING SECURITY INTEREST; TERMINATION. This Agreement shall create a continuing security interest in the Collateral and shall (a) remain in full force and effect until the indefeasible payment in full of the Secured Obligations and termination of Obligee's obligations to lend and extend credit under the Secured Agreement, (b) be binding upon each Grantor, its successors and assigns and (c) inure, together with the rights and remedies of Collateral Agent and Obligee hereunder, to the benefit of Collateral Agent and Obligee and the successors, transferees and assigns of each. Without limiting the generality of the foregoing clause (c), Obligee may, subject to the provisions of the Secured Agreement, assign or otherwise transfer the Note, or portion thereof, or any other obligations secured hereby and any agreements or instruments executed in connection therewith to any other person or entity, and such other person or entity shall thereupon become vested with all the benefits in respect thereof granted to Obligee herein or otherwise. Upon the indefeasible payment in full of the Secured Obligations and termination of Obligee's obligations to lend or extend credit under the Secured Agreement, the security interest granted hereby shall terminate and all rights to the Collateral shall revert to the Grantors. Upon any such termination, Collateral Agent will, at the Grantors' expense, execute and deliver to the Grantors, against receipt and without recourse to or warranty by Collateral Agent, such documents as the Grantors shall reasonably request to evidence such termination. SECTION 19. SECURITY INTEREST ABSOLUTE. All rights of Collateral Agent on its behalf and on behalf of Obligee, assignments and pledges made and created hereunder, and all obligations of the Grantors, shall be absolute and unconditional, irrespective of: (a) Any lack of validity or enforceability of any of the Secured Obligations or any agreement or instrument relating thereto; (b) Any change in the time, manner or place of payment of, or in any other term of, all or any of the Secured Obligations, or any other amendment or 16 waiver of, or any consent to any departure from, any agreement or instrument relating to the Secured Obligations; (c) Any exchange, release, subordination or nonperfection of any other collateral, or any release or amendment or waiver of or consent to any departure from any guaranty, for all or any of the Secured Obligations; or (d) Any other circumstance, other than indefeasible payment in full of the Secured Obligations (including, but not limited to, any statute of limitations) which might otherwise constitute a defense available to, or a discharge of, the Grantors or a third party grantor or a security interest. SECTION 20. PARTIAL RELEASES. Collateral Agent shall execute and deliver partial releases of the Liens created pursuant thereto, pursuant to, and as expressly provided in the Secured Agreement. SECTION 21. AMENDMENTS; ETC. No amendment or waiver of any provision of this Agreement nor consent to any departure by any Grantor herefrom, shall in any event be effective unless the same shall be in writing and signed by Collateral Agent on behalf of Obligee, and then such waiver or consent shall be effective only in the specified instance and for the specific purpose for which given. SECTION 22. ADDRESSES FOR NOTICES. Unless otherwise specifically provided herein, any notice or other communication herein required or permitted to be given shall be in writing and may be personally served, telecopied, telexed or sent by United States mail or courier service and shall be deemed to have been given when delivered in person, upon confirmed receipt (in the case of telecopy or telex) or 5 Business Days after depositing it in the United States mail, registered or certified, with postage prepaid and properly addressed; PROVIDED that any notice sent to Collateral Agent or Obligee shall not be effective until received. For purposes hereof, the addresses of the parties hereto (until notice of a change thereof) is delivered as provided in this SECTION 22) shall be as set forth under each party's name on the signature pages hereof or in the Secured Agreement. SECTION 23. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. All judicial proceedings brought against each Grantor with respect to this Agreement may be brought in any state or Federal court of competent jurisdiction sitting in New York, New York and by execution and delivery of this Agreement each Grantor accepts for itself and in connection with the Collateral, generally and unconditionally, the nonexclusive jurisdiction of the aforesaid courts and irrevocably agrees to be bound by any judgement rendered thereby in connection with this Agreement. Each Grantor agrees that service of process sufficient for personal jurisdiction in any action against Grantor in the State of New York may be made by registered or certified mail, return receipt requested, to Grantor at its address provided in SECTION 22 and Grantor hereby acknowledges that such service shall be effective and binding 17 in every respect. Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of Collateral Agent to bring proceedings against any Grantor in the courts of any other jurisdiction. SECTION 24. GOVERNING LAW; TERMS. THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES, EXCEPT AS REQUIRED BY MANDATORY PROVISION OF LAW AND EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. Unless otherwise defined herein or in the Secured Agreement, terms used in Article 9 of the Uniform Commercial Code in the State of New York are used herein as therein defined. SECTION 25. WAIVER OF JURY TRIAL. EACH GRANTOR AND COLLATERAL AGENT HEREBY AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT. The scope of this waiver is intended to be all-encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including without limitation, contract claims, tort claims, breach of duty claims, and all other common law and statutory claims. Each Grantor and Collateral Agent each (a) acknowledge that this waiver is a material inducement for the Grantor and Collateral Agent to enter into a business relationship, that the Grantor and Collateral Agent have already relied on the waiver in entering into this Agreement and that each will continue to rely on the waiver in their related future dealings and (b) further warrant and represent that each has reviewed this waiver with its legal counsel, and that each knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT. In the event of litigation, this Agreement may be filed as a written consent to a trial by the court. SECTION 26. WAIVER. Except as otherwise expressly provided herein, each Grantor hereby waives promptness, diligence, notice of acceptance and any other notice with respect to any of the Secured Obligations and this Agreement and any requirement that Collateral Agent or Obligee protect, secure, perfect or insure any security interest or lien or any property subject thereto or exhaust any right or take any action against the Grantor or any other person or entity or any of the Collateral. 18 SECTION 27. NO WAIVER. No failure on the part of Collateral Agent to exercise, and no course of dealing with respect to, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof; and no single or partial exercise by Collateral Agent of any right, power or remedy hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies herein provided are to the fullest extent permitted by law cumulative, and are not exclusive of any remedies provided by law. SECTION 28. MARSHALLING; PAYMENT SET ASIDE. Collateral Agent shall not be under any obligation to marshal any assets in favor of the Grantors or any other party or against or in payment of any or all of the Secured Obligations. To the extent that any Grantor makes a payment or payments to Collateral Agent or Agent enforces its security interests or exercises its rights of setoff, and such payment or payments or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all Liens, rights and remedies therefor, shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred. SECTION 29. HEADINGS. Section and subsection headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement or be given any substantive effect. SECTION 30. SEVERABILITY. In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation and in any other jurisdiction, shall not in any way be affected or impaired thereby. SECTION 31. COUNTERPARTS. This Agreement, and any amendments, waivers, consents or supplements, may be executed in one or more counterparts, each of which when so executed and delivered shall be deemed an original and all of which together shall constitute one and the same Agreement. SECTION 32. ADDITIONAL GRANTORS. The initial Grantors hereunder shall be AGC-SP and such of the Subsidiaries of AGC-SP as are signatories hereto on the date hereof. From time to time subsequent to the date hereof, additional Subsidiaries of AGC-SP, as required by the Secured Agreement, may become parties hereto, as additional Grantors (each an "ADDITIONAL GRANTOR"), by executing and delivering (a) a joinder agreement substantially in the form of EXHIBIT A attached hereto, pursuant to which each such Additional Grantor shall agree to join in and become bound by the provisions of this Agreement as a Grantor and (b) 19 such documents as Collateral Agent may request in order to grant the Collateral Agent for the benefit of Obligee a perfected security interest in the personal property of such Additional Grantor. SECTION 33. INTERCREDITOR AGREEMENT. Obligee, Collateral Agent and Foothill Capital Corporation, as AG Collateral Agent, are parties to the Intercreditor Agreement which, among other things, concerns priorities of Liens in the Collateral and the exercise of remedies by the parties thereto, and the manner and priority of distribution of the proceeds of the Collateral among Obligee and Foothill Capital Corporation, as AG Collateral Agent, and the terms of this Agreement are subject to the terms and provisions of the Intercreditor Agreement. [remainder of page intentionally left blank] 20 IN WITNESS WHEREOF, each Grantor and Collateral Agent have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized effective as of the date first above written. GRANTORS: AGC-SP, INC., a Delaware corporation, AGC-SP1, INC., a Florida corporation, AGC-SP2, INC., a Florida corporation, AGC-SP3, INC., a Florida corporation, AGC-SP4, INC., a Florida corporation, AGC-SP5, INC., a Florida corporation, and WEST BAY CLUB DEVELOPMENT CORPORATION, a Florida corporation, f/k/a Estero Pointe Development Corporation By: --------------------------------------- John H. Fischer Vice President Address: c/o ATLANTIC GULF COMMUNITIES CORPORATION 2601 South Bayshore Drive, 9th Floor Miami, Florida 33133-5461 Attention: John H. Fischer, Vice President Facsimile: (305) 859-4623 COLLATERAL AGENT: THE BANK OF NEW YORK, a New York banking corporation, as Collateral Agent By: The Bank of New York Trust Company of Florida, N.A., its agent By: ---------------------------------- Janalee R. Scott Assistant Vice President Address: Towermarc Plaza, 2nd Floor 10161 Centurion Parkway Jacksonville, Florida 32256 Attention: Janalee R. Scott Facsimile: (904) 645-1998 21 Copy to: Apollo Real Estate Advisors II, L.P. 1301 Avenue of the Americas New York, New York 10019 Attn: Rick Koenigsberger Telecopy: (212) 459-3301 Copy to: Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, New York 10019 Attn: Philip Mindlin, Esq. Telecopy: (212) 403-2000 Copy to: Carlton, Fields, Ward, Emmanuel, Smith & Cutler, P.A. Post Office Box 3239 Tampa, Florida 33601 Attn: Paula McDonald Rhodes, Esq. Telecopy: (813) 229-4133 22 SCHEDULE I TO PERSONAL PROPERTY SECURITY AGREEMENT Locations of Equipment: Locations of Inventory: 23 SCHEDULE II TO PERSONAL PROPERTY SECURITY AGREEMENT Address of offices where records regarding Payment Rights and Chattel Paper are maintained: Trade names and/or fictitious business names under which business is conducted: 24 SCHEDULE III TO PERSONAL PROPERTY SECURITY AGREEMENT Filing Jurisdictions -------------------- 25 EXHIBIT A TO PERSONAL PROPERTY SECURITY AGREEMENT Subsidiary Joinder ------------------ __________, 199_ The Bank of New York Towermarc Plaza, 2nd Floor 10161 Centurion Parkway Jacksonville, Florida 32256 Attention: Janalee R. Scott Re: Subsidiary Joinder ------------------ Ladies and Gentlemen: Reference hereby is made to that certain Personal Property Security Agreement (the "SECURITY AGREEMENT"), dated effective as of June 23, 1997, by and among THE BANK OF NEW YORK, a New York banking corporation, as collateral agent (in such capacity herein called "COLLATERAL AGENT"), for AP-AGC, LLC, a Delaware limited liability company ("OBLIGEE"), on the one hand, and AGC-SP, INC., a Delaware corporation ("AGC-SP"), and the Subsidiaries of AGC-SP signatory thereto from time to time, on the other hand. Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to them in the Security Agreement. This Subsidiary Joinder is executed and delivered this ___ day of __________, 199_ by each entity identified as an Additional Grantor on the signature page hereof (individually, an "ADDITIONAL GRANTOR," and collectively, the "ADDITIONAL GRANTORS") in favor of Collateral Agent. SECTION 1. JOINDER. Pursuant to Section 32 of the Security Agreement, each Additional Grantor hereby joins in and agrees to be bound by each and all of the provisions of the Security Agreement and, in so doing, hereby becomes a Grantor. Without limiting the generality of the foregoing, each Additional Grantor, as a Grantor, hereby grants to Collateral Agent, pursuant to Section 2 of the Security Agreement, a continuing security interest in all currently existing and hereafter acquired or arising Collateral and hereby agrees to execute and deliver such documents as Collateral Agent may request in order to grant, affirm, perfect, or continue perfected such security interests under applicable law. SECTION 2. REPRESENTATIONS AND WARRANTIES. Each Additional Grantor hereby represents and warrants to Collateral Agent that: (a) the execution, delivery, and performance of this Subsidiary Joinder, the Security Agreement, and any other Secured Instrument Document to which such Additional Grantor is party are within its corporate powers, have been duly authorized by all necessary corporate action, and are not in 26 contravention of any law, rule, or regulation, or any order, judgment, decree, writ, injunction, or award of any arbitrator, court, or governmental authority, or of the terms of its charter or bylaws, or of any contract or undertaking to which it is a party or by which any of its properties may be bound or affected; (b) this Subsidiary Joinder, the Security Agreement, and any and all other Secured Instrument Documents to which such Additional Grantor is party constitute its legal, valid, and binding obligations, enforceable against such Additional Grantor in accordance with their respective terms; (c) the chief executive office and federal employer identification number of such Additional Grantor are identified on SCHEDULE 1 attached hereto; and (e) each other representation and warranty applicable to such Additional Grantor as a Grantor under the Secured Instrument Documents is and will be true and correct as of the date hereof. SECTION 3. BINDING EFFECT. This Subsidiary Joinder is binding upon and enforceable against each Additional Grantor and its successors and assigns. It shall inure to the benefit of and may be enforced by Collateral Agent and its successors and assigns. SECTION 4. NOTICES. Notices to the Additional Grantors shall be given in the manner set forth in SECTION 22 of the Security Agreement. SECTION 5. SECURED INSTRUMENT DOCUMENT. This Subsidiary Joinder is a Secured Instrument Document. SECTION 6. SECURED INSTRUMENT DOCUMENT REFERENCES. (a) Each reference in the Security Agreement and the other Secured Instrument Documents to "Grantors," or words of like import referring to the Grantors shall include and refer to each of the Additional Grantors; (b) each reference in the Security Agreement to "this Agreement," "hereunder," "herein," "hereof" or words of like import referring to the Security Agreement shall mean and refer to the Security Agreement as supplemented by this Subsidiary Joinder; and (c) each reference in the Secured Instrument Documents to the "Security Agreement," "thereunder," "therein," "thereof" or words of like import referring to the Security Agreement shall mean and refer to the Security Agreement as supplemented by this Subsidiary Joinder. SECTION 7. COUNTERPARTS. This Subsidiary Joinder may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Subsidiary Joinder by signing any such counterpart. [remainder of page intentionally left blank] 27 IN WITNESS WHEREOF, each of the undersigned has caused this Subsidiary Joinder to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. ADDITIONAL GRANTORS: [ADDITIONAL GRANTOR] By: ------------------------------------- Name: Title: [ADDITIONAL GRANTOR] By: ------------------------------------- Name: Title: Acknowledged and Agreed: AGC-SP, INC., a Delaware corporation, for itself and each of the other Grantors By: ------------------------------------- Name: -------------------------------- Title: ------------------------------- THE BANK OF NEW YORK, a New York banking corporation, as Collateral Agent BY: THE BANK OF NEW YORK TRUST COMPANY OF FLORIDA, N.A., its agent By: ------------------------------------- Name: -------------------------------- Title: ------------------------------- 28 SCHEDULE 1 TO SUBSIDIARY JOINDER Chief Executive Office/Federal Employer Identification Number ------------------------------------------------------------- 29 EX-10.C 4 EXHIBIT 10(C) STOCK PLEDGE AGREEMENT THIS STOCK PLEDGE AGREEMENT (this "PLEDGE AGREEMENT") is dated effective as of June 23, 1997, and is entered into by ATLANTIC GULF COMMUNITIES CORPORATION, a Delaware corporation ("COMPANY"), and AGC-SP, INC., a Delaware corporation ("AGC-SP;" Company and AGC-SP each individually referred to herein as a "PLEDGOR" and together as "PLEDGORS;" PROVIDED that after the Effective Date, "Pledgors" shall be deemed to include any new subsidiary of any Pledgor which executes an acknowledgement to this Agreement pursuant to SECTION 6 hereof agreeing to be bound by the terms hereof) in favor of THE BANK OF NEW YORK, a New York banking corporation, as collateral agent (in such capacity referred to herein as "COLLATERAL AGENT") for AP-AGC, LLC, a Delaware limited liability company ("OBLIGEE"). RECITALS WHEREAS, Company, Obligee and Collateral Agent are parties to that certain Secured Agreement dated February 7, 1997, and amended and restated as of May 15, 1997 (as hereafter amended, supplemented or otherwise modified from time to time, "SECURED AGREEMENT"; capitalized terms used herein without definition shall have the meanings given such terms in the Secured Agreement); WHEREAS, Company and Obligee are parties to that certain Investment Agreement dated February 7, 1997, amended as of March 20, 1997, and amended and restated as of May 15, 1997 (as hereafter amended, supplemented or otherwise modified from time to time, the "INVESTMENT AGREEMENT"); WHEREAS, Company and Obligee are parties to that certain Due Diligence Fee Agreement dated of even date herewith (as hereafter amended, supplemented or otherwise modified from time to time, the "FEE AGREEMENT"); WHEREAS, it is a condition precedent to Obligee entering into the Secured Agreement, the Investment Agreement, the Fee Agreement and all other Secured Instrument Documents and investing capital thereunder that the Pledgors execute and deliver this Pledge Agreement, and the Pledgors desire to execute and deliver this Pledge Agreement. NOW, THEREFORE, in consideration of the premises set forth herein and to induce Obligee to enter into the Secured Agreement, the Investment Agreement, the Fee Agreement and all other Secured Instrument Documents, each of the Pledgors agree as follows: SECTION 1. PLEDGE OF SECURITY. Pledgors hereby pledge and assign to Collateral Agent, and hereby grant to Collateral Agent a security interest in, all of Pledgors' right, title and interest in and to the following (the "PLEDGED COLLATERAL"): (a) the shares described on SCHEDULE I hereto (the "PLEDGED SHARES") and the certificates representing the Pledged Shares and any interest of Pledgors in the entries on the books of any financial intermediary pertaining to the Pledged Shares, and all dividends, cash, warrants, rights, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Shares; (b) all intercompany indebtedness of Pledgors, all promissory notes made in favor of Pledgors in respect of proceeds from utility condemnations and all other promissory notes that do not constitute either Homesite Contracts Receivable or Commercial Receivables (collectively, the "PLEDGED DEBT"), the instruments evidencing the Pledged Debt, and all interest, cash, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of, or in exchange for, any or all of the Pledged Debt; (c) all additional shares of, and all securities convertible into and warrants, options and other rights to purchase or otherwise acquire, stock of any issuer of the Pledged Shares from time to time acquired by Pledgors in any manner (which shares shall be deemed to be part of the Pledged Shares), the certificates or other instruments representing such additional shares, securities, warrants, options or other rights and any interest of Pledgors in the entries on the books of any financial intermediary pertaining to such additional shares, and all dividends, cash, warrants, rights, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such additional shares, securities, warrants, options or other rights; (d) all additional indebtedness from time to time owed to Pledgors by any obligor on the Pledged Debt and the instruments evidencing such indebtedness, and all interest, cash, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such indebtedness; (e) all shares of, and all securities convertible into and warrants, options and other rights to purchase or otherwise acquire, stock of any Person that, after the date of this Agreement, becomes, as a result of any occurrence, a direct Subsidiary or direct Unrestricted Subsidiary of any Pledgor (which shares shall be deemed to be part of the Pledged Shares), the certificates or other instruments representing such shares, securities, warrants, options or other rights and any interest of Pledgors in the entries on the books of any financial intermediary pertaining to such shares, and all dividends, cash, warrants, rights, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such shares, securities, warrants, options or other rights; (f) all indebtedness from time to time owed to Pledgors by any Person that, after the date of this Pledge Agreement, becomes, as a result of any occurrence, a direct or indirect Subsidiary of Pledgors, and all interest, cash, instruments and other property or 2 proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such indebtedness; and (g) to the extent not covered by clauses (a) through (f) above, all proceeds of any or all of the foregoing Pledged Collateral. For purposes of this Pledge Agreement, the term "PROCEEDS" includes whatever is receivable or received when Pledged Collateral or proceeds are sold, exchanged, collected or otherwise disposed of, whether such disposition is voluntary or involuntary, and includes, without limitation, proceeds of any indemnity or guaranty payable to Pledgors or Collateral Agent from time to time with respect to any of the Pledged Collateral. SECTION 2. SECURITY FOR OBLIGATIONS. This Pledge Agreement secures, and the Pledged Collateral is collateral security for, (a) after the issuance of the Preferred Stock, the joint and several obligations of the Company, the Pledgors and other subsidiaries of the Company pursuant to Section 8 of the Certificate of Designation to repurchase Preferred Stock on the happening of certain conditions set forth in the Certificate of Designation at a repurchase price equal to the Liquidation Preference in respect thereof, as defined in the Certificate of Designation, consisting of, at any time, $10.00 per share of Preferred Stock, plus accumulated and unpaid dividends thereon through the date of such determination, whether or not funds are legally available therefor, the aggregate amount of which, upon issuance of the 2,500,000 shares of Preferred Stock to be issued pursuant to the Investment Agreement, shall be $25,000,000, plus accumulated and unpaid dividends, and (b) after the occurrence of an Event of Default, as defined in the Certificate of Designation, the joint and several obligations of the Company, Pledgors and other subsidiaries of the Company to indemnify Obligee from and against any and all losses, claims, damages, expenses (including reasonable fees, disbursements and other charges of counsel) or other liabilities resulting from any breach of any covenant, agreement, representation or warranty of the Company herein or in any other Secured Instrument Document pursuant to Section 7.2 of the Investment Agreement, as evidenced by that certain Secured Evidence of Joint and Several Repurchase Obligations dated of even date herewith, executed by the Company, Pledgors, and other subsidiaries of the Company to and for the benefit of Obligee (together with any and all additions, modifications, amendments, renewals, and extensions thereof, the "INSTRUMENT"), whether or not from time to time decreased or extinguished and later increased, created or incurred and all or any portion of such obligations that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from Obligee or Collateral Agent as a preference, fraudulent transfer or otherwise, and all obligations of every nature (whether of payment, of performance or otherwise) of the Company, the Pledgors and other subsidiaries of the Company from time to time owed to Obligee or Collateral Agent or either of them under the Secured Agreement or any other Secured Instrument Document, whether for principal, interest (including interest accruing after the commencement of a bankruptcy case, whether or not enforceable in such case), repurchase or redemption obligations, dividend obligations, fees, costs, expenses, indemnification liabilities or other obligations, of whatsoever nature and whether now or 3 hereafter made, incurred or created, whether absolute or contingent, liquidated or unliquidated, regardless of class, whether due or not due, and however arising (the foregoing being hereinafter collectively referred to as the "SECURED OBLIGATIONS"). SECTION 3. DELIVERY OF PLEDGED COLLATERAL. All certificates or instruments representing or evidencing the Pledged Collateral shall be delivered to and held by or on behalf of Collateral Agent pursuant hereto and shall be in suitable form for transfer by delivery, or, as applicable, shall be accompanied by the relevant Pledgor's endorsement, where necessary, or duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to Collateral Agent. If an Event of Default shall have occurred and be continuing, Collateral Agent shall have the right, at any time in its discretion and without notice to any Pledgor, to transfer to or to register in the name of Collateral Agent or any of its nominees any or all of the Pledged Collateral, subject only to the revocable rights specified in SECTION 7(a) hereof. In addition, Collateral Agent shall have the right at any time to exchange certificates or instruments representing or evidencing Pledged Collateral for certificates or instruments of smaller or larger denominations. SECTION 4. REPRESENTATIONS AND WARRANTIES. Each Pledgor represents and warrants as follows: (a) PLEDGED EQUITY AND PLEDGED DEBT. All of the Pledged Shares pledged by such Pledgor have been duly authorized and validly issued and are fully paid and nonassessable. All of the Pledged Debt pledged by such Pledgor has been duly authorized, authenticated or issued and delivered, and is the legal, valid and binding obligation of the issuers thereof (except as may be limited by bankruptcy, reorganization, moratorium, or similar laws relating to or limiting creditors' rights generally or by general principles of equity relating to enforceability), and is not in default. The Pledged Shares constitute all of the issued and outstanding shares of capital stock of each issuer thereof, and there are no outstanding options, warrants, rights to subscribe, stock purchase rights or other agreements outstanding with respect to, or property that is now or hereafter convertible into, or that requires the issuance or sale of, any Pledged Shares. The Pledged Debt constitutes all of the issued and outstanding intercompany indebtedness owing to Pledgor by Company or any direct or indirect Subsidiary or direct Unrestricted Subsidiary of Company. (b) OWNERSHIP OF PLEDGED COLLATERAL. Pledgor is the legal, record and beneficial owner of the Pledged Collateral pledged by such Pledgor free and clear of any lien, except for the security interests created by this Pledge Agreement and the junior lien of The Bank of New York, as Collateral Agent. (c) CONSENTS. No consent of any other party (including, without limitation, stockholders or creditors of Pledgor or any Person under any contractual obligation of such Pledgor) and no consent, authorization, approval or other action by, and no notice to or 4 filing with any governmental authority or regulatory body is required either (i) for the pledge by Pledgor of the Pledged Collateral pledged by such Pledgor pursuant to this Pledge Agreement and the grant by Pledgor of the security interest granted hereby or for the execution, delivery or performance of this Pledge Agreement by Pledgor or (ii) for the exercise by Collateral Agent of the voting or other rights provided for in this Pledge Agreement or the remedies in respect of the Pledged Collateral pursuant to this Pledge Agreement (except (x) those which have been obtained or made or (y) as may be required in connection with a disposition of Pledged Collateral by laws affecting the offering and sale of securities generally). (d) PERFECTION. The pledge and delivery to Collateral Agent of the Pledged Collateral pursuant to this Pledge Agreement creates a valid and perfected first priority security interest in favor of Collateral Agent, on behalf of Obligee, in the Pledged Collateral of such Pledgor, securing the payment of the Secured Obligations, and all actions necessary or desirable to perfect and protect such security interest have been duly taken. (e) MARGIN REGULATIONS. The pledge of the Pledged Collateral pursuant to this Pledge Agreement does not violate Regulations G, T, U or X of the Board of Governors of the Federal Reserve System. (f) OTHER INFORMATION. All information heretofore, herein or hereafter supplied to Obligee on behalf of Pledgors with respect to the Pledged Collateral is accurate and complete in all material respects. SECTION 5. CERTAIN COVENANTS. Each Pledgor hereby covenants that, until the Secured Obligations have been indefeasibly paid in full, such Pledgor shall: (a) not, (i) except as expressly permitted by the Secured Agreement, sell, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, any of the Pledged Collateral pledged hereunder by such Pledgor, (ii) create or permit to exist any lien upon or with respect to any of the Pledged Collateral, except for the security interest created by this Pledge Agreement and liens permitted by the Secured Agreement, or (iii) permit, except as expressly permitted by the Secured Agreement, any issuer of Pledged Shares to merge or consolidate with any Person; (b) except as expressly permitted by the Secured Agreement, (i) cause each issuer of Pledged Shares not to issue any stock or other securities in substitution for the Pledged Shares issued by such issuer, except to Pledgor, (ii) pledge hereunder, immediately upon its acquisition (directly or indirectly) thereof, any and all additional shares of stock or other securities of each issuer of Pledged Shares, and (iii) pledge hereunder, immediately upon its acquisition (directly or indirectly) thereof, any and all shares of stock of any Person which, after the date of this Pledge Agreement, 5 becomes, as a result of any occurrence, a direct Subsidiary or a direct Unrestricted Subsidiary of Pledgors; (c) (i) pledge hereunder, immediately upon their issuance, any and all instruments or other evidences of additional indebtedness from time to time owed (directly or indirectly) to Pledgors by any direct or indirect Subsidiary of the Company, and (ii) pledge hereunder, immediately upon their issuance, any and all instruments or other evidences of indebtedness from time to time owed (directly or indirectly) to Pledgor by any Person that after the date of this Pledge Agreement becomes, as a result of any occurrence, a direct or indirect Subsidiary of Pledgor; and (d) promptly deliver to Collateral Agent all written notices received by it with respect to the Pledged Collateral. SECTION 6. FURTHER ASSURANCES; PLEDGE AMENDMENTS. ------------------------------------- (a) Each Pledgor agrees that at any time and from time to time, at the expense of Pledgors, Pledgors shall promptly execute and deliver all further instruments and documents, and take all further actions, that may be necessary or desirable, or that Collateral Agent may reasonably request, to perfect and protect any security interest granted or purported to be granted hereby or to enable Collateral Agent to exercise and enforce its rights and remedies hereunder with respect to any Pledged Collateral. (b) Each Pledgor further agrees that it will, upon obtaining any additional shares of stock or other securities required to be pledged hereunder as provided in SECTION 5(b) OR (c) hereof, promptly (and in any event within 5 Business Days) deliver to Collateral Agent a Pledge Amendment, duly executed by Pledgor, in substantially the form of SCHEDULE II hereto (a "PLEDGE AMENDMENT"), in respect of the additional Pledged Shares or Pledged Debt to be pledged pursuant to this Pledge Agreement. Pledgor hereby authorizes Collateral Agent to attach each Pledge Amendment to this Pledge Agreement and agrees that all Pledged Shares or Pledged Debt listed on any Pledge Amendment delivered to Collateral Agent shall for all purposes hereunder be considered Pledged Collateral; PROVIDED that the failure of Pledgor to execute a Pledge Amendment with respect to any additional Pledged Shares or Pledged Debt pledged pursuant to this Pledge Agreement shall not impair the security interest of Collateral Agent therein or otherwise adversely affect the rights and remedies of Collateral Agent hereunder with respect thereto. (c) Each Pledgor further agrees that it will cause any direct or indirect Subsidiary and any direct Unrestricted Subsidiary acquired or created after the effective date of this Agreement promptly after such acquisition or creation of such new Subsidiary or Unrestricted Subsidiary (in any event within 5 Business Days after the date such acquisition or creation, as the case may be) to deliver to Collateral Agent an acknowledgment and 6 agreement duly executed by such new Subsidiary or Unrestricted Subsidiary in substantially the form of SCHEDULE III hereto (a "PLEDGE ACKNOWLEDGMENT"). SECTION 7. VOTING RIGHTS; DIVIDENDS; ETC. ----------------------------- (a) So long as no Event of Default (as defined below) shall have occurred and be continuing: (i) Pledgors shall be entitled to exercise any and all voting and other consensual rights pertaining to the Pledged Collateral or any part thereof for any purpose not inconsistent with the terms of this Pledge Agreement and the Secured Agreement. It is understood, however, that neither (A) the voting by Pledgors of any Pledged Shares for or Pledgors' consent to the election of directors at a regularly scheduled annual or other meeting of stockholders or with respect to incidental matters at any such meeting nor (B) Pledgors' consent to or approval of any action otherwise permitted under the Secured Agreement shall be deemed inconsistent with the Secured Agreement within the meaning of this SECTION 7(a)(i), and no notice of any such voting or consent need be given to Collateral Agent. (ii) Pledgors shall be entitled to receive and retain, and to utilize free and clear of the lien of this Pledge Agreement, any and all dividends and interest paid in respect of the Pledged Collateral; PROVIDED, HOWEVER that any and all (A) dividends and interest paid or payable other than in cash in respect of, and instruments and other property (other than cash) received, receivable or otherwise distributed in respect of, or in exchange for, any Pledged Collateral, (B) dividends and other distributions paid or payable in cash in respect of any Pledged Collateral in connection with a partial or total liquidation or dissolution (except any distribution upon liquidation to another Pledgor to the extent permitted under the Secured Agreement), or in connection with a reduction of capital, capital surplus or paid-in-surplus, and (C) cash paid, payable or otherwise distributed in respect of principal or in redemption of or in exchange for any Pledged Collateral, shall be, and shall forthwith be delivered to Collateral Agent to hold as, Pledged Collateral and shall, if received by Pledgors, be received in trust for the benefit of Collateral Agent, be segregated from the other property or funds of Pledgors and be forthwith delivered to Collateral Agent as Pledged Collateral in the same form as so received (with all necessary endorsements). 7 (iii) Collateral Agent shall promptly execute and deliver (or cause to be executed and delivered) to the appropriate Pledgor all such proxies, dividend payment orders and other instruments as such Pledgor may from time to time reasonably request for the purpose of enabling such Pledgor to exercise the voting and other consensual rights which it is entitled to exercise pursuant to paragraph (i) above and to receive the dividends, principal or interest payments which it is authorized to receive and retain pursuant to paragraph (ii) above. (b) Upon the occurrence and during the continuance of an Event of Default: (i) Upon written notice from Collateral Agent to Company, all rights of Pledgors to exercise the voting and other consensual rights which they would otherwise be entitled to exercise pursuant to SECTION 7(a)(i) shall cease, and all such rights shall thereupon become vested in Collateral Agent who shall thereupon have the right to exercise such voting and other consensual rights. (ii) All rights of Pledgors to receive the dividends and interest payments which they would otherwise be authorized to receive and retain pursuant to SECTION 7(a)(ii) shall cease, and all such rights shall thereupon become vested in Collateral Agent who shall thereupon have the right to receive and hold as Pledged Collateral such dividends and interest payments which shall, upon written notice from Collateral Agent, be paid to Collateral Agent. (iii) All dividends, principal and interest payments which are received by any Pledgor contrary to the provisions of paragraph (ii) of this SECTION 7(b) shall be received in trust for the benefit of Collateral Agent, shall be segregated from other funds of such Pledgor and shall forthwith be paid over to Collateral Agent as Pledged Collateral in the same form as so received (with any necessary endorsements). (c) In order to permit Collateral Agent to exercise the voting and other consensual rights which it may be entitled to exercise pursuant to SECTION 7(b)(i) hereof and to receive all dividends and other distributions which it may be entitled to receive under SECTION 7(a)(ii) hereof or SECTION 7(b)(ii) hereof, Pledgors shall promptly execute and deliver (or cause to be executed and delivered) to Collateral Agent all such proxies, dividend payment orders and other instruments as Collateral Agent may from time to time reasonably request. SECTION 8. COLLATERAL AGENT APPOINTED ATTORNEY-IN-FACT. Each Pledgor hereby irrevocably appoints Collateral Agent as such Pledgor's attorney-in-fact, with full authority in the place and stead of such Pledgor and in the name of such Pledgor or otherwise, from time to time in Collateral Agent's reasonable discretion to take any action and to execute any instrument, which Collateral Agent may deem necessary or advisable, subject to the terms and conditions of this Pledge Agreement, to accomplish the purposes of this Pledge Agreement, including, without limitation, (a) to file one or more financing or 8 continuation statements or amendments thereto, relative to all or part of the Pledged Collateral without the signature of such Pledgor, (b) to receive, endorse and collect all instruments made payable to such Pledgor representing any dividend, principal or interest payment or other distribution in respect of the Pledged Collateral or any part thereof and to give full discharge for the same, and (c) if an Event of Default shall have occurred and be continuing, to ask, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Pledged Collateral, and (d) to file any claims or take any action or institute any proceedings which Collateral Agent may deem necessary or desirable for the collection of any of the Pledged Collateral or to enforce the rights of Collateral Agent with respect to any of the Pledged Collateral. SECTION 9. COLLATERAL AGENT MAY PERFORM. If a Pledgor fails to perform any agreement contained herein, Collateral Agent may, upon 30 days' notice to such Pledgor (unless otherwise expressly set forth in this Pledge Agreement or an Event of Default shall have occurred and be continuing, in which case, no notice shall be required) itself perform, or cause performance of, such agreement, and the expenses of Collateral Agent incurred in connection therewith shall be payable by Pledgors under SECTION 16(b) hereof. SECTION 10. STANDARD OF CARE. The powers conferred on Collateral Agent hereunder are solely to protect its interest in the Pledged Collateral and shall not impose on it any duty to exercise such powers. Collateral Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Pledged Collateral in its possession if the Pledged Collateral is accorded treatment substantially equivalent to that which Collateral Agent accords its own property consisting of negotiable securities, it being understood that Collateral Agent shall have no responsibility for (a) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relating to any Pledged Collateral, whether or not Obligee has or is deemed to have knowledge of such matters, (b) taking any necessary action (other than actions taken in accordance with the standard of care set forth above to maintain possession of the Pledged Collateral) to preserve rights against any parties with respect to any Pledged Collateral, (c) taking any necessary actions to collect or realize upon the Secured Obligations or any guarantee therefor, or any part thereof, or any of the Pledged Collateral or (d) initiating any action to protect the Pledged Collateral against the possibility of a decline in market value. SECTION 11. EVENTS OF DEFAULT. The occurrence of any "Event of Default" as defined in the Secured Agreement (whether or not any Secured Obligations shall be at the time outstanding thereunder or the Secured Agreement shall have terminated for some other purpose) or the occurrence of any default under the Investment Agreement or the Certificate of Designation, which default has continued beyond any applicable cure period, shall constitute an Event of Default under this Pledge Agreement. 9 SECTION 12. REMEDIES UPON DEFAULT. (a) If any Event of Default shall have occurred and be continuing, Collateral Agent may exercise in respect of the Pledged Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the Code as in effect in the State of New York (or any other state with jurisdiction over the Pledged Collateral) at that time, and Collateral Agent may also in its sole discretion, without notice (except as specified below), sell the Pledged Collateral or any part thereof in one or more parcels at public or private sale, at any exchange, broker's board or at any of Collateral Agent's offices or elsewhere, for cash, on credit or for future delivery, at such time or times and at such price or prices and upon such other terms as Collateral Agent may deem commercially reasonable, irrespective of the impact of any such sales on the market price of the Pledged Collateral. Collateral Agent, on behalf of Obligee, may be the purchaser of any or all of the Pledged Collateral at any such sale and shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Pledged Collateral sold at any such public sale, to use and apply any of the Secured Obligations as a credit on account of the purchase price of any Pledged Collateral payable by Collateral Agent at such sale. Each purchaser at any such sale shall hold the property sold absolutely free from any claim or right on the part of any Pledgor, and each Pledgor hereby waives (to the extent permitted by law) all rights of redemption, stay and/or appraisal which it now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. Pledgors agree that, to the extent notice of sale shall be required by law, at least 10 days' notice to Pledgors of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. Collateral Agent shall not be obligated to make any sale of Pledged Collateral regardless of notice of sale having been given. Collateral Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. Each Pledgor hereby waives any claims against Collateral Agent arising by reason of the fact that the price at which any Pledged Collateral may have been sold at such a private sale was less than the price which might have been obtained at a public sale, even if Collateral Agent accepts the first offer received and does not offer such Pledged Collateral to more than one offeree. If the proceeds of any sale or other disposition of the Pledged Collateral are insufficient to pay all the Secured Obligations, Pledgors shall be liable for the deficiency and the fees of any attorneys employed by Collateral Agent to collect such deficiency, subject in the case of the Subsidiary Pledgors to any limitations contained in the Guarantees. (b) Each Pledgor recognizes that, by reason of certain prohibitions contained in the Securities Act of 1933, as from time to time amended (the "SECURITIES ACT"), and applicable state securities laws, Collateral Agent may be compelled, with respect to any sale of all or any part of the Pledged Collateral conducted without prior registration or qualification of such Pledged Collateral under the Securities Act and/or such state securities laws, to limit purchasers to those who will agree, among other things, to acquire the Pledged Collateral for their own account, for investment and not with a view to the distribution or 10 resale thereof. Each Pledgor acknowledges that any such private sales may be at prices and on terms less favorable to Collateral Agent than those obtainable through a public sale without such restrictions (including, without limitation, a public offering made pursuant to a registration statement under the Securities Act) and, notwithstanding such circumstances and the registration rights granted to the Collateral Agent pursuant to SECTION 13, each Pledgor agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner and that Collateral Agent shall have no obligation to engage in public sales and no obligation to delay the sale of any Pledged Collateral for the period of time necessary to permit the issuer thereof to register it for a form of public sale requiring registration under the Securities Act or under applicable state securities laws, even if such issuer would, or should, agree to so register it. (c) If Collateral Agent determines to exercise its right to sell any or all of the Pledged Collateral, upon written request, Pledgors shall and shall cause each issuer of any Pledged Shares to be sold hereunder from time to time to furnish to Collateral Agent all such information as Collateral Agent may request in order to determine the number of shares and other instruments included in the Pledged Collateral which may be sold by Collateral Agent in exempt transactions under the Securities Act and the rules and regulations of the Securities and Exchange Commission thereunder, as the same are from time to time in effect. SECTION 13. REGISTRATION RIGHTS. If Collateral Agent shall determine to exercise its right to sell all or any of the Pledged Collateral pursuant to SECTION 12, each Pledgor agrees that, upon request of Collateral Agent (which request may be made by Collateral Agent in its sole discretion), Pledgor will, at its own expense: (a) execute and deliver, and cause each issuer of the Pledged Collateral contemplated to be sold and the directors and officers thereof to execute and deliver, all such instruments and documents, and do or cause to be done all such other acts and things, as may be necessary or, in the opinion of Collateral Agent, advisable to register such Pledged Collateral under the provisions of the Securities Act and to cause the registration statement relating thereto to become effective and to remain effective for a period of 1 year from the date of the first public offering of the Pledged Shares so registered, and to make all amendments and supplements hereto and to the related prospectus which, in the opinion of Collateral Agent, are necessary or advisable, all in conformity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission applicable thereto; (b) use its best efforts to qualify the Pledged Collateral under all applicable state securities or "Blue Sky" laws and to obtain all necessary governmental approvals for the sale of the Pledged Collateral, as requested by Collateral Agent; 11 (c) cause each such issuer to make available to its security holders, as soon as practicable, an earnings statement which will satisfy the provisions of Section 11(a) of the Securities Act; (d) do or cause to be done all such other acts and things as may be necessary to make such sale of the Pledged Collateral or any part thereof valid and binding and in compliance with applicable law; and (e) bear all costs and expenses, including reasonable attorneys' fees, of carrying out its obligations under this SECTION 13. Each Pledgor further agrees that a breach of any of the covenants contained in this SECTION 13 will cause irreparable injury to Secured Party, that Secured Party has no adequate remedy at law in respect of such breach and, as a consequence, that each and every covenant contained in this SECTION 13 shall be specifically enforceable against such Pledgor, and each Pledgor hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants except for a defense that no default has occurred giving rise to the Secured Obligations becoming due and payable prior to their stated maturities. Nothing in this SECTION 13 shall in any way alter the rights of Collateral Agent under SECTION 12. SECTION 14. APPLICATION OF PROCEEDS. All Proceeds received by Collateral Agent in respect of any sale of, collection from, or other realization upon all or any part of the Pledged Collateral may, in the discretion of Collateral Agent, be held by Collateral Agent as Pledged Collateral for, and/or then or at any time thereafter applied in whole or in part by Collateral Agent against the Secured Obligations in the following order of priority: FIRST: To the payment of all costs and expenses of such sale, collection or other realization, and all expenses, liabilities and advances made or incurred by Collateral Agent in connection therewith and all amounts for which the Collateral Agent is entitled to indemnification hereunder and all advances made by the Collateral Agent hereunder for the account of Pledgors or for the payment of all costs and expenses paid or incurred by the Collateral Agent in connection with the exercise of any right or remedy hereunder, all in accordance with SECTION 16 hereof; SECOND: To the payment in full of all other Secured Obligations in the order specified in the Secured Agreement and in accordance with the Intercreditor Agreement; and THIRD: To the payment to or upon the order of Pledgors, or to whosoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct, of any surplus then remaining from such proceeds. 12 SECTION 15. COLLATERAL AGENT. Collateral Agent has been appointed as Collateral Agent hereunder pursuant to the Secured Agreement. Collateral Agent shall be obligated and shall have the right hereunder, to make demands, to give notices, to exercise or refrain from exercising any rights, and to take or refrain from taking any action (including, without limitation, the release or substitution of Collateral) in accordance with the Secured Agreement and the Intercreditor Agreement. Collateral Agent may resign and a successor Collateral Agent may be appointed in the manner provided for resignation and appointment of a successor in the Secured Agreement. Upon the acceptance of any appointment as a Collateral Agent by a successor Collateral Agent, such successor Collateral Agent shall thereupon succeed to, and become vested with all the rights, powers, privileges and duties of, the retiring Collateral Agent under this Pledge Agreement, and the retiring Collateral Agent shall thereupon be discharged from its duties and obligations under this Pledge Agreement and shall deliver any Collateral in its possession to the successor Collateral Agent. After any retiring Collateral Agent's resignation, the provisions of this Pledge Agreement shall inure to its benefit as to any actions taken or omitted to be taken by it under this Pledge Agreement while it was Collateral Agent. SECTION 16. INDEMNITY AND EXPENSES. (a) Pledgors jointly and severally agree to indemnify Collateral Agent, Obligee and each of the officers, directors, agents, employees and affiliates of each of them (each an "INDEMNITEE"), from and against any and all claims, losses and liabilities in any way relating to, growing out of or resulting from this Pledge Agreement and the transactions contemplated hereby (including, without limitation, enforcement of this Pledge Agreement), except claims, losses or liabilities resulting from the gross negligence or willful misconduct of the Indemnitee seeking indemnification. (b) Pledgors will upon demand pay to Collateral Agent the amount of any and all costs and expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which Collateral Agent may incur in connection with (i) the administration of this Pledge Agreement, (ii) the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Pledged Collateral, (iii) the exercise or enforcement of any of the rights of Collateral Agent hereunder or (iv) the failure by any Pledgor to perform or observe any of the provisions hereof. (c) The obligations of Pledgors in this Section 16 hereof shall survive termination of this Pledge Agreement and the discharge of Pledgors' other obligations under this Pledge Agreement, the Secured Agreement and the other Secured Instrument Documents. SECTION 17. CONTINUING SECURITY INTEREST; TRANSFER OF SECURED OBLIGATIONS. This Pledge Agreement shall create a continuing security interest in the Pledged Collateral and shall (a) remain in full force and effect until indefeasible payment in full of all Secured Obligations, (b) be binding upon each Pledgor, its successors and assigns, and (c) inure, together with the rights and remedies of Collateral Agent hereunder, to the 13 benefit of Collateral Agent and Obligee and their respective successors, transferees and assigns. Without limiting the generality of the foregoing clause (c), subject to the provisions of the Secured Agreement, Obligee may assign or otherwise transfer any Secured Obligations held by it to any other person or entity, and such other person or entity shall thereupon become vested with all the benefits in respect thereof granted to Obligee herein or otherwise. Upon the indefeasible payment in full of all Secured Obligations, each Pledgor shall be entitled to the return, upon its request and at its expense, against receipt and without recourse to Collateral Agent, of such of the Pledged Collateral pledged by such Pledgor hereunder as shall not have been sold or otherwise applied pursuant to the terms hereof. SECTION 18. NO WAIVER BY OBLIGEE; AUTHORITY OF PLEDGOR. No failure on the part of Collateral Agent to exercise, and no course of dealing with respect to, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise by Collateral Agent of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies herein provided are cumulative to the fullest extent permitted by law and are not exclusive of any remedies provided by law. It is not necessary for Collateral Agent to inquire into the powers of any Pledgor or the officers, directors or agents acting or purporting to act on behalf of any of them. SECTION 19. AMENDMENT, ETC. No amendment or waiver of any provision of this Pledge Agreement, nor consent to any departure by any Pledgor herefrom, shall in any event be effective unless the same shall be in writing and signed by Collateral Agent on behalf of Obligee, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 20. ADDRESSES FOR NOTICES. Unless otherwise specifically provided herein, any notice or other communication herein required or permitted to be given shall be in writing and may be personally served, telecopied, telexed or sent by United States mail or courier service and shall be deemed to have been given when delivered in person, upon confirmed receipt (in the case of telecopy or telex) or 5 Business Days after depositing it in the United States mail, registered or certified, with postage prepaid and properly addressed; PROVIDED that any notice sent to Collateral Agent or Obligee shall not be effective until received. For purposes hereof, the addresses of the parties hereto (until notice of a change thereof is delivered as provided in this SECTION 20) shall be as set forth under each party's name on the signature pages hereof or in the Secured Agreement. SECTION 21. GOVERNING LAW; TERMS. THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING 14 WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES, EXCEPT AS REQUIRED BY MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR PLEDGED COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. Unless otherwise defined herein or in the Secured Agreement, terms defined in Article 9 of the Code are used herein as therein defined. SECTION 22. SEVERABILITY. Any provisions of this Pledge Agreement which are prohibited or unenforceable in any jurisdiction shall, as to such jurisdictions, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. SECTION 23. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY PLEDGOR WITH RESPECT TO THIS PLEDGE AGREEMENT MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION SITTING IN NEW YORK, NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS PLEDGE AGREEMENT, EACH PLEDGOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS PLEDGE AGREEMENT. Each Pledgor hereby agrees that service of process sufficient for personal jurisdiction in any action against such Pledgor in the State of New York may be made by registered or certified mail, return receipt requested, to such Pledgor at its address provided in SECTION 20, and each Pledgor hereby acknowledges that such service shall be effective and binding in every respect. Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of Collateral Agent to bring proceedings against any Pledgor in the courts of any other jurisdiction. SECTION 24. WAIVER OF JURY TRIAL. EACH PLEDGOR AND COLLATERAL AGENT HEREBY AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS PLEDGE AGREEMENT. The scope of this waiver is intended to be all encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including, without limitation, contract claims, tort claims, breach of duty claims, and all other common law and statutory claims. Each Pledgor and Collateral Agent (a) acknowledge that this waiver is a material inducement for such 15 Pledgor and Collateral Agent to enter into a business relationship, that each Pledgor and Collateral Agent have already relied on the waiver in entering into this Pledge Agreement and that each will continue to rely on the waiver in their related future dealings and (b) further warrant and represent that each has reviewed this waiver with its legal counsel, and that each knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS PLEDGE AGREEMENT. In the event of litigation, this Pledge Agreement may be filed as a written consent to trial by the court. SECTION 25. MARSHALING; PAYMENTS SET ASIDE. Agent shall not be under any obligation to marshal any assets in favor of any Pledgor or any other party or against or in payment of any or all of the Secured Obligations. To the extent that any Pledgor makes a payment or payments to Collateral Agent or Collateral Agent enforces its security interests or exercises its rights of setoff, and such payment or payments or proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all liens, rights and remedies therefor, shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred. SECTION 26. HEADINGS. Section and subsection headings in this Pledge Agreement are included herein for convenience of reference only and shall not constitute a part of this Pledge Agreement or be given any substantive effect. SECTION 27. COUNTERPARTS. This Pledge Agreement and any amendments, waivers, consents or supplements may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original and all of which together shall constitute one and the same Agreement. SECTION 28. INTERCREDITOR AGREEMENT. Obligee, Collateral Agent and Foothill Capital Corporation, as AG Collateral Agent, are parties to the Intercreditor Agreement which, among other things, concerns priorities of Liens in the Collateral and the exercise of remedies by the parties thereto, and the manner and priority of distribution of the proceeds of the Collateral among Obligee and Foothill Capital Corporation, as AG Collateral Agent, and the terms of this Agreement are subject to the terms and provisions of the Intercreditor Agreement. 16 IN WITNESS WHEREOF, Pledgors have caused this Pledge Agreement to be duly executed and delivered by their officers thereunto duly authorized effective as of the date first above written. PLEDGORS: ATLANTIC GULF COMMUNITIES CORPORATION, a Delaware corporation and AGC-SP, INC., a Delaware corporation By: ----------------------------------------------- John H. Fischer Vice President Notice Address: c/o ATLANTIC GULF COMMUNITIES CORPORATION 2601 South Bayshore Drive, 9th Floor Miami, Florida 33133-5461 Attention: John H. Fischer, Vice President Facsimile: (305) 859-4623 COLLATERAL AGENT: THE BANK OF NEW YORK, a New York banking corporation, as Collateral Agent By: THE BANK OF NEW YORK TRUST COMPANY OF FLORIDA, N.A., its agent By: ------------------------------------------ Janalee R. Scott Assistant Vice President Notice Address: Towermarc Plaza, 2nd Floor 10161 Centurion Parkway Jacksonville, Florida 32256 Attention: Janalee R. Scott Facsimile: (904) 645-1998 17 Copy to: Apollo Real Estate Advisors II, L.P. 1301 Avenue of the Americas New York, New York 10019 Attn: Rick Koenigsberger Telecopy: (212) 459-3301 Copy to: Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, New York 10019 Attn: Philip Mindlin, Esq. Telecopy: (212) 403-2000 Copy to: Carlton, Fields, Ward, Emmanuel, Smith & Cutler, P.A. Post Office Box 3239 Tampa, Florida 33601 Attn: Paula McDonald Rhodes, Esq. Telecopy: (813) 229-4133 18 SCHEDULE I TO STOCK PLEDGE AGREEMENT Attached to and forming a part of the Stock Pledge Agreement dated effective as of June 23, 1997 between Pledgors and The Bank of New York, as Collateral Agent. PLEDGED SHARES --------------
======================================================================================= ISSUER SHARES CERTIFICATE OUTSTANDING NUMBER(S) - --------------------------------------------------------------------------------------- PLEDGOR: ATLANTIC GULF COMMUNITIES CORPORATION - --------------------------------------------------------------------------------------- 1. AGC-SP, INC. 100 1 - --------------------------------------------------------------------------------------- PLEDGOR: AGC-SP, INC. - --------------------------------------------------------------------------------------- 1. AGC-SP1, INC. 100 1 - --------------------------------------------------------------------------------------- 2. AGC-SP2, INC. 100 1 - --------------------------------------------------------------------------------------- 3. AGC-SP3, INC. 100 1 - --------------------------------------------------------------------------------------- 4. AGC-SP4, INC. 100 1 - --------------------------------------------------------------------------------------- 5. AGC-SP5, INC. 100 1 - --------------------------------------------------------------------------------------- 6. WEST BAY CLUB DEVELOPMENT 1,000 2 CORPORATION, f/k/a Estero Pointe Development Corporation =======================================================================================
19 SCHEDULE II TO STOCK PLEDGE AGREEMENT [FORM OF PLEDGE AMENDMENT] This Pledge Amendment, dated ___________, 19__, is delivered pursuant to Section 6 of the Pledge Agreement referred to below. The undersigned hereby agrees that this Pledge Amendment may be attached to the Stock Pledge Agreement, dated effective as of June 23, 1997, between Atlantic Gulf Communities Corporation and its Subsidiaries who are signatories thereto and The Bank of New York, a New York banking corporation, as Collateral Agent (the "PLEDGE AGREEMENT"; capitalized terms used herein without definition shall have the meanings given such terms in the Pledge Agreement) and that the [Pledged Shares]/[Pledged Debt] listed on this Pledge Amendment shall be deemed to be part of the [Pledged Shares]/[Pledged Debt] and shall become part of the Pledged Collateral and shall secure the Secured Obligations as provided in the Pledge Agreement. [PLEDGOR] By: -------------------------------------- [Name] [Title] PLEDGED SHARES -------------- Stock Issuer Stock Number Certificate of Number(s) Shares PLEDGED DEBT ------------ Debt Issuer Amount of Indebtedness 20 SCHEDULE III TO STOCK PLEDGE AGREEMENT [FORM OF ACKNOWLEDGEMENT AND AGREEMENT OF NEW SUBSIDIARY] Reference hereby is made to the Stock Pledge Agreement, dated effective as of June 23, 1997 (the "PLEDGE AGREEMENT"), between Atlantic Gulf Communities Corporation and its Subsidiaries who are signatories thereto and The Bank of New York, a New York banking corporation, as Collateral Agent, in which this Acknowledgement and Agreement and attachments are incorporated. The undersigned is a new Subsidiary and, as such, is required to pledge its Pledged Shares and its Pledged Debt to secure the Secured Obligations (all as defined in the Pledge Agreement) as provided in the Pledge Agreement. The undersigned hereby represents and warrants (a) that it is the legal and beneficial owner of the shares of capital stock described in Part A of Schedule 1 hereto which shares constitute all of the issued and outstanding shares of all classes of capital stock of the Subsidiary or Subsidiaries so listed and (b) that it is the legal and beneficial owner of the indebtedness described in Part B of said Schedule 1. The undersigned acknowledges the terms of the Pledge Agreement and agrees to be bound thereby. [NEW SUBSIDIARY] By: -------------------------------------- [Name] [Title] Address: [ ] [ ] [ ] 21 SCHEDULE 1 TO THE ACKNOWLEDGEMENT OF NEW SUBSIDIARY PART A: Capital Stock of Subsidiaries PART B: Indebtedness owned by new Subsidiary 22 EX-10.D 5 EXHIBIT 10(D) THIS INSTRUMENT WAS PREPARED BY: PAULA MCDONALD RHODES, ESQUIRE CARLTON, FIELDS, WARD, EMMANUEL, SMITH & CUTLER, P.A. P.O. BOX 3239 TAMPA, FLORIDA 33601 JUNIOR MORTGAGE AND SECURITY AGREEMENT THIS JUNIOR MORTGAGE AND SECURITY AGREEMENT ("JUNIOR MORTGAGE"), is made effective as of June 23, 1997, from ATLANTIC GULF COMMUNITIES CORPORATION, a Delaware corporation (the "COMPANY"), ENVIRONMENTAL QUALITY LABORATORY, INCORPORATED, a Florida corporation ("EQ LAB"), GENERAL DEVELOPMENT UTILITIES, INC., a Florida corporation ("GDU"), FIVE STAR HOMES, INC., a Florida corporation ("FIVE STAR") and ATLANTIC GULF OF TAMPA, INC., a Florida corporation ("AG TAMPA"), each having an office at 2601 South Bayshore Drive, Miami, Florida 33133, (the Company, EQ Lab, GDU, Five Star and AG Tampa being referred to collectively as the "MORTGAGORS" and individually each a "MORTGAGOR"), to FOOTHILL CAPITAL CORPORATION, a California corporation, and its successors and assigns, having an office at 60 State Street, Suite 1150, Boston, Massachusetts 02190 ("MORTGAGEE"), as collateral agent for AP-AGC, LLC, a Delaware limited liability company ("OBLIGEE"). THIS JUNIOR MORTGAGE IS BEING EXECUTED IN FOURTEEN (14) COUNTERPARTS FOR RECORDATION IN THE FLORIDA COUNTIES OF BREVARD, BROWARD, CHARLOTTE, CITRUS, DESOTO, GLADES, HENDRY, HILLSBOROUGH, INDIAN RIVER, LEE, MARION, PALM BEACH, ST. LUCIE AND SARASOTA, AND IS ONE OF SEVERAL MORTGAGES SECURING THE OBLIGATIONS SECURED HEREBY, WHICH SECURED OBLIGATIONS ARE THE JOINT AND SEVERAL PRIMARY OBLIGATIONS OF THE MORTGAGORS HEREUNDER AND UNDER THAT CERTAIN MORTGAGE AND SECURITY AGREEMENT GIVEN BY WEST BAY CLUB DEVELOPMENT CORPORATION, IN FAVOR OF THE BANK OF NEW YORK, AS COLLATERAL AGENT FOR OBLIGEE ("SP AGENT"), BEING RECORDED CONTEMPORANEOUSLY HEREWITH IN LEE COUNTY, FLORIDA ("COMPANION MORTGAGE"). DOCUMENTARY STAMP TAXES IN THE AMOUNT OF $87,500.00 DUE ON THE OBLIGATIONS SECURED HEREBY AND BY THE COMPANION MORTGAGE ARE BEING PAID UPON RECORDATION OF THE COMPANION MORTGAGE IN LEE COUNTY, FLORIDA, UNDER CLERK'S FILE NO._______________. NO INTANGIBLE PERSONAL PROPERTY TAXES ARE DUE UPON RECORDATION OF THIS MORTGAGE OR THE COMPANION MORTGAGE AS THE OBLIGATIONS SECURED HEREBY AND THEREBY ARE CONTINGENT IN NATURE. W I T N E S S E T H: -------------------- WHEREAS, the Company owns the parcels of real property described in EXHIBIT A-1 attached hereto and hereby made a part hereof (the "COMPANY LAND"), Five Star owns the parcels of real property described in EXHIBIT A-2 attached hereto and hereby made a part hereof ("FIVE STAR LAND"), GDU owns the parcels of real property described in EXHIBIT A-3 attached hereto and hereby made a part hereof ("GDU LAND"), EQ Lab owns the parcels of real property described in EXHIBIT A-4 attached hereto and hereby made a part hereof ("EQ LAB LAND"), and AG Tampa owns the parcels of real property described in EXHIBIT A-5 attached hereto and hereby made a part hereof (the "AG TAMPA LAND" and, together with the Company Land, the Five Star Land, the GDU Land, and the EQ Lab Land, the "LAND"), together with, in each case, all buildings and improvements presently located thereon; WHEREAS, pursuant to that certain Investment Agreement dated as of February 7, 1997, amended as of March 20, 1997, and amended and restated as of May 15, 1997 (together with any and all modifications, amendments, replacements, renewals and extensions thereof, the "INVESTMENT AGREEMENT") among Obligee, the Company and the subsidiaries of the Company, Obligee has agreed to purchase up to $25,000,000 in the aggregate of preferred stock to be issued by the Company; WHEREAS, Obligee, the Company, and the other Mortgagors, among others, are parties to that certain Secured Agreement dated February 7, 1997, and amended and restated as of May 15, 1997 (together with any and all modifications, amendments, replacements, renewals and extensions thereof, the "SECURED AGREEMENT"); WHEREAS, all capitalized terms used herein and not otherwise defined shall have the meaning given such terms in the Secured Agreement; WHEREAS, pursuant to the Secured Agreement and the Investment Agreement, the Company, the Mortgagors, and the other subsidiaries of the Company have executed and delivered to the Obligee that certain Secured Evidence of Joint and Several Repurchase Obligations (together with any and all additions, modifications, amendments, renewals, extensions thereof, the "INSTRUMENT"), evidencing (a) after the issuance of the Preferred Stock, the joint and several obligations of the Company, the Mortgagors and other subsidiaries of the Company pursuant to Section 8 of the Certificate of Designation to repurchase Preferred Stock on the happening of certain conditions set forth in the Certificate of Designation at a repurchase price equal to the Liquidation Preference in respect thereof, as defined in the Certificate of Designation, consisting of, at any time, $10.00 per share of Preferred Stock, plus accumulated and unpaid dividends thereon through the date of such determination, whether or not funds are legally available therefor, the aggregate amount of which, upon issuance of the 2,500,000 shares of Preferred Stock to be issued pursuant to the Investment Agreement, shall be $25,000,000, plus accumulated and unpaid dividends, and (b) after the occurrence of an Event of Default, as defined in the Certificate of Designation, the joint and several obligations of the Company, Mortgagors and other subsidiaries of the Company to indemnify Obligee from and against any and all losses, claims, damages, expenses (including reasonable fees, disbursements and other charges of counsel) or other liabilities resulting from any breach of any covenant, agreement, representation or warranty 2 of the Company in this Junior Mortgage or in any other Secured Instrument Document pursuant to Section 7.2 of the Investment Agreement (collectively, the "OBLIGATIONS"); WHEREAS, it is a condition precedent to Obligee making the investment contemplated by the Investment Agreement that the Mortgagors provide, as collateral security for the payment of the Obligations, a junior mortgage lien upon the Mortgaged Property (as such term is hereinafter defined) subject only to the lien of the Senior Mortgages, as defined in Article 41 hereof. NOW, THEREFORE, in order to induce Obligee to make the investment contemplated by the Investment Agreement and for the purpose of securing payment of the Secured Obligations, Mortgagors hereby agree as follows: TO SECURE, a. the Obligations, whether or not from time to time decreased or extinguished and later increased, created or incurred and all or any portion of such obligations that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from Obligee or Mortgagee as a preference, fraudulent transfer or otherwise, b. all obligations of every nature (whether of payment, of performance or otherwise) of the Mortgagors and other subsidiaries of the Company from time to time owed to Obligee or Mortgagee or either of them under the Secured Agreement or any other Secured Instrument Document other than any Subsidiary Guaranty, whether for principal, interest (including interest accruing after the commencement of a bankruptcy case, whether or not enforceable in such case), repurchase or redemption obligations, dividend obligations, fees, costs, expenses, indemnification liabilities or other obligations, of whatsoever nature and whether now or hereafter made, incurred or created, whether absolute or contingent, liquidated or unliquidated, regardless of class, whether due or not due, and however arising, c. all future or additional advances as described in Article 39 of this Junior Mortgage as and when the same shall be made with the same force and effect as if such future or additional advances had been made on the date hereof, and d. any amounts advanced by Mortgagee pursuant to paragraph 17 or any other paragraph of this Junior Mortgage (the foregoing being hereinafter collectively referred to as the "SECURED OBLIGATIONS"), Mortgagors hereby convey, grant, assign, transfer, mortgage and set over to Mortgagee, all of Mortgagors' right, title and interest in and to the following (collectively, the "MORTGAGED PROPERTY"): The Land; TOGETHER with the right, title and interest if any of Mortgagors, now owned or hereafter acquired, in and to the streets, the land lying in the bed of any streets, roads or 3 avenues, opened or proposed, in front of, adjoining, or abutting the Land to the center line thereof and strips and gores within or adjoining the Land, the air space and right to use said air space above the Land, all rights of way, privileges, liberties, hereditaments, all easements or rights-of-way now or hereafter affecting the Land, all royalties and all rights appertaining to the use and enjoyment of said Land, including, without limitation, all alley, vault, drainage, mineral, water, oil and gas rights; TOGETHER with the buildings, structures and improvements now or hereafter erected or located on the Land (the "IMPROVEMENTS") (the Land, together with the Improvements are hereinafter collectively called the "REAL ESTATE"); TOGETHER with all and singular the tenements, hereditaments and appurtenances belonging or in anywise appertaining to the Real Estate, and the reversion or reversions, remainder or remainders, rents, issues, profits and revenue thereof; and also all the estate, right, title, interest, dower and right of dower, curtesy and rights of curtesy, property, possession, claim and demand whatsoever, both in law and equity, of Mortgagors, of, in and to the Real Estate and of, in and to every part and parcel thereof, with the appurtenances, at any time belonging or in anywise appertaining thereto; TOGETHER with all of the fixtures of every kind and nature whatsoever currently owned or hereafter acquired by Mortgagors, and all appurtenances and additions thereto and substitutions or replacements thereof, now or hereafter attached to, the Real Estate (said fixtures of every kind and nature whatsoever, and all appurtenances thereof, are hereinafter collectively referred to as the "FIXTURES"), including, but without limiting the generality of the foregoing, all plumbing, ventilating, air conditioning and air-cooling apparatus, refrigerating, incinerating, and escalator, elevator, power, loading and unloading equipment and systems, sprinkler systems and other fire prevention and extinguishing apparatus and pipes, pumps, tanks, conduits, fittings and fixtures; it being understood and agreed that all Fixtures are appropriated to the use of the Real Estate and, whether affixed or annexed or not, for the purposes of this Junior Mortgage shall be deemed conclusively to be Real Estate and mortgaged hereby; and Mortgagors hereby agree to execute and deliver, from time to time, such further instruments (including financing statements), as may be requested by Mortgagee to confirm the lien of this Junior Mortgage on the Fixtures; TOGETHER with all unearned premiums, accrued, accruing or to accrue under insurance policies now or hereafter obtained by Mortgagors and Mortgagors' interest in and to all proceeds of the conversion and the interest payable thereon, voluntary or involuntary, of the Mortgaged Property, or any part thereof, into cash or liquidated claims, including, without limiting the generality of the foregoing, proceeds of casualty insurance, title insurance or any other insurance maintained on the Real Estate and the Fixtures, and the right to collect and receive the same, and all awards and/or other compensation including the interest payable thereon and the right to collect and receive the same (in the alternative and collectively, "AWARDS"), heretofore and hereafter made to the present and all subsequent owners of the Real Estate and the Fixtures by the United States, the State of Florida or any political subdivision thereof, or any agency, department, bureau, board, commission, or instrumentality of any of them, now existing or hereafter created (collectively, "GOVERNMENTAL AUTHORITY") for the taking by eminent domain, condemnation or otherwise, of 4 all or any part of the Real Estate and Fixtures or any easement or other right therein, including, without limiting the generality of the foregoing, Awards for any change or changes of grade or the widening of streets, roads or avenues affecting the Real Estate, to the extent of all amounts which may be secured by this Junior Mortgage as of the date of receipt, notwithstanding the fact that the amount thereof may not then be due and payable, and to the extent of reasonable attorneys' fees, costs and disbursements incurred by Mortgagee in connection with the collection of such Awards, subject, however, to the rights, if any, of the holder of the Senior Mortgages, as defined in Article 41 hereof. Mortgagors hereby assign to Mortgagee, and Mortgagee is hereby authorized to collect and receive such Awards (subject to any Mortgagor's right to be paid directly and apply certain Awards as expressly provided by this Junior Mortgage), and to give proper receipts and acquittances therefor and, subject to the other provisions hereof, to apply the same toward the Secured Obligations, notwithstanding the fact that the full amount thereof may not then be due and payable; each Mortgagor hereby agrees, upon demand of Mortgagee, to make, execute and deliver, from time to time, such further instruments as may be reasonably requested by Mortgagee to confirm such assignment of said Awards to Mortgagee, free and clear and discharged of any encumbrances of any kind or nature whatsoever; TOGETHER with all right, title and interest of Mortgagors in and to all substitutes and replacements of, and all additions and appurtenances to, the Real Estate and the Fixtures, hereafter acquired by or released to any Mortgagor or constructed, assembled or placed by any Mortgagor on the Real Estate, and all conversions of the security constituted thereby, immediately upon such acquisition, release, construction, assembling, placement or conversion, as the case may be, and in each such case, without any further mortgage, conveyance, assignment or other act by Mortgagors, shall become subject to the lien of this Junior Mortgage as fully and completely, and with the same effect, as though now owned by Mortgagors and specifically described herein; TOGETHER with all of the rights and interest of Mortgagors as the declarant and as the developer under any document affecting the Land including, but not limited to, any condominium documents or property association documents. Notwithstanding the foregoing, Mortgagee shall not have any obligation as the developer or declarant unless Mortgagee executes an agreement expressly assuming such obligation; TOGETHER with all proceeds, both cash and noncash, of the foregoing which may be sold or otherwise be disposed of; TOGETHER with any and all monies now or hereafter on deposit for the payment of real estate taxes or special assessments against the Real Estate or for the payment of premiums on policies of fire and other hazard insurance covering the Mortgaged Property. TO HAVE AND TO HOLD the Mortgaged Property, together with all and singular of the rights, privileges, tenements, hereditaments and appurtenances thereto in any way incident or belonging unto Mortgagee and to its successors and assigns forever, subject to the terms and conditions herein: 5 PROVIDED, HOWEVER, that this Junior Mortgage shall be void upon the payment, when the same shall become due, of the Secured Obligations and the payment and performance of all other covenants, agreements, obligations and liabilities secured hereby. Mortgagors represent, warrant, covenant and agree as follows: 1. WARRANTIES OF TITLE. ------------------- Each Mortgagor jointly and severally warrants that the Mortgagors or a Mortgagor has and owns good and marketable fee simple title in and to the Land and the Improvements thereon and has the right to mortgage the same; that Mortgagors or a Mortgagor owns the Fixtures on the Land free and clear of all liens, claims or other encumbrances except as set forth in Schedule B, Section 2 of the title insurance commitment issued by Lawyers Title Insurance Corporation in connection with this Junior Mortgage (the "TITLE COMMITMENT"); and that this Junior Mortgage is a valid and enforceable lien on the Mortgaged Property of the Mortgagors subject only to the liens of the Senior Mortgages (as defined in Section 41 hereof), the covenants, restrictions, reservations, conditions, and easements approved by the Mortgagee and liens permitted by the Secured Agreement. Each Mortgagor jointly and severally covenants that it shall (a) preserve such title and the validity and priority of the lien hereof and shall forever warrant and defend the same to Mortgagee against the claims of all and every person or persons, corporation or corporations and parties whomsoever claiming or threatening to claim the same or any part thereof, and (b) make, execute, acknowledge, and deliver all such further or other mortgages, documents, instruments or assurances, and cause other mortgages, documents, instruments or assurances, and cause to be done all such further acts and things as may at any time hereafter be reasonably desired or required by Mortgagee to fully protect the lien of this Junior Mortgage. 2. PAYMENT OF SECURED OBLIGATIONS. Mortgagors shall pay the Secured Obligations at the times and places and in the manner specified in the relevant Secured Instrument Documents. 3. PROPER CARE AND USE. ------------------- a. Mortgagors shall: (i) not abandon the Mortgaged Property, (ii) maintain the Mortgaged Property and any future abutting grounds, sidewalks, roads, parking and landscape areas in good repair, order and condition, except as otherwise may be permitted pursuant to Subsection 3a(iii) hereof, (iii) keep all Improvements and all personal property comprising the Mortgaged Property in good working order and condition, in the ordinary course of business and in a manner consistent with the prior practice of Mortgagors, (iv) not commit or suffer waste with respect to the Mortgaged Property, 6 (v) diligently pursue to completion, without interruption (other than interruptions due to force majeure) and in a good and workmanlike manner, any future Improvements constructed on the Land, (vi) not commit, suffer or permit any act to be done in or upon the Mortgaged Property in violation of any law, ordinance or regulation, PROVIDED, HOWEVER, that the Company may contest any such law, ordinance or regulation in any reasonable manner which shall not, in the sole opinion of the Mortgagee, adversely affect the Mortgagee's rights or the priority of its lien on the Mortgaged Property, (vii) refrain from impairing or diminishing the value or integrity of the Mortgaged Property or the security value of this Junior Mortgage, (viii) not remove, demolish or in any material respect alter any of the Improvements or Fixtures unless such Improvement or Fixture is of a temporary nature (temporary meaning that it is an Improvement intended to be removed within a year after its placement on the Land), the removal or demolition would benefit the Mortgaged Property, the removal is of land fill only for sale in the ordinary course of Mortgagors' business, or the removal or demolition is not inconsistent with the Business Plan (as such term is defined in the Secured Agreement), without the prior written consent of the Mortgagee, which consent shall not be unreasonably withheld or delayed, PROVIDED, HOWEVER, Mortgagors may without the necessity of any consent perform or cause to be performed alterations to the Improvements and Fixtures which do not materially impair the value of the Mortgaged Property and (a) are not inconsistent with the Business Plan, or (b) do not cost more than $500,000 or, if the cost of such alterations exceeds $500,000, the cost of which when added to the cost of other alterations not requiring consent previously made during the calendar year in which Mortgagors are making such alterations to the Mortgaged Property, does not result in an aggregate cost in excess of $1,000,000. Failure by the Mortgagee to deny any requested consent by Mortgagors pursuant to this clause (viii) within thirty (30) days following the date such request is telecopied to and confirmed received by Mortgagee shall be deemed to constitute a consent to such request by the Mortgagee. For purposes of determining the cost of any alteration to the Mortgaged Property, all aspects of the proposed alteration as a whole shall be taken into account regardless of when made and by whom the work may be performed, (ix) not make, install or permit to be made or installed, any additions thereto if doing so will materially impair the value of the Mortgaged Property, without the prior written consent of the Mortgagee, and (x) not make, suffer or permit any nuisance to exist on any of the Real Estate. b. Mortgagee and any persons authorized by Mortgagee shall have the right to enter and inspect the Mortgaged Property at reasonable times upon written notice. When so requested by any Mortgagor, Mortgagee and its representatives shall be accompanied by Mortgagor or its representative. If an Event of Default shall have occurred and be continuing, or in the event of an emergency, Mortgagee and any persons authorized 7 by Mortgagee, without any notice and without escort (and without being obligated to do so) may enter or cause entry to be made upon the Real Estate and repair and/or maintain the same as Mortgagee may reasonably deem necessary or advisable, and may (without being obligated to do so) make such expenditures and outlays of money as Mortgagee may reasonably deem appropriate for the preservation of the Mortgaged Property. All expenditures and outlays of money made by Mortgagee pursuant hereto shall be secured hereby and shall be payable on demand together with interest at the Default Rate (as such term is defined in the Secured Agreement). 4. HAZARDOUS MATERIALS. Except as otherwise disclosed in the Secured Agreement or the Business Plan, each Mortgagor represents, warrants and covenants that to the best of its knowledge such Mortgagor has not used Hazardous Materials (as defined hereinafter) on, from, or affecting the Mortgaged Property in any manner which violates Federal, state or local laws, ordinances, rules, regulations, or policies governing the use, storage, treatment, transportation, manufacture, refinement, handling, production or disposal of Hazardous Materials, and that, to the best of such Mortgagor's knowledge, no prior owner of the Mortgaged Property or any tenant, subtenant, prior tenant or prior subtenant have used Hazardous Materials on, from, affecting, or related to the Mortgaged Property in any manner which violates Federal, state or local laws, ordinances, rules, regulations or policies governing the use, storage, treatment, transportation, manufacture, refinement, handling, production or disposal of Hazardous Materials. Each Mortgagor shall use its best efforts to keep or cause the Mortgaged Property to be kept free of Hazardous Materials. Without limiting the foregoing, no Mortgagor shall cause or permit the Mortgaged Property to be used to generate, manufacture, refine, transport, treat, store, handle, dispose, transfer, produce or process Hazardous Materials, except in compliance with all applicable Federal, state or local laws or regulations, nor shall any Mortgagor cause or permit, as a result of any intentional or unintentional act or omission on the part of such Mortgagor or any tenant or subtenant, a release of Hazardous Materials onto the Mortgaged Property or onto any other property. Each Mortgagor shall comply with and shall, by covenants in all future leases, seek to ensure compliance by all tenants and subtenants with all applicable Federal, state and local laws, ordinances, rules and regulations, whenever and by whomever triggered, and shall obtain and comply with, and by covenants in all future leases, seek to ensure that all tenants and subtenants obtain and comply with, any and all approvals, registrations or permits required thereunder. Each Mortgagor shall (a) conduct and complete all investigations, studies, sampling, and testing, and all remedies, removal, and other actions necessary to clean up and remove all Hazardous Materials on, from, or affecting the Mortgaged Property (i) in accordance with all applicable Federal, state and local laws, ordinances, rules, regulations and policies, and (ii) in accordance with the orders and directives of all Federal, state, and local governmental authorities, and (b) defend, indemnify, and hold harmless Mortgagee, Obligee and their respective employees, agents, officers, and directors, from and against any claims, demands, penalties, fines, liabilities, settlements, damages, costs or expenses of whatever kind or nature, known or unknown contingent or otherwise arising out of, or in any way related to, (i) the presence, disposal, release, or threatened release of any Hazardous Materials which are on, from, affecting, or related to the soil, water, vegetation, buildings, personal property, persons, animals, of or otherwise on, the Mortgaged Property; (ii) any personal injury (including wrongful death) or property damage (real or personal arising out of or related to such Hazardous Materials; 8 (iii) any lawsuit brought or threatened, settlement reached, or government order relating to such Hazardous Materials, and/or (iv) any violation of any laws, orders, regulations, requirement, or demands of Governmental Authorities, which are based upon or in any way related to such Hazardous Materials including, without limitation, attorney and consultant fees, investigation and laboratory fees, court costs, and litigation expenses; provided, in any event, that the foregoing arises out of the Mortgaged Property. In the event this Junior Mortgage is foreclosed, or any Mortgagor tenders a deed in lieu of foreclosure, such Mortgagor or Mortgagors shall deliver the Mortgaged Property to Mortgagee free of any and all Hazardous Materials so that the conditions of the Mortgaged Property shall conform with all applicable Federal, state and local laws, ordinances, rules or regulations affecting the Mortgaged Property. For purposes of this Paragraph, "Hazardous Materials" includes, without limit, any flammable explosives, radioactive materials, hazardous materials, hazardous wastes, solvent mixtures, hazardous or toxic substances, or related materials defined in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. Section 9601, et. seq.), the Hazardous Materials Transportation Act, as amended (49 U.S.C. Sections 1810 et seq.), the Resource Conservation and Recovery Act, as amended (42 U.S.C. Section 9601, et seq.) and in the regulations adopted and publications promulgated pursuant thereto, or any other applicable Federal, state or local environmental law, ordinance, rule, or regulation. The provisions of this paragraphs shall be in addition to any and all other obligations and liabilities Mortgagors may have to Mortgagee and/or Obligee, at common law, and shall survive the transactions contemplated herein. 5. COMPLIANCE. Each Mortgagor shall comply with any and all material obligations affecting its Mortgaged Property which could adversely affect title to, or the value of, the Mortgaged Property including, but not limited to, all agreements, covenants, and restrictions of record. Each Mortgagor shall have the right, at such Mortgagor's sole cost and expense, to contest or object to any such obligations of such Mortgagor affecting the Mortgaged Property by appropriate legal proceedings, but such right shall not be deemed or construed in any way as relieving, modifying or extending such Mortgagor's covenant to comply with such obligations on a timely basis unless such Mortgagor has given prior written notice to Mortgagee of such Mortgagor's intent so to contest or object to such obligations, and unless (i) non-compliance with such obligations shall not under any circumstances potentially subject such Mortgagor to any criminal liability or to any fine or monetary liability exceeding $25,000 to which effect such Mortgagor shall certify to Mortgagee at the time of Mortgagor's notice, and (ii) the legal proceedings shall operate conclusively to prevent, prior to final determination of such proceedings, (y) any loss or forfeiture of title to, or the imposition of any lien upon, the Mortgaged Property, or any part thereof and (z) the impairment of the validity, priority and enforceability of this Junior Mortgage. Mortgagors shall and do hereby agree to defend, save and hold Mortgagee harmless from any loss and/or liability (including reasonable attorneys' fees and disbursements) by reason of such non-compliance or contest, and each Mortgagor shall keep Mortgagee regularly advised in writing as to the status of such proceedings. 6. REQUIREMENTS. Mortgagors, at Mortgagors' sole cost and expense, shall promptly comply with, or cause to be complied with, and conform to all present and future laws, statutes, codes, ordinances, orders, judgments, decrees, injunctions, rules, regulations 9 and requirements pertaining to the Mortgaged Property, including any applicable environmental, zoning or building, use and land use laws, ordinances, rules or regulations and all covenants, restrictions and conditions now or hereafter of record, and shall keep in full force and effect all permits which may be applicable to it or to any of the Mortgaged Property, or to the use, manner of use, occupancy, possession, operation, maintenance, alteration, repair or reconstruction of any of the Mortgaged Property (collectively, the "LEGAL REQUIREMENTS"). Each Mortgagor shall have the right, at such Mortgagor's sole cost and expense, to contest or object to any Legal Requirements affecting the Mortgaged Property by appropriate legal proceedings, but such right shall not be deemed or construed in any way as relieving, modifying or extending such Mortgagor's covenant to comply with any Legal Requirements on a timely basis unless such Mortgagor has given prior written notice to Mortgagee of such Mortgagor's intent so to contest or object to such Legal Requirements and unless (i) non-compliance with such Legal Requirements shall not under any circumstances potentially subject Mortgagor to any criminal liability or to any fine or liability exceeding $25,000 to which effect such Mortgagor shall certify to Mortgagee at the time of Mortgagor's notice, and (ii) the legal proceedings shall operate conclusively to prevent, prior to final determination of such proceedings, (y) any loss or forfeiture of title to, the imposition of any lien upon, or the condemnation of, the Mortgaged Property, or any part thereof and (z) the impairment of the validity, priority and enforceability of this Junior Mortgage. Mortgagors shall and do hereby agree to defend, save and hold Mortgagee harmless from any loss and/or liability (including reasonable attorney's fees and disbursements) by reason of such non-compliance or contest, and each Mortgagor shall keep Mortgagee regularly advised in writing as to the status of such proceedings. 7. PAYMENT OF IMPOSITIONS. ---------------------- a. Each Mortgagor shall pay and discharge prior to delinquency all taxes of every kind and nature (including, without limitation, all real and personal property, income, franchise, withholding, profits and gross receipts taxes), all charges for any easement or agreement maintained for the benefit of any of the Mortgaged Property, all general and special assessments, levies, permits, inspection and license fees, all water and sewer rents and charges and all other public charges whether of a like or different nature, even if unforeseen or extraordinary, imposed upon or assessed of or against Mortgagor or any of the Mortgaged Property, together with any penalties or interest on any of the foregoing (all of the foregoing are hereinafter collectively referred to as the "IMPOSITIONS"). Each Mortgagor shall have the right, at such Mortgagor's sole cost and expense, to contest or object to the amount or validity of any such Imposition by appropriate legal proceedings, but such right shall not be deemed or construed in any way as relieving, modifying or extending Mortgagor's covenant to pay any such Imposition at the time and in the manner provided in this Article 7, unless such Mortgagor has given prior written notice to Mortgagee of such Mortgagor's intent so to contest or object to an Imposition, and unless, (i) legal proceedings shall operate conclusively to prevent the sale of the Mortgaged Property, or any part thereof, to satisfy such Impositions prior to final determination of such proceedings; or (ii) such Mortgagor shall furnish a good and sufficient bond or surety or other security reasonably satisfactory to Mortgagee in the amount of the Impositions which are being contested plus any interest and penalty which may be imposed thereon and which could become a lien against the Mortgaged Property; or (iii) such Mortgagor shall have provided a 10 good and sufficient undertaking as may be required or permitted by law to accomplish a stay of such proceedings. Subject to the foregoing, and if Mortgagee shall so request, within ten (10) days after the date when an Imposition is due and payable, the appropriate Mortgagor shall deliver to Mortgagee evidence acceptable to Mortgagee showing the payment of such Imposition. b. Mortgagee shall have the right, after demand to Mortgagors, to pay any Impositions after the date such Imposition shall have become due (subject to each Mortgagor's right to contest such Impositions as hereinbefore provided), and to add to the Secured Obligations the amount so paid, together with interest thereon from the date of such payment at Default Rate and nothing herein contained shall affect such right and such remedy. Any sums paid by Mortgagee in discharge of any Impositions shall be (i) a lien on the Real Estate secured hereby prior to any right or title to, interest in, or claim upon the Real Estate subordinate to the lien of this Junior Mortgage, and (ii) payable on demand. c. Following the occurrence of an Event of Default specified in subsection (a) of Article 20 of this Junior Mortgage or upon any failure on the part of any Mortgagor to pay any Imposition as and when required to be paid pursuant to this Junior Mortgage (subject to applicable grace periods), Mortgagors, upon Mortgagee's request, shall hereafter pay to Mortgagee, on a monthly basis, an amount equal to one-twelfth of the annual Impositions reasonably estimated by Mortgagee so that Mortgagee shall have sufficient funds to pay the Impositions on the first day of the month preceding the month in which they become due (unless the same is already being deposited with the holder of the Senior Mortgages under the Senior Mortgages). In such event the appropriate Mortgagor further agrees to cause all bills, statements or other documents relating to Impositions to be sent or mailed directly to Mortgagee. Upon receipt of such bills, statements or other documents, and providing Mortgagors have deposited sufficient funds with Mortgagee pursuant to this Article 7, Mortgagee shall pay such amounts as may be due thereunder out of the funds so deposited with Mortgagee. If at any time and for any reason the funds deposited with Mortgagee are or will be insufficient to pay such amounts as may then or subsequently be due, Mortgagee shall notify Mortgagors and Mortgagors shall immediately deposit an amount equal to such deficiency with Mortgagee. Notwithstanding the foregoing, nothing contained herein shall cause Mortgagee to be deemed a trustee of said funds or to be obligated to pay any amounts in excess of the amount of funds deposited with Mortgagee pursuant to this Article 7. If amounts collected by Mortgagee under this paragraph (c) exceed amounts necessary in order to pay Impositions, Mortgagee may impound or reserve for future payment of Impositions such portion of such excess payments as Mortgagee in its absolute reasonable discretion may deem proper. Should Mortgagors fail to deposit with Mortgagee sums sufficient to pay such Impositions in full at least thirty (30) days before delinquency thereof, Mortgagee may, at Mortgagee's election, but without any obligation so to do, advance any amounts required to make up any deficiency, which advances, if any, shall be added to the Secured Obligations and shall be secured hereby and shall be repayable to Mortgagee with interest at Default Rate, as herein elsewhere provided, or at the option of Mortgagee the latter may, without making any advance whatever, apply any sums held by it upon any obligation of Mortgagors secured hereby. 11 8. INSURANCE. --------- a. As to any portion of the Land improved with Improvements having a value in excess of $500,000 (an "IMPROVED PARCEL"), Mortgagors shall, (i) keep such Improved Parcel (A) insured against loss or damage by fire, lightning, windstorm, tornado and by such other further and additional risks and hazards as now are or hereafter may be covered by extended coverage and "all risk" endorsements (flood and earthquake excepted), (B) insured against loss or damage by any other risk commonly insured against by persons occupying or using like properties in the locality in which the Improved Parcel is situate, (C) if appropriate, insured by a policy of business interruption and/or loss of rental insurance in amounts which shall be subject to review annually, and (D) insured by a policy of boiler and machinery insurance covering pressure vessels, air tanks, boilers, machinery, pressure piping, heating, air conditioning and elevator equipment, provided that the Improvements on the Improved Parcel contain equipment of such nature, and insurance against loss of occupancy or use arising from the breakdown of such machinery, (ii) keep the Fixtures on such Improved Parcel insured against loss or damage by fire, lightning, vandalism, windstorm, tornado, malicious mischief, and theft and by such other further and additional risks as now or hereafter may be covered by extended coverage and "all risk" endorsements (flood and earthquake' excepted) and (iii) to the extent the Land lies within an area identified by the Secretary of Housing and Urban Development as an area having special flood hazards, keep the Real Estate insured under a policy of flood insurance in an amount no less than the maximum list of coverage available under the National Flood Insurance Act of 1968, as amended. In addition, Mortgagors shall obtain and maintain (A) comprehensive public liability insurance on an occurrence basis (to the extent available) against claims for personal injury including bodily injury, death or property damage occurring on, in or about the Mortgaged Property and the adjoining streets, sidewalks and passageways, such insurance to afford primary coverage of not less than $10,000,000 combined single limit for personal injury or death to one or more persons or damage to property and (B) workmen's compensation insurance (including employer's liability insurance if requested by Mortgagee) for all employees of Mortgagor engaged on or with respect to the Mortgaged Property in such amounts as are required to be maintained by law, or if no amounts are established by law, then in such amounts as are reasonably satisfactory to Mortgagee. Each insurance policy (other than flood insurance written under the National Flood Insurance Act of 1968, as amended, in which case to the extent available) shall (i) be noncancelable (which term shall include any reduction in the scope or limits of coverage) without at least thirty days' prior written notice to Mortgagee or the maximum notice period then available, whichever is shorter, (ii) except in the case of worker's compensation and comprehensive public liability insurance, be endorsed to name Mortgagee as its interest may appear, with loss payable to Mortgagee, without contribution, under a standard mortgagee clause (subject to the rights, if any, of the holder of the Senior Mortgages), (iii) in the case of public liability insurance, provide for broad form coverage, including liquor liability coverage, (iv) in the case of property insurance contain a satisfactory "Replacement Cost Endorsement", (v) be written by Lloyds of London or by companies having an Alfred M. Best Company, Inc. rating of A or higher and a financial size category of not less than VII with respect to primary coverage and (and A/XII with respect to excess coverage) unless waived in writing by Mortgagee, and (vi) contain an endorsement or agreement by the insurer that any loss shall be payable in accordance with the terms of such policy notwithstanding any act or negligence of 12 Mortgagors which might otherwise result in forfeiture of said insurance and the further agreement of the insurer waiving all rights of set-off, counterclaim, deduction or subrogation against Mortgagors. If said insurance or any part thereof shall expire, be withdrawn, become void by breach of any condition thereof by Mortgagors or otherwise, or if for any reason said insurance shall become unsatisfactory, Mortgagors shall immediately obtain new or additional insurance complying with the requirements of this Junior Mortgage. No Mortgagor shall take out any separate or additional insurance which is contributing in the event of loss unless it is properly compatible with all other insurance carried by it with respect to the Mortgaged Property. b. Mortgagors shall (i) pay as they become due all premiums for such insurance, (ii) not later than twenty (20) days prior to the expiration of each policy to be furnished pursuant to the provisions of this Article 7, deliver a valid certificate of insurance, (or if such certificate is not then available, a renewal binder) evidencing a renewed policy or policies marked "premium paid," or accompanied by such other evidence of payment satisfactory to Mortgagee with standard noncontributory mortgagee clauses in favor of, and acceptable to, Mortgagee. Such certificate of insurance (or renewal binder) shall be accompanied by a written statement of Mortgagors certifying that the insurance coverage evidenced thereby complies with the requirements of this Article 8. c. If Mortgagors shall be in default of its obligations to so insure or deliver any such prepaid certificate or insurance or renewal binder then Mortgagee, at Mortgagee's option (without obligation to do so) and without prior notice, may effect such insurance from year to year, and pay the premium or premiums therefor, and following notice from Mortgagee that such insurance has been effected and paid for, Mortgagors shall pay to Mortgagee such premium or premiums so paid by Mortgagee with interest from the time of payment at Default Rate on demand, and the same shall be deemed added to the Secured Obligations and shall be secured by this Junior Mortgage. d. Each Mortgagor promptly shall comply with and conform to (i) all provisions of each such insurance policy and (ii) all requirements of the insurers thereunder applicable to Mortgagor or to any of its Mortgaged Property or to the use, manner of use, occupancy, possession, operation, maintenance, alteration or repair of any of the Mortgaged Property. If any Mortgagor shall use any of the Mortgaged Property in any manner which would permit the insurer to cancel any insurance policy, such Mortgagor immediately shall obtain a substitute policy to be effective at or prior to the time of any such cancellation. e. If any Improvement on an Improved Parcel, or any portion thereof, the value of which is $100,000 or less, shall be destroyed or damaged by fire or any other casualty, whether insured or uninsured, and regardless of any amount of proceeds of insurance which are available to Mortgagors, and provided no Event of Default has occurred or is continuing, Mortgagors shall elect whether to repair or replace such Improvement or any portion thereof; provided, however, in the event Mortgagors elect not to repair or replace such Improvement or portion thereof, the proceeds shall be applied by Mortgagee to the Secured Obligations in whatever manner Mortgagee, in its sole discretion, may determine. Mortgagors shall give immediate notice of any such destruction or damage to Mortgagee who may make proof of loss if not promptly made by Mortgagors and except as 13 may otherwise be provided herein each insurance company concerned is hereby authorized and directed to make payment for any loss directly to Mortgagee. Mortgagee shall have the right, at its option, (but not the obligation) to participate in the adjustment of any loss with any insurer or insurers. The insurance proceeds or any part thereof received by Mortgagee, if paid as a result of a damage or destruction in the amount of $100,000 or less, shall be paid by Mortgagee to the affected Mortgagor so long as no Event of Default has occurred or is continuing. The insurance proceeds or any part thereof received by Mortgagee, if paid as a result of a damage or destruction in an amount greater than $100,000, may be applied by Mortgagee toward reimbursement of all costs and expenses of Mortgagee in collecting such proceeds, and the balance shall be applied in the following order: (i) first, to the payment of any Secured Obligations or any other amount secured hereby which has become due prior to the date application of the insurance proceeds has been made and remains unpaid; (ii) next, to the restoration and repair of the affected Improvement pursuant to the provisions of Article 9 of this Junior Mortgage; and (iii) finally, if conditions (i) and (ii) above have been satisfied and funds remain, said balance shall be returned to the affected Mortgagor. The provisions of this paragraph e shall be subject to the rights, if any, of the holder of the Senior Mortgages. f. The property insurance required by this Junior Mortgage may be effected by blanket policies issued to Mortgagors covering the Mortgaged Property and other properties (real and personal) owned or leased by Mortgagors, provided that such policies otherwise comply with the provisions of this Junior Mortgage and allocate with respect to the Mortgaged Property the coverage specified form time to time, without possibility of reduction or coinsurance by reason of, or damage to, any other property (real or personal) named therein, and if the insurance required by this Junior Mortgage shall be effected by any such blanket or umbrella policies, Mortgagors shall furnish to Mortgagee valid certificates of insurance evidencing such policies, with schedules attached thereto showing the amount of insurance afforded by such policies applicable to the Mortgaged Property and a certification from Mortgagors to the effect that such insurance coverage complies in all respects with the requirements of this Junior Mortgage. g. Any transfer of the Mortgaged Property by foreclosure or deed in lieu of foreclosure shall transfer therewith all of the affected Mortgagor's interest, including any unearned premiums, in all insurance policies then in force covering the Mortgaged Property, subject to all of the terms and conditions of such policies. h. Following the occurrence of an Event of Default specified in subsection (a) of Article 20 of this Junior Mortgage or upon any failure on the part of Mortgagors to pay any insurance premiums as and when required to be paid pursuant to this Junior Mortgage (subject to applicable grace periods), Mortgagors, upon Mortgagee's request, shall thereafter pay to Mortgagee an amount equal to one-twelfth of the estimated aggregate annual insurance premiums on all policies of insurance required by this Junior Mortgage on a specified date each month (unless the same is already being deposited with the holder of the Senior Mortgages under the Senior Mortgages). Upon Mortgagee's request, Mortgagors shall cause copies of all bills, statements or other documents relating to the foregoing insurance premiums to be sent or mailed directly to Mortgagee. Upon receipt of such bills, statements or other documents by Mortgagee, and providing Mortgagors have deposited 14 sufficient funds with Mortgagee pursuant to this Article 8, Mortgagee shall pay such amounts as may be due thereunder out of the funds so deposited with Mortgagee. If at any time and for any reason the funds deposited with Mortgagee are or will be insufficient to pay such amounts as may be or subsequently are due, Mortgagee shall notify Mortgagors and Mortgagors shall immediately deposit an amount equal to such deficiency with Mortgagee. Notwithstanding the foregoing, nothing contained herein shall cause Mortgagee to be deemed a trustee of said funds or to be obligated to pay any amounts in excess of the amount of funds deposited with Mortgagee pursuant to this Article 8. Should Mortgagors fail to deposit with Mortgagee or the holder of the Senior Mortgages sums sufficient to pay in full such insurance premiums at least thirty (30) days before delinquency thereof, Mortgagee may, at Mortgagee's election, but without any obligation so to do, advance any amounts required to make up the deficiency, which advances, if any, with interest thereon at Default Rate, from the date of advance thereof shall be secured hereby and shall be repaid to Mortgagee on demand or at the option of Mortgagee the latter may, without making any advance whatever, apply any sums held by it upon any obligation of Mortgagors secured hereby. i. Any provision of this Article 8 to the contrary notwithstanding, so long as no Event of Default shall have occurred and be continuing, Mortgagor shall have the right to receive the proceeds from any business interruption and/or loss of rentals insurance policy. 9. RESTORATION. ----------- a. Funds in excess of $100,000 made available by Mortgagee to Mortgagors for restoration of any of the Mortgaged Property pursuant to the provisions of Article 8 hereof shall be disbursed by Mortgagor only in accordance with the following conditions: (i) prior to the commencement of restoration, the contracts, contractors, architects, plans and specifications for the restoration shall have been approved by the Consulting Professional (as such term is defined in subsection (c) of this Article 9), and the Consulting Professional shall have the right to require an acceptable surety bond insuring satisfactory completion of the restoration; (ii) at the time of any disbursement of the restoration funds, (A) no Event of Default shall then exist, (B) no mechanics' or materialmen's liens shall have been filed and remain undischarged, except those bonded while being contested and those discharged by the disbursement of the requested restoration funds and (C) a satisfactory continuation of title insurance on the Real Estate shall be delivered to Mortgagee; (iii) disbursements shall be made monthly in an amount not exceeding the cost of the work completed since the last disbursement, upon receipt of a certificate from an architect approved to do the plans and specifications; (iv) there shall, at all times, remain adequate funds to complete the restoration so that the remaining amount of available proceeds received from insurance and otherwise pursuant to paragraph (b) below equals or exceeds the contracted cost of construction less the amount paid for work that has been certified as having been completed; 15 (v) such other reasonable conditions may be imposed and as are customarily imposed by construction lenders for borrowers having a similar financial position as then existing for the Mortgagors, including but not limited to, the maintenance of a policy of builders risk insurance with completed value and extended coverage endorsements and worker's compensation coverage as shall be required by law; and (vi) any restoration funds remaining after the application thereof in accordance with the provisions hereof shall be disbursed to the appropriate Mortgagor provided no Event of Default shall have occurred and then be continuing. b. Mortgagors shall pay the cost of the restoration to the extent that it exceeds the amount of insurance proceeds or condemnation proceeds awarded. Mortgagors (i) shall evidence to Mortgagee a source of funds to pay for such restoration, and (ii) agree to use said funds to complete restoration of the Improvements. Any sum so added by Mortgagors which remains in the restoration fund upon completion of restoration shall be refunded to Mortgagors. c. The administration of the restoration procedures set forth in subsection (a) of this Article 9 shall be delegated by Mortgagee to, and performed by, an independent bonded consulting professional experienced in the administration of such procedures who shall be designated by the appropriate Mortgagor and approved by Mortgagee (the "CONSULTING PROFESSIONAL"). The failure by Mortgagee to approve or disapprove any Consulting Professional proposed by any such Mortgagor within fifteen (15) Business Days following request for such a approval shall be deemed approved by Mortgagee. All fees, costs and expenses of such Consulting Professional shall be borne and timely paid by Mortgagors. d. In the event of any fire or casualty where the cost of repair and restoration of the Mortgaged Property does not exceed $100,000 as determined by Mortgagors' insurance carrier for the Improvements, the proceeds of insurance shall be collected and applied by Mortgagors (rather than disbursed by Mortgagee). e. In the event a Mortgagor receives any condemnation award the actual proceeds of which do not exceed $100,000, such Mortgagor shall retain such amount and use such amount to the extent necessary to repair and restore the Mortgaged Property. 10. CONDEMNATION/EMINENT DOMAIN. --------------------------- a. Immediately upon obtaining knowledge of the institution of any proceedings of the condemnation of the Mortgaged Property, or any portion thereof, the affected Mortgagor will notify Mortgagee of the pendency of such proceedings. Mortgagee may (but shall not be obligated to) participate in any such proceedings and such Mortgagor shall from time to time deliver to Mortgagee all instruments requested by it to permit such participation. Such Mortgagor shall, at its expense, diligently prosecute any such proceeding and shall consult with Mortgagee, its attorneys and experts and cooperate with it in any defense of any such proceedings. Except as otherwise expressly provided in paragraph (e) of Article 9 above, all awards and proceeds of condemnation shall be assigned to Mortgagee to 16 be applied in the same manner as insurance proceeds, and each Mortgagor agrees to execute any such assignments of all such awards as Mortgagee may request (subject, however, to the rights of the holder of the Senior Mortgages). b. After application of all awards and proceeds of condemnation toward all practical repair and restoration of the Mortgaged Property as directed by the Consulting Professional, any remaining funds shall be applied as follows: (i) in the event that value and utility of the Mortgaged Property shall have been substantially restored as determined by the Consulting Professional, any remaining funds shall be returned to the appropriate Mortgagor, or (ii) in the event the value and utility of the Mortgaged Property shall not have been substantially restored as determined by the Consulting Professional, any remaining funds shall, at the option of Mortgagee, be applied in reduction of the Secured Obligations. 11. HOMESTEAD EXEMPTIONS. Each Mortgagor hereby represents and declares that the Mortgaged Property forms no part of any property owned, used or claimed by any Mortgagor as exempted from forced sale under the laws of the State of Florida, and disclaims, waives and renounces all and every claim to exemption under any homestead exemption law or other similar laws. 12. DISCHARGE OF LIENS, UTILITIES. ----------------------------- a. No Mortgagor shall, without the prior written consent of the Obligee, create, consent to or suffer the creation of any liens, charges or encumbrances (each, a "PROHIBITED LIEN)" on any of the Mortgaged Property, whether or not such Prohibited Lien is subordinate to this Junior Mortgage, other than the Senior Mortgages, as permitted by the Secured Agreement and those liens arising by operation of law which secure obligations not yet due and payable, or fail to have any Prohibited Lien which may be imposed without Mortgagors' consent discharged and satisfied of record within 10 days after it is imposed, except those liens bonded while being contested. Each Mortgagor shall pay prior to delinquency all lawful claims and demands of mechanics, materialmen, laborers and others which, if unpaid, might result in, or permit the creation of a Prohibited Lien, except that Mortgagors shall have the right to contest such claims or demands, provided that Mortgagors shall furnish a good and sufficient bond, surety or other security as requested by, and found satisfactory to, Mortgagee. b. Each Mortgagor shall pay prior to delinquency all utility charges which are incurred by it for gas, electricity, water or sewer services to its Mortgaged Property and all other assessments or charges of a similar nature, whether public or private and whether or not such taxes, assessments or charges are liens on the Mortgaged Property. 13. BOOKS AND RECORDS. Each Mortgagor shall at all times keep and maintain or cause to be kept and maintained records and books of account with respect to its Mortgaged Property. 14. ESTOPPEL CERTIFICATES. Mortgagee and each Mortgagor within 10 days following written request, shall deliver to the requesting party, a written statement, duly acknowledged, setting forth (i) the amount of the Obligations, and (ii) that there exist no 17 offsets, claims, counterclaims or defenses against the Obligations or describe in detail the nature of any such offset, claim, counterclaim or defense. 15. EXPENSES. Mortgagors shall pay, together with any interest or penalties imposed in connection therewith, all expenses incident to the preparation, execution, acknowledgement, delivery and/or recording of this Junior Mortgage, including all filing registration or recording fees and all federal, state, county and municipal, internal revenue or other stamp taxes and other taxes duties, imposts, assessments and charges now or hereafter required by the federal, state, county or municipal government. 16. MORTGAGEE'S COSTS AND EXPENSES. Upon the occurrence of any Event of Default or the exercise by Mortgagee of any of Mortgagee's rights hereunder, or if any action or proceeding be commenced, to which action or proceeding Mortgagee is or becomes party or in which it becomes necessary to defend or uphold the lien of this Junior Mortgage, or if the taking, holding or servicing of this Junior Mortgage by Mortgagee is alleged to subject Mortgagee to any civil fine, or if Mortgagee's review and approval of any document is requested by Mortgagors or required by Mortgagee, all reasonable costs, out-of-pocket expenses and fees incurred by Mortgagee in connection therewith (including any civil fines and reasonable attorneys' fees and disbursements) shall, on notice and demand, be paid by Mortgagors, together with interest thereon from the date of disbursement until paid at the Default Rate and shall be a lien on the Mortgaged Property and shall be secured by this Junior Mortgage; and, in any action to foreclose this Junior Mortgage, or to recover or collect the Secured Obligations, the provisions of this Article 16 with respect to the recovery of costs, disbursements and allowances shall prevail unaffected by the provisions of any law with respect to the same to the extent that the provisions of this Article 16 are not inconsistent therewith or violative thereof. 17. MORTGAGEE'S RIGHT TO PERFORM. If any Event of Default shall have occurred hereunder and be continuing, Mortgagee, without waiving or releasing any Mortgagor from any obligation or default under this Junior Mortgage, may (but shall be under no obligation to), at any time perform the same, and the cost thereof, with interest at Default Rate, shall immediately be due from Mortgagors to Mortgagee, and the same shall be a lien on the Mortgaged Property prior to any right, title to, interest in, or claim upon, the Mortgaged Property attaching subsequent to the lien of this Junior Mortgage. No payment or advance of money by Mortgagee under this Article 17 shall be deemed or construed to cure Mortgagors' default or waive any right or remedy of Mortgagee hereunder. 18. FURTHER ASSURANCES. Mortgagors and Mortgagee agree, upon demand of the other, to promptly correct any defect, error or omission which may be discovered in the contents of this Junior Mortgage or in the execution or acknowledgment hereof or in any other instrument executed in connection herewith or in the execution or acknowledgment of such instrument, or do any act or execute any additional documents (including, but not limited to, security agreements on any Fixtures or personal property included or to be included in the Mortgaged Property) as may be reasonably required by Mortgagee to confirm the lien of this Junior Mortgage. 18 19. ASSIGNMENT OF RENTS. All of the rents, royalties, issues, profits, revenue, income and other benefits of the Mortgaged Property arising from the use and enjoyment of all or any portion thereof or from any lease or agreement pertaining thereto (the "RENTS AND PROFITS") are hereby absolutely and unconditionally assigned, transferred, conveyed and set over to Mortgagee to be applied by Mortgagee in payment of the principal and interest and all other sums payable on the Instrument, and of all other sums payable under this Junior Mortgage, subject, however, to the rights, if any, of the holder of the Senior Mortgages. Until such time as an Event of Default shall have occurred, Mortgagors shall collect and receive all Rents and Profits. 20. EVENTS OF DEFAULT. The occurrence of any one or more of the following events shall constitute an Event of Default by Mortgagors hereunder: a. the occurrence of any Event of Default under the Secured Agreement (whether or not any Obligations or other Secured Obligations shall be at the time outstanding under the Secured Agreement, or the Instrument or the Secured Agreement shall have terminated for other purposes) or the occurrence of any Event of Default under the Certificate of Designation; or b. a failure to make payment of any sums required to be paid to Mortgagee other than the Obligations pursuant to the terms of this Junior Mortgage within five days after the same shall become due hereunder; or c. if any default shall occur in the performance of any covenant contained in this Junior Mortgage not elsewhere specified in this Article 20 which shall continue for thirty (30) days after notice from Mortgagee or if such default cannot be cured in such 30- day period, such longer period as shall be necessary to cure such default, provided that Mortgagor shall commence curing such default within such 30-day period and thereafter shall prosecute such cure diligently to completion; or d. (i) if any Mortgagor shall commence any case, proceeding or other action (a) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (b) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or any Mortgagor shall make a general assignment for the benefit of its creditors, (ii) if there shall be commenced against any Mortgagor any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of sixty (60) days, (iii) if there shall be commenced against any Mortgagor any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof, (iv) if any Mortgagor shall take any action in furtherance of, or indicating its consent to, approval 19 of, or acquiescence in, any of the acts set forth in clause (i), (ii) or (iii) above, (v) if any Mortgagor shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due (provided that any Mortgagor may admit in writing that it is "insolvent" as such term is defined in, and for purposes of, Section 108(a)(1)(8) of the Code); or (vi) any Mortgagor shall cause to be reinstated the Reorganization Proceedings, as such term is defined in the Secured Agreement; or e. the occurrence of any default or event of default (and the expiration of applicable grace periods) pursuant to any mortgage encumbering the Mortgaged Property or any portion thereof, including, without limitation, the Senior Mortgages, or pursuant to any note or other evidence of indebtedness secured thereby. 21. DUE ON SALE. Except as otherwise expressly provided in the Secured Agreement or Article 35 hereof, in the event that, without the prior written consent of the Mortgagee, any Mortgagor shall, either directly or indirectly, convey, grant, assign or transfer all or any portion of its right, title or interest in the Mortgaged Property, whether legal or equitable, by outright sale, deed, installment sale contract, land contract, contract for deed, option, lease option, leasehold interest, contract, or any other method of conveyance of real property interests, to any person or entity, then in any such event, Mortgagee shall have the right, at its sole option, to declare the entire Secured Obligations, immediately due and payable. The foregoing notwithstanding, any Mortgagor shall have the right without Mortgagee's consent to sell worn and obsolete Fixtures in conjunction with the replacement thereof in the ordinary course of such Mortgagor's business where (x) such replacements are in quantity and of quality not less than that of the Fixtures being sold when originally new and (y) title to the replacement Fixtures is owned by such Mortgagor at the time of such sale. 22. REMEDIES. Upon the occurrence of an Event of Default hereunder, (y) if such event is an Event of Default specified in paragraph (d) of Article 20 above, automatically the Secured Obligations and all amounts owing under this Junior Mortgage shall immediately become due and payable, and (z) if such event is an Event of Default other than those specified in paragraph (d) of Article 20 above, Mortgagee may in Mortgagee's sole discretion declare the Secured Obligations and all amounts owing under this Junior Mortgage to be immediately due and payable without presentment, demand, protest or notice of any kind, and Mortgagee may take such action, without notice or demand, as it deems advisable to protect and enforce Mortgagee's rights in and to the Mortgaged Property, including, but not limited to, the following actions: a. (i) To the extent permitted by law, the Mortgagee itself, or by such officers or agents as it may appoint, may enter and take possession of all the Mortgaged Property and may exclude Mortgagors and their agents and employees wholly therefrom and may have joint access with Mortgagors to the books, papers and accounts of Mortgagors; and Mortgagors will pay monthly in advance to Mortgagee, on Mortgagee's entry into possession, or to any receiver appointed to collect the rents, income and other benefits of the Mortgaged Property and the businesses conducted thereon or thereat, the fair and reasonable rental value for the use and occupation of such part of the Mortgaged Property as may be in possession of Mortgagors, and upon default in any such payment will vacate and surrender 20 possession of such part of the Mortgaged Property to Mortgagee or to such receiver and, in default thereof, Mortgagors may be evicted by summary proceedings or otherwise. (ii) If Mortgagors shall for any reason fail to surrender or deliver the Mortgaged Property or any part thereof after Mortgagee's demand, Mortgagee may obtain a judgment or decree conferring on Mortgagee the right to immediate possession or requiring Mortgagors to deliver immediate possession of all or part of the Mortgaged Property to Mortgagee, to the entry of which judgment or decree Mortgagors hereby specifically consent. Mortgagors shall pay to Mortgagee, upon demand, all costs and expenses of obtaining such judgment or decree and reasonable compensation to Mortgagee, its attorneys and agents, and all such costs, expenses and compensation shall, until paid, be secured by the lien of this Junior Mortgage. (iii) Upon every such entering upon or taking of possession, Mortgagee may hold, store, use, operate, manage and control the Mortgaged Property and conduct the business thereof, and, from time to time: (A) make all necessary and proper maintenance, repairs, renewals, replacements, additions, betterments and improvements thereto and thereon and purchase or otherwise acquire additional fixtures, personal and other mortgaged property; (B) insure or keep the Mortgaged Property insured; (C) manage and operate the Mortgaged Property and exercise all the rights and powers of Mortgagors in its name or otherwise with respect to the same; and (D) enter into agreements with others to exercise the powers herein granted Mortgagee, all as Mortgagee from time to time may determine; and Mortgagee may collect and receive all the rents, income and other benefits thereof, including those past due as well as those accruing thereafter; and shall apply the monies so received by Mortgagee in such priority as Mortgagee may determine to (1) the payment of interest, principal, and other payments due and payable on the Instrument, or pursuant to this Junior Mortgage, (2) the deposits for taxes and assessments and insurance premiums due, (3) the cost of insurance, taxes, assessments and other proper charges upon the Mortgaged Property or any part thereof, (4) any sums due and payable on any approved prior encumbrance; and (5) the compensation, expenses and disbursements of the agents, attorneys and other representatives of Mortgagee. b. Institute an action of mortgage foreclosure, or take action as the law may allow, at law or in equity, for enforcement of this Junior Mortgage, and proceed there onto final judgment and execution of the entire unpaid balance of the Instrument including costs of suit, interest and reasonable attorneys' fees. In case of any sale of the Mortgaged Property by virtue of judicial proceedings, the Mortgaged Property may be sold in one parcel and as an entirety or in such parcels, manner or order as the Mortgagee, in its sole discretion, may elect. 21 c. Institute partial foreclosure proceedings with respect to the portion of the Secured Obligations so in default, as if under a full foreclosure, and without declaring the entire Secured Obligations due, PROVIDED that if foreclosure sale is made because of default of a part of the Secured Obligations, such sale may be made subject to the continuing lien of this Junior Mortgage for the unmatured part of the Secured Obligations; and it is agreed that such sale pursuant to a partial foreclosure, if so made, shall not in any manner affect the unmatured part of this Junior Mortgage and the lien thereof shall remain in full force and effect just as though no foreclosure sale had been made under the provisions of this subsection. Notwithstanding the filing of any partial foreclosure or entry of a decree of a sale therein, Mortgagee may elect at any time prior to a foreclosure sale pursuant to such decree, to discontinue such partial foreclosure and to accelerate the Secured Obligations by reason of any uncured default or defaults upon which such partial foreclosure was predicated or by reason of any other defaults, and proceed with full foreclosure proceedings. It is further agreed that several foreclosure sales may be made pursuant to partial foreclosures without exhausting the right of full or partial foreclosure sale for any unmatured part of the Secured Obligations, it being the purpose to provide for a partial foreclosure sale of any matured portion of the Secured Obligations without exhausting the power to foreclose and to sell the Mortgaged Property pursuant to any such partial foreclosure for any other part of the Secured Obligations whether matured at the time or subsequently maturing; and without exhausting any right of acceleration and full foreclosure. d. Appoint a receiver of the rents, issues and profits of the Mortgaged Property and of the businesses conducted thereon and therefrom, without the necessity of proving the depreciation or the inadequacy of the value of the security or the insolvency of Mortgagors or any person who may be legally or equitably liable to pay moneys secured hereby, and Mortgagors and each such person waive such proof and hereby consent to the appointment of a receiver, to enter upon and take possession of the Mortgaged Property and to collect all rents, income and other benefits thereof and apply the same as the court may direct and any such receiver shall be entitled to hold, store, use, operate, manage and control the Mortgaged Property and conduct the business thereof as would Mortgagee pursuant to paragraph a above. The expenses, including receiver's fees, attorneys' fees, costs and agent's compensation, incurred pursuant to the powers herein contained shall be secured by this Junior Mortgage. The right to enter and take possession of, and to manage and operate, the Mortgaged Property and to collect all rents, income and other benefits thereof, whether by a receiver or otherwise, shall be cumulative to any other right or remedy hereunder or afforded by law and may be exercised concurrently therewith or independently thereof. Mortgagee shall be liable to account only for such rents, income and other benefits actually received by the Mortgagee, whether received pursuant to this paragraph or paragraph a above. Notwithstanding the appointment of any receiver or other custodian, Mortgagee shall be entitled as pledgee to the possession and control of any cash, deposits, or instruments at the time held by, or payable or deliverable under the terms of this Junior Mortgage to, Mortgagee. e. Institute an action for specific performance of any covenant contained herein or in aid of the execution of any power herein granted. 22 f. Apply on account of the unpaid Secured Obligations and the interest thereon or on account of any arrearages of interest thereon, or on account of any balance due to the Mortgagee after a foreclosure sale of the Mortgaged Property, or any part thereof, any unexpended moneys still retained by the Mortgagee that were paid by the Mortgagor to the Mortgagee pursuant to Article 7(c) or Article 8(h) hereof. g. Exercise any and all other rights and remedies granted under this Junior Mortgage or now or hereafter existing in equity, at law, by virtue of statue or otherwise. 23. DISCONTINUANCE OF PROCEEDINGS. If Mortgagee has proceeded to enforce any right under the Instrument or this Junior Mortgage and such proceedings have been discontinued or abandoned for any reason, then in every such case, Mortgagors and Mortgagee will be restored to their former positions and the rights, remedies and powers of Mortgagee will continue as if no such proceedings had been taken. 24. SALE OF THE PROPERTIES; APPLICATION OF PROCEEDS. Subject to the requirements of applicable law, the proceeds or avails of foreclosure sale and all moneys received by Mortgagee pursuant to any right given or action taken under the provisions of Article 22 of this Junior Mortgage, after taking into account all moneys due to the holder of the Senior Mortgages, shall be applied as follows: First: To the payment of the costs and expenses of any such sale or other enforcement proceedings in accordance with the terms hereof and of any judicial proceeding wherein the same may be made, and in addition thereto, all actual out-of-pocket expenses, advances, liabilities and sums made or furnished or incurred by Mortgagee or the holder of the Instrument under this Junior Mortgage including, without limitation, attorneys fees and costs, and fees and costs incurred by other professionals and consultants retained by Mortgagee, together with interest at the Default Rate (or such lesser amount as may be the maximum amount permitted by law), and all taxes, assessments or other charges in connection with such foreclosure, except any taxes, assessments or other charges subject to which the Mortgaged Property shall have been sold; Second: To the payment of the amount then due, owing or unpaid upon the Instrument for principal and interest on such amount; and in case such proceeds shall be insufficient to pay in full the whole amount so due and unpaid, then first, to the payment of all amounts of interest at the time due and payable on the Instrument, without preference or priority of any installment of interest over any other installment of interest, and second, to the payment of all amounts of principal without preference or priority of any amount of principal over any other amount of principal, or any part of the Secured Obligations over any other part of the Secured Obligations; Third: To the payment of any other sums required to be paid by Mortgagors pursuant to any provision of this Junior Mortgage; Fourth: To the payment of all other Secured Obligations; and 23 Fifth: With payment of the surplus, if any, to whomsoever may be lawfully entitled to receive the same. 25. REMEDIES NOT EXCLUSIVE. Mortgagee shall be entitled to enforce payment and performance of the Secured Obligations or any obligations secured hereby and to exercise all rights and powers under this Junior Mortgage or other agreement or any laws now or hereafter in force, notwithstanding some or all of the Secured Obligations and obligations may now or hereafter be otherwise secured, whether by mortgage, deed of trust, pledge, lien, assignment or otherwise. Neither the acceptance of this Junior Mortgage nor its enforcement, whether by court action or pursuant to the power of sale or the powers herein contained, shall prejudice or in any manner affect Mortgagee's right to realize upon or enforce any other security now or hereafter held by Mortgagee it being agreed that Mortgagee shall be entitled to enforce this Junior Mortgage and any other security now or hereafter held by Mortgagee in such order as it may in its absolute discretion determine. No remedy herein conferred upon or reserved to Mortgagee is intended to be exclusive of any other remedy given hereunder or now or hereafter existing at law or in equity or by statute. Every power or remedy given to Mortgagee or to which Mortgagee may be otherwise entitled, may be exercised concurrently or independently, from time to time and as often as may be deemed expedient by Mortgagee. 26. EXTENSION, RELEASE, ETC. Without affecting the lien or charge of this Junior Mortgage upon any portion of the Mortgaged Property not then or theretofore released as security for the full amount of all unpaid obligations, Mortgagee may, subject to the Secured Agreement, from time to time and without notice, agree to (i) extend the maturity or alter any of the terms of any such obligation, (ii) grant other indulgences, (iii) release or reconvey, or cause to be released or reconveyed at any time at Mortgagee's option any parcel, portion or all of the Mortgaged Property, (iv) take or release any other or additional security for any obligation herein mentioned, or (v) make compositions or other arrangements with debtors in relation thereto. 27. WAIVER OF APPRAISEMENT, VALUATION. Each Mortgagor hereby waives, to the full extent that it may lawfully do so, the benefit of all appraisement, valuation, stay and extension laws now or hereafter in force and all rights of marshalling of assets in the event of any sale of the Mortgaged Property, any part thereof or any interest therein, and any court having jurisdiction to foreclose the lien hereof may sell the Mortgaged Property (real or personal, or both) as an entirety or in such parcels, lots, manner or order as the Mortgagee in its sole discretion may elect. 28. SUCCESSOR MORTGAGOR. In the event ownership of the Mortgaged Property or any portion thereof becomes vested in a person other than the Mortgagors herein named, except as permitted by the Secured Agreement or Section 35 of this Junior Mortgage, Mortgagee may, without notice to the Mortgagors herein named, whether or not Mortgagee has given written consent to such change in ownership, deal with such successor or successors in interest with reference to this Junior Mortgage and the Secured Obligations, and in the same manner as with the Mortgagors herein named, without in any way vitiating or discharging Mortgagors' liability hereunder or under the Secured Obligations. 24 29. SECURITY AGREEMENT UNDER UNIFORM COMMERCIAL CODE. It is the intention of the parties hereto that this Junior Mortgage shall constitute a Security Agreement within the meaning of the Uniform Commercial Code. Notwithstanding the filing of a financing statement covering any of the Mortgaged Property in the records normally pertaining to personal property, all of the Mortgaged Property, for all purposes and in all proceedings, legal or equitable, shall be regarded, at Mortgagee's option (to the extent permitted by law), as part of the Real Estate whether or not such item is physically attached to the Real Estate or serial numbers are used for the better identification of certain items. The mention in any such financing statement of any of the Mortgaged Property shall never be construed as in any way derogating from or impairing this declaration and hereby stated intention of the parties that such mention in the financing statement is hereby declared to be for the protection of Mortgagee in the event any court shall at any time hold that notice of Mortgagee's priority of interest to be effective against any third party, including the federal government and any authority or agency thereof, must be filed in the Uniform Commercial Code records. Pursuant to the provision of the Uniform Commercial Code, each Mortgagor hereby authorizes Mortgagee, without the signature of such Mortgagor, to execute and file financing and continuation statements if Mortgagee shall determine, in its sole discretion, that such are necessary or advisable in order to perfect its security interest in the Fixtures covered by this Junior Mortgage, and Mortgagors shall pay to Mortgagee, on demand, any reasonable out-of-pocket expenses incurred by Mortgagee in connection with the preparation, execution, and filing of such statements that may be filed by Mortgagee. 30. INDEMNIFICATION; WAIVER OF CLAIM. -------------------------------- a. If Mortgagee is made a party to any litigation, mediation, arbitration, administrative or bankruptcy proceedings or appeals therefrom concerning this Junior Mortgage or the Mortgaged Property or any part thereof or interest therein, or the occupancy thereof by Mortgagors, then Mortgagors shall indemnify, defend and hold Mortgagee harmless from all liability by reason of said action other than that arising solely from Mortgagee's own willful misconduct or gross negligence, including reasonable attorneys' fees and paralegals' fees and reasonable out-of-pocket expenses incurred by Mortgagee in any such action, whether or not any such action is prosecuted to judgment, including, without limitation reasonable attorneys' fees and paralegals' fees and reasonable out-of-pocket expenses incurred in connection with any such action. If Mortgagee commences an action against Mortgagors to enforce any of the terms hereof or because of the breach by a Mortgagor of any of the terms hereof, or for the recovery of any sum secured hereby, such Mortgagor shall pay to Mortgagee reasonable attorneys' fees and paralegals' fees and reasonable out-of-pocket expenses, including, without limitation reasonable attorneys' fees and paralegals' fees and reasonable out-of-pocket expenses incurred in connection with any litigation, mediation, arbitration, administrative or bankruptcy proceedings and any appeals therefrom, together with interest thereon at the rate provided in the Instrument from the date the same are paid by Mortgagee to the date of reimbursement by such Mortgagor, and the right to such reasonable attorneys' fees and paralegals' fees and reasonable out-of-pocket expenses shall be deemed to have accrued on the commencement of such action, and shall be enforceable whether or not such action is prosecuted to judgment. If an Event of Default shall have occurred, Mortgagee may engage an attorney or attorneys to protect its rights hereunder, and in the event of such engagement, Mortgagors shall pay Mortgagee reasonable 25 attorneys' fees and paralegals' fees and reasonable out-of-pocket expenses incurred by Mortgagee, whether or not an action is actually commenced against Mortgagors by reason of breach, including, without limitation reasonable attorneys' and paralegals' fees and reasonable out-of-pocket expenses incurred in connection with any litigation, mediation, arbitration, administrative or bankruptcy proceedings and any appeals therefrom. b. Mortgagors waive any and all right to claim or recover against Mortgagee, its officers, employees, agents and representative, for loss of or damage to Mortgagors, the Mortgaged Property, any Mortgagor's property or the property of others under any Mortgagor's control from any cause whatsoever, except for the willful misconduct or gross negligence of Mortgagee, its officers, employees, agent or representatives. c. The obligations of Mortgagors in this Article 30 hereof shall survive satisfaction of this Junior Mortgage and the discharge of Mortgagors' other obligations under this Junior Mortgage, the Secured Agreement and the other Secured Instrument Documents. 31. NO WAIVERS, ETC. Any failure by Mortgagee to insist upon the strict performance by Mortgagors of any of the terms and provisions of this Junior Mortgage shall not be deemed to be a waiver of any of the terms and provisions hereof, and Mortgagee, notwithstanding any such failure, shall have the right thereafter to insist upon the strict performance by Mortgagors of any and all of the terms and provisions of this Junior Mortgage to be performed by Mortgagors; Mortgagee may release, regardless of consideration and without the necessity for any notice to, or consent by, the holder of any subordinate lien on the Mortgaged Property, any part of the security held for the obligations secured by this Junior Mortgage without, as to the remainder of the security, in anywise impairing or affecting the lien of this Junior Mortgage or the priority of such a lien over any subordinate lien. Mortgagee may resort for the payment of the Secured Obligations secured by this Junior Mortgage to any other security therefor held by Mortgagee in such order and manner as Mortgagee may elect. 32. WAIVERS BY MORTGAGORS. Upon the happening and continuation of an Event of Default hereunder, each Mortgagor hereby waives, to the extent permitted by applicable law, all errors and imperfections in any proceedings instituted by Mortgagee under this Junior Mortgage and all notices of any Event of Default (except as may be provided for under the terms hereof or of the Secured Agreement) or of Mortgagee's election to exercise or its actual exercise of any right, remedy or recourse provided for under this Junior Mortgage and Mortgagors shall not at any time insist upon or plead, or in any manner whatever claim or take any benefit or advantage of, any present or future statute, law, regulation or judicial decision which (a) exempts any of the Mortgaged Property or any other property, real or personal, or any part of the proceeds arising from any sale thereof from attachment, levy or sale under execution, (b) provides for any stay of execution, moratorium, marshalling of assets, exemption from civil process, redemption, extension of time for payment or valuation or appraisement of any of the Mortgaged Property, or (c) conflicts with any provision, covenant or term of this Junior Mortgage. 33. SURRENDER. Upon the occurrence of any Event of Default and pending the exercise by Mortgagee or its agents or attorneys of its right to exclude Mortgagors from all 26 or any part of the Mortgaged Property, each Mortgagor agrees to vacate and surrender possession of the Mortgaged Property to Mortgagee or to a receiver, if any, and in default thereof may be evicted by any summary action or proceeding for the recovery of possession of premises for nonpayment of rent, however designated. 34. NOTICES. All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing, and unless otherwise expressly provided herein, shall be considered to have been duly given or made when received by receipted hand delivery, or by facsimile or telecopy transmission, receipt confirmed, addressed as follows, or to such other address as may be hereafter notified by the respective parties thereto: The Mortgagors: Atlantic Gulf Communities Corporation 2601 South Bayshore Drive Miami, Florida 33133-5461 Attention: John H. Fischer Vice President Telecopy: (305) 859-4623 Copy to: Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. 1221 Brickell Avenue Miami, Florida 33131 Attn: Matthew B. Gorson, Esq. The Mortgagee: Foothill Capital Corporation 11111 Santa Monica Blvd., Suite 1500 Los Angeles, CA 90025-3333 Attn: Benjamin W. Silver Telecopy: (310) 479-2690 Copy to: Apollo Real Estate Advisors II, L.P. 1301 Avenue of the Americas New York, New York 10019 Attn: Rick Koenigsberger Telecopy: (212) 459-3301 Copy to: Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, New York 10019 Attn: Philip Mindlin, Esq. Telecopy: (212) 403-2000 27 Copy to: Carlton, Fields, Ward, Emmanuel, Smith & Cutler, P.A. Post Office Box 3239 Tampa, Florida 33601 Attn: Paula McDonald Rhodes, Esq. Telecopy: (813) 229-4133 Copy to: Annis, Mitchell, Cockey, Edwards & Roehn, P.A. 201 North Florida Avenue, Suite 2100 Tampa, Florida 33602 Attn: Stephen J. Szabo, III, Esquire Telecopy: (813/223-9067 provided, that any notice, request or demand to or upon any Mortgagor pursuant to Article 20 shall be effective two (2) days after being deposited in the mail, postage prepaid, PROVIDED FURTHER, that in the case at any such notice, request or demand to or upon Mortgagors pursuant to Article 20, Mortgagee shall use its best efforts to notify the Mortgagors concurrently with any notice by mail, by telecopy transmission or hand delivery, it being agreed that the failure to give any such notice, request or demand by telecopy transmission shall not have any adverse effect upon the effectiveness of any such notice, request or demand given by mail. 35. PARTIAL RELEASES. Mortgagee shall release parcels of the Mortgaged Property or otherwise subordinate this Junior Mortgage upon the terms and conditions set forth in the Secured Agreement and whenever required pursuant to the Intercreditor Agreement (as defined in Article 53). The Mortgagee shall execute such partial releases, in form and substance satisfactory to Mortgagee, prepared by Mortgagors at their expense. Parcels to be released need not be contiguous to any of the parcels previously released from this Junior Mortgage. Mortgagee agrees that notwithstanding anything to the contrary contained herein, the lien of this Junior Mortgage is subordinate and inferior to the contract rights of any purchaser of any lot in which the subject property has been platted, and Mortgagee shall release any such lot from the lien and operation of this Junior Mortgage upon the sole condition that such purchaser has complied with the terms and provisions of his purchase agreement with Mortgagor. Mortgagee further agrees that in the event of default by Mortgagor, the aforesaid provisions of this Article 35 shall survive the final judgment in the event this Junior Mortgage is foreclosed and shall be binding on any purchaser in a foreclosure sale. Such releases from the lien hereof shall not affect the lien hereby granted as to the remainder of the Mortgaged Property. 36. REACQUISITION OF RELEASED LOTS. The lien of this Junior Mortgage shall encumber, and the Mortgaged Property shall include, any and all portions of the Mortgaged Property which may hereafter be released from the lien hereof in connection with the sale of lots by Mortgagors ("RELEASED LOTS") if such Released Lots are reacquired by Mortgagors at any time prior to the satisfaction of this Junior Mortgage in full. 28 37. DEVELOPMENT MATTERS. To the extent required by applicable law, the Mortgagee, without incurring any obligation to file or record any documentation and at Mortgagors' cost and expense, shall join in the execution of subdivision plats, easements and declarations covering all or any part of the Mortgaged Property and other documents with respect to which Mortgagee's joinder is necessary for the development of the Mortgaged Property as contemplated in the Business Plan, PROVIDED that such subdivision plats, easements, declarations and other documents are in form and substance reasonably satisfactory to Mortgagee and Mortgagors shall have complied in all respects with all applicable provisions of law with respect thereto. 38. COUNTERPARTS. This Junior Mortgage is being executed in multiple counterparts, all of which shall for all purposes constitute one agreement binding on all the parties hereto, in order to permit its being recorded concurrently in all of the counties in which the Mortgaged Property is located. 39. FUTURE ADVANCES. This Junior Mortgage shall secure not only the Secured Obligations described hereinabove, but also such future or additional advances as may be made by Obligee (including its successors and assigns) from time to time, whether obligatory or at its option, for any purpose, provided that all those advances are to be made within 20 years from the date of this Junior Mortgage or within such lesser period of time as may be provided hereafter by law as a prerequisite for the sufficiency and actual notice or record notice of the optional future or additional advances as against the rights of creditors or subsequent purchases for valuable consideration. The total amount of the Secured Obligations secured by this Junior Mortgage may decrease or increase from time to time but the total unpaid indebtedness (exclusive of any interest and expenses included as part of the Secured Obligations) as secured at any one time by this Junior Mortgage shall not exceed the maximum principal amount of ONE HUNDRED MILLION AND NO/100 DOLLARS ($100,000,000.00), plus interest, and any disbursements made for the payment of taxes, levies, or insurance on the property covered by the lien of this Junior Mortgage with interest on those disbursements. It shall be a default hereunder if Mortgagors shall file for record a notice limiting the maximum principal amount which may be secured by this Junior Mortgage if the effect of the filing of such notice would in any way prohibit Mortgagee from making future advances to be secured by this Junior Mortgage in the full amount hereinabove set forth. 40. TAXES ON MORTGAGEE. ------------------ a. If any Governmental Authority shall levy, assess, or charge any tax, assessment or imposition upon this Junior Mortgage, the Secured Obligations, the interest of Mortgagee in the Mortgaged Property, or Mortgagee by reason of or as holder of any of the foregoing, Mortgagors shall pay (or provide funds to Mortgagee for such payment), to the extent required in the Secured Agreement, all such taxes, assessment and impositions to, for, or on account of Mortgagee (other than federal, state or local income taxes of Mortgagee or franchise taxes imposed on the Mortgagee or the holder of the Instrument assessed other than on the basis of Mortgagee's or such holder's holding this Junior Mortgage) as they become due and payable and on demand shall furnish proof of such payment to Mortgagee. In the event of passage of any law or regulation permitting, authorizing or requiring the tax, 29 assessment or imposition to be levied, assessed or charged, which law or regulation prohibits Mortgagor from paying the tax, assessment or imposition to or for Mortgagee (and from providing funds to the Mortgagee to pay any such tax, assessment or imposition), or which shall make such payment by Mortgagor result in the imposition of interest exceeding the maximum permitted by law, then, unless the affected portion of the Mortgaged Property is released from the lien of this Junior Mortgage pursuant to the terms hereof and of the Secured Agreement, Mortgagee may declare the Secured Obligations secured hereby immediately due and payable. b. In the event of the passage after the date of this Junior Mortgage of any law of the jurisdiction in which the Real Estate is located deducting from the value of the Real Estate for the purposes of taxation any lien thereon or changing in any way the laws for the taxation of mortgages or debts secured by mortgages for state or local purposes or the manner of the collection of any such taxes and imposing a tax, either directly or indirectly, on this Junior Mortgage or any Secured Instrument Document, as defined in the Secured Agreement, Mortgagee shall have the right to declare all sums outstanding secured by this Junior Mortgage immediately due and payable, provided, however, that such election shall be ineffective if (i) the affected Mortgagor is exempt from such tax or, if not exempt from such tax, is permitted by law to pay the whole of such tax (or to provide funds to Mortgagee to pay such taxes) in addition to all other payments required hereunder and if Mortgagor pays such tax (or provides funds to Mortgagee to pay such tax) when the same is due and payable and agrees in writing to pay such tax when the same is due and payable and agrees in writing to pay such tax when thereafter levied or assessed against the Real Estate; or (ii) the affected portion of the Mortgaged Property is released from the lien of this Junior Mortgage in accordance with the terms hereof and of the Secured Agreement. 41. SENIOR MORTGAGES. This Junior Mortgage is subject and subordinate to those certain mortgages described in SCHEDULE 1 attached hereto and hereby made a part hereof ("SENIOR MORTGAGES"). 42. PRIOR JUNIOR MORTGAGES; NOTICES. Mortgagors agree to forward to Mortgagee copies of all correspondence to or from the holder of the Senior Mortgages, and all other prior or subordinate mortgages promptly after mailing or receiving same, either constituting notices of a material default thereunder, or relating to payment of principal and/or interest in respect of all prior or subordinate mortgages. 43. NO MODIFICATION; BINDING OBLIGATIONS. This Junior Mortgage may not be modified, amended, discharged or waived in whole or in part except by an agreement in writing signed by the party against whom enforcement of any such modification, amendment, discharge or waiver is sought. The covenants of this Junior Mortgage shall run with the land and bind Mortgagors, the heirs, distributees, personal representatives, successors and assigns of Mortgagors, and all present and subsequent encumbrancers, lessees and sublessees of any of the Mortgaged Property, and shall inure to the benefit of Mortgagee and its successors, assigns and endorsees. 44. MISCELLANEOUS. As used in this Junior Mortgage, the singular shall include the plural as the context requires and the following words and phrases shall have the following 30 meanings: (a) "including" shall mean "including but not limited to"; (b) "provisions" shall mean "provisions, terms, covenants and/or conditions"; (c) "lien" shall mean "lien, charge, encumbrance, security interest, mortgage and/or deed of trust"; (d) "obligation" shall mean "obligation, duty, covenant and/or condition"; and (e) "any of the Mortgaged Property" shall mean "the Mortgaged Property or any part thereof or interest therein." Capitalized terms not defined herein shall have the meanings give them in the Secured Agreement. Any act which Mortgagee is permitted to perform hereunder may be performed at any time and from time to time by Mortgagee or any person or entity designated by Mortgagee. Any act which is prohibited to Mortgagors hereunder is also prohibited to all lessees of any of the Mortgaged Property. Each appointment of Mortgagee as attorney-in-fact for Mortgagors under the Mortgage is irrevocable and coupled with an interest. 45. CAPTIONS. The captions or headings at the beginning of each Article hereof are for the convenience of the parties and are not a part of this Junior Mortgage. 46. SUCCESSORS AND ASSIGNS. The covenants contained herein shall run with the land and bind each Mortgagor, its successors and assigns, and all subsequent owners, encumbrances and tenants of the Mortgaged Property, and shall inure to the benefit of the Mortgagee. 47. ENFORCEABILITY. The validity and enforceability of this Junior Mortgage shall be construed and interpreted according to the laws of the State of Florida; provided, however, that nothing in this Section shall be construed to affect in any way the intent of the parties that the Instrument and the Secured Agreement, and the rights and obligations of the parties thereto and thereunder, shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York where the Instrument, this Junior Mortgage, the Secured Agreement and the other Secured Instrument Documents (as defined in the Secured Agreement) were negotiated and the payment of amounts due in respect of the Secured Obligations shall be made and rendered to Mortgagee. 48. SEVERABILITY. Whenever possible, each provision of this Junior Mortgage shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Junior Mortgage shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remaining provisions of this Junior Mortgage. 49. AUTHORITY OF MORTGAGEE. The rights and responsibilities of Mortgagee under this Junior Mortgage with respect to any action taken by Mortgagee or the exercise or non-exercise by Mortgagee of any option, right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Junior Mortgage shall, as among Mortgagee and the Obligee, be governed by the Secured Agreement, and by such other agreements with respect thereto as may exist from time to time among them, but, as among Mortgagee and Mortgagors, Mortgagee shall be conclusively presumed to be acting as agent for the holder of the Instrument with full and valid authority so to act or refrain from acting, and Mortgagors shall not be under any obligation, or entitlement, to make any inquiry respecting such authority. 31 50. RECEIPT OF COPY. Each Mortgagor acknowledges that it has received a true copy of this Junior Mortgage. 51. JOINT AND SEVERAL OBLIGATIONS. The obligations, liabilities and agreements of the Mortgagors hereunder shall be joint and several. 52. SUBORDINATION AND ADDITIONAL PARTIAL RELEASE OF MORTGAGE LIENS. Mortgagee shall release or subordinate parcels of the Mortgaged Property from the lien of this Junior Mortgage upon the terms and conditions set forth in the Secured Agreement pursuant to partial releases or subordinations, in form and substance satisfactory to Mortgagee, prepared by Mortgagors at their expense. 53. INTERCREDITOR AGREEMENT. All of the Mortgaged Property is subject to other mortgages given to other lenders. The relative priority of the mortgages is governed by the terms and provisions of that certain Intercreditor Agreement ("INTERCREDITOR AGREEMENT") dated of even date herewith, pursuant to the terms of which Obligee has agreed to permit, and consents to, the placing of the mortgage liens upon the Land and all Improvements, Fixtures and tangible personal property located thereon or used in connection therewith to secure certain obligations of the Company as more particularly described in, and subject to the terms and conditions of, the Intercreditor Agreement. The terms of this Junior Mortgage are subject to the terms and provisions of the Intercreditor Agreement. IN WITNESS WHEREOF, Mortgagors have executed this Junior Mortgage and Security Agreement as of the date first set forth above. Witnesses: MORTGAGORS: ATLANTIC GULF COMMUNITIES CORPORATION, a Delaware corporation - ----------------------------------- Signature (Corporate Seal) - ----------------------------------- Printed Name By: ----------------------------------- John H. Fischer - ----------------------------------- Vice President Signature - ----------------------------------- Printed Name Address: 2601 South Bayshore Drive Miami, Florida 33133-5461 32 ENVIRONMENTAL QUALITY LABORATORY, INCORPORATED, a Florida corporation - ----------------------------------- Signature (Corporate Seal) - ----------------------------------- Printed Name By: ----------------------------------- John H. Fischer - ----------------------------------- Vice President Signature - ----------------------------------- Printed Name Address: 2601 South Bayshore Drive Miami, Florida 33133-5461 GENERAL DEVELOPMENT UTILITIES, INC., a Florida corporation - ----------------------------------- Signature (Corporate Seal) - ----------------------------------- Printed Name By: ----------------------------------- John H. Fischer - ----------------------------------- Vice President Signature - ----------------------------------- Printed Name Address: 2601 South Bayshore Drive Miami, Florida 33133-5461 FIVE STAR HOMES, INC., a Florida corporation - ----------------------------------- Signature (Corporate Seal) - ----------------------------------- Printed Name By: ----------------------------------- John H. Fischer - ----------------------------------- Vice President Signature - ----------------------------------- Printed Name Address: 2601 South Bayshore Drive Miami, Florida 33133-5461 33 ATLANTIC GULF OF TAMPA, INC., a Florida corporation - ----------------------------------- Signature (Corporate Seal) - ----------------------------------- Printed Name By: ----------------------------------- John H. Fischer - ----------------------------------- Vice President Signature - ----------------------------------- Printed Name Address: 2601 South Bayshore Drive Miami, Florida 33133-5461 STATE OF FLORIDA COUNTY OF HILLSBOROUGH The foregoing instrument was acknowledged before me this ___ day of June, 1997, by John H. Fischer, as Vice President of Atlantic Gulf Communities Corporation, a Delaware corporation, f/k/a General Development Corporation, on behalf of the corporation, who is personally known to me or has produced a Florida driver's license number F260-468- 57-430-0 as identification. --------------------------------- NOTARY PUBLIC Name: ---------------------------- Serial #: ------------------------ My Commission Expires: STATE OF FLORIDA COUNTY OF HILLSBOROUGH The foregoing instrument was acknowledged before me this ___ day of June, 1997, by John H. Fischer, as Vice President of Environmental Quality Laboratory, Incorporated, a Florida corporation, on behalf of the corporation, who is personally known to me or has produced a Florida driver's license number F260-468-57-430-0 as identification. --------------------------------- NOTARY PUBLIC Name: ---------------------------- Serial #: ------------------------ My Commission Expires: 34 STATE OF FLORIDA COUNTY OF HILLSBOROUGH The foregoing instrument was acknowledged before me this ___ day of June, 1997, by John H. Fischer, as Vice President of General Development Utilities, Inc., a Florida corporation, on behalf of the corporation, who is personally known to me or has produced a Florida driver's license number F260-468-57-430-0 as identification. --------------------------------- NOTARY PUBLIC Name: ---------------------------- Serial #: ------------------------ My Commission Expires: STATE OF FLORIDA COUNTY OF HILLSBOROUGH The foregoing instrument was acknowledged before me this ___ day of June, 1997, by John H. Fischer, as Vice President of Five Star Homes, Inc., a Florida corporation, on behalf of the corporation, who is personally known to me or has produced a Florida driver's license number F260-468-57-430-0 as identification. --------------------------------- NOTARY PUBLIC Name: ---------------------------- Serial #: ------------------------ My Commission Expires: STATE OF FLORIDA COUNTY OF HILLSBOROUGH The foregoing instrument was acknowledged before me this ___ day of June, 1997, by John H. Fischer, as Vice President of Atlantic Gulf of Tampa, Inc., a Florida corporation, behalf of the corporation, who is personally known to me or has produced a Florida driver's license number F260-468-57-430-0 as identification. --------------------------------- NOTARY PUBLIC Name: ---------------------------- Serial #: ------------------------ My Commission Expires: 35 EXHIBIT A --------- (Land) 36 SCHEDULE "1" ------------ 37 EX-10.E 6 EXHIBIT 10(E) JUNIOR PERSONAL PROPERTY SECURITY AGREEMENT THIS JUNIOR PERSONAL PROPERTY SECURITY AGREEMENT (the "SECURITY AGREEMENT") is made effective as of June 23, 1997, and is entered into by ATLANTIC GULF COMMUNITIES CORPORATION, a Delaware corporation ("COMPANY"), and each of the undersigned Subsidiaries of Company (the "SUBSIDIARY GRANTORS;" the Company and the Subsidiary Grantors each individually a "GRANTOR" and collectively, the "GRANTORS"), in favor of FOOTHILL CAPITAL CORPORATION, a California corporation, as collateral agent (in such capacity herein called "COLLATERAL AGENT"), for AP-AGC, LLC, a Delaware limited liability company ("OBLIGEE"). R E C I T A L S --------------- WHEREAS, Company, Obligee and Collateral Agent are parties to that certain Secured Agreement dated February 7, 1997, and amended and restated as of May 15, 1997 (as hereafter amended, supplemented or otherwise modified from time to time, the "SECURED AGREEMENT"; capitalized terms used herein without definition shall have the meanings given such terms in the Secured Agreement); WHEREAS, Company, Grantors and Obligee are parties to that certain Investment Agreement dated February 7, 1997, amended as of March 20, 1997, and amended and restated as of May 15, 1997 (as hereafter amended, supplemented or otherwise modified from time to time, the "INVESTMENT AGREEMENT"); WHEREAS, Company and Obligee are parties to that certain Due Diligence Fee Agreement dated of even date herewith (as hereafter amended, supplemented or otherwise modified from time to time, the "FEE AGREEMENT"); WHEREAS, it is a condition precedent to Obligee entering into the Secured Agreement, the Investment Agreement, the Fee Agreement and all other Secured Instrument Documents and investing capital thereunder that the Grantors herein execute and deliver this Security Agreement, and the Grantors desire to enter into this Security Agreement. NOW, THEREFORE, in consideration of the premises set forth herein and in order to induce Obligee to enter into the Secured Agreement, the Investment Agreement, the Fee Agreement and all other Secured Instrument Documents, the Grantors hereby agree as follows: SECTION 1. DEFINED TERMS. The following terms shall have the following meanings: "AG ASIA" means Atlantic Gulf Asia Holdings N.V., a Netherlands Antilles corporation. "BANK ACCOUNTS" means any and all deposit accounts, money market accounts and any other deposits and investments of Grantors held in any bank or other financial institution, any brokerage firm or any other Person and all money, instruments, securities, documents and other investments held pursuant thereto, whether now existing or owned or hereafter created or acquired (exclusive of all but the residual, remainder or beneficial interest of Grantors in all escrow, restricted, custodial and fiduciary accounts the pledge of which by Grantors is prohibited by agreements existing as of the date hereof or by law, as set forth in Schedule 7.17 to the Secured Agreement and hereby made a part hereof (which may be amended from time to time by written notice to Collateral Agent and Obligee to include other restricted accounts)). "CAPITAL STOCK" means any and all shares, interests, or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants or options to purchase any of the foregoing. "CLAIMS DISBURSEMENT ACCOUNT" means the segregated account established for purposes of holding funds borrowed to pay Administrative Claims, Priority Claims, and Convenience Claims pursuant to SECTION 3.2.4 and 8.1.1 of the Reorganization Plan. "COLLATERAL" has the meaning assigned such term in SECTION 2 of this Agreement. "COMMERCIAL RECEIVABLES" means all promissory notes and mortgages and deeds of trust payable to, or held by, Grantors, and all other documents, instruments and agreements executed in connection therewith, whether currently existing or hereafter created or acquired, arising from the sale of single-family homesites (as defined in the Secured Agreement) or arising from the sale of other Real Property and all cash and non-cash proceeds thereof. "CONDEMNATION AWARDS" means any and all proceeds (including, without limitation, proceeds in the form of promissory notes or other agreements for the payment of proceeds) from (a) the taking by eminent domain, condemnation or otherwise, or acquisition pursuant to contract, of any property of any Grantor by the United States of America, the State of Florida or any political subdivision thereof, or any agency, department, bureau, board, commission or instrumentality of any of them, including, without limitation, any awards and/or other compensation awarded to any Grantor whether as a result of litigation, arbitration, settlement or otherwise, or (b) any sale by any Grantor of a water and utility system to a Person, whether now owned or hereafter created or acquired. 2 "EXCLUDED PROPERTY" means (a) the Capital Stock of General Development Acceptance Corporation and GDV Financial Corporation, (b) 34% of the Capital Stock of AG Asia, (c) all money or property now or hereafter deposited into a Reserve Account pursuant to the Reorganization Plan (exclusive of the residual, remainder or beneficial interest of Company and its Subsidiaries therein), (d) any portions of payments made on Homesite Contracts Receivable which are, as a matter of law or pursuant to such Homesite Contracts Receivable, required to be placed in a restricted account for the payment of utility charges or paid toward real estate taxes on the lots subject to the respective Homesite Contracts Receivable giving rise to such payments, and (e) the Trust Property. "HOMESITE CONTRACTS RECEIVABLE" means all contracts for deed, unsecured promissory notes, and other agreements, currently existing or hereafter created or acquired, pursuant to which any Grantor has the right to receive payment in any form whatsoever for the sale of single-family homesites (excluding Commercial Receivables), including any and all accounts, contract rights, chattel paper, general intangibles and unpaid seller's rights, relating to the foregoing or arising therefrom, reserves and credit balances arising thereunder and cash and non-cash proceeds of any and all of the foregoing. "HOMESITE PROGRAM" has the meaning assigned such term in Article I of the Reorganization Plan. "INTELLECTUAL PROPERTY" means all now existing or hereafter created or acquired trademarks, trade names, copyrights, technology, know-how and processes necessary for the conduct of any Grantor's business, and any and all licenses to use any of the foregoing. "INVESTMENTS" means any and all promissory notes, Capital Stock (other than Subsidiary Stock), bonds, debentures and securities, held by Grantors, whether now owned or hereafter acquired. "PERSONAL PROPERTY" means the following personal property of Grantors: (a) the Bank Accounts; (b) the Investments; (c) any and all accounts, contract rights, chattel paper, instruments and documents, including, without limitation, any right to payment for goods sold or leased or services rendered, whether now owned or hereafter acquired; (d) any and all machinery, apparatus, equipment, fittings, furniture, fixtures, motor vehicles and other tangible personal property of every kind and 3 description, whether now owned or hereafter acquired, and wherever located, and all parts, accessories and special tools and replacements therefor (collectively, "EQUIPMENT"); (e) any and all general intangibles, whether now owned or hereafter created or acquired, including, without limitation, all choses in action, causes of action, rights in and to any and all Condemnation Awards, corporate or other business records, deposit accounts, inventions, designs, patents, patent applications, trademarks, trade names, trade secrets, goodwill, copyrights, registrations, licenses, franchises, customer lists, tax refund claims, computer programs, any other Intellectual Property, all claims under guaranties, security interests or other security to secure payment of any accounts by an account debtor, all rights to indemnification and all other intangible property of every kind and nature, including, without limitation, (i) the interests, if any, of any Grantor in payments proceeds, residuals, and remainders from, or as a beneficiary of the Reserve Accounts, Claims Disbursement Account, or other such accounts, (ii) any and all beneficial interests in the trusts pursuant to which title to the Trust Property is held, and (iii) any proceeds or choses in action with respect to, or rights to receive proceeds from, any condemnation of any Real Property or Personal Property of any Grantor, whether now in existence or hereafter created or acquired; (f) any and all goods which are, or may at any time be, goods held for sale or lease or furnished under contracts of service or raw materials, work-in-process or materials used or consumed in business, wheresoever located and whether now owned or hereafter created or acquired, including, without limitation, all such property the sale or other disposition of which has given rise to accounts and which has been returned to or repossessed or stopped in transit (collectively, "INVENTORY"); (g) all monies, cash, residues and property of any kind, now or at any time hereafter in the possession or under the control of Collateral Agent or Obligee or any agent or bailee of Collateral Agent or Obligee; (h) all Homesite Contracts Receivable and Commercial Receivables; (i) all accessions to, all substitutions for, and all replacements, products and proceeds of, the foregoing, including, without limitation, proceeds of insurance policies insuring the aforesaid property and documents covering the aforesaid property, all property received wholly or partly in trade or exchange for such property, and all rents, revenues, issues, profits and proceeds arising from the sale, lease, license, encumbrance, collection or any other temporary or permanent disposition of such items or any interest therein whether or not they constitute "PROCEEDS" as defined in the Code; and 4 (j) all books, records, documents and ledger receipts pertaining to any of the foregoing, including, without limitation, customer lists, credit files, computer records, computer programs, storage media and computer software used or acquired in connection with generating, processing and storing such books and records or otherwise used or acquired in connection with documenting information pertaining to the aforesaid property. "REAL PROPERTY" means any and all real property and fixtures and interests in real property and fixtures now owned or hereafter acquired by any Grantor. "REORGANIZATION PLAN" means the Restated Second Amended Joint Plan of Reorganization of General Development Corporation jointly proposed in the Reorganization Proceedings by Company and the Official Unsecured Creditors' Committee, filed on October 9, 1991 with the Clerk of the Bankruptcy Court, as modified by Modification filed March 9, 1992. "REORGANIZATION PROCEEDINGS" means the cases commenced on April 6 and April 12, 1990 under Chapter 11 of Title 11 of the United States Code in the Bankruptcy Court by GDC (Case No. 90-12231-BKC-AJC), General Development Financial Services, Inc. (Case No. 90-12232-BKC-AJC), General Development Resorts, Inc. (Case No. 90-12233 BKC-AJC), Town & Country II, Inc. (formerly Florida Residential Communities, Inc.) (Case No. 90-12234-BKC-AJC), Five Star Homes Group, Inc. (Case No. 90-12235-BKC-AJC), Five Star Homes, Inc. (Case No. 90-12338-BKC-AJC), GDV Financial Corporation (Case No. 90-12236-- BKC-AJC) and Environmental Quality Laboratory, Incorporated (Case No. 90-12237-BKC-AJC). "RESERVE ACCOUNTS" means the Disbursement Account (as defined in SECTION 8.4 of the Reorganization Plan); the Disputed Claims Reserve Account (as defined in SECTION 8.7 of the Reorganization Plan); any reserve of securities, utility-satisfied lots, cash or other assets that is established pursuant to the Reorganization Plan, the Homesite Program, or any agreement resolving a claim of the State of Florida in the Reorganization Proceedings, to satisfy requests for utility service; and any reserve of securities or cash established to fund road or other improvements pursuant to any agreement resolving a claim of the State of Florida in the Reorganization Proceedings, including, without limitation, the Division Class 14 Utility Fund Trust Agreement and the Improvement Fund Trust Agreement, executed by and among the State of Florida, Department of Business Regulation, Division of Florida Land Sales, Condominiums and Mobile Homes, Company and the trustee thereunder, the Class 14 Utility Fund Trust Agreement and the Homesite Program and Utility Fund Trust Agreement executed by and between Company and the trustee thereunder, the Class 14 Utility Lot Trust Agreement executed by and between Company and the trustee thereunder, as described in SECTION 7.6 of the Reorganization Plan. 5 "SUBSIDIARY" means, as to any Person, a corporation, partnership, trust (exclusive of any trust created in connection with a Reserve Account) or other entity of which shares of stock, partnership interests, beneficial interests or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership, trust (exclusive of a trust created in connection with a Reserve Account) or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly, through one or more intermediaries, or both, by such Person. Unless otherwise qualified, all references to a "SUBSIDIARY" or to "SUBSIDIARIES" in this Agreement shall refer to a Subsidiary or Subsidiaries of Company. Unless otherwise indicated, all references to a Subsidiary or Subsidiaries of Company shall not mean, include, or refer to the Unrestricted Subsidiaries, the Excluded Subsidiaries, or the Joint Ventures. "SUBSIDIARY STOCK" means the Capital Stock of any and all Subsidiaries. "TRUST PROPERTY" means the real property held in trust pursuant to (a) Trust Agreement No. 06-01-009-6082101, dated as of January 17,1991, by and between NCNB National Bank of Florida, as Trustee for the benefit of Company, the Beneficiary; (b) Trust Agreement No. 06-01-009-6081954, dated as of January 17,1991, by and between NCNB National Bank of Florida, as Trustee for the benefit of Company, the Beneficiary; (c) Trust Agreement No. 06-01-009-6082655, dated as of January 17, 1991, by and between NCNB National Bank of Florida, as Trustee for the benefit of Company and General Development Financial Services, Inc., the Beneficiaries; and (d) Trust Agreement No. 2, dated as of May 31, 1991, by and between Jake Gamble, Esq., as successor Trustee for the benefit of Company and Cumberland Cove, Inc., the Beneficiaries, as subsequently amended. SECTION 2. GRANT OF SECURITY. (a) Each Grantor, in order to secure the Secured Obligations (as defined in SECTION 3), hereby assigns and pledges to Collateral Agent for benefit of Obligee and hereby grants to Collateral Agent for the benefit of Obligee a junior security interest, subject to Permitted Liens (as hereinafter defined in SECTION 5(c) hereof), in all of the Grantor's right, title and interest in and to the following, in each case whether now or hereafter existing or in which the Grantor now has or hereafter acquires an interest and wherever the same may be located and all proceeds thereof (the "COLLATERAL"): (i) All of the Personal Property (other than the Excluded Property); and (ii) All proceeds of any and all of the foregoing Collateral and, to the extent not otherwise included, all payments under insurance (whether or not Collateral Agent or Obligee is the loss payee thereof), or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the 6 foregoing Collateral. For purposes of this Agreement, the term "proceeds" includes whatever is receivable or received when Collateral or proceeds are sold, collected, exchanged or otherwise disposed of, whether such disposition is voluntary or involuntary, and includes, without limitation, all rights to payment, including returned premiums, with respect to any insurance relating thereto. (b) At such time as any Personal Property comprising Excluded Property is freed of contractual or legal restrictions against becoming subject to a Lien to secure the Secured Obligations, such Excluded Property shall, automatically, become subject to the Lien hereof, PROVIDED that in no event shall a lien be granted on any assets required to be placed in a Reserve Account pursuant to the Reorganization Plan or the Homesite Program. SECTION 3. SECURITY FOR OBLIGATIONS. This Agreement secures, and the Collateral is collateral security for, (a) after the issuance of the Preferred Stock, the joint and several obligations of the Company, the Grantors and other subsidiaries of the Company pursuant to SECTION 8 of the Certificate of Designation to repurchase Preferred Stock on the happening of certain conditions set forth in the Certificate of Designation at a repurchase price equal to the Liquidation Preference in respect thereof, as defined in the Certificate of Designation, consisting of, at any time, $10.00 per share of Preferred Stock, plus accumulated and unpaid dividends thereon through the date of such determination, whether or not funds are legally available therefor, the aggregate amount of which, upon issuance of the 2,500,000 shares of Preferred Stock to be issued pursuant to the Investment Agreement, shall be $25,000,000, plus accumulated and unpaid dividends, and (b) after the occurrence of an Event of Default, as defined in the Certificate of Designation, the joint and several obligations of the Company, Grantors and other subsidiaries of the Company to indemnify Obligee from and against any and all losses, claims, damages, expenses (including reasonable fees, disbursements and other charges of counsel) or other liabilities resulting from any breach of any covenant, agreement, representation or warranty of the Company in this Security Agreement or in any other Secured Instrument Document pursuant to SECTION 7.2 of the Investment Agreement, as evidenced by that certain Secured Evidence of Joint and Several Repurchase Obligations dated of even date herewith, executed by the Company, Grantors, and other subsidiaries of the Company to and for the benefit of Obligee (together with any and all additions, modifications, amendments, renewals, and extensions thereof, the "INSTRUMENT"), whether or not from time to time decreased or extinguished and later increased, created or incurred and all or any portion of such obligations that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from Obligee or Collateral Agent as a preference, fraudulent transfer or otherwise, and all obligations of every nature (whether of payment, of performance or otherwise) of the Company, the Grantors and other subsidiaries of the Company from time to time owed to Obligee or Collateral Agent or either of them under the Secured Agreement or any other Secured Instrument Document, whether for principal, interest (including interest accruing after the commencement of a bankruptcy case, whether or not enforceable in such case), repurchase or redemption obligations, dividend obligations, fees, costs, expenses, indemnification liabilities or other obligations, of 7 whatsoever nature and whether now or hereafter made, incurred or created, whether absolute or contingent, liquidated or unliquidated, regardless of class, whether due or not due, and however arising (the foregoing being hereinafter collectively referred to as the "SECURED OBLIGATIONS"). SECTION 4. GRANTORS REMAIN LIABLE. Anything herein to the contrary notwithstanding, (a) each Grantor shall remain liable under any contracts and agreements included in the Collateral, to the extent set forth therein, to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by Collateral Agent of any of the rights hereunder shall not release the Grantor from any of its duties or obligations under the contracts and agreements included in the Collateral and (c) Collateral Agent or Obligee shall not have any obligation or liability under any contracts and agreements included in the Collateral by reason of this Agreement, nor shall Collateral Agent or Obligee be obligated to perform any of the obligations or duties of the Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder. SECTION 5. REPRESENTATIONS AND WARRANTIES. Each Grantor represents and warrants as follows: (a) LOCATION OF EQUIPMENT AND INVENTORY; OFFICE LOCATIONS; FICTITIOUS NAMES. As of the Effective Date, all of the Equipment and Inventory of Grantor is located at the places specified on SCHEDULE I hereto. As of the Effective Date, the chief place of business and the chief executive office of the Grantor is specified on SCHEDULE I hereto. As of the Effective Date, the offices where the Grantor keeps its material records regarding the Collateral and all originals of all chattel paper that evidence Collateral are set forth on SCHEDULE II hereto. As of the Effective Date, the Grantor does not do business under any trade name or fictitious business name except as set forth on SCHEDULE II hereto. (b) DELIVERY OF CERTAIN COLLATERAL. All chattel paper, notes and other instruments (excluding checks) comprising any or all of the items of Collateral of Grantor have been delivered to Collateral Agent duly endorsed and accompanied by duly executed instruments of transfer or assignment in blank. (c) OWNERSHIP OF COLLATERAL. Except for the security interest created by this Agreement and Liens permitted by each of the agreements governing the Secured Obligations from time to time in effect, including, without limitation, Liens of Foothill Capital Corporation, as AG Collateral Agent, as defined in the Intercreditor Agreement (collectively, "PERMITTED LIENS"), the Grantor owns the Collateral pledged by the Grantor hereunder free and clear of any Lien. Except as may have been filed in favor of Collateral Agent relating to this Agreement or in connection with 8 Permitted Liens, no effective financing statement or other instrument similar in effect covering all or any part of the Collateral is on file in any filing or recording office. (d) PERFECTION. Subject only to Permitted Liens, in the case of existing Collateral, this Agreement creates, and in the case of after acquired Collateral, at the time the Grantor first has rights in such after acquired Collateral, this Agreement will create, in each case upon the making of the filings described in clause (e) below or the taking of possession by Collateral Agent with respect to security interests in Collateral which can only be perfected by taking possession of such Collateral, for all Collateral, a valid, perfected, first priority security interest, in each case securing the payment and performance of the Secured Obligations. Upon making the filings described in clause (e) below or the taking of possession by Collateral Agent with respect to security interests in Collateral which can only be perfected by taking possession of such Collateral, in each case for all Collateral, all filings and other actions necessary or desirable to protect and to perfect the security interests referenced above shall have been duly taken. (e) GOVERNMENTAL AUTHORIZATIONS. No authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required either (i) for the grant by the Grantor of the security interest granted hereby or for the execution, delivery or performance of this Agreement by the Grantor or (ii) for the perfection of (except as otherwise specified in paragraph (d) of this SECTION 5), or the exercise by, Collateral Agent of its rights and remedies hereunder, except for the filing of (x) a Uniform Commercial Code financing statement with the appropriate authorities in the jurisdictions listed on SCHEDULE III hereto, (y) certificates of title with respect to motor vehicles of the Grantor in the appropriate jurisdictions and (z) notifications and/or transfer documents with respect to certain regulatory permits of the Grantor in the appropriate jurisdictions. (f) OTHER INFORMATION. All information heretofore, herein or hereafter supplied to Collateral Agent by, or on behalf of, the Grantor with respect to the Collateral (in each case as such information has been amended, supplemented or updated as of the date this representation is deemed made) is accurate and complete in all material respects. SECTION 6. FURTHER ASSURANCES. ------------------ (a) Each Grantor agrees that from time to time, at the expense of the Grantor, the Grantor will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that Collateral Agent may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable Collateral Agent to exercise and enforce its rights and remedies hereunder with respect to any Collateral. Without limiting the generality of the foregoing, 9 each Grantor will: (i) at the reasonable request of Collateral Agent, mark conspicuously each chattel paper and each material contract included in the Collateral and each of its material records pertaining to the Collateral with a legend, in form and substance reasonably satisfactory to Collateral Agent, indicating that such items are subject to the security interest granted hereby; (ii) if any Collateral shall be evidenced by a promissory note or other instrument (excluding checks), deliver and pledge to Collateral Agent hereunder for the benefit of Obligee such note or instrument duly endorsed and accompanied by duly executed instruments of transfer or assignment, all in form and substance satisfactory to Collateral Agent; (iii) at the request of Collateral Agent, deliver and pledge to Collateral Agent all promissory notes and other instruments (including checks if an Event of Default shall have occurred and be continuing) and all original counterparts of chattel paper constituting Collateral duly endorsed and accompanied by duly executed instruments of transfer or assignment, all in form and substance satisfactory to Collateral Agent; (iv) upon the reasonable request of Collateral Agent, execute and file with the registrar of motor vehicles or other appropriate authority of any jurisdiction under the law of which indication of a security interest on a certificate of title is required as a condition of perfection an application or other document requesting the notation or other indication of the security interest created hereunder on such certificate of title and will deliver to Collateral Agent copies of all such applications or other documents filed and copies of all such certificates of title issued indicating the security interest created hereunder in such Collateral; (v) execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices, as may be necessary or desirable, or as Collateral Agent may reasonably request, in order to perfect and preserve the security interests granted or purported to be granted hereby; (vi) at any reasonable time and upon reasonable notice, upon demand by Collateral Agent exhibit the Collateral to and allow inspection of the Collateral by Collateral Agent, or persons designated by Collateral Agent; and (vii) at Collateral Agent's reasonable request, appear in and defend any action or proceeding that may affect the Grantor's title to or Collateral Agent's security interest in the Collateral. (b) Each Grantor hereby authorizes Collateral Agent to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Collateral without the signature of the Grantor where permitted by law. A carbon, photographic or other reproduction of this Agreement or a financing statement signed by such Grantor shall be sufficient as a financing statement where permitted by law. (c) Each Grantor will furnish to Collateral Agent from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as Collateral Agent may reasonably request, all in reasonable detail. 10 SECTION 7. COVENANTS OF THE GRANTORS. Each Grantor shall: ------------------------- (a) Not use or permit any Collateral to be used in violation of any provision of this Agreement, or any applicable statute, regulation or ordinance or any policy of insurance covering the Collateral (unless such violation together with all other violations does not and could not reasonably be expected to have a material adverse effect on the value or use of any material portion of the Collateral); (b) Notify Collateral Agent of any change in the Grantor's name, trade names, fictitious business names, identity or corporate structure at least 30 days prior to such change; (c) Give Collateral Agent 30 days' prior written notice of any change in the location of the Grantor's (i) chief place of business, (ii) chief executive office and (iii) offices where the Grantor's records regarding Collateral and the originals of all chattel paper that evidence Collateral are kept; (d) Keep the Equipment and Inventory (other than Inventory sold in the ordinary course of business and other than such Equipment and Inventory which, either singly or in the aggregate, is not material) at the places therefor specified on SCHEDULE I hereto or at such other places in jurisdictions where all action has been taken that may be necessary or desirable, or that Collateral Agent may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable Collateral Agent to exercise and enforce its rights and remedies hereunder with respect to such Equipment and Inventory; (e) Keep records of the Inventory which are correct and accurate in all material respects, itemizing and describing the kind, type and quantity of Inventory and the Grantor's cost therefor all in accordance with the past practices of the Grantor; (f) If any Inventory is in possession or control of any of the Grantor's agents or processors, then upon the occurrence of an Event of Default, at the request of Collateral Agent, instruct such agent or processor to hold all such Inventory for the account of Collateral Agent and subject to the instructions of Collateral Agent; (g) Keep its chief place of business and chief executive office and the office where it keeps its material records concerning the Collateral, and all originals of all chattel paper that evidence Collateral, at the location therefor specified in SECTION 5(a) or at such other locations in a jurisdiction where all action that may be necessary or desirable, or that Collateral Agent may request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable Collateral Agent to exercise and enforce its rights and remedies hereunder with respect to such Collateral has been taken. Each Grantor will hold and preserve such material records and chattel paper in accordance with Grantor's past practice and will permit representatives of Collateral Agent at any time during normal 11 business hours and upon reasonable notice to inspect and make abstracts from such material records and chattel paper and each Grantor agrees to render to Collateral Agent, at the Grantor's cost and expense, such clerical and other assistance as may be reasonably requested with regard thereto; and (h) Perform and comply in all material respects with all contractual obligations relating to the Collateral. SECTION 8. INSURANCE. --------- (a) Unless otherwise agreed in writing by Collateral Agent, each insurance policy covering the Collateral shall in addition (i) name the Grantor and Collateral Agent as insured parties thereunder (without any representation or warranty by or obligation upon Collateral Agent) as their interests may appear, (ii) contain an agreement by the insurer that, to the extent PROVIDED in the Collateral Documents, any loss thereunder shall be payable to Collateral Agent notwithstanding any action, inaction or breach of representation or warranty by the Grantor, (iii) have attached thereto a lender's loss payable endorsement or its equivalent, or a loss payable clause acceptable to Collateral Agent, for the benefit of Obligee, (iv) provide that there shall be no recourse against Collateral Agent for payment of premiums or other amounts with respect thereto and (v) provide that at least 30 days' prior written notice of cancellation or lapse, material amendment, or material reduction in scope or limits of coverage shall be given to Collateral Agent by the insurer. Each Grantor shall, if so requested by Collateral Agent, deliver to Collateral Agent original or duplicate policies of such insurance and, as often as Collateral Agent may reasonably request (but, unless an Event of Default shall have occurred and be continuing, in no event more than once each calendar year), a report of a reputable insurance broker with respect to such insurance. Further, each Grantor shall, at the request of Collateral Agent, duly execute and deliver instruments of assignment of such insurance policies to comply with the requirements of SECTION 6 hereof and use its best efforts to cause the respective insurers to acknowledge notice of such assignment. (b) Reimbursement under any liability insurance maintained by a Grantor pursuant to this SECTION 8 may be paid directly to the person who shall have incurred liability covered by such insurance. In case of any material loss involving damage to Equipment or Inventory when subsection (c) of this SECTION 8 is not applicable, any proceeds of insurance maintained by the Grantor shall be paid to the Grantor and the Grantor shall use such proceeds to make necessary repairs or replacements of such Equipment and Inventory or to purchase additional Equipment or Inventory or other property of equivalent value and constituting Collateral hereunder. (c) Upon the occurrence and during the continuance of an Event of Default, at the request of Collateral Agent, all insurance payments in respect of such Equipment and Inventory shall be paid to and applied by Collateral Agent as specified in SECTION 16. 12 (d) Prior to the expiration of each insurance policy with respect to the Equipment and Inventory, upon written request of Collateral Agent, each Grantor shall furnish Collateral Agent with evidence satisfactory to Collateral Agent of the reissuance of a policy continuing insurance in force as required by this Agreement and at or prior to the date payment of the premium therefor is due, evidence satisfactory to Collateral Agent of such payment. In the event a Grantor fails to provide, maintain, keep in force or deliver and furnish to Collateral Agent the policies of insurance required by this SECTION 8, Collateral Agent, upon 30 days' prior written notice to such Grantor, may (but shall not be obligated to) procure such insurance or single interest insurance for such risks covering Obligee's interests, and such Grantor will pay all premiums thereon promptly upon demand by Collateral Agent, together with interest thereon at the Default Rate, from the date of expenditure by Collateral Agent until reimbursement by such Grantor. SECTION 9. LICENSE OF TRADEMARKS AND TRADE NAMES. Each Grantor hereby assigns, transfers and conveys to Collateral Agent, effective upon the occurrence of, and during the continuance of, any Event of Default, the nonexclusive right and license to use all trademarks, trade names and copyrights owned or used by the Grantor that relate to the Collateral and any other collateral granted by the Grantor as security for the Secured Obligations, together with any goodwill associated therewith, all to the extent necessary to enable Collateral Agent to use, possess and realize on the Collateral and any successor or assignee to enjoy the benefits of the Collateral. This right and license shall inure to the benefit of Collateral Agent and its successors, assigns and transferees, whether by voluntary conveyance, operation of law, assignment, transfer, foreclosure, deed in lieu of foreclosure or otherwise. Such right and license is granted free of charge, without requirement that any monetary payment whatsoever be made to the Grantor. If (a) an Event of Default shall have occurred and, by reason of waiver, modification, amendment or otherwise, no longer be continuing, (b) no other Event of Default shall be continuing, (c) an assignment to Collateral Agent shall have been previously made pursuant to this SECTION 9, and (d) the Secured Obligations shall not have become immediately due and payable, upon the written request of the Grantor, Collateral Agent shall promptly execute and deliver to the Grantor such assignments as may be necessary to reassign to the Grantor any rights, title and interests as may have been assigned pursuant to this SECTION 9, subject to any disposition thereof that may have been made by Collateral Agent pursuant hereto; PROVIDED that, after giving effect to such reassignment, Collateral Agent's security interest and conditional assignment granted pursuant to this SECTION 9, as well as all other rights and remedies of Collateral Agent granted hereunder, shall continue to be in full force and effect; and PROVIDED, FURTHER, that the rights, title and interests so reassigned shall be free and clear of all Liens other than Liens (if any) encumbering such rights, title and interest at the time of their assignment to Collateral Agent. 13 SECTION 10. TRANSFERS AND OTHER LIENS. Each Grantor shall not: ------------------------- (a) Except as permitted by the Secured Agreement, sell, assign (by operation of law or otherwise) or otherwise dispose of any of the Collateral. (b) Except for the Permitted Liens, create or suffer to exist any Lien upon or with respect to any of the Collateral to secure the indebtedness or other obligations of any person or entity. SECTION 11. COLLATERAL AGENT. Collateral Agent has been appointed as Collateral Agent hereunder pursuant to the Secured Agreement. Collateral Agent shall be obligated, and shall have the right hereunder, to make demands, to give notices, to exercise or refrain from exercising any rights, and to take or refrain from taking action (including, without limitation, the release or substitution of Collateral) in accordance with the Secured Agreement and the Intercreditor Agreement. Collateral Agent may resign and a successor Collateral Agent may be appointed in the manner provided for in the Secured Agreement for resignation and appointment of a successor Collateral Agent. Upon the acceptance of any appointment as Collateral Agent by a successor Collateral Agent, the successor Collateral Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Collateral Agent under this Agreement, and the retiring Collateral Agent shall thereupon be discharged from its duties and obligations under this Agreement and shall deliver any Collateral in its possession to the successor Collateral Agent. After any retiring Collateral Agent's resignation, the provisions of this Agreement shall inure to its benefit as to any actions taken or omitted to be taken by it under this Agreement while it was Collateral Agent. SECTION 12. COLLATERAL AGENT APPOINTED ATTORNEY-IN-FACT. Each Grantor hereby irrevocably appoints Collateral Agent the Grantor's attorney-in-fact, with full authority in the place and stead of the Grantor and in the name of the Grantor, Collateral Agent or otherwise, from time to time in Collateral Agent's reasonable discretion to take any action and to execute any instrument that Collateral Agent may deem necessary or advisable, subject to the terms and conditions of this Agreement, to accomplish the purposes of this Agreement, including, without limitation: (a) Subject to the last sentence of SECTION 8(d) hereof, to obtain and adjust insurance required to be maintained by the Grantor or paid to Collateral Agent pursuant to SECTION 8 hereof; (b) Upon the occurrence of, and during the continuance of, an Event of Default, to ask, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral; 14 (c) Upon the occurrence of, and during the continuance of, an Event of Default, to receive, endorse, and collect any drafts or other instruments, documents and chattel paper, in connection with clauses (a) and (b) above; (d) Upon the occurrence of, and during the continuance of, an Event of Default, to file any claims or take any action or institute any proceedings that Collateral Agent may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce the rights of Collateral Agent with respect to any of the Collateral; (e) To pay or discharge taxes (other than taxes not then required to be paid or discharged by any of the agreements governing the Secured Obligations, from time to time in effect including without limitation the Secured Agreement) or Liens (other than Permitted Liens), levied or placed upon or threatened against the Collateral, the legality or validity thereof and the amounts necessary to discharge the same to be determined by Collateral Agent in its reasonable discretion, and such payments made by Collateral Agent to become obligations of the Grantor to Collateral Agent, due and payable immediately without demand; (f) Upon the occurrence of, and during the continuance of, an Event of Default, to sign and endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications and notices in connection with accounts and other documents relating to the Collateral; and (g) Upon the occurrence of, and during the continuance of, an Event of Default, generally to sell, transfer, pledge, make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though Collateral Agent were the absolute owner thereof for all purposes, and to do, at Collateral Agent's option and the Grantor's expense, at any time, or from time to time, all acts and things that Collateral Agent deems necessary to protect, preserve or realize upon the Collateral and Collateral Agent's security interest therein, in order to effect the intent of this Agreement, all as fully and effectively as the Grantor might do. The Grantors hereby ratify all that said attorneys shall lawfully do or cause to be done by virtue hereof. This power of attorney is a power coupled with an interest and shall be irrevocable. SECTION 13. COLLATERAL AGENT MAY PERFORM. If any Grantor fails to perform any agreement contained herein, Collateral Agent may, upon 30 days' notice to the Grantor (unless otherwise expressly set forth in this Agreement or an Event of Default shall have occurred and be continuing, in which case, no such notice shall be required), itself perform, 15 or cause performance of, such agreement, and the expenses of Collateral Agent incurred in connection therewith shall be payable by such Grantor under SECTION 17 hereof. SECTION 14. COLLATERAL AGENT'S DUTIES AND LIABILITIES. ----------------------------------------- (a) The powers conferred on Collateral Agent hereunder are solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any such powers. Except for the safe custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder, Collateral Agent shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. Collateral Agent shall be deemed to exercise reasonable care in the custody and preservation of such Collateral if such Collateral is accorded treatment substantially equivalent to that which Collateral Agent accords its own property. (b) Collateral Agent shall not be liable to any Grantor (i) for any loss or damage sustained by it, or (ii) for any loss, damage, depreciation or other diminution in the value of any of the Collateral, that may occur as a result of, in connection with or that is in any way related to (x) any exercise by Collateral Agent of any right or remedy under this Agreement or (y) any other act of or failure to act by Collateral Agent, except to the extent that the same shall be determined by a judgment of a court of competent jurisdiction to be the result of acts or omissions on the part of Collateral Agent constituting gross negligence or willful misconduct. (c) Except to the extent resulting from acts or omissions on the part of Collateral Agent or its affiliates, directors, officers, employees, attorneys, or agents constituting gross negligence or willful misconduct, no claim may be made by any Grantor against Collateral Agent or its affiliates, directors, officers, employees, attorneys or agents for any special, indirect, or consequential damages in respect of any breach or wrongful conduct (whether the claim therefor is based on contract, tort or duty imposed by law) in connection with, arising out of or in any way related to the transactions contemplated and relationship established by this Agreement, or any act, omission or event occurring in connection therewith. Except to the extent resulting from acts or omissions on the part of Collateral Agent or its affiliates, directors, officers, employees, attorneys, or agents constituting gross negligence or willful misconduct, each Grantor hereby waives, releases and agrees not to sue upon any such claim for any such damages, whether or not accrued and whether or not known or suspected to exist in its favor. SECTION 15. REMEDIES UPON DEFAULT. --------------------- (a) EVENTS OF DEFAULT. The occurrence of any "EVENT OF DEFAULT" as defined in the Secured Agreement (whether or not any Secured Obligations shall be at the time outstanding thereunder or the Secured Agreement shall have terminated for some other purpose) or the occurrence of any default under the Certificate of Designation between the Company and 16 Obligee dated of even date herewith which default has continued beyond any applicable cure period, shall constitute an Event of Default under this Agreement. (b) REMEDIES UPON AN EVENT OF DEFAULT. If any Event of Default shall have occurred and be continuing, Collateral Agent may exercise in respect of the Collateral, (i) all the rights and remedies of a secured party on default under the Uniform Commercial Code of the State of New York (the "CODE") (whether or not the Code applies to the affected Collateral), (ii) all of the rights and remedies provided for in this Agreement, the Secured Agreement and any other agreement between any Grantor and Obligee and (iii) such other rights and remedies as may be provided by law or otherwise (such rights and remedies of Obligee to be cumulative and non-exclusive). If an Event of Default shall have occurred and be continuing, Collateral Agent also may (i) require each Grantor to, and each Grantor hereby agrees that it will, at its expense and upon request of Collateral Agent forthwith, assemble all or part of the Collateral as directed by Collateral Agent and make it available to Collateral Agent at a place to be designated by Collateral Agent that is reasonably convenient to both parties, (ii) enter onto the property where any Collateral is located and take possession thereof with or without judicial process, (iii) prior to the disposition of the Collateral, store, process, repair or recondition the Collateral or otherwise prepare the Collateral for disposition in any manner to the extent Collateral Agent deems appropriate, (iv) take possession of any Grantor's premises or place custodians in exclusive control thereof, remain on such premises and use the same and any of such Grantor's equipment for the purpose of completing any work in process, taking any actions described in the preceding clause (iii) and collecting any Secured Obligation, and (v) without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of Collateral Agent's offices or elsewhere, for cash, on credit or for future delivery, and at such price or prices and upon such other terms as Collateral Agent may deem commercially reasonable. Each Grantor agrees that, to the extent notice of sale shall be required at law, at least 10 days' notice to the Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. Collateral Agent shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. Collateral Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. If an Event of Default shall have occurred and be continuing, Collateral Agent may retain any of the directors, officers and employees of any Grantor, in each case upon such terms as Collateral Agent and any such person may agree, notwithstanding the provisions of any employment, confidentiality or non-disclosure agreement between any such person and any such Grantor, and each Grantor hereby waives its rights under any such agreement and consents to each such retention. SECTION 16. APPLICATION OF PROCEEDS. All proceeds received by Collateral Agent in respect of any sale of, collection from or other realization upon all or any part of the 17 Collateral may, in the discretion of Collateral Agent, be held by Collateral Agent as Collateral for, and/or then, or at any other time thereafter applied, in full or in part by Collateral Agent against the Secured Obligations in the following order of priority: FIRST: To the payment of all costs and expenses of such sale, collection or other realization and all other expenses, liabilities and advances made or incurred by Collateral Agent in connection therewith and all amounts for which Collateral Agent is entitled to indemnification hereunder and all advances made by Collateral Agent hereunder for the account of the Grantors and for the payment of all costs and expenses paid or incurred by Collateral Agent in connection with the exercise of any right or remedy hereunder, all in accordance with SECTION 17 hereof; SECOND: To the payment of the Secured Obligations in the order set forth in the Secured Agreement and in accordance with the Intercreditor Agreement; and THIRD: After payment in full of the amounts specified in the preceding subparagraphs, to the payment to, or upon the order of, the Grantors, or whosoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct, of any surplus then remaining from such proceeds. SECTION 17. INDEMNITY AND EXPENSES. ---------------------- (a) Each Grantor agrees to indemnify Collateral Agent and Obligee and each of the officers, directors, agents, employees and affiliates of each of them (each an "INDEMNITEE") from and against any and all claims, losses and liabilities growing out of or resulting from this Agreement (including, without limitation, enforcement of this Agreement), except claims, losses or liabilities resulting from the gross negligence or willful misconduct of the Indemnitee seeking indemnification. (b) Each Grantor will upon demand pay to Collateral Agent the amount of any and all reasonable expenses, including the reasonable fees and disbursements of its counsel and of any experts and agents, that Collateral Agent may incur in connection with (i) the administration of this Agreement, (ii) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any of the Collateral, (iii) the exercise or enforcement of any of the rights of Collateral Agent hereunder or (iv) the failure by the Grantor to perform or observe any of the provisions hereof. (c) The obligations of Grantor in this SECTION 17 hereof shall survive termination of this Agreement and the discharge of Grantor's other obligations under this Agreement, the Secured Agreement and the other Secured Instrument Documents. 18 SECTION 18. CONTINUING SECURITY INTEREST; TERMINATION. This Agreement shall create a continuing security interest in the Collateral and shall (a) remain in full force and effect until the indefeasible payment in full of the Secured Obligations and termination of Obligee's obligations to lend and extend credit under the Secured Agreement, (b) be binding upon each Grantor, its successors and assigns and (c) inure, together with the rights and remedies of Collateral Agent and Obligee hereunder, to the benefit of Collateral Agent and Obligee and the successors, transferees and assigns of each. Without limiting the generality of the foregoing clause (c), Obligee may, subject to the provisions of the Secured Agreement, assign or otherwise transfer the Note, or portion thereof, or any other obligations secured hereby and any agreements or instruments executed in connection therewith to any other person or entity, and such other person or entity shall thereupon become vested with all the benefits in respect thereof granted to Obligee herein or otherwise. Upon the indefeasible payment in full of the Secured Obligations and termination of Obligee's obligations to lend or extend credit under the Secured Agreement, the security interest granted hereby shall terminate and all rights to the Collateral shall revert to the Grantors. Upon any such termination, Collateral Agent will, at the Grantors' expense, execute and deliver to the Grantors, against receipt and without recourse to or warranty by Collateral Agent, such documents as the Grantors shall reasonably request to evidence such termination. SECTION 19. SECURITY INTEREST ABSOLUTE. All rights of Collateral Agent on its behalf and on behalf of Obligee, assignments and pledges made and created hereunder, and all obligations of the Grantors, shall be absolute and unconditional, irrespective of: (a) Any lack of validity or enforceability of any of the Secured Obligations or any agreement or instrument relating thereto; (b) Any change in the time, manner or place of payment of, or in any other term of, all or any of the Secured Obligations, or any other amendment or waiver of, or any consent to any departure from, any agreement or instrument relating to the Secured Obligations; (c) Any exchange, release, subordination or nonperfection of any other collateral, or any release or amendment or waiver of or consent to any departure from any guaranty, for all or any of the Secured Obligations; or (d) Any other circumstance, other than indefeasible payment in full of the Secured Obligations (including, but not limited to, any statute of limitations) which might otherwise constitute a defense available to, or a discharge of, the Grantors or a third party grantor or a security interest. 19 SECTION 20. PARTIAL RELEASES. Collateral Agent shall execute and deliver partial releases of the Liens created pursuant thereto, pursuant to, and as expressly provided in the Secured Agreement. SECTION 21. AMENDMENTS; ETC. No amendment or waiver of any provision of this Agreement nor consent to any departure by any Grantor herefrom, shall in any event be effective unless the same shall be in writing and signed by Collateral Agent on behalf of Obligee, and then such waiver or consent shall be effective only in the specified instance and for the specific purpose for which given. SECTION 22. ADDRESSES FOR NOTICES. Unless otherwise specifically provided herein, any notice or other communication herein required or permitted to be given shall be in writing and may be personally served, telecopied, telexed or sent by United States mail or courier service and shall be deemed to have been given when delivered in person, upon confirmed receipt (in the case of telecopy or telex) or 5 Business Days after depositing it in the United States mail, registered or certified, with postage prepaid and properly addressed; PROVIDED that any notice sent to Collateral Agent or Obligee shall not be effective until received. For purposes hereof, the addresses of the parties hereto (until notice of a change thereof) is delivered as provided in this SECTION 22) shall be as set forth under each party's name on the signature pages hereof or in the Secured Agreement. SECTION 23. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. All judicial proceedings brought against each Grantor with respect to this Agreement may be brought in any state or Federal court of competent jurisdiction sitting in New York, New York and by execution and delivery of this Agreement each Grantor accepts for itself and in connection with the Collateral, generally and unconditionally, the nonexclusive jurisdiction of the aforesaid courts and irrevocably agrees to be bound by any judgement rendered thereby in connection with this Agreement. Each Grantor agrees that service of process sufficient for personal jurisdiction in any action against Grantor in the State of New York may be made by registered or certified mail, return receipt requested, to Grantor at its address provided in SECTION 22 and Grantor hereby acknowledges that such service shall be effective and binding in every respect. Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of Collateral Agent to bring proceedings against any Grantor in the courts of any other jurisdiction. SECTION 24. GOVERNING LAW; TERMS. THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO 20 CONFLICTS OF LAWS PRINCIPLES, EXCEPT AS REQUIRED BY MANDATORY PROVISION OF LAW AND EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. Unless otherwise defined herein or in the Secured Agreement, terms used in Article 9 of the Uniform Commercial Code in the State of New York are used herein as therein defined. SECTION 25. WAIVER OF JURY TRIAL. EACH GRANTOR AND COLLATERAL AGENT HEREBY AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT. The scope of this waiver is intended to be all-encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including without limitation, contract claims, tort claims, breach of duty claims, and all other common law and statutory claims. Each Grantor and Collateral Agent each (a) acknowledge that this waiver is a material inducement for the Grantor and Collateral Agent to enter into a business relationship, that the Grantor and Collateral Agent have already relied on the waiver in entering into this Agreement and that each will continue to rely on the waiver in their related future dealings and (b) further warrant and represent that each has reviewed this waiver with its legal counsel, and that each knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT. In the event of litigation, this Agreement may be filed as a written consent to a trial by the court. SECTION 26. WAIVER. Except as otherwise expressly provided herein, each Grantor hereby waives promptness, diligence, notice of acceptance and any other notice with respect to any of the Secured Obligations and this Agreement and any requirement that Collateral Agent or Obligee protect, secure, perfect or insure any security interest or lien or any property subject thereto or exhaust any right or take any action against the Grantor or any other person or entity or any of the Collateral. SECTION 27. NO WAIVER. No failure on the part of Collateral Agent to exercise, and no course of dealing with respect to, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof; and no single or partial exercise by Collateral Agent of any right, power or remedy hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies herein 21 provided are to the fullest extent permitted by law cumulative, and are not exclusive of any remedies provided by law. SECTION 28. MARSHALLING; PAYMENT SET ASIDE. Collateral Agent shall not be under any obligation to marshal any assets in favor of the Grantors or any other party or against or in payment of any or all of the Secured Obligations. To the extent that any Grantor makes a payment or payments to Collateral Agent or Agent enforces its security interests or exercises its rights of setoff, and such payment or payments or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all Liens, rights and remedies therefor, shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred. SECTION 29. HEADINGS. Section and subsection headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement or be given any substantive effect. SECTION 30. SEVERABILITY. In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation and in any other jurisdiction, shall not in any way be affected or impaired thereby. SECTION 31. COUNTERPARTS. This Agreement, and any amendments, waivers, consents or supplements, may be executed in one or more counterparts, each of which when so executed and delivered shall be deemed an original and all of which together shall constitute one and the same Agreement. SECTION 32. ADDITIONAL GRANTORS. The initial Grantors hereunder shall be Company and such of the Subsidiaries of Company as are signatories hereto on the date hereof. From time to time subsequent to the date hereof, additional Subsidiaries of Company, as required by the Secured Agreement, may become parties hereto, as additional Grantors (each an "ADDITIONAL GRANTOR"), by executing and delivering (a) a joinder agreement substantially in the form of EXHIBIT A attached hereto, pursuant to which each such Additional Grantor shall agree to join in and become bound by the provisions of this Agreement as a Grantor and (b) such documents as Collateral Agent may request in order to 22 grant the Collateral Agent for the benefit of Obligee a perfected security interest in the personal property of such Additional Grantor. SECTION 33. INTERCREDITOR AGREEMENT. Obligee, Collateral Agent and Foothill Capital Corporation, as AG Collateral Agent (as defined in the Intercreditor Agreement), are parties to the Intercreditor Agreement which, among other things, concerns priorities of Liens in the Collateral and the exercise of remedies by the parties thereto, and the manner and priority of distribution of the proceeds of the Collateral among Obligee and Foothill Capital Corporation, as AG Collateral Agent and the terms of this Agreement are subject to the terms and provisions of the Intercreditor Agreement. IN WITNESS WHEREOF, each Grantor and Collateral Agent have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized effective as of the date first above written. GRANTORS: ATLANTIC GULF COMMUNITIES CORPORATION, a Delaware corporation, ATLANTIC GULF COMMUNITIES MANAGEMENT CORPORATION, a Florida corporation, GENERAL DEVELOPMENT RESORTS, INC., a Florida corporation, ENVIRONMENTAL QUALITY LABORATORY, INCORPORATED, a Florida corporation, CUMBERLAND COVE, INC., a Tennessee corporation, GENERAL DEVELOPMENT UTILITIES, INC., a Florida corporation, TOWN & COUNTRY II, INC., a Florida corporation, FIVE STAR HOMES, INC., a Florida corporation, AG TITLE CORPORATION, a Florida corporation, ATLANTIC GULF COMMERCIAL REALTY, INC., a Florida corporation, AGC SANCTUARY CORPORATION, a Florida corporation, ATLANTIC GULF OF TAMPA, INC., a Florida corporation, OCEAN GROVE, INC., a Florida corporation, ATLANTIC GULF UTILITIES, INC., a Florida corporation, SUNSET LAKES DEVELOPMENT CORPORATION, a Florida corporation, EQL ENVIRONMENTAL SERVICES, INC., a Florida corporation, AGC CL LIMITED PARTNER, INC., a Florida corporation, 23 AG SANCTUARY OF ORLANDO, INC., a Florida corporation, AGC HOMES, INC., a Florida corporation, ATLANTIC GULF COMMUNITIES SERVICE CORPORATION, a Florida corporation, ATLANTIC GULF REALTY, INC., a Florida corporation By: ------------------------------------- John H. Fischer Vice President Address: c/o ATLANTIC GULF COMMUNITIES CORPORATION 2601 South Bayshore Drive, 9th Floor Miami, Florida 33133-5461 Attention: John H. Fischer, Vice President Facsimile: (305) 859-4623 COLLATERAL AGENT: FOOTHILL CAPITAL CORPORATION, a California corporation, as Collateral Agent By: ------------------------------------- Benjamin W. Silver Assistant Vice President Address: 11111 Santa Monica Blvd. Suite 1500 Los Angeles, CA 90025-3333 Attention: Benjamin W. Silver Facsimile: (310) 479-2690 24 Copy to: Apollo Real Estate Advisors II, L.P. 1301 Avenue of the Americas New York, New York 10019 Attn: Rick Koenigsberger Telecopy: (212) 459-3301 Copy to: Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, New York 10019 Attn: Philip Mindlin, Esq. Telecopy: (212) 403-2000 Copy to: Carlton, Fields, Ward, Emmanuel, Smith & Cutler, P.A. Post Office Box 3239 Tampa, Florida 33601 Attn: Paula McDonald Rhodes, Esq. Telecopy: (813) 229-4133 Copy to: Annis, Mitchell, Cockey, Edwards & Roehn, P.A. 201 North Florida Avenue, Suite 2100 Tampa, Florida 33602 Attn: Stephen J. Szabo, III, Esq. Telecopy: (813) 223-9067 25 SCHEDULE I TO JUNIOR PERSONAL PROPERTY SECURITY AGREEMENT Locations of Equipment: Locations of Inventory: SCHEDULE II TO JUNIOR PERSONAL PROPERTY SECURITY AGREEMENT Address of offices where records regarding Payment Rights and Chattel Paper are maintained: Trade names and/or fictitious business names under which business is conducted: SCHEDULE III TO JUNIOR PERSONAL PROPERTY SECURITY AGREEMENT Filing Jurisdictions -------------------- EXHIBIT A TO JUNIOR PERSONAL PROPERTY SECURITY AGREEMENT Subsidiary Joinder ------------------ ___________, 199_ FOOTHILL CAPITAL CORPORATION 11111 Santa Monica Boulevard Suite 1500 Los Angeles, California 90025-3333 Attention:___________________________ Re: Subsidiary Joinder ------------------ Ladies and Gentlemen: Reference hereby is made to that certain Junior Personal Property Security Agreement (the "SECURITY AGREEMENT"), dated effective as of June 23, 1997, by and among FOOTHILL CAPITAL CORPORATION, as collateral agent (in such capacity herein called "COLLATERAL AGENT"), for AP-AGC, LLC, a Delaware limited liability company ("OBLIGEE"), on the one hand, and Atlantic Gulf Communities Corporation, a Delaware corporation ("COMPANY"), and the Subsidiaries of Company signatory thereto from time to time, on the other hand. Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to them in the Security Agreement. This Subsidiary Joinder is executed and delivered this ___ day of __________, 199_ by each entity identified as an Additional Grantor on the signature page hereof (individually, an "ADDITIONAL GRANTOR," and collectively, the "ADDITIONAL GRANTORS") in favor of Collateral Agent. SECTION 1. JOINDER. Pursuant to SECTION 32 of the Security Agreement, each Additional Grantor hereby joins in and agrees to be bound by each and all of the provisions of the Security Agreement and, in so doing, hereby becomes a Grantor. Without limiting the generality of the foregoing, each Additional Grantor, as a Grantor, hereby grants to Collateral Agent, pursuant to SECTION 2 of the Security Agreement, a continuing security interest in all currently existing and hereafter acquired or arising Collateral and hereby agrees to execute and deliver such documents as Collateral Agent may request in order to grant, affirm, perfect, or continue perfected such security interests under applicable law. SECTION 2. REPRESENTATIONS AND WARRANTIES. Each Additional Grantor hereby represents and warrants to Collateral Agent that: (a) the execution, delivery, and performance of this Subsidiary Joinder, the Security Agreement, and any other Secured Instrument Document to which such Additional Grantor is party are within its corporate powers, have been duly authorized by all necessary corporate action, and are not in contravention of any law, rule, or regulation, or any order, judgment, decree, writ, injunction, or award of any arbitrator, court, or governmental authority, or of the terms of its charter or bylaws, or of any contract or undertaking to which it is a party or by which any of its properties may be bound or affected; (b) this Subsidiary Joinder, the Security Agreement, and any and all other Secured Instrument Documents to which such Additional Grantor is party constitute its legal, valid, and binding obligations, enforceable against such Additional Grantor in accordance with their respective terms; (c) the chief executive office and federal employer identification number of such Additional Grantor are identified on SCHEDULE 1 attached hereto; and (e) each other representation and warranty applicable to such Additional Grantor as a Grantor under the Secured Instrument Documents is and will be true and correct as of the date hereof. SECTION 3. BINDING EFFECT. This Subsidiary Joinder is binding upon and enforceable against each Additional Grantor and its successors and assigns. It shall inure to the benefit of and may be enforced by Collateral Agent and its successors and assigns. SECTION 4. NOTICES. Notices to the Additional Grantors shall be given in the manner set forth in SECTION 22 of the Security Agreement. SECTION 5. SECURED INSTRUMENT DOCUMENT. This Subsidiary Joinder is a Secured Instrument Document. SECTION 6. SECURED INSTRUMENT DOCUMENT REFERENCES. (a) Each reference in the Security Agreement and the other Secured Instrument Documents to "Grantors," or words of like import referring to the Grantors shall include and refer to each of the Additional Grantors; (b) each reference in the Security Agreement to "this Agreement," "hereunder," "herein," "hereof" or words of like import referring to the Security Agreement shall mean and refer to the Security Agreement as supplemented by this Subsidiary Joinder; and (c) each reference in the Secured Instrument Documents to the "Security Agreement," "thereunder," "therein," "thereof" or words of like import referring to the Security Agreement shall mean and refer to the Security Agreement as supplemented by this Subsidiary Joinder. SECTION 7. COUNTERPARTS. This Subsidiary Joinder may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Subsidiary Joinder by signing any such counterpart. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, each of the undersigned has caused this Subsidiary Joinder to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. ADDITIONAL GRANTORS: [ADDITIONAL GRANTOR] By: ------------------------------------- Name: Title: [ADDITIONAL GRANTOR] By: ------------------------------------- Name: Title: Acknowledged and Agreed: ATLANTIC GULF COMMUNITIES CORPORATION, a Delaware corporation, for itself and each of the other Grantors By: ------------------------------------ Title: ------------------------------------ FOOTHILL CAPITAL CORPORATION, a California corporation, as Collateral Agent By: ------------------------------------ Title: ------------------------------------ SCHEDULE 1 TO SUBSIDIARY JOINDER Chief Executive Office/Federal Employer Identification Number ------------------------------------------------------------- EX-10.F 7 EXHIBIT 10(F) JUNIOR STOCK PLEDGE AGREEMENT THIS JUNIOR STOCK PLEDGE AGREEMENT (this "PLEDGE AGREEMENT") is made effective as of June 23, 1997, and is entered into by ATLANTIC GULF COMMUNITIES CORPORATION, a Delaware corporation ("COMPANY"), and each of the undersigned direct and indirect Subsidiaries of the Company (the "SUBSIDIARY PLEDGORS;" Company and the Subsidiary Pledgors each individually referred to herein as a "PLEDGOR" and collectively as "PLEDGORS;" PROVIDED that after the Effective Date, "Pledgors" shall be deemed to include any new subsidiary of any Pledgor which executes an acknowledgement to this Agreement pursuant to SECTION 6 hereof agreeing to be bound by the terms hereof) in favor of FOOTHILL CAPITAL CORPORATION, a California corporation, as collateral agent (in such capacity referred to herein as "COLLATERAL AGENT") for AP-AGC, LLC, a Delaware limited liability company ("OBLIGEE"). RECITALS WHEREAS, Company, Obligee and Collateral Agent are parties to that certain Secured Agreement dated February 7, 1997, and amended and restated as of May 15, 1997 (as hereafter amended, supplemented or otherwise modified from time to time, "SECURED AGREEMENT"; capitalized terms used herein without definition shall have the meanings given such terms in the Secured Agreement); WHEREAS, Company and Obligee are parties to that certain Investment Agreement dated February 7, 1997, amended as of March 20, 1997, and amended and restated as of May 15, 1997 (as hereafter amended, supplemented or otherwise modified from time to time, the "INVESTMENT AGREEMENT"); WHEREAS, Company and Obligee are parties to that certain Due Diligence Fee Agreement dated of even date herewith (as hereafter amended, supplemented or otherwise modified from time to time, the "FEE AGREEMENT"); WHEREAS, it is a condition precedent to Obligee entering into the Secured Agreement, the Investment Agreement, the Fee Agreement and all other Secured Instrument Documents and investing capital thereunder that the Pledgors execute and deliver this Pledge Agreement, and the Pledgors desire to execute and deliver this Pledge Agreement. NOW, THEREFORE, in consideration of the premises set forth herein and to induce Obligee to enter into the Secured Agreement, the Investment Agreement, the Fee Agreement and all other Secured Instrument Documents, each of the Pledgors agree as follows: SECTION 1. PLEDGE OF SECURITY. Pledgors hereby pledge and assign to Collateral Agent, and hereby grant to Collateral Agent a security interest in, all of Pledgors' right, title and interest in and to the following (the "PLEDGED COLLATERAL"): (a) the shares described on SCHEDULE I hereto (the "PLEDGED SHARES") and the certificates representing the Pledged Shares and any interest of Pledgors in the entries on the books of any financial intermediary pertaining to the Pledged Shares, and all dividends, cash, warrants, rights, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Shares; (b) all intercompany indebtedness of Pledgors, all promissory notes made in favor of Pledgors in respect of proceeds from utility condemnations and all other promissory notes that do not constitute either Homesite Contracts Receivable or Commercial Receivables (collectively, the "PLEDGED DEBT"), the instruments evidencing the Pledged Debt, and all interest, cash, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of, or in exchange for, any or all of the Pledged Debt; (c) all additional shares of, and all securities convertible into and warrants, options and other rights to purchase or otherwise acquire, stock of any issuer of the Pledged Shares from time to time acquired by Pledgors in any manner (which shares shall be deemed to be part of the Pledged Shares), the certificates or other instruments representing such additional shares, securities, warrants, options or other rights and any interest of Pledgors in the entries on the books of any financial intermediary pertaining to such additional shares, and all dividends, cash, warrants, rights, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such additional shares, securities, warrants, options or other rights; (d) all additional indebtedness from time to time owed to Pledgors by any obligor on the Pledged Debt and the instruments evidencing such indebtedness, and all interest, cash, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such indebtedness; (e) all shares of, and all securities convertible into and warrants, options and other rights to purchase or otherwise acquire, stock of any Person that, after the date of this Agreement, becomes, as a result of any occurrence, a direct Subsidiary or direct Unrestricted Subsidiary of any Pledgor (which shares shall be deemed to be part of the Pledged Shares), the certificates or other instruments representing such shares, securities, warrants, options or other rights and any interest of Pledgors in the entries on the books of any financial intermediary pertaining to such shares, and all dividends, cash, warrants, rights, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such shares, securities, warrants, options or other rights; (f) all indebtedness from time to time owed to Pledgors by any Person that, after the date of this Pledge Agreement, becomes, as a result of any occurrence, a direct or indirect Subsidiary of Pledgors, and all interest, cash, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such indebtedness; and (g) to the extent not covered by clauses (a) through (f) above, all proceeds of any or all of the foregoing Pledged Collateral. For purposes of this Pledge Agreement, the term "PROCEEDS" includes whatever is receivable or received when Pledged Collateral or proceeds are sold, exchanged, collected or otherwise disposed of, whether such disposition is voluntary or involuntary, and includes, without limitation, proceeds of any indemnity or 2 guaranty payable to Pledgors or Collateral Agent from time to time with respect to any of the Pledged Collateral. SECTION 2. SECURITY FOR OBLIGATIONS. This Pledge Agreement secures, and the Pledged Collateral is collateral security for, (a) after the issuance of the Preferred Stock, the joint and several obligations of the Company, the Pledgors and other subsidiaries of the Company pursuant to Section 8 of the Certificate of Designation to repurchase Preferred Stock on the happening of certain conditions set forth in the Certificate of Designation at a repurchase price equal to the Liquidation Preference in respect thereof, as defined in the Certificate of Designation, consisting of, at any time, $10.00 per share of Preferred Stock, plus accumulated and unpaid dividends thereon through the date of such determination, whether or not funds are legally available therefor, the aggregate amount of which, upon issuance of the 2,500,000 shares of Preferred Stock to be issued pursuant to the Investment Agreement, shall be $25,000,000, plus accumulated and unpaid dividends, and (b) after the occurrence of an Event of Default, as defined in the Certificate of Designation, the joint and several obligations of the Company, Pledgors and other subsidiaries of the Company to indemnify Obligee from and against any and all losses, claims, damages, expenses (including reasonable fees, disbursements and other charges of counsel) or other liabilities resulting from any breach of any covenant, agreement, representation or warranty of the Company herein or in any other Secured Instrument Document pursuant to Section 7.2 of the Investment Agreement, as evidenced by that certain Secured Evidence of Joint and Several Repurchase Obligations dated of even date herewith, executed by the Company, Pledgors, and other subsidiaries of the Company to and for the benefit of Obligee (together with any and all additions, modifications, amendments, renewals, and extensions thereof, the "INSTRUMENT"), whether or not from time to time decreased or extinguished and later increased, created or incurred and all or any portion of such obligations that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from Obligee or Collateral Agent as a preference, fraudulent transfer or otherwise, and all obligations of every nature (whether of payment, of performance or otherwise) of the Company, the Pledgors and other subsidiaries of the Company from time to time owed to Obligee or Collateral Agent or either of them under the Secured Agreement or any other Secured Instrument Document, whether for principal, interest (including interest accruing after the commencement of a bankruptcy case, whether or not enforceable in such case), repurchase or redemption obligations, dividend obligations, fees, costs, expenses, indemnification liabilities or other obligations, of whatsoever nature and whether now or hereafter made, incurred or created, whether absolute or contingent, liquidated or unliquidated, regardless of class, whether due or not due, and however arising (the foregoing being hereinafter collectively referred to as the "SECURED OBLIGATIONS"). SECTION 3. DELIVERY OF PLEDGED COLLATERAL. All certificates or instruments representing or evidencing the Pledged Collateral shall be delivered to and held by or on behalf of Collateral Agent pursuant hereto and shall be in suitable form for transfer by delivery, or, as applicable, shall be accompanied by the relevant Pledgor's endorsement, where necessary, or duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to Collateral Agent. If an Event of Default shall have occurred and be continuing, Collateral Agent shall have the right, at any time in its discretion and 3 without notice to any Pledgor, to transfer to or to register in the name of Collateral Agent or any of its nominees any or all of the Pledged Collateral (subject, in the case of the stock of General Development Utilities, Inc., to Section 367.071 of the Florida Statutes or any successor statute) subject only to the revocable rights specified in SECTION 7(A) hereof. In addition, Collateral Agent shall have the right at any time to exchange certificates or instruments representing or evidencing Pledged Collateral for certificates or instruments of smaller or larger denominations. SECTION 4. REPRESENTATIONS AND WARRANTIES. Each Pledgor represents and warrants as follows: (a) PLEDGED EQUITY AND PLEDGED DEBT. All of the Pledged Shares pledged by such Pledgor have been duly authorized and validly issued and are fully paid and nonassessable. All of the Pledged Debt pledged by such Pledgor has been duly authorized, authenticated or issued and delivered, and is the legal, valid and binding obligation of the issuers thereof (except as may be limited by bankruptcy, reorganization, moratorium, or similar laws relating to or limiting creditors' rights generally or by general principles of equity relating to enforceability), and is not in default. The Pledged Shares constitute all of the issued and outstanding shares of capital stock of each issuer thereof (except that the Pledged Shares of Atlantic Gulf Asia Holdings N.V. ("AG ASIA") constitute 66% of its outstanding shares of capital stock) and there are no outstanding options, warrants, rights to subscribe, stock purchase rights or other agreements outstanding with respect to, or property that is now or hereafter convertible into, or that requires the issuance or sale of, any Pledged Shares. The Pledged Debt constitutes all of the issued and outstanding intercompany indebtedness owing to Pledgor by Company or any direct or indirect Subsidiary or direct Unrestricted Subsidiary of Company. (b) OWNERSHIP OF PLEDGED COLLATERAL. Pledgor is the legal, record and beneficial owner of the Pledged Collateral pledged by such Pledgor free and clear of any lien, except for the security interests created by this Pledge Agreement and the lien of Foothill Capital Corporation, as AG Collateral Agent (as defined in the Intercreditor Agreement). (c) CONSENTS. No consent of any other party (including, without limitation, stockholders or creditors of Pledgor or any Person under any contractual obligation of such Pledgor) and no consent, authorization, approval or other action by, and no notice to or filing with any governmental authority or regulatory body is required either (i) for the pledge by Pledgor of the Pledged Collateral pledged by such Pledgor pursuant to this Pledge Agreement and the grant by Pledgor of the security interest granted hereby or for the execution, delivery or performance of this Pledge Agreement by Pledgor or (ii) except with respect to AG Asia, for the exercise by Collateral Agent of the voting or other rights provided for in this Pledge Agreement or the remedies in respect of the Pledged Collateral pursuant to this Pledge Agreement (except (x) those which have been obtained or made or (y) as may be required in connection with a disposition of Pledged Collateral by laws affecting the offering and sale of securities generally). (d) PERFECTION. Except with respect to the Pledged Shares of AG Asia, the pledge and delivery to Collateral Agent of the Pledged Collateral pursuant to this Pledge Agreement creates a valid and perfected first priority security interest in favor of Collateral Agent, on 4 behalf of Obligee, in the Pledged Collateral of such Pledgor, securing the payment of the Secured Obligations, and all actions necessary or desirable to perfect and protect such security interest have been duly taken. With respect to the Pledged Shares of AG Asia, the making of notations reflecting the security interest created by this Pledge Agreement in the stock register of AG Asia creates a valid and perfected security interest in favor of Collateral Agent, on behalf of Obligee, in such Pledged Shares, securing the payment of the Secured Obligations, subject only to liens securing the Foothill Debt, and all actions necessary or desirable to perfect and protect such security interest have been duly taken. (e) MARGIN REGULATIONS. The pledge of the Pledged Collateral pursuant to this Pledge Agreement does not violate Regulations G, T, U or X of the Board of Governors of the Federal Reserve System. (f) OTHER INFORMATION. All information heretofore, herein or hereafter supplied to Obligee on behalf of Pledgors with respect to the Pledged Collateral is accurate and complete in all material respects. SECTION 5. CERTAIN COVENANTS. Each Pledgor hereby covenants that, until the Secured Obligations have been indefeasibly paid in full, such Pledgor shall: (a) not, (i) except as expressly permitted by the Secured Agreement, sell, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, any of the Pledged Collateral pledged hereunder by such Pledgor, (ii) create or permit to exist any lien upon or with respect to any of the Pledged Collateral, except for the security interest created by this Pledge Agreement and liens permitted by the Secured Agreement, or (iii) permit, except as expressly permitted by the Secured Agreement, any issuer of Pledged Shares to merge or consolidate with any Person; (b) except as expressly permitted by the Secured Agreement, (i) cause each issuer of Pledged Shares not to issue any stock or other securities (x) except with respect to AG Asia, in addition to or (y) in substitution for the Pledged Shares issued by such issuer, except to Pledgor, (ii) pledge hereunder, immediately upon its acquisition (directly or indirectly) thereof, any and all additional shares of stock or other securities of each issuer of Pledged Shares, and (iii) pledge hereunder, immediately upon its acquisition (directly or indirectly) thereof, any and all shares of stock of any Person which, after the date of this Pledge Agreement, becomes, as a result of any occurrence, a direct Subsidiary or a direct Unrestricted Subsidiary of Pledgor; (c) (i) pledge hereunder, immediately upon their issuance, any and all instruments or other evidences of additional indebtedness from time to time owed (directly or indirectly) to Pledgor by any direct or indirect Subsidiary of the Company, and (ii) pledge hereunder, immediately upon their issuance, any and all instruments or other evidences of indebtedness from time to time owed (directly or indirectly) to Pledgor by any Person that after the date of this Pledge Agreement becomes, as a result of any occurrence, a direct or indirect Subsidiary of Pledgor; and 5 (d) promptly deliver to Collateral Agent all written notices received by it with respect to the Pledged Collateral. SECTION 6. FURTHER ASSURANCES; PLEDGE AMENDMENTS. ------------------------------------- (a) Each Pledgor agrees that at any time and from time to time, at the expense of Pledgors, Pledgors shall promptly execute and deliver all further instruments and documents, and take all further actions, that may be necessary or desirable, or that Collateral Agent may reasonably request, to perfect and protect any security interest granted or purported to be granted hereby or to enable Collateral Agent to exercise and enforce its rights and remedies hereunder with respect to any Pledged Collateral. (b) Each Pledgor further agrees that it will, upon obtaining any additional shares of stock or other securities required to be pledged hereunder as provided in SECTION 5(B) OR (C) hereof, promptly (and in any event within 5 Business Days) deliver to Collateral Agent a Pledge Amendment, duly executed by Pledgor, in substantially the form of SCHEDULE II hereto (a "PLEDGE AMENDMENT"), in respect of the additional Pledged Shares or Pledged Debt to be pledged pursuant to this Pledge Agreement. Pledgor hereby authorizes Collateral Agent to attach each Pledge Amendment to this Pledge Agreement and agrees that all Pledged Shares or Pledged Debt listed on any Pledge Amendment delivered to Collateral Agent shall for all purposes hereunder be considered Pledged Collateral; PROVIDED that the failure of Pledgor to execute a Pledge Amendment with respect to any additional Pledged Shares or Pledged Debt pledged pursuant to this Pledge Agreement shall not impair the security interest of Collateral Agent therein or otherwise adversely affect the rights and remedies of Collateral Agent hereunder with respect thereto. (c) Each Pledgor further agrees that it will cause any direct or indirect Subsidiary and any direct Unrestricted Subsidiary acquired or created after the effective date of this Agreement promptly after such acquisition or creation of such new Subsidiary or Unrestricted Subsidiary (in any event within 5 Business Days after the date such acquisition or creation, as the case may be) to deliver to Collateral Agent an acknowledgment and agreement duly executed by such new Subsidiary or Unrestricted Subsidiary in substantially the form of SCHEDULE III hereto (a "PLEDGE ACKNOWLEDGMENT"). SECTION 7. VOTING RIGHTS; DIVIDENDS; ETC. ----------------------------- (a) So long as no Event of Default (as defined below) shall have occurred and be continuing: (i) Pledgors shall be entitled to exercise any and all voting and other consensual rights pertaining to the Pledged Collateral or any part thereof for any purpose not inconsistent with the terms of this Pledge Agreement and the Secured Agreement. It is understood, however, that neither (A) the voting by Pledgors of any Pledged Shares for or Pledgors' consent to the election of directors at a regularly scheduled annual or other meeting of stockholders or with respect to incidental matters at any such meeting nor (B) Pledgors' consent to or approval of any action otherwise permitted under the Secured Agreement shall be deemed inconsistent with 6 the Secured Agreement within the meaning of this SECTION 7(A)(I), and no notice of any such voting or consent need be given to Collateral Agent. (ii) Pledgors shall be entitled to receive and retain, and to utilize free and clear of the lien of this Pledge Agreement, any and all dividends and interest paid in respect of the Pledged Collateral; PROVIDED, HOWEVER that any and all (A) dividends and interest paid or payable other than in cash in respect of, and instruments and other property (other than cash) received, receivable or otherwise distributed in respect of, or in exchange for, any Pledged Collateral, (B) dividends and other distributions paid or payable in cash in respect of any Pledged Collateral in connection with a partial or total liquidation or dissolution (except any distribution upon liquidation to another Pledgor to the extent permitted under the Secured Agreement), or in connection with a reduction of capital, capital surplus or paid-in-surplus, and (C) cash paid, payable or otherwise distributed in respect of principal or in redemption of or in exchange for any Pledged Collateral, shall be, and shall forthwith be delivered to Collateral Agent to hold as, Pledged Collateral and shall, if received by Pledgors, be received in trust for the benefit of Collateral Agent, be segregated from the other property or funds of Pledgors and be forthwith delivered to Collateral Agent as Pledged Collateral in the same form as so received (with all necessary endorsements). (iii) Collateral Agent shall promptly execute and deliver (or cause to be executed and delivered) to the appropriate Pledgor all such proxies, dividend payment orders and other instruments as such Pledgor may from time to time reasonably request for the purpose of enabling such Pledgor to exercise the voting and other consensual rights which it is entitled to exercise pursuant to paragraph (i) above and to receive the dividends, principal or interest payments which it is authorized to receive and retain pursuant to paragraph (ii) above. (b) Upon the occurrence and during the continuance of an Event of Default: (i) Upon written notice from Collateral Agent to Company, except with respect to AG Asia, all rights of Pledgors to exercise the voting and other consensual rights which they would otherwise be entitled to exercise pursuant to SECTION 7(A)(I) shall cease, and all such rights shall thereupon become vested in Collateral Agent who shall thereupon have the right to exercise such voting and other consensual rights. With respect to AG Asia, upon written notice from Collateral Agent to Company, all Pledged Shares shall be registered in the name of Collateral Agent who shall thereupon have the right to exercise such voting and consensual rights. (ii) All rights of Pledgors to receive the dividends and interest payments which they would otherwise be authorized to receive and retain pursuant to SECTION 7(A)(II) shall cease, and all such rights shall thereupon become vested in Collateral Agent who shall thereupon have the right to receive and hold as Pledged Collateral 7 such dividends and interest payments which shall, upon written notice from Collateral Agent, be paid to Collateral Agent. (iii) All dividends, principal and interest payments which are received by any Pledgor contrary to the provisions of paragraph (ii) of this SECTION 7(B) shall be received in trust for the benefit of Collateral Agent, shall be segregated from other funds of such Pledgor and shall forthwith be paid over to Collateral Agent as Pledged Collateral in the same form as so received (with any necessary endorsements). (c) In order to permit Collateral Agent to exercise the voting and other consensual rights which it may be entitled to exercise pursuant to SECTION 7(B)(I) hereof and to receive all dividends and other distributions which it may be entitled to receive under SECTION 7(A)(II) hereof or SECTION 7(B)(II) hereof, Pledgors shall promptly execute and deliver (or cause to be executed and delivered) to Collateral Agent all such proxies, dividend payment orders and other instruments as Collateral Agent may from time to time reasonably request. SECTION 8. COLLATERAL AGENT APPOINTED ATTORNEY-IN-FACT. Each Pledgor hereby irrevocably appoints Collateral Agent as such Pledgor's attorney-in-fact, with full authority in the place and stead of such Pledgor and in the name of such Pledgor or otherwise, from time to time in Collateral Agent's reasonable discretion to take any action and to execute any instrument, which Collateral Agent may deem necessary or advisable, subject to the terms and conditions of this Pledge Agreement, to accomplish the purposes of this Pledge Agreement, including, without limitation, (a) to file one or more financing or continuation statements or amendments thereto, relative to all or part of the Pledged Collateral without the signature of such Pledgor, (b) to receive, endorse and collect all instruments made payable to such Pledgor representing any dividend, principal or interest payment or other distribution in respect of the Pledged Collateral or any part thereof and to give full discharge for the same, and (c) if an Event of Default shall have occurred and be continuing, to ask, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Pledged Collateral, and (d) to file any claims or take any action or institute any proceedings which Collateral Agent may deem necessary or desirable for the collection of any of the Pledged Collateral or to enforce the rights of Collateral Agent with respect to any of the Pledged Collateral. SECTION 9. COLLATERAL AGENT MAY PERFORM. If a Pledgor fails to perform any agreement contained herein, Collateral Agent may, upon 30 days' notice to such Pledgor (unless otherwise expressly set forth in this Pledge Agreement or an Event of Default shall have occurred and be continuing, in which case, no notice shall be required) itself perform, or cause performance of, such agreement, and the expenses of Collateral Agent incurred in connection therewith shall be payable by Pledgors under SECTION 16(B) hereof. SECTION 10. STANDARD OF CARE. The powers conferred on Collateral Agent hereunder are solely to protect its interest in the Pledged Collateral and shall not impose on it any duty to exercise such powers. Collateral Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Pledged Collateral in its possession if 8 the Pledged Collateral is accorded treatment substantially equivalent to that which Collateral Agent accords its own property consisting of negotiable securities, it being understood that Collateral Agent shall have no responsibility for (a) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relating to any Pledged Collateral, whether or not Obligee has or is deemed to have knowledge of such matters, (b) taking any necessary action (other than actions taken in accordance with the standard of care set forth above to maintain possession of the Pledged Collateral) to preserve rights against any parties with respect to any Pledged Collateral, (c) taking any necessary actions to collect or realize upon the Secured Obligations or any guarantee therefor, or any part thereof, or any of the Pledged Collateral or (d) initiating any action to protect the Pledged Collateral against the possibility of a decline in market value. SECTION 11. EVENTS OF DEFAULT. The occurrence of any "Event of Default" as defined in the Secured Agreement (whether or not any Secured Obligations shall be at the time outstanding thereunder or the Secured Agreement shall have terminated for some other purpose) or the occurrence of any default under the Investment Agreement or the Certificate of Designation, which default has continued beyond any applicable cure period, shall constitute an Event of Default under this Pledge Agreement. SECTION 12. REMEDIES UPON DEFAULT. (a) If any Event of Default shall have occurred and be continuing, Collateral Agent may exercise in respect of the Pledged Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the Code as in effect in the State of New York (or any other state with jurisdiction over the Pledged Collateral) at that time, and Collateral Agent may also in its sole discretion, without notice (except as specified below), sell the Pledged Collateral or any part thereof in one or more parcels at public or private sale, at any exchange, broker's board or at any of Collateral Agent's offices or elsewhere, for cash, on credit or for future delivery, at such time or times and at such price or prices and upon such other terms as Collateral Agent may deem commercially reasonable, irrespective of the impact of any such sales on the market price of the Pledged Collateral. Collateral Agent, on behalf of Obligee, may be the purchaser of any or all of the Pledged Collateral at any such sale and shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Pledged Collateral sold at any such public sale, to use and apply any of the Secured Obligations as a credit on account of the purchase price of any Pledged Collateral payable by Collateral Agent at such sale. Each purchaser at any such sale shall hold the property sold absolutely free from any claim or right on the part of any Pledgor, and each Pledgor hereby waives (to the extent permitted by law) all rights of redemption, stay and/or appraisal which it now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. Pledgors agree that, to the extent notice of sale shall be required by law, at least 10 days' notice to Pledgors of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. Collateral Agent shall not be obligated to make any sale of Pledged Collateral regardless of notice of sale having been given. Collateral Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. Each Pledgor hereby waives any claims against Collateral Agent arising by reason of the fact that the price at 9 which any Pledged Collateral may have been sold at such a private sale was less than the price which might have been obtained at a public sale, even if Collateral Agent accepts the first offer received and does not offer such Pledged Collateral to more than one offeree. If the proceeds of any sale or other disposition of the Pledged Collateral are insufficient to pay all the Secured Obligations, Pledgors shall be liable for the deficiency and the fees of any attorneys employed by Collateral Agent to collect such deficiency, subject in the case of the Subsidiary Pledgors to any limitations contained in the Guarantees. (b) Each Pledgor recognizes that, by reason of certain prohibitions contained in the Securities Act of 1933, as from time to time amended (the "SECURITIES ACT"), and applicable state securities laws, Collateral Agent may be compelled, with respect to any sale of all or any part of the Pledged Collateral conducted without prior registration or qualification of such Pledged Collateral under the Securities Act and/or such state securities laws, to limit purchasers to those who will agree, among other things, to acquire the Pledged Collateral for their own account, for investment and not with a view to the distribution or resale thereof. Each Pledgor acknowledges that any such private sales may be at prices and on terms less favorable to Collateral Agent than those obtainable through a public sale without such restrictions (including, without limitation, a public offering made pursuant to a registration statement under the Securities Act) and, notwithstanding such circumstances and the registration rights granted to the Collateral Agent pursuant to SECTION 13, each Pledgor agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner and that Collateral Agent shall have no obligation to engage in public sales and no obligation to delay the sale of any Pledged Collateral for the period of time necessary to permit the issuer thereof to register it for a form of public sale requiring registration under the Securities Act or under applicable state securities laws, even if such issuer would, or should, agree to so register it. (c) If Collateral Agent determines to exercise its right to sell any or all of the Pledged Collateral, upon written request, Pledgors shall and shall cause each issuer of any Pledged Shares to be sold hereunder from time to time to furnish to Collateral Agent all such information as Collateral Agent may request in order to determine the number of shares and other instruments included in the Pledged Collateral which may be sold by Collateral Agent in exempt transactions under the Securities Act and the rules and regulations of the Securities and Exchange Commission thereunder, as the same are from time to time in effect. SECTION 13. REGISTRATION RIGHTS. If Collateral Agent shall determine to exercise its right to sell all or any of the Pledged Collateral pursuant to SECTION 12, each Pledgor agrees that, upon request of Collateral Agent (which request may be made by Collateral Agent in its sole discretion), Pledgor will, at its own expense: (a) execute and deliver, and cause each issuer of the Pledged Collateral contemplated to be sold and the directors and officers thereof to execute and deliver, all such instruments and documents, and do or cause to be done all such other acts and things, as may be necessary or, in the opinion of Collateral Agent, advisable to register such Pledged Collateral under the provisions of the Securities Act and to cause the registration statement relating thereto to become effective and to remain effective for a period of 1 year from the date of the first public offering of the Pledged Shares so registered, and to make all amendments and supplements hereto and to the related prospectus which, in the opinion of 10 Collateral Agent, are necessary or advisable, all in conformity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission applicable thereto; (b) use its best efforts to qualify the Pledged Collateral under all applicable state securities or "Blue Sky" laws and to obtain all necessary governmental approvals for the sale of the Pledged Collateral, as requested by Collateral Agent; (c) cause each such issuer to make available to its security holders, as soon as practicable, an earnings statement which will satisfy the provisions of Section 11(a) of the Securities Act; (d) do or cause to be done all such other acts and things as may be necessary to make such sale of the Pledged Collateral or any part thereof valid and binding and in compliance with applicable law; and (e) bear all costs and expenses, including reasonable attorneys' fees, of carrying out its obligations under this SECTION 13. Each Pledgor further agrees that a breach of any of the covenants contained in this SECTION 13 will cause irreparable injury to Secured Party, that Secured Party has no adequate remedy at law in respect of such breach and, as a consequence, that each and every covenant contained in this SECTION 13 shall be specifically enforceable against such Pledgor, and each Pledgor hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants except for a defense that no default has occurred giving rise to the Secured Obligations becoming due and payable prior to their stated maturities. Nothing in this SECTION 13 shall in any way alter the rights of Collateral Agent under SECTION 12. SECTION 14. APPLICATION OF PROCEEDS. All Proceeds received by Collateral Agent in respect of any sale of, collection from, or other realization upon all or any part of the Pledged Collateral may, in the discretion of Collateral Agent, be held by Collateral Agent as Pledged Collateral for, and/or then or at any time thereafter applied in whole or in part by Collateral Agent against the Secured Obligations in the following order of priority: FIRST: To the payment of all costs and expenses of such sale, collection or other realization, and all expenses, liabilities and advances made or incurred by Collateral Agent in connection therewith and all amounts for which the Collateral Agent is entitled to indemnification hereunder and all advances made by the Collateral Agent hereunder for the account of Pledgors or for the payment of all costs and expenses paid or incurred by the Collateral Agent in connection with the exercise of any right or remedy hereunder, all in accordance with SECTION 16 hereof; SECOND: To the payment in full of all other Secured Obligations in the order specified in the Secured Agreement and in accordance with the Intercreditor Agreement; and 11 THIRD: To the payment to or upon the order of Pledgors, or to whosoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct, of any surplus then remaining from such proceeds. SECTION 15. COLLATERAL AGENT. Collateral Agent has been appointed as Collateral Agent hereunder pursuant to the Secured Agreement. Collateral Agent shall be obligated and shall have the right hereunder, to make demands, to give notices, to exercise or refrain from exercising any rights, and to take or refrain from taking any action (including, without limitation, the release or substitution of Collateral) in accordance with the Secured Agreement and the Intercreditor Agreement. Collateral Agent may resign and a successor Collateral Agent may be appointed in the manner provided for resignation and appointment of a successor in the Secured Agreement. Upon the acceptance of any appointment as a Collateral Agent by a successor Collateral Agent, such successor Collateral Agent shall thereupon succeed to, and become vested with all the rights, powers, privileges and duties of, the retiring Collateral Agent under this Pledge Agreement, and the retiring Collateral Agent shall thereupon be discharged from its duties and obligations under this Pledge Agreement and shall deliver any Collateral in its possession to the successor Collateral Agent. After any retiring Collateral Agent's resignation, the provisions of this Pledge Agreement shall inure to its benefit as to any actions taken or omitted to be taken by it under this Pledge Agreement while it was Collateral Agent. SECTION 16. INDEMNITY AND EXPENSES. (a) Pledgors jointly and severally agree to indemnify Collateral Agent, Obligee and each of the officers, directors, agents, employees and affiliates of each of them (each an "INDEMNITEE"), from and against any and all claims, losses and liabilities in any way relating to, growing out of or resulting from this Pledge Agreement and the transactions contemplated hereby (including, without limitation, enforcement of this Pledge Agreement), except claims, losses or liabilities resulting from the gross negligence or willful misconduct of the Indemnitee seeking indemnification. (b) Pledgors will upon demand pay to Collateral Agent the amount of any and all costs and expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which Collateral Agent may incur in connection with (i) the administration of this Pledge Agreement, (ii) the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Pledged Collateral, (iii) the exercise or enforcement of any of the rights of Collateral Agent hereunder or (iv) the failure by any Pledgor to perform or observe any of the provisions hereof. (c) The obligations of Pledgors in this Section 16 hereof shall survive termination of this Pledge Agreement and the discharge of Pledgors' other obligations under this Pledge Agreement, the Secured Agreement and the other Secured Instrument Documents. SECTION 17. CONTINUING SECURITY INTEREST; TRANSFER OF SECURED OBLIGATIONS. This Pledge Agreement shall create a continuing security interest in the Pledged Collateral and shall (a) remain in full force and effect until indefeasible payment in full of all Secured Obligations, (b) be binding upon each Pledgor, its successors and assigns, and (c) inure, together with the rights and remedies of Collateral Agent hereunder, to the 12 benefit of Collateral Agent and Obligee and their respective successors, transferees and assigns. Without limiting the generality of the foregoing clause (c), subject to the provisions of the Secured Agreement, Obligee may assign or otherwise transfer any Secured Obligations held by it to any other person or entity, and such other person or entity shall thereupon become vested with all the benefits in respect thereof granted to Obligee herein or otherwise. Upon the indefeasible payment in full of all Secured Obligations, each Pledgor shall be entitled to the return, upon its request and at its expense, against receipt and without recourse to or warranty by Collateral Agent, of such of the Pledged Collateral pledged by such Pledgor hereunder as shall not have been sold or otherwise applied pursuant to the terms hereof. SECTION 18. NO WAIVER BY OBLIGEE; AUTHORITY OF PLEDGOR. No failure on the part of Collateral Agent to exercise, and no course of dealing with respect to, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise by Collateral Agent of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies herein provided are cumulative to the fullest extent permitted by law and are not exclusive of any remedies provided by law. It is not necessary for Collateral Agent to inquire into the powers of any Pledgor or the officers, directors or agents acting or purporting to act on behalf of any of them. SECTION 19. AMENDMENT, ETC. No amendment or waiver of any provision of this Pledge Agreement, nor consent to any departure by any Pledgor herefrom, shall in any event be effective unless the same shall be in writing and signed by Collateral Agent on behalf of Obligee, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 20. ADDRESSES FOR NOTICES. Unless otherwise specifically provided herein, any notice or other communication herein required or permitted to be given shall be in writing and may be personally served, telecopied, telexed or sent by United States mail or courier service and shall be deemed to have been given when delivered in person, upon confirmed receipt (in the case of telecopy or telex) or 5 Business Days after depositing it in the United States mail, registered or certified, with postage prepaid and properly addressed; PROVIDED that any notice sent to Collateral Agent or Obligee shall not be effective until received. For purposes hereof, the addresses of the parties hereto (until notice of a change thereof is delivered as provided in this SECTION 20) shall be as set forth under each party's name on the signature pages hereof or in the Secured Agreement. SECTION 21. GOVERNING LAW; TERMS. THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES, EXCEPT AS REQUIRED BY MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE 13 SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR PLEDGED COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. Unless otherwise defined herein or in the Secured Agreement, terms defined in Article 9 of the Code are used herein as therein defined. SECTION 22. SEVERABILITY. Any provisions of this Pledge Agreement which are prohibited or unenforceable in any jurisdiction shall, as to such jurisdictions, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. SECTION 23. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY PLEDGOR WITH RESPECT TO THIS PLEDGE AGREEMENT MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION SITTING IN NEW YORK, NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS PLEDGE AGREEMENT, EACH PLEDGOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS PLEDGE AGREEMENT. Each Pledgor hereby agrees that service of process sufficient for personal jurisdiction in any action against such Pledgor in the State of New York may be made by registered or certified mail, return receipt requested, to such Pledgor at its address provided in SECTION 20, and each Pledgor hereby acknowledges that such service shall be effective and binding in every respect. Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of Collateral Agent to bring proceedings against any Pledgor in the courts of any other jurisdiction. SECTION 24. WAIVER OF JURY TRIAL. EACH PLEDGOR AND COLLATERAL AGENT HEREBY AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS PLEDGE AGREEMENT. The scope of this waiver is intended to be all encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including, without limitation, contract claims, tort claims, breach of duty claims, and all other common law and statutory claims. Each Pledgor and Collateral Agent (a) acknowledge that this waiver is a material inducement for such Pledgor and Collateral Agent to enter into a business relationship, that each Pledgor and Collateral Agent have already relied on the waiver in entering into this Pledge Agreement and that each will continue to rely on the waiver in their related future dealings and (b) further warrant and represent that each has reviewed this waiver with its legal counsel, and that each knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR 14 MODIFICATIONS TO THIS PLEDGE AGREEMENT. In the event of litigation, this Pledge Agreement may be filed as a written consent to trial by the court. SECTION 25. MARSHALING; PAYMENTS SET ASIDE. Agent shall not be under any obligation to marshal any assets in favor of any Pledgor or any other party or against or in payment of any or all of the Secured Obligations. To the extent that any Pledgor makes a payment or payments to Collateral Agent or Collateral Agent enforces its security interests or exercises its rights of setoff, and such payment or payments or proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all liens, rights and remedies therefor, shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred. SECTION 26. HEADINGS. Section and subsection headings in this Pledge Agreement are included herein for convenience of reference only and shall not constitute a part of this Pledge Agreement or be given any substantive effect. SECTION 27. COUNTERPARTS. This Pledge Agreement and any amendments, waivers, consents or supplements may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original and all of which together shall constitute one and the same Agreement. SECTION 28. INTERCREDITOR AGREEMENT. Obligee, Collateral Agent and Foothill Capital Corporation, as AG Collateral Agent, are parties to the Intercreditor Agreement, which, among other things, concerns priorities of Liens in the Collateral and the exercise of remedies by the parties thereto, and the manner and priority of distribution of the proceeds of the Collateral among Obligee and Foothill Capital Corporation, as AG Collateral Agent, and the terms of this Agreement are subject to the terms and provisions of the Intercreditor Agreement. 15 IN WITNESS WHEREOF, Pledgors have caused this Pledge Agreement to be duly executed and delivered by their officers thereunto duly authorized as of the date first above written. PLEDGORS: ATLANTIC GULF COMMUNITIES CORPORATION, a Florida corporation ENVIRONMENTAL QUALITY LABORATORY, INCORPORATED, a Florida corporation GENERAL DEVELOPMENT RESORTS, INC., a Florida corporation TOWN & COUNTRY II, INC., a Florida corporation By: -------------------------------------- John H. Fischer Vice President Notice Address: c/o ATLANTIC GULF COMMUNITIES CORPORATION 2601 South Bayshore Drive, 9th Floor Miami, Florida 33133-5461 Attention: John H. Fischer, Vice President Facsimile: (305) 859-4623 COLLATERAL AGENT: FOOTHILL CAPITAL CORPORATION, a California corporation, as Collateral Agent By: -------------------------------------- Benjamin W. Silver Assistant Vice President Notice Address: 11111 Santa Monica Blvd. Suite 1500 Los Angeles, CA 90025-3333 Attention: Benjamin W. Silver Facsimile: (310) 479-2690 16 Copy to: Apollo Real Estate Advisors II, L.P. 1301 Avenue of the Americas New York, New York 10019 Attn: Rick Koenigsberger Telecopy: (212) 459-3301 Copy to: Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, New York 10019 Attn: Philip Mindlin, Esq. Telecopy: (212) 403-2000 Copy to: Carlton, Fields, Ward, Emmanuel, Smith & Cutler, P.A. Post Office Box 3239 Tampa, Florida 33601 Attn: Paula McDonald Rhodes, Esq. Telecopy: (813) 229-4133 Copy to: Annis, Mitchell, Cockey, Edwards & Roehn, P.A. 201 North Florida Avenue, Suite 2100 Tampa, Florida 33602 Attn: Stephen J. Szabo, III, Esq. Telecopy: (813) 223-9067 17 SCHEDULE I TO JUNIOR STOCK PLEDGE AGREEMENT Attached to and forming a part of the Junior Stock Pledge Agreement dated effective as of June 23, 1997 between Pledgors and FOOTHILL CAPITAL CORPORATION, as Collateral Agent. PLEDGED SHARES --------------
===================================================================================================== ISSUER SHARES CERTIFICATE OUTSTANDING NUMBER(S) - ----------------------------------------------------------------------------------------------------- PLEDGOR: ATLANTIC GULF COMMUNITIES CORPORATION - ----------------------------------------------------------------------------------------------------- 1. AG Title Corporation 1,000 1 - ----------------------------------------------------------------------------------------------------- 2. AGC CL Limited Partner, Inc. 1,000 1 - ----------------------------------------------------------------------------------------------------- 3. AGC Homes, Inc. 1,000 1 - ----------------------------------------------------------------------------------------------------- 4. AGC Sanctuary of Orlando, Inc. 100 1 - ----------------------------------------------------------------------------------------------------- 5. AGC Sanctuary Corporation 1,000 1 - ----------------------------------------------------------------------------------------------------- 6. Atlantic Gulf Asia Holdings N.V. 6,000 N/A (uncertificated) outstanding 3,960 pledged - ----------------------------------------------------------------------------------------------------- 7. Atlantic Gulf Commercial Realty, Inc. 1,000 1 - ----------------------------------------------------------------------------------------------------- 8. Atlantic Gulf Communities Management 14 1 Corporation - ----------------------------------------------------------------------------------------------------- 9. Atlantic Gulf Communities Service Corporation 1,000 2 - ----------------------------------------------------------------------------------------------------- 10. Atlantic Gulf Development, Inc. 1,000 1 - ----------------------------------------------------------------------------------------------------- 11. Atlantic Gulf Engineering Company 1,000 2 - ----------------------------------------------------------------------------------------------------- 12. Atlantic Gulf Realty, Inc. 1,000 1 - ----------------------------------------------------------------------------------------------------- 13. Atlantic Gulf Receivables Corporation 100 1 - ----------------------------------------------------------------------------------------------------- 14. Atlantic Gulf of Tampa, Inc. 1,000 2 - ----------------------------------------------------------------------------------------------------- 15. Atlantic Gulf Utilities, Inc. 1,000 1 - ----------------------------------------------------------------------------------------------------- 16. Atlantic Gulf C.C. Corp., f/k/a C.C. Village 1,000 1 Development Corporation - ----------------------------------------------------------------------------------------------------- 17. Community Title Agency, Incorporated - ----------------------------------------------------------------------------------------------------- 18. Cumberland Cove, Inc. 1,000 2 - ----------------------------------------------------------------------------------------------------- 19. Environmental Quality Laboratory, Incorporated 1,000 2
18
===================================================================================================== ISSUER SHARES CERTIFICATE OUTSTANDING NUMBER(S) - ----------------------------------------------------------------------------------------------------- 20. Five Star Homes, Inc. 1,000 3 - ----------------------------------------------------------------------------------------------------- 21. Fox Creek Development Corporation - ----------------------------------------------------------------------------------------------------- 22. GDV Financial Corporation 500 2 - ----------------------------------------------------------------------------------------------------- 23. General Development Air Service, Inc. 100 1 - ----------------------------------------------------------------------------------------------------- 24. General Development Commercial Credit Corporation - ----------------------------------------------------------------------------------------------------- 25. General Development Headquarters Corporation 1,000 1 - ----------------------------------------------------------------------------------------------------- 26. General Development Resorts, Inc. 1,000 1 - ----------------------------------------------------------------------------------------------------- 27. General Development Sales Corporation 1,000 1 - ----------------------------------------------------------------------------------------------------- 28. General Development Service Corporation 1,000 1 - ----------------------------------------------------------------------------------------------------- 29. General Development Utilities, Inc. 1,000 1 - ----------------------------------------------------------------------------------------------------- 30. Hunter Trace Development Corporation - ----------------------------------------------------------------------------------------------------- 31. Lakeside Development of Orlando, Inc. 1,000 1 - ----------------------------------------------------------------------------------------------------- 32. Longwood Utilities, Inc. 625 20 - ----------------------------------------------------------------------------------------------------- 33. Maplewood Development Corporation 100 1 - ----------------------------------------------------------------------------------------------------- 34. Ocean Grove, Inc. 1,000 1 - ----------------------------------------------------------------------------------------------------- 35. Regency Island Dunes, Inc. 1,000 1 - ----------------------------------------------------------------------------------------------------- 36. Sabal Trace Development Corporation 1,000 1 - ----------------------------------------------------------------------------------------------------- 37. Summerchase Development Corporation 100 1 - ----------------------------------------------------------------------------------------------------- 38. Sunset Lakes Development Corporation 1,000 1 - ----------------------------------------------------------------------------------------------------- 39. Town & Country II, Inc. 7,150 6, 8 2,850 17, 19, 20 54,816.2 21,849.8 5,334 - ----------------------------------------------------------------------------------------------------- 40. Windsor Palms Corporation 1,000 1 - ----------------------------------------------------------------------------------------------------- 41. XYZ Insurance, Inc. - ----------------------------------------------------------------------------------------------------- 42. Panther Creek Corp. - ----------------------------------------------------------------------------------------------------- 43. AGC-SP, Inc. - ----------------------------------------------------------------------------------------------------- PLEDGOR: ENVIRONMENTAL QUALITY LABORATORY, INCORPORATED - ----------------------------------------------------------------------------------------------------- 1. EQL Environmental Services, Inc. 1,000 1
19
===================================================================================================== ISSUER SHARES CERTIFICATE OUTSTANDING NUMBER(S) - ----------------------------------------------------------------------------------------------------- PLEDGOR: GENERAL DEVELOPMENT RESORTS, INC. - ----------------------------------------------------------------------------------------------------- 1. General Development Acceptance Corporation (Delaware) - ----------------------------------------------------------------------------------------------------- PLEDGOR: TOWN & COUNTRY II, INC. - ----------------------------------------------------------------------------------------------------- 1. FRC Investments, Inc. 60 4 =====================================================================================================
20 SCHEDULE II TO JUNIOR STOCK PLEDGE AGREEMENT [FORM OF PLEDGE AMENDMENT] This Pledge Amendment, dated ___________, 19__, is delivered pursuant to Section 6 of the Pledge Agreement referred to below. The undersigned hereby agrees that this Pledge Amendment may be attached to the Junior Stock Pledge Agreement, dated effective as of June 23, 1997, between Atlantic Gulf Communities Corporation and its Subsidiaries who are signatories thereto and FOOTHILL CAPITAL CORPORATION, a California corporation, as Collateral Agent (the "PLEDGE AGREEMENT"; capitalized terms used herein without definition shall have the meanings given such terms in the Pledge Agreement) and that the [Pledged Shares]/[Pledged Debt] listed on this Pledge Amendment shall be deemed to be part of the [Pledged Shares]/[Pledged Debt] and shall become part of the Pledged Collateral and shall secure the Secured Obligations as provided in the Pledge Agreement. [PLEDGOR] By: -------------------------------------- [Name] [Title] PLEDGED SHARES -------------- Stock Issuer Stock Number Certificate of Number(s) Shares PLEDGED DEBT ------------ Debt Issuer Amount of Indebtedness 21 SCHEDULE III TO JUNIOR STOCK PLEDGE AGREEMENT [FORM OF ACKNOWLEDGEMENT AND AGREEMENT OF NEW SUBSIDIARY] Reference hereby is made to the Junior Stock Pledge Agreement, dated effective as of June 23, 1997 (the "PLEDGE AGREEMENT"), between Atlantic Gulf Communities Corporation and its Subsidiaries who are signatories thereto and FOOTHILL CAPITAL CORPORATION, a California corporation, as Collateral Agent, in which this Acknowledgement and Agreement and attachments are incorporated. The undersigned is a new Subsidiary and, as such, is required to pledge its Pledged Shares and its Pledged Debt to secure the Secured Obligations (all as defined in the Pledge Agreement) as provided in the Pledge Agreement. The undersigned hereby represents and warrants (a) that it is the legal and beneficial owner of the shares of capital stock described in Part A of Schedule 1 hereto which shares constitute all of the issued and outstanding shares of all classes of capital stock of the Subsidiary or Subsidiaries so listed and (b) that it is the legal and beneficial owner of the indebtedness described in Part B of said Schedule 1. The undersigned acknowledges the terms of the Pledge Agreement and agrees to be bound thereby. [NEW SUBSIDIARY] By: -------------------------------------- [Name] [Title] Address: [ ] [ ] [ ] 22 SCHEDULE 1 TO THE ACKNOWLEDGEMENT OF NEW SUBSIDIARY PART A: Capital Stock of Subsidiaries PART B: Indebtedness owned by new Subsidiary 23 EX-27 8 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE CONSOLIDATED BALANCE SHEET AT JUNE 30, 1997 (UNAUDITED) AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS. 0000771934 ATLANTIC GULF COMMUNITIES 1,000 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 8,432 0 49,098 0 140,066 0 2,730 0 226,030 0 130,241 16,851 0 1,160 49,623 226,030 34,059 40,717 31,347 35,993 12,164 0 8,506 (15,946) 0 (15,946) 0 0 0 (15,946) (1.63) (1.63) The values for receivables and PP&E represent net amounts. The Company does not prepare a classified balance sheet, therefore current assets and current liabilities are not applicable.
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