4960 Conference Way North, Suite 100
Boca Raton, Florida 33431
Boca Raton, Florida 33431
May 22, 2009
Mr. Jorge Bonilla
Senior Staff Accountant
United States Securities and Exchange Commission
Division of Corporation Finance
100 F Street N.E.
Washington, D.C. 20549
Mail Stop 3010
Senior Staff Accountant
United States Securities and Exchange Commission
Division of Corporation Finance
100 F Street N.E.
Washington, D.C. 20549
Mail Stop 3010
| Re: | Bluegreen Corporation Form 10-K for the year ended December 31, 2008 Filed on March 16, 2009 Preliminary Proxy Statement on Schedule 14A Filed on April 15, 2009 File No. 001-09292 |
Dear Mr. Bonilla:
This letter is in response to comments of the Staff regarding the above-referenced filings,
provided in your letter to me dated May 8, 2009.
Set forth below are the responses of Bluegreen Corporation (the “Company”) to the comments in
your letter. The numbering of the responses below corresponds to the numbering set forth in your
letter.
Form 10-K for the Year Ended December 31, 2008
Item 1. Business
General
1. We note your disclosure under the Trademarks subheading on the preceding page and elsewhere in
your filing of several registration marks associated with your business that appear to be important
to your competitive position in the industry. Please refer to Item 101(c)(1)(iv) of Regulation
S-K. To the extent material to your business, provide this disclosure in future filings and tell
us how you plan to comply.
Mr. Jorge Bonilla
May 22, 2009
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The Company lists its and its affiliates’ trademarks, service marks and other registered marks
under the Trademarks subheading in its Form 10-K solely to protect the marks based on the Company’s
belief that, under applicable intellectual property law, the use of such marks without disclosure
of the protected nature thereof may cause the marks to be impaired. However, the Company does not
believe that these marks are material to the Company’s
business so as to require disclosure under Item 101(c)(1)(iv) of Regulation S-K. If, in the
future, the Company determines that any of these marks are material to the Company’s business, the
Company will disclose such information, as well as all other applicable information required by
Item 101(c)(1)(iv) of Regulation S-K, in the Business section of the Company’s Form 10-K.
Company Products and Services
2. In the tables on pages 10 through 15 for each of your material core resorts and communities,
please disclose the nature of your title to, or other interest in, such properties and the nature
and amount of any material liens or encumbrances against such properties. Provide this disclosure
in future filings and tell us how you plan to comply.
The Company’s business operations include the development and acquisition of resorts that are
sold to consumers as vacation ownership interests (“VOIs”). As soon as practicable after the
Company sells a VOI to a consumer, the deed of the VOI is placed into an independent, third-party
trust for the benefit of the consumer. Additionally, while in certain instances the Company funds
its acquisition and/or development of resorts through third party loans, these loans are generally
repaid concurrent with the sale of the VOI which serves as collateral for the loan through
agreed-upon release payments. Accordingly, the amount and percentage of resorts and VOIs which the
Company holds title to, as well as the amount of VOIs that secure any acquisition and development
debt of the Company, decreases over time as VOIs are sold.
The Company notes that it defines “Core Resorts” on page 2 of its Form 10-K as follows:
“resorts where we developed or acquired a significant number of VOIs associated with the resorts,
even if substantially all of the VOIs in the property have been sold to consumers.” However, in
future filings, the Company will revise its disclosure as follows to specifically disclose and
clarify elsewhere in the document that its “Core Resorts” include resorts that were originally
acquired or developed by the Company, regardless of the Company’s continuing ownership percentage
in the property:
The Company Products and Services subsection of the Business section, page 6:
“Bluegreen Resorts
Set forth below is a description of each of our core vacation ownership resorts. We
consider resorts as “core” if we acquired or developed a significant number of VOIs
in the resorts, even if substantially all of the VOIs in the property have been
sold to consumers and, accordingly, we do not continue to hold title to a majority
of the resort. We are presenting this information to provide a general description
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of the core resorts that are available for use by members of the Bluegreen
Vacation Club. Units at most of the properties have amenities typically
including a full kitchen, two televisions, a DVD and a CD player, fireplaces,
whirlpool tubs, and video game systems. Most properties offer guests a clubhouse
(with an indoor or outdoor pool, a game room, exercise facilities and a lounge) and
a hotel-type staff. We manage all of our owned resorts, either directly or through a
subcontract.”
The Company Products and Services subsection of the Business section, page 10:
“The following table describes the relative size and stage of development
of, as well as the amount and the estimated sales value of
our remaining, unsold inventory at, each of our core resorts. Although
all inventory is sold as VOIs, we disclose the size and inventory information in
terms of number of vacation homes for ease of comparability between our resorts and
those of other companies in the industry. “Vacation homes” are individual lodging
units (e.g., condominium-style apartments, town homes, cabins, luxury campsites,
etc.).”
The Company also notes that it discloses in its Form 10-K the resorts where unsold VOI
inventory collateralizes the Company’s various debt obligations in the Management’s Discussion and
Analysis of Financial Condition and Results of Operations section, including in the Liquidity and
Capital Resources subsection thereof, as well as in the Notes to Consolidated Financial Statements.
The Company will continue to include this disclosure in future filings for so long as there are
any material liens or encumbrances against its properties.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Repurchases of Equity Securities
3. Please describe any material limitations in your existing credit facilities which restrict your
ability to pay dividends. Refer to Item 201(c)(1) of Regulation S-K. Provide this disclosure in
future filings and tell us how you plan to comply. To the extent you believe the limitations are
not material, please tell us.
Only the documents governing the Company’s junior subordinated debentures and one of the
Company’s credit facilities contain provisions which may limit the Company’s ability to pay
dividends in the future. The first restricts the Company’s ability to pay dividends if an event of
default occurs, and the second limits the amount of annual dividends which the Company may pay to
an amount not in excess of 50% of the Company’ then-current earnings. The Company does not
currently believe that either restriction will materially limit the Company’s ability to pay
dividends in the future. However, the Company will include the following disclosure in its
future filings:
“Certain of our credit facilities contain terms which might limit the payment
of cash dividends on our common stock and our ability to repurchase shares in the
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May 22, 2009
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event of default and which limit the amount of dividends the Company may pay in any
annual period; however, we do not currently believe that any such restrictions are
likely to be triggered so as to materially limit our ability to pay cash dividends
on our common stock or our ability to repurchase shares for the foreseeable future.”
The Company would also note the following disclosure, which is contained in the Liquidity and
Capital Resources subsection of the Management’s Discussion and Analysis of Financial Condition and
Results of Operations section of its Form 10-K on page 58 (emphasis added):
“Our levels of debt and debt service requirements have several important effects on
our operations, including the following: (i) our significant cash requirements to
service debt reduce the funds available for operations and future business
opportunities and increase our vulnerability to adverse economic and industry
conditions, as well as conditions in the credit markets, generally; (ii) our
leverage position increases our vulnerability to economic and competitive pressures;
(iii) the financial covenants and other restrictions contained in indentures, credit
agreements and other agreements relating to our indebtedness require us to meet
certain financial tests and restrict our ability to, among other things, borrow
additional funds, dispose of assets, make investments or pay cash dividends on or
repurchase preferred or common stock; and (iv) our leverage position may limit funds
available for working capital, capital expenditures, acquisitions and general
corporate purposes.”
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Liquidity and Capital Resources, page 57
4. We note your disclosure in this section and on page 28 regarding the maturation of certain of
your material debt obligations. We also note your disclosure throughout the Form 10-K regarding
the disruptions in the credit markets and unavailability of financing and your disclosure regarding
an increase in uncollectible notes receivables. In your disclosure on page 65 you indicate that
you intend to rely on new borrowings and anticipated future sales of notes receivables in order to
satisfy your contractual obligations and liquidity requirements. Please consider expanding your
disclosure to discuss the impact on your business if you are unable to renew, extend or refinance
your borrowings
or unable to sell your notes receivables at anticipated levels in order to satisfy your contractual
obligations or liquidity requirements. Please provide us your analysis as to your considerations
regarding the materiality of such additional disclosure. Please also expand your disclosure in
future filings to discuss alternatives for satisfying your capital needs and commitments. Please
tell us how you expect to expand your disclosure
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accordingly in future filings. Please refer to
Item 303(a)(1) of Regulation S-K. We may have further comments.
In accordance with Item 303(a)(1) of Regulation S-K, the Company disclosed in its Form 10-K
and in its Form 10-Q for the quarter ended March 31, 2009 that it “has a material amount of debt
maturing or requiring partial repayment in 2009.” The Company indicated its intent to seek to
“renew, extend or refinance” its debt. It further disclosed that if it is unable to do so, it may
seek to “raise additional debt or equity financing in the future to fund operations or repay debt.”
The Company also disclosed that the “issuance of common stock or securities convertible into its
common stock” would be “highly dilutive to existing shareholders” in light of the current trading
price of its common stock, and the Company disclosed that “there is no assurance” that it will be
successful in its efforts to “renew, extend, or refinance” its debt or to raise additional capital
and, that if it is not successful, its liquidity “will be significantly adversely impacted.”
Further, as indicated in its description of outstanding indebtedness maturing in the near term, the
Company disclosed the status of discussions with its lenders as well as the potential adverse
impact of its debt level and debt service requirements on its operations.
The Company would also note the following disclosure contained on pages 27 and 28 of the Risk
Factors section of its Form 10-K:
“Our business plans historically have depended on our ability to sell or borrow
against our notes receivable to support our liquidity and profitability.
We offer financing of up to 90% of the purchase price to purchasers of our VOIs and
homesites. Approximately 95% of our VOI customers and approximately 1% of our
homesite customers utilized our in-house financing during the year ended December
31, 2008. However, we incur selling, marketing and administrative cash expenditures
prior to and concurrent with the sale. These costs generally exceed the down payment
we receive at the time of the sale. Accordingly, our ability to borrow against or
sell the notes receivable we receive from our customers has been a critical factor
in our continued liquidity. We have also been a party to a number of customary
securitization-type transactions under which we sell receivables to a wholly-owned
special purpose entity which, in turn, sells the receivables to a trust established
for the transaction. We typically recognized gains on the sale of receivables and
such gains have comprised a significant portion of our income. In 2008, the markets
for notes receivable facilities and receivable securitization transactions were
negatively impacted by problems in the residential mortgage markets and credit
markets in general and an associated reduction in liquidity which resulted in
reduced availability of financing and less
favorable pricing. If our pledged receivables facilities terminate or expire and we
are unable to replace them with comparable facilities, or if we are unable to
continue to participate in securitization-type transactions on acceptable terms, our
liquidity, cash flow, and profitability would be materially and adversely affected.
If any of our current facilities terminate or expire, there is no assurance that we
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will be able to negotiate the pledge or sale of our notes receivable at favorable
rates, or at all.
Historically, we depend on additional funding to finance our operations. The
material deterioration in the credit markets has had and could continue to adversely
affect our liquidity and earnings.
We anticipate that we will finance our future business activities, in whole or in
part, with indebtedness that we obtain pursuant to additional borrowings under our
existing credit facilities, under credit facilities that we may obtain in the
future, under securitizations in which we may participate in the future or pursuant
to other borrowing arrangements. However, we cannot assure you that we will be able
to obtain sufficient external sources of liquidity on attractive terms, or at all.
Moreover, we are, and will be, required to seek continued external sources of
liquidity to:
| • | support our operations; | ||
| • | finance the acquisition and development of VOI inventory and residential land; | ||
| • | finance a substantial percentage of our sales; and | ||
| • | satisfy our debt and other obligations. |
Our ability to service or to refinance our indebtedness or to obtain additional
financing (including our ability to consummate future notes receivable
securitizations) depends on the credit markets and on our future performance, which
is subject to a number of factors, including our business, results of operations,
leverage, financial condition and business prospects, prevailing interest rates,
general economic conditions and perceptions about the residential land and vacation
ownership industries.
In recent months, there have been unprecedented disruptions in the credit markets,
which has made obtaining additional and replacement external sources of liquidity
more difficult and more costly. The term securitization market has been virtually
non-existent, and, as a result, financial institutions are reluctant to enter into
new credit facilities for the purpose of providing financing on consumer
receivables. Several lenders to the timeshare industry have announced that they will
be either be exiting the finance business or will not be entering into new financing
commitments for the foreseeable future, including certain of our lenders, such as
Textron Financial Corporation, although such lenders continue to honor existing
commitments. In addition, financing for real estate acquisition and development and
the capital markets for corporate debt have been generally unavailable.
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We have approximately $100 million of indebtedness which becomes due during 2009.
Historically, much of this debt has been renewed or refinanced in the ordinary
course of business; however, if we are unable to renew, extend or refinance this
debt our liquidity would be adversely impacted.”
The Company believes that, as required by Item 303(a)(1) of Regulation S-K, the Company has
appropriately disclosed the trends and uncertainties that the Company believes are likely to impact
the Company’s liquidity in the foreseeable future. The Company further believes that this
disclosure appropriately addresses and discusses the fact that the Company has a significant amount
of maturing debt, that the securitization markets are not currently available and that the Company
is seeking alternative funding sources, as well as the risk that the Company may not be successful
in its efforts to obtain alternative funding sources if required and, if such efforts are not
successful, the Company’s liquidity will be materially adversely impacted.
5. Please consider expanding your disclosure regarding the credit and liquidity risks you may face
related to the collectability of your receivables and customer financing activities. Please
provide us your analysis as to your considerations regarding the materiality of such additional
disclosure.
The Company acknowledges the Staff’s comments with respect to the Company’s disclosure
regarding the credit and liquidity risks that it faces related to the collectability of its notes
receivable. The Company believes that these risks are among the material risks that it faces and,
accordingly, has disclosed the nature and potential consequences of these risks in what the Company
believes is sufficient and appropriate detail throughout its Form 10-K. Specifically, the Company
respectfully refers the Staff to the following discussions contained
in the Form 10-K.
The Risk Factors section of the Form 10-K, pages 26-27:
“We would incur substantial losses if the customers we finance default on their
obligations.
Historically, we have not performed credit checks and only recently have begun
obtaining FICO® scores of the purchasers of our VOIs at the time of sale in
connection with our financing of their purchases. From time to time we obtained
FICO® scores on the overall VOI portfolio originated by us and are aware that a
significant portion of the vacation ownership customers we financed are considered
“sub-prime borrowers.” Based on a review conducted in October 2008, approximately
30.4% of VOI borrowers in our serviced loan portfolio had a
FICO® score below 620. Effective December 15, 2008, we implemented a formal FICO®
score based credit underwriting program. Conditions in the mortgage industry,
including both credit sources as well as borrowers’ financial profiles, have been
deteriorating. If default rates for our borrowers were to rise
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further, it may
require an increase in the provision for loan losses and an impairment of the value
of our retained interests in notes receivable sold. In addition, it may cause
buyers of, or lenders whose loans are secured by, our VOI notes receivable to reduce
the amount of availability under receivables purchase and credit facilities, or to
increase the interest costs associated with such facilities. In such an event, the
cost of financing may increase and we may not be able to secure financing on terms
acceptable to us, if at all, which would adversely affect our earnings, financial
position and liquidity.
As of December 31, 2008, approximately 5.7% of our vacation ownership receivables
and approximately 10.7% of residential land receivables which we held or which third
parties held under sales transactions were more than 30 days past due. Although in
many cases we may have recourse against a buyer for the unpaid purchase price,
certain states have laws that limit our ability to recover personal judgments
against customers who have defaulted on their loans or the cost of doing so may not
be justified. Historically, we have generally not pursued such recourse against our
customers. In the case of our VOI receivables, if we are unable to collect the
defaulted amount, we traditionally have terminated the customer’s interest in the
Bluegreen Vacation Club and then remarketed the recovered VOI. Irrespective of our
remedy in the event of a default, we cannot recover the marketing, selling and
administrative costs associated with the original sale, and we would have to incur
such costs again to resell the VOI or homesite.
Under the terms of our pledged and receivable sale facilities, we may be required,
under certain circumstances, to replace receivables or to pay down the loan to
within permitted loan-to-value ratios. Additionally, the terms of our
securitization-type transactions i.) require us to repurchase or replace loans if we
breach any of the representations and warranties we made at the time we sold the
receivables and ii.) include provisions that in the event of defaults by customers
in excess of stated thresholds would require substantially all of our cash flows
from our retained interest in the receivable portfolios sold to be paid to the
parties who purchased the receivables from us.
Further, if defaults and other performance criteria adversely differ from estimates
used to value our retained interests in notes receivable sold in the securitization
transactions, we may be required to write down these assets, which could have a
material adverse effect on our results of operations. Accordingly, we bear some
risks of delinquencies and defaults by buyers who finance the purchase of their VOIs
or residential land through us, regardless of whether or not we sell or pledge
the buyer’s loan to a third party.”
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The Liquidity and Capital Resources subsection of the Management’s Discussion and Analysis and
Financial Condition and Results of Operations section of the Form 10-K, page 59:
“Historically, we have been a party to a number of securitization-type transactions,
all of which in our opinion utilize customary structures and terms for transactions
of this type. In each securitization-type transaction, we sold receivables to a
wholly-owned special purpose entity which, in turn, sold the receivables either
directly to third parties or to a trust established for the transaction. In each
transaction, the receivables were sold on a non-recourse basis (except for breaches
of certain representations and warranties) and the special purpose entity retained
residual interest in the receivables sold. We have acted as servicer of the
receivables pools in each transaction for a fee, with the servicing obligations
specified under the applicable transaction documents. Under the terms of the
applicable transaction documents, the cash payments received from obligors on the
receivables sold are distributed to the investors (which, depending on the
transaction, may acquire the receivables directly or purchase an interest in, or
make loans secured by the receivables to, a trust that owns the receivables),
parties providing services in connection with the facility, and our special purpose
subsidiary as the holder of the retained interest in the receivables according to
specified formulas. In general, available funds are applied monthly to pay fees to
service providers, make interest and principal payments to investors, fund required
reserves, if any, and pay distributions in respect of the retained interests in the
receivables. Pursuant to the terms of the transaction documents; however, to the
extent the portfolio of receivables fails to satisfy specified performance criteria
(as may occur due to an increase in default rates or loan loss severity) or other
trigger events, the funds received from obligors are distributed on an accelerated
basis to investors. In effect, during a period in which the accelerated payment
formula is applicable, funds go to outside investors until they receive the full
amount owed to them and only then are payments made to our subsidiary in its
capacity as the holder of the retained interests. Depending on the circumstances and
the transaction, the application of the accelerated payment formula may be permanent
or temporary until the trigger event is cured. If the accelerated payment formula
were to become applicable, the cash flow on the retained interests in the
receivables would be reduced until the outside investors were paid or the regular
payment formula was resumed. Such a reduction in cash flow could cause a decline in
the fair value of our retained interests in the receivables sold. Declines in fair
value that are determined to be other than temporary are charged to operations in
the current period. In each facility, the failure of the pool of receivables to
comply with specified portfolio covenants can create a trigger event, which results
in the use of the accelerated payment formula (in certain circumstances until the
trigger event is cured and in other circumstances permanently) and, to the extent
there was any remaining commitment to purchase receivables from our special purpose
subsidiary, the suspension or termination of that commitment. In addition, in each
securitization-
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type facility, certain breaches of our obligations as servicer or other events allow
the indenture trustee to cause the servicing to be transferred to a substitute third
party servicer. In that case, our obligation to service the receivables would
terminate and we would cease to receive a servicing fee.”
Financial Statements and Notes
Note 1 – Significant Accounting Policies
Revenue Recognition and Contracts Receivable, page 74
6. We note that VOIs in your resorts typically entitle the buyer to use resort accommodations
through an allotment of “points” as part of your Bluegreen Vacation Club. Please tell us and
consider disclosing how you considered paragraph 57 of SOP 04-2 in assessing whether your operation
of this vacation club constituted continuing involvement and its impact on your revenue
recognition.
The Company acknowledges the Staff’s comment with respect to the Bluegreen Vacation Club and
the Company’s assessment of whether any services that it provides to the Bluegreen Vacation Club
constitute continuing involvement and its impact on the Company’s revenue recognition, as
referenced in paragraph 57 of SOP 04-2. The Bluegreen Vacation Club, which is a third-party
not-for-profit corporation, provides for its members to use their points, through a reservation
system, for accommodations in the Bluegreen Vacation Club or, at the discretion of its members, for
various third party services such as, among other things, cruises and hotel stays. The Company has
an arrangement with the Bluegreen Vacation Club to provide management and reservation services. The
Company’s compensation for these services is based upon a contractual cost-plus-management fee
formula. During 2008, the Company’s fee for providing these services to the Bluegreen Vacation
Club totaled $13.6 million, producing a profit of approximately 9% (computed as a percent of
underlying operating costs). The Company believes that its profit represents a return consistent
with industry practices.
The Company will consider the disclosure of its consideration of paragraph 57 of SOP 04-2 in
future periods should amounts become significant.
Note 6 – Sales of Notes Receivable, pages 83-85
7. We note from the information on page 26 that the company may be required to repurchase loans
that they have securitized if certain representation and warranties have been breached. Please
tell us what the company’s accounting policy is under SFAS 140, FIN 45 or SFAS 5 for recording a
provision for the loss you would incur upon the requirement to perform under this recourse
obligation. Also, please clarify whether you have been required to perform under this recourse
obligation in the past and if so, tell us the dollar amount of loans reacquired from the
securitization or other payments made by the company to comply with these recourse provisions for
each period in which the
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company was required to perform. In addition, tell us the difference between the book value of
these reacquired loans and the fair value of these loans when reacquired.
The repurchase liability created under provisions relating to the Company’s breaches of
representation and warranties has not been significant to previous or current financial results.
The Company has historically provided representations and warranties to purchasers and noteholders
(among other transaction parties) in its notes receivable purchase facilities and securitization
transactions. Examples of these representations and warranties generally include, but are not
limited to, the following: (a) the notes receivable must meet specified eligibility requirements
at the time of sale; (b) the Company, as Servicer, as of the closing date, is in compliance with
various regulatory requirements; and (c) the Company, as Seller and Servicer, is authorized to
execute the transaction documents. No repurchases or substitutions are required on defaults.
Historically, the Company’s performance under these representations and warranties has been limited
to replacing or repurchasing notes receivable that did not qualify for inclusion into the
facilities due to the ineligibility of certain receivables having been discovered after the date of
the transaction. In exchange for replacing or repurchasing the notes receivable, the Company may
obtain a receivable which is performing but has certain documentation deficiencies requiring
remediation. During the period from December 2002 through March 2008, the Company sold or transferred in these transactions $1.2 billion of notes receivable, and the Company notes that, during
the period from January 2006 through April 2009, the Company has only been required to
reacquire or replace notes receivable under these provisions totaling approximately $4.8 million (or 0.4% of the $1.2 billion total).
The Company would also note that it has not experienced an increase in recent
repurchase/replacement requests. The Company’s accounting policy is to consider if such potential
repurchases would be significant for consideration in the gain on sale and/or should be reserved in
determining its initial accounting for the securitization transaction, any subsequent gain on sale
and any subsequent increase in the liability under FAS 5. To date, such activity has been
determined to not be significant to the Company’s financial statements. Due in part to the credit
enhancement factors that exist in these transactions and the overall performance of the receivables
securing these transactions, the Company does not believe that any purchasers or noteholders have
experienced a loss of contractually due principal or interest. Furthermore, the Company has not
received any indication that any of the purchasers or noteholders believe the Company is not in
compliance with its representations and warranties.
Exhibits
8. We note your disclosure of several joint venture arrangements related to resort sharing and/or
development projects throughout your filing. It appears that the successful marketing of your
business may be dependent on these contracts. Please tell us why you have not filed your joint
venture agreements as exhibits to your Form 10-K, pursuant to Item 601(b)(10)(ii)(B) of Regulation
S-K.
The Company currently has two joint ventures with third parties. The first joint venture
discussed in the Form 10-K is the Bluegreen/Big Cedar Vacations joint venture with Bass Pro. This
joint venture is a non-wholly owned subsidiary that is consolidated with the Company and is
material to the Company’s results of operations and financial condition. Although the
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Company does not believe that the successful marketing of its products is dependent on the
Bluegreen/Big Cedar Vacations joint venture, the Company agrees with the Staff that this is a
material joint venture. Accordingly, all Bluegreen/Big Cedar Vacations joint venture agreements
and amendments have always been included as exhibits to the Company’s annual, quarterly and current
filings with the Commission, as applicable.
The second joint venture discussed in the Form 10-K is the Company’s Select Connections joint
venture with Shell Vacation Club, which is not consolidated with the Company. The Shell Vacation
Club joint venture does not have a material impact on the Company’s results of operations and
financial condition and, accordingly, the Company has not filed, and does not believe that it is
required to file, the related joint venture agreement with the Commission. The Company discusses
certain of the terms of the Select Connections joint venture in the Form 10-K solely to describe
the flexibility and diversity of the Company’s products.
To appropriately clarify the nature of the Select Connections joint venture, in future Form
10-Ks, the Company will include its discussion of such joint venture within the Company Products
and Services subsection of the Business section, and the Company will remove any discussion of the
joint venture from the Financial Statements and Supplementary Data section until such time, if any,
that the joint venture becomes material to the Company’s results of operations and financial
condition.
Preliminary Proxy Statement on Schedule 14A filed on April 15, 2009
Compensation Discussion and Analysis
Compensation of Our Named Executive Officers, page 13
9. We note that the compensation committee examines relevant market data when making compensation
decisions for your named executive officers. Item 402(b)(2)(xiv) of Regulation S-K requires you to
identify any benchmarks and its components. Please identify the companies to which you compared
yourself, how they are selected, the compensation components benchmarked and where your actual
compensation falls within targeted parameters. To the extent actual compensation was outside
targeted parameters, please include an explanation of the reasons for this. Please provide this
disclosure in future filings and tell us how you intend to comply.
Base Salary, page 13
10. Please expand your disclosure regarding the specific individual objectives that the
compensation committee considered in determining annual salary decisions. Describe each objective,
explain how it is measured, disclose the actual performance of each executive for each objective
considered and disclose how it impacted the salary awarded. Please refer to
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Item 402(b)(2)(vii) of Regulation S-K. Please provide this disclosure in future filings and tell
us how you plan to comply.
Cash Bonus, page 14
11. Please disclose the divisional and company-wide annual financial performance objectives for
each named executive officer and how such targets were weighted when determining their bonus
payments and how they compared to actual results. Please also revise your disclosure to include a
more in-depth discussion of the committee’s “subjective evaluation” of the individual factors that
you disclose and how those individual factors impacted the amounts awarded. Refer to Item
402(b)(2)(v) and Instruction 4 to Item 402(b) and Item 402(b)(2)(vii) of Regulation S-K. Please
provide this disclosure in future filings and tell us how you plan to comply.
Long-Term Equity Incentive Compensation, page 14
12. Please provide an analysis of how the compensation committee determined the amount of stock
awards granted to each of the named executive officers in 2008. Please provide this disclosure in
future filings and tell us how you plan to comply.
In response to comments 9-12 of your letter, the Company proposes to include the Compensation
Discussion and Analysis attached as Exhibit A hereto in the Company’s Definitive Proxy Statement on
Schedule 14A or, if the Commission so requires, in an amendment to the Company’s Preliminary Proxy
Statement on Schedule 14A. The attached Compensation Discussion and Analysis has been revised from
the version included in the Company’s Preliminary Proxy Statement on Schedule 14A in order to
address your comments.
Proposal to Amend Our Restated Articles of Organization, page 26
13. Please disclose the proposed increase to the number of shares of common stock authorized by the
charter in this section and elsewhere in the proxy statement as applicable. Refer to Item 11(a) of
Schedule 14A. Please also disclose the total number of shares of common stock reserved for
issuance upon the exercise of outstanding stock options. Please disclose these amounts in your
response and confirm that you will amend the preliminary proxy to reflect these figures.
The proposed amendment to the Company’s Restated Articles of Organization, if approved by the
Company’s shareholders, would increase the number of authorized shares of the Company’s common
stock from 90,000,000 shares to 140,000,000 shares. As of April 2, 2009, 32,477,220 shares of the
Company’s common stock were outstanding and an additional 2,709,000 shares of the Company’s common
stock were reserved for issuance upon the exercise of outstanding stock options. The Company will
disclose these amounts as of the new record date for the Company’s 2009 Annual Meeting of
Shareholders in its Definitive Proxy Statement
Mr. Jorge Bonilla
May 22, 2009
Page 14
May 22, 2009
Page 14
on Schedule 14A or, if the Commission so requires, in an amendment to the Company’s Preliminary
Proxy Statement on Schedule 14A.
Proposal to Amend Our 2008 Stock Incentive Plan, page 27
General
14. Please disclose the total number of shares of common stock currently available for grant under
the stock incentive plan. Please also disclose the amount of total shares that will be available
for grant as proposed by your plan amendment, including the increase to the number of shares of
restricted stock and the number of shares underlying stock options which may be granted during any
calendar year to covered employees. Please disclose these amounts in your response and confirm
that you will amend the preliminary proxy to reflect these figures.
As of April 2, 2009, 2,076,199 shares of the Company’s common stock remained available for
grant under the Company’s 2008 Stock Incentive Plan (the “Plan”). The proposed amendment to the
Plan, if approved by the Company’s shareholders, would, among other things, increase the aggregate
number of shares available for grant under the Plan, as well as the number of shares of restricted
stock and the number of shares underlying stock options which may be granted during any calendar
year to covered employees of the Company, to 10,000,000 shares. The Company will disclose these
amounts as of the new record date for the Company’s 2009 Annual Meeting of Shareholders in its
Definitive Proxy Statement on Schedule 14A or, if the Commission so requires, in an amendment to
the Company’s Preliminary Proxy Statement on Schedule 14A.
The Company would note that, with respect to comments 13 and 14 of your letter, the trading
price of the Company’s common stock had fallen to $2.22 per share as of May 15, 2009 from $7.50 per
share as of May 15, 2008. Based on such decline, the Company’s Board of Directors thought it would
be appropriate to increase the number of authorized shares under the Company’s Restated Articles of
Organization and increase the number of shares available for grant under the Plan, and seek
shareholder approval of these share increases, in the event the Company’s Board of Directors
subsequently makes a determination to seek to raise additional capital.
In connection with this response to the Staff’s comments, the Company acknowledges that:
| • | the Company is responsible for the adequacy and accuracy of the disclosure in the filing; | ||
| • | Staff comments or changes to disclosure in response to Staff comments do not foreclose the Commission from taking any action with respect to the filing; and |
Mr. Jorge Bonilla
May 22, 2009
Page 15
May 22, 2009
Page 15
| • | the Company may not assert Staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States. |
The Company has attempted to address the comments raised in your letter and any concerns that
the Staff may have. If you have any questions or require any additional information, please feel
free to contact me at (561) 912-8270.
Thank you for your assistance.
| Sincerely, |
||||
| /s/ Anthony M. Puleo | ||||
| Anthony M. Puleo, | ||||
| Senior Vice President, Chief Financial Officer and Treasurer |
||||
EXHIBIT A
COMPENSATION DISCUSSION AND ANALYSIS
Overview of Compensation Program
Our Compensation Committee (sometimes referred to within this section as the “Committee”)
reviews and determines the compensation of our Named Executive Officers (those individuals named
below), administers our equity incentive plans (including reviewing and approving grants to our
Named Executive Officers), makes recommendations to shareholders with respect to proposals related
to compensation matters and generally consults with management regarding employee compensation
programs.
The Compensation Committee’s charter reflects these responsibilities, and the Compensation
Committee and the Board periodically review and, if appropriate, revise the charter. The Board
determines the Compensation Committee’s membership, which is composed entirely of independent
directors. The Compensation Committee meets at regularly scheduled times during the year, and it
may also hold specially scheduled meetings and take action by written consent. At Board meetings,
the Chairman of the Compensation Committee reports on Compensation Committee actions and
recommendations, with all discussions of compensation occurring in executive sessions of the Board.
Pursuant to its authority under its charter to engage the services of outside advisors,
experts and others to assist the Compensation Committee, the Compensation Committee engaged the
services of third party consultants, including Mercer Human Resource Consulting (“Mercer”) and
Johnson Associates, Inc. (“Johnson”), to meet with and advise the Compensation Committee with
respect to evaluating the competitiveness of our compensation program for our Named Executive
Officers and programs aimed at aligning executive compensation with our performance and
shareholders’ interests.
Our Named Executive Officers are the following individuals:
| Name | Position | |
John M. Maloney, Jr.
|
President and Chief Executive Officer | |
Daniel C. Koscher
|
Senior Vice President; President and Chief Executive Officer of Bluegreen Communities | |
Anthony M. Puleo
|
Senior Vice President, Chief Financial Officer, Treasurer and Secretary | |
David L. Pontius
|
Senior Vice President; President of Bluegreen Management Services | |
David Bidgood
|
Senior Vice President; Executive Vice President of Sales & Marketing of Bluegreen Resorts |
Compensation Components and Alignment to Compensation Goals
For 2008, the compensation received by our Named Executive Officers consisted of a base
salary, a cash bonus (except for Mr. Maloney who did not receive a cash bonus during 2008),
restricted stock and stock option awards, and health and welfare benefits. The Committee believes
that the compensation program for our Named Executive Officers is appropriately based upon our
performance, the performance and level of responsibility of the Named Executive Officers, and data
regarding the compensation levels paid to comparable executives at comparable companies.
The Committee’s goal in designing the compensation package for our Named Executive Officers is
to attract and retain key talent, and align compensation with the Company’s short-term and long
term goals. From time to time, the Committee has also examined market data regarding the
compensation levels paid to comparable executives at comparable companies in an effort to
appropriately align the Company’s executive compensation program with the compensation programs of
comparable companies.
Attraction and Retention of Key Talent
The compensation package seeks to retain key executives by offering:
| • | competitive cash compensation, consisting of base salary and bonus opportunity, which are consistent with those offered in the marketplace for executives in similar positions or responsibilities, | ||
| • | a package of competitive benefits, and | ||
| • | a competitive stock-based compensation program. |
Alignment of Compensation with Company Goals
The Committee seeks to align compensation with the Company’s short-term and long-term goals
through:
| • | emphasis on corporate performance goals, | ||
| • | stock-based compensation grants to incentivize efforts which improve share price, and | ||
| • | stock-based grants and bonuses linked to Company performance goals. |
The Company recognizes that the market price of the Company’s Common Stock is influenced by
many economic factors, including the overall state of the economy, the real estate market, and the
credit environment, all of which are largely outside of the control of the Company and its
management. In recognition of this fact, the Company grants stock options and restricted stock in
its effort to align the interests of management with the interest of shareholders and may rely on
discretionary bonuses when appropriate to compensate executive management.
Analysis of Market Data
During 2007, the Compensation Committee engaged Mercer to conduct a review of the compensation
program for the Chief Executive Officer and the other Named Executive Officers. Mercer provided
the Compensation Committee with reports, studies and relevant market data as well as alternatives
to consider when making compensation decisions for the Chief Executive Officer and in connection
with acting on the recommendations made by the Chief Executive Officer with respect to
the compensation of the other Named Executive Officers. As part of its review, Mercer
presented the Compensation Committee with an overview of the competitiveness of the Company’s
executive compensation program compared to the executive compensation programs of the following
companies:
Avatar Holdings, Inc.
|
California Coastal Communities, Inc. | HomeFed Corporation | ||
Intrawest Corp.
|
Woodbridge Holdings Corporation | Marcus Corporation | ||
Silverleaf Resorts, Inc.
|
The St. Joe Company | Sunterra Corporation | ||
Vail Resorts, Inc.
|
Wyndham Worldwide Corporation |
These companies were chosen by Mercer and approved by management as appropriate companies for
comparison based on the fact that they are all publicly-traded companies engaged in the
hospitality industry and are generally of similar size and complexity. Each Named Executive
Officer’s base salary, total cash compensation (including cash bonuses payable under the Company’s
annual incentive program), long-term incentive compensation and total compensation were compared
with available 2007 data. In the aggregate, the Named Executive Officers’ compensation fell
within the following ranges with respect to the companies listed above.
Base Salary |
25% - 50% | |
Total Cash Compensation (Including Bonuses under Annual Incentive Program) |
75% | |
Long-term Incentive Compensation |
25% | |
Total Compensation |
50% - 75% |
The Compensation Committee did not perform a competitive analysis during 2008 with respect to
the Company’s compensation package considered as a whole and, as described below, no material
changes were made to the Named Executive Officers’ base salaries in 2008 or 2009. However, as
described below under “Long-Term Equity Incentive Compensation,” during 2008, Johnson advised the
Compensation Committee with respect to the Company’s long-term equity incentive compensation
program, which included a comparison against the long-term equity incentive compensation programs
of comparable companies.
Role of Executive Officers in Compensation Decisions
The Compensation Committee made all compensation decisions, including those with respect to
equity awards, for each of the Named Executive Officers, and approved recommendations regarding
equity awards to all of our employees. The Chief Executive Officer annually reviews the
performance of each of the Named Executive Officers (other than the Chief Executive Officer, whose
performance is reviewed by the Compensation Committee). The conclusions reached and
recommendations made based on these reviews, including those with respect to setting and adjusting
base salary, annual cash incentive awards and bonuses and stock-based awards, are presented to the
Compensation Committee. The Compensation Committee can exercise its discretion in modifying upward
or downward any recommended amounts or awards. In 2008, the Compensation Committee accepted without
modification the recommendations of the Chief Executive Officer.
Compensation of Our Named Executives Officers
Base Salary
The Company believes it is essential to provide the Named Executive Officers with competitive
base salaries that will enable the Company to continue to attract and retain qualified senior
executives from the hospitality industry. Base salary generally accounts for a significant
portion of the total compensation paid to the Named Executive Officers.
As described above, in setting base salaries, the Compensation Committee periodically examines
market compensation levels and trends observed in the market for executives of comparable
experience and skills and uses such market information as an initial frame of reference for
establishing and adjusting base salaries. Base salary amounts are also generally determined based
on the level of responsibility and the complexity of the job function for each individual position.
The Compensation Committee also makes base salary decisions for the Named Executive Officers
(other than the Chief Executive Officer) based on recommendations from the Chief Executive Officer,
which includes a formal performance review of each Named Executive Officer. These reviews include
considerations relating to each Named Executive Officer’s efforts with respect to individual
objectives set for him at the beginning of the year.
With respect to base salary decisions for the Chief Executive Officer, the Compensation
Committee made an assessment of Mr. Maloney’s past contributions and its expectations as to his
future contributions to us as Chief Executive Officer. Its considerations included (i) his role in
identifying future market trends and opportunities, (ii) his role in developing and implementing
the short- and long-term strategic business plans, goals and objectives for the Company and his
ability to implement activities in furtherance of, and create effective processes and
infrastructure to support. such plans, goals and objectives, (iii) his communication of the
Company’s vision, mission and values to executive management, (iv) his ability to expand the
Company’s revenue base through increased membership and investment, and his role in managing
overall Company results, (v) his efforts with respect to the Company’s competitiveness and
innovation and (vi) his overall responsibility for fiscal matters and corporate budget planning.
With respect to Mr. Koscher, considerations included (i) his role in developing and
implementing the business strategies for Bluegreen Communities, (ii) his efforts with respect to
the restructuring of Bluegreen Communities to conserve cash and reduce overhead, (iii) his role in
transforming the selling and marketing strategy of Bluegreen Communities to achieve efficiencies,
(iv) his direction of the activities of Bluegreen Communities’ senior management in the development
and administration of comprehensive inventory plans with a goal of maintaining a coordinated and
financially sound approach to acquisition and sales activities in the division and (v) his
oversight of the implementation of operational systems, including cash management, accounts payable
and other procedures, to coordinate various aspects of operations.
With respect to Mr. Puleo, considerations included (i) his role in developing the Company’s
short- and long-term financial business plan, including establishing Company-wide financial
objectives, policies, programs and practices, (ii) his oversight of the Company’s cash flow and
ability to maintain adequate sources for borrowings, including his efforts to (a) manage the
Company’s cash position in light of the current economic downturn and deterioration of the credit
markets in an effort to ensure that sufficient cash is available to the Company to meet its
corporate obligations, (b) manage
and strengthen the Company’s relationships with existing lenders, (c) negotiate with existing
lenders to renew, modify or revise the Company’s existing credit facilities and (d) negotiate with
potential new lenders and/or identify new sources of capital for the Company, (iii) his oversight
of the Company’s financial records, equity compensation plans and investor relations, (iv) his role
in the preparation of the Company’s required financial reports, SEC filings, press releases and
other public communications, (v) his efforts with respect to the market for the Company’s
securities and (vi) his role in the restructuring of the Company’s consolidated operations to
conserve cash and reduce overhead.
With respect to Mr. Pontius, considerations included (i) his ability to identify market trends
and opportunities, (ii) his role in developing and implementing the short- and long-term business
plan for Bluegreen Resorts, (iii) his role in the development of products, services, technologies
and processes and (iv) his oversight of the activities of the senior management of Bluegreen
Resorts in the development and administration of a comprehensive strategic plan.
With respect to Mr. Bidgood, considerations included (i) his identification of opportunities
for business strategies and directions, (ii) his role in developing and implementing the short- and
long-term business plan for Bluegreen Resorts, (iii) his role in implementing and executing
Bluegreen Resorts’ sales and marketing policies and practices and (iv) his efforts to develop
products, services, technologies and processes.
The objectives described above are not quantified, ranked or otherwise assigned relative
weights with respect to the determination of each Named Executive Officer’s base salary. Rather,
the Chief Executive Officer and the Compensation Committee make base salary recommendations and
determinations, respectively, based on their consideration of all of the objectives considered as a
whole.
The base salaries of our Named Executive Officers for 2008 did not change from their 2007
levels. In addition, while the Committee recognized the Named Executive Officers’ efforts and
achievements with respect to the individual objectives set for them, based on current economic
conditions, the Committee decided not to grant any base salary increases for 2009. As a result,
the base salaries which have been established by the Committee for the Named Executive Officers for
2009 were not changed from their 2008 levels, except for the base salary of Mr. Pontius, which was
reduced from $500,000 in 2008 to $450,000 in 2009 as a result of his reassignment from President of
Bluegreen Resorts to President of Bluegreen Management Services.
Cash Bonus
As described above, the Compensation Committee attempts to structure the compensation program
for our Named Executive Officers with the goal of motivating them to achieve our business
objectives and to reward them upon achievement of those objectives. In furtherance of that goal,
the Company has an annual incentive program, which is a cash bonus plan that includes elements tied
to the achievement of pre-established divisional and Company-wide annual financial performance
objectives. These objectives are established each year during our annual budget process and are
intended to promote growth and profitability of the Company. The portion of an executive officer’s
cash bonus under our annual incentive program that is related to financial performance objectives
varies based upon the impact that the Compensation Committee believes he or she has on the overall
corporate and divisional financial performance. Each executive officer’s bonus is intended to take
into
account corporate and individual components, which are weighted according to the executive
officer’s responsibilities. The financial performance objectives generally include earnings per
share and field operating profit (by division) targets. Specifically, during 2008, the Named
Executive Officers (other than Mr. Maloney, who was only eligible to receive a discretionary bonus
under the annual incentive program) were eligible to receive bonuses under the formula-based
component of the Company’s annual incentive program as follows:
Mr. Koscher
|
Bonus payable based on Bluegreen Communities’ field operating profit for 2008 compared to budget, with a targeted bonus of $600,000 | |
Mr. Puleo
|
Bonus payable based on the Company’s earnings per share for 2008 compared to budget, with a targeted bonus of $225,000 | |
Mr. Pontius
|
Bonus payable based on Bluegreen Resorts’ field operating profit for 2008 compared to budget, with a targeted bonus of $500,000 and a maximum bonus of $750,000 | |
Mr. Bidgood
|
Bonus payable based on the timeshare sales and field operating profit generated for regions over which he had responsibility during 2008 compared to budget, with a targeted bonus of $600,000 |
Based on these performance objectives and the actual results of the Company and its divisions
during 2008, Messrs. Pontius and Bidgood were paid bonuses of $503,277 and $751,182, respectively,
under the formula-based component of the Company’s annual incentive program. Messrs. Koscher and
Puleo did not receive bonuses under the formula-based component of the Company’s annual incentive
program as the performance objectives set for them were not achieved during 2008.
The Company’s annual incentive program also includes a discretionary element pursuant to which
bonuses are tied to a subjective evaluation of overall performance in areas outside those that can
be objectively measured from financial results. The Compensation Committee believes that this
discretionary element provides incentives for individual performance independent of the Company’s
financial performance. The components of the subjective evaluation generally include the Named
Executive Officer’s efforts with respect to creating long-term opportunities for us, generating
liquidity for our operations and improving our products and services. In addition, in making
discretionary bonus decisions, the Compensation Committee reviews the specific efforts of the Named
Executive Officers and considers whether the goals of the executive, notwithstanding his efforts,
were adversely affected by factors which he could not control or materially influence. The
Committee also discusses the impact of the performance of one division on the second and how
executives whose bonuses are tied to both divisions should be determined in light of current real
estate market conditions and other factors which are largely outside of the executive’s control.
In 2008, Messrs. Koscher and Puleo were paid discretionary bonuses of $50,000 and $175,000,
respectively, based on the recommendations of the Chief Executive Officer and the Committee’s view
of their substantial efforts and contributions to the Company during the year. Specifically, in
awarding the discretionary bonus to Mr. Koscher, the Committee recognized his role in completing an
in-depth restructuring of the Bluegreen Communities division to conserve cash and reduce overhead
as well as his role in transforming the selling and marketing strategy of the Bluegreen Communities
division to
achieve efficiencies. In addition, in awarding the discretionary bonus to Mr. Puleo, the
Committee recognized (i) his management of the Company’s cash position in light of the current
economic downturn and deterioration of the credit markets in an effort to ensure that sufficient
cash is available to the Company to meet its corporate obligations, (ii) his efforts to actively
manage and strengthen the Company’s relationships with existing lenders, (iii) his role in
successfully initiating negotiations with existing lenders to renew, modify or revise the
Company’s existing credit facilities, (iii) his role in successfully initiating negotiations with
potential new lenders and his efforts with respect to finding new sources of capital for the
Company and (iv) his role in the completion of an in-depth restructuring of the Company’s
consolidated operations to conserve cash and reduce overhead.
Mr. Maloney was also eligible to receive a discretionary bonus of up to 125% of his base
salary during 2008. While the Committee recognized Mr. Maloney’s leadership of the Company during
this challenging economic time, based on current economic conditions, the Committee decided not to
award Mr. Maloney a discretionary cash bonus during 2008.
Long-Term Equity Incentive Compensation
Our long-term equity incentive compensation program was designed to provide an opportunity for
the Named Executive Officers, and our other employees, to increase their stake in the Company
through grants of restricted shares of our Common Stock or options to purchase shares of our Common
Stock. This program is aimed towards encouraging executive officers to focus on our long-term
performance by aligning their interests with those of our shareholders, because the ultimate value
of such compensation is directly dependent on the stock price. The Compensation Committee believes
that providing our Named Executive Officers and others with opportunities to acquire an interest in
our growth and prosperity through the grant of restricted shares or stock options is an important
factor in our ability to attract and retain qualified and experienced executive officers.
The Compensation Committee’s grant of restricted shares and stock options to our Named
Executive Officers is based on an assessment of the individual’s contribution to our success and
growth. Generally speaking, the long-term equity incentive compensation of our Named Executive
Officers is linked to year-over-year growth in earnings (earnings per share and/or segment
results). Decisions by the Compensation Committee regarding grants of restricted shares and stock
options to executive officers, including the Named Executive Officers, are generally made based
upon the recommendation of the Chief Executive Officer (other than with respect to decisions
regarding equity-based compensation to be granted to the Chief Executive Officer), the level of the
executive officer’s position with us, an evaluation of the executive officer’s past and expected
future performance, the number of restricted shares and stock options previously granted to and
currently held by the executive officer, and discussions with the executive officer.
In 2008, the Compensation Committee engaged Johnson to review, and advise the Compensation
Committee with respect to, the Company’s long-term incentive compensation program. As part of its
review, Johnson considered the Company’s long-term equity incentive compensation program with the
long-term equity incentive compensation programs of the following companies, which were chosen by
Johnson based on such companies’ participation in the timeshare and hospitality industry:
WCI Communities, Inc.
|
Starwood Hotels & Resorts Worldwide, Inc. | Vail Resorts, Inc. | ||
ILX Resorts Incorporated
|
Choice Hotels International, Inc. | The St. Joe Company | ||
Silverleaf Resorts, Inc.
|
Marriott International, Inc. | Avatar Holdings, Inc. | ||
Wyndham Worldwide Corporation
|
DiamondRock Hospitality Company |
The Compensation Committee considered, in addition to the factors described above, the results
of Johnson’s review in determining the amount of restricted shares and stock options granted to
each Named Executive Officer during 2008. Specifically, as recommended by Johnson, the
Compensation Committee considered the fact that the awards granted in 2008 were anticipated to be
in lieu of any additional award grants for at least three years and will cliff-vest, all at one
time, five years after the date of grant, or earlier upon a change of control of the Company. The
Compensation Committee also considered that the stock options contained exercise prices which were
greater than the then-current trading price of the Company’s Common Stock. The Compensation
Committee believed that the granting of awards in a lump sum in advance and with cliff-vesting
would incentivize the Named Executive Officers to stay with the Company for the full term of the
awards and that the grant of stock options with an exercise price in excess of the then-current
trading price of the Company’s Common Stock would provide a significant incentive to the Named
Executive Officers to maximize earnings and work to improve the value of the Company’s Common
Stock. The Compensation Committee also believed that the terms of such awards would position the
Company to take advantage of strategic alternatives in the future which may maximize the value of
the Company.
The Compensation Committee is reviewing the terms of the 2008 grants in light of the changes
in the Company’s business model and the trading price of its Common Stock as well as based on
current economic conditions.
Internal Revenue Code Limits on Deductibility of Compensation
Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to public
corporations for compensation over $1,000,000 paid for any fiscal year to the corporation’s chief
executive officer and four other most highly compensated executive officers as of the end of the
fiscal year. However, the statute exempts qualifying performance-based compensation from the
deduction limit if certain requirements are met.
The Compensation Committee believes that it is generally in our best interest to attempt to
structure performance-based compensation, including restricted stock, stock options and cash
bonuses, to executive officers who may be subject to Section 162(m) in a manner that satisfies the
statute’s requirements for full tax deductibility for the compensation. In an effort to meet these
objectives, we adopted the 2006 performance-based annual incentive program to provide performance
based goals. The Compensation Committee also recognizes the need to retain flexibility to make
compensation decisions that may not meet Section 162(m) standards when necessary to enable us to
meet our overall objectives, even if we may not deduct all of the compensation. Based on the
discretion the Compensation Committee has in making determinations with respect to cash bonuses, a
portion of the compensation paid by us to our Named Executive Officers may not satisfy the
requirements for deductibility under Section 162(m) in future years.
Employment Agreements
In May 2002, we entered into an employment agreement with Mr. Koscher. The employment
agreement had an initial term of one year with automatic one-year extensions unless terminated by
either Mr. Koscher or us upon not less than 60 days notice prior to the end of the then-current
term. The employment agreement provides that Mr. Koscher will receive a base salary (which was
$400,000 in 2008), subject to annual increases at the discretion of the Compensation Committee, and
certain other benefits and will be eligible to receive a cash bonus as determined by the
Compensation Committee.
In connection with the hiring of Mr. Pontius in April 2007, the Company agreed to pay Mr.
Pontius a base salary of $500,000 (reduced to $450,000 in 2009 as a result of his change in
position from President of Bluegreen Resorts to President of Bluegreen Management Services),
subject to annual increases at the discretion of the Compensation Committee, and certain other
benefits, as well as a bonus equal to 100% of base salary based upon achievement of targeted
financial metrics, with a potential of up to 150% of base salary. In addition, in the event of Mr.
Pontius’ termination by the Company without cause, Mr. Pontius will receive a severance payment in
an amount equal to his then-current annual base salary plus a prorated bonus payment based on
performance.