SEC Filing | The St. Joe Company

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Filed pursuant to Rule 424(b)(4)
Registration No. 333-42397

PROSPECTUS

12,000,000 Shares

St. Joe Corporation
COMMON STOCK
------------------------

OF THE 12,000,000 SHARES OF COMMON STOCK OFFERED HEREBY, 10,200,000 ARE BEING
OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS (THE
"U.S. OFFERING") AND 1,800,000 ARE BEING OFFERED INITIALLY OUTSIDE THE UNITED
STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS (THE "INTERNATIONAL
OFFERING," AND TOGETHER WITH THE U.S. OFFERING, THE "OFFERINGS"). SEE
"UNDERWRITERS." ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD
BY THE ALFRED I. DUPONT TESTAMENTARY TRUST (THE "SELLING STOCKHOLDER" OR THE
"TRUST"). SEE "ALFRED I. DUPONT TESTAMENTARY TRUST." ST. JOE CORPORATION (THE
"COMPANY" OR "ST. JOE") WILL NOT RECEIVE ANY PROCEEDS FROM THE SALE OF THE
SHARES BEING OFFERED HEREBY. THE COMPANY'S COMMON STOCK IS LISTED ON THE NEW
YORK STOCK EXCHANGE UNDER THE SYMBOL "SJP." ON FEBRUARY 10, 1998, THE LAST
REPORTED SALE PRICE OF THE COMMON STOCK ON THE NEW YORK STOCK EXCHANGE WAS
$34.125 PER SHARE.
------------------------

SEE "RISK FACTORS" BEGINNING ON PAGE 9 HEREIN FOR CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK.
------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------

PRICE $34 A SHARE
------------------------

UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND SELLING
PUBLIC COMMISSIONS(1) STOCKHOLDER
-------- -------------- -----------

Per Share............................................. $34.00 $1.615 $32.385
Total(2).............................................. $408,000,000 $19,380,000 $388,620,000

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(1) The Company and the Selling Stockholder have agreed to
indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, as
amended.
(2) The Selling Stockholder has granted to the U.S. Underwriters
an option, exercisable within 30 days of the date hereof, to
purchase up to an aggregate of 1,800,000 additional Shares
of Common Stock at the price to public less underwriting
discounts and commissions for the purpose of covering
over-allotments, if any. If the U.S. Underwriters exercise
such option in full, the total price to public, underwriting
discounts and commissions and proceeds to the Selling
Stockholder will be $469,200,000, $22,287,000 and
$446,913,000, respectively. See "Underwriters."

------------------------

The Shares of Common Stock are offered, subject to prior sale, when, as,
and if accepted by the Underwriters named herein, and subject to approval of
certain legal matters by Davis Polk & Wardwell, counsel for the Underwriters. It
is expected that delivery of the shares of Common Stock will be made on or about
February 13, 1998, at the offices of Morgan Stanley & Co. Incorporated, New
York, N.Y., against payment therefor in immediately available funds.
------------------------

MORGAN STANLEY DEAN WITTER
DONALDSON, LUFKIN & JENRETTE
Securities Corporation

MERRILL LYNCH & CO.

RAYMOND JAMES & ASSOCIATES, INC.

February 10, 1998
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[MAP OF THE STATE OF FLORIDA SHOWING THE LOCATION OF THE COMPANY'S PROPERTIES]

CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT THE COMMON STOCK IN CONNECTION
WITH THE OFFERINGS, AND MAY BID FOR AND PURCHASE THE SHARES OF THE COMMON STOCK
IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
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NO PERSON IS AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, BY THE SELLING STOCKHOLDER OR BY
ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE COMMON STOCK OFFERED HEREBY TO ANY PERSON IN
ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE ANY SUCH OFFER
OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.

There are restrictions on the offer and sale of the Common Stock offered
hereby in the United Kingdom. All applicable provisions of the Public Offers of
Securities Regulations of 1995, the Financial Services Act of 1986 and the
Companies Act of 1985 with respect to anything done by any person in relation to
the Common Stock in, from or otherwise involving the United Kingdom must be
complied with. See "Underwriters."
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TABLE OF CONTENTS

Statement Regarding Forward Looking Disclosure.............. ii
Available Information....................................... iii
Incorporation Of Certain Documents By Reference............. iii
Prospectus Summary.......................................... 1
Risk Factors................................................ 9
Dividends................................................... 17
Market For Common Stock..................................... 17
Alfred I. duPont Testamentary Trust......................... 18
Selected Consolidated Financial Data........................ 20
Management's Discussion And Analysis Of Financial Condition
And Results Of Operations................................. 23
Business And Properties..................................... 28
Management.................................................. 57
Principal and Selling Stockholders.......................... 65
Certain Transactions........................................ 66
Description Of Common Stock................................. 66
Tax Consequences To Non-U.S. Holders........................ 67
Underwriters................................................ 70
Legal Matters............................................... 73
Experts..................................................... 73
Index To Consolidated Financial Statements.................. F-1

STATEMENT REGARDING FORWARD LOOKING DISCLOSURE

Certain statements contained under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business and Properties" and elsewhere in this Prospectus,
including, without limitation, those concerning implementation of the Company's
new business strategy, its expansion plans, economic performance and financial
condition, the Company's ability to obtain appropriate entitlements relating to
its real estate operations, the scope and profitability of the Company's
developable land, the ability of the Company to optimize the value of its assets
(including, without limitation, through dispositions or otherwise), projected
harvesting levels and the ability of the Company to successfully integrate
existing or future joint venture and/or acquisition candidates into its
operations are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of
the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), and
the Company intends that such forward-looking statements be subject to the safe
harbor protection provided thereby. Such forward-looking statements may be
identified by use of forward-looking terminology, such as "may," "intend,"
"will," "expect," "anticipate," "estimate," "continue" or the negative thereof
or other variations thereon or comparable terminology. Because such statements
involve risks and uncertainties,

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actual results may differ materially from those expressed or implied by such
forward-looking statements. Factors that could cause such differences include,
but are not limited to, those discussed under "Risk Factors."

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Room 1024, Washington, D.C., and at the Commission's regional
offices at 75 Park Place, New York, New York and at Northwest Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois, and copies may be obtained
at prescribed rates from the Public Reference Section of the Commission at its
principal office at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549. Such reports, proxy statements and other information may
also be inspected and copied at the offices of the New York Stock Exchange, 20
Broad Street, New York, New York. The Commission also maintains a site on the
World Wide Web at "http://www.sec.gov" that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission.

The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the shares of Common Stock offered hereby. This Prospectus, which
constitutes part of the Registration Statement, omits certain of the information
contained in the Registration Statement and the exhibits and schedules thereto
on file with the Commission pursuant to the Securities Act and the rules and
regulations of the Commission thereunder. In addition, certain documents filed
by the Company with the Commission have been incorporated by reference in this
Prospectus. See "Incorporation of Certain Documents by Reference." The
Registration Statement, including exhibits and schedules thereto and such
incorporated documents, may be inspected and copied at the public reference
facilities maintained by the Commission at its principal office in Washington,
D.C. or at its regional offices. Statements contained in this Prospectus as to
the contents of any contract or other document referred to are not necessarily
complete and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents, filed with the Commission by the Company pursuant
to the Exchange Act, are incorporated herein by reference and made part of this
Prospectus: (i) the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 (the "1996 10-K"); (ii) the portions of the Company's
1996 Annual Report to Stockholders that have been incorporated by reference into
the 1996 10-K; (iii) the portions of the Company's 1996 definitive Proxy
Statement for its Annual Meeting of Stockholders dated April 11, 1997 that have
been incorporated by reference into the 1996 10-K; (iv) the Company's Quarterly
Reports on Form 10-Q for the quarters ended March 30, 1997, June 30, 1997 and
September 30, 1997; and (v) the Company's Current Reports on Form 8-K dated
November 25, 1997 and December 10, 1997.

Each document filed by the Company pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering of all shares of Common Stock to which
this Prospectus relates shall be deemed to be incorporated by reference in this
Prospectus and to be part hereof from the date of filing such documents. Any
statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
(or in the applicable Prospectus Supplement) or in any other subsequently filed
document which also is or is deemed to be

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incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.

Copies of all documents which are incorporated herein by reference (not
including the exhibits to such information that are incorporated by reference,
unless such exhibits are specifically incorporated by reference in such
information) will be provided without charge to each person, including any
beneficial owner, to whom this Prospectus (or the applicable Prospectus
Supplement) is delivered upon written or oral request. Requests for such
documents should be directed to St. Joe Corporation, 1650 Prudential Drive,
Jacksonville, Florida 32207, Attention: Investor Relations (telephone: (904)
396-6600).

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PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) appearing
elsewhere in this Prospectus. Per share data appearing in this Prospectus has
been restated to reflect the 3-for-1 split of the Company's Common Stock on
January 12, 1998. Unless otherwise indicated, all information in this Prospectus
is presented on the assumption that the over-allotment option granted to the
U.S. Underwriters has not been exercised. As used herein, the terms "Company"
and "St. Joe" refer to St. Joe Corporation and its subsidiaries.

THE COMPANY

St. Joe Corporation is a diversified company engaged in the real estate,
forestry, transportation and sugar industries in the State of Florida. The
Company is the single largest private landowner in Florida, owning more than 1.1
million acres, or approximately 3% of the land area of the state (an area
slightly smaller than the land area of the State of Delaware). Although the vast
majority of the Company's properties consist of timberlands, St. Joe owns a
large portfolio of income producing properties and sizable tracts suitable for
commercial, industrial and residential as well as resort and entertainment
development. The Company is currently engaged in four principal lines of
business:

- Real Estate -- the development, ownership and management of commercial,
industrial and residential properties as well as the prospective
development of resort and entertainment properties;

- Forestry -- the management and harvesting of extensive timberland
holdings;

- Transportation -- the operation of two railroads within Florida; and

- Sugar -- the cultivation, harvesting and processing of sugar cane.

St. Joe is currently undergoing a number of important changes in its mix of
businesses and its overall business strategy. In early 1997, the Company hired a
new chairman and chief executive officer, Peter Rummell, the former President of
Disney Development Company and Chairman of Walt Disney Imagineering, as well as
several other senior members of management with strong backgrounds in
large-scale real estate development, the complex Florida entitlement process,
and financial and asset management. Under the direction of this new management
team, the Company intends to focus more closely on the development of its large
land portfolio. In addition, the Company is implementing a new strategy in its
forestry segment by extending the harvest rotation of certain sections of its
timberlands in order to effect a shift toward higher-margin products. In order
to focus more closely on its core assets, the Company sold its linerboard mill
as well as its container and communications businesses in 1996. In addition, on
December 6, 1997, management announced that it had reached an agreement in
principle to sell the Company's sugar lands to certain federal and state
government agencies on or before June 6, 1998, although the Company will retain
the right to farm the sugar lands through the 2002-2003 crop year.

Management believes that the Company has a number of key business strengths
and competitive advantages, including, in its opinion, the largest inventory of
private land suitable for development in the State of Florida, a very low cost
basis in its land assets, a strong cash position and no material indebtedness,
which management believes will allow St. Joe the financial flexibility to
aggressively pursue development opportunities. Management is also focusing on
optimizing the value of the Company's other operating assets and may employ
financially-driven strategies to improve returns, such as acquisitions, joint
ventures and dispositions.

OPERATIONS

Real Estate. The Company currently conducts its real estate operations in
two principal segments: commercial/industrial development and management and
community/residential development.

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approximately 5.6 million square feet of rentable commercial/industrial space.
On the same date, GCC's buildings in service for one year or more were 91%
leased (82% for its portfolio as a whole, including newly constructed
buildings). GCC's buildings are primarily Class "A" office space and high
quality commercial/ industrial facilities constructed after 1987 and are
well-located in business parks near major transportation hubs, primarily in the
Jacksonville and Miami, Florida areas. At October 30, 1997, GCC had an
additional 479,000 square feet under construction and had entitlements to
develop an additional approximately 14.2 million square feet of buildings,
primarily in its Miami, Jacksonville and Orlando parks. GCC also owns over
15,400 acres of unentitled land that management believes are suitable for future
commercial, industrial and residential development, primarily situated adjacent
to the Florida East Coast Railway right-of-ways in attractive markets that the
Company believes will provide significant growth opportunities.

In the community/residential real estate sector, the Company intends to
develop large-scale mixed-use communities, primarily on Company-owned land. The
Company's land holdings include large tracts near Tallahassee, the state
capital, and in northwestern Florida that the Company believes to be well-suited
for community/residential as well as resort and second-home development. These
holdings include significant Gulf of Mexico frontage (with over five miles of
white sand beaches), and bay and riverfront properties, as well as properties
adjacent to existing communities. The Company intends to design and entitle
well-conceived master plans, install major infrastructure improvements and
either sell permitted lots to merchant builders for construction or build and
sell finished residential units to end purchasers. The Company recently
initiated master-planning of 800 acres with over 7,000 feet of white sand beach
frontage in south Walton County near the Town of Seaside for development as
second-home and resort communities and 3,000 acres of a Tallahassee parcel for
development as a mixed-use residential community. The Company is currently
evaluating other properties for development as resort and second-home
communities and believes that its holdings in northwestern Florida offer unique
opportunities to create high amenity projects, with gulf, lake and river access,
at comparatively low costs due to the Company's low basis in its long-term land
holdings.

In order to increase the pace of community/residential development and to
gain a foothold in the home building industry, the Company recently acquired the
personnel, trademark and selected assets of the Arvida Company ("Arvida")
through a majority-owned joint venture (the "Arvida Venture"). Arvida is a
prominent Florida-based community and residential real estate developer, which
in 1996 and the first nine months of 1997 closed contracts on 2,079 houses and
566 lots.

Forestry. The Company is the largest private owner of timberlands in
Florida, with over 700,000 acres manageable as planted pine forests, primarily
in northwestern Florida, and an additional 300,000 acres of mixed timberland,
wetlands and lake and canal properties. The principal product of the Company's
forestry operations is softwood pulpwood. In addition, the Company produces and
sells sawtimber. The Company estimates that it can increase its long-term
sustainable yearly harvest over the next decade to 1.6 million tons of softwood
pulpwood and .9 million tons of softwood sawtimber. The major customer for the
Company's timber has been and continues to be the Company's former linerboard
mill, which it sold to Florida Coast Paper Company, L.L.C. ("Florida Coast") in
May 1996. In 1996, the Company harvested 697,398 tons of timber, of which
610,418 tons were sold to Florida Coast, and the balance to a number of other
market participants, including Georgia-Pacific Corporation, Champion
International Corporation and Louisiana-Pacific Corporation.

After the closure of the mill for several months in 1997, the Company
renegotiated its 15 year supply contract with Florida Coast to allow it to
supply pulpwood to the mill at a level (700,000 tons per year beginning June 1,
1998) significantly lower than historical levels. The Company sought to reduce
its obligation to supply pulpwood under the agreement and intends to extend
growing periods for certain portions of its timber and to sell such timber in
the form of higher-margin products, which the Company anticipates will increase
the long-term profitability of its forestry operations. The Company estimates
that its standing pine inventory on January 1, 1998 totaled 10.6 million tons
and its hardwood inventory totaled 5.9 million tons.

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between Jacksonville and West Palm Beach, Florida and is the exclusive
rail-service provider to the Port of Palm Beach, Port Everglades and the Port of
Miami. Principal commodities carried by FEC, by weight, include
trailers-on-flatcars, containers-on-flatcars, crushed stone, foodstuffs,
vehicles and cement. FEC is pursuing a number of opportunities to enhance
returns, including through leasing its right-of-ways for the laying of
fiber-optic conduit and the construction of communications towers. The Company
also owns the Apalachicola Northern Railroad Company ("ANRR"), a short-line
railroad that operates on 96 miles of track between Port St. Joe and
Chattahoochee, Florida.

Sugar. Talisman Sugar Corporation ("Talisman"), a wholly-owned subsidiary
of the Company, grows sugarcane on over 45,000 acres in the Belle Glade region
of south central Florida. Talisman processes this sugarcane at its mill facility
and sells all of the output of raw sugar to the Everglades Sugar Refinery, Inc.,
a wholly owned subsidiary of Savannah Foods & Industries, Inc. During the
1996-1997 crop year, Talisman produced 117,000 tons of raw sugar. As part of its
efforts to focus more intently on the Company's core assets, the Company has
agreed in principle to sell its sugar lands to certain federal and state
government agencies on or before June 6, 1998 for $133.5 million in cash. In the
event the proposed sale is consummated, Talisman would retain the right to farm
the sugar lands through the 2002-2003 crop year. The proposed transaction is
subject to both government and board approval.

KEY BUSINESS STRATEGIES

The Company's principal objective is to optimize the value of its
substantial asset base. The Company's management team is focused on the
following key strategies:

Increase the Pace of Development. Through its new management team,
the Company intends to take a more aggressive approach to the development
of its properties. In the commercial/industrial sector, GCC has secured
entitlements to develop an additional 14.2 million square feet of
buildings. In the community/residential development sector, the Company's
inventory includes approximately 51,000 acres, including land adjacent to
existing developments and prime gulf-front properties as well as numerous
lake and riverfront parcels that management believes can be developed in a
variety of formats. As part of its strategy to increase the pace of
development, St. Joe intends to initiate home-building activity, primarily
through the Arvida Venture. During the near term, the Arvida Venture will
accelerate development through the acquisition of land from third parties.
Over the longer term, management believes the Company's large raw land
portfolio will allow the Company to maintain low development costs relative
to its competitors and that its existing large portfolio of
income-producing properties, together with its other businesses, will
generate cash to fund a significant portion of its long-term projects.

Pursue Strategic Acquisitions and Joint Ventures in Real Estate. The
Company believes that its diverse capabilities and access to capital
provide a competitive advantage in identifying and acquiring additional
development opportunities. The Company intends to pursue such development
opportunities through potential acquisitions, joint ventures and other
strategic alliances, particularly with established Florida-based
developers. Management believes that joint venture relationships will
provide the Company with immediate access to the human resources, local
market expertise and information systems necessary to enable the Company to
compete effectively for development opportunities. As part of this
strategy, the Company recently entered into the Arvida Venture. The Company
also recently formed a joint venture with CNL Group, Inc. ("CNL"), a large
privately held real estate investment, finance and development company, to
develop commercial properties primarily in the central Florida region along
the U.S. Interstate Highway 4 corridor, including Tampa, Orlando and
Daytona Beach. On December 9, 1997, the Company entered into a letter of
intent with Codina Group, Inc. ("Codina") and Weeks Corporation ("Weeks")
under which the Company and Weeks, among other things, each agreed to
purchase a one-third interest in Codina, a commercial/industrial developer
active principally in southern Florida.

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partners. Location-based entertainment takes the form of stand alone
facilities, often part of regional or national chains, that provide
entertainment, food and beverage and/or retail experiences. As part of this
strategy, on January 22, 1998, the Company entered into a memorandum of
understanding (the "Memorandum") with the National Football League ("NFL")
to build and operate NFL entertainment centers in locations nationwide. The
venture, in which the Company will own a 40% interest, plans to operate
facilities that provide interactive NFL football entertainment experiences
in club settings complemented by food service, bar and retail sales. Under
the Memorandum, the Company has agreed to initially contribute up to $25
million to the venture, which will seek to develop at least seven projects
in various U.S. cities. The proposed transaction is subject to the
execution of a definitive agreement and appropriate corporate approvals,
and there can be no assurance that the transaction will be consummated or,
if consummated, that the venture will be successful.

In addition, the Company plans to actively pursue the development of
resorts (including hotels, golf courses and other recreational facilities)
as a new line of business. Resort development may be in the form of stand
alone projects or in conjunction with the Company's large-scale community
development projects. The Company believes it has the land inventory
(including attractive beach and other waterfront properties) necessary to
enter the resort development business effectively. As part of the Company's
strategy to enter the resort development business, in December 1997 the
Company acquired the Riverside Golf Management Company, which manages three
daily fee public golf courses in Jacksonville, Florida, Atlanta, Georgia
and Clemson, South Carolina. The Company's management has extensive
experience in the resort and entertainment segments of the real estate
development industry and is seeking avenues to take advantage of that
expertise.

Aggressively Pursue the Entitlement Process. The Company believes
that the complex Florida land entitlement process can be a significant
entry barrier to less capitalized developers. In developing new residential
real estate projects, the Company intends to capitalize on its large
existing land portfolio by, if appropriate, deeding or donating portions of
its existing properties in exchange for long-term development rights. The
Company believes its large, established land inventory provides an
advantage relative to competitors that must purchase real estate before
beginning development projects.

Enhance Operating Performance. The Company believes it can improve
its operating performance through the following means:

Implement Aggressive Leasing Policy. Due to currently favorable
market conditions, the Company believes that it can generate incremental
earnings through enhanced management of its existing rental portfolio
and through more aggressive leasing. Leases for approximately 73% of
GCC's 4.6 million rented square feet expire over the next five years. In
exercising this strategy, the Company intends to balance rental revenue
with occupancy levels in order to optimize project revenues.

Increase Long-Term Profitability of Forestry Operations. The
Company intends to improve returns in its forestry operations by growing
portions of its timber for longer periods in order to capitalize on
higher margins for older-growth timber. In 1996, the Company shed the
lower-margin component of its forestry operations through the sale of
its linerboard mill and container facilities, and in 1997, the Company
reduced employment in its forestry operations by 72% through
outsourcing. In addition, the Company is considering potential
transactions to increase the nearer term value of the Company's
timberlands, such as asset swaps, sales, joint ventures or lease
arrangements.

Achieve Cost Reductions in Transportation Operations. The Company
believes it can improve the profitability of its transportation segment
through reductions in its cost structure, including more efficient use
of its railyards and equipment.

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and joint ventures and to incur debt in appropriate circumstances in order
to more effectively leverage the value of the Company's assets. The Company
had cash, cash equivalents and marketable securities of approximately $505
million at January 12, 1998.

THE FLORIDA ECONOMY

The Company's businesses are centered in Florida and the state's economic
health and growth rate will be important factors in creating demand for the
Company's products and services. According to the Bureau of Economic Analysis of
the WEFA Group, from 1992 to 1996 Florida's gross domestic product grew at an
average rate of approximately 6.1% per year compared to 5.3% per year for the
United States as a whole, and from 1997 to 2001 is expected to grow at an
average annual rate of 5.8% compared to 5.3% for the nation as a whole.
According to U.S. Census Bureau statistics, Florida's annual population growth
over the last ten years has been 2.0%, while the average U.S. rate of population
growth has been approximately 1.0%. According to the Bureau of Economic and
Business Research at the University of Florida (the "Bureau"), Florida's
population will increase 26% between 1995 and 2010 compared to a U.S. Census
Bureau projection of 13.5% for the United States as a whole. Population growth
rates on the eastern coast of Florida, where many of GCC's properties are
located, are projected by the Bureau to be significantly higher than the
statewide rate. With the exception of Walton County (where population growth
rates have exceeded those of the State of Florida), population growth rates in
northwestern Florida, where most of the Company's properties are located, have
not been as high as those of the State as a whole, but have still exceeded the
national average. The Bureau estimates that employment in Florida grew at an
average annual rate of 3.5% from 1980 to 1995 and will continue to increase at
an average annual rate of 2.2% from 1996 to 2010. According to the Bureau,
personal incomes in Florida grew at 4.1% from 1980 to 1995 and are expected to
continue to grow at approximately 2.9% per year from 1996 to 2010. Florida's
population, job and income growth have created substantial demand for new
residential and commercial construction. According to a study conducted by the
Bureau, in 1995 Florida ranked first in the nation with respect to the number of
housing units permitted for construction and second in the nation on a value per
unit basis. Housing starts in the state of Florida are expected to reach an
aggregate level of 113,200 for 1996 and 1997 combined and to increase to 116,000
for 1998 alone. Management expects Florida's economic and population growth to
continue and believes that St. Joe is well positioned to benefit from increasing
demand for housing as well as office and industrial space in the Florida real
estate market.

THE OFFERINGS

Common Stock Offered by the Trust:
U.S. Offering............................................. 10,200,000 shares
International Offering.................................... 1,800,000 shares
Total:............................................ 12,000,000 shares
Common Stock Outstanding(1)................................. 91,697,811 shares
Use of Proceeds............................................. No proceeds will be
received by the Company.
New York Stock Exchange Symbol.............................. "SJP"

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(1) As of January 12, 1998. Does not reflect 5,845,341 shares of Common Stock
issuable upon the exercise of options. A total of 185,139 additional shares
of Common Stock are reserved for issuance under the Company's stock option
plan. See Note 10 to the Consolidated Financial Statements.

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THE ALFRED I. DUPONT TESTAMENTARY TRUST

The Company currently is, and following the Offerings will continue to be,
controlled by the Alfred I. duPont Testamentary Trust (the "Selling Stockholder"
or the "Trust"). The Trust was established under the Last Will and Testament of
Alfred I. duPont (the "Will") to provide certain testamentary dispositions
specified in the Will and to establish and benefit The Nemours Foundation (the
"Nemours Foundation"), a charitable foundation for the care and treatment of
crippled, but not incurable, children and certain elderly. Prior to the
Offerings, the Trust and the Nemours Foundation together beneficially owned
69.0% (after giving effect to management stock options exercisable within the
next 60 days) of the outstanding Common Stock, and after the Offerings the Trust
and the Nemours Foundation together will own 54.1% of the outstanding Common
Stock (assuming exercise of the U.S. Underwriters' over-allotment option). Two
of the six trustees of the Trust serve as directors of the Company and FECI. The
Trust is selling the Common Stock in order to diversify the Trust's assets and
to reinvest the proceeds of the Offerings in assets which produce higher current
income. See "Alfred I. duPont Testamentary Trust" and "Management."

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12

SUMMARY CONSOLIDATED FINANCIAL DATA

NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
-------- --------- -------- -------- ---------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

STATEMENT OF OPERATIONS DATA:
Net sales(1).............................. $155,122 $ 150,564 $245,704 $173,401 $ 79,566
Operating revenues(2)..................... 175,784 184,360 185,485 162,307 172,328
-------- --------- -------- -------- ---------
Total revenues.................. 330,906 334,924 431,189 335,708 251,894
Cost of sales............................. 111,014 116,014 112,163 64,765 63,282
Operating expenses........................ 133,091 139,875 139,640 120,524 118,493
Selling, general and administrative
expenses................................ 26,836 31,718 31,215 24,373 28,103
-------- --------- -------- -------- ---------
Operating profit........................ 59,965 47,317 148,171 126,046 42,016
Other income.............................. 25,164 18,770 40,857 32,005 32,650
-------- --------- -------- -------- ---------
Income from continuing operations before
income taxes and minority interest...... 85,129 66,087 189,028 158,051 74,666
Provision for income taxes................ 31,446 24,535 83,117 71,211 32,981
-------- --------- -------- -------- ---------
Income from continuing operations before
minority interest....................... 53,683 41,552 105,911 86,840 41,685
Minority interest......................... 15,827 12,194 14,002 9,922 13,404
-------- --------- -------- -------- ---------
Income from continuing operations......... 37,856 29,358 91,909 76,918 28,281
Income (loss) from discontinued
operations(3)........................... 4,253 44,461 (4,528) (4,528) --
Gain on sale of discontinued
operations(3)........................... -- -- 88,641 95,644 --
-------- --------- -------- -------- ---------
Net income...................... $ 42,109 $ 73,819 $176,022 $168,034 $ 28,281
======== ========= ======== ======== =========
PER SHARE DATA(4):
Income from continuing operations......... $ 0.41 $ 0.32 $ 1.00 $ 0.84 $ 0.31
Earnings (loss) from discontinued
operations.............................. 0.05 0.49 (0.05) (0.05) --
Gain on the sale of discontinued
operations.............................. -- -- 0.97 1.05 --
-------- --------- -------- -------- ---------
Net income................................ $ 0.46 $ 0.81 $ 1.92 $ 1.84 $ 0.31
======== ========= ======== ======== =========
Dividends paid(5)......................... $ 0.07 $ 0.07 $ 0.07 $ 0.05 $ 0.05
Special distribution(6)................... -- -- -- -- 3.33
OTHER OPERATING DATA:
EBDDT(7).................................. $ 58,327 $ 73,992 $ 72,682 $ 55,701 $ 60,938
Capital expenditures...................... 65,450 78,816 64,271 41,135 53,256
Cash flows provided by (used in)
Operating activities.................... 102,718 154,082 117,345 136,818 75,237
Investing activities(6)................. (82,750) (137,115) 322,877 344,437 (11,773)
Financing activities(6)................. (11,143) (46,554) (8,011) (6,065) (311,491)

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AS OF DECEMBER 31, AS OF SEPTEMBER 30,
----------------------- -------------------
1995 1996 1997
---------- ---------- -------------------
(UNAUDITED)
(IN THOUSANDS)

BALANCE SHEET DATA:
Cash and cash equivalents(8).......................... $ 303,590 $ 819,851 $ 576,712
Total property, plant and equipment, net.............. 804,974 834,167 853,217
Total assets.......................................... 1,530,994 1,806,238 1,584,860
Total stockholders' equity............................ 1,016,067 1,196,941 934,606

(1) Net sales includes real estate, land and building sales, forestry and timber
sales and sugar sales. Net sales for the nine months ended September 30,
1996 included two related one-time condemnation sales of land to the State
of Florida in exchange for $97.8 million in cash plus certain limited
development rights. Net operating results of the communications segment,
linerboard mill and container plants are shown separately as income (loss)
from discontinued operations for all years presented.
(2) Operating revenues includes real estate rental revenue and transportation
revenue.
(3) Net operating results of the communications segment, linerboard mill and
container plants are shown separately as income (loss) from discontinued
operations for all years presented. The gain on sale of discontinued
operations declined by approximately $7.0 million during the fourth quarter
of 1996 as a result of finalizing the post closing working capital
adjustments, closing expenses and pension curtailment gain, which had been
previously estimated. See Note 3 to the Consolidated Financial Statements.
(4) Per share data is rounded to the nearest $.01 to reflect the 3-for-1 split
of the Company's Common Stock on January 12, 1998.
(5) On December 30, 1997, the Company paid a dividend of $.02 per share.
(6) Approximately $359.3 million of proceeds from the sales of the
communications segment, linerboard mill and container plants were held in
special accounts during 1996. A special distribution of a portion of the net
proceeds of the sales of $3.33 per share was paid on March 25, 1997, for
stockholders of record on March 21, 1997. The Company made a special
distribution of the remaining net proceeds of $.34 per share on December 30,
1997 to stockholders of record on December 19, 1997.
(7) The Company uses a supplemental performance measure along with net income to
report its operating results. This measure, Earnings Before Depreciation and
Deferred Taxes (EBDDT), is not a measure of operating results or cash flows
from operating activities as defined by generally accepted accounting
principles. Additionally, EBDDT is not necessarily indicative of cash
available to fund cash needs and should not be considered as an alternative
to cash flows as a measure of liquidity. However, the Company believes that
EBDDT provides relevant information about its operations and is necessary,
along with net income, for an understanding of its operating results.
Depreciation, amortization and deferred income taxes are excluded from EBDDT
as they represent non-cash charges. Earnings and gains on sales of
discontinued operations and gains on the sale of non-strategic land and
other assets represent non-operating, unusual and/or nonrecurring items and
are therefore excluded from EBDDT.
(8) Includes cash, cash equivalents, marketable securities and short-term
investments.

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14

RISK FACTORS

The following risk factors should be considered carefully in conjunction
with the other information contained in this Prospectus or incorporated by
reference herein in evaluating the Company and its businesses before purchasing
the Common Stock offered hereby.

IMPLEMENTATION OF NEW BUSINESS STRATEGY

The Company is currently undergoing a number of important changes in its
mix of businesses and its overall business strategy. In the first quarter of
1997, the Company hired a new chairman and chief executive officer as well as
several other senior members of management with strong backgrounds in
large-scale real estate planning and development and financial and asset
management. Under the direction of this new management team, the Company intends
to focus more closely on the development of its large land portfolio. Management
is also implementing a new strategy in the Company's forestry operations
pursuant to which the Company intends to extend the harvest rotation of certain
forest sections in order to effect a shift toward higher-margin products. As
part of the Company's strategy to focus more closely on core assets, the Company
sold its linerboard mill and container facilities as well as its communication
businesses in 1996. In addition, management has reached an agreement in
principle to sell the Company's sugar lands to certain federal and state
government agencies.

Management expects the Company's new business strategy will result in a
larger portion of the Company's overall revenues being attributable to real
estate operations. However, many of the Company's proposed projects will require
a lengthy development process before lots or residential units can be sold or
otherwise generate revenue. See "Business and Properties -- Real
Estate -- Community and Residential Development." In addition, during the aging
of the Company's timberlands, management expects near-term revenues will remain
flat or fall to levels below those achieved by the business in earlier years.
See "Business and Properties -- Forestry." While the Company believes that its
new business strategy will enable it to enhance the value of its asset base as
well as improve its long-term financial results, there can be no assurance that
this new strategy will be successful, that the anticipated benefits of this new
strategy will be realized, or that management will be able to implement its
strategy on a timely basis.

RISKS RELATING TO REAL ESTATE OPERATIONS

General Real Estate Investment Risks. In general, real property
investments are subject to varying degrees of risk. The yields available from
real estate investments depend on the amount of income earned and capital
appreciation generated by the related properties as well as the expenses
incurred in connection therewith. If the Company's properties do not generate
income sufficient to meet operating expenses, the Company's financial
performance could be adversely affected. The Company's properties intended for
residential development are primarily located in northwestern Florida and GCC's
commercial/industrial properties are primarily located in or near Miami, Orlando
and Jacksonville, Florida. Income from and the performance of the Company's
properties may therefore be adversely affected by the general economic climate
of these regions, including unemployment rates and local conditions such as the
supply of and demand for real estate in the area, the attractiveness of the
Company's properties to potential residents or tenants, zoning or other
regulatory restrictions, competition from other available properties, the
affordability of homes and comparable commercial/industrial properties, and the
potential of increased operating costs (including real estate taxes). Over the
last decade, the growth of Florida's economy has substantially outperformed that
of the U.S. economy. Northwestern Florida's growth is also expected to continue,
although at a lesser rate than is expected for the rest of the state. However,
there can be no assurance that the Florida economy (including the northwest
region) will continue to experience positive growth rates or that Florida will
not be affected by a recession in the future. Certain significant expenditures
associated with an investment in real estate (such as real estate taxes,
maintenance costs and debt payments) would generally not be reduced if
circumstances in the local economy caused a reduction in revenue from the
Company's properties. Accordingly, if growth rates for the Florida economy begin
to decline or if a recession in the Florida economy occurs, the Company's
financial results could be adversely affected.

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15

Development Risks. Any existing or future development activities of the
Company will entail certain risks, including the expenditure of funds on and
devotion of management's time to projects which may not come to fruition; the
risk that development or redevelopment costs of a project may exceed original
estimates, possibly making the project uneconomical; the risk that occupancy
rates or rents at a completed project will be less than anticipated or that
there will be vacant space at the project; the risk that expenses at a completed
development will be higher than anticipated; and the risk that permits and other
governmental approvals will not be obtained. In addition, the Company's real
estate development activities require significant capital expenditures. The
Company will be required to obtain funds for its capital expenditures and
operating activities through cash flow from operations, property sales or
financings. There can be no assurances that funds available from cash flow,
property sales and financings will be sufficient to fund the Company's required
or desired capital expenditures for development. If the Company were unable to
obtain sufficient funds, it might have to defer or otherwise limit certain
development activities. Further, any new development or any rehabilitation of
older projects can require compliance with new building codes and other
regulations. The Company cannot estimate the cost of complying with such codes
and regulations, and such costs can make a new project or some otherwise
desirable uses of an existing project uneconomic.

Before the Company can develop property, it must obtain a variety of
approvals (entitlements) from local governments with respect to such matters as
zoning, subdivision, environmental and other issues. The Company must also
obtain a variety of approvals from state and federal governments with respect to
matters that may include issues related to the environment, special status
species, the public trust and others. Because of the discretionary nature of
these approvals and concerns that may be raised by various governmental
officials, public interest groups and other interested parties during both the
approval and development process, the Company's ability to develop properties
and realize income from its projects could be delayed, reduced or eliminated.
See "Business and Properties -- Real Estate -- Regulation."

Joint Venture Risks. The Company has direct or indirect equity interests
in several joint ventures and may initiate future joint venture projects as part
of its overall development strategy. A joint venture may involve special risks
associated with the possibility that (i) the venture partner at any time may
have economic or business interests or goals that are inconsistent with those of
the Company, (ii) the venture partner may take actions contrary to the
instructions or requests of the Company or contrary to the Company's policies or
objectives with respect to its real estate investments or (iii) the venture
partner could experience financial difficulties. Actions by the Company's
venture partners may have the result of subjecting property owned by the joint
venture to liabilities in excess of those contemplated by the terms of the joint
venture agreement or have other adverse consequences. In its role as a general
partner of certain joint ventures, the Company may be jointly or severally
liable for the debts and liabilities of the joint ventures. The Company may not
be able to control decisions made by its joint ventures. In addition, the
Company's joint venture partners may dedicate time and resources to existing
commitments and responsibilities. See "Business and Properties -- Real
Estate -- Community and Residential Development -- Other."

Risks Related to Acquisition Financing. A significant portion of the
Company's resources may be used for acquisitions of joint ventures or other
entities. The timing, size and success of the Company's acquisition efforts and
any associated capital commitments cannot be readily predicted. The Company may
finance future acquisitions by using shares of its Common Stock, cash or a
combination of Common Stock and cash. If the Common Stock does not maintain a
sufficient market value, or if potential acquisition candidates are otherwise
unwilling to accept Common Stock as part of the consideration for the sale of
their businesses, the Company may be required to utilize more of its cash
resources, if available, in order to initiate and maintain its acquisition
program. If the Company does not have sufficient cash resources, its growth
could be limited unless it is able to obtain additional capital through debt or
equity financings. There can be no assurance that the Company will be able to
obtain additional financing it may need for its acquisition program on terms
that the Company deems acceptable. To the extent the Company uses Common Stock
for all or a portion of the consideration to be paid for future acquisitions,
dilution may be experienced by existing stockholders, including the purchasers
of Common Stock in the Offerings. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "-- Control by Principal Shareholder."

10
16

Natural Disasters. Natural disasters, such as hurricanes, floods or fires,
or unexpected climactic conditions, such as unusually heavy or prolonged rain,
particularly in Florida, where the Company's assets are concentrated, may have
an adverse impact on the ability of the Company to develop its properties and
realize income from its projects.

Regulation. The Company's current and past ownership and operation of real
property are subject to environmental laws and regulations generally applicable
to all businesses. The Company may be liable for the costs of remediating
hazardous materials contamination on its properties, regardless of fault, and
the Company's ability to sell or develop its properties may be severely
restricted by various federal, state and local environmental laws, including
laws relating to the protection of wetlands and endangered species. See "--
Environmental Matters" and "Business and Properties -- Real
Estate -- Regulation."

Rental Income and Competition for Tenants. Because of the Company's
substantial investment in rental properties, the Company's overall financial
performance would be adversely affected if a significant number of the Company's
tenants were unable to meet their obligations to the Company. In addition, when
space becomes available at its properties, the Company is subject to risks that
the leases may not be renewed and that the terms of the renewal or reletting
(including the cost of required renovations or concessions to tenants) may be
less economically advantageous to the Company. The Company has established
annual property budgets, including estimates of costs for renovation and
reletting expenses, that it believes are reasonable in light of each property's
situation, but no assurance can be given that estimates will sufficiently cover
all expenses. If the Company is unable to promptly lease all or substantially
all of the space at its properties, if the rental rates are significantly lower
than expected or if the Company's reserves for these purposes prove inadequate,
there could be an adverse effect on the Company's financial performance. See
"Business and Properties -- Commercial and Industrial Development -- Leasing."

RISKS RELATED TO FORESTRY OPERATIONS

Committed Product Purchases by Florida Coast; Possible Inability to Develop
New Markets. The major customer for the timber harvested from the Company's
timberlands has been and continues to be the Company's former linerboard mill,
which was sold on May 30, 1996 to Florida Coast. Sales to the mill accounted for
87% of the segment's sales from timber harvested on Company lands in 1996. The
mill was temporarily shut down from April through September 1997 due to soft
market conditions in the paper industry. As a result of the shutdown, the
Company's forestry net sales decreased 48.2% from $44.6 million in the
nine-month period ending September 30, 1996 to $23.1 million in the comparable
period in 1997. The mill was reopened in September 1997 and the existing supply
agreement was renegotiated on a reduced tonnage basis. Although management
believes the mill will continue to operate, there can be no assurances regarding
the ability of the mill to satisfy its obligations, particularly on a long-term
basis, under the existing agreement. See "Business and
Properties -- Forestry -- Sales and Marketing."

As tonnage required to be supplied under the agreement decreases, the
Company intends to allow its forests to grow for longer periods, shifting the
usage of its timber to higher-margin products. However, the performance of the
forestry segment may decline in the near term as that shift occurs. While
management believes that there is significant demand for the Company's timber
and wood fiber products from users other than the mill, no assurance can be
given that such demand exists, that the forestry operations will be able to
develop new customers on a timely basis, if at all, or that it will be able to
sell its products to third parties at market prices. Any excess supply of timber
and wood fiber that results from the inability of the Company to sell its
products to users other than the mill could result in lower prices for its
products, which could have a material adverse effect on the net sales, operating
income and cash flow of the Company's forestry operations.

Factors Affecting Supply and Demand. The results of operations of the
Company's forestry segment are and will continue to be affected by cyclical
supply and demand factors related to the forest products industry. The supply of
timber is significantly affected by land use management policies of the United
States government. Government agencies historically have been major suppliers of
timber to the United States forest products industry, but timber sales by such
government agencies currently are at historically low levels. Any reversal of
government land use management policies that substantially increases sales of
timber by United

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17

States government agencies could significantly reduce prices for forest
products. The demand for wood products also has been, and in the future can be
expected to be, subject to cyclical fluctuations. Demand is primarily affected
by the level of housing starts, repair and remodeling activity, industrial wood
product use, competition from non-wood products, and the demand for pulp and
paper products. These factors are subject to fluctuations due to changes in
economic conditions, interest rates, population growth, weather conditions,
competitive pressures and other factors. Any decrease in the level of industry
demand for wood products generally can be expected to result in lower net sales,
operating income and cash flow of the Company's forestry operations. See
"Business and Properties -- Forestry -- Pricing."

Harvesting Limitations. Weather conditions, timber growth cycles, access
limitations and regulatory requirements associated with the protection of
wildlife and water resources may restrict harvesting on the Company's forestry
lands. Timber harvests also may be affected by various natural factors,
including damage by fire, insect infestation, disease, prolonged drought, severe
weather conditions and other causes. The effects of such natural disasters may
be particularly damaging to young timber. Although damage from such natural
causes usually is localized and affects only a limited percentage of the timber,
there can be no assurance that any damage affecting the Company's forestry lands
will in fact be so limited. Any of the above factors could materially limit the
ability of the Company to harvest timber and could have a significant adverse
impact on the net sales, operating income and cash flow of the Company's
forestry operations.

Commodity Price Fluctuations and Markets. The forestry operations' results
of operations are highly dependent upon the prices received for wood products.
Although most of the Company's forestry operations' sales are currently made
pursuant to a long-term contract with Florida Coast, this contract includes a
price adjustment provision which permits an increase or decrease at specified
times in contract price to reflect changes in certain price or other economic
indices, taxes and other charges. In addition, the industry could experience
significant price declines from current levels as a result of natural market
forces. Any significant decline in prices for wood products could have a
material adverse effect on the Company's forestry operations.

Regulation. In conducting its harvesting activities, the Company
voluntarily complies with the "Best Management Practices" recommended by the
Florida Division of Forestry. From time to time, proposals have been made in
state legislatures regarding the regulation of timber harvesting methods. There
can be no assurance that such proposals, if adopted, will not adversely affect
the Company or its ability to harvest and sell logs or timber in the manner
currently contemplated. The forestry operations are also subject to
environmental and endangered species laws and regulations. See "-- Environmental
Matters" and "Business and Properties -- Forestry -- Regulation."

RISKS RELATING TO TRANSPORTATION OPERATIONS

Relationships With Other Railroads. Most of the traffic on the Company's
railroads is interchanged with other railroads. The Company's ability to provide
service to its customers depends in part upon its ability to maintain
cooperative relationships with connecting railroads with respect to, among other
matters, joint line rates, car supply, and interchange and haulage rights. In
addition, the Company's future revenues could be adversely affected by a
significant deterioration in the operational or financial condition of its
connecting carriers. See "Business and Properties -- Transportation."

Regulation. The Company's transportation operations are subject to
environmental, safety, health and other regulations generally applicable to all
businesses. In addition, the Company's railroads, like other rail common
carriers, are subject to regulation by the Surface Transportation Board, the
Federal Railroad Administration, state departments of transportation and other
state and local regulatory agencies. Government regulation of the railroad
industry is a significant determinant of the competitiveness and profitability
of railroads.

FEC is a party to various proceedings before state regulatory agencies
relating to compliance with environmental laws. In addition, the Company's
present and historic ownership and operation of real property, including yards
and maintenance facilities, in connection with its transportation operations
involve the storage, use or disposal of hazardous substances that have
contaminated and may in the future contaminate the environment. The Company may
also be liable for the costs of cleaning up a site at which it has disposed
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18

(intentionally or unintentionally by virtue of, for example, an accident,
derailment or leak) or to which it has transported hazardous substances. The
Company is currently involved in various remediations of properties relating to
its transportation operations. See "-- Environmental Matters," "Business and
Properties -- Transportation -- Regulation" and "Business and
Properties -- Environmental Proceedings."

Liability for Casualty Losses. The Company's railroads, like other freight
railroads, are liable for damage to freight, for losses arising from personal
injury and for property damage in the event of derailments or other accidents or
occurrences. The Company has obtained insurance covering many of these risks;
however, under catastrophic circumstances, particularly those involving
transportation of hazardous materials, such liability could exceed the Company's
insurance limits. Also, insurance is available from only a very limited number
of insurers and there can be no assurance that insurance protection at the
Company's current levels will continue to be available or, if available, will be
obtainable by the Company on acceptable terms. To the extent payments required
in connection with losses or other liabilities arising from derailments or other
causes are not covered by insurance or exceed the Company's insurance limits,
the financial condition of the Company could be adversely affected. See
"Business and Properties -- Transportation."

Fluctuations in Revenues and Expenses. The Company has historically
experienced fluctuations in revenues and expenses due to unpredictable events
such as customer plant expansions and shut-downs, accidents and derailments. The
occurrence of such events in the future could cause further fluctuations in
revenues and expenses and negatively affect the Company's financial performance.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations -- Transportation."

Customer Concentration. Management estimates that FEC's five largest
customers accounted for approximately 31.0% of FEC's operating revenues in 1996.
FEC's two largest customers in 1996 were Rinker Materials Corporation and
Tarmac-Florida, Inc., which, management estimates, accounted for approximately
11.9% and 7.8% of operating revenues, respectively, in the transportation
segment. The Company's business could be adversely affected if its customers
suffer significant reductions in their businesses or reduce shipments of
commodities transported by the Company. See "Business and
Properties -- Transportation."

RISKS RELATED TO SUGAR OPERATIONS

The Company's sugar operations are located in the Florida Everglades, which
are the subject of extensive environmental review by a variety of governmental
entities. In 1994 the State of Florida enacted the Everglades Forever Act, which
significantly affects agriculture in the Everglades Agriculture Area ("EAA").
The Act calls for the creation of six Stormwater Treatment Areas ("STAs") as
buffers between the Everglades Protection Area and the EAA. The Act imposes
substantial taxes on the Company's sugar operations (approximately $1.3 million
was paid in each of 1995 and 1996) and other agricultural interests to pay for
construction of the STAs. No assurances can be given that compliance costs with
the EAA will not increase materially in the future. The Company also must
maintain compliance with other environmental laws, including the federal Clean
Water Act and the federal Clean Air Act. See "-- Environmental Matters" and
"Business and Properties -- Sugar -- Regulation."

On December 6, 1997, the Company reached an agreement in principle with
certain federal and state government agencies for the sale of the Company's
sugar lands. The Company will be required to deliver the lands in compliance
with all federal and state environmental laws and be responsible for and bear
the expenses of the cleanup of such lands and the sugar mill. No assurances can
be given that cleanup costs will not materially affect the Company.

ENVIRONMENTAL MATTERS

The Company's current and past railroad, forestry and sugar operations, its
past paper operations and its current and past ownership, operation and leasing
of real property, are subject to extensive and changing local, state and federal
environmental laws and regulations governing, among other things, emissions into
the air, discharges into waters, the use, handling, transportation and disposal
of hazardous substances, the protection, investigation and remediation of soil
and groundwater contamination and employee health and safety. Such
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19

laws include, but are not limited to, the federal Clean Water Act, the federal
Clean Air Act, the Endangered Species Act of 1973 ("ESA"), the Resource
Conservation and Recovery Act of 1978, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"), the Federal Insecticide,
Fungicide and Rodenticide Act and the Toxic Substances Control Act. Such laws
can impose criminal and civil penalties, remediation expenses, natural resource
damages and injunctive relief. The Company has made and will continue to make
expenditures to comply with such laws. Liability under such laws and regulations
may be imposed on current and prior owners and operators of property without
regard to fault and without regard to knowledge about the condition or action
causing the liability. The Company may also be contractually liable for
indemnification of environmental clean-up costs in connection with the sale of
its assets, businesses or real property, including the sale of its former
linerboard mill to Florida Coast and container plants to Four M Corporation, and
will be contractually required to bear the expenses of any environmental
clean-up costs in connection with the sale of its sugar lands. In addition, the
Company may potentially incur substantial costs relating to the clean-up of
contamination caused by hazardous substances. The presence of hazardous
substances on a property may also adversely affect the Company's ability to sell
or develop such property or to borrow using such property as collateral. The
presence, use or release of hazardous materials could also lead to claims for
personal injury, damages to natural resources or property damage. In addition,
the ESA protects species threatened with possible extinction and restricts the
Company's harvesting activities on certain of the timberlands on which the bald
eagle and the red cockaded woodpecker are present.

The Company has previously owned or operated other businesses or real
property, including those relating to the operation of paper mill and container
plants, which may have adversely affected the environment. As a prior owner or
operator of those facilities, the Company could have liability for environmental
damage, even though it is no longer the owner or operator. Subject to certain
deductibles and sharing provisions, which are not expected to have a material
adverse effect on the Company, the Company believes the purchaser of the paper
mill and container plants will be responsible to the Company for costs relating
to environmental damage; however, should the purchaser not be responsible, the
Company would be liable for such costs. The Company may also be liable for the
costs of cleaning up a site at which it has disposed (intentionally or
unintentionally by virtue of, for example, an accident, derailment or leak), or
over or to which it has transported, hazardous substances. The Company is
currently a party to, or involved in, legal proceedings directed at the clean-up
of certain off-site locations, including sites which are listed on the National
Priorities List under CERCLA or other similar federal or state lists.

The Company accrues for the total estimated clean-up costs for the sites at
which it has clean-up responsibilities when those costs become probable and when
amounts (or at least a minimum amount) can be reasonably estimated. In accruing
those amounts, the Company considers currently available information and
management's evaluation of whether other potentially responsible parties are
reasonably likely to contribute to the cost of a clean-up. As of September 30,
1997, the Company's aggregate environmental accruals were $7.0 million. Based on
presently available information, the Company does not expect to incur amounts in
excess of its accruals that are likely to have a material adverse effect on its
financial position, liquidity or results of operations. However, it is not
possible to quantify environmental costs with certainty because future laws,
ordinances or regulations could impose material environmental liability, and new
or different facts about the Company's operations or its ownership, operation or
leasing of real property could arise in the future. In addition, the Company has
incomplete technical information concerning environmental conditions at certain
sites. See "Business and Properties -- Environmental Proceedings."

COMPETITION

Real Estate. The real estate industry is generally characterized by
significant competition. The Company plans to continue to expand through a
combination of office, industrial and residential developments in Florida where
the acquisition and/or development of property would, in the opinion of
management, result in a favorable risk-adjusted return on investment. There are
a number of office, industrial and residential developers and real estate
companies that compete with the Company in seeking properties for acquisition,
resources for development and prospective tenants. Competition from other real
estate developments may adversely affect the Company's ability to attract and
retain tenants, rental rates and expenses of operation

14
20

(particularly in light of the higher vacancy rates of many competing properties
which may result in lower-priced space being available in such properties). The
Company may compete with other entities that have greater financial and other
resources than the Company. There can be no assurance that the existence of such
competition could not have a material adverse effect on the Company's business,
operations and cash flow.

Forestry. The forest products industry is highly competitive in terms of
price and quality. Many of the Company's competitors are fully integrated
companies with substantially greater financial and operating resources than the
Company. The products of the Company are also subject to increasing competition
from a variety of non-wood and engineered wood products. In addition, the
Company is subject to a potential increase in competition from lumber products
and logs imported from foreign sources. Any significant increase in competitive
pressures from substitute products or other domestic or foreign suppliers could
have a material adverse effect on the Company.

Transportation. Although each of the Company's railroads is typically the
only rail carrier directly serving its customers, the Company's railroads
compete directly with other railroads that could potentially deliver freight to
their markets and customers via different routes. The Company's railroads also
compete directly with other modes of transportation, including motor carriers
and, to a lesser extent, ships and barges. Competition is based primarily upon
the rate charged and the transit time required, as well as the quality and
reliability of the service provided. Any improvement in the cost or quality of
these alternate modes of transportation could increase competition from these
other modes of transportation and adversely affect the Company's business.

Sugar. The sugar industry is highly competitive. The Company competes with
foreign and domestic sugarcane and sugar beet processors, as well as
manufacturers of corn sweeteners and artificial sweeteners such as aspartame and
saccharin. Sugar is a volatile commodity subject to wide price fluctuations in
the marketplace.

CONTROL BY PRINCIPAL SHAREHOLDER

After consummation of the Offerings, the Trust and the Nemours Foundation
will collectively continue to own 50,075,700 shares of Common Stock or
approximately 54% of the outstanding voting securities of the Company (assuming
exercise of the U.S. Underwriters' over-allotment option and giving effect to
management stock options exercisable within 60 days). See "Principal and Selling
Stockholders." Accordingly, the Trust is and will continue to be able to control
the election of the Company's directors and to determine the corporate and
management policies of the Company, including decisions relating to any mergers
or acquisitions by the Company, sales of all or substantially all of the
Company's assets and other significant corporate transactions. In addition, the
Company has entered into a registration rights agreement with the Trust (the
"Registration Rights Agreement"), under which the Company has agreed that for a
period of one year from the completion of the Offerings it will not issue any
shares of Common Stock or options or securities convertible into Common Stock
that would cause the Trust's and the Nemours Foundation's collective ownership
in the Company to fall below 51% on a fully diluted basis. As a result, during
such period the Company will not be able to issue shares of Common Stock in
connection with acquisitions or other financings without the consent of the
Trust. Pursuant to the Registration Rights Agreement, the Trust will also have
the right to nominate two members of the Company's Board of Directors so long as
the Trust and the Nemours Foundation collectively own in excess of 20% of the
Company's outstanding Common Stock, and one member so long as such entities
collectively own in excess of 5%. See "Alfred I. duPont Testamentary Trust --
Registration Rights Agreement."

DEPENDENCE ON KEY PERSONNEL

The Company's future success depends to a significant extent upon the
leadership and performance of its executive officers and key employees. See
"Management." The loss of the services of any of these individuals could have a
material adverse effect on the Company's business, financial performance and
results of operations. While the Company has entered into employment agreements
with Peter S. Rummell, Charles A. Ledsinger, Jr., Robert M. Rhodes and other
members of senior management, the Company cannot assure that

15
21

such individuals will remain with the Company throughout the terms of the
agreements, or thereafter. As the Company continues to grow, it will continue to
hire, appoint or otherwise change senior managers and other key executives.
There can be no assurance that the Company will be able to retain its executive
officers and key personnel or attract additional qualified members to its
management team in the future. The Company does not maintain any policies of key
person life insurance on the lives of its senior management personnel.

SHARES AVAILABLE FOR FUTURE SALE

On completion of the Offerings, the Trust and the Nemours Foundation
together will own approximately 54% of the shares of Common Stock outstanding
(assuming exercise of the U.S. Underwriters' over-allotment option and giving
effect to management stock options exercisable within 60 days). No prediction
can be made as to the effect, if any, that future sales of shares, or the
availability of shares for future sale, will have on the market price of the
Common Stock. Sales of substantial amounts of shares of Common Stock in the
public market or the perception that such sales might occur could adversely
affect the market price of the shares of Common Stock. In the event of any
future issuance of equity securities, the interests of holders of Common Stock,
including the shares of Common Stock offered hereby, could be diluted. In
addition, the Trust, the Company, and certain of the Company's officers,
directors and other stockholders have agreed, except in certain limited
circumstances, not to offer, sell, contract to sell, or otherwise dispose of any
Common Stock or securities exercisable for, convertible into or exchangeable for
Common Stock, for a period of 180 days after the date of this Prospectus,
without the prior written consent of Morgan Stanley & Co. Incorporated. See
"Underwriters."

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22

DIVIDENDS

The Company paid aggregate annual cash dividends of approximately $.07 per
share to holders of the Common Stock in 1995, 1996 and 1997. In addition, the
Company distributed net proceeds of $3.33 per share to stockholders of record on
March 21, 1997 and $.34 per share to stockholders of record on December 19,
1997, in each case arising from the sale of the Company's linerboard and
container facilities and its communications business. Although the Company has
historically paid quarterly cash dividends of approximately $.02 per share,
there can be no assurance that such practice will continue in the future.

MARKET FOR COMMON STOCK

The Company had 938 common stockholders of record as of January 12, 1998.
The Company's Common Stock is quoted on the New York Stock Exchange ("NYSE")
Composite Transactions Tape under the symbol "SJP."

The range of high and low sales prices for the Common Stock as reported on
the NYSE Composite Transactions Tape for the periods indicated is set forth
below.

COMMON STOCK
PRICE(1)
--------------------
HIGH LOW
------- -------

1995
First Quarter............................................... $22 11/16 $17 3/4
Second Quarter.............................................. 22 1/16 20
Third Quarter............................................... 21 1/2 20
Fourth Quarter.............................................. 21 9/16 17 1/2
1996
First Quarter............................................... 20 3/4 17 15/16
Second Quarter.............................................. 21 15/16 19 5/16
Third Quarter............................................... 21 15/16 19 15/16
Fourth Quarter.............................................. 23 3/16 21 3/16
1997
First Quarter............................................... 31 21 1/16
Second Quarter.............................................. 28 1/4 23 5/16
Third Quarter............................................... 33 5/8 27
Fourth Quarter.............................................. 38 5/16 29 5/16
1998
First Quarter(2)............................................ 36 5/8 30 3/32

- ---------------

(1) Prices are rounded to the nearest 1/16th and reflect the 3-for-1 split of
the Company's Common Stock on January 12, 1998.
(2) Through February 10, 1998.

A recently reported sale price of the Company's common stock on the NYSE is
set forth on the cover page of this Prospectus.

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23

ALFRED I. DUPONT TESTAMENTARY TRUST

The Trust was established under the Last Will and Testament of Alfred I.
duPont (the "Will") to provide testamentary dispositions to persons named in the
Will and otherwise to benefit the Nemours Foundation, a charitable foundation
provided for under the Will for the care and treatment of crippled, but not
incurable, children and certain elderly. The Trust has been the controlling
stockholder of the Company since 1940.

The Trust and the Nemours Foundation together currently own 63,875,700
shares or 69.0% of the outstanding Common Stock (after giving effect to
management options exercisable within the next 60 days) and upon consummation of
the Offerings will own 50,075,700 shares or 54.1% of the outstanding Common
Stock (assuming exercise of the U.S. Underwriters' over-allotment option), and
thus will continue to control the Company. The trustees of the Trust as of
November 30, 1997 were W. L. Thornton, Chairman, J. C. Belin, H. H. Peyton, J.
F. Porter, W. T. Thompson, III and Wachovia Bank, N.A. One trustee position is
currently vacant due to the recent death of Alfred duPont Dent, who had been a
trustee for 32 years.

REASONS FOR THE OFFERINGS

The Trust has concluded that it is desirable to sell a portion of its
holdings of the Company's Common Stock to diversify its assets and to enable the
Trust to invest the proceeds of the Offerings in assets that produce higher
current income. Florida law requires the Trust to distribute annually at least
3% of the fair market value of its assets, regardless of its earnings in a given
year. Under the terms of the Will, the Trust is separately required to
distribute annually all of its income. Historically, the Trust has allocated its
investments between debt securities, held to generate current income, and equity
securities, principally the Company's Common Stock, held for long-term capital
appreciation. Because the Company pays relatively low dividends on its Common
Stock, the Trust's other assets must generate income sufficient to permit the
Trust to meet its obligation to distribute annually an amount equal to 3% of the
fair market value of the Trust's total assets. As the equity securities held by
the Trust, principally the Company's Common Stock, have appreciated over time,
the fair market value of the Trust's assets has reached a level at which its
income-producing assets may not generate income equal to 3% of the fair market
value of its assets.

In the future, the Trust may sell additional shares of Common Stock, but
has agreed with the Underwriters that it will not effect any sales of Common
Stock for a period of 180 days from the date of this Prospectus without the
consent of Morgan Stanley & Co. Incorporated. See "-- Registration Rights
Agreement" and "Underwriters."

CERTAIN RELATIONSHIPS

Apart from its ownership interest in the Company's Common Stock, the Trust
owns 46,859 units, or 93.7%, of the outstanding limited partnership units of
Al-Zar, Ltd. ("Al-Zar"), a limited partnership organized by the Company for the
purpose of holding approximately 300 acres of real property in Wilmington,
Delaware. A subsidiary of the Company serves as general partner of Al-Zar and
owns 500 units, or 1%, of Al-Zar's outstanding partnership units.

In addition to their positions with the Trust, Messrs. Thornton, Belin,
Peyton, Porter, Thompson and H. M. Durden, the representative of the corporate
trustee, Wachovia Bank, N.A., also serve as directors of the Nemours Foundation.
The Nemours Foundation owns 450,224 shares, or approximately 5%, of FECI's
outstanding common stock. Mr. Belin and Mr. Thornton also serve as directors of
the Company and FECI, and Mr. Thompson serves as an officer of A.G. Edwards &
Sons, Inc., which is a member of the underwriting group for the Common Stock
being distributed pursuant to this prospectus.

CERTAIN TRANSACTIONS

The Nemours Foundation rents office space from GCC at rates approximating
market rentals. In addition, Mr. Belin and Mr. Thornton have entered into
consulting agreements with the Company. See "Certain Transactions."

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24

EXPENSES OF THE OFFERINGS

The Company will bear all expenses of the Offerings, other than
underwriting commissions and discounts, the fees and expenses of legal counsel
and financial advisors to the Trust and certain other expenses.

REGISTRATION RIGHTS AGREEMENT

Pursuant to a Registration Rights Agreement between the Trust and the
Company, the Trust may require the Company on up to five occasions to file a
registration statement under the Securities Act so long as such registration
covers not less than 10% of the Registrable Securities (as defined in the
Registration Rights Agreement) held by the Trust and the Nemours Foundation
collectively (unless the registration demand is the last demand available under
the Registration Rights Agreement, in which case it may cover less than 10% of
the Registrable Securities). The Trust may not exercise a demand registration
within six months following the effectiveness of a registration statement for an
earlier demand registration, and the Company may defer filing such a
registration statement or proceeding with an offering for up to 60 days under
certain conditions. The Offerings will constitute the first demand under the
Registration Rights Agreement. In addition, the Trust and the Nemours Foundation
have unlimited "piggy-back" registration rights under the terms of the
Registration Rights Agreement. The Registration Rights Agreement provides that
if the Trust has made a demand for registration and decides not to proceed with
the related offering, in certain circumstances such demand shall be deemed to
have been effected, unless the Trust agrees to pay all expenses of registration.

Pursuant to the Registration Rights Agreement, the Company will bear all of
the expenses of demand registrations, except that the Trust will pay with
respect to its Registrable Securities only its own underwriting discounts and
commissions, the fees and expenses of the Trust's legal counsel and financial
advisors and certain other expenses.

In the Registration Rights Agreement, the Trust and the Company have
agreed, if required by the managing underwriter of a public offering of Common
Stock by the Company or the Trust, not to effect any public sale or distribution
or otherwise dispose of any securities of the Company during the seven days
prior to, and the 90 days after, the effectiveness of the registration statement
for any such offering. In connection with the Offerings, the Company and the
Trust have agreed, subject to certain exceptions, not to effect any such sale or
disposition for a period of 180 days after the date of this Prospectus without
the prior written consent of Morgan Stanley & Co. Incorporated. See
"Underwriters."

In the Registration Rights Agreement, the Company has agreed that, so long
as the Trust and the Nemours Foundation collectively beneficially own at least
51% of the Company's issued and outstanding Common Stock calculated on a fully
diluted basis (as defined in the Registration Rights Agreement), the Company
will not for a period of one year after the closing of the Offerings, without
the prior written consent of the Trust, issue any common stock, convertible
preferred stock, stock subject to options, warrants or other rights, convertible
or exchangeable debt or equity securities or other securities which would cause
the collective beneficial ownership interests of the Trust and the Nemours
Foundation in the Company's Common Stock to fall below 51% on a fully diluted
basis. In addition, for so long as the Trust and the Nemours Foundation
collectively beneficially own at least 20% of the issued and outstanding shares
of the Company's Common Stock, the Trust will be entitled to nominate, and the
Company and the Board of Directors of the Company will support the election by
the Company's stockholders of, two individuals designated by the Trust to be
members of the Company's Board of Directors. For so long as the Trust and the
Nemours Foundation collectively own at least 5% and less than 20% of the issued
and outstanding shares of the Company's Common Stock, the Trust will be entitled
to nominate, and the Company and the Board of Directors of the Company will
support the election by the Company's stockholders of, one individual designated
by the Trust to be a member of the Company's Board of Directors. If the size of
the Company's Board of Directors is increased, the number of individuals
designated by the Trust shall be appropriately and proportionately increased.
These provisions of the Registration Rights Agreement are not intended to limit
the ability of the Trust or the Nemours Foundation to vote their shares as they
see fit with respect to the election of directors or otherwise.

Under the Registration Rights Agreement, the Trust and the Company have
also agreed to indemnify each other against certain civil liabilities, including
certain liabilities under the Securities Act.

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25

SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data set forth below are qualified in
their entirety by and should be read in conjunction with the consolidated
financial statements and the notes related thereto included elsewhere in this
Prospectus. The statement of operations data with respect to the years ended
December 31, 1994, 1995 and 1996 and the balance sheet data as of December 31,
1995 and 1996 have been derived from the financial statements of the Company
included herein, which have been audited by KPMG Peat Marwick LLP. The statement
of operations data with respect to the years ended December 31, 1992 and 1993
and the balance sheet data as of December 31, 1992, 1993 and 1994 has been
derived from the financial statements of the Company previously filed with the
SEC although not incorporated by reference or included elsewhere herein, which
have also been audited by KPMG Peat Marwick LLP. The following selected
financial data for the nine months ended on September 30, 1996 and September 30,
1997 have been derived from the Company's unaudited consolidated financial
statements which, in the opinion of management, contain all adjustments
(consisting of only normal and recurring adjustments) necessary to present
fairly the Company's financial position and results of operations at such dates
and for such periods. Historical results are not necessarily indicative of the
results to be expected in the future and results for interim periods are not
necessarily indicative of results for the entire year.

NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------------------- -----------------------
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

STATEMENT OF OPERATIONS
DATA:
Net sales(1).............. $ 130,085 $ 135,417 $ 155,122 $ 150,564 $ 245,704 $ 173,401 $ 79,566
Operating revenues(2)..... 169,439 177,040 175,784 184,360 185,485 162,307 172,328
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenues... 299,524 312,457 330,906 334,924 431,189 335,708 251,894
Cost of sales............. 95,005 105,644 111,014 116,014 112,163 64,765 63,282
Operating expenses........ 138,317 129,704 133,091 139,875 139,640 120,524 118,493
Selling, general and
administrative
expenses................ 23,269 22,145 26,836 31,718 31,215 24,373 28,103
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating profit........ 42,933 54,964 59,965 47,317 148,171 126,046 42,016
Other income.............. 17,860 12,330 25,164 18,770 40,857 32,005 32,650
Income from continuing
operations before income
taxes and minority
interest................ 60,793 67,294 85,129 66,087 189,028 158,051 74,666
Provision for income
taxes................... 21,837 30,328 31,446 24,535 83,117 71,211 32,981
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income from continuing
operations before
minority interest....... 38,956 36,966 53,683 41,552 105,911 86,840 41,685
Minority interest......... 11,074 10,241 15,827 12,194 14,002 9,922 13,404
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income from continuing
operations.............. 27,882 26,725 37,856 29,358 91,909 76,918 28,281
Cumulative effect of
change in accounting
principle(3)............ -- 20,518 -- -- -- -- --
Income (loss) from
discontinued
operations(4)........... (12,292) (14,600) 4,253 44,461 (4,528) (4,528) --
Gain on sale of
discontinued
operations(4)........... -- -- -- -- 88,641 95,644 --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income....... $ 15,590 $ 32,643 $ 42,109 $ 73,819 $ 176,022 $ 168,034 $ 28,281
========== ========== ========== ========== ========== ========== ==========

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26

PER SHARE DATA(5):
Income from continuing
operations.............. $ 0.30 $ 0.29 $ 0.41 $ 0.32 $ 1.00 $ 0.84 $ 0.31
Earnings (loss) from
discontinued
operations(4)........... (0.13) (0.16) 0.05 0.49 (0.05) (0.05) --
Gain on the sale of
discontinued
operations(4)........... -- -- -- -- 0.97 1.05 --
Cumulative effect of
change in accounting
principle(3)............ -- 0.23 -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income................ $ 0.17 $ 0.36 $ 0.46 $ 0.81 $ 1.92 $ 1.84 $ 0.31
========== ========== ========== ========== ========== ========== ==========
Dividends paid(6)......... $ 0.07 $ 0.07 $ 0.07 $ 0.07 $ 0.07 $ 0.05 $ 0.05
Special distribution(7)... -- -- -- -- -- -- 3.33
OTHER OPERATING DATA:
EBDDT(8).................. $ 50,140 $ 68,469 $ 58,327 $ 73,992 $ 72,682 $ 55,701 $ 60,938
Capital expenditures...... 71,574 68,615 65,450 78,816 64,271 41,135 53,256
Cash flows provided by
(used in)
Operating activities.... 68,960 81,605 102,718 154,082 117,345 136,818 75,237
Investing
activities(7)......... (85,498) (68,108) (82,750) (137,115) 322,877 344,437 (11,773)
Financing
activities(7)......... (7,210) (6,153) (11,143) (46,554) (8,011) (6,065) (311,491)

AS OF DECEMBER 31, AS OF SEPTEMBER 30,
-------------------------------------------------------------- -----------------------
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

BALANCE SHEET DATA:
Cash and cash
equivalents(9).......... $ 201,112 $ 256,292 $ 275,417 $ 303,590 $ 819,851 $ 848,636 $ 576,712
Total property, plant and
equipment, net.......... 684,043 722,043 756,954 804,974 834,167 825,816 853,217
Total assets.............. 1,289,384 1,395,833 1,449,390 1,530,994 1,806,238 1,817,606 1,584,860
Total stockholders'
equity(10).............. 833,682 901,710 936,982 1,016,067 1,196,941 1,185,164 934,606

- ---------------

(5) Per share data is rounded to the nearest $.01 to reflect the 3-for-1 split
of the Company's Common Stock on January 12, 1998.
(6) On December 30, 1997, the Company paid a dividend of $.02 per share.
(7) Approximately $359.3 million of proceeds from the sales of the
communications segment, linerboard mill and container plants were held in
special accounts during 1996. A special distribution of a portion of the
net proceeds of the sales of $3.33 per share was paid on March 25, 1997,
for stockholders of record on March 21, 1997. The Company made a special
distribution of the remaining net proceeds of $.34 per share on December
30, 1997 to stockholders of record on December 19, 1997.
(8) The Company uses a supplemental performance measure along with net income
to report its operating results. This measure, Earnings Before Depreciation
and Deferred Taxes (EBDDT), is not a measure of operating results or cash
flows from operating activities as defined by generally accepted accounting
principles. Additionally, EBDDT is not necessarily indicative of cash
available to fund cash needs and should not be considered as an alternative
to cash flows as a measure of liquidity. However, the Company believes that
EBDDT provides relevant information about its operations and is necessary,
along with net income, for an understanding of its operating results.
Depreciation, amortization and deferred income taxes are excluded from
EBDDT as they represent non-cash charges. Earnings and gains on sales of
discontinued operations and gains on the sale of non-strategic land and
other assets represent non-operating, unusual and/or nonrecurring items and
are therefore excluded from EBDDT. The cumulative effect in 1993 of a
change in accounting principle has also been excluded from EBDDT.
(9) Includes cash, cash equivalents, marketable securities and short-term
investments.
(10) The Company adopted the provisions of SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" at December 31, 1993. This
adoption increased stockholders' equity by $41.5 million.

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28

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Management's discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and "Business and Properties" included
elsewhere in this Prospectus. The following discussion contains forward-looking
statements. The Company's actual results may differ significantly from those
projected in the forward-looking statements. Factors that might cause future
actual results to differ materially from the Company's recent results or those
projected in the forward-looking statements include, but are not limited to,
those discussed in "Risk Factors" and below.

The text below includes a discussion of the Company's results of operations
for the nine month period ended September 30, 1996 compared to the nine month
period ended September 30, 1997. For a discussion of the results of operations
for the years ended December 31, 1994, 1995 and 1996, see Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations," in
the Company's 1996 Form 10-K, incorporated by reference herein.

OVERVIEW

St. Joe Corporation is a diversified company engaged in the real estate,
forestry, transportation and sugar industries. Until the second quarter of 1996,
the Company was also engaged in communications and the manufacture and
distribution of forest products.

The Company's assets and operations are concentrated in the state of
Florida. Consequently, the Company's performance, and particularly that of its
real estate operations, is significantly affected by the general health of the
Florida economy. The Company's businesses, particularly forestry and
transportation, are influenced by the general health of the national economy.
The Company's real estate operations are also cyclical but are primarily
affected by local demographic and general economic trends, and the supply and
rate of absorption of new construction. Although the Company has a large
portfolio of income producing properties that provide stable operating results,
the Company's earnings from period to period may be significantly affected by
the nature and timing of sales of development property and non-strategic assets.

The Company is currently undergoing a number of important changes in the
mix of its businesses and its overall business strategy. In the first quarter of
1997, the Company hired a new chairman and chief executive officer as well as
several other senior members of management with strong backgrounds in
large-scale real estate planning and development. Under the direction of this
new management team, the Company is focusing more closely on the development of
its large land portfolio. Management believes that the Company's increased focus
on real estate operations will result in a larger portion of the Company's
overall revenues being attributable to real estate operations. However, many of
the Company's proposed projects will require a lengthy process to complete the
development cycle before they are sold or otherwise generate revenue.
Nevertheless, management believes the Company's existing raw land portfolio will
allow the Company to maintain relatively low development costs and that its
existing large portfolio of income-producing properties, together with its other
businesses, will continue to generate cash to fund a significant portion of its
longer-term projects.

The Company is also undergoing certain strategic changes in its forestry
operations. The major customer for the Company's timber has been and continues
to be the Company's former linerboard mill which was sold in May, 1996. The wood
fiber supply agreement between the Company and the mill was recently
renegotiated to provide for a level of tonnage that is significantly less than
historical levels. Partly as a result of the reduced tonnage under the
agreement, the Company has decided to allow its forests to grow for longer
periods in order to age the timber and shift its focus toward higher-margin
products. However, during this transition period, management believes that
revenues in the forestry segment may remain flat or decline slightly in the near
term.

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29

RECENT EVENTS

On January 22, 1998, the Company entered into a memorandum of understanding
(the "Memorandum") with the National Football League ("NFL") to build and
operate NFL entertainment centers in locations nationwide. The venture, in which
the Company will own a 40% interest, plans to operate facilities that provide
interactive NFL football entertainment experiences in club settings complemented
by food service, bar and retail sales. Under the Memorandum, the Company has
agreed to initially contribute up to $25 million to the venture, which will seek
to develop at least seven projects in various U.S. cities. The proposed
transaction is subject to the execution of a definitive agreement and
appropriate corporate approvals, and there can be no assurance that the
transaction will be consummated or, if consummated, that the venture will be
successful.

On December 9, 1997, the Company entered into a letter of intent with
Codina Group, Inc. and Weeks Corporation under which the Company and Weeks,
among other things, each agreed to purchase a one-third interest in Codina, a
commercial/industrial developer, active principally in southern Florida. After
the consummation of the transaction, the Company intends to develop commercial,
industrial and office property in southern Florida through its interest in
Codina. The purchase price of this transaction is not material to the Company's
financial position.

On December 6, 1997, the Company announced that it had reached an agreement
in principle to sell its sugar lands to certain federal and state government
agencies for $133.5 million in cash. Under the preliminary agreement, the
Company would retain the right to farm the sugar lands through the 2002-2003
crop year. The proposed transaction is subject to both government and board
approval.

On December 3, 1997, the Company and Orlando-based CNL Group, Inc. formed a
real estate joint venture to invest in and develop office and industrial
properties primarily in the central Florida region. The Company, through two
subsidiaries, received a 50% ownership interest in the joint venture. The
Company committed to lend up to $25 million for new projects the venture
determines to develop and/or manage.

On November 21, 1997, the Company announced the withdrawal of its
outstanding offer to purchase all outstanding FECI common stock not owned by the
Company at $102 per share.

On November 12, 1997, the Company, through two subsidiaries, purchased
certain assets, including the personnel, trademark and proprietary information
systems, of Arvida Company through a newly formed limited partnership with JMB
Southeast Development, L.L.C. and JMB Southeast Development, L.P. for the
purpose of developing and/or managing residential communities on certain lands
owned by the Company, as well as the purchase of other lands for development and
management. The Company owns 74% of the new limited partnership, St. Joe/Arvida
Company, L.P. The purchase price for the 74% partnership interest in the new
entity is not material to the Company's financial position.

RESULTS OF OPERATIONS

COMPARISON OF NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997

Net sales decreased 54.1% from $173.4 million in the first nine months of
1996 to $79.6 million in the first nine months of 1997. Sales in 1996 were
unusually high due to two related condemnation sales of land to the State of
Florida in exchange for $97.8 million in cash plus certain limited development
rights. Sales of real estate totaled $30.5 million in 1997. Operating revenues
increased 6.2% from $162.3 million in 1996 to $172.3 million in 1997, primarily
due to an increase in transportation revenues of $6.8 million as well as
increases in real estate rental revenues.

Cost of sales decreased 2.3% from $64.8 million in the first nine months of
1996 to $63.3 million in the first nine months of 1997, as a result of decreases
in cost of timber and other sales of $21.9 million offset by increases in cost
of real estate sales of $20.3 million. Operating expenses decreased 1.7% from
$120.5 million in the first nine months of 1996 to $118.5 million in the first
nine months of 1997 resulting from decreases in transportation costs of $3.9
million offset in part by an increase in real estate operating costs of $1.9
million.

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30

Selling, general and administrative expenses increased 15.3% from $24.4
million in the first nine months of 1996 to $28.1 million in the first nine
months of 1997, primarily due to a one-time write-off of approximately $2.9
million for expenses incurred in the transportation segment in connection with
the possible disposition of certain of its assets.

Other income (expense) increased 2.0% from $32.0 million in 1996 to $32.7
million in 1997. The year to date increase for the first nine months of 1997 was
due to higher average investment balances compared to the first nine months of
1996.

Income tax expense on continuing operations for the nine months ended in
September 30, 1997 totaled $33.0 million, representing an effective rate of 44%
compared to $71.2 million for a similar effective tax rate in the 1996
comparable period. These rates exceed statutory rates primarily because of the
50% excise tax on prepaid pension cost totaling $4.2 million in 1997 and $11.0
million in 1996. It is anticipated that as long as the Company continues to
record prepaid pension cost, an excise tax of 50% will be accrued.

Net income for the nine months ended September 30, 1997 was $28.3 million
or $0.31 per share compared to $168.0 million or $1.84 per share in 1996.
Results for 1996 included income from discontinued operations of $91.1 million,
net of tax.

Real Estate

NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1996 1997 % CHANGE
------ ----- --------
($ IN MILLIONS)

Net Sales and Operating Revenue............................. $124.2 $59.2 (52.3)
Cost of Sales and Operating Expense......................... 18.4 41.2 123.9
Selling, General and Administrative Expenses................ 3.1 3.4 9.7
Operating Profit............................................ 102.7 14.6 (85.8)

The Company's real estate operations currently consist of commercial and
industrial development and management through GCC, a subsidiary of FECI, and
community residential development through the Southwood Properties Division of
the Company ("Southwood").

Real estate net sales and operating revenue decreased $65.0 million, or
52.3%, from $124.2 million in the first nine months of 1996 to $59.2 million in
the first nine months of 1997. Costs of sales and operating expenses increased
123.9% from $18.4 million in the first nine months of 1996 to $41.2 million in
the first nine months of 1997. The decrease in sales was largely due to two
related condemnation sales of land to the State of Florida in 1996 for $97.8
million in cash plus certain limited development rights. Costs associated with
these sales were $.1 million. The increase in costs of sales and operating
expense was due to a higher cost basis on 1997 land and building sales. Year to
date selling, general and administrative expenses increased 9.7% during 1997 due
primarily to additional salaries and related benefits.

In the commercial/industrial segment, conducted through GCC, rental
revenues increased $3.6 million, or 14.3%, from $25.1 million in the first nine
months of 1996 to $28.7 million in the first nine months of 1997. Operating
expenses in the commercial/industrial segment were $17.6 million for a 38.7%
gross margin in the 1997 period compared to $15.7 million in 1996 for a gross
margin of 37.5%. During the first nine months of 1997 eight buildings were
placed in service adding approximately 973,000 leasable square feet. In the
first nine months of 1997, land and building sales totaled $26.5 million and
included three buildings, totaling $20.1 million, one of which was developed and
constructed specifically for the purpose of resale. The total cost of these
sales was $22.4 million.

In the community/residential segment, land sales increased $2.7 million, or
207.7%, from $1.3 million in the first nine months of 1996 to $4.0 million in
the first nine months of 1997 (not including the condemnation sales). Costs of
these sales increased 200.0% from $.4 million in the first nine months of 1996
to $1.2 million in the first nine months of 1997.

As a result of these factors, operating profit decreased 85.8% from $102.7
million for the nine months ended September 30, 1996 to $14.6 million for the
comparable period in 1997.

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Forestry

NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1996 1997 % CHANGE
----- ----- --------
($ IN MILLIONS)

Net Sales................................................... $44.6 $23.1 (48.2)
Cost of Sales............................................... 42.3 20.3 (52.0)
Selling, General and Administrative Expenses................ 1.4 1.7 21.4
Operating Profit (Loss)..................................... .9 1.1 22.2

Total net sales decreased $21.5 million, or 48.2%, from $44.6 million in
the first nine months of 1996 to $23.1 million the first nine months of 1997,
all of which is attributable to the Florida Coast linerboard mill shutdown which
lasted from April 1997 through September 1997. Costs of sales decreased 52% from
$42.3 million in 1996 to $20.3 million in 1997 due to declining sales, although
cost of sales as a percentage of sales continued to improve as the Company sold
more of its grown timber with higher margins than procured wood. Selling,
general and administrative costs increased $.3 million from $1.4 million in 1996
to $1.7 million in 1997 primarily due to severance payments of approximately
$1.2 million paid to 62 terminated employees, offset by reductions in ongoing
staffing levels. Operating profit increased 22.2% from $.9 million in 1996 to
$1.1 million in 1997.

On August 25, 1997, the Company renegotiated certain terms of its wood
fiber supply agreement with Florida Coast. Under the new agreement, the Company
will supply 615,400 tons of pulpwood and wood chips between August 25, 1997 and
May 30, 1998; thereafter the Company will supply 700,000 tons per year through
December, 2011 with two five year renewal periods at the option of Florida
Coast. Under the previous agreement, up to 1.6 million tons per year were to be
provided to Florida Coast. As a result of the decrease in tonnage required to be
provided to Florida Coast, management expects that the Company's revenues will
be temporarily depressed, but the change should result in higher-quality
older-growth timber in the future. The pricing mechanism for the wood remains
the same as in the original agreement.

Transportation

NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1996 1997 % CHANGE
------ ------ --------
($ IN MILLIONS)

Operating Revenues.......................................... $137.2 $144.0 5.0
Operating Expenses.......................................... 104.8 100.9 (3.7)
Selling, General and Administrative Expenses................ 14.5 17.7 22.1
Operating Profit............................................ 17.9 25.4 41.9

Operating revenues in the transportation segment were $144.0 million in
1997, an increase of 5% over the comparable period in 1996. Total FEC
transportation operating revenues increased $9.0 million, or 7.1% from $127.5
million in the first nine months of 1996 to $136.5 million in the first nine
months of 1997. This increase is attributable to a combination of an 8.2%
increase in the number of shipments handled in the first nine months of 1997
versus 1996 and various rate increases achieved since the beginning of the year.
ANRR's operating revenues were $7.5 million in 1997, $2.2 million lower than in
1996 due to the shutdown of the Florida Coast linerboard mill shutdown, its
largest customer. Operating expenses for this segment were $100.9 million, $3.9
million lower than last year as a result of decreases in casualty reserves
totaling $2.5 million and overall reductions in operating expenses. The 1996
comparable figures for casualty and insurance costs included an accrual for an
adverse legal judgment against the Company, which was subsequently reversed on
appeal, of approximately $2.2 million. Selling, general and administrative
expenses increased 22.1% over the previous year from $14.5 million in 1996 to
$17.7 million in 1997. Operating profit for the transportation segment overall
has increased from 13.0% in 1996 to 17.6% in 1997 as a result.

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Sugar

NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1996 1997 % CHANGE
----- ----- --------
($ IN MILLIONS)

Net Sales................................................... $29.7 $25.5 (14.1)
Cost of Sales............................................... 19.9 19.3 (3.0)
Selling, General and Administrative Expenses................ 3.5 3.5 0
Operating Profit (Loss)..................................... 6.3 2.7 (57.1)

Net sales decreased $4.2 million, or 14.1%, from $29.7 million in the first
nine months of 1996 to $25.5 million in the first nine months of 1997, due
primarily to a 12.4% volume decrease (8,400 tons) resulting from the timing of
shipments and fewer acres being harvested, and a sales price decrease of $7
dollars per ton. Cost of sales as a percentage of sales increased from 67.0% to
75.7% due to lower selling price, higher direct costs including cultivation
expenses, as well as higher indirect costs compared to 1996. Selling, general
and administrative expense levels were consistent with 1996. Included in
selling, general and administrative expense is the Everglades Agricultural
Privileges Tax of $905,000 and $976,000 for 1997 and 1996, respectively.

CORPORATE AND OTHER

On February 25, 1997 the Board of Directors approved an interim severance
program. The program was available to all employees (including early and regular
retirees) who elected to leave employment with the Company prior to May 2, 1997.
In total 80 employees elected to participate, and the Company incurred total
severance costs of approximately $2.5 million during 1997, of which $1.3 million
is included in corporate general and administrative expense and $1.2 million is
included in the forestry segment.

FINANCIAL POSITION AND CAPITAL RESOURCES

Total cash and cash equivalents decreased 55.2% from $449.0 million at
December 31, 1996 to $201.0 million at September 30, 1997 primarily as a result
of the special distribution of $3.33 per share paid during the first quarter
totaling approximately $305 million. The Company distributed the remaining net
proceeds of the sales of operations which occurred in 1996 of approximately $.34
per share in a special distribution on December 30, 1997. The Company has also
paid a dividend of $.02 per share on December 30, 1997. Total cash, cash
equivalents, short-term investments and marketable securities were $576 million
at September 30, 1997.

Capital expenditures for the year to date totaled $53.3 million, of which
$40.8 million related to real estate construction and land purchases. It is
anticipated that expenditures in the foreseeable future will be funded through
available cash and cash equivalents and funds from operations.

Stockholders' equity at September 30, 1997 was $10.19 per share, a decrease
of $2.89 from December 31, 1996, due to total distributions of $310.2 million,
including the special distribution and the regular $.02 per share dividend paid
each quarter.

The Company has historically not incurred debt in the development of its
various real estate projects or for other expenditures, funding instead from
internally generated cash flows. However, as the Company moves forward, debt may
be incurred in those situations where the use of financing leverage is deemed
appropriate. See "Business and Properties -- Investments."

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33

BUSINESS AND PROPERTIES

GENERAL

- Real Estate -- the development, ownership and management of commercial,
industrial and residential properties as well as the prospective
development of resort and entertainment properties;

- Forestry -- the management and harvesting of extensive timberland
holdings;

- Transportation -- the operation of two railroads within Florida; and

- Sugar -- the cultivation, harvesting and processing of sugar cane.

COMPANY BACKGROUND AND HISTORY

The Company was organized as a Florida corporation in 1936 by the executors
of the Estate of Alfred I. duPont to implement Mr. duPont's plans to establish a
paper company in northwestern Florida. The Company's Port St. Joe paper mill
began operations in 1938. The Company subsequently expanded into other lines of
business primarily by acquiring companies in financial difficulty whose assets
the Company perceived to be undervalued. For example, the Company acquired
control of FEC when it emerged from reorganization in 1961 and subsequently made
large capital investments in FEC to rehabilitate its operations.

Since 1940, the Company has continued to purchase additional parcels of
real property located throughout Florida and over time has acquired a sizable
portfolio of land. Included in these holdings are approximately 45,000 acres in
northwestern Florida that the Company has identified as potentially suitable for
development over the near to long term. For a more complete description of the
Company's land holdings, see "-- Real Estate Operations."

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34

The current ownership structure of the Company's principal lines of
business is as follows:

[GRAPH]

OPERATIONS

Real Estate. The Company currently conducts its real estate operations in
two principal segments: commercial/industrial development and management and
community/residential development.

The Company owns and manages commercial and industrial properties through
Gran Central Corporation ("GCC"), a wholly-owned subsidiary of Florida East
Coast Industries, Inc. ("FECI"), in which the Company has a 54% equity interest.
At October 30, 1997, GCC owned and operated 59 buildings with approximately 5.6
million square feet of rentable commercial/industrial space. On the same date,
GCC's buildings in service for one year or more were 91% leased (82% for its
portfolio as a whole, including newly constructed buildings). GCC's buildings
are primarily Class "A" office space and high quality commercial/industrial
facilities constructed after 1987 and are well-located in business parks near
major transportation hubs, primarily in the Jacksonville and Miami, Florida
areas. At October 30, 1997, GCC had an additional 479,000 square feet under
construction and had entitlements to develop an additional approximately 14.2
million square feet of buildings, primarily in its Miami, Jacksonville and
Orlando parks. GCC also owns over 15,400 acres of unentitled land that
management believes are suitable for future commercial, industrial and
residential development, primarily situated adjacent to the Florida East Coast
Railway right-of-ways in attractive markets that the Company believes will
provide significant growth opportunities.

Transportation. FECI's subsidiary, Florida East Coast Railway Company
("FEC"), provides rail and freight service over 351 miles of main line track
between Jacksonville and Miami, Florida and 71 miles of branch line track
between Fort Pierce and Lake Harbor, Florida. FEC has the only coastal
right-of-way between Jacksonville and West Palm Beach, Florida and is the
exclusive rail-service provider to the Port of Palm Beach, Port Everglades and
the Port of Miami. Principal commodities carried by FEC, by weight, include
trailers-on-flatcars, containers-on-flatcars, crushed stone, foodstuffs,
vehicles and cement. FEC is pursuing a number of opportunities to enhance
returns, including through leasing its right-of-ways for the laying of
fiber-optic conduit and the construction of communications towers. The Company
also owns the Apalachicola Northern Railroad Company ("ANRR"), a short-line
railroad that operates on 96 miles of track between Port St. Joe and
Chattahoochee, Florida.

KEY BUSINESS STRATEGIES

The Company's principal objective is to optimize the value of its
substantial asset base. The Company's management team is focused on the
following key strategies:

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36

believes the Company's large raw land portfolio will allow the Company to
maintain low development costs relative to its competitors and that its
existing large portfolio of income-producing properties, together with its
other businesses, will generate cash to fund a significant portion of its
long-term projects.

Pursue Location-Based Entertainment and Resort Development
Opportunities. The Company is evaluating potential development
opportunities in the location-based entertainment business, both inside and
outside of Florida, to be developed by the Company alone or in conjunction
with joint venture partners. Location-based entertainment takes the form of
stand alone facilities, often part of regional or national chains, that
provide entertainment, food and beverage and/or retail experiences. As part
of this strategy, on January 22, 1998, the Company entered into a
memorandum of understanding (the "Memorandum") with the National Football
League ("NFL") to build and operate NFL entertainment centers in locations
nationwide. The venture, in which the Company will own a 40% interest,
plans to operate facilities that provide interactive NFL football
entertainment experiences in club settings complemented by food service,
bar and retail sales. Under the Memorandum, the Company has agreed to
initially contribute up to $25 million to the venture, which will seek to
develop at least seven projects in various U.S. cities. The proposed
transaction is subject to the execution of a definitive agreement and
appropriate corporate approvals, and there can be no assurance that the
transaction will be consummated or, if consummated, that the venture will
be successful.

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37

Enhance Operating Performance. The Company believes it can improve
its operating performance through the following means:

Capital Structure and Financing Strategy. The Company has
historically financed expansion with internally generated funds, held large
cash balances and avoided the incurrence of debt. Although the Company
expects to continue to employ conservative financing policies, management
intends to use the Company's balance of cash and cash equivalents to invest
more aggressively in development, acquisitions and joint ventures and to
incur debt in appropriate circumstances in order to more effectively
leverage the value of the Company's assets. The Company had cash, cash
equivalents and marketable securities of approximately $505 million at
January 12, 1998.

THE FLORIDA ECONOMY

The Company's businesses are centered in Florida and the state's economic
health and growth rate will be important factors in creating demand for the
Company's products and services. According to the Bureau of Economic Analysis of
the WEFA Group, from 1992 to 1996 Florida's gross domestic product grew at an
average rate of approximately 6.1% per year compared to 5.3% per year for the
United States as a whole, and from 1997 to 2001 is expected to grow at an
average annual rate of approximately 5.8% compared to 5.3% for the nation as a
whole. According to U.S. Census Bureau statistics, Florida's annual population
growth over the last ten years has been 2.0%, while the average U.S. rate of
population growth has been approximately 1.0%. According to the Bureau of
Economic and Business Research at the University of Florida (the "Bureau"),
Florida's population will increase 26% between 1995 and 2010 compared to a U.S.
Census Bureau projection of 13.5% for the United States as a whole. Population
growth rates on the eastern coast of Florida, where many of GCC's properties are
located, are projected by the Bureau to be significantly higher than the
statewide rate. With the exception of Walton County (where population growth
rates have exceeded those of the State of Florida), population growth rates in
northwestern Florida, where most of the Company's properties are located, have
not been as high as those of the State as a whole, but have still exceeded the
national average. The Bureau estimates that employment in Florida grew at an
average annual rate of 3.5% from 1980 to 1995 and will continue to increase at
an average annual rate of 2.2% from 1996 to 2010. According to the Bureau,
personal incomes in Florida grew at 4.1% from 1980 to 1995 and are expected to
continue to grow at approximately 3% per year from 1996 to 2010. Florida's
population, job and income growth have created substantial demand for new
residential and commercial construction. According to a study conducted by the
Bureau, in 1995 Florida ranked first in the nation with respect to the number of
housing units permitted for construction and second in the nation on a value per
unit basis. Housing starts in the state of Florida are expected to reach an
aggregate level of 113,200 for 1996 and 1997 combined and to increase to 116,000
for 1998 alone. Management expects Florida's economic and population growth to
continue and believes that

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38

St. Joe is well positioned to benefit from increasing demand for housing as well
as office and industrial space in the Florida real estate market.

REAL ESTATE

The Company conducts its real estate operations through two principal
segments: commercial/industrial development and management, and
community/residential development. In addition, the Company plans to pursue
resort and entertainment-based development in the future. The general locations
of the Company's real estate holdings are indicated on the map on the inside
front cover of this Prospectus.

COMMERCIAL AND INDUSTRIAL DEVELOPMENT

The Company owns and manages commercial and industrial properties through
FECI's wholly-owned subsidiary, Gran Central Corporation. The primary focus of
GCC's development activities has been the Miami, Jacksonville and Orlando areas,
all of which are highly active with local, regional and national development
companies competing for land and tenants. The Company plans to continue
operating in these markets, and to evaluate Florida and southeastern markets to
increase the geographic diversity of its current portfolio. GCC is aggressively
pursuing commercial/industrial development opportunities on its entitled land
and actively seeks attractive land acquisition opportunities. A summary of GCC's
properties is set forth below:

GCC PROPERTY SUMMARY

Rentable Square Feet(1)..................................... 5,591,994
Percent Leased(1)(2)........................................ 82.4%
Rental Revenue(3)........................................... $24,116,385
Average Age of Buildings(1)................................. 5.5 yrs.
Square Feet under Construction(1)........................... 479,000
Entitled Square Feet(4)(5).................................. 14,150,000
Entitled Land (acres)(4).................................... 1,823
Unentitled Land (acres)(4).................................. 15,439
Developed Land (acres)(4)................................... 418
-----------
Total Land (acres)(4)....................................... 17,680
===========

- ---------------

(1) At October 30, 1997.
(2) At October 30, 1997, buildings in service for one year or more were
approximately 91% leased.
(3) Through October 31, 1997.
(4) At December 1, 1997.
(5) Several of the Development of Regional Impact ("DRI") applications under
which GCC has vested rights to develop property contain conversion formulas.
These formulas vary the number of square feet GCC may construct in a given
project depending on the type of buildings constructed. Accordingly, actual
square footage constructed may vary significantly from currently entitled
square footage.

Because GCC was formed to conduct the real estate activities of the Florida
East Coast Railway Company, its undeveloped properties are generally located
near transportation corridors along the eastern coast of Florida. GCC's
developable holdings include sizable parcels adjacent to FEC tracks which are
suitable for development into office and industrial parks, offering both rail
and non-rail-served parcels. Certain of GCC's other holdings are in urban or
suburban locations offering opportunities for development of office building
structures or business parks containing both office building sites and sites for
flexible space structures such as office/showroom/warehouse buildings.

On December 3, 1997, the Company formed a 50/50 joint venture ("St.
Joe/CNL") with Orlando-based CNL Group, Inc. to develop and acquire commercial
real estate in the central Florida area. CNL is a large privately held real
estate, finance, and development company with substantial market knowledge and

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39

relationships in the Orlando and central Florida commercial and industrial
markets. At September 8, 1997, according to the CNL Group, Inc., CNL and its
affiliates owned assets totaling more than $2 billion, representing more than
1,500 properties in 47 states. St. Joe/CNL's strategy is to accumulate a
portfolio of profitable, stabilized real estate assets through a combination of
development and acquisition and hold those assets in anticipation of ultimate
sale. St. Joe/CNL will initially focus on single and multi-tenant office
buildings and industrial and flex space, primarily in 17 central Florida
counties and along the U.S. Interstate Highway 4 corridor, including Tampa,
Orlando and Daytona Beach. St. Joe/CNL has significant investments planned for
the greater Orlando market, including a 14-story 345,000 square foot downtown
Orlando office building, together with an approximately 1,800 space parking
garage, which will serve as CNL's new corporate headquarters.

Income Producing Projects

At October 30, 1997, GCC's commercial and industrial income-producing
portfolio included ten projects with 59 buildings aggregating 5,591,994 square
feet. At October 30, 1997, these buildings were 82.4% leased. GCC's
income-producing projects are detailed below:

GCC INCOME-PRODUCING PROJECTS

(AT OCTOBER 30, 1997)

AVERAGE
NUMBER RENTABLE LEASED BASE RENT/
OF SQUARE SQUARE PERCENT MONTHLY SQUARE YEAR
LOCATION BUILDINGS TYPE FEET FEET LEASED BASE RENT FOOT BUILT
- -------- --------- ---------- --------- --------- ------- ---------- ----------- -------

duPont Center............... 2 Office 162,669 157,040 96.5% $ 178,951 $13.67 1987-89
Jacksonville, FL
Gran Park at Deerwood(1).... 3 Office 385,213 302,091 78.4 406,163 16.13 1996-97
Jacksonville, FL
Gran Park at Interstate
South..................... 6 Industrial 260,064 223,247 85.8 123,598 6.64 1986-88
Jacksonville, FL
Gran Park at
Jacksonville(2)........... 3 Industrial 354,153 108,060 30.5 71,819 7.98 1997
Jacksonville, FL
Gran Park at the
Avenues(3)................ 8 Mixed use 713,877 594,741 83.3 492,723 9.94 1992-97
Jacksonville, FL
Gran Park at Riviera
Beach..................... 5 Industrial 311,392 279,935 89.9 98,810 4.24 1982-91
Riviera Beach, FL
Gran Park at McCahill(4).... 5 Industrial 878,439 566,420 64.5 249,063 5.28 1992-97
Miami, FL
Gran Park at Miami(5)....... 24 Industrial 2,422,101 2,297,185 94.8 1,060,331 5.54 1988-97
Miami, FL
Hialeah, FL................. 2 Industrial 50,150 24,075 48.0 11,975 5.97 1975/87
Pompano Beach, FL........... 1 Industrial 53,936 53,936 100.0 23,040 5.13 1987
-- --------- --------- ----- ---------- ------
Total............... 59 5,591,994 4,606,730 82.4%(6) $2,716,473 $ 7.08
== ========= ========= ===== ========== ======

- ---------------

(1) An office building totaling 126,228 square feet was constructed and placed
in service during 1997 at Gran Park at Deerwood and has not yet been fully
leased.
(2) All buildings in Gran Park at Jacksonville were constructed and placed in
service in 1997.
(3) An office/showroom/warehouse building totaling 70,400 square feet was
constructed and placed in service during 1997 at Gran Park at the Avenues
and has not yet been fully leased.
(4) Two 159,520 square feet warehouse buildings were constructed and placed in
service in 1997 at Gran Park at McCahill and have not yet been fully leased.
(5) An office/warehouse building totaling 103,200 square feet was constructed
and placed in service during 1997 at Gran Park at Miami.
(6) At October 30, 1997, GCC's buildings in service for one year or more were
approximately 91% leased.

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40

A description of the most significant existing projects in GCC's portfolio
is set forth below:

duPont Center. The duPont Center is comprised of two office buildings
totaling 162,669 rentable square feet located in downtown Jacksonville,
Florida. Its occupancy rate at October 30, 1997 was 96.5%. GCC owns an
additional 17 acres at this location of which approximately five acres,
capable of supporting an additional 160,000 square feet, have been
entitled. The remaining 12 acres which lie to the south of Interstate 95
have not been entitled; however, GCC believes that it can construct
additional office or industrial space on this site once entitlements are
secured.

Gran Park at Deerwood. Built between 1995 and 1997, Gran Park at
Deerwood ("Deerwood Park") is a 385,213 square foot Class A suburban office
complex situated on 41 acres in the Deerwood area of Jacksonville, Florida.
Deerwood Park is located in one of the fastest growing markets in
Jacksonville. When it purchased Deerwood Park in 1994, GCC obtained vested
development rights to build 540,000 square feet of office space. The three
buildings constructed at Deerwood Park to date had an occupancy rate of
approximately 78.4% at October 30, 1997. A fourth building is under
construction and is expected to be completed by mid-1998. This building
will provide an additional 134,200 square feet, approximately 85,000 of
which has been pre-leased to Chase Manhattan Bank, N.A. Deerwood Park will
be fully built upon completion of the fourth building.

Gran Park at Interstate South. Gran Park at Interstate South
("Interstate South") is located near the intersection of U.S. Highway 1 and
Interstate 95 in Jacksonville, Florida. Interstate South consists of six
office/showroom/warehouses totaling 260,064 rentable square feet, located
on approximately 25 acres. Its occupancy rate at October 30, 1997 was
85.8%.

Gran Park at Jacksonville. Gran Park at Jacksonville ("Jacksonville
Park") is situated upon approximately 935 acres between U.S. Highway 1 and
Interstate 95 in Jacksonville, Florida. This park is served by a rail spur
connecting to FEC's main track. During 1997, GCC constructed three
buildings at Jacksonville Park totaling 354,153 rentable square feet. By
early January 1998, the project, including a new 62,800 square foot
office/showroom/warehouse completed in January 1998, was 33.9% leased. GCC
believes that the majority of the balance of the currently vacant space
will be leased by the middle of 1998. GCC has secured entitlements to
construct a total of approximately 5.2 million square feet of industrial
space, 500,000 square feet of office space and 80,000 square feet of retail
space at Jacksonville Park, and has the flexibility to convert industrial
space to office or retail space based upon market conditions. During 1997,
GCC also completed construction of a 350,000 square foot build-to-suit rail
served warehouse at Jacksonville Park for General Motors.

Gran Park at the Avenues. Gran Park at the Avenues ("Avenues Park")
is located at the intersection of U.S. Highway 1 and Southside Boulevard in
Jacksonville, Florida. Avenues Park consists of eight buildings totaling
713,877 rentable square feet. Its occupancy rate at October 30, 1997 was
83.3%. Approximately 30% of Avenues Park's capacity is utilized as office
space while the remaining 70% is industrial. GCC completed construction of
a 70,400 square foot office/showroom/warehouse at Avenues Park in 1997. GCC
has completed additional infrastructure development at the site and has
entitlements to construct approximately 80,000 additional square feet.

Gran Park at Riviera Beach. Gran Park at Riviera Beach is a 311,392
square foot park consisting of five industrial buildings which were 89.9%
leased at October 30, 1997. The remainder of this property's 82 acres are
platted and zoned for industrial development and GCC intends to sell
individual parcels to others.

Gran Park at McCahill. Gran Park at McCahill ("McCahill Park"), a
878,439 square foot office/industrial park, is located in Dade County,
northwest of the Miami International Airport near the intersection of State
Road 826, a multi-lane limited access road, and U.S. Highway 27. At October
30, 1997, McCahill Park was 64.5% leased. GCC believes it will enter into
leases for the majority of the currently vacant space by the middle of
1998. Management believes McCahill Park is well-situated to capitalize on
saturated market conditions immediately adjacent to the airport.
Development of McCahill Park is complete.

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Gran Park at Miami. The Gran Park at Miami development ("Miami Park")
consists of 24 buildings on 928 acres between U.S. Highway 27 and the
Florida Turnpike. Miami Park features over 2.4 million square feet of
rentable office, showroom and warehouse space, with an occupancy rate of
94.8% at October 30, 1997. This Park is served by a rail spur. GCC has
secured entitlements to develop an additional 7.0 million square feet at
Miami Park. Due to the scarcity of available land adjacent to the airport,
GCC believes that Miami Park is well-positioned to benefit as prospective
tenants begin seeking accessible bulk distribution space outside of the
congested airport vicinity.

New Construction

Through December 1, 1997, GCC's holdings grew significantly through the
construction and placing in rental status of eight buildings offering
approximately 973,000 square feet of leasable space. New construction in 1997
included one office building at Gran Park at Deerwood; one
office/showroom/warehouse, one front load warehouse and one rail building at
Gran Park at Jacksonville; one office/showroom/warehouse at Gran Park at the
Avenues; two office/warehouses at Gran Park at McCahill; and one
office/warehouse at Gran Park at Miami.

At October 30, 1997, buildings under construction included a 134,200 square
foot office building at Gran Park at Deerwood, of which 85,000 square feet has
been pre-leased, a 62,800 square foot office/showroom/warehouse at Gran Park at
Jacksonville, and both a 150,000 square foot office building and a 132,000
square foot office/showroom/warehouse at Gran Park at Southpark, a new park
being established by the Company in Orlando, Florida. Following completion,
expected in the first half of 1998, these buildings will add approximately
479,000 square feet to GCC's total leasable space. Set forth below are details
of GCC's new construction:

GCC NEW CONSTRUCTION

COMPLETION LEASED MANAGEMENT-
NUMBER OR ESTIMATED RENTABLE SQUARE ESTIMATED
OF COMPLETION SQUARE FEET BASE RENT/
LOCATION BUILDINGS TYPE DATE FEET (10/30/97) SQUARE FEET
- -------- --------- ---- ------------ -------- ---------- -------------

COMPLETED IN 1997:
Gran Park at Deerwood...... 1 Office July 1997 126,228 72,540 $17.50-$18.00
Jacksonville, FL
Gran Park at
Jacksonville............. 1 Office/Showroom/Warehouse July 1997 147,553 108,060 $9.10
Jacksonville, FL......... 1 Front Load Warehouse July 1997 98,800 -- $4.25
1 Rail Building May 1997 107,800 -- $4.50
Gran Park at the Avenues... 1 Office/Showroom/Warehouse June 1997 70,400 -- $6.75
Jacksonville, FL
Gran Park at McCahill...... 1 Office/Warehouse January 1997 159,520 159,520 $6.00-$6.50
Miami, FL................ 1 Office/Warehouse April 1997 159,520 -- $6.00-$6.50
Gran Park at Miami......... 1 Office/Warehouse July 1997 103,200 46,240 $6.00
- -------
Miami, FL
Total.............. 8 973,021
=======
UNDER CONSTRUCTION AT
OCTOBER 31, 1997:
Gran Park at Deerwood...... 1 Office May 1998 134,200 85,000 $17.50-$18.00
Jacksonville, FL
Gran Park at
Jacksonville............. 1 Office/Showroom/Warehouse January 1998 62,800 51,523 $9.50
Jacksonville, FL
Gran Park at Southpark..... 1 Office June 1998 150,000 -- $18.50
Orlando, FL.............. 1 Office/Showroom/Warehouse June 1998 132,000 -- $10.00
- -------
Total.............. 4 479,000
=======

GCC has received expressions of interest from prospective tenants relating
to leasing portions of its recently completed buildings and current sites under
construction and is actively seeking to lease its currently vacant space.

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In addition to those buildings presently under construction, GCC expects to
commence construction in 1998 on a 134,200 square foot office building at
Deerwood North, a 62,800 square foot office/showroom/warehouse at Gran Park at
Jacksonville and a 134,200 square foot office building at Gran Park at
Southpark. A description of new commercial/industrial parks upon which the
Company has commenced or expects to commence construction in 1998 is set forth
below:

Gran Park at Deerwood North. Gran Park at Deerwood North ("Deerwood
North") is located near Deerwood Park in Jacksonville, Florida on
approximately 35 acres purchased in 1997. As part of the purchase, GCC
obtained vested development rights to build 513,000 square feet of office
space. In addition, GCC was granted a right of first refusal to purchase
certain adjacent property. The infrastructure for this project is in the
design stage and GCC anticipates that infrastructure construction and
construction of a 134,200 square foot office building will commence during
1998.

Gran Park at Southpark. Gran Park at Southpark ("Southpark") is
situated upon approximately 85 acres near the Florida turnpike in Orlando,
Florida. GCC has commenced construction of infrastructure and a 150,000
square foot office building and a 132,000 square foot
office/showroom/warehouse building. It expects to construct an additional
134,200 square foot office building in 1998. The site is zoned for
approximately 915,000 square feet of office and industrial space, of which
282,000 square feet is currently under construction.

Leasing

At October 30, 1997, approximately 4,606,730 square feet or 82.4% of GCC's
rentable square feet was leased. On the same date, in GCC's buildings in service
for one year or more, approximately 4,220,370 square feet, or 91% of rentable
square feet, was leased.

GCC's portfolio has limited tenant concentration, with the largest tenants
being Seaboard Marine, Ltd., occupying 166,400 square feet or 3.6% of leased
space, and Perfumania, occupying 138,600 square feet or 3.0% of leased space, in
each case at October 30, 1997. The following table summarizes the lease
expirations in GCC's portfolio for 1998 and thereafter:

LEASE EXPIRATION SCHEDULE

1998 1999 2000 2001 2002 2003
------- ------- ------- ------- ------- -------

Square Feet................. 861,873 856,327 547,943 482,358 598,119 457,413
Percent of Rented Space
(annual).................. 18.7% 18.6% 11.9% 10.5% 13.0% 10.0%
Percent of Rented Space
(cumulative).............. 18.7 37.3 49.2 59.7 72.7 82.7

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Entitlements

In addition to properties under construction or upon which construction is
expected to commence in the near term, at October 30, 1997, GCC had secured
entitlements to construct up to 14,150,000 square feet of additional buildings.
The Company's entitled land is located as indicated in the table set forth
below:

GCC ENTITLED LAND SUMMARY

(AT OCTOBER 30, 1997)

PROJECT ENTITLEMENTS
- ------- -------------
(SQUARE FEET)

duPont Center............................................... 160,000
Jacksonville, FL
Gran Park Deerwood North.................................... 513,000
Jacksonville, FL
Gran Park at the Avenues.................................... 80,000
Jacksonville, FL
Gran Park at Jacksonville................................... 5,764,000
Jacksonville, FL
Gran Park at Southpark...................................... 633,000
Orlando, FL
Gran Park at Miami.......................................... 7,000,000
Miami, FL
----------
Total............................................. 14,150,000(1)
==========

- ---------------

(1) Several of the DRIs under which GCC has vested rights to develop property
contain conversion formulas. These formulas vary the number of square feet
GCC may construct in a given project depending on the type of buildings
constructed. Accordingly, actual square footage constructed may vary
significantly from currently entitled square footage.

In addition to the foregoing, GCC owns an 8.88 acre tract adjacent to the
Dade County government center in Miami. This property is subject to the
"Downtown Miami DRI", which allows construction of high rise office buildings in
the Central Business District of Miami by GCC and other property owners. GCC
previously explored the possibility of constructing one or more high rise office
buildings on this site. At that time, it was determined that the DRI would allow
the construction of two buildings totaling over one million square feet. GCC
believes that there is currently capacity under the DRI to construct at least
that amount of space. There can be no assurance, however, that this capacity
will be available at the time building permits are issued. Because this DRI
covers the entire Central Business District, other developers owning property
subject to the DRI could exhaust all the capacity prior to GCC securing permits.

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Land Holdings

GCC owns approximately 17,680 acres of land within fourteen counties,
including several high-growth areas along Florida's east coast, such as West
Palm Beach, Melbourne-Titusville, Daytona Beach, Jacksonville, Miami-Hialeah and
the Fort Pierce area. GCC's land holdings were as follows at December 1, 1997:

GCC LAND HOLDINGS (ACRES)

(AT DECEMBER 1, 1997)

COUNTY VACANT DEVELOPED ENTITLED TOTAL
- ------ ------ --------- -------- ------

Brevard............................................. 2,396 -- -- 2,396
Broward............................................. 46 6 -- 52
Dade................................................ 605 260 757 1,622
Duval............................................... 423 121 981 1,525
Flagler............................................. 3,462 -- -- 3,462
Indian River........................................ 5 -- -- 5
Martin.............................................. 661 -- -- 661
Manatee............................................. 897 -- -- 897
Palm Beach.......................................... 147 31 -- 178
Orange.............................................. -- -- 85 85
St. Johns........................................... 3,321 -- -- 3,321
St. Lucie........................................... 567 -- -- 567
Seminole............................................ 1 -- -- 1
Volusia............................................. 2,908 -- -- 2,908
------ --- ----- ------
Total:.................................... 15,439 418 1,823 17,680
====== === ===== ======

COMMUNITY AND RESIDENTIAL DEVELOPMENT

In the community/residential development sector, the Company's strategy is
to develop large-scale mixed-use communities on Company-owned land. Development
of master-planned communities is a long-term endeavor, with build-out typically
occurring over a five- to fifteen-year period. The Company also intends to
develop smaller scale residential projects that offer good uses of existing
Company and acquired land.

On November 12, 1997 the Company purchased a 74% general partnership
interest in a limited partnership, St. Joe/Arvida Company, L.P., through a joint
venture with JMB Southeast Development, L.L.C. and JMB Southeast Development,
L.P. The principal assets acquired through the Arvida Venture were the "Arvida"
name, proprietary information systems and the Arvida management team. Through
the Arvida Venture, the Company intends to develop certain of its existing lands
as well as to acquire additional land for development. Although the Company has
not in the past built homes, the Company intends to initiate home-building
through the Arvida Venture. Between 1958 and 1996, Arvida completed more than 50
master-planned communities (including Weston, near Ft. Lauderdale, Florida;
Sawgrass at Ponte Vedra Beach, Florida; Longboat Key Club in Sarasota, Florida;
Boca West and Broken Sound in Boca Raton, Florida; and Eagle Watch in Atlanta,
Georgia) which comprised more than 35,000 new homes. Although the Company's
residential development activities have historically been conducted primarily
through its Southwood Properties division, the Company expects to direct most of
its future community and residential development efforts through the Arvida
Venture and to conduct the majority of its residential development activity
under the Arvida trademark.

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Company Land Holdings Identified for Residential Development

The Company owns approximately 45,000 acres in northwestern Florida and
approximately 6,435 acres (2,150 of which are held through GCC) in St. John's
County on the northeastern coast of Florida near Jacksonville, including
substantial gulf, lake and riverfront acreage, that it believes to be
potentially suited to community/residential and resort development. The Company
continually evaluates its holdings and local market conditions to determine the
market's readiness for additional development and, as a result, may identify
additional significant developable tracts among its over 1.1 million acres in
the future.

The Company's most significant land holdings potentially suitable for
community and residential development are set forth below:

LAND HOLDINGS FOR COMMUNITY AND RESIDENTIAL DEVELOPMENT

(AT OCTOBER 30, 1997)

COUNTY ACRES
- ------ ------

Bay......................................................... 25,933
Franklin.................................................... 7,003
Leon........................................................ 9,556
St. John's.................................................. 6,435
Walton...................................................... 1,583
Wakulla..................................................... 1,143

Approximately 244 acres listed above are currently entitled for
development.

In evaluating whether to develop a mixed-use residential community, the
Company analyzes current demographic and economic data, such as (i) population
growth, including net migration and natural increase trends, (ii) increases in
household formation, (iii) job growth and job/household imbalance, (iv) income
levels, (v) transportation, and (vi) new home occupancy levels. Once a site is
identified, the Company designs the project to meet the needs of the target
market, based on specific demographic information and the characteristics of the
site itself. Items such as project design and unit mix, construction materials
and finishes and common area amenities are reviewed in relation to the
preferences of the target market. The Company believes that market segmentation
during the planning process maximizes the overall returns of development.

Although the Company has completed a number of real estate developments and
has begun to develop certain other parcels, in the aggregate these projects
amount to a small fraction of the Company's land holdings that it believes to be
suitable for development. The Company believes there is generally a two-year lag
between the submission of a master plan to the appropriate regulatory body and
the commencement of first phase construction. Accordingly, the Company expects
that it will take many years for the Company to complete the development of
significant portions of its developable land portfolio.

New Communities and Residential Development Projects

The Company is currently master-planning two tracts of land near the Town
of Seaside and one large tract in suburban Tallahassee as part of its
development program. The master-planning of these tracts is expected to be
completed in mid-to-late 1998, and the Company anticipates submission of such
plans to the relevant entitlement authorities soon thereafter. Described below
are the Company's plans for development of these tracts:

Walton County, Seagrove and Camp Creek. The Company owns a 500 acre
tract located between the Town of Seaside to the east and the Grayton Beach
State Recreation Area to the west (the "Seagrove Tract"). The Seagrove
Tract has an approximately 1,400 foot frontage on the Gulf of Mexico as
well as significant frontage on a large interior fresh water lake, Western
Lake. The Company also owns a 300 acre tract four miles to the east of the
Seagrove Tract with one mile of frontage on the Gulf of Mexico (the "Camp
Creek Tract"). These tracts constitute the largest privately-owned
undeveloped beach frontage remaining in South Walton County and feature
high dunes and white sand beaches. In addition,

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46

these tracts are adjacent to or near the Town of Seaside, an eighty acre
planned-resort community of 350 homes that has received wide acclaim as a
model resort community and has an average home value of $460,000. Seaside
is located midway between Panama City and Pensacola on the northwestern
coast of Florida. The Company intends to develop the Seagrove and Camp
Creek Tracts as second home/resort communities, each with an image and
identity separate from the Town of Seaside, but capitalizing on the
positive image Seaside has created over the past decade. The Company's
preliminary plans for the Seagrove and Camp Creek Tracts include gulf front
inns or hotels and beach clubs to provide beach access and facilities for
neighborhood property owners and guests. Management believes the Seagrove
and Camp Creek Tracts' gulf frontage presents an opportunity for the
Company to enhance the value of several thousand acres it owns nearby that
are off the beach and to the north, by providing "windows" of beach access
for such properties. The Company anticipates that the first phase of
construction of these tracts will begin approximately two years after
submission of master-plans to the Walton County entitlement authority. The
following map shows a detail of the Seagrove and Camp Creek Tracts'
locations.

Seagrove Map

Leon County, Tallahassee. The Company is currently master-planning a
3,000 acre tract located in Tallahassee for development as a residential
and mixed-use planned community (the "Tallahassee Tract"). The Tallahassee
Tract is characterized by rolling terrain, large lakes and heavily treed
areas of live oaks and other hard woods. It is located approximately six
miles from downtown Tallahassee and the State Capital building. The
Tallahassee Tract is immediately adjacent to the Capital Circle complex, a
750,000 square foot state office complex located on land previously donated
to the State by the Company. The Capital Circle complex has been entitled
to expand to 2 million square feet and, when fully constructed, will
provide employment for up to 8,000 persons. The Company anticipates that
the favorable location of the Tallahassee Tract will create demand for new
residential construction. The Company intends to commence the first phase
of construction on the Tallahassee Tract approximately two years after
submission of master-plans to the Leon County entitlement authority,
expected in mid-to-late 1998. The Company expects to engage in on-going
master-planning of the Tallahassee Tract and, on a longer-term basis, of an
additional 7,000 acres that it owns adjacent to the Tallahassee Tract in
order to

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create a full-scale new town adjacent to the existing Tallahassee city
limits. The following map shows a detail of the Tallahassee Tract's
location.

Tallahassee Tract Map

The Company believes that its raw land inventory will provide a long-term
supply of well-situated land and waterfront properties that may be suitable for
similar developments in the future. In particular, the Company owns two
developable parcels in St. John's County, on the northeastern coast of Florida.
The Company's Riverton property, located near Jacksonville, is a 4,300 acre
parcel with 4.5 miles of riverfront on the St. John's River, which at that
location is approximately 3 miles wide. The Riverton property offers
unobstructed western views across the waterfront as well as fishing and boating
opportunities. Management believes that transportation improvements planned by
the County and State should give the Riverton property strong transportation
connections and access to employment centers in Jacksonville. The Company
anticipates that master-planning of a residential community to be built on this
tract will begin in the next year. In addition, GCC owns a 2,150 acre parcel in
St. John's County located on the Intracoastal Waterway with a view across to the
undeveloped beach front at the Guana River State Park. Management believes this
property is suitable for development into a mixed-use community and the Company
expects to begin master-planning in late 1998. As is typical of large scale
development projects, development of these tracts could require significant
infrastructure development costs and may raise environmental issues that require
mitigation.

In addition, the Company has certain smaller developments underway or
entitled in Bay and Walton counties. The Retreat, a 97-lot vacation home project
in Walton County with 2,600 feet of gulf frontage, is fully entitled and
construction is expected to begin shortly. The Company expects home values at
the Retreat will range from $375,000 to over $1,000,000. In addition, first
phase infrastructure is complete and sales are underway for Summerwood, a
200-lot subdivision in Panama City Beach intended for first and retirement home
buyers. Home values at Summerwood are expected to range from $90,000 to
$125,000. Woodrun, a 52-lot subdivision in Panama City, is currently under
construction and sales are expected to begin in January 1998. Woodrun is
intended to serve as primary housing for trade-up buyers, and the Company
expects home prices will range from $150,000 to $250,000. In conjunction with
the Arvida Venture, the Company intends to construct homes at these development
sites and then sell them to end purchasers.

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Several of the projects described above, including the Seagrove Tract, the
Camp Creek Tract and the Tallahassee Tract, are still in the master-planning
stage and have not yet been submitted to the state and local authorities for
their review. No assurances can be given that the necessary entitlements for
development will be secured, that any of the Company's projects can be
successfully developed, if at all, or that they can be developed in a timely
manner. It is not feasible to estimate project development costs until
entitlements have been obtained.

Longer-Term Development Priorities

The Company owns several other developable properties in the northwestern
portion of Florida. A large portion of this property is situated along major
U.S. and state highways and has significant gulf, lake or river frontage. The
most significant tracts include parcels situated near Panama City Beach, Mexico
Beach, St. Joe Beach and the town of Apalachicola. The Company believes that
these properties offer significant development opportunities that it expects to
develop over the long-term.

Panama City Beach, Bay County. The Company's 5,000 acre holdings to
the north and abutting the city limits of Panama City Beach are the only
avenues for Panama City Beach to expand its limits. The City promotes
itself as the home of the "World's Most Beautiful Beaches." The Company is
currently conducting land use analyses and environmental studies to
determine the suitability of this land for development. In addition, the
Company has contracted to purchase a 1.4 acre beach-front "window" on
Panama City Beach to provide beach access for its thousands of off-beach
acres adjacent to the corporate limits of Panama City Beach. Management
believes these tracts present an opportunity for mixed-use recreation and
second home development with an entertainment/retail component.

Apalachicola, Franklin County. The Company owns 7,003 acres
surrounding the town of Apalachicola, a coastal fishing town on
Apalachicola Bay and the Gulf of Mexico that is emerging as a tourist
destination. The Company's holdings include approximately twelve miles of
frontage on the Apalachicola Bay and the Gulf of Mexico to the west of the
town. Management believes this tract presents an opportunity for the
development of vacation and second homes with a golf and water orientation.

St. Joe Beach/Mexico Beach, Gulf and Bay Counties. Company holdings
at St. Joe and Mexico Beach contain slightly over four miles of gulf
frontage. At St. Joe Beach, the white sand beaches of the Florida panhandle
begin. The Company owns several thousand acres of off-beach property behind
its beach exposure. These parcels are traversed by U.S. Highway 98, which
runs along the coast providing access east and west. Management believes
these tracts present an opportunity for the development of vacation and
second homes with a golf and water orientation.

Other

Through the Arvida Venture, the Company has acquired an option expiring
March 31, 1998 to purchase certain real estate management contracts and a
limited ownership stake in certain existing Arvida developments. The Arvida
Venture will also provide management services for a number of non-Company
large-scale residential housing projects on a cost reimbursement basis, and
accordingly it is expected that the Arvida Venture management team will dedicate
significant time and resources to non-Company projects in the near to medium
term.

RESORT AND LOCATION-BASED ENTERTAINMENT DEVELOPMENT

The Company plans actively to pursue development of resorts and
recreational facilities as a new business line. The development of resorts,
including hotels, recreation facilities and golf courses, may be in the form of
stand-alone projects or in conjunction with the Company's large scale community
developments. Resort developments may be the best use for some of the Company's
prime waterfront lands. The Company's inventory of raw land, management's
knowledge of the permitting process and extensive experience in resort
development should allow the Company to begin to develop these lands in the near
future. Resort projects typically require large tracts of undeveloped land, and
regulatory agencies may require that a developer of such a property dedicate
land for public use in order to secure the requisite permits. The Company may be
able to

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utilize its large land holdings to facilitate the permitting process with local
communities in appropriate circumstances.

As part of its strategy to pursue resort and recreational facility
development, on December 3, 1997, the Company purchased 100% of the capital
stock of Riverside Golf Management Company ("Riverside") from Steven Melnyk.
Riverside is currently the manager of three daily fee public courses in
Jacksonville, Florida, Atlanta, Georgia and Clemson, South Carolina. The Company
acquired Riverside, its information systems, current management contracts and
the right to use the name "Champions Club" on any course it develops or manages.
Management intends to utilize Riverside in conjunction with the Arvida Venture
to create attractive residential communities with a golf course component.
Riverside will also develop golf courses unrelated to Company residential
developments.

The Company is also evaluating potential development opportunities in the
location-based entertainment business, both inside and outside of Florida, and
to be developed by the Company alone or in conjunction with joint venture
partners. Location-based entertainment takes the form of standalone facilities,
often part of regional or national chains, that provide multiple forms of
entertainment experiences in a single setting. Such facilities may offer only
entertainment or may offer a combination of entertainment, food and beverage and
retail experiences. The Company's management has extensive experience in the
entertainment segment of the real estate development industry and is seeking
avenues to take advantage of that experience.

REGULATION

Development of real property in Florida entails an extensive approval
process involving overlapping regulatory jurisdictions. Real estate projects
must generally comply with the provisions of the Local Government Comprehensive
Planning and Land Development Regulation Act (the "Growth Management Act"). In
addition, development projects that exceed certain specified regulatory
thresholds require approval of a comprehensive DRI application. Compliance with
the Growth Management Act and the DRI process is usually lengthy and costly and
can be expected to materially affect the Company's real estate development
activities.

The Growth Management Act requires counties and cities to adopt
comprehensive plans guiding and controlling future real property development in
their respective jurisdictions. After a local government adopts its
comprehensive plan, all development orders and development permits that it
issues must be consistent with the plan. Each such plan must address such topics
as future land use, capital improvements, traffic circulation, sanitation,
sewerage, potable water, drainage and solid wastes. The local governments'
comprehensive plans must also establish "levels of service" with respect to
certain specified public facilities and services to residents. Local governments
are prohibited from issuing development orders or permits if facilities and
services are not operating at established levels of service, or if the projects
for which permits are requested will reduce the level of service for public
facilities below the level of service established in the local government's
comprehensive plan. If the proposed development would reduce the established
level of services below the level set by the plan, the development order will
require that, at the outset of the project, the developer either sufficiently
improve the services to meet the required level or provide financial assurances
that the additional services will be provided as the project progresses.

The Growth Management Act is in some instances significantly affecting the
ability of developers to obtain local government approval in Florida. In many
areas, infrastructure funding has not kept pace with
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50

growth. As a result, substandard facilities and services are delaying or
preventing the issuance of permits. The Growth Management Act could adversely
affect the ability of Florida developers, including the Company and GCC, to
develop real estate projects.

The DRI review process includes an evaluation of the project's impact on
the environment, infrastructure and government services, and requires the
involvement of numerous federal, state and local environmental, zoning and
community development agencies and authorities. Local government approval of any
DRI is subject to appeal to the Governor and Cabinet by the Florida Department
of Community Affairs, and adverse decisions by the Governor or Cabinet are
subject to judicial appeal. The DRI approval process is usually lengthy and
costly, and there are no assurances as to what specific factors will be
considered in the approval process, or what conditions, standards or
requirements may be imposed on a developer with respect to a particular project.
The DRI approval process is expected to have a material impact on the Company's
real estate development activities in the future.

In addition, a substantial portion of the developable property in Florida,
including much of the Company's property, is raw land located in areas where its
development may affect the natural habitats of various endangered or protected
wildlife species or in sensitive environmental areas such as wetlands and
coastal areas, which are subject to extensive and evolving federal, state and
local regulation. Accordingly, federal, state and local wildlife protection,
zoning and land use restrictions, as well as community development requirements,
may become increasingly restrictive and, as a result, significant limitations
may be imposed on the Company's ability to develop its real estate holdings in
accordance with their most profitable uses.

The Company's ownership and development of real estate are subject to
extensive and changing federal, state and local environmental laws, the
provisions and enforcement of which are expected to become more stringent in the
future. Pursuant to those laws, the owner or operator of real estate may be
required to perform remediation regardless of whether it caused the
contamination. The sale or development of properties may also be restricted due
to environmental concerns, the protection of endangered species, or the
protection of wetlands. In addition, violations of various statutory and
regulatory programs can result in civil penalties, remediation expenses, natural
resource damages, potential injunctions, cease and desist orders and criminal
penalties.

The Company is not presently aware of any material contaminations at or any
material adverse environmental development issues relating to its real estate
operations. However, there can be no assurance that environmental issues will
not arise in the future relating to the real estate operations. See "Risk
Factors -- Environmental Matters."

FORESTRY

The Company's forestry operations, conducted through its wholly-owned
subsidiary, St. Joe Timberland Company, are in the business of growing,
harvesting and selling timber and wood fiber. The Company is the largest private
holder of timberlands in Florida, with over 700,000 acres of planted pine
forests, primarily in northwestern Florida, and an additional 300,000 acres of
mixed timberland, wetlands, lake and canal properties. Over 632,000 acres of the
Company's timberlands have been planted as managed pine plantations to
facilitate harvesting and reforestation and to maximize timber yields. Although
no detailed inventory has been conducted, the Company estimates that
approximately 150,000 acres of hardwood are located on its remaining
timberlands. Six forestry units and a wood procurement unit manage the
timberlands. The timberlands are harvested by local independent contractors
pursuant to agreements which are generally renewed annually. The Company also
owns a wood chipping facility located at Lowry, Florida. The principal product
of the Company's forestry operations is softwood pulpwood, but the Company also
produces and sells softwood and hardwood sawtimber.

On May 30, 1996, the Company sold its former linerboard mill and container
plants as part of its strategy of focusing its forestry operations on the
business of growing and harvesting timber. By divesting itself of these assets,
the Company can now focus on achieving the highest margin usage for its
products, consistent with sustainable harvest practices, without the competing
imperative of supplying fiber to manufacturing operations that typically only
operate efficiently at full capacity. As a result, the Company can now seek to
operate its
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forestry operations as a stable and sustainable business, shielded from the
highly cyclical nature of the conversion business.

THE TIMBERLANDS

The Company's timberlands are located in northwestern Florida and southern
Georgia, near key transportation links including roads, waterways and railroads,
allowing the Company to deliver fiber to its customers on a cost efficient
basis. The Company's principal productive timberlands are near the facilities of
Florida Coast in Port St. Joe, the Company's major customer. Numerous other
major conversion facilities located near the Company's timber assets could serve
to further expand the markets for the Company's timber products.

The Company's strategy in its forestry segment is to increase the average
age of its timber by extending growing periods before final harvesting in order
to capitalize on the higher margins of older-growth timber. The Company intends
to extend growing periods for its softwood forests from a historical average of
approximately 18-22 years to approximately 28-30 years. This change is expected
to shift the Company's product mix from approximately 85% pulpwood and 15%
higher-margin products in 1997 to approximately 60% pulpwood and 40%
higher-margin products by 2005. Although revenues in the forestry segment will
likely be flat or decline slightly in the near term, this strategy should
ultimately increase the revenues and returns of the Company's timber operations
when a sustainable harvest of older-growth timber is achieved, although there
can be no assurances in this regard. The Company will also seek to maximize
sustainable harvest volumes through the continued use and development of
genetically improved seedlings, soil mapping, extensive fertilization,
vegetation control, thinning and selective harvesting practices. In addition,
the Company is considering potential transactions to increase the nearer term
value of the Company's timberlands, such as asset swaps, sales, joint ventures
or lease arrangements.

At November 3, 1997, the distribution of the Company's pine timberland, by
age class, was as follows:

SOFTWOOD FORESTS -- FIVE YEAR AGE CLASSES

AGE ACRES
- --- -------

0- 5....................................................... 109,899
6-10....................................................... 174,936
11-15....................................................... 153,426
16-20....................................................... 107,164
21-25....................................................... 62,252
26-30....................................................... 20,436
31-35....................................................... 1,937
36 +........................................................ 2,115
-------
Total............................................. 632,165
=======

The Company views its timberlands as a renewable resource and manages its
timberlands to achieve sustainable harvests. During the 1996-1997 planting
season, the Company planted approximately 13 million seedlings on 17,944 acres.
St. Joe maintains a research facility in Capps, Florida, which conducts research
to produce faster-growing, more disease-resistant species of pine trees.

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Harvest Levels

In 1996, the Company harvested 697,398 tons of softwood pulpwood and
sawtimber. The Company estimates that it can increase its long-term sustainable
yearly harvest over the next decade to 1.6 million tons of softwood pulpwood and
.9 million tons of softwood sawtimber. The Company estimates that its
timberlands will yield a sustainable harvest of approximately 2.5 million tons a
year of softwood and .3 million tons of hardwood, commencing in 2008. The
following tables set forth the Company's historical and projected annual
softwood and hardwood harvest volumes for the years 1992 to 2008:

SOFTWOOD AND HARDWOOD HARVEST PLAN
(TONS)

SOFTWOOD HARDWOOD
SAWTIMBER TOTAL ANNUAL SAWTIMBER TOTAL ANNUAL
SOFTWOOD AND OTHER SOFTWOOD HARDWOOD AND OTHER HARDWOOD TOTAL ANNUAL
YEAR PULPWOOD PRODUCTS HARVEST PULPWOOD PRODUCTS HARVEST HARVEST
- ---- --------- --------- ------------ -------- --------- ------------ ------------

ACTUAL:
1992............... 773,051 195,691 968,742 * * * 968,742
1993............... 823,625 177,109 1,000,734 * * * 1,000,734
1994............... 912,979 167,502 1,080,540 * * * 1,080,540
1995............... 836,289 98,308 934,597 * * * 934,597
1996............... 610,418 86,980 697,398 * * * 697,398
PROJECTED:
1997............... 665,000 135,000 800,000 * * * 800,000
1998............... 829,000 135,000 964,000 100,000 150,000 250,000 1,214,000
1999............... 910,000 190,000 1,100,000 100,000 150,000 250,000 1,350,000
2000............... 925,000 275,000 1,200,000 125,000 175,000 300,000 1,500,000
2001............... 925,000 275,000 1,200,000 125,000 175,000 300,000 1,500,000
2002............... 950,000 350,000 1,300,000 125,000 175,000 300,000 1,600,000
2003............... 950,000 350,000 1,300,000 125,000 175,000 300,000 1,600,000
2004............... 1,000,000 500,000 1,500,000 125,000 175,000 300,000 1,800,000
2005............... 1,150,000 600,000 1,750,000 125,000 175,000 300,000 2,050,000
2006............... 1,300,000 700,000 2,000,000 125,000 175,000 300,000 2,300,000
2007............... 1,450,000 800,000 2,250,000 125,000 175,000 300,000 2,550,000
2008............... 1,600,000 900,000 2,500,000 125,000 175,000 300,000 2,800,000

- ---------------

* Historically, the Company has harvested minimal amounts of hardwood.

Inventory Levels

The Company estimates that its standing inventory on January 1, 1998
totaled 10.6 million tons of softwood timber and 5.9 million tons of hardwood
timber. The following table sets forth the Company's projected standing
inventory levels by product, at January 1, 2008:

PROJECTED STANDING INVENTORY AT JANUARY 1, 2008
(TONS)

SOFTWOOD HARDWOOD SOFTWOOD HARDWOOD
PULPWOOD PULPWOOD SAWTIMBER SAWTIMBER TOTAL
- ---------- --------- --------- --------- ----------

15,938,372 2,456,869 6,904,607 6,274,983 31,574,832

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PRICING

While the supply of timber in the United States has been subject to
constraint, demand has remained relatively strong, driven by economic expansion
and population increases, which in turn drive growth in housing starts, repair
and remodeling activities and industrial wood use. The Company expects demand
for timber to remain strong as economies in the United States and abroad
continue to expand. This stable demand in the face of a constrained supply has
resulted in real price appreciation for timber. As the following charts
illustrate, between 1988 and 1996 stumpage prices for two of the Company's
largest timber products, southern pine pulpwood and sawtimber, increased at real
compound annual growth rates of 4% and 5%, respectively.

[PULPWOOD CHART]

[SAWTIMER CHART]

The Company anticipates that increasing demand and continuing constraints
on timber supply will continue to support higher real timber prices.

SALES AND MARKETING

The major customer for the timber harvested from the Company's timberlands
has been and continues to be the Company's former linerboard mill at Port St.
Joe, Florida, which was sold on May 30, 1996 and which now operates as the
Florida Coast Paper Company, L.L.C. Pursuant to a supply contract entered into
with Florida Coast upon the sale of the mill, the Company was obligated to sell
Florida Coast between 900,000 and 1.6 million tons of pulpwood a year on a
long-term basis. However, from April to September 1997, Florida Coast shut down
due to soft market conditions in the paper industry and breached its obligations
to buy specified amounts of pulpwood from the Company. In August 1997, the
Company negotiated an amendment to the supply agreement with Florida Coast,
which will reduce the Company's supply obligations to 700,000 tons a year
beginning in June 1998 and which also contains certain protections for the
Company, including liquidated damages in the event of future shutdowns. The
Company views the reduction of its supply obligations to Florida Coast as a key
to its future business strategy because the reduction will allow the Company to
sell a greater portion of its timber in the form of higher-margin products over
the long term. The Company's amended supply contract with Florida Coast expires
in 2011, subject to two five year extensions at the option of Florida Coast.
Under the supply contract, prices for the Company's pulpwood are set at a base
level and readjusted quarterly based on a four-quarter rolling average of market
prices. Although quarterly

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54

price variation is capped at 5%, the base price level is reset every two years.
The Company mitigated the short-term financial impact of Florida Coast's
shutdown through sales to various mills and other producers in Florida, Georgia
and Mississippi in the spot market, although the shutdown adversely affected the
forestry segment's results of operations for 1997.

Although the Company has historically provided pulpwood softwood primarily
to the Florida Coast mill, management believes that wood harvested from the
Company's lands has the potential to provide products to several regional
manufacturing facilities. Several companies have consulted with the Company
regarding potential long-term timber supply contracts and the possible location
of substantial new conversion facilities near the Company's lands. In 1996, the
Company sold 697,398 tons of timber, of which approximately 610,418 tons were
sold to Florida Coast, and the balance to other customers.

OTHER BUSINESSES

As part of its strategy to maximize the cash flows from its timberlands,
the Company engages in several business activities complementary to its land
holdings. The Company leases approximately 881,000 acres of its timberlands to
private clubs and state agencies for hunting, 280 acres in north Gadsden County
for the mining of Fullers earth, and 600 acres to Martin Marietta for the mining
of limerock. Revenues from these businesses totaled $369,309 in 1996 and are
estimated to be $1,260,000 for 1997. The Company has not conducted an exhaustive
survey of its timberlands for potential mineral reserves.

REGULATION

The Company's forestry operations are subject to extensive and changing
federal, state and local environmental laws and regulations, the provisions and
enforcement of which are expected to become more stringent in the future.
Forestry operations generate air emissions through controlled burning and
discharge industrial wastewater and stormwater. The forestry operations are
subject to regulation under the ESA, the federal Clean Water Act, the federal
Clean Air Act, the Federal Insecticide, Fungicide and Rodenticide Act and the
Toxic Substances Control Act as well as similar state laws and regulations.
Violations of various statutory and regulatory programs can result in civil
penalties, remediation expenses, natural resource damages, potential
injunctions, cease and desist orders and criminal penalties. Some environmental
statues impose strict liability, rendering a person liable for environmental
damage without regard to negligence or fault on the part of such person.

The ESA and counterpart state legislation protect species threatened with
possible extinction. A number of species indigenous to the Company's timberlands
have been, and in the future may be, protected under these laws, including the
red cockaded woodpecker, the bald eagle and various other species. Protection of
endangered and threatened species may include restrictions on timber harvesting,
road building and other silvicultural activities on the Company's land
containing the affected species. There can be no assurance that such laws or
future legislation or administrative or judicial action with respect to
protection of the environment will not adversely affect the Company's forestry
operations.

In conducting its harvesting activities, the Company voluntarily complies
with the "Best Management Practices" recommended by the Florida Division of
Forestry. From time to time, proposals have been made in state legislatures
regarding the regulation of timber harvesting methods. There can be no assurance
that such proposals, if adopted, will not adversely affect the Company or its
ability to harvest and sell logs or timber in the manner currently contemplated.

The Company is not presently aware of any facts that indicate that the
Company will be required to incur material costs relating to environmental
matters in relation to its forestry operations. However, there can be no
assurances that environmental regulation or regulation relating to endangered
species or wetlands will not have a material adverse effect on the forestry
operations in the future. See "Risk Factors -- Environmental Matters."

TRANSPORTATION

The Company owns 54% of Florida East Coast Industries, Inc., which in turn
owns 100% of Florida East Coast Railway Company. The Company also owns and
operates the Apalachicola Northern Railroad Company.

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55

FLORIDA EAST COAST RAILWAY COMPANY

FEC operates a railroad along 351 miles of main line track between
Jacksonville and Miami, Florida and along 91 miles of branch track between Fort
Pierce and Lake Harbor, Florida. FEC also maintains approximately 157 miles of
switching track and 184 miles of other track. FEC has the only coastal right-of-
way between Jacksonville and West Palm Beach, Florida and is the exclusive
rail-service provider to the Port of Palm Beach, Port Everglades and the Port of
Miami. To complement and facilitate its railroad operations, FEC also provides
drayage and interstate trucking services. FEC owns 82 diesel electric
locomotives, approximately 2,633 freight cars, approximately 7 tractors, 1,352
trailer units for highway service, and numerous pieces of work equipment and
automotive vehicles. FEC also owns three four-story buildings in downtown St.
Augustine, which it uses for its corporate headquarters, and approximately
12,000 acres of land along the east coast of Florida devoted to its railroad
operation. All property and equipment owned is in good physical condition.

OPERATING STATISTICS

YEAR ENDED DECEMBER 31,
---------------------------------
1994 1995 1996
--------- --------- ---------
(IN THOUSANDS, EXCEPT PERCENTAGE
DATA)

Operating revenues.......................................... $144,467 $142,858 $143,802
Operating income............................................ $ 25,646 $ 22,210 $ 22,854
Operating margin............................................ 17.3% 15.3% 15.9%
Revenue ton miles........................................... 4,388 4,122 4,098

Railroad Traffic. FEC carries automotive vehicles, consumer goods and
various intermodal traffic southbound and carries aggregates and intermodal
traffic northbound. FEC's principal customers include the Ford Motor Company,
Chrysler Corporation, Tarmac-Florida, Inc., Rinker Materials Corporation, and
the United Parcel Service. In general, the volume of the railroad's traffic is
heaviest from October to May. The mix of commodities shipped by FEC and each
component's contribution to FEC's revenues have remained relatively constant
over the past five years. Set forth below is the mix of goods transported by FEC
in 1996 and the respective contribution each category made to revenues:

TRAFFIC

YEAR ENDED DECEMBER 31, 1996
---------------------------------------
COMMODITY UNITS % REVENUE %
- --------- ------- ----- ------------ -----
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)

TOFC/COFC........................................... 236.8 63% $ 51,117.1 38%
Crushed stone....................................... 88.7 24 34,509.2 26
Vehicles............................................ 18.3 5 20,116.0 15
Foodstuffs.......................................... 10.4 3 7,683.1 6
Cement.............................................. 5.0 1 3,049.1 2
Other............................................... 17.2 4 16,692.6 13
----- --- ---------- ---
Total..................................... 376.4 100% $133,167.1 100%
===== === ========== ===

At Jacksonville, FEC connects with Norfolk Southern Corporation and with
CSX Transportation, Inc. ("CSXT"). FEC relies upon both of these carriers for
Florida-bound rail freight traffic which originates elsewhere in the United
States. In 1996, approximately 48% of FEC's revenues were attributable to
traffic that originated on other railroads, approximately 6% were attributable
to traffic that originated on FEC but was bound for other destinations and 46%
were attributable to traffic that both originated and terminated on FEC's
system. FEC is a terminating railroad and, consequently, does not receive
traffic from one railroad to be passed over its track to another railroad.
Because all of FEC's traffic either originates in or is bound for Florida, FEC's
revenues fluctuate seasonally and with economic conditions in southern Florida,
rising as the economy of southern Florida expands and declining as it contracts.

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56

Capital Expenditures. FEC believes that its railway system is in excellent
condition and intends to continue to reinvest a portion of the cash generated by
its operations to maintain it and to make selected additional improvements. In
1995 and 1996, FEC invested approximately $26.6 million and $14.6 million,
respectively, to upgrade and maintain its property, track, structures and
equipment. FEC has installed concrete crossties over substantially all of its
main line track and main line sidings. While installing concrete crossties is
more expensive initially, their significantly longer useful life makes them less
expensive over the long term. FEC has also installed sophisticated detection
equipment to monitor the condition of its rolling stock to detect flat wheels,
hot wheels and axles, cracked wheels, shifted loads and similar problems. Set
forth below is certain information relating to FEC's expenditures for road and
equipment for the past three years:

CAPITAL EXPENDITURES

YEARS ENDED DECEMBER 31,
---------------------------------------------------------------
1994 1995 1996
------------------- ------------------- -------------------
ROAD EQUIPMENT ROAD EQUIPMENT ROAD EQUIPMENT
------- --------- ------- --------- ------- ---------
(IN THOUSANDS)

Capital expenditures.......... $13,940 $ 7,319 $11,814 $14,758 $10,856 $ 3,741
Maintenance expense........... 22,630 33,347 24,359 30,645 24,271 27,801
------- ------- ------- ------- ------- -------
Total............... $36,570 $40,666 $36,173 $45,403 $35,127 $31,542
======= ======= ======= ======= ======= =======

Competition. FEC's railroad operations are subject to intense competition
from common motor carriers and, with respect to the section of FEC's main line
track from West Palm Beach south to Miami, from CSXT. FEC also competes to some
extent with air carriers as well as barges and other vessels plying the
coastwise trade between Jacksonville and Miami. FEC's competitiveness depends
upon its ability to provide its customers with efficient, dependable service at
an attractive price. Management at FEC stresses maintaining a high level of
customer service and satisfaction.

Miscellaneous Operations. In addition to its rail and other related
services, FEC leases the use of its right-of-ways to various tenants, including
several telecommunications companies' fiber optics systems, pursuant to
long-term leases. Under such leases, FEC currently receives approximately $2.5
million per year in revenue, nearly all of which represents profit.

APALACHICOLA NORTHERN RAILROAD COMPANY

ANRR is a short-line railroad operating between Port St. Joe and
Chattahoochee, Florida, where it connects with an unaffiliated carrier. Its
transportation facilities include 96 miles of main track, 13 miles of yard
switching track and 3 miles of other track. ANRR owns 14 diesel locomotives, 274
freight cars, and numerous pieces of work equipment and automotive vehicles.
ANRR also owns a three-story building in Port St. Joe which it uses partially
for its corporate offices. All property and equipment owned is in good physical
condition.

Although it is a common carrier, most of ANRR's business consists of
carrying coal from Port St. Joe to Chattahoochee pursuant to a contract with
Seminole Electric Cooperative, Incorporated ("Seminole") and carrying wood
chips, pulpwood and linerboard used or produced at the paper mill in Port St.
Joe, Florida. The other items carried by ANRR are tall oil, chemicals, stone and
clay products and recyclable items. The mix of commodities carried by ANRR
during 1996, which is representative of the traffic carried by ANRR over the
last several years, was as follows:

TRAFFIC

YEAR ENDED DECEMBER 31, 1996
-----------------------------------------
COMMODITY CARLOADS % REVENUE %
- --------- --------- ------ ---------- ------
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)

Coal............................................... 30.6 70.1% $ 5,963.6 53.2%
Wood products...................................... 10.2 23.2 3,635.8 32.4
Other.............................................. 2.9 6.7 1,613.5 14.4
---- ----- --------- -----
Total.................................... 43.7 100.0% $11,212.9 100.0%
==== ===== ========= =====

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Between April and September, 1997, the linerboard mill at Port St. Joe,
Florida shut down. Shipment of wood and wood products produces a significant
portion of ANRR's revenues. ANRR entered into a coal contract with Seminole in
order to mitigate the financial impact of the shutdown and limit its dependence
on a single customer. Nevertheless, if the linerboard mill shuts down in the
future or if Seminole does not renew its contract which expires in 2004, ANRR's
revenue, operating profit and net income would be significantly impacted.

Historically, the Company has upgraded, modernized and maintained ANRR's
road and equipment through the reinvestment of internally-generated cash without
incurring any long-term indebtedness. As with FEC's track, substantially all of
ANRR's main track is laid with concrete crossties. Certain operating statistics
are shown below:

OPERATING STATISTICS

YEAR ENDED DECEMBER 31,
--------------------------------------
1994 1995 1996
---------- ---------- ----------
(IN THOUSANDS EXCEPT PERCENTAGE DATA)

Operating revenues.................................... $12,886 $13,345 $12,589
Operating income...................................... $ 1,398 $ 2,326 $ 1,646
Operating margin...................................... 10.8% 17.4% 13.1%
Revenue ton miles..................................... 397 411 383

ANRR faces competition from motor carriers and barge lines.

INTERNATIONAL TRANSIT, INC.

International Transit, Inc. ("ITI") operates a common motor carrier with
service throughout the Southeastern United States. FECI acquired an 80% interest
in ITI on April 1, 1995, and the remaining 20% on June 25, 1997, as a strategic
purchase designed to enable FEC to reach intermodal traffic not being solicited
by FEC's connections due to the short-haul nature of the traffic.

REGULATION

Both FEC and ANRR are subject to regulation by the Surface Transportation
Board of the U.S. Department of Transportation and, in some areas, the State of
Florida. These governmental agencies must approve, prior to implementation,
changes in areas served and certain other changes in operations of FEC and ANRR.

The Company's transportation operations are subject to extensive local,
state and federal environmental laws and regulations, including the federal
Clean Air Act, CERCLA and various other state and local environmental laws and
regulations. Violations of various statutory and regulatory programs can result
in civil penalties, remediation expenses, natural resource damages, potential
injunctions, cease and desist orders and criminal penalties. Some environmental
statutes impose strict liability, rendering a person liable for environmental
damage without regard to negligence or fault on the part of such person. In
addition, the Company's present and historic ownership and operation of real
property, including yards, in connection with its transportation operations
involve the storage, use or disposal of hazardous substances that have
contaminated and may in the future contaminate the environment. The Company may
also be liable for the costs of cleaning up a site at which it has disposed
(intentionally or unintentionally by virtue of, for example, an accident,
derailment or leak) or to which it has transported hazardous substances. The
Company is currently involved in various remediations of properties relating to
its transportation operations. In addition, FEC, along with many other
companies, has been named a potentially responsible party in proceedings under
Federal statutes for the clean up of designated Superfund sites at Hialeah,
Florida; Jacksonville, Florida; and Portsmouth, Virginia. See "-- Environmental
Proceedings." Based on presently available information, the Company does not
believe that the costs of addressing any known environmental issues relating to
its transportation operations will be material. However, the future cost of
complying with environmental laws and containing or remediating contamination
cannot be predicted with any certainty, and there can be no

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58

assurances that such liabilities or costs would not have a material adverse
effect on the Company in the future. See "Risk Factors -- Environmental
Matters."

SUGAR

The Company owns Talisman Sugar Corporation, a grower of sugarcane located
in the Belle Glade area in south central Florida. Talisman owns approximately
47,350 acres of agricultural land and leases approximately 5,400 acres. The
Company also operates a sugar mill at which sugar cane is converted into raw
sugar.

On December 6, 1997, the Company signed an agreement in principle with the
United States of America and the State of Florida (the "Governments"), under
which the Governments agreed to purchase substantially all of the sugar lands
that the Company owns or leases for $133.5 million in cash. Under the agreement,
the Company will retain the right to farm the transferred lands through the
2002-2003 crop year. Thereafter, the Company will be required to deliver the
lands in compliance with all federal and state environmental laws and will be
responsible for and bear the expenses of environmental cleanup of such lands and
the sugar mill. At that time, the Company has agreed to close its sugar mill and
remove it and all associated structures designated by the Governments. The
Company will retain any salvage value from the disposition of its mill. The
Company and the Governments have agreed to enter into an appropriate purchase
agreement reflecting these terms by June 6, 1998. The proposed transaction is
subject to board and government approval, and there can be no assurances that an
agreement will be concluded or that the sale of the Company's sugar lands will
be consummated.

Talisman sells its entire production to Everglades Sugar Refinery, Inc., a
wholly-owned subsidiary of Savannah Foods & Industries, Inc., pursuant to an
annually renewed contract. The amount Talisman is paid for its sugar under the
current contract is a function of market prices.

MILL OPERATIONS

The Company's sugar mill has a grinding capacity of approximately 11,500
tons of sugarcane per day. The Company ground approximately 1,202,000 tons of
sugarcane in 1996, approximately 1,386,000 tons in 1995 and approximately
1,184,000 tons of sugarcane in 1994 from Company operated lands. Total raw sugar
production for the Company was approximately 117,000 tons in 1996, 138,000 tons
in 1995, and 111,000 tons in 1994. The sugar mill is virtually energy
self-sufficient, with almost all of its energy requirements supplied through the
use of bagasse, a by-product of the mill's cane grinding operations.

HARVESTING OPERATIONS

Sugarcane plantings generally yield two harvests before replanting is
necessary. The Company harvests its sugarcane crop in one-year cycles, as do
other Florida producers. The Company generally plants sugarcane in the fall of
each year. Harvesting of a crop generally commences in October of each year and
continues into the following March. During the 1996-1997 crop year, Talisman
grew sugarcane on approximately 43,000 acres of land.

The majority of the Florida sugarcane producers, including Talisman,
harvest sugarcane using mechanical cane harvesters which reduce significantly
the labor requirements, resulting in substantial cost savings and more efficient
and timely grinding of the sugarcane. Mechanized harvesting, however, is less
precise than manual harvesting, results in greater amounts of chaff and trash
being mixed in with the harvested sugarcane, causes small amounts of sucrose to
be lost through leaching into the trash and chaff, damages cane fields more than
manual harvesting and results in slightly lower cane yields in subsequent crops.
Yields of sucrose from such harvested sugarcane and its crop yields per acre are
generally slightly lower than those cut by hand. These negative effects,
however, are far outweighed by cost savings and other efficiencies which result
from mechanized harvesting.

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59

REGULATION

The Company's sugar operations are subject to and may be severely
restricted by various federal, state and local environmental laws, including,
but not limited to, the federal Clean Water Act, the federal Clean Air Act and
CERCLA. Violations of these laws can result in civil penalties, remediation
expenses, natural resource damages, potential injunctions, cease and desist
orders and criminal penalties. The Company's sugar operations are located in the
Florida Everglades, which are the subject of extensive environmental review by a
variety of government entities. In 1994, the State of Florida enacted the
Everglades Forever Act which significantly affects agriculture in the Everglades
Agricultural Area ("EAA"). The Act calls for the creation of six Stormwater
Treatment Areas ("STA") as buffers between the Everglades Protection Area and
the EAA. The Act imposes substantial taxes on Talisman (approximately $1.3
million was paid in each of 1995 and 1996) and other agricultural interests to
pay for construction of the STAs. As part of its environmental compliance
efforts, Talisman has installed equipment to monitor the quality and quantity of
water being pumped out of its pumping stations as required by the local Water
Management District.

Except as described above, the Company is not presently aware of any
material environmental issues relating to its sugar operations. However, there
can be no assurance that environmental issues that could have a material adverse
effect on the Company will not arise in the future relating to its sugar
operations. See "Risk Factors -- Environmental Matters."

INVESTMENTS

The Company, in addition to its operations, has cash, cash equivalents and
investments in U.S. government securities, corporate debt securities, municipal
securities, and common and preferred stocks. At January 12, 1998, the market
value of the Company's cash, cash equivalents, and marketable securities was
approximately $505 million, valued as follows: cash and money market deposits,
$38 million; government and municipal securities with less than a one year term,
$80 million; government and municipal securities with a greater than one year
term, $168 million; corporate debt securities with less than a one year term,
$77 million; and corporate debt securities with a greater than one year term and
corporate equity securities, $142 million.

EMPLOYEES

The Company (excluding its subsidiaries) had approximately 44 employees at
October 31, 1997. The Company effected a substantial reduction in its workforce
during 1996 primarily due to the sale of its former linerboard mill and
container operations. None of the Company's employees are covered by collective
bargaining agreements. The Company considers its relations with its employees to
be good.

The Company's forestry operations, through St. Joe Timberland Company, had
28 employees at October 31, 1997. The Company effected a 72% reduction in its
forestry workforce during 1997 in order to improve the cost structure of
forestry operations. The reduction in employment was primarily due to the
outsourcing of replanting land preparation operations to independent
contractors. The Company estimates that this outsourcing will achieve cost
savings of approximately $1 million per year on an ongoing basis.

At September 30, 1997, FECI had 9 employees, FEC had 854 employees and ANRR
had 83 employees. At October 31, 1997, Talisman had 714 employees. Most FEC and
ANRR employees are covered by collective bargaining agreements which set wage
levels and establish work rules and working conditions. Most of FEC's
non-salaried employees are represented by the United Transportation Union or the
International Brotherhood of Electrical Workers. The Company and FEC consider
their working relationship with the various unions that represent railroad
employees to be satisfactory. Approximately 160 Talisman employees are covered
by collective bargaining agreements. They are represented by the International
Association of Machinists and Aerospace Workers. Talisman believes its relations
with its employees to be satisfactory.

ENVIRONMENTAL PROCEEDINGS

The Company is named as a Potentially Responsible Party ("PRP") for the
remediation of a designated Superfund site near Tampa, Florida. The United
States Environmental Protection Agency ("USEPA") has

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alleged that the Company caused certain materials to be disposed at the site
over a period of years in the late 1970s or 1980s. The Company has provided
USEPA with certain evidence indicating the Company did not dispose of any
materials at the site. The Company has declined an invitation to join a PRP
group as a de minimis party. While the Company believes that its liability would
be de minimis, it nonetheless continues to deny liability and vigorously opposes
any attempt to impose any liability upon the Company for the remediation of the
site.

The Company received notice of potential involvement in a Superfund Site in
Sharonville, Ohio, during the third quarter of 1996. The site was formerly owned
and operated by the Company as a container plant. It was sold in the late
1970's. At this time the extent of the contamination and magnitude of the
cleanup is unknown. The Company does not believe, based on its preliminary
investigation of the Company's use of the property, that it is responsible for
the contamination, and if found partially responsible, the Company does not
believe its liability would be material.

FEC has been named as a PRP for the remediation of two designated Superfund
sites near Jacksonville, Florida. On the first site, the USEPA has alleged that
FEC caused certain materials to be disposed at the site over a period of years.
The USEPA has offered all named PRPs an opportunity to participate in the pilot
allocation program. This program is similar to binding arbitration. If FEC
participates in this program, its share of the liability for the remediation
will be fixed. The USEPA has also offered to negotiate a separate settlement
with certain parties, including FEC. FEC believes that, whichever alternative is
chosen, its liability for the remediation of the site will not be material. On
the second site, FEC was contacted by the USEPA during 1996, at which time FEC
was asked to provide certain information about the manner in which FEC disposes
of steel drums. The USEPA is attempting to determine whether or not FEC should
be a PRP at the steel drum site in Jacksonville, Florida. There is some evidence
that FEC may have sent a small number of steel drums to the site for disposal.
FEC believes its responsibility, if any, for the remediation of the site will
not be material.

FEC has been named as a PRP for the remediation of a designated Superfund
site in Portsmouth, Virginia. The USEPA has alleged that FEC caused certain
materials to be sent to the site over a period of years. These materials were
utilized by the owner of the site in the course of its business which, FEC
believes, caused the site to become contaminated. The owner of the site has
filed suit in the United States District Court for the Eastern District of
Virginia, Norfolk Division seeking to impose liability upon the defendants,
including FEC, for remediation of the site. A settlement between the owner of
the site and FEC was achieved late in 1996. The settlement as to FEC, of
approximately $.2 million, was approved by the Court and the USEPA. Unless
additional contamination is discovered at the site or it becomes necessary to
remediate areas beyond the original clean-up, FEC will have no further liability
at the site.

FEC was contacted by the USEPA during 1996, seeking reimbursement of costs
associated with the remediation of a Superfund site in Hialeah, Florida, part of
which includes a FEC right-of-way. An individual operated a business on this
site for a number of years. The owner of the business slightly encroached upon
FEC's right-of-way. Upon discovering this, FEC entered into a lease agreement
with the business owner rather than require the building be removed. The
individual has ceased doing business. The USEPA is seeking reimbursement from
FEC of the approximately $2 million spent in remediation on the grounds that FEC
was an "owner" of the site. Settlement negotiations are ongoing at this time and
the ultimate cost is not expected to be material.

The Company, through its subsidiaries, is a party to various proceedings
before state regulatory agencies relating to environmental issues. The Company
is not aware of any monetary sanctions to be proposed, which, in the aggregate,
are likely to exceed $100,000, nor does it believe that corrections, if any,
will necessitate significant capital outlays or cause material changes in the
business.

LEGAL PROCEEDINGS

Kahn

During April 1996, a shareholder of FECI instituted a class action in
Florida state court against FECI, St. Joe Industries, Inc., the Company and
members of the FECI Board of Directors (Messrs. Thornton, Belin,
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Nedley, Zellers, Fairbanks, Foster, Harper, Mercer and Parrish). Certain of the
individuals named in the action are also officers or directors of the Company.
The action, which was brought on behalf of all shareholders of FECI, other than
the defendants and their affiliates, is styled Kahn v. St. Joe Industries, Inc.,
St. Joe Paper Co., Thornton, Belin, Nedley, Zellers, Fairbanks, Foster, Harper,
Mercer, Parrish and Florida East Coast Industries, Inc., Case No. 96-01874 CA
(Circuit Court, Fourth Judicial Circuit, Duval County, Florida, Division CV-G).
On November 21, 1997 the Company withdrew its offer to purchase outstanding
shares of FECI.

In January 1998, the same plaintiffs instituted a new class action against
the Company, FECI and FECI's directors. The action is styled Kahn v. St. Joe
Corporation, Thornton, Belin, Nedley, Zellers, Fairbanks, Foster, Harper,
Mercer, Parrish and Florida East Coast Industries, Inc., Case No. 98-00025 CA
(Circuit Court, Fourth Judicial Circuit, Duval County, Florida, Division CV-G).
The complaint alleges that the defendants breached their fiduciary duties to the
minority shareholders of FECI in connection with (i) the February 26, 1996
announcement by FECI that it was considering the sale of its real estate
subsidiary, GCC, to the Company and the sale of its railroad subsidiary, FEC, to
a third party, (ii) the Company's May 5, 1997 offer to purchase all outstanding
shares of FECI's Common Stock not owned by it at $102 per share and (iii) the
Company's November 21, 1997 withdrawal of such offer. According to the
complaint, by withdrawing its offer, the Company is allegedly attempting to
coerce FECI's minority shareholders to sell their shares to the Company at an
inadequate price. The action seeks, among other things, to certify the
litigation as a class action, to appoint a receiver to assume control of FECI
for the purpose of liquidating it and to enjoin the Company from squeezing out
minority shareholders at an inadequate price. On February 2, 1998, the Company
filed a motion to dismiss the complaint. The Company believes the complaint is
without merit and intends to vigorously litigate the claims.

EXECUTIVE OFFICES

The Company's principal executive offices are located at 1650 Prudential
Drive, Jacksonville, Florida 32207 and its telephone number is (904)396-6600.

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The Company's directors and executive officers, their ages and their
respective positions with the Company are as follows:

NAME AGE POSITIONS
- ---- --- ---------

Peter S. Rummell................................ 52 Chairman of the Board and Chief
Executive Officer
Charles A. Ledsinger, Jr........................ 48 Senior Vice President and Chief
Financial Officer
Robert M. Rhodes................................ 55 Senior Vice President and General
Counsel
David D. Fitch.................................. 43 Senior Vice President and General
Manager -- Commercial and Industrial
Development
J. Malcolm Jones, Jr............................ 44 Senior Vice President -- Forestry
Operations
Michael F. Bayer................................ 39 Vice President -- Human Resources and
Administration
Jacob C. Belin.................................. 83 Director
Russell B. Newton, Jr........................... 73 Director
John J. Quindlen................................ 65 Director
Walter L. Revell................................ 62 Director
Frank S. Shaw, Jr............................... 66 Director
Winfred L. Thornton............................. 69 Director
John D. Uible................................... 61 Director
Carl F. Zellers, Jr............................. 65 Director

Executive officers serve at the discretion of the Board of Directors. Each
director holds office until his successor is duly elected and qualified or until
his resignation or removal. There are no family relationships among any of the
directors or executive officers of the Company.

PETER S. RUMMELL was appointed Chairman and CEO of the Company in January
1997. From 1985 until 1996, Mr. Rummell was employed by The Walt Disney Company,
most recently as Chairman of Walt Disney Imagineering, the division responsible
for Disney's worldwide creative design, real estate and research and development
activities. Mr. Rummell also served as President of Disney Development Company,
the community development arm of Walt Disney, from 1992 to 1994 and as President
of the Arvida Resort Communities Division during 1985. From 1983 until 1985, Mr.
Rummell was Vice Chairman of the Rockefeller Center Management Corporation in
New York City. Mr. Rummell was general manager and then President of Sawgrass,
near Jacksonville, Florida, from 1977 until 1983. Mr. Rummel also held
management positions for the Sea Pines Company in Hilton Head, South Carolina,
and the Amelia Island Plantation and spent two years as an employee of the Ocean
Reef Club in Key Largo, Florida.

CHARLES A. LEDSINGER, JR. was named Senior Vice President and Chief
Financial Officer in May 1997. From 1990 to 1997, Mr. Ledsinger served as Senior
Vice President and Chief Financial Officer of Harrah's Entertainment/The Promus
Companies, where from 1988 to 1990 he served as Treasurer, from 1986 to 1988 as
Vice President, Project Finance, and from 1983 to 1986 in the Embassy Suites
Division. From December 1993 to April 1997, Mr. Ledsinger served as Senior Vice
President and Treasurer of Harrah's Jazz Finance Company, a non-consolidated
special-purpose finance subsidiary of Harrah's Entertainment created in
connection with the Harrah's Jazz project, which filed for bankruptcy in
November 1995. Mr. Ledsinger was employed by Holiday Inns from 1978 to 1983,
where he held a variety of financial management positions. Prior to his
employment at Holiday Inns, Mr. Ledsinger held various management positions in
the restaurant business and was a commercial property manager for a regional
property developer in Atlanta. Mr. Ledsinger is a Director of TBC Corporation,
Perkins Management Company, Inc., Friendly Ice Cream Corporation and FelCor
Suite Hotels, Inc.

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ROBERT M. RHODES was named Senior Vice President and General Counsel in
February 1997. Prior to joining the Company, Mr. Rhodes was a partner in the law
firm of Steel, Hector and Davis L.L.P., specializing in land development. From
1985 to 1988 Mr. Rhodes served as Senior Vice President and General Counsel of
Arvida/Disney Corporation and Disney Development Company. Mr. Rhodes also served
in Florida state government as counsel to the Speaker of the Florida House of
Representatives and chaired the State's Environmental Land Management Study
Committee.

DAVID D. FITCH was named Senior Vice President and General
Manager -- Commercial and Industrial Development in September 1997. Prior to
joining the Company, Mr. Fitch served as Senior Vice President at Insignia
Financial Corporation responsible for commercial acquisitions. Mr. Fitch served
as Senior Vice President at the Paragon Group, Inc. from 1991 until Insignia's
purchase of Paragon in 1996. From 1987-91, Mr. Fitch served as Executive Vice
President at Mason Hirst Companies, a Virginia commercial developer. From
1978-1987, Mr. Fitch was a Vice President with the Cadillac Fairview
Corporation, responsible for a number of large scale commercial development
projects.

J. MALCOLM JONES, JR. was named the Company's Senior Vice
President -- Forestry Operations in April 1997. From 1995 to 1997 Mr. Jones
served as the Company's Vice President and Chief Financial Officer. Mr. Jones
served as President of AmSouth Bank of Jacksonville in 1994 and 1995 and as
President and CEO of FloridaBank from 1990 to 1994.

MICHAEL F. BAYER was named Vice President -- Human Resources and
Administration in February, 1997. From 1987 until 1995, Mr. Bayer was employed
by The Walt Disney Company in a variety of executive positions in Human
Resources. Most recently he was Vice President of Human Resources of Walt Disney
Imagineering. Previously, Mr. Bayer served as Director -- Human Resources for
the Sarasota division of the Arvida Corporation.

JACOB C. BELIN was President of the Company from 1968 to 1984, and Chairman
of the Board and Chief Executive Officer from 1982 to June 1991. He is a
director of the Company and has served as such since 1953. Mr. Belin also serves
as a member of the Board of Directors of the Nemours Foundation, and as a
Trustee of the Trust and as a director of FECI.

RUSSELL B. NEWTON, JR. has been a director of the Company since 1994. Mr.
Newton is Chairman of Timucuan Asset Management Company, which is involved in
investment portfolio management. Mr. Newton is also a director of East Coast Oil
Company and Alliance Mortgage Company, as well as other smaller, closely held
companies. Since 1981, Mr. Newton has been an investor in oil, marketing,
shipping, public utilities, construction, direct mail solicitation and cable
television. From 1975 to 1981, Mr. Newton was principal owner and Chairman of
Kern County Refineries, Inc. From 1968 to 1975, Mr. Newton was President of
Charter Oil Company. Mr. Newton spent his early employment years with Booz,
Allen & Hamilton, Management Consultants and as President of Southern Stores,
Inc.

JOHN J. QUINDLEN has been a director of the Company since 1995. Mr.
Quindlen retired as Senior Vice President and Chief Financial Officer of E. I.
duPont de Nemours & Company in 1993 ("duPont"). Mr. Quindlen worked for duPont
from 1954 until his retirement, except for three years as a naval Supply
Officer. Mr. Quindlen is a trustee of the Rodney Square Funds and the Kalmar
Pool Investment Trust. Mr. Quindlen is a member of the Finance Council of the
Archdiocese of Philadelphia and the President of its Board of Education.

WALTER L. REVELL has been a director of the Company since 1994. Mr. Revell
is presently Chairman of the Board and CEO of H. J. Ross Associates, Inc., a
consulting, engineering, architectural and planning firm in Coral Gables,
Florida, and Chairman of the Board and CEO of Revell Investments International,
Inc. and Infinity Technologies, Inc. Mr. Revell was President, CEO and Director
of Post, Buckley, Schuh and Jernigan, Inc. until 1983 after serving as Secretary
of Transportation for the State of Florida from 1972 to 1975. Mr. Revell is also
a director of Dycom Industries, Inc., RISCORP, Inc., Hotelcopy, Inc. and other
closely-held companies, and is chairman of the Greater Miami Foreign Trade Zone,
Inc.

FRANK S. SHAW, JR. has been a director of the Company since 1995. Mr. Shaw
is President of Shaw Securities, Inc., a financial services company, and of
Cherry Bluff, Inc., a northern Florida development firm
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based in Tallahassee, Florida. Mr. Shaw also serves on the Board of Directors of
First South Bank, Regional Financial Company, The Southern Scholarship
Foundation, Maclay School Foundation, Leon County Library Foundation and the
James Madison Institute.

WINFRED L. THORNTON has been a director of the Company since 1968. Mr.
Thornton was Chairman of the Board and CEO from June 1991 to January 1997, and
was President and Chief Operating Officer of the Company from 1984 to June 1991.
Mr. Thornton also serves as a member of the Board of Directors of the Nemours
Foundation, a Trustee of the Trust and a director of FECI.

JOHN D. UIBLE has been a director of the Company since 1994. Since 1990,
Mr. Uible has been an investor and Director of First Union Corporation. Mr.
Uible was Chairman of the Board and CEO of Florida National Bank from 1982 to
1990, when it was acquired by First Union Corporation. From 1976 to 1982, Mr.
Uible was Chairman of the Board and CEO of Jacksonville National Bank. Mr. Uible
was employed by the Charter Company from 1958 to 1976.

CARL F. ZELLERS, JR. has been a director of the Company since 1995. Mr.
Zellers is Chairman, President and Chief Executive Officer of FECI, and
President and a director of FEC and GCC. Mr. Zellers served as President and
Chief Operating Officer of FECI during 1996 and 1997 and as a Vice President of
FECI from 1984 to 1996.

EMPLOYMENT ARRANGEMENTS OF NEW MANAGEMENT

Peter S. Rummell. On January 7, 1997, the Company entered into an
Employment Agreement (the "Rummell Agreement") with Peter S. Rummell, its
Chairman of the Board and Chief Executive Officer. The Rummell Agreement has a
five-year term but may be terminated earlier under certain circumstances. The
Rummell Agreement provides for a salary of not less than $600,000 per year and a
performance-based incentive bonus ranging from 0% to 100% of salary, except that
the minimum bonus for the year 1997 is $250,000 and is contingent upon the
timely submission to, and acceptance by, the Board of Directors, of a business
plan for the Company. The Rummell Agreement also provides for the reimbursement
of relocation costs and related income taxes. Mr. Rummel was paid a bonus for
1997 of $300,000 on January 9, 1998.

Pursuant to the Rummell Agreement, the Company has granted Mr. Rummell an
option to purchase 4,043,520 shares of the Company's Common Stock under the St.
Joe Corporation 1997 Stock Incentive Plan (the "Incentive Plan"). The exercise
price of the options is $19.14 per share, which was equal to the closing price
of the Company's Common Stock on the day preceding the execution of the Rummell
Agreement. The exercise price shall be adjusted equitably in the event that the
Company makes a partial liquidation distribution to its shareholders. The option
becomes exercisable in equal installments on the first five anniversaries of the
date of grant, but the entire option becomes exercisable in the event that the
Company terminates Mr. Rummell's employment without cause, in the event of Mr.
Rummell's death or in the event that the Company is subject to a "change in
control" (as defined below). In the event that the Company terminates Mr.
Rummell's employment because of his disability, the option shall become
exercisable to the extent that it would have become exercisable during the 12
months immediately following such termination had Mr. Rummell's employment
continued. The option expires 10 years after the date of grant (or two years
after Mr. Rummell's death, if earlier).

Under the Rummell Agreement, the Company has also granted Mr. Rummell
201,861 restricted shares of its Common Stock under the Incentive Plan. The
restricted shares are intended to compensate Mr. Rummell for the value of the
stock options he forfeited upon resigning his position with his former employer,
based on the closing prices of the two companies' Common Stock on the day
preceding the execution of the Rummell Agreement. The restricted shares vest in
equal installments on the first five anniversaries of the date of grant but the
entire award vests in the event that the Company terminates Mr. Rummell's
employment without cause, in the event of Mr. Rummell's death or disability (as
defined in the Rummell Agreement), or in the event that the Company is subject
to a "change in control." If Mr. Rummell's employment terminates for any other
reason, he forfeits any restricted shares that have not vested.

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The Company may terminate Mr. Rummell's employment at any time for "cause"
(as described in the Rummell Agreement), in which event no further compensation
will be due. The Company may also terminate Mr. Rummell's employment if he has
been "disabled" for more than six months, in which event no further cash
compensation is due but benefit coverage continues for the remaining term of the
Rummell Agreement and the option and restricted shares vest to the extent
described above. Following a change in control, Mr. Rummell may resign for "good
reason" (as defined in the Rummell Agreement) and receive his salary for the
balance of the term of the Rummell Agreement, subject to certain restrictions.
For one year following a resignation for good reason, the Rummell Agreement
precludes Mr. Rummell from competing with the Company in certain respects.

"Change in control" is defined in the Rummell Agreement to mean (i) 30% or
more of the outstanding voting stock of the Company is acquired by any person or
group other than the Trust and the Nemours Foundation if such person or group
owns more voting stock of the Company than the Trust and the Nemours Foundation,
(ii) stockholders of the Company other than the Trust and the Nemours Foundation
vote in a contested election for directors resulting in the replacement of 50%
or more of the Company's directors or (iii) as a result of a merger or similar
transaction the Company's stockholders own 50% or less of the surviving entity's
voting securities. The Rummell Agreement provides that notwithstanding items
(i), (ii) and (iii) above, no "change in control" shall occur as long as the
Trust and the Nemours Foundation combined own more than 50% of the voting stock
of the Company.

Charles A. Ledsinger, Jr.; Robert M. Rhodes; David D. Fitch; Michael F.
Bayer; and J. Malcom Jones, Jr. The Company has entered into employment
agreements (the "Executive Agreements") with Messrs. Ledsinger (Senior Vice
President and Chief Financial Officer), Rhodes (Senior Vice President and
General Counsel), Fitch (Senior Vice President and General Manager -- Commercial
and Industrial Development), Bayer (Vice President -- Human Resources and
Administration) and Jones (Senior Vice President -- Forestry Operations) (each,
individually, an "Executive," and collectively, the "Executives"), that are
based on substantially the same form of agreement. The specific terms of each of
the Executive Agreements are tailored to each of Messrs. Ledsinger, Rhodes,
Fitch, Bayer and Jones, while the general terms of each of the Executive
Agreements are substantially similar. The Executive Agreements of Messrs.
Ledsinger, Rhodes, Fitch, Bayer and Jones, are dated April, 1997, November 3,
1997, September 15, 1997, February 1, 1997 and February 21, 1997, respectively.

The Executive Agreements provide that each of the Executives is an "at
will" employee. The Executive Agreements further provide that each Executive
shall receive (i) a base salary and (ii) a performance based incentive bonus in
an amount equal to between 0% and 60% of the Executive's base salary. The
Executive Agreements provide that the amount of each Executive's base salary and
the range of his bonus may be increased but not decreased during his period of
employment with the Company. The base salaries provided in the Executive
Agreements for Messrs. Ledsinger, Rhodes, Fitch, Bayer and Jones are $350,000,
$275,000, $225,000, $167,500 and $170,000, respectively. On January 9, 1998,
Messrs. Ledsinger, Rhodes, Fitch, Jones and Bayer were paid bonuses for 1997 of
$210,000, $165,000, $100,000, $85,000 and $100,500, respectively. In addition,
the Executive Agreements of Messrs. Ledsinger, Rhodes, Fitch and Bayer provide
for the reimbursement of relocation costs and related income taxes.

The Executive Agreements also provide that each of the Executives shall
receive an option to purchase shares of the Company's Common Stock under the
Incentive Plan. In most cases, the exercise price of each option is equal to the
closing price of the Company's Common Stock on the day preceding the date the
Executive was granted such option. The exercise price of any unexercised option
shall be adjusted equitably in the event that the Company makes a partial
liquidation distribution to its shareholders. Each of the options becomes
exercisable in equal installments on the first five anniversaries following the
date of grant; provided, however, that the Executive's option shall become
exercisable in its entirety in the event that the Company terminates the
Executive's employment without "cause" (as defined in the respective Executive
Agreements) or the Company is subject to a "change in control" ("change in
control" is defined in the respective Executive Agreements as in the Rummell
Agreement). Each of the options expires on the tenth anniversary following the
date of grant. The per share exercise prices for the options of Messrs.
Ledsinger, Rhodes, Fitch, Bayer and Jones are $23.71, $23.00, $31.38, $22.11 and
$22.11, respectively.
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The Executive Agreements further provide that, in the event the Company
terminates the employment of any of the respective Executives for any reason
other than for cause or disability, such Executive will receive a severance
payment ("Severance Payment") in a lump sum amount equal to a specified
percentage of the Executive's base salary, plus a specified percentage of the
amount of any bonus awarded to the Executive in the year prior to the
termination. Each of Mr. Ledsinger's, Mr. Rhodes' and Mr. Fitch's Executive
Agreements provides that any Severance Payment shall be in the amount of 150% of
base salary, plus 50% of the prior year's bonus, while each of Mr. Bayer's and
Mr. Jones' Executive Agreements provides that any Severance Payment shall be in
the amount of 100% of base salary, plus 50% of the prior year's bonus. Mr.
Ledsinger's, Mr. Bayer's and Mr. Jones' Executive Agreements also provide for an
augmented Severance Payment in the event that the Executive's employment is
terminated within 12 months following a change in control of the Company,
although such provisions are superseded by their Severance Agreements to the
extent that any such Severance Agreement provides for greater payments than the
applicable Executive Agreement. See "Management -- Severance Agreements."

STOCK INCENTIVE PLAN

Effective January 7, 1997, the Company adopted the Incentive Plan which was
approved by the Company's stockholders on May 13, 1997. The principal purposes
of the Incentive Plan is to promote the long-term success of the Company and the
creation of stockholder value by (a) encouraging employees and non-employee
directors to focus on critical long-range objectives, (b) encouraging the
attraction and retention of employees and non-employee directors with
exceptional qualifications and (c) linking employees and non-employees directly
to stockholder interests through increased stock ownership. The Incentive Plan
seeks to achieve this purpose through the granting of options exercisable with
respect to, or restricted shares of, the Company's Common Stock. Under the
Incentive Plan, the maximum number of options or restricted shares that may be
awarded may not exceed 6,030,480. Furthermore, under the Incentive Plan, the
maximum number of shares of Common Stock which may be subject to options or
which may be granted as restricted shares to any individual in any fiscal year
cannot exceed 3,000,000, except that an option granted to an employee during
such employee's first year of service may be exercisable with respect to up to
4,500,000 shares of Common Stock.

The Incentive Plan is administered by the Compensation Committee of the
Board of Directors (the "Committee"). Subject to certain limitations contained
in the Incentive Plan, the Committee selects the individuals who receive awards,
determines the size of any such award and establishes the vesting and other
conditions with respect thereto. The Committee consists of at least two members
of the Board of Directors, each of whom satisfies the applicable requirements of
Rule 16b-3 under the Exchange Act and Section 162(m) of the Internal Revenue
Code of 1986, as amended. The Committee is authorized, in accordance with the
provisions of the Incentive Plan, to amend the terms of outstanding restricted
shares, to modify or extend outstanding options or to exchange new options for
outstanding options, including outstanding options with a higher exercise price
than the new options.

The Incentive Plan provides for awards in the form of restricted shares or
options.

Restricted Shares. Restricted shares are shares of Common Stock that are
subject to forfeiture in the event that the applicable vesting conditions are
not satisfied. Restricted shares, unlike options, have the same voting and
dividend rights as other shares of Common Stock.

Options. An option may be either (i) an incentive stock option ("ISO")
intended to qualify for special tax treatment under the Code, or (ii) a
nonqualified stock option ("NSO"). The Incentive Plan provides that the term of
an option cannot exceed 10 years following the date of grant, and the exercise
price must be equal to or greater than the fair market value of the Common Stock
on the most recent trading day before the date of grant. In addition, the
Incentive Plan provides that, in the case of an ISO granted to an individual who
owns more that 10% of the total combined voting power of all classes of
outstanding stock of the Company, certain additional requirements set forth in
the Code must be satisfied.

Restricted shares and NSOs may be granted to any individual who is an
employee or a non-employee director of the Company (or a parent, subsidiary or
affiliated company) and who is selected by the Committee
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for participation in the Incentive Plan. In contrast, ISOs may be granted to an
individual only if such individual is an employee of the Company (or a parent or
subsidiary corporation) and who is selected by the Committee for participation
in the Incentive Plan.

The exercise price of an option may be paid in any lawful form permitted by
the Committee, including (without limitation) a full-recourse promissory note or
the surrender of shares of Common Stock or restricted shares already owned by
the optionee. In addition, the Committee may permit an optionee to satisfy his
or her withholding tax obligation upon exercise of an NSO by surrendering a
portion of his or her option shares to the Company. The Committee may at any
time offer to buy out an outstanding option for cash or give an optionee the
right to surrender his or her option for cash.

The Incentive Plan provides that the terms of options granted, or
restricted shares awarded, under the Incentive Plan are to be set forth in a
written agreement. Such written agreements describe when an option becomes
exercisable, or when any restrictions with respect to restricted shares lapse,
based upon the length of the recipient's service, his or her individual
performance, the Company's performance or other appropriate criteria. Such
written agreements may provide that vesting shall be accelerated in the event of
the recipient's death, disability or retirement or in the event of a "change in
control" of the Company.

"Change in control" is defined in the Incentive Plan to mean (i) as a
result of a merger or consolidation, 50% of the surviving entity's voting stock
is owned by stockholders who were not stockholders of the Company prior to the
merger or consolidation, (ii) the sale, transfer, exchange or other disposition
of all or substantially all of the Company's assets, (iii) a change in two
thirds of the composition of the board of the Company under certain
circumstances, (iv) the liquidation or dissolution of the Company or (v) any
transaction resulting in a person (other than the Company, an affiliate, an
employee, the Trust or the Nemours Foundation) being the beneficial owner of 25%
of the Company's voting stock.

The Incentive Plan will remain in effect until it is terminated, except
that no ISO may be granted after January 6, 2007. The Board of Directors may
amend or terminate the Incentive Plan at any time and for any reason. Amendments
require the approval of the Company's shareholders only to the extent required
by applicable laws, regulations or rules.

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The following table discloses options granted during 1997 to the Company's
executive officers:

OPTION GRANTS IN 1997

INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE AT
-------------------------------------------------------------- ASSUMED ANNUAL RATES OF
PERCENT OF TOTAL NUMBER OF STOCK PRICE APPRECIATION
OPTIONS GRANTED SECURITIES EXERCISE OR FOR OPTION TERM
TO EMPLOYEES IN UNDERLYING BASE PRICE EXPIRATION ------------------------------
NAME FISCAL YEAR OPTIONS GRANTED ($/SH) DATE 5% ($) 10% ($)
- ---- ---------------- --------------- ------------ ---------- ------------- --------------

Peter S. Rummell....... 73.4% 4,043,520 $ 19.14 1/8/07 $48,683,981 $123,367,795
Chairman of the Board
and Chief Executive
Officer
Charles A. Ledsinger,
Jr................... 4.4 240,000 23.71 5/5/07 3,578,800 9,068,400
Senior V.P. and Chief
Financial Officer
Robert M. Rhodes....... 3.1 168,480 23.00 3/3/07 2,436,782 6,175,915
Senior V.P. and
General Counsel
David D. Fitch......... 2.2 120,000 31.38 9/22/07 2,367,800 6,000,600
Senior V.P. and
General
Manager -- Commercial
and Industrial
Development
J. Malcolm Jones,
Jr................... 1.5 84,240 22.11 2/25/07 1,171,217 2,968,337
Senior V.P.
Forestry Operations
Michael F. Bayer....... 1.5 84,240 22.11 2/25/07 1,171,217 2,968,337
V.P. -- Human
Resources and
Administration

SEVERANCE AGREEMENTS

The Company has entered into severance agreements containing substantially
identical terms and conditions (collectively, the "Severance Agreements") with
Messrs. Rummell, Ledsinger, Rhodes, Fitch, Jones and Bayer (the "Named Executive
Officers"), pursuant to which each such executive shall be entitled to severance
benefits in the event of a "change in control" of the Company ("change of
control" is defined in the Severance Agreements as in the Incentive Plan) during
the term of his employment.

Under the terms of the Severance Agreements, if an executive who has
entered into a Severance Agreement (i) resigns for any reason during the last
six months of the first year following the date of a change in control, (ii)
resigns for "good reason" (as defined in the Severance Agreements) within the
first 36 months following a change in control, or (iii) is terminated by the
Company within 36 months following the date of a change in control, then the
Company is obligated to provide the executive with certain payments and
benefits. Such payments and benefits that the Company is obligated to provide to
the executive include (A) payment of a lump sum amount equal to the sum of three
times the executive's annual base salary plus three times the executive's bonus
(as described in the Severance Agreement), (B) payment of a lump sum
supplemental pension benefit amount, (C) payment of a pro-rated bonus for the
year during which such executive's employment is terminated, (D) continued
participation in the Company's group insurance plans, at the Company's expense,
until the expiration of three years following the change in control (or the date
of the executive's death, if earlier), (E) senior executive level outplacement
services, and (F) "gross-up" payments, if applicable, in the amount necessary to
satisfy any excise tax incurred by the executive, if any, under

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Section 4999 of the Code; provided, however, that if payment of such excise tax
could be avoided by reducing total payments under the Change in Control
Agreement by $50,000 or less, the total amount of such payments shall be reduced
to the level necessary to ensure that no excise tax shall be paid. In addition,
under the terms of the Severance Agreements, all stock options previously
granted to the executive shall become fully exercisable upon a change in
control, and shall remain exercisable until the earlier of the first anniversary
following such change in control or the date such options would have otherwise
expired by their terms, and any right of the Company to repurchase shares
subject to the executive's options shall lapse in full.

The Severance Agreements entered into by the executives do not supersede
the respective employment agreements entered into by such executives, except to
the extent that severance pay and benefits provided under the Severance
Agreements are greater than under the applicable employment agreement. Likewise,
the Severance Agreements do not supersede any respective stock option agreements
entered into by such executives, except to the extent that the applicable
Severance Agreement provides for earlier exercisability or a longer
post-termination exercise period than under such stock option agreement.

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PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth information with respect to persons known by
the Company to be the beneficial owners of more than five percent (5%) of its
outstanding Common Stock as well as information concerning the beneficial
ownership of Common Stock by each director, Named Executive Officer and
directors and officers as a group. The information is presented as of January
12, 1998 except where expressly noted, and as adjusted to reflect the sale of
13,800,000 shares of Common Stock by the Trust (assuming exercise of the U.S.
Underwriters' over-allotment option). Under the rules of the Securities and
Exchange Commission, beneficial ownership is deemed to include shares for which
the individual, directly or indirectly, has or shares voting and/or dispositive
power.

PERCENT OF
OUTSTANDING
SHARES OWNED(1)
--------------------
BEFORE AFTER
NAME AND ADDRESS BENEFICIAL OWNERSHIP OFFERING OFFERING
- ---------------- --------------------- -------- --------

Alfred I. duPont Testamentary Trust(2)(3).............. 63,875,700 69.0% 54.1%
P.O. Box 1380
Jacksonville, FL 32201
Franklin Resources, Inc.(4)............................ 4,721,025 5.1 5.1
Charles B. Johnson
Rupert H. Johnson
777 Mariners Island Blvd.
San Mateo, CA 94404
Peter S. Rummell....................................... 1,010,565(5) 1.1 1.1
Charles A. Ledsinger................................... -- -- --
Robert M. Rhodes....................................... 33,696(6) * *
David D. Fitch......................................... -- -- --
J. Malcolm Jones, Jr. ................................. 17,593(7) * *
Michael F. Bayer....................................... 16,848(8) * *
Jacob C. Belin......................................... 63,903,465(9) 69.1 54.1
Russel B. Newton, Jr. ................................. 6,000 * *
John J. Quindlen....................................... 600 * *
Walter L. Revell....................................... 300 * *
Frank S. Shaw, Jr. .................................... -- -- --
Winfred L. Thornton.................................... 63,881,733(9) 69.0 54.1
John D. Uible.......................................... 3,000 * *
Carl F. Zellers, Jr. .................................. -- * *
Directors and officers as a group (14 persons)......... 65,032,446(10) 70.2 55.3

- ---------------

(1) All percentages are rounded to the nearest tenth of one percent. An
asterisk(*) indicates that the percentage is less than one percent.
(2) The Trust owns 61,643,292 shares or 66.6% in its name and the Nemours
Foundation owns 2,232,408 shares or 2.4% in its name. The Trustees
constitute the entire Board of Directors of the Nemours Foundation and,
therefore, have sole voting and sole dispositive power over these shares.
(3) Under the provisions of the Will creating the Trust, the Trustees of the
Trust having the power to vote the shares of stock specified above are J.
C. Belin, H. H. Peyton, J. F. Porter, W. T. Thompson, III, W. L. Thornton
and Wachovia Bank, N.A., a subsidiary of Wachovia Corporation. A majority
of the Trustees have the right to vote all the stock of the Company owned
by the Trust.
(4) According to a Schedule 13G filed with the Securities and Exchange
Commission, as of December 31, 1996, the above shares are beneficially
owned by one or more open or closed end investment companies or other
managed accounts which are advised by direct and indirect advisory
subsidiaries (the "Advisory Subsidiaries") of Franklin Resources, Inc.
("FRI"). Charles B. Johnson and Rupert H. Johnson, Jr. (the "Principal
Shareholders") each own in excess of 10% of the outstanding common stock of
FRI and

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are the principal shareholders of FRI. FRI and the Principal Shareholders
may be deemed to be, for purposes of Rule 13d-3 under the 1934 Act, the
beneficial owner of securities held by persons and entities advised by FRI
and it subsidiaries. FRI, the Principal Shareholders and each of the
Advisory Subsidiaries has disclaimed any economic interest or beneficial
ownership in any of the above shares. According to the Schedule 13G,
Templeton Global Advisors Limited has the sole power to vote or to direct
the vote and the sole power to dispose or direct the disposition of
3,436,500 shares and Franklin Mutual Advisers, Inc. has the sole power to
vote or to direct the vote and the sole power to dispose or direct the
disposition of 1,947,825 shares of the Company's Common Stock.
(5) Includes 201,861 restricted shares of Common Stock granted to Mr. Rummell
under the Company's Incentive Plan. In addition, 808,704 of his 4,043,520
options under the Incentive Plan vested on January 8, 1998.
(6) Represents 33,696 of Mr. Rhodes' 168,480 options under the Incentive Plan
that will vest on March 3, 1998.
(7) Includes 745 shares held in the Company's 401(k) plan and 16,848 options
under the Company's Incentive Plan that will vest on February 25, 1998.
(8) Represents 16,848 of Mr. Bayer's 84,240 options under the Incentive Plan
that will vest on February 25, 1998.
(9) Includes 61,643,292 shares of the Company's Common Stock owned by the
Trust, on which the named individuals serve as trustees, and 2,232,408
shares owned by the Nemours Foundation, of which the named individuals are
directors. Mr. Belin owned 27,765 shares as to which he had sole
dispositive voting power, and Mr. Thornton owned 6,033 (including those
held in the Company's 401(k) plan).
(10) Includes 35,091 shares held in the Company's 401(k) plan for which the
trustee of the plan has sole voting power and the participants have sole
dispositive power. The trustee of this plan is Merrill Lynch.

CERTAIN TRANSACTIONS

Jacob C. Belin and Winfred L. Thornton are trustees of the Trust and also
serve as directors of the Company and FECI. In addition, Carl F. Zellers, Jr.
serves as a director of the Company and of FECI.

On May 1, 1997, the Company entered into consulting agreements with Mr.
Belin and Mr. Thornton (the "Consulting Agreements"). Pursuant to the Consulting
Agreements, Messrs. Belin and Thornton will advise and counsel the Company on
various corporate matters at the request of the Chairman and Chief Executive
Officer. The Consulting Agreements provide that Messrs. Belin and Thornton will
receive annual compensation of $100,000 and $112,000, respectively, and will be
reimbursed for expenses actually incurred up to $10,000 per year.

In addition, the Nemours Foundation and the Company rent office space from
GCC at rates approximating market rentals.

DESCRIPTION OF COMMON STOCK

As of January 12, 1998 the authorized capital stock of the Company
consisted of 180,000,000 shares of common stock, no par value, of which
91,697,811 shares were issued and outstanding (not including 5,845,341 shares
subject to outstanding options).

The Company's Common Stock consists of one class of common voting stock
with each share being entitled to one vote. A majority of the holders of the
Common Stock represented at any meeting of stockholders constitutes a quorum and
a majority of such quorum is entitled to vote on any matter coming before the
meeting. Directors are elected at the annual meeting of stockholders by a
plurality of the votes cast at such election. The Company's Board of Directors
is not staggered.

Stockholders are entitled to receive such dividends as may be declared by
the Board of Directors out of funds legally available therefor and share
proportionately in any such liquidating distribution.

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There are no redemption, conversion or sinking fund provisions with respect
to the Common Stock. The Common Stock is not entitled to preemptive rights or
cumulative voting rights.

Transfer Agent and Registrar. The transfer agent and registrar for the
Common Stock is First Union National Bank Corporate Trust, 1525 West W.T. Harris
Blvd., 3C3, NC1153, Charlotte, North Carolina 28288-1153.

TAX CONSEQUENCES TO NON-U.S. HOLDERS

In the opinion of Latham & Watkins, counsel to the Company, the material
federal income tax consequences to Non-U.S. Holders expected to result from the
purchase, ownership and sale or other taxable disposition of the Common Stock,
under currently applicable law, are summarized below. A "Non-U.S. Holder" is a
person or entity that, for U.S. federal income tax purposes, is a non-resident
alien individual, a foreign corporation, a foreign estate or trust or a foreign
partnership as such terms are defined in the Internal Revenue Code of 1986, as
amended (the "Code").

This summary is based upon the current provisions of the Code, applicable
Treasury Regulations and judicial and administrative decisions and rulings.
There can be no assurance that the Internal Revenue Service (the "IRS") will not
take a contrary view, and no ruling from the IRS has been or will be sought.
Future legislative, judicial or administrative changes or interpretations could
alter or modify the statements set forth herein, and any such changes or
interpretations could be retroactive and could affect the tax consequences to
Non-U.S. Holders of Common Stock.

The following summary is for general information only and does not purport
to deal with all aspects of federal income taxation that may affect particular
Non-U.S. Holders in light of their individual circumstances and is not intended
for (a) stockholders other than Non-U.S. Holders, (b) Non-U.S. Holders who would
not hold the Common Stock as capital assets or (c) Non-U.S. Holders who are
otherwise subject to special treatment under the Code (including insurance
companies, tax-exempt entities, financial institutions, broker-dealers and
persons who would hold the Common Stock as part of a straddle, hedge or
conversion transaction). In addition, the summary does not consider the effect
of any applicable state, local or foreign tax laws on Non-U.S. Holders. EACH
PROSPECTIVE NON-U.S. HOLDER OF COMMON STOCK SHOULD CONSULT HIS OWN TAX ADVISOR
WITH RESPECT TO THE TAX CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND
DISPOSITION OF COMMON STOCK, INCLUDING THE APPLICABILITY AND EFFECT OF STATE,
LOCAL AND FOREIGN TAX LAWS, AND OF CHANGES IN APPLICABLE TAX LAWS.

DIVIDENDS ON COMMON STOCK

Dividends paid to a Non-U.S. Holder of Common Stock that are not
effectively connected with the conduct by the Non-U.S. Holder of a trade or
business within the United States will generally be subject to withholding of
United States federal income tax at a rate of 30% of the gross amount of the
dividends unless the rate is reduced by an applicable income tax treaty. Except
to the extent that an applicable tax treaty otherwise provides, a Non-U.S.
Holder will be taxed in the same manner as United States citizens, resident
aliens and domestic corporations on dividends paid (or deemed paid) that are
effectively connected with the conduct of a trade or business in the United
States by the Non-U.S. Holder. If such Non-U.S. Holder is a foreign corporation,
it may also be subject to a United States branch profits tax on such effectively
connected income at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty. However, a Non-U.S. Holder may claim exemption
from withholding under the effectively connected income exception by filing Form
4224 (Exemption from Withholding of Tax on Income Effectively Connected with the
Conduct of Business in the United States) or a successor form with the Company
or its paying agent.

Under the currently applicable Treasury regulations, dividends paid to an
address in a country other than the United States are presumed to be paid to a
resident of such country for purposes of the withholding discussed above (unless
the payor has knowledge to the contrary) and, under the current interpretation
of Treasury regulations, for purposes of determining the applicability of a
reduced rate of withholding under an

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income tax treaty. However, under certain recently finalized Treasury
Regulations (the "New Withholding Regulations") a Non-U.S. Holder of Common
Stock who wishes to claim the benefit of an applicable treaty rate would be
required to satisfy certain certification and other requirements. In addition,
under the New Withholding Regulations, in the case of Common Stock held by a
foreign partnership, the certification requirement would generally be applied to
the partners of the partnership and the partnership may be required to provide
certain information, including a United States taxpayer identification number.
The New Withholding Regulations also provide look-through rules for tiered
partnerships. The New Withholding Regulations are generally effective for
payments made after December 31, 1998, subject to certain transition rules.
Non-U.S. Holders are encouraged to consult with their own tax advisors with
respect to the application of the New Withholding Regulations.

Generally, the Company must report to the IRS the amount of dividends paid,
the name and address of the recipient and the amount, if any, of the tax
withheld. A similar report is sent to the holder. Pursuant to income tax
treaties or certain other agreements, the IRS may make its reports available to
tax authorities in the recipient's country of residence.

If paid to an address outside the United States, dividends on Common Stock
held by a Non-U.S. Holder will generally not be subject to backup withholding,
provided that the payor does not have actual knowledge that the holder is a
United States person. However, under the New Withholding Regulations (which are
effective for dividends paid after December 31, 1998), dividend payments may be
subject to backup withholding imposed at a rate of 31% unless applicable
certification requirements are satisfied. See the discussion above with respect
to rules applicable to foreign partnerships under the New Withholding
Regulations.

GAIN ON DISPOSITION OF COMMON STOCK

Subject to the discussion below under "FIRPTA Treatment of Non-U.S.
Holders," a Non-U.S. Holder generally will not be subject to United States
federal income tax or withholding on gain recognized upon the sale or other
disposition of Common Stock unless (i) the gain is effectively connected with
the conduct of a trade or business within the United States by the Non-U.S.
Holder, or (ii) in the case of a Non-U.S. Holder who is a non-resident alien
individual and holds the Common Stock as a capital asset, such holder is present
in the United States for 183 or more days in the taxable year and certain other
conditions are met, or (iii) the Non-U.S. Holder is subject to tax pursuant to
the provisions of United States federal income tax law applicable to certain
United States expatriates. If a Non-U.S. Holder falls under clause (i) above,
the holder will be taxed on the net gain derived from the sale at regular
graduated United States federal income tax rates (the branch profits tax also
may apply if the Non-U.S. Holder is a corporation). If an individual Non-U.S.
Holder falls under clause (ii) above, the holder generally will be subject to a
30% tax on the gain derived from the sale, which gain may be offset by U.S.
capital losses recognized within the same taxable year of such sale.

FIRPTA TREATMENT OF NON-U.S. HOLDERS

Under the Foreign Investment in Real Property Tax Act of 1980, as amended
("FIRPTA"), and subject to the exception discussed below for 5% or less
shareholders, Non-U.S. Holders generally are subject to United States federal
income tax on capital gain realized on the disposition of Common Stock which
constitutes a United States real property interest by reason of that Company's
status as a United States real property holding corporation ("USRPHC"), as well
as United States withholding in respect to such tax equal to 10% of the amount
realized on such disposition. Under FIRPTA, a corporation is a USRPHC if the
fair market value of the United States real property interests held by the
corporation equals 50% or more of the aggregate fair market value of the
Company's real property interests and any other assets of the Company used or
held for use in a trade or business. In the event that a sale or disposition of
Common Stock constitutes a sale or disposition of a United States real property
interest, a greater than 5% Non-U.S. Holder will generally be subject to United
States tax on such sale or disposition.

The Company currently believes that, in light of the nature and extent of
its real estate interests in the United States, it is a USRPHC. Even if a
corporation meets the test for a USRPHC, a Non-U.S. Holder

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would generally not be subject to U.S. federal income tax on gain from a sale or
other disposition of Common Stock solely by reason of such USRPHC status if the
Common Stock is regularly traded on an established securities market during the
calendar year in which such sale or disposition occurs and such holder does not
own, actually or constructively, Common Stock with a fair market value in excess
of 5% of the fair market value of all Common Stock outstanding at any time
during the shorter of the five-year period preceding such disposition or the
holder's holding period. In addition, a Non-U.S. Holder will not be subject to
withholding in respect to such tax if the Company's Common Stock is so regularly
traded during the calendar year of such disposition. The Company believes that
the Common Stock will be treated as regularly traded on an established
securities market. Accordingly, a Non-U.S. Holder that owns more than 5% of the
fair market value of the Common Stock during the period described above may be
subject to U.S. federal income tax on a sale or disposition.

FEDERAL ESTATE TAXES

An individual Non-U.S. Holder who owns, or is treated as owning, Common
Stock at the time of his or her death or has made certain lifetime transfers of
an interest in Common Stock will be required to include the value of such Common
Stock in his gross estate for United States federal estate tax purposes, unless
an applicable estate tax treaty provides otherwise.

INFORMATION REPORTING AND BACKUP WITHHOLDING

Information reporting requirements and backup withholding tax will not
apply to any payment of the proceeds of the sale of Common Stock effected
outside the United States by a foreign office of a "broker" (as defined in
applicable Treasury Regulations), unless such broker is (i) a United States
person, (ii) a foreign person that derives 50% or more of its gross foreign
income for certain periods from activities that are effectively connected with
the conduct of a trade or business in the United States, (iii) a controlled
foreign corporation for United States federal income tax purposes or (iv)
effective December 31, 1998, certain brokers that are foreign partnerships with
partners who are Non-U.S. Holders or that are engaged in a United States trade
or business. Payment of the proceeds of any such sale effected outside the
United States by a foreign office of any broker that is described in (i), (ii),
(iii) or (iv) of the preceding sentence will not be subject to backup
withholding tax, but will be subject to information reporting requirements
unless such broker has documentary evidence in its records that the beneficial
owner is a Non-U.S. Holder and certain other conditions are met, or the
beneficial owner otherwise establishes an exemption. Payment of the proceeds of
any such sale to or through the United States office of a broker is subject to
information reporting and backup withholding requirements, unless the beneficial
owner of the Common Stock either (a) provides a Form W-8 (or a suitable
substitute form) signed under penalties of perjury that includes its name and
address and certifies as to its Non-U.S. Holder status in compliance with
applicable law and regulations, or (b) otherwise establishes an exemption.
Effective for payments after December 31, 1998 (and subject to certain
transition rules), the New Withholding Regulations unify certain certification
procedures and forms and the reliance standards relating to information
reporting and backup withholding.

THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH PROSPECTIVE
NON-U.S. HOLDER OF COMMON STOCK SHOULD CONSULT HIS OWN TAX ADVISOR WITH RESPECT
TO THE TAX CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF COMMON
STOCK.

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UNDERWRITERS

Under the terms and subject to the conditions in the Underwriting agreement
dated the date hereof (the "Underwriting Agreement"), the U.S. Underwriters
named below for whom Morgan Stanley & Co. Incorporated, Donaldson, Lufkin &
Jenrette Securities Corporation, Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Raymond James & Associates, Inc. are acting as U.S.
Representatives, and the International Underwriters named below for whom Morgan
Stanley & Co. International Limited, Donaldson, Lufkin & Jenrette International,
Merrill Lynch International and Raymond James & Associates, Inc. are acting as
International Representatives, have severally agreed to purchase, and the Trust
has agreed to sell to them, severally, the respective number of shares of Common
Stock set forth opposite the names of such Underwriters below:

NUMBER OF
NAME SHARES
- ---- ----------

U.S. Underwriters:
Morgan Stanley & Co. Incorporated......................... 2,040,000
Donaldson, Lufkin & Jenrette Securities Corporation....... 1,360,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................. 2,040,000
Raymond James & Associates, Inc........................... 1,360,000
Robert W. Baird & Co. Incorporated........................ 200,000
BT Alex. Brown Incorporated............................... 400,000
A.G. Edwards & Sons, Inc.................................. 400,000
EVEREN Securities, Inc.................................... 200,000
Janney Montgomery Scott Inc............................... 200,000
Edward D. Jones & Co., L.P................................ 200,000
Laidlaw Global Securities, Inc............................ 200,000
Legg Mason Wood Walker, Incorporated...................... 200,000
Prudential Securities Incorporated........................ 400,000
Smith Barney Inc.......................................... 400,000
Value Investing Partners, Inc............................. 200,000
Wasserstein Perella Securities, Inc....................... 400,000
----------
Subtotal.......................................... 10,200,000
International Underwriters:
Morgan Stanley & Co. International Limited................ 448,856
Donaldson, Lufkin & Jenrette International................ 299,237
Merrill Lynch International............................... 448,856
Raymond James & Associates, Inc........................... 299,237
Argentaria Bolsa S.V.B., S.A.............................. 43,402
Credit Lyonnais Securities................................ 43,402
Skandinaviska Enskilda Banken............................. 43,402
IMI Sigeco Sim............................................ 43,402
ING Bank N.V.............................................. 43,402
Kleinwort Benson Limited (Dresdner KB).................... 43,402
UBS Limited............................................... 43,402
----------
Subtotal.......................................... 1,800,000
----------
Total............................................. 12,000,000
==========

The U.S. Underwriters and the International Underwriters, and the U.S.
Representatives and the International Representatives, are collectively referred
to as the "Underwriters" and the "Representatives," respectively. The
Underwriting Agreement provides that the obligations of the several Underwriters
to pay for and accept delivery of the shares of Common Stock offered hereby are
subject to the approval of certain legal matters by their counsel and to certain
other conditions. The Underwriters are obligated to take and pay for all

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of the shares of Common Shares offered hereby (other than those covered by the
U.S. Underwriters' over-allotment option described below) if any such shares are
taken.

Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions: (i)
it is not purchasing any Shares (as defined herein) for the account of anyone
other than a United States or Canadian Person (as defined herein) and (ii) it
has not offered or sold, and will not offer or sell, directly or indirectly, any
Shares or distribute any prospectus relating to the Shares outside the United
States or Canada or to anyone other than a United States or Canadian Person.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that, with certain
exceptions: (i) it is not purchasing any Shares for the account of any United
States or Canadian Person and (ii) it has not offered or sold and will not offer
or sell, directly or indirectly, any Shares or distribute any prospectus
relating to the Shares in the United States or Canada or to any United States or
Canadian Person. With respect to any Underwriter that is a U.S. Underwriter and
an International Underwriter, the foregoing representations and agreements (i)
made by it in its capacity as a U.S. Underwriter apply only to in its capacity
as a U.S. Underwriter and (ii) made by it in its capacity as an International
Underwriter apply only to it in its capacity as an International Underwriter.
The foregoing limitations do no apply to stabilization transactions or to
certain other transaction specified in the Agreement between U.S. and
International Underwriters. As used herein, "United States or Canadian Person"
means any national or resident of the United States or Canada or of any
corporation, pension, profit-sharing or other trust or other entity organized
under the laws of the United States and Canada or of any political subdivision
thereof (other than branch located outside the United States of any United
States or Canadian person), and includes any United States or Canadian branch of
a person who is otherwise not a United States or Canadian Person. All shares of
Common Stock to be purchased by the Underwriters under the Underwriting
Agreement are referred to herein as the "Shares."

Pursuant to the Agreement between U.S. and International Underwriters,
sales may be made between the U.S. Underwriters and International Underwriters
of any number of Shares as may be mutually agreed. The per share price of any
Shares sold shall be the public offering price set forth on the cover page
hereof, in United States dollars, less an amount not greater than the per share
amount of the concession to dealers set forth below.

Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has agreed
not to offer to sell, any Shares, directly or indirectly, in any province or
territory of Canada or to, or for the benefit of any resident of any province or
territory of Canada in contravention of the Securities laws thereof and has
represented that any offer or sale of Shares in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada will be made only pursuant to an exemption from
the requirement to file a prospectus in the province or territory of Canada in
which such offer or sale is made. Each International Underwriter has further
agreed to send to any dealer who purchases from it any of the Shares a notice
stating in substance that, by purchasing such Shares, such dealer represents and
agrees that it has not offered or sold, and will not offer or sell, directly or
indirectly, any of such Shares in any province or territory of Canada or to, or
for the benefit of, any resident or any province or territory of Canada in
contravention of the securities laws thereof and that any offer or sale of
Shares in Canada will be made only pursuant to an exemption from the requirement
to file a prospectus in the province or territory of Canada in which such offer
is made, and that such dealer will deliver to any other dealer to whom it sells
any of such Shares a notice containing substantially the same statement as is
contained in this sentence.

Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that (i) it has not offered
or sold and, prior to the date six months after the closing date for the sale of
Shares to the International Underwriters, will not offer or sell, any Shares to
persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their business or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offerings of
Securities Regulations 1995; (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in
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relation to the Shares in, from or otherwise involving the United Kingdom; and
(iii) it has only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with the offering of
the Shares to a person who is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996
or is a person to whom such document may otherwise lawfully be issued or passed
on.

Pursuant to the Agreement between the U.S. and International Underwriters,
each International Underwriter has further represented that it has not offered
or sold and has agreed not to offer or sell, directly or indirectly, in Japan or
to or for the account of any resident thereof, any of the Shares acquired in
connection with the distribution contemplated hereby, except for offers or sales
to Japanese International Underwriters or dealers and except pursuant to any
exemption from the registration requirements of the Securities and Exchange Law
and otherwise in compliance with applicable provisions of Japanese law. Each
International Underwriter has further agreed to send to any dealer who purchases
from it any of the Shares a notice stating in substance that, by purchasing such
Shares, such dealer represents and agrees that it has not offered or sold, and
will not offer or sell, any of such Shares, directly or indirectly, in Japan or
to or for the account of any resident thereof except for offers or sales to
Japanese International Underwriters or dealers and except pursuant to any
exemption from the registration requirements of the Securities and Exchange Law
and otherwise in compliance with applicable provisions of Japanese law, and that
such dealer will send to any other dealer to whom it sells any of such Shares a
notice containing substantially the same statement as is contained in this
sentence.

The Underwriters initially propose to offer part of the Shares directly to
the public at the public offering price set forth on the cover page hereof and
part to certain dealers at a price that represents a concession not in excess of
$1.00 a share under the public offering price. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of $.10 a share to other
Underwriters or to certain dealers. After the initial offering of the Shares,
the offering price and other selling terms may from time to time be varied by
the Representatives.

Pursuant to the Underwriting Agreement, the Trust has granted to the U.S.
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to an aggregate of 1,800,000 additional shares of
Common Stock at the public offering price set forth on the cover page hereof,
less underwriting discounts and commissions. The U.S. Underwriters may exercise
such option to purchase solely for the purpose of covering overallotments, if
any, made in connection with the offering of the shares of Common Stock offered
hereby. To the extent such option is exercised, each U.S. Underwriter will
become obligated, subject to certain conditions, to purchase approximately the
same percentage of such additional shares of Common Stock as the number set
forth next to such U.S. Underwriter's name in the preceding table bears to the
total number of share of Common Stock set forth next to the names of all U.S.
Underwriters in the preceding table.

The Common Stock is listed on the New York Stock Exchange under the symbol
"SJP."

Each of the Company, the Selling Stockholder and certain other stockholders
and officers and directors of the Company has agreed that, without the prior
written consent of Morgan Stanley & Co. Incorporated on behalf of the
Underwriters, it will not, during the period ending 180 days from the date of
this Prospectus, directly or indirectly, (i) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, lend or otherwise
transfer or dispose of, directly or indirectly, any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for Common Stock
or (ii) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the Common
Stock, whether any such transaction described in clause (i) or (ii) above is to
be settled by delivery of shares of Common Stock or such other securities, in
cash or otherwise, other than (w) the Shares, (x) the issuance by the Company of
shares of Common Stock upon the exercise of an option or a warrant or the
conversion of a security outstanding on the date of this Prospectus of which the
Underwriters have been advised in writing, (y) the issuance of shares of Common
Stock as consideration for future acquisitions by the Company or (z) the grant
of options under the Company's stock option plans; provided such options do not
vest prior to the termination of the 180-day period

72
78

referenced herein, and provided further that, in the case of subclauses (x) and
(y), the recipient of any such issued shares agrees to be bound by the transfer
restrictions set forth herein.

In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may over-allot in
connection with the Offerings, creating a short position in the Common Stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the Common Stock, the Underwriters may bid for, and purchase, shares of
Common Stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an Underwriter or a dealer for distributing the
Common Stock in the Offerings, if the syndicate repurchases previously
distributed Common Stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Common Stock above independent market
levels. The Underwriters are not required to engage in these activities, and may
end any of these activities at any time.

The Company, the Trust and the Underwriters have agreed to indemnify each
other against certain liabilities, including liabilities under the Securities
Act.

LEGAL MATTERS

The validity of the Common Stock offered hereby and certain other legal
matters will be passed upon for the Company by Robert M. Rhodes, Senior Vice
President and General Counsel of the Company, and by Latham & Watkins, Chicago,
Illinois. Certain legal matters will be passed upon for the Trust by McGuire,
Woods, Battle & Boothe L.L.P., Richmond, Virginia. Certain legal matters will be
passed upon for the Underwriters by Davis Polk & Wardwell, New York, New York.

EXPERTS

The consolidated financial statements of St. Joe Corporation as of December
31, 1996 and 1995, and for each of the years in the three-year period ended
December 31, 1996, have been included herein and in the registration statement
in reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.

73
79

ST. JOE CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PAGE
----

Independent Auditors' Report................................ F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Income........................... F-4
Consolidated Statements of Changes in Stockholders'
Equity.................................................... F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7

F-1
80

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
St. Joe Corporation:

We have audited the accompanying consolidated balance sheets of St. Joe
Corporation and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of St. Joe
Corporation and subsidiaries as of December 31, 1996 and 1995, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996, in conformity with generally accepted accounting
principles.

KPMG PEAT MARWICK LLP

Jacksonville, Florida
March 7, 1997

F-2
81

ST. JOE CORPORATION

CONSOLIDATED BALANCE SHEETS

DECEMBER 31,
----------------------- SEPTEMBER 30,
1995 1996 1997
---------- ---------- -------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)

ASSETS
Current Assets:
Cash and cash equivalents............................... $ 16,802 $ 449,013 $ 200,986
Short-term investments.................................. 96,923 88,011 38,200
Accounts receivable..................................... 44,390 57,517 39,343
Income taxes refundable................................. 4,314 -- --
Inventories............................................. 20,592 18,677 12,692
Other assets............................................ 18,162 17,455 35,665
Net assets of discontinued operations................... 296,001 -- --
---------- ---------- ----------
Total current assets............................ 497,184 630,673 326,886
Investments and Other Assets:
Marketable securities................................... 189,865 282,827 337,526
Note receivable......................................... -- 10,000 --
Other assets............................................ 38,971 48,571 67,231
---------- ---------- ----------
Total investments and other assets.............. 228,836 341,398 404,757
Property, plant and equipment, net........................ 804,974 834,167 853,217
---------- ---------- ----------
Total assets.................................... $1,530,994 $1,806,238 $1,584,860
========== ========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable........................................ $ 26,024 $ 28,480 $ 26,903
Accrued liabilities..................................... 18,445 21,615 25,920
Income taxes payable.................................... -- 6,864 3,876
---------- ---------- ----------
Total current liabilities....................... 44,469 56,959 56,699
Accrued casualty reserves and other liabilities........... 11,681 18,361 19,950
Deferred income taxes..................................... 192,036 254,873 279,690
Minority interest in consolidated subsidiaries............ 266,741 279,104 293,915
Stockholders' Equity:
Common stock, no par value; 180,000,000 shares
authorized; 91,495,950 shares issued and outstanding
at December 31, 1995 and 1996 and 91,697,811 at
September 30, 1997................................... 8,714 8,714 13,054
Retained earnings....................................... 955,239 1,125,161 843,198
Net unrealized gains on marketable securities available
for sale............................................. 52,114 63,066 82,043
Restricted stock deferred compensation.................. -- -- (3,689)
---------- ---------- ----------
Total stockholders' equity...................... 1,016,067 1,196,941 934,606
---------- ---------- ----------
Total liabilities and stockholders' equity...... $1,530,994 $1,806,238 $1,584,860
========== ========== ==========

See notes to consolidated financial statements.

F-3
82

ST. JOE CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------ -------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

Net sales................................... $155,122 $150,564 $245,704 $173,401 $ 79,566
Operating revenues.......................... 175,784 184,360 185,485 162,307 172,328
-------- -------- -------- -------- --------
Total revenues.................... 330,906 334,924 431,189 335,708 251,894
Cost of sales............................... 111,014 116,014 112,163 64,765 63,282
Operating expenses.......................... 133,091 139,875 139,640 120,524 118,493
Selling, general and administrative
expenses.................................. 26,836 31,718 31,215 24,373 28,103
-------- -------- -------- -------- --------
Operating profit.................. 59,965 47,317 148,171 126,046 42,016
Other income (expense):
Dividends................................. 2,187 2,595 2,968 2,196 2,583
Interest income........................... 9,678 12,666 29,914 20,887 21,955
Interest expense.......................... (1,982) (2,235) (600) (426) (331)
Gain on sales and other dispositions of
property, plant and equipment, net..... 13,895 2,674 3,423 5,745 3,305
Other, net................................ 1,386 3,070 5,152 3,603 5,138
-------- -------- -------- -------- --------
Total other income (expense)...... 25,164 18,770 40,857 32,005 32,650
-------- -------- -------- -------- --------
Income from continuing operations before
income taxes and minority interest........ 85,129 66,087 189,028 158,051 74,666
Provision for income taxes
Current................................... 24,692 5,778 30,288 12,399 22,372
Deferred.................................. 6,754 18,757 52,829 58,812 10,609
-------- -------- -------- -------- --------
Total provision for income
taxes........................... 31,446 24,535 83,117 71,211 32,981
-------- -------- -------- -------- --------
Income from continuing operations before
minority interest......................... 53,683 41,552 105,911 86,840 41,685
Minority interest........................... 15,827 12,194 14,002 9,922 13,404
-------- -------- -------- -------- --------
Income from continuing operations........... 37,856 29,358 91,909 76,918 28,281
Income from discontinued operations:
Earnings (loss) from discontinued
operations, net of income taxes of
$2,491, $26,116, $(2,785) and $(2,785),
respectively........................... 4,253 44,461 (4,528) (4,528) --
Gain on the sale of discontinued
operations, net of income taxes of
$48,705 and $64,950, respectively...... -- -- 88,641 95,644 --
-------- -------- -------- -------- --------
Income from discontinued operations....... 4,253 44,461 84,113 91,116 --
-------- -------- -------- -------- --------
Net income.................................. $ 42,109 $ 73,819 $176,022 $168,034 $ 28,281
======== ======== ======== ======== ========
PER SHARE DATA:
Income from continuing operations........... $ 0.41 $ 0.32 $ 1.00 $ 0.84 $ 0.31
Earnings (loss) from discontinued
operations................................ 0.05 0.49 (.05) (.05) --
Gain on the sale of discontinued
operations................................ -- -- 0.97 1.05 --
-------- -------- -------- -------- --------
Net income........................ $ 0.46 $ 0.81 $ 1.92 $ 1.84 $ 0.31
======== ======== ======== ======== ========

See notes to consolidated financial statements.

F-4
83

ST. JOE CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED
-------------------------------- SEPTEMBER 30,
1994 1995 1996 1997
-------- -------- ---------- -------------
(UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

Common Stock:
Balance, at end of period (1994, 1995 and 1996 --
91,495,950 shares, September 30,
1997 -- 91,697,811)............................. $ 8,714 $ 8,714 $ 8,714 $ 13,054
======== ======== ========== ==========
Retained Earnings:
Balance, at beginning of period................... $851,511 $887,520 $ 955,239 $1,125,161
Net income........................................ 42,109 73,819 176,022 28,281
Dividends:
Cash ($.07 per share -- 1994, 1995 and 1996,
$.05 per share in 1997)...................... (6,100) (6,100) (6,100) (4,585)
Special distribution ($3.33 per share in 1997).... -- -- -- (305,659)
-------- -------- ---------- ----------
Balance, at end of period......................... $887,520 $955,239 $1,125,161 $ 843,198
======== ======== ========== ==========
Net Unrealized Gain on Marketable Securities
Available for Sale:
Balance, at beginning of period................... $ 41,485 $ 40,747 $ 52,114 $ 63,066
Increase (decrease) in net unrealized gain, net of
tax effect...................................... (738) 11,367 10,952 18,977
-------- -------- ---------- ----------
Balance, at end of period......................... $ 40,747 $ 52,114 $ 63,066 $ 82,043
======== ======== ========== ==========
Restricted stock deferred compensation:
Balance, at beginning of period................... -- -- -- --
(Increase) decrease in restricted stock deferred
compensation.................................... -- -- -- $ (3,689)
----------
Balance, at end of period......................... -- -- -- $ (3,689)
======== ======== ========== ==========

See notes to consolidated financial statements.

F-5
84

ST. JOE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
-------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- -------- -------- ---------
(UNAUDITED)
(DOLLARS IN THOUSANDS)

Cash flows from operating activities:
Net Income.................................. $ 42,109 $ 73,819 $176,022 $168,034 $ 28,281
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and depletion................ 27,612 28,551 28,758 21,232 23,635
Minority interest in income............... 15,827 12,194 14,002 9,922 13,404
Gain on sale of property.................. (13,895) (2,674) (3,423) (5,745) (3,682)
Gain on sale of discontinued operations... -- -- (88,641) (95,644) --
Deferred income tax provision............. 6,754 18,757 52,829 60,687 12,327
Changes in operating assets and
liabilities:
Accounts receivable.................... (1,375) (3,139) (13,127) (377) 18,174
Inventories............................ 6,545 (828) 1,915 3,459 5,985
Other assets........................... (406) (4,790) (8,893) (14,151) (26,870)
Accounts payable, accrued liabilities
and casualty reserves................ 3,176 (4,279) 5,435 27,121 6,971
Income taxes payable................... 4,275 (7,012) 11,178 25,537 (2,988)
Discontinued operations -- noncash
charges and working capital
changes.............................. 12,096 43,483 (58,710) (63,257) --
--------- --------- -------- -------- ---------
Cash provided by operating activities......... 102,718 154,082 117,345 136,818 75,237
--------- --------- -------- -------- ---------
Cash flows from investing activities:
Purchases of property, plant and
equipment................................. (65,450) (78,816) (64,271) (41,135) (53,256)
Investing activities of discontinued
operations................................ (19,513) (28,102) (4,327) (4,327) --
Proceeds from sales of property............. 18,135 5,119 9,743 4,806 14,904
Proceeds from sale of discontinued
operations................................ -- -- 445,055 454,949 --
Purchases of investments:
Available for sale........................ (18,851) (31,247) (21,928) (18,698) (49,615)
Held-to-maturity.......................... (105,091) (168,607) (180,797) (216,570) (100,336)
Maturity and redemption of investments:
Available for sale........................ 12,779 29,058 18,291 12,218 62,434
Held-to-maturity.......................... 95,241 135,480 121,111 153,194 114,096
--------- --------- -------- -------- ---------
Cash provided by (used in) investing
activities.................................. (82,750) (137,115) 322,877 344,437 (11,773)
--------- --------- -------- -------- ---------
Cash flows from financing activities:
Net change in short-term borrowings......... (5,437) (11,989) -- -- --
Financing activities of discontinued
operations................................ 2,092 (9,917) (245) (245)
Dividends paid to stockholders.............. (6,100) (6,100) (6,100) (4,575) (310,244)
Repayment of long-term debt................. (19) (16,893) -- -- --
Dividends paid to minority interest......... (1,679) (1,655) (1,666) (1,245) (1,247)
--------- --------- -------- -------- ---------
Cash used in financing activities............. (11,143) (46,554) (8,011) (6,065) (311,491)
--------- --------- -------- -------- ---------
Net increase (decrease) in cash and cash
equivalents................................. 8,825 (29,587) 432,211 475,190 (248,027)
Cash and cash equivalents at beginning of
period...................................... 37,564 46,389 16,802 16,802 449,013
--------- --------- -------- -------- ---------
Cash and cash equivalents at end of period.... $ 46,389 $ 16,802 $449,013 $491,992 $ 200,986
========= ========= ======== ======== =========
Supplemental disclosure of cash flow
information:
Cash paid during the period for certain
expense items:
Interest.................................... $ 3,973 $ 4,541 $ 1,009 $ 835 $ 331
Income taxes................................ $ 20,494 $ 45,283 $120,789 $ 93,172 $ 25,776

See notes to consolidated financial statements.

F-6
85

ST. JOE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

1. NATURE OF OPERATIONS

St. Joe Corporation (the Company) is a diversified corporation engaged in
transportation, real estate, forestry and sugar operations. Forestry has
operations in both Florida and Georgia while the remaining businesses operate
principally within the state of Florida.

Transportation

Transportation operations accounted for 43% of the Company's net sales and
operating revenues in 1996, and consist of both railway and trucking operations.
The two railroads, one serving the northwest Florida area from Port St. Joe to
Chattahoochee and the other serving the eastern seaboard of Florida from
Jacksonville to Miami, provide transportation services for the common carriage
of goods by rail between their terminating points. Since the rail operations are
within the state of Florida, more than one-half of its transportation revenue is
generated by shipments which originate and terminate within Florida.
Additionally, a significant portion of the traffic handled is received from or
transferred to other rail carriers. The principal commodities carried by rail
include crushed stone, cement, automobile vehicles and parts,
trailer-on-flatcar, container-on-flatcar, basic consumer goods such as
foodstuffs and building material, coal, pulpboard, pulpwood, woodchips, tall oil
chemicals, stone and clay products and recyclables. The trucking portion of the
Company's operation is an interstate, irregular route, common carrier with
terminals located throughout the eastern half of the United States.

Real Estate

Real estate accounted for 31% of the Company's net sales and operating
revenues in 1996, and consists of the development, construction and management
of real estate projects within the state of Florida, both for long-term
appreciation and for sale to third parties and the sale of both developed and
undeveloped land. Along Florida's east coast, the Company concentrates in
commercial property which it can manage, maintain and develop. In west Florida,
the Company has concentrated on developing parcels for residential use. The Real
Estate segment's competition is with other developers and brokers throughout its
operating area.

Forestry

Forestry accounted for 13% of the Company's net sales and operating
revenues in 1996, and consists of the growing and harvesting of timber on
approximately one million acres of timberlands in Florida and Georgia. The
majority of the wood harvested by the Company is sold under a long term wood
fiber supply agreement to one linerboard mill located in Port St. Joe, Florida.
The Company plans in the future to shift its remaining fiber production from the
Company's lands to higher margin timber products.

Wood is supplied to the mill pursuant to a negotiated wood fiber supply
agreement entered into at the time of the sale of the mill. See Note 3.
Discontinued Operations. Under that agreement, wood fiber will be supplied to
the linerboard mill for a period of fifteen years, with two five year renewal
periods. Tonnage to be provided, reduces from 1.6 million tons in year one to
1.4, 1.2, .9 million tons in years two, three and four respectively. Years four
and thereafter remain at .9 million tons. The amount of tonnage required from
Company's land is .9 million tons per year starting in the third year. At any
time, the mill can elect to reduce in increments on a permanent basis the amount
of tonnage to not less than 600,000 tons per year. Prices for the wood fiber
were negotiated at the time of the negotiation of the agreement and were
negotiated based on fixed prices from geographic zones for pulp wood and prices
tied to designated chipping facilities for wood chips. Under the wood fiber
supply agreement, prices are to be renegotiated every two years and are to be
indexed on a quarterly basis to certain published prices resulting in quarterly
adjustments that are not greater than five percent.

F-7
86

ST. JOE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

On March 6, 1997 officials of the linerboard mill at Port St. Joe announced
that the mill would be shutdown beginning in April, 1997 for an indefinite
period of time due to soft market conditions in the paper industry.

In September 1997, the linerboard mill reopened. On August 25, 1997, the
Company renegotiated certain terms of its wood fiber supply agreement with
Florida Coast Paper Company. Under the revised agreement, the Company will
supply 615,400 tons of pulpwood and wood chips between August 25, 1997 and May
30, 1998; thereafter the Company will supply 700,000 tons per year through
December, 2011 with two five year renewal periods at the option of Florida
Coast. The financial impact to transportation (ANRR) and forestry segments
operations had a significant adverse impact on the segments' revenues, operating
profit, net income and cash flow during the shutdown period.

Sugar

Sugar accounted for 13% of the Company's net sales and operating revenues
in 1996, and consists of a sugarcane plantation and a sugar mill which processes
the sugarcane into raw sugar. The raw sugar from the mill is sold to one
customer. The sugarcane crop is subject to varying weather conditions which can
significantly reduce the harvest and crop yields.

2. MAJORITY STOCKHOLDERS

The Alfred I. duPont Testamentary Trust (the "Trust") and Nemours
Foundation (the "Foundation"), beneficiary of the Trust, collectively own
approximately 69.8% of the common stock of the Company. The Company and its
subsidiaries had no significant transactions with the Trust or the Foundation
during the period.

3. DISCONTINUED OPERATIONS

Communications

On April 11, 1996, St. Joe Industries, Inc., a wholly owned subsidiary of
the Company, sold the stock of St. Joe Communications, Inc. (SJCI) to TPG
Communications, Inc. for $96,098. TPG Communications, Inc. assumed $17,963 of
SJCI interest bearing debt. SJCI sold its interest in three remaining cellular
partnerships for an aggregate of $25,113. The Company recorded a $39,154 gain on
the sale net of tax. SJCI's revenues through the April 11, 1996 sale date were
$9,335. Revenues in 1995 and 1994 were $32,826 and $30,638, respectively. During
1995, the Company had previously sold a cellular partnership interest for
$2,104. Earnings for SJCI were $1,120, $6,767 and $4,993 for 1996, 1995 and
1994, respectively

Forest Products

On May 30, 1996, the Company sold its linerboard mill and container plants.
Proceeds from the sale include $323,844 cash and a $10,000 senior subordinated
note, (the Promissory Note). The Promissory Note bears interest at a rate of
13.25% and interest is payable quarterly in arrears commencing September 1,
1996, provided that any interest payable on its due date may, at the borrowers'
option, be added to the principal amount outstanding. To date, interest payments
have been added to the principal amount. All unpaid principal and interest is
due June 1, 2007. The Promissory Note may be prepaid without penalty at any
time. The gain on the sale was $49,487, net of tax. Revenues for the linerboard
mill and container plants through May 30, 1996 were $156,305. Revenues in 1995
and 1994 were $438,399 and $378,088, respectively. Earnings (loss) for the
linerboard mill and container plants were $(5,648), $37,694 and $(740) for 1996,
1995 and 1994, respectively.

F-8
87

ST. JOE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

Included in cash and cash equivalents at December 31, 1996 is approximately
$359,267 of proceeds from these sales which have been held in special accounts
during 1996. A formal plan of liquidation was adopted on February 25, 1997, and
a distribution of net proceeds of the sales in partial liquidation of $3.33 per
share was paid on March 31, 1997, for stockholders of record on March 21, 1997.
It is currently anticipated that remaining net proceeds of $.34 per share will
also be distributed later this year after further costs and expenses of the
sales have been accounted for. Also included in cash and cash equivalents at
December 31, 1996 is approximately $9,783 in earnings on the proceeds of sales.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and all of its majority owned subsidiaries. All significant intercompany
transactions and balances have been eliminated except for sales of continuing
operations of $18,988, $59,535 and $58,925 derived from discontinued operations
in the years ended December 31, 1996, 1995 and 1994, respectively. The
unrealized profit in ending inventories relating to these sales has been
eliminated.

Unaudited Interim Financial Information

The accompanying unaudited consolidated interim balance sheet as of
September 30, 1997 and the results of operations and cash flows for the nine
months ended September 30, 1996 and 1997 have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange Commission
and reflect only normal and recurring adjustments, which are, in the opinion of
the Company considered necessary for a fair presentation, as permitted by these
regulations. Certain information and footnotes required by generally accepted
accounting principles for complete financial statements have been condensed or
omitted pursuant to such regulations, although the Company believes that the
disclosures made are adequate to make the information presented not misleading.

Revenue Recognition

Transportation revenues are substantially recognized upon completion of
transportation services at destination. Revenues from sales of forestry products
and sugar are recognized generally on delivery of the product to the customer.
Revenue from realty land sales is recognized upon closing of sales contracts for
sale of land or upon settlement of condemnation proceedings. Rental revenues are
recognized upon completion of rental and lease contracts, using the
straight-line basis for recording the revenues over the life of the contract.

Cash and Cash Equivalents

For purposes of the Consolidated Statements of Cash Flows, cash and cash
equivalents include cash on hand, bank demand accounts, money market accounts,
and repurchase agreements having original maturities at acquisition date of
three months or less.

F-9
88

ST. JOE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

Inventories

Inventories are stated at the lower of cost or market. Costs for
substantially all inventories are determined under the first in, first out
(FIFO) or the average cost method.

Property, Plant and Equipment

Depreciation is computed using both straight-line and accelerated methods
over the useful lives of various assets.

Depletion of timber is determined by the units of production method. An
adjustment to depletion is recorded, if necessary, based on the continuous
forest inventory (CFI) analysis prepared every five years.

Railroad properties are depreciated and amortized using the straight-line
method at rates established by regulatory agencies. Gains and losses on normal
retirements of these items are credited or charged to accumulated depreciation.

Deferred Cane Crop Costs

Sugar cane plantings generally yield two annual harvests, depending on
weather conditions and soil quality, before replanting is necessary. New
planting costs are amortized on a straight-line basis over two years.

Earnings Per Common Share

Earnings per common share are based on the weighted average number of
common shares outstanding during the period, as adjusted for the three-for-one
stock split effective January 12, 1998.

Income Taxes

The Company follows the asset and liability method of accounting for income
taxes in accordance with Statement of Financial Accounting Standards (SFAS) No.
109 "Accounting for Income Taxes." Under SFAS 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. SFAS 109 also requires the recognition of a
deferred tax liability on the undistributed earnings of subsidiaries applied on
a prospective basis.

Investments

Investments consist principally of corporate debt securities, government
sponsored agency securities, mortgage backed securities, municipal bonds, common
stocks, preferred stocks, and U.S. Government obligations. Investments maturing
in three months to one year are classified as short term. Those having
maturities in excess of one year are classified as marketable securities.

The Company follows the provisions of SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". Under SFAS 115, the Company
classifies its debt and marketable equity securities in one of three categories:
trading, available-for-sale, or held-to-maturity. Trading securities are bought
and held principally for the purpose of selling them in the near term.
Held-to-maturity securities are those securities for which the Company has the
ability and intent to hold the security until maturity. All other securities not
included in trading or held-to-maturity are classified as available-for-sale.
F-10
89

ST. JOE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

Trading and available-for-sale securities are recorded at fair value.
Held-to-maturity securities are recorded at amortized cost, adjusted for the
amortization or accretion of premiums or discounts. Unrealized holding gains and
losses on trading securities are included in earnings. Unrealized holding gains
and losses, net of the related income tax effect and minority interest in
consolidated subsidiaries, on available-for-sale securities are excluded from
earnings and are reported as a separate component of stockholders' equity until
realized.

A decline in the market of any available-for-sale or held-to-maturity
security below cost that is deemed other than temporary is charged to earnings
resulting in the establishment of a new cost basis for the security.

Realized gains and losses for securities classified as available-for-sale
and held-to-maturity are included in earnings and are derived using the specific
identification method for determining the cost of securities sold.

Long-Lived Assets

In March 1995, the Financial Accounting Standards Board issued SFAS 121,
"Accounting for the Impairment of Long-Lived Assets to be Disposed Of," which
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the asset's
carrying amount. SFAS 121 also addresses the accounting for long-lived assets
that are expected to be disposed of. The Company has historically reserved for
losses related to the impairment of long-term assets. The adoption of SFAS No.
121 in 1996 had no material effect on the Company's financial statements.

Stock-Based Compensation

Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting
for Stock-Based Compensation, permits entities to recognize as expense over the
vesting period the fair value of all stock based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to apply the provisions of
Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued
to Employees, and provide pro forma net income and pro forma earnings per share
disclosures for employee stock option grants as if the fair-value-based method
defined in SFAS No. 123 has been applied. Under APB No. 25, compensation expense
would be recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. The Company has elected to apply
the provisions of APB Opinion No. 25 and provide the pro forma disclosure
provisions of SFAS No. 123. The disclosures are not required for interim
reporting.

Reclassifications

Certain prior year amounts have been reclassified to conform with the
current year's presentation.

Restatements

All share numbers and per share amounts have been restated to reflect the
three-for-one split of the Company's common stock, which became effective on
January 12, 1998.

F-11
90

ST. JOE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

5. INVENTORIES

Inventories consist of:

DECEMBER 31,
----------------- SEPTEMBER 30,
1995 1996 1997
------- ------- -------------
(UNAUDITED)

Materials and supplies................................. $12,875 $13,530 $12,399
Sugar.................................................. 7,717 5,147 293
------- ------- -------
$20,592 $18,677 $12,692
======= ======= =======

6. INVESTMENTS

Investments as of December 31, 1995, consist of:

UNREALIZED UNREALIZED
AMORTIZED CARRYING FAIR HOLDING HOLDING
COST VALUE VALUE GAIN LOSS
--------- -------- -------- ---------- ----------
(IN THOUSANDS)

Short term investments (maturing
within one year)
Held to maturity
U.S. Government securities..... $ 50,077 $ 50,818 $ 51,203 $ 385 $--
Tax exempt municipals.......... 39,135 39,179 39,150 -- 29
Mortgage backed securities..... 5,641 5,911 5,909 -- 2
Certificates of deposit........ 1,000 1,015 1,015 -- --
-------- -------- -------- ------- ---
$ 95,853 $ 96,923 $ 97,277 $ 385 $31
======== ======== ======== ======= ===
Marketable securities
Available for sale
U.S. Government securities
Maturing in one to five
years..................... $ 872 $ 887 $ 887 $ 15 $--
Tax exempt municipals
Maturing in one to five
years..................... 6,968 7,181 7,181 213 --
Maturing in five to ten
years..................... 20,093 20,953 20,953 860 --
Maturing in more than ten
years..................... 5,610 5,820 5,820 210 --
Equity securities.............. 11,633 94,027 94,027 82,394 --
Mortgage backed securities
Maturing in five to ten
years..................... 3,801 3,877 3,877 76 --
Other corporate debt securities
Maturing in five to ten
years..................... 1,842 1,897 1,897 55 --
-------- -------- -------- ------- ---
50,819 134,642 134,642 83,823 --
Held to maturity
U.S. Government securities
Maturing in one to five
years..................... 45,569 45,902 46,432 530 --
Tax exempt municipals
Maturing in one to five
years..................... 1,283 113 113 -- --
Maturing in more than ten
years..................... 1,000 1,003 1,003 -- --
Mortgage backed securities
Maturing in five to ten
years..................... 6,132 6,143 6,699 556 --
Other corporate debt securities
Maturing in five to ten
years..................... 794 2,062 2,454 451 59
-------- -------- -------- ------- ---
54,778 55,223 56,701 1,537 59
-------- -------- -------- ------- ---
$105,597 $189,865 $191,343 $85,360 $59
======== ======== ======== ======= ===

F-12
91

ST. JOE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

Investments as of December 31, 1996, consist of:

UNREALIZED UNREALIZED
AMORTIZED CARRYING FAIR HOLDING HOLDING
COST VALUE VALUE GAIN LOSS
--------- -------- -------- ---------- ----------
(IN THOUSANDS)

Short term investments (maturing
within one year)
Held to maturity
U.S. Government securities..... $ 87,007 $ 87,007 $ 87,226 $ 296 $ 77
Tax exempt municipals.......... 1,004 1,004 1,005 1 --
-------- -------- -------- -------- ------
$ 88,011 $ 88,011 $ 88,231 $ 297 $ 77
======== ======== ======== ======== ======
Marketable securities
Available for sale
U.S. Government securities
Maturing in one to five
years..................... $ 1,226 $ 1,226 $ 1,226 $ 3 $ 3
Maturing in five to ten
years..................... 152 151 151 -- 1
Tax exempt municipals
Maturing in one to five
years..................... 10,624 10,945 10,945 321 --
Maturing in five to ten
years..................... 19,726 20,336 20,336 610 --
Maturing in more than ten
years..................... 4,281 4,265 4,265 -- 16
Equity securities.............. 13,534 117,128 117,128 103,594 --
Mortgage backed securities
Maturing in one to five
years..................... 71 71 71 -- --
Maturing in five to ten
years..................... 342 343 343 1 --
Maturing in more than ten
years..................... 3,210 3,255 3,255 45 --
Other corporate debt securities
Maturing in one to five
years..................... 920 931 931 11 --
Maturing in five to ten
years..................... 463 468 468 5 --
Maturing in more than ten
years..................... 95 105 105 10 --
-------- -------- -------- -------- ------
56,644 159,224 159,224 104,600 20
Held to maturity
U.S. Government securities
Maturing within one year..... $114,371 $114,371 $113,454 $ 333 $1,250
Tax exempt municipals
Maturing in one to five
years..................... 7,079 7,079 7,121 42 --
Maturing in more than ten
years..................... 56 56 725 669 --
Mortgage backed securities
Maturing in one to five
years..................... -- -- 400 400 --
Maturing in more than ten
years..................... 41 41 44 3 --
Other corporate debt securities
Maturing in one to five
years..................... 2,056 2,056 2,475 502 83
-------- -------- -------- -------- ------
123,603 123,603 124,219 1,949 1,333
-------- -------- -------- -------- ------
$178,247 $282,827 $283,443 $106,549 $1,353
======== ======== ======== ======== ======

Marketable securities, including certain investments which mature within
one year, are held as a developmental fund created to accumulate capital
expected to be required for future improvement of the Company's real estate
properties.

F-13
92

ST. JOE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

Investments as of September 30, 1997 (unaudited), consist of:

UNREALIZED UNREALIZED
AMORTIZED CARRYING FAIR HOLDING HOLDING
COST VALUE VALUE GAIN LOSS
--------- -------- -------- ---------- ----------
(IN THOUSANDS)

Short term investments (maturing
within one year)
Available for Sale
U.S. Government securities..... $ 8,496 $ 8,495 $ 8,495 $ -- $ (1)
Other corporate debt
securities................... 29,751 29,705 29,705 -- (46)
-------- -------- -------- -------- -----
$ 38,247 $ 38,200 $ 38,200 $ -- $ (47)
======== ======== ======== ======== =====
Marketable Securities
Available for Sale
U.S. Government securities
Maturing in one to five
years..................... $135,420 $135,796 $135,796 $ 376 $ --
Maturing in five to ten
years..................... 547 558 558 11 --
Tax exempt municipals
Maturing in one to five
years..................... 19,875 19,248 19,248 -- (627)
Maturing in five to ten
years..................... 18,223 19,011 19,011 788 --
Maturing in more than ten
years..................... 3,465 3,984 3,984 519 --
Equity securities.............. 15,753 149,969 149,969 134,216 --
Mortgage backed securities
Maturing in one to five
years..................... 99 99 99 -- --
Maturing in five to ten
years..................... 396 400 400 4 --
Maturing in more than ten
years..................... 4,049 4,363 4,363 314 --
Corporate debt securities
Maturing in one to five
years..................... 3,323 3,795 3,795 472 --
Maturing in five to ten
years..................... 189 196 196 7 --
Maturing more than ten
years..................... 95 107 107 12 --
-------- -------- -------- -------- -----
$201,434 $337,526 $337,526 $136,719 $(627)
======== ======== ======== ======== =====

During 1997, consistent with the Company's expected capital expenditure
needs, approximately $137,000 of securities classified as held to maturity were
transferred to available for sale. Net unrealized gains were not material.

7. ACCRUED LIABILITIES

Accrued liabilities consist of:

DECEMBER 31,
----------------- SEPTEMBER 30,
1995 1996 1997
------- ------- -------------
(UNAUDITED)

Payroll and benefits.................................. $ 1,433 $ 5,716 $ 5,139
Payroll taxes......................................... 246 403 --
Property and other taxes.............................. 3,418 4,248 13,806
Accrued casualty reserves............................. 16,635 18,984 13,938
Other accrued liabilities............................. 8,394 10,625 12,988
------- ------- -------
30,126 39,976 45,871
Less: noncurrent accrued casualty reserves and other
liabilities......................................... 11,681 18,361 19,951
------- ------- -------
$18,445 $21,615 $25,920
======= ======= =======

F-14
93

ST. JOE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

8. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, at cost, consist of:

DECEMBER 31,
----------------------- SEPTEMBER 30, ESTIMATED
1995 1996 1997 USEFUL LIFE
---------- ---------- ------------- -----------
(UNAUDITED)

Land and timber........................ $ 132,393 $ 134,811 $ 134,808 --
Land improvements...................... 19,149 19,770 21,107 20
Buildings.............................. 3,686 3,702 3,702 45
Machinery and equipment................ 623,183 630,847 616,447 12-30
Office equipment....................... 799 1,150 1,557 10
Autos and trucks....................... 2,375 2,829 3,044 3-6
Construction in progress............... 5,689 3,844 33,326 --
Investment property.................... 318,181 359,689 366,272 various
---------- ---------- ----------
1,105,455 1,156,642 1,180,263
Accumulated depreciation............... 300,481 322,475 327,046
---------- ---------- ----------
$ 804,974 $ 834,167 $ 853,217
========== ========== ==========

Real estate properties having net book value of $196,700 million at
December 31, 1996 are leased under non-cancelable operating leases with expected
aggregate rentals of $106,200 of which $32,100, $26,500, $20,900, $15,800 and
$10,900 million is due in the years 1997 through 2001, respectively.

9. INCOME TAXES

Total income tax expense for the years ended December 31 was allocated as
follows:

1994 1995 1996
------- ------- --------

Income from continuing operations........................ $31,446 $24,535 $ 83,117
Earnings (loss) from discontinued operations............. 2,491 26,116 (2,785)
Gain on the sale of discontinued operations.............. -- -- 48,705
Shareholders' equity, for recognition of unrealized gain
(loss) on debt and marketable equity securities........ (2,377) 8,778 9,428
------- ------- --------
$31,560 $59,429 $138,465
======= ======= ========

Income tax expense attributable to income from continuing operations
differed from the amount computed by applying the statutory federal income tax
rate to pre-tax income as a result of the following:

1994 1995 1996
------- ------- -------

Tax at the statutory federal rate......................... $29,795 $23,131 $66,159
Dividends received deduction and tax free interest........ (1,075) (1,277) (4,311)
Excise tax on reversion of prepaid pension asset.......... -- -- 13,228
State income taxes (net of federal benefit)............... 2,497 1,916 5,839
Undistributed earnings of FECI............................ 1,245 916 1,262
Other, net................................................ (1,016) (151) 940
------- ------- -------
$31,446 $24,535 $83,117
======= ======= =======

F-15
94

ST. JOE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities are presented
below:

DECEMBER 31,
------------------- SEPTEMBER 30,
1995 1996 1997
-------- -------- -------------
(UNAUDITED)

Deferred tax assets:
Accrued casualty and other reserves............... $ 7,451 $ 11,915 $ 10,944
Other............................................. 1,912 1,287 1,287
-------- -------- --------
Total deferred tax assets................. 9,363 13,202 12,231
-------- -------- --------
Deferred tax liabilities:
Tax in excess of financial depreciation........... 114,047 112,023 113,263
Deferred gain on land sales....................... 6,893 7,224 7,224
Deferred gain on subsidiary's defeased bonds...... 2,139 1,929 1,929
Unrealized gain on debt and marketable equity
securities..................................... 30,902 40,330 51,675
Deferred gain on involuntary conversion of land... 29,160 66,682 66,682
Prepaid pension asset recognized for financial
reporting...................................... 8,085 26,712 34,186
Other............................................. 5,620 8,042 8,966
-------- -------- --------
Total gross deferred tax liabilities...... 196,846 262,942 283,925
-------- -------- --------
Net deferred tax liability................ $187,483 $249,740 $271,694
======== ======== ========

Based on the timing of reversal of future taxable amounts and the Company's
history of reporting taxable income, the Company believes that the deferred tax
assets will be realized and a valuation allowance is not considered necessary.
The current deferred tax asset of $5,133, $4,553 and $7,996 is recorded in other
current assets as of December 31, 1996 and 1995, and September 30, 1997,
respectively.

The Company has not recognized a deferred tax liability of approximately
$17,842 for the undistributed earnings of FECI that arose in 1992 and prior
years because the Company does not currently expect those unremitted earnings to
reverse and become taxable to the Company in the foreseeable future. A deferred
tax liability will be recognized when the Company expects that it will recover
those undistributed earnings in a taxable manner, such as through receipt of
dividends or sale of the investment. As of December 31, 1996, the undistributed
earnings of the subsidiary for which no deferred tax liability was provided were
approximately $48,454.

F-16
95

ST. JOE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

10. PENSION AND RETIREMENT PLANS

The Company sponsors defined benefit pension plans which covered
approximately 10% of its employees in 1996 and 70% of its employees in 1995. The
reduction in employees covered resulted from the previously discussed sales of
the communications segment and the linerboard mill and container plants. The
benefits are based on the employees' years of service or years of service and
compensation during the last five or ten years of employment. The Company's
funding policy is to contribute annually the maximum contribution required by
ERISA.

A summary of the net periodic pension credit follows:

1995 1996
-------- --------

Service cost................................................ $ 3,450 $ 1,659
Interest cost............................................... 7,986 7,923
Actual return on assets..................................... (40,436) (26,606)
Net amortization and deferral............................... 28,221 11,555
-------- --------
Total pension income...................................... $ (779) $ (5,469)
======== ========

A summary of the plan's funded status as of December 31 was:

1995 1996
-------- --------

Accumulated benefit obligation, including vested benefits of
$105,627 and $92,354 in 1996 and 1995, respectively....... $100,104 $106,368
======== ========
Projected benefit obligation for service rendered to date... 125,136 108,726
Plan assets at fair value, primarily listed stocks and U.S.
bonds..................................................... 177,276 193,937
-------- --------
Plan assets in excess of projected benefit obligation....... 52,140 85,211
Unrecognized net (gain) loss................................ (27,734) (42,011)
Unrecognized prior service cost............................. 12,956 768
Unrecognized transition asset............................... (15,395) (12,829)
Additional cost for special termination benefits............ -- (982)
-------- --------
Prepaid pension cost........................................ $ 21,967 $ 30,157
======== ========

The weighted-average discount rates for the plans were 7% in 1996 and 1995.
The rate of increase in future compensation levels used in determining the
actuarial present value of the projected benefit obligation for salaried
employees was 6% in 1996 and 1995. The expected long-term rates of return on
assets was 8% in 1996 and 1995.

As discussed in note 3, several of the Company's operations were sold
during 1996, which significantly reduced the number of employees covered under
the defined benefit plans. The defined benefit plans' assets were not a part of
the sales. In accordance with SFAS No. 88, "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits", the Company recognized a curtailment gain of
approximately $3,700 ($500 net of tax). The Company's pension plans are in an
overfunded position and with the reduction in employees resulting from the sales
of several of the Company's operations, it is unlikely that the overfunding will
be realized other than by a plan termination and reversion of excess assets.
Accordingly, a 50% excise tax has been included in the tax effects of the
prepaid asset as well as the curtailment gain. The Company has no immediate
plans to terminate the pension plans and is in the process of evaluating other
alternatives.

The Company had an Employee Stock Ownership Plan (the "ESOP") for the
purpose of purchasing stock of the Company for the benefit of qualified
employees. On November 21, 1996 the Pension Committee

F-17
96

ST. JOE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

of the Board of Directors of the Company voted to terminate the ESOP effective
December 31, 1996. Contributions to the ESOP were limited to .5% of compensation
of employees covered under the ESOP. The Company also has other defined
contribution plans which, in conjunction with the ESOP, cover substantially all
its salaried employees. Contributions are at the employees' discretion and are
matched by the Company up to certain limits. Expense for these defined
contribution plans was $1,081, $1,322, and $1,213 in 1996, 1995 and 1994,
respectively.

On January 7, 1997, the Company adopted the 1997 Stock Incentive Plan (the
"Incentive Plan"), whereby awards may be granted to certain employees and
non-employee directors of the Company in the form of restricted shares of
Company stock or options to purchase Company stock. Awards are discretionary and
are determined by the Compensation Committee of the Board of Directors. The
total amount of restricted shares and options available for grant under the
Incentive Plan is 6.03 million shares. As of September 30, 1997 awards were
granted to certain officers of the Company totaling 5.4 million shares. The
options were granted at the Company's current market price on the date of grant
and range from $19.14 to $31.38 after adjustment for the effects of the special
distribution paid on March 31, 1997. The options are exercisable in equal
installments on the first five anniversaries of the date of grant and expire
generally 10 years after date of grant.

Effective January 6, 1997, the Company also granted Mr. Rummell, Chairman
and CEO of the Company, 201,861 restricted shares of the Company's common stock.
The restricted shares vest in equal installments on the first five anniversaries
of the date of grant. The Company has recorded deferred compensation of $3,700
for the unamortized portion of this grant as of September 30, 1997. Compensation
expense related to this grant totaled approximately $600 in 1997.

F-18
97

ST. JOE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

11. QUARTERLY FINANCIAL DATA (UNAUDITED)

QUARTERS ENDED
---------------------------------------------------
DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
------------ ------------- -------- ---------

1995
Net sales and operating revenues................... $89,764 $82,877 $85,905 $ 76,378
Operating profit................................... 11,888 11,745 12,857 10,827
Net income from continuing operations.............. 8,006 6,360 8,340 6,652
Income from discontinued operations................ 6,804 4,799 17,996 14,862
Net income......................................... 14,810 11,159 26,336 21,514
Net income per share............................... 0.16 0.12 0.29 0.24
1996
Net sales and operating revenues................... 95,481 84,556 80,190 170,962
Operating profit................................... 22,125 9,595 23,053 93,398
Net income from continuing operations.............. 14,991 11,449 5,790 59,679
Income (loss) from discontinued operations......... (7,003)* -- 82,227 8,889
Net income......................................... 7,988 11,449 88,017 68,568
Net income per share............................... 0.08 0.13 0.96 0.75
1997
Net sales and operating revenues................... -- 69,413 94,102 88,379
Operating profit................................... -- 15,887 15,874 10,255
Net income from continuing operations.............. -- 9,056 11,214 8,010
Income (loss) from discontinued operations......... -- -- -- --
Net income......................................... -- 9,056 11,214 8,010
Net income per share............................... -- 0.10 0.12 0.09

- ---------------

* The total gain on discontinued operations declined by approximately $7,000
during the fourth quarter as a result of finalizing the postclosing working
capital adjustments, closing expenses and the pension curtailment gain,
previously estimated.

12. SEGMENT INFORMATION

Total net sales and operating revenues represent sales to unaffiliated
customers, as reported in the Company's consolidated income statements and
intercompany sales which occurred principally between the Forestry and
Transportation segments and discontinued operations. Operating profit is net
sales and operating revenues less directly traceable costs and expenses. In
computing operating profit, the following items have not been considered: other
income (expense) and provision for income taxes.

Identifiable assets by lines of business are those assets that are used in
the Company's operations in each segment. Other assets are composed of cash,
marketable securities and miscellaneous nonsegment assets.

F-19
98

ST. JOE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

Information by lines of business segment follows:

SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1996 1996 1997
---------- ---------- ---------- ------------- -------------
(UNAUDITED)
(IN THOUSANDS)

Net sales and operating
revenues:
Transportation........... $ 173,707 $ 184,450 $ 185,484 $ 137,207 $ 143,970
Real Estate.............. 42,141 32,870 134,530 124,155 59,234
Forestry................. 60,158 60,057 56,679 44,667 23,141
Sugar.................... 54,900 57,547 54,496 29,679 25,549
---------- ---------- ---------- ---------- ----------
Consolidated..... $ 330,906 $ 334,924 $ 431,189 $ 335,708 $ 251,894
========== ========== ========== ========== ==========
Operating profit:
Transportation........... $ 27,313 $ 25,763 $ 26,711 $ 17,847 $ 25,407
Real Estate.............. 22,251 11,621 109,450 102,692 14,568
Forestry................. 6,293 (555) 2,337 921 1,049
Sugar.................... 6,329 13,310 8,281 6,231 2,711
Other.................... (2,221) (2,822) 1,392 (1,645) (1,719)
---------- ---------- ---------- ---------- ----------
Consolidated..... $ 59,965 $ 47,317 $ 148,171 $ 126,046 $ 42,016
========== ========== ========== ========== ==========
Assets:
Transportation........... $ 424,241 $ 407,969 $ 413,100 $ 435,990 $ 436,397
Real Estate.............. 229,449 290,013 373,799 342,427 549,232
Forestry................. 91,319 111,848 114,710 117,624 122,239
Sugar.................... 93,685 72,647 77,824 75,836 73,604
Discontinued
operations............ 299,347 296,001 -- -- --
Other.................... 311,349 352,516 826,805 845,729 403,388
---------- ---------- ---------- ---------- ----------
Consolidated..... $1,449,390 $1,530,994 $1,806,238 $1,817,606 $1,584,860
========== ========== ========== ========== ==========
Capital expenditures:
Transportation........... $ 25,060 $ 28,204 $ 15,800 $ 7,077 $ 7,842
Real Estate.............. 28,354 45,029 43,708 31,013 40,822
Forestry................. 8,655 5,413 4,672 3,042 2,136
Sugar.................... 3,381 170 91 3 277
Other.................... -- -- -- -- 2,179
---------- ---------- ---------- ---------- ----------
Consolidated..... $ 65,450 $ 78,816 $ 64,271 $ 41,135 $ 53,256
========== ========== ========== ========== ==========
Depreciation and depletion:
Transportation........... $ 18,706 $ 18,840 $ 18,067 $ 13,454 $ 13,663
Real Estate.............. 5,117 5,733 7,808 5,720 6,795
Forestry................. 2,184 2,307 1,148 760 1,177
Sugar.................... 1,605 1,671 1,735 1,297 1,217
Other.................... -- -- -- -- 783
---------- ---------- ---------- ---------- ----------
Consolidated..... $ 27,612 $ 28,551 $ 28,758 $ 21,232 $ 23,635
========== ========== ========== ========== ==========

13. CONTINGENCIES

The Company and its subsidiaries are involved in litigation on a number of
matters and are subject to certain claims which arise in the normal course of
business, none of which, in the opinion of management, is

F-20
99

ST. JOE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

expected to have a material adverse effect on the Company's consolidated
financial position or results of operations.

The Company has retained certain self-insurance risks with respect to
losses for third party liability, property damage and group health insurance
provided to employees.

The Company is subject to costs arising out of environmental laws and
regulations, which include obligations to remove or limit the effects on the
environment of the disposal or release of certain wastes or substances at
various sites including sites which have been previously sold. It is the
Company's policy to accrue and charge against earnings environmental cleanup
costs when it is probable that a liability has been incurred and an amount is
reasonably estimable. As assessments and cleanups proceed, these accruals are
reviewed and adjusted, if necessary, as additional information becomes
available.

On May 30, 1996 the Company sold its linerboard mill and container plants.
As part of the sale, the Company remains contingently liable for up to $10,000
relating to On-Site Environmental Liabilities, as defined in the sales
agreement, as long as they are discovered within three years of the closing date
of the sale and the Company has, except in limited circumstances, received
invoices for them within five years of the closing date. The Company has no
obligation for costs incurred by the buyer to comply with Title V of the Clean
Air Act or the Cluster Rules. On-Site Environmental Liabilities arising from
environmental conditions caused from activities both before and after the
closing date are to be allocated among the parties based on relative
contribution. The agreement provided the exclusive remedy for On-Site
Environmental Liabilities which relate to matters within the property lines of
real property conveyed under the agreement. The Company's obligation to pay
$10,000 for On-Site Environmental Liabilities existing on the closing date is
subject to cost-sharing with the buyer according to the following schedule: the
first $2,500 by buyer, the next $2,500 by the Company; the next $2,500 by the
buyer; the next $2,500 by the company; the next $2,500 by the buyer and the next
$5,000 by the Company. The Company also agreed to reimburse up to $1,000 for
certain remediation activities at the linerboard mill, if such activities were
required under environmental laws under the following schedule: the first $200
by the Company, the next $300 by the buyer, the next $300 by the Company, the
next $300 by the buyer, the next $500 by the Company, the next $500 by the buyer
with any remaining amounts treated as On-Site Environmental Liabilities. No
known matters exist which, pursuant to this contingent liability, would require
funding or accrual in the Company's financial statements.

The Company is currently a party to, or involved in, legal proceedings
directed at the cleanup of several Superfund sites. The Company has accrued an
allocated share of the total estimated cleanup costs for these sites. Based upon
management's evaluation of the other potentially responsible parties, the
Company does not expect to incur additional amounts even though the Company has
joint and several liability. Other proceedings involving environmental matters
such as alleged discharge of oil or waste material into water or soil are
pending against the Company.

It is not possible to quantify future environmental costs because many
issues relate to actions by third parties or changes in environmental
regulation. However, based on information presently available, management
believes that the ultimate disposition of currently known matters will not have
a material effect on the financial position, results of operations or liquidity
of the Company. Environmental liabilities are paid over an extended period and
the timing of such payments cannot be predicted with any certainty. Aggregate
environmental-related accruals were $5,500 and $6,200 as of December 31, 1996
and 1995, respectively. Aggregate environmental-related accruals totaled
approximately $7,000 at September 30, 1997.

14. SUBSEQUENT EVENTS (UNAUDITED)

On January 10, 1997, the Company purchased for $5,500 a 38% limited
partnership interest in Deerfield Park, LLC, a limited partnership established
to acquire and develop 554 acres of land in Fulton County, Georgia. Costs
incurred to date have been capitalized.

F-21
100

ST. JOE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

On November 12, 1997, the Company, through two subsidiaries, purchased
certain assets, including management and proprietary information systems, of
Arvida Company through a newly formed limited partnership with JMB Southeast
Development, L.L.C. and JMB Southeast Development, L.P. for the purpose of
developing and/or managing residential communities on certain lands owned by the
Company, as well as the purchase of other lands for development and management.
The Company owns 74% of the new limited partnership, St. Joe/Arvida Company,
L.P. The purchase price for the 74% partnership interest in the new entity is
not considered material to the Company's financial position.

On November 21, 1997, the Company announced the withdrawal of its
outstanding offer to purchase all outstanding FECI common stock owned by others
than the Company at $102 per share.

On November 25, 1997, the Company sold the Promissory Note to an unrelated
third party for approximately $10,400 which will result in a pre-tax gain of
approximately $400 in the fourth quarter of 1997.

As part of its efforts to focus more intently on the Company's core assets,
on December 6, 1997 the Company agreed in principle to sell its sugar lands to
certain federal and state governmental agencies on or before June 6, 1998 for
$133,500 in cash. In the event the proposed sale is consummated, Talisman would
retain the right to farm the sugar lands through the 2002-2003 crop season. The
Company intends to develop a formal plan of disposition and execute a definitive
agreement. The proposed transaction is subject to both government and board
approvals.

On December 3, 1997, the Company and Orlando-based CNL Group, Inc. formed a
joint venture to invest in and develop office and industrial properties in the
central Florida region. The Company, through two subsidiaries, received a 50%
ownership interest in the joint venture by contributing $5,000 in cash to the
partnership and committing to fund an additional $25,000 for new projects the
venture determines to develop and/or manage.

On December 9, 1997, the Company entered into a letter of intent with
Codina Group, Inc. ("Codina") and Weeks Corporation ("Weeks") under which the
Company and Weeks each agreed to purchase a one-third interest in Codina. The
purchase price is not material to the Company's financial position.

F-22
101

[LOGO]
102

ALTERNATE COVER PAGE FOR
INTERNATIONAL PROSPECTUS
103

PROSPECTUS

12,000,000 Shares

St. Joe Corporation
COMMON STOCK
------------------------

OF THE 12,000,000 SHARES OF COMMON STOCK OFFERED HEREBY, 1,800,000 ARE BEING
OFFERED INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY THE INTERNATIONAL
UNDERWRITERS (THE "INTERNATIONAL OFFERING") AND 10,200,000 ARE BEING OFFERED
INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS (THE "U.S.
OFFERING," AND TOGETHER WITH THE INTERNATIONAL OFFERING, THE "OFFERINGS"). SEE
"UNDERWRITERS." ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD
BY THE ALFRED I. DUPONT TESTAMENTARY TRUST (THE "SELLING STOCKHOLDER" OR THE
"TRUST"). SEE "ALFRED I. DUPONT TESTAMENTARY TRUST." ST. JOE CORPORATION (THE
"COMPANY" OR "ST. JOE") WILL NOT RECEIVE ANY PROCEEDS FROM THE SALE OF THE
SHARES BEING OFFERED HEREBY. THE COMPANY'S COMMON STOCK IS LISTED ON THE NEW
YORK STOCK EXCHANGE UNDER THE SYMBOL "SJP." ON FEBRUARY 10, 1998, THE LAST
REPORTED SALE PRICE OF THE COMMON STOCK ON THE NEW YORK STOCK EXCHANGE WAS
$34.125 PER SHARE.
------------------------

SEE "RISK FACTORS" BEGINNING ON PAGE 9 HEREIN FOR CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK.
------------------------

PRICE $34 A SHARE
------------------------

UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND SELLING
PUBLIC COMMISSIONS(1) STOCKHOLDER
-------- -------------- -----------

Per Share............................................. $34.00 $1.615 $32.385
Total(2).............................................. $408,000,000 $19,380,000 $388,620,000

- ------------

------------------------

MORGAN STANLEY DEAN WITTER

DONALDSON, LUFKIN & JENRETTE INTERNATIONAL

MERRILL LYNCH INTERNATIONAL

RAYMOND JAMES & ASSOCIATES, INC.

February 10, 1998