AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 11, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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RESORTQUEST INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 7011 52-2055247
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
1355-B Lynnfield Road
Suite 245
Memphis, TN 38119
(901) 818-5445
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
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DAVID C. SULLIVAN
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
RESORTQUEST INTERNATIONAL, INC.
1355-B Lynnfield Road
Suite 245
Memphis, TN 38119
(901) 818-5445
(Name and address, including zip code, and telephone
number, including area code, of agent for service)
Copies to:
John K. Lines Bruce S. Mendelsohn, Esq.
Senior Vice President Paul A. Belvin, Esq.
and General Counsel Akin, Gump, Strauss, Hauer & Feld, L.L.P.
ResortQuest International, Inc. 1333 New Hampshire Avenue, N.W.
1355-B Lynnfield Road Washington, D.C. 20036
Suite 245 (202) 887-4000
Memphis, TN 38119
(901) 818-5445
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
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If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
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CALCULATION OF REGISTRATION FEE
===================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) FEE
<S> <C> <C> <C> <C>
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Common Stock, $.01 par value
per share ........................ 3,000,000 $ 14.125 $ 42,375,000 $ 12,500.63
===================================================================================================================
</TABLE>
(1) Pursuant to Rule 416(a), the number of shares of Common Stock being
registered shall be adjusted to include any additional shares which may
become issuable as a result of stock splits, stock dividends or similar
transactions.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 of Regulation C under the Securities Act of 1933, as amended,
based on the average high and low sales price of the Common Stock as
reported on the New York Stock Exchange on June 8, 1998.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 11, 1998
P R O S P E C T U S
3,000,000 SHARES
[RESORTQUEST INTERNATIONAL LOGO]
COMMON STOCK
This prospectus covers 3,000,000 shares of common stock, $.01 par value
(the "Common Stock") of ResortQuest International, Inc. (the "Company"), which
may be offered and issued by the Company from time to time in connection with
the merger with or acquisition by the Company of other businesses or assets, and
which may be reserved for issuance pursuant to, or offered and issued upon
exercise or conversion of, warrants, options, convertible notes or other similar
instruments issued by the Company from time to time in connection with any such
merger or acquisition. The terms of such acquisitions involving the issuance of
Common Stock covered by this Prospectus will generally be determined by direct
negotiations with the owners or controlling persons of the business or
properties to be acquired or, in the case of entities that are more widely held,
through exchange offers to stockholders or documents soliciting the approval of
statutory mergers, consolidations or sales of assets. It is anticipated that the
Common Stock issued in any such acquisition will be valued at a price reasonably
related to the market value of the Common Stock either at the time of agreement
on the terms of a merger or acquisition or at or about the time of delivery of
the Common Stock. No underwriting discounts or commissions will be paid,
although finders' fees or brokers' commissions may be paid from time to time in
connection with specific mergers or acquisitions. Any person receiving such a
fee may be deemed to be an underwriter within the meaning of the Securities Act
of 1933, as amended (the "Securities Act").
This Prospectus, as appropriately amended or supplemented, also may be used
from time to time by persons ("Selling Stockholders") who have received shares
of the Common Stock, in connection with the acquisition by the Company of
securities or assets held by such persons, or their transferees, and who wish to
offer and sell such shares of Common Stock in transactions in which they and any
broker-dealer through whom such shares are sold may be deemed to be underwriters
within the meaning of the Securities Act, as more fully described herein. The
Company will receive none of the proceeds from any such sale. Any commissions
paid or concessions allowed to any broker-dealer, and, if any broker-dealer
purchases such shares as principal, any profits received on the resale of such
shares, may be deemed to be underwriting discounts and commissions under the
Securities Act.
Printing, certain legal and accounting, filing and other similar expenses
of this offering will be paid by the Company. The Selling Stockholders will
generally bear all other expenses of this offering, including brokerage fees and
any underwriting discounts or commissions. The Company is a Delaware corporation
and all references herein to the Company refer to the Company and its
subsidiaries. All references to "RQI" mean the parent company, ResortQuest
International, Inc. The executive offices of the Company are located at 1355-B
Lynnfield Road, Suite 245, Memphis, TN 38119, and its telephone number is (901)
818-5445.
The Company currently has 15,924,286 shares of its Common Stock listed on
the New York Stock Exchange (the "NYSE"), which trades under the symbol "RZT,"
of which 6,670,000 shares are registered and available for unrestricted trading
in the public markets unless owned by affiliates of the Company. Application
will be made to list the shares of Common Stock offered hereunder by the Company
on the NYSE. On June 9, 1998, the closing price of the Common Stock on the NYSE
was $ 14.50 per share as published in the Wall Street Journal on June 10, 1998.
SEE "RISK FACTORS" COMMENCING ON PAGE 11 OF THIS PROSPECTUS FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE
PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMIS-
SION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
June , 1998
<PAGE>
[INSERT PICTURES]
Aston(Reg. TM) and Aston Hotels & Resorts(Reg. TM) are registered tradenames and
trademarks of AST Brands, LLC.
------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE, PURCHASES
OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK
MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. SUCH
ACTIVITIES, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the financial statements
and related notes thereto appearing elsewhere in this Prospectus. Unless
otherwise indicated, all share, per share and financial information in this
Prospectus has been adjusted to give effect to (i) the Combinations (as defined
herein) and (ii) a 8,834.76-for-one stock split effected on March 9, 1998.
Except as indicated otherwise, all references to Common Stock include Restricted
Common Stock. See "Description of Capital Stock."
THE COMPANY
ResortQuest International, Inc. was established to create a leading
provider of vacation condominium and home rentals in premier destination resorts
throughout the United States. Through the consolidation of leading vacation
rental and property management companies, the development of a national brand
and marketing initiative and best practices management systems, the Company
intends to offer vacationers a branded network of high quality, fully furnished,
privately-owned condominium and home rentals while offering property owners
superior management services designed to enhance their rental income. Currently,
most vacationers seeking to rent a condominium or home at a popular destination
resort must use a local vacation rental and property management firm to inquire
about availability and make reservations. Vacationers typically make rental
choices with limited information and, as a result, face great uncertainty
concerning the quality of their rental. To address this need, the Company
intends to provide vacationers with consistent quality and service, increased
information and easy access to a broad array of high quality condominium and
home rentals in premier destination resorts.
On May 26, 1998, the Company consummated its initial public offering and
the combinations (the "Combinations") of 12 leading vacation rental and property
management companies and one leading vacation rental and property management
software company (each a "Founding Company" and, collectively, the "Founding
Companies.") The Founding Companies together manage approximately 8,900
condominiums and homes in eight states and in Canada. These condominiums and
homes are located in beach and island resorts such as the Hawaiian Islands;
Bethany Beach, DE; Nantucket, MA; the Outer Banks, NC; Sanibel and Captiva
Islands, FL; and St. Simons Island, GA; and mountain resorts such as Aspen,
Breckenridge and Telluride, CO; Park City, UT, and Whistler, British Columbia.
The Company also manages 11 hotels, with an aggregate of approximately 1,650
hotel rooms located primarily in the Hawaiian Islands.
The Company provides a wide range of services to both vacationers and
property owners. Because of the variety of the Company's resort locations
throughout the United States and Canada and the diversity of rental prices
throughout its rental pool, the Company is able to target a broad range of
vacationers, including families, couples and individuals. For vacationers, the
Company offers the convenience and accommodations of a condominium or home,
while providing many of the amenities and services of a hotel. Vacation
condominium and home rentals generally offer greater space and convenience than
resort hotel rooms, including separate living, sleeping and eating quarters. As
a result, vacationers generally have more privacy and greater flexibility in a
vacation condominium or home. The Company typically offers such services as
convenient check-in and check-out, frequent housekeeping and cleaning and
emergency maintenance assistance. In addition, in most of its markets, the
Company provides specialized concierge-type services such as arranging golf tee
times, purchasing ski lift tickets and making restaurant reservations. For
property owners, the Company offers a comprehensive set of services, including
marketing and rental services, maintenance and security. The Company's primary
source of revenue is property rental fees, which are charged to the property
owners as a percentage of the vacationers' total rental price. Fee percentages
for vacation condominiums and homes range from approximately 3% to over 40% of
rental rates for the various Founding Companies depending on the type of
services provided to the property owner and the type of rental unit managed. On
a pro forma basis for the year ended December 31, 1997, the Company generated
total revenues of approximately $56.8 million, which includes $31.0 million of
revenues
3
<PAGE>
from property rental fees, and net income of $6.9 million. In addition, in many
markets, the Company provides traditional real estate brokerage services for
property owners seeking to sell their condominiums and homes. The Company
believes that a national brand and superior management services, which are
designed to enhance rental income for property owners, will provide it with a
competitive advantage in attracting additional high quality condominiums and
homes in its markets.
The vacation rental and property management industry is highly fragmented
and inefficient, with an estimated 3,000 vacation rental and property management
companies in the United States. Presently, most vacation rental condominiums and
homes are managed by and booked through local vacation rental and property
management firms, whose principal means of attracting property owners and
vacationers is by referral, word of mouth, limited local advertising and direct
mailings. The Company believes this presents a significant market penetration
opportunity for a well-capitalized company offering a large, national network of
high quality vacation condominiums and homes. The Company's objective is to
enhance its position as a leading provider of premier destination resort
condominium and home rentals by:
o NATIONAL BRAND. Developing a national brand based on offering vacationers
an extensive network of high quality condominiums and homes in premier
destination resorts throughout the United States;
o SUPERIOR CUSTOMER SERVICE. Offering vacationers superior customer service
with the convenience and accommodations of a condominium or home as well as
many of the amenities and services of a hotel;
o INCREASED RENTAL INCOME. Enhancing value for condominium and home owners
with strategies designed to increase occupancy and rental rates resulting
in increased rental income;
o MANAGEMENT'S EXPERIENCE. Relying on the industry experience of its senior
management including David Sullivan, Chairman and Chief Executive Officer,
who was the Chief Operating Officer of Promus Hotel Corporation, as well as
David Levine, President and Chief Operating Officer, Jeffery M. Jarvis,
Senior Vice President and Chief Financial Officer, and Michael Murphy,
Senior Vice President of Development of the Company, each of whom have
extensive experience in the hotel and resort industries; and
o LOCAL EXPERTISE. Maintaining the local relationships and expertise of the
management teams of the Founding Companies, each of which has extensive
experience in their respective resort areas.
Management teams at the Founding Companies bring valuable industry
relationships and provide local market knowledge in each market in which the
Company operates. The Founding Companies have an average of over 20 years of
experience in the industry. Additionally, officers and directors of the Company,
the former owners of the Founding Companies, the founders of the Company and
their respective affiliates own approximately 60% of the Common Stock of the
Company as of May 26, 1998.
4
<PAGE>
The Company believes it can achieve significant growth internally and
through an active acquisition program. The primary elements of the Company's
internal growth strategy include:
o NATIONAL MARKETING STRATEGY. Implementing a national marketing strategy
emphasizing: (i) cross-selling to existing customers; (ii) bringing in new
customers; and (iii) increasing the use of marketing channels such as the
world wide web, travel agents and national print media, which are difficult
for local vacation rental and property management companies to use in a
cost-effective manner;
o CAPITALIZE ON TECHNOLOGY. Capitalizing on technology by utilizing the
technological expertise of First Resort, a Founding Company, to create a
comprehensive web site that includes all of the Company's condominium, home
and hotel rentals through which vacationers can ultimately view photographs
and detailed floor plans of the Company's rental properties and make
reservations and payments;
o GROWTH WITHIN EXISTING MARKETS. Expanding its market share of condominium,
home and hotel room rentals in existing markets; and
o PROFIT MARGIN EXPANSION. Pursuing opportunities for profit margin expansion
via cost synergies and additional revenue sources including the
implementation of best practices achieved by tapping the industry
experience of the management teams in each of the Founding Companies.
The Company also intends to build a national market presence through
strategic acquisitions. The vacation rental and property management industry is
highly fragmented, which the Company believes provides significant opportunities
for consolidation. While the Company will seek to acquire the leading companies
in each new market, the Company also plans to pursue tuck-in acquisitions
through which it can expand its selection of condominiums and homes available
for rent in its existing markets. The Company believes that the opportunity to
join with it will be attractive to many vacation rental and property management
companies. The Company expects to offer acquisition candidates: (i) affiliation
with a national brand; (ii) the ability to cross-sell to customers of other
vacation rental and property management companies; (iii) the ability to increase
liquidity as a result of the Company's financial strength as a public company;
and (iv) the ability to increase profitability as a result of the Company's
centralization of certain administrative functions and other economies of scale.
The Company intends to finance future acquisitions through internally generated
cash flow, borrowings under its three year, $30 million credit facility with
NationsBank N.A. (the "Credit Facility") and through the issuance of Common
Stock to the owners of businesses to be acquired.
First Resort is a leading provider of software services to vacation rental
and property management companies. Over 650 clients utilize First Resort's
software to automate and computerize their reservations, rental management and
owner accounting activities. Many acquisition candidates utilize First Resort's
software, which the Company believes will enhance its ability to integrate such
companies upon acquisition.
The Company's executive offices are located at 1355-B Lynnfield Road, Suite
245, Memphis, TN 38119, and its telephone number is (901) 818-5445.
5
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SECURITIES COVERED BY THE PROSPECTUS
The shares of Common Stock covered by this Prospectus are available for use
in future acquisitions of businesses, properties or securities of entities or
persons engaged in the vacation rental and property management business and
other related businesses. The consideration offered by the Company in such
acquisitions, in addition to the Common Stock offered by the Prospectus, may
include cash, debt or other Company securities, or assumption by the Company of
liabilities of the business being acquired, or a combination thereof. It is
contemplated that the terms of each acquisition will be determined by
negotiations between the Company and the management or owners of the assets to
be acquired or the owners of the securities (including newly issued securities)
to be acquired, with the Company taking into account the quality of the
management, the past and potential earning power and growth of the assets or
securities to be acquired, and other relevant factors. It is anticipated that
the Common Stock issued in any such acquisition will be valued at a price
reasonably related to the market value of the Common Stock either at the time
the terms of the acquisition are tentatively agreed upon or at or about the time
or times of delivery of the shares.
This Prospectus, as appropriately amended or supplemented, also may be used
from time to time principally by the Selling Stockholders who have received
shares of Common Stock in connection with the acquisition by the Company of
securities or assets held by such persons, or their transferees, and who wish to
offer and sell such shares of Common Stock in transactions in which they and any
broker-dealer through whom such shares are sold may be deemed to be underwriters
within the meaning of the Securities Act, as more fully described herein. The
Company will receive none of the proceeds from any such sale. Any commissions
paid or concessions allowed to any broker-dealer, and, if any broker-dealer
purchases such shares as principal, any profits received on the resale of such
shares, may be deemed to be underwriting discounts and commissions under the
Securities Act.
6
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SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
On May 26, 1998, RQI consummated its initial public offering and the
acquisitions of the Founding Companies. For financial statement presentation
purposes, Hotel Corporation of the Pacific, Inc., known primarily by its trade
name, Aston Hotels & Resorts ("Aston Hotels & Resorts"), one of the Founding
Companies, was designated as the "accounting acquiror." The following summary
unaudited pro forma combined financial data present certain data for the Company
as adjusted for: (i) the effects of the Combinations on a historical basis; (ii)
the effects of certain pro forma adjustments to the historical financial
statements; and (iii) the consummation of the initial public offering and the
application of the net proceeds therefrom. See the Unaudited Pro Forma Combined
Financial Statements and the notes thereto included elsewhere in this
Prospectus.
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<CAPTION>
PRO FORMA COMBINED
-------------------------------------------------------
THREE MONTHS ENDED
YEAR ENDED ----------------------------------
DECEMBER 31, 1997 MARCH 31, 1997 MARCH 31, 1998
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STATEMENT OF OPERATIONS DATA (1):
Revenues:
Property rental fees ........................... $ 30,990 $ 12,542 $ 13,754
Service fees ................................... 12,713 3,263 4,087
Other .......................................... 13,116 3,015 3,480
----------- ----------- -----------
56,819 18,820 21,321
Operating expenses (2) .......................... 27,680 7,327 7,949
General and administrative expenses (2) ......... 12,383 2,619 3,607
Depreciation and amortization (3) ............... 3,921 993 993
----------- ----------- -----------
Income from operations .......................... 12,835 7,881 8,772
Interest and other income, net .................. 276 43 222
----------- ----------- -----------
Income before income taxes ...................... 13,111 7,924 8,994
Provision for income taxes ...................... 6,203 3,428 3,735
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Net income ...................................... $ 6,908 $ 4,496 $ 5,259
=========== =========== ===========
Net income per share ............................ $ 0.43 $ 0.28 $ 0.33
=========== =========== ===========
Shares used in computing pro forma net in-
come per share (4) ............................. 15,924,286 15,924,286 15,924,286
</TABLE>
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<CAPTION>
MARCH 31, 1998
------------------------------
PRO FORMA AS
COMBINED (5) ADJUSTED (6)
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BALANCE SHEET DATA:
Working capital surplus (deficit) (7) ......... $ (52,464) $ 7,939
Total assets (8) .............................. 137,066 141,765
Long-term debt ................................ 4,468 473
Stockholders' equity .......................... 44,349 108,747
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(1) The pro forma combined statement of operations data assume that the
Combinations and the intial public offering were consummated on January 1,
1997 and are not necessarily indicative of the results the Company would
have obtained had these events actually then occurred or of the Company's
future results. During the period presented above, the Founding Companies
were not under common control or management and, therefore, the data
presented may not be comparable to or indicative of post-combination results
to be achieved by the Company. The pro forma combined statements of
operations data are based on preliminary estimates, available information
and certain assumptions that management deems appropriate and should be read
in conjunction with the other financial statements and notes thereto
included elsewhere in this Prospectus. The Company expects to realize
certain savings as a result of the consolidation of insurance, employee
benefits and other general and administrative expenses. The Company cannot
quantify these savings accurately at this time. Consequently, the Company is
unable to determine at this time whether these savings will be material or
not. Any such savings may be offset by the costs of being a publicly traded
company and the incremental costs related to the Company's new management
team. However, these costs, like the savings that they offset, cannot be
quantified accurately at this time. Neither these anticipated savings nor
these anticipated costs have been included in the pro forma combined
financial information of the Company.
7
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(2) The unaudited pro forma combined statement of operations data include pro
forma reductions in salary, bonuses and benefits to the owners and certain
key employees of the Founding Companies to which they have agreed
prospectively (the "Compensation Differential") and excludes the effects of
the exclusion of certain non-operating assets and the assumption or
retirement of certain liabilities that were retained by certain stockholders
of the Founding Companies. For the year ended December 31, 1997 and the
three months ended March 31, 1997 and 1998, the Compensation Differential
was approximately $2.3 million, $299,000 and $690,000, respectively.
(3) Reflects amortization of the goodwill (which is not deductible for tax
purposes) recorded as a result of the Combinations over a 40-year period,
except for the goodwill related to First Resort, which will be amortized
over a 15-year period, and computed on the basis described in the notes to
the Unaudited Pro Forma Combined Financial Statements.
(4) Includes (i) 6,119,656 shares issued to owners of the Founding Companies;
(ii) 3,134,630 shares issued to the management and founders of RQI; and
(iii) 6,670,000 shares representing the number of shares sold in the initial
public offering necessary to pay the cash portion of the consideration for
the Combinations, to repay debt assumed in the Combinations, to pay the
underwriting discount and other expenses of the initial public offering and
to provide additional working capital. Excludes options to purchase
1,697,000 shares granted concurrently with the initial public offering at an
exercise price equal to the initial public offering price. See "Certain
Transactions."
(5) The pro forma combined balance sheet data assume that the Combinations were
consummated on March 31, 1998. The unaudited pro forma combined balance
sheet data are based upon preliminary estimates, available information and
certain assumptions that management deems appropriate and should be read in
conjunction with the other financial statements and notes thereto included
elsewhere in this Prospectus.
(6) Adjusted for the sale of 6,670,000 shares of Common Stock sold in the
initial public offering (less estimated underwriting discount and offering
expenses) and the application of the net proceeds therefrom.
(7) Includes the cash portion of the consideration paid to the Founding
Companies and the amount of debt repaid from net proceeds of the initial
public offering of $60.0 million and approximately $232,000 representing
certain working capital adjustments from certain stockholders of the
Founding Companies in connection with the Combinations.
(8) Reflects (i) the creation of approximately $94.1 million of goodwill and
(ii) a reduction of net assets of approximately $5.1 million, including
certain non-operating assets and the assumption or retirement of certain
liabilities that were excluded from the Combinations and retained by certain
stockholders of the Founding Companies.
8
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SUMMARY INDIVIDUAL FOUNDING COMPANY FINANCIAL DATA
(IN THOUSANDS)
The following table presents summary data for each of the Founding
Companies (see "The Company" for the complete names of each Founding Company) on
a historical basis for the periods indicated. Income from operations for the
Founding Companies for each of the years in the three year period ended December
31, 1997 and for the three months ended March 31, 1997 and 1998 does not include
pro forma adjustments, including the Compensation Differential. See Compensation
Differential Table below.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -----------------------
1995 1996 1997 1997 1998
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BEACH AND ISLAND RESORTS
Aston Hotels & Resorts (Hawaii)
Revenues ...................................... $19,048 $19,460 $19,554 $5,581 $ 5,693
Income from operations ........................ 3,064 3,485 5,171 2,055 1,882
Maui Condominium and Home (Hawaii)
Revenues ...................................... $ 910 $ 1,222 $ 1,422 $ 462 $ 554
Income from operations ........................ 29 45 77 196 259
Brindley & Brindley (Outer Banks, NC)
Revenues ...................................... $2,443 $ 2,950 $ 4,021 $ 269 $ 257
Income (loss) from operations ................. (123) 131 511 (271) (544)
Coastal Resorts (Bethany Beach, DE)
Revenues ...................................... $1,902 $ 2,097 $ 3,615 $ 424 $ 577
Income (loss) from operations ................. 450 603 1,183 (16) (16)
The Maury People (Nantucket, MA)
Revenues ...................................... $ 926 $ 988 $ 1,183 $ 370 $ 338
Income from operations ........................ 362 135 290 213 77
Priscilla Murphy Realty (Sanibel and Captiva Is-
lands, FL)
Revenues ...................................... $4,316 $ 4,721 $ 4,740 $1,959 $ 2,275
Income from operations ........................ 740 1,282 1,690 1,191 1,322
Trupp-Hodnett Enterprises (St. Simons Island, GA)
Revenues ...................................... $3,202 $ 3,431 $ 4,061 $ 767 $ 1,254
Income from operations ........................ 45 126 199 25 85
MOUNTAIN RESORTS
Collection of Fine Properties (Breckenridge, CO)
Revenues ...................................... $3,500 $ 4,141 $ 4,303 $2,714 $ 2,689
Income (loss) from operations ................. (44) 416 580 1,455 1,535
Houston and O'Leary (Aspen, CO)
Revenues ...................................... $ 837 $ 829 $ 1,596 $ 484 $ 421
Income (loss) from operations ................. 40 (24) 780 306 94
Resort Property Management (Park City, UT)(1)
Revenues ...................................... $1,355 $ 1,630 $ 2,295 $1,606 $ 1,468
Income (loss) from operations ................. (3) 20 108 760 807
Telluride Resort Accommodations (Telluride, CO)
Revenues ...................................... $4,404 $ 4,858 $ 4,313 $2,135 $ 2,342
Income from operations ........................ 365 369 246 911 915
Whistler Chalets (Whistler, British Columbia)
Revenues ...................................... $1,948 $ 2,247 $ 2,060 $1,191 $ 1,135
Income (loss) from operations ................. 66 (223) 99 567 501
SOFTWARE SALES AND SERVICES
First Resort (Aspen, CO)
Revenues ...................................... $2,207 $ 2,462 $ 2,864 $ 578 $ 828
Income from operations ........................ 377 467 743 108 254
</TABLE>
9
<PAGE>
COMPENSATION DIFFERENTIAL
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------------- ----------------
1995 1996 1997 1997 1998
--------- ---------- ---------- ------ -------
<S> <C> <C> <C> <C> <C>
Aston Hotels & Resorts .................. $ 380 $ 282 $ 282 $ 73 $ 70
Maui Condominium and Home ............... 240 245 284 71 26
Brindley & Brindley ..................... 39 37 69 -- --
Coastal Resorts ......................... -- -- -- -- --
The Maury People ........................ 30 129 142 19 --
Priscilla Murphy Realty ................. 250 320 31 8 29
Trupp-Hodnett Enterprises ............... 954 865 1,143 74 463
Collection of Fine Properties ........... 64 74 94 30 21
Houston and O'Leary ..................... 160 178 58 15 29
Resort Property Management(1) ........... 46 149 186 -- --
Telluride Resort Accommodations ......... 30 -- -- -- --
Whistler Chalets ........................ 33 34 35 9 52
First Resort ............................ 76 (53) (42) -- --
------ ------ ------ ---- ----
$2,302 $2,260 $2,282 $299 $690
====== ====== ====== ==== ====
</TABLE>
- -----------
(1) Fiscal years presented are for the periods ending September 30, 1995, 1996
and 1997 and the three months ended March 31, 1997 and 1998.
10
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered by this Prospectus
involves a high degree of risk. In addition to the other information in this
Prospectus, the following risk factors should be considered carefully in
evaluating an investment in the Common Stock. This Prospectus contains certain
forward-looking statements which involve risks and uncertainties. The Company's
actual results could differ materially from the results anticipated in these
forward-looking statements as a result of certain of the factors set forth in
the following risk factors and elsewhere in this Prospectus.
ABSENCE OF COMBINED OPERATING HISTORY; RISKS OF INTEGRATION
RQI was founded in September 1997 but conducted no operations and generated
no revenues prior to its initial public offering in May 1998, when it
simultaneously acquired the Founding Companies. Prior to such acquisitions, each
of the Founding Companies operated as separate independent entities. Currently,
the Company has no centralized financial reporting system and relies on the
existing reporting systems of the Founding Companies. The pro forma combined
financial statements of the Founding Companies cover periods when the Founding
Companies and RQI were not under common control or management and, therefore,
may not be indicative of the Company's future financial or operating results.
The Company's senior management group was assembled in connection with the
initial public offering, and there can be no assurance that the management group
will be able to integrate and manage effectively the combined entity or
effectively implement the Company's operating and growth strategies. The
inability of the Company to integrate successfully the Founding Companies, and
future acquisitions, would have a material adverse effect on the Company's
business, financial condition and results of operations, and would make it
unlikely that the Company's acquisition program will be successful. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Business Strategy" and "-- Growth Strategy."
The Founding Companies offer a variety of different services to property
owners and vacationers, use different sales and marketing techniques to attract
new customers, utilize different fee structures and target different customer
segments. In addition, almost all of the Founding Companies operate in different
geographic markets with varying levels of competition, development plans and
local market dynamics. These differences increase the risk inherent in
successfully completing the integration of the Founding Companies.
RISKS ASSOCIATED WITH THE VACATION RENTAL AND PROPERTY MANAGEMENT INDUSTRY;
GENERAL ECONOMIC CONDITIONS
The Company's business, financial condition and results of operations will
be dependent upon various factors affecting the vacation rental and property
management industry. Adverse factors such as a reduction in demand for vacation
properties, particularly for beach and mountain resort properties, changes in
travel and vacation patterns, changes in governmental regulations or the tax
treatment of second homes and an oversupply of vacation properties could have a
material adverse effect on the Company's business, financial condition and
results of operations. Any downturn in the leisure travel and tourism industry
resulting from factors such as gasoline or airfare price increases, general
economic activities and inflation or deflation also could have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, all of the Company's rental properties are located in
destination resort communities which are attractive to vacationers primarily for
their outdoor recreational opportunities. As a result, adverse weather
conditions or natural disasters, such as hurricanes, tidal waves or tornados,
could have a material adverse effect on the Company's business, financial
condition and results of operations.
SEASONALITY AND QUARTERLY FLUCTUATIONS
The business of the Company is highly seasonal. The results of operations
of each of the Founding Companies have been subject to quarterly fluctuations
caused primarily by the seasonal variations in the vacation rental and property
management industry, with peak seasons dependent on whether the resort
11
<PAGE>
is primarily a summer or winter destination. During 1997, the Company derived
approximately 38% of its pro forma revenues and 61% of its operating income in
the first quarter and 25% of its pro forma revenues and 25% of its operating
income in the third quarter. Although the seasonality of the Company's revenues
and earnings may be partially mitigated by the geographic diversity of the
Founding Companies and companies that may be acquired in the future, there is
likely to continue to be a significant seasonal factor with respect to the
Company's revenues and earnings. The Company's quarterly results of operations
may also be subject to fluctuations as a result of the timing and cost of
acquisitions, the timing of real estate sales, changes in relationships with
travel providers, extreme weather conditions or other factors affecting leisure
travel and the vacation rental and property management industry. Unexpected
variations in quarterly results could also adversely affect the price of the
Common Stock which in turn could adversely effect the Company's proposed
acquisition strategy. See "Management's Discussion of Financial Condition and
Results of Operations."
DEPENDENCE ON THIRD PARTIES
The properties managed by the Company are generally located in destination
resorts in which the development of new homes and condominiums, as well as
resort amenities such as golf courses and chair lifts, is dependent upon third
parties. As a result, the failure of such third parties to continue such
development or invest in resort facilities and amenities could have a material
adverse effect on the rental value of the Company's properties and,
consequently, on the Company's business, financial condition and results of
operations.
The Company also is dependent on travel agents, package tour providers and
wholesalers for a significant portion of its revenues. The Company estimates
that approximately 46% of its combined revenues for 1997 were derived from sales
made through or to travel agents, package tour providers and wholesalers. The
failure of travel agents, package tour providers and wholesalers to continue to
recommend or package the Company's vacation properties could have a material
adverse effect on the Company's business, financial condition and results of
operations.
FACTORS AFFECTING INTERNAL GROWTH
The Founding Companies have experienced revenue and earnings growth on a
pro forma combined basis over the past few years, including approximately 6.8%
and 40.7% increases in pro forma combined revenues and earnings, respectively,
from 1996 to 1997. The total market for vacation condominium, home and apartment
rentals, which are marketed predominantly by vacation rental and property
management companies, experienced an 8.7% increase in total revenues from 1995
to 1996. There can be no assurance that the Company or the total market for
vacation property rentals will continue to experience growth. Factors affecting
the ability of the Company to continue to experience internal growth include,
but are not limited to, the ability to maintain existing relationships with
property owners, expand the number of properties under management and cross-sell
among the Founding Companies, as well as continued demand for such rentals. See
"-- Risks Associated with the Vacation Rental and Property Management Industry;
General Economic Conditions" and "Business -- Business Strategy" and "-- Growth
Strategy."
RISKS OF GEOGRAPHIC CONCENTRATION OF OPERATIONS
Two of the Founding Companies manage properties at Hawaiian beach resorts,
and four of the Founding Companies manage properties at mountain resorts in
Colorado and Utah. For 1997, the Company derived approximately 37% of its
combined revenues from such Founding Companies located in Hawaii and
approximately 22% of its combined revenues from such Founding Companies located
in Colorado and Utah. Adverse events or conditions which affect those areas in
particular, such as economic recession, changes in regional travel patterns,
extreme weather conditions or natural disasters, would have a more significant
adverse effect on the operations of the Company, than if the Company's
operations were more geographically diverse.
12
<PAGE>
RISKS ASSOCIATED WITH ACQUISITIONS
The Company intends to expand the markets it serves and increase the number
of properties it manages, in part through the acquisition of additional vacation
rental and property management companies. There can be no assurance that the
Company will be able to identify, acquire or profitably manage additional
businesses or successfully integrate acquired businesses into the Company
without substantial costs, delays or other operational or financial problems.
Increased competition for acquisition candidates may develop, in which event
there may be fewer acquisition opportunities available to the Company, as well
as higher acquisition prices. Further, acquisitions involve a number of special
risks, including the failure of acquired companies to achieve anticipated
results, diversion of management's attention, failure to retain key personnel,
risks associated with unanticipated events or liabilities and amortization of
acquired intangible assets, some or all of which could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company may also seek international acquisitions that may be subject to
additional risks associated with doing business in such countries. See "Business
- -- Growth Strategy."
The Company intends to use shares of Common Stock to finance a portion of
the consideration for future acquisitions. In the event that the Common Stock
does not maintain a sufficient market value, or potential acquisition candidates
are otherwise unwilling to accept shares of 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 implement its
acquisition strategy. If the Company has insufficient cash resources, its growth
could be limited unless it is able to obtain additional capital through debt or
equity financings. Although the Company has the Credit Facility, there can be no
assurance that it will be sufficient, or that other financing will be available
on terms the Company deems acceptable. If the Company is unable to obtain
financing sufficient for all of its desired acquisitions, it may be unable to
implement fully its acquisition strategy. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
MANAGEMENT OF GROWTH
The Company expects to grow internally and through acquisitions. The
Company expects to expend significant time and effort in expanding existing
businesses and in identifying, completing and integrating acquisitions. There
can be no assurance that the Company's systems, procedures and controls will be
adequate to support the Company's operations as they expand. Any future growth
also will impose significant added responsibilities on members of senior
management, including the need to identify, recruit and integrate new managers
and executives. There can be no assurance that such additional management will
be identified and retained by the Company. To the extent that the Company is
unable to manage its growth efficiently and effectively, or is unable to attract
and retain additional qualified management, the Company's business, financial
condition and results of operations could be materially adversely effected. See
"Business -- Business Strategy" and "Management."
RELIANCE ON KEY PERSONNEL
The Company's operations are dependent on the efforts and relationships of
David C. Sullivan, its Chairman and Chief Executive Officer, David L. Levine,
its President and Chief Operating Officer, Jeffery M. Jarvis, its Senior Vice
President and Chief Financial Officer, the other executive officers of the
Company and the senior management of the Founding Companies. Furthermore, the
Company will likely be dependent on the senior management of any businesses
acquired in the future. If any of these persons becomes unable to continue in
his or her role with the Company, or if the Company is unable to attract and
retain other qualified employees, the Company's business, financial condition
and results of operations could be materially adversely affected. Although RQI
has entered into employment agreements with each of RQI's executive officers and
the chief executive officers of twelve of the Founding Companies, there can be
no assurance that any individual will continue in his or her present capacity
with the Company or such Founding Company for any particular period of time. See
"Management."
13
<PAGE>
SHORT-TERM RENTAL AND PROPERTY MANAGEMENT CONTRACTS
The Company provides its rental and property management services to
property owners pursuant to management contracts which generally have one year
terms. The majority of such contracts contain automatic renewal provisions but
also allow property owners to terminate the contract at any time. Non-renewal of
a significant number of management contracts or the inability of the Company to
attract additional property owners would have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
although most of the Company's contracts are exclusives, in certain geographic
markets, industry standards dictate that rental services be provided on a
non-exclusive basis. Approximately 2% of the Company's revenues for 1997 on a
pro forma combined basis were derived from rental services provided on a
non-exclusive basis. The Company is unable to determine the percentage of the
national rental services market that is provided on a non-exclusive basis. See
"Business -- Services Offered to Condominium and Home Owners."
RISKS ASSOCIATED WITH HOMEOWNERS' ASSOCIATION MANAGEMENT CONTRACTS
The Company currently provides homeowners' association management services
at numerous condominium developments pursuant to contracts with the homeowners'
association present at such developments. The Company frequently provides rental
management services for a significant percentage of the condominiums within such
developments. Providing management services for homeowners' associations
frequently leads the associations to request the Company to manage and control
the front desk operations, laundry facilities and other related services of the
condominium developments. Controlling these services often gives the Company a
competitive advantage over other vacation rental and property management
companies in retaining the condominiums it currently manages and in attracting
new property owners. There can be no assurance that a homeowners' association
will not terminate its management agreement with the Company. Termination of a
management agreement by a homeowners' association could result in the Company
losing the control or management of the front desk and related services, thereby
eliminating its competitive advantage and also possibly causing a reduction in
the number of properties under management and an increase in the expenses
required to retain and maintain the condominiums it manages at that site. Any
such termination could have a material adverse effect on the Company's business,
financial condition and results of operations.
COMPETITION
The vacation rental and property management industry is highly competitive
and has low barriers to entry. The industry has two distinct customer groups:
vacation property renters and vacation property owners. The Company competes for
vacationers and property owners primarily with local vacation rental and
property management companies located in the Company's markets. Some of these
competitors are affiliated with the owners or operators of resorts in which such
competitor provides its services. Certain of these competitors may have lower
cost structures and may be able to provide their services at lower rates. The
Company also competes for vacationers with large hotel and resort companies.
Many of these competitors are large companies with greater financial resources
than the Company, enabling them to finance acquisition and development
opportunities, pay higher prices for the same opportunities or develop and
support their own operations. In addition, many of these companies can offer
vacationers services not provided by vacation rental and property management
companies, and they may have greater name recognition among vacationers. If such
companies chose to compete in the vacation rental and property management
industry, such competition could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business --
Competition."
CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS
The executive officers and directors of the Company, the founders of RQI
and the former stockholders of the Founding Companies and entities affiliated
with them, as of May 26, 1998, beneficially own shares of Common Stock
representing approximately 56% of the total voting power of the Common Stock
(approximately 60% if all shares of Restricted Common Stock (as defined herein)
were converted into Common Stock). These persons, if acting in concert, will be
able to exercise control over
14
<PAGE>
the Company's affairs, to elect the entire Board of Directors and to control the
disposition of any matter submitted to a vote of stockholders. See "Principal
Stockholders" and "Description of Capital Stock -- Common Stock and Restricted
Common Stock."
PORTION OF REVENUES DERIVED FROM REAL ESTATE SALES
Approximately 11% of the Company's revenues for 1997 on a combined basis
were derived from net real estate brokerage commissions. Any factors which
adversely affect real estate sales , such as a downturn in general economic
conditions or changes in interest rates, the tax treatment of second homes or
property values,could have a material adverse effect on the Company's business,
financial condition and results of operations.
GOVERNMENT REGULATION OF VACATION RENTAL AND PROPERTY MANAGEMENT INDUSTRY
The Company's operations are subject to various federal, state and local
laws and regulations, including (i) licensing requirements applicable to real
estate operations, (ii) laws and regulations relating to consumer protection and
(iii) local ordinances. Many states have adopted specific laws and regulations
which regulate the Company's activities, such as real estate and travel services
provider license requirements; anti-fraud laws; telemarketing laws;
environmental laws; the Fair Housing Act; the Americans With Disabilities Act;
and labor laws. The Company believes that it is in material compliance with all
federal, state, local and foreign laws and regulations to which it is currently
subject. However, no assurance can be given that the cost of qualifying under
applicable regulations in all jurisdictions in which the Company desires to
conduct business will not be significant or that the Company is in fact in
compliance with all applicable federal, state, local and foreign laws and
regulations. Any substantial changes to existing laws and regulations and/or
failure to comply with applicable laws or regulations could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Governmental Regulation."
RELATIONSHIPS WITH FOUNDING COMPANY AFFILIATES; POTENTIAL CONFLICTS OF INTERESTS
Several lease agreements, management contracts and other agreements with
stockholders of the Founding Companies and entities controlled by them continued
after the closing of the Combinations or were entered into effective upon the
closing of the Combinations. In addition, the Company and such persons may enter
into similar agreements in the future. Although the Company believes that the
existing agreements, other than certain loan and loan guaranty agreements with
the former principal stockholder of Aston Hotels & Resorts, are and anticipates
that all future agreements will be on terms no less favorable to the Company
than it could obtain in comparable contracts with unaffiliated third parties,
conflicts of interests may arise between the Company and such persons. At March
31, 1998, Aston Hotels & Resorts had guaranteed or co-signed debts of its former
principal stockholder in the aggregate amount of $16.4 million, which primarily
relate to mortgage loans on two hotels managed by Aston Hotels & Resorts. In
addition, the former principal stockholder is indebted to Aston Hotels & Resorts
in the aggregate amount of $4.0 million. This debt and the Aston Hotels &
Resorts' guarantee are fully collateralized by cash or cash equivalents and real
estate. For a description of these agreements see "Certain Transactions --
Leases of Facilities," "-- Management Contracts" and "-- Other Transactions."
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON STOCK
The market price of the Common Stock may be adversely affected by the sale,
or availability for sale, of substantial amounts of Common Stock in the public
market. The 6,670,000 shares of Common Stock sold in the initial public offering
are, and the shares offered hereby will be, freely tradable unless acquired by
affiliates of the Company.
As of May 26, 1998, the holders of shares of Common Stock that were not
purchased in the initial public offering own 9,254,286 shares of Common Stock,
including (i) the stockholders of the Founding Companies who received, in the
aggregate, 6,119,656 shares in connection with the Combinations and (ii)
management and founders of RQI who own 3,134,630 shares. These shares have not
been registered
15
<PAGE>
under the Securities Act of 1933, as amended (the "Securities Act"), and,
therefore, may not be sold unless registered under the Securities Act or sold
pursuant to an exemption from registration, such as the exemption provided by
Rule 144. Furthermore, the holders of these shares have agreed with the Company
not to sell, transfer or otherwise dispose of any of these shares for one year
following the closing of the initial public offering (until May 26, 1999).
However, the holders of these shares also have certain demand registration
rights beginning two years after the initial public offering and certain
piggyback registration rights with respect to these shares.
The Company has agreed not to offer, sell, contract to sell or otherwise
dispose of any shares of Common Stock, or any securities convertible into or
exercisable or exchangeable for Common Stock, for a period of 180 days after the
date of the initial public offering without the prior written consent of Smith
Barney Inc. on behalf of the Underwriters. The holders of all shares outstanding
prior to the initial public offering, the stockholders of the Founding Companies
who received shares of Common Stock in exchange for their stock in the Founding
Companies and certain non-employee directors have agreed not to offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock, or any
securities convertible into or exercisable or exchangeable for Common Stock for
a period of one year from the closing of the initial public offering without the
prior written consent of Smith Barney Inc. on behalf of the Underwriters. The
foregoing restrictions will not apply: (i) in the case of the Company, to
options or shares of Common Stock issued pursuant to the Company's 1998
Long-Term Incentive Plan or in connection with acquisitions and (ii) in the case
of all holders shares of Common Stock disposed of as bona fide gifts, subject in
each case to any remaining portion of the one year or 180-day period, as
applicable to any shares so issued or transferred.
This prospectus registers an additional 3,000,000 shares of Common Stock
under the Securities Act for use by the Company as consideration for future
acquisitions. Upon such registration, these shares will generally be freely
tradable after issuance, unless the resale thereof is contractually restricted
or unless the holders thereof are subject to the restrictions on resale provided
in Rule 145 under the Securities Act. The Company intends to seek contractual
restrictions on the resale of these shares in connection with future
acquisitions that are as restrictive as those described in the preceding
paragraph; however, such restrictions may not be available in certain cases,
such as transactions accounted for using the pooling of interests method of
accounting. See "Shares Eligible for Future Sale" and "Underwriting."
POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the initial public offering, there was no public market for the
Common Stock and, although a public market for the common stock has been
developed, there can be no assurance that the public market for the Common Stock
will be active or continue. The market price of the Common Stock may be subject
to significant fluctuations in response to numerous factors, including
variations in the annual or quarterly financial results of the Company or its
competitors, changes by financial research analysts in their estimates of the
earnings of the Company or the failure of the Company to meet such estimates,
conditions in the economy in general or in the vacation rental and property
management or leisure travel and tourism industries in particular, unfavorable
publicity or changes in applicable laws and regulations (or judicial or
administrative interpretations thereof) affecting the Company or the vacation
rental and property management industry. Moreover, from time to time, the stock
market experiences significant price and volume volatility that may affect the
market price of the Common Stock for reasons unrelated to the Company's
performance.
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BY-LAW PROVISIONS
The Board of Directors of the Company is empowered to issue preferred stock
in one or more series without stockholder action. The existence of this
"blank-check" preferred stock could render more difficult or discourage an
attempt to obtain control of the Company by means of a tender offer, merger,
proxy contest or otherwise. Certain provisions of the General Corporation Law of
the State of Delaware (the "DGCL") may also discourage takeover attempts that
have not been approved by the Board of Directors. The Company's By-Laws contain
other provisions that may have an anti-takeover effect. See "Management --
Directors and Executive Officers" and "Description of Capital Stock."
16
<PAGE>
FORWARD-LOOKING STATEMENTS
There are a number of statements in this Prospectus that address
activities, events or developments which the Company expects or anticipates will
or may occur in the future, including such matters as the Company's strategy for
internal growth and improved profitability, additional capital expenditures
(including the amount and nature thereof), acquisitions of assets and
businesses, industry trends and other such matters. These statements are based
on certain assumptions and analyses made by the Company in light of its
perception of historical trends, current business and economic conditions and
expected future development as well as other factors it believes are reasonable
or appropriate. However, whether actual results and developments will conform
with the Company's expectations and predictions is subject to a number of risks
and uncertainties, including the risk factors discussed in this Prospectus;
general economic, market or business conditions; the business opportunities (or
lack thereof) that may be presented to and pursued by the Company; and changes
in laws or regulations and other factors, most of which are beyond the control
of the Company. Consequently, there can be no assurance that the actual results
or developments anticipated by the Company will be realized or, even if
substantially realized, that they will have the expected consequences to or
effects on the Company or its business or operations.
17
<PAGE>
THE COMPANY
The Company is a leading provider of vacation condominium and home rentals
at premier destination resorts throughout the United States. Through the
consolidation of leading vacation rental and property management companies, the
development of a national brand and marketing initiative and best practices
management systems, the Company intends to offer vacationers a branded network
of high quality, fully furnished, privately-owned condominium and home rentals,
while offering property owners superior management services designed to enhance
their rental income. On May 26, 1998, the Company consummated its initial public
offering and the acquisitions of the Founding Companies, which together manage
approximately 10,600 condominiums, homes and hotel rooms in eight states and
Canada. The Company's primary source of revenue is property rental fees, which
are charged as a percentage of the vacationers' total rental price. Fee
percentages for vacation condominiums and homes range from approximately 3% to
over 40% of rental rates for the various Founding Companies depending on the
type of services provided to the property owner and the type of rental unit
managed. On a pro forma basis for the year ended December 31, 1997, the Company
generated total revenues of approximately $56.8 million, which includes $31.0
million of revenues from property rental fees, and net income of $6.9 million,
which includes an adjustment for the Compensation Differential of approximately
$2.3 million. See "Selected Financial Data -- Pro Forma Combined Statement of
Operations Data." The following is a brief description of each of the Founding
Companies. Information presented regarding the number of rental units is at
January 31, 1998.
BEACH AND ISLAND RESORTS
ASTON HOTELS & RESORTS. Aston Hotels & Resorts, founded in 1967 from a
family business commenced in 1948, is the largest condominium resort management
company and a major hotel provider in the State of Hawaii. At a total of 29
resort properties located primarily in Waikiki and on the islands of Maui,
Hawaii and Kauai, Aston Hotels & Resorts manages 4,772 rental units, including
over 1,500 hotel rooms. Aston Hotels & Resorts' revenue sources for 1997 were
property management and service fees (84%) and other services (16%). In addition
to a wide range of hotel rooms and hotel-style condominium units in Waikiki, the
majority of Aston Hotels & Resorts' units are resort-based condominium rentals
situated near the beach and offering a broad array of amenities, including
pools, whirlpool spas, tennis courts and various other outdoor activities. Aston
Hotels & Resorts offers a variety of services, including homeowners' association
management, housekeeping and linen services, activities referrals, general
maintenance and accounting services. Aston Hotels & Resorts' revenues for 1997
were $19.6 million.
MAUI CONDOMINIUM AND HOME. Maui Condominium and Home Realty, Inc. ("Maui
Condominium and Home"), founded in 1988, is a leading provider of beach vacation
property rentals and management services in the Kihei and Wailea beach areas on
the Hawaiian island of Maui. Maui Condominium and Home manages 432 rental units
at 20 different properties. Almost all of Maui Condominium and Home's units are
located in resort-style complexes with swimming pools, hot tubs and convenient
beach access. Maui Condominium and Home's revenue sources for 1997 were property
rental fees (90%) and service fees (10%). Maui Condominium and Home offers a
variety of services, including housekeeping services, accounting services and
assistance with refurbishing. Maui Condominium and Home's revenues for 1997 were
$1.4 million.
BRINDLEY & BRINDLEY. Brindley & Brindley Realty and Development, Inc. and
B&B On The Beach, Inc. (collectively, "Brindley & Brindley"), founded in 1985,
is a leading provider of beach vacation property rentals, management services
and sales on the Outer Banks of North Carolina. Brindley & Brindley manages 446
rental units. Located exclusively in Corolla, North Carolina, Brindley &
Brindley offers large, upscale homes well-suited for multiple or extended
families. Brindley & Brindley's revenue sources for 1997 were property rental
and service fees (90%) and net real estate brokerage commissions (10%). Brindley
& Brindley offers a variety of services, including general maintenance,
housekeeping and linen services. In addition to traditional management services,
Brindley & Brindley also offers pool/spa maintenance, small appliance sales and
other unique services to property owners. Brindley & Brindley's revenues for
1997 were $4.0 million.
18
<PAGE>
COASTAL RESORTS. Coastal Resorts Realty L.L.C. and Coastal Resorts
Management, Inc. (collectively, "Coastal Resorts"), founded in 1982, is a
leading provider of beach vacation property rentals, management services and
sales in the Bethany Beach area of Delaware. Bethany Beach is a popular beach
destination in the Mid-Atlantic region that offers full-scale resort facilities.
Coastal Resorts manages 549 rental units, including ocean side condominiums,
townhome communities with resort facilities and upscale free-standing homes.
Coastal Resorts' revenue sources for 1997 were property rental and service fees
(52.1%), net real estate brokerage commissions (35.1%) and other (12.8%).
Coastal Resorts offers a variety of services, including housekeeping and
maintenance services, 24 hour security and concierge services. Coastal Resorts'
revenues for 1997 were $3.6 million.
THE MAURY PEOPLE. The Maury People, Inc. ("The Maury People"), whose
predecessor was founded in 1969, is a leading provider of beach vacation
property rentals and sales on the island of Nantucket off the coast of
Massachusetts. The Maury People provides non-exclusive rental services for
approximately 1,200 rental homes ranging from in-town residences to cottages and
large, upscale ocean and harbor-front homes. The Maury People's revenue sources
for 1997 were net property rental and service fees (30%) and net real estate
brokerage commissions (70%). The Maury People is an exclusive affiliate of
Sotheby's International Realty. The Maury People's revenues for 1997 were $1.2
million.
PRISCILLA MURPHY REALTY. Priscilla Murphy Realty, Inc. and Realty
Consultants Inc. (collectively, "Priscilla Murphy Realty"), founded in 1955, is
a leading provider of beach vacation property rentals, management services and
sales on the Florida islands of Sanibel and Captiva. Priscilla Murphy Realty
manages 902 rental units. Most of Priscilla Murphy Realty's properties are
condominium units designed to accommodate a wide range of budgets, from luxury,
oceanfront three- and four-bedroom units to more modest single-bedroom units
located a short distance from the beach. Priscilla Murphy Realty's revenue
sources for 1997 were property rental and service fees (69%) and net real estate
brokerage commissions (31%). Priscilla Murphy Realty offers a variety of
services, including general maintenance and subcontracted housekeeping and linen
services. Priscilla Murphy Realty's revenues for 1997 were $4.7 million.
TRUPP-HODNETT ENTERPRISES. Trupp-Hodnett Enterprises, Inc. and THE
Management Company (collectively, "Trupp-Hodnett Enterprises"), founded in 1987,
is the leading provider of beach vacation property rentals, management services
and sales on the island of St. Simons, off the coast of Georgia. St. Simon's
Island is a relatively uncommercial resort community located midway between
Savannah, Georgia and Jacksonville, Florida and connected to the mainland by a
causeway. Trupp-Hodnett Enterprises manages 435 rental units, ranging from
moderately priced hotel rooms, homes and cottages in a variety of island
locations to spacious, luxurious oceanfront condominium units with on-site
management and access to swimming pools, spas, tennis courts and golf courses.
Trupp-Hodnett Enterprises' revenue sources for 1997 were property rental and
service fees (78%) and net real estate brokerage commissions (22%).
Trupp-Hodnett Enterprises offers a variety of services, including homeowner's
association management, guest amenities and general maintenance and
housekeeping. Trupp-Hodnett Enterprises' revenues for 1997 were $4.1 million.
MOUNTAIN RESORTS
COLLECTION OF FINE PROPERTIES. Collection of Fine Properties, Inc. and Ten
Mile Holdings, Ltd. (collectively, "Collection of Fine Properties"), founded in
1985, is a leading provider of vacation property rental and management services
in the mountain resort town of Breckenridge, Colorado. Collection of Fine
Properties manages 472 rental units. Most of the units are situated in
condominium complexes with front desks and spa facilities and many of them are
situated directly on the slopes with "ski-in ski-out" access. Collection of Fine
Properties' revenue sources for 1997 were property rental and service fees (87%)
and other services (13%). Collection of Fine Properties offers a variety of
services, including association management, general maintenance, housekeeping
and linen services and ski equipment rentals. Collection of Fine Properties'
revenues for 1997 were $4.3 million.
HOUSTON AND O'LEARY. Houston and O'Leary Company ("Houston and O'Leary"),
founded in 1986, is a leading provider of luxury vacation property rentals and
sales in the mountain resort town of Aspen, Colorado. Houston and O'Leary
provides non-exclusive rental services for 127 rental units. Houston and
19
<PAGE>
O'Leary's rental and sale properties consist primarily of unique, free-standing
houses, ranging from smaller two-bedroom cottages located in Aspen proper to
10,000-plus square foot ranch-style houses overlooking Aspen. Houston and
O'Leary's revenue sources for 1997 were real estate brokerage commissions (73%),
property rental fees (19%) and other services (8%). Houston and O'Leary provides
a concierge service which arranges for a variety of services, including
housekeeping and linen services, activities referrals and general maintenance.
Houston and O'Leary's revenues for 1997 were $1.6 million.
RESORT PROPERTY MANAGEMENT. Resort Property Management, Inc. ("Resort
Property Management"), founded in 1978, is a leading provider of vacation
property rentals and management services in the Park City, Utah mountain resort
area. Resort Property Management manages 326 rental units. Resort Property
Management offers a variety of free-standing homes and condominium units at
various resorts, including Deer Valley, throughout the Park City region. A
majority of Resort Property Management's condominium units are located in the
town of Park City and range from luxury, three-bedroom units in the historic
town center to smaller, more affordable units in older condominium complexes.
Resort Property Management's revenue sources for 1997 were property rental and
service fees (100%). Resort Property Management offers a variety of services,
including general maintenance, housekeeping and linen services and complimentary
firewood. Resort Property Management's revenues for 1997 were $2.3 million.
TELLURIDE RESORT ACCOMMODATIONS. Telluride Resort Accommodations, Inc.
("Telluride Resort Accommodations"), founded in 1985, is a leading provider of
vacation property rentals and property management services in the Telluride,
Colorado mountain resort area. Telluride Resort Accommodations manages 447
rental units. Telluride Resort Accommodations' property offerings range from
smaller, one-bedroom units in town to large, luxury condominiums and
free-standing homes in Telluride's new Mountain Village. Telluride Resort
Accommodations' revenue sources for 1997 were property rental and service fees
(100%). Telluride Resort Accommodations offers a variety of services, including
general maintenance and housekeeping and linen services. Telluride Resort
Accommodation's revenues for 1997 were $4.3 million.
WHISTLER CHALETS. Whistler Chalets Limited ("Whistler Chalets"), founded in
1986, is a leading provider of vacation property rentals and management services
in the mountain resort village of Whistler, in British Columbia, Canada.
Whistler Chalets manages 444 rental units. Whistler Chalets offers a variety of
rental properties including condominium lodges, luxury townhomes and chalets
with village, slopeside, golf course and lakefront locations. Whistler Chalets'
revenue sources for 1997 were property rental and service fees (95%) and other
(5%). Whistler Chalets offers a variety of services, including housekeeping and
linen services, general maintenance, accounting services and payment processing.
Whistler Chalets' revenues for 1997 were $2.1 million.
SOFTWARE SALES AND SERVICES
FIRST RESORT. First Resort Software, Inc. ("First Resort"), founded in
1985, is a leading provider of software services to vacation rental and property
management companies. First Resort software allows vacation rental and property
management companies to automate and computerize the three key areas of the
vacation rental and property management business: reservations, rental
management and owner accounting. First Resort also offers additional modules and
interfaces, including a work order generator, activities management system,
credit card interface and world wide web-enabled reservations. Most purchasers
of First Resort software also enter into annual software service contracts.
Currently, First Resort has more than 650 clients. All First Resort software is
Year 2000 compliant. First Resort's revenue sources for 1997 were software sales
(46%), software service (49%) and other (5%). First Resort's revenues for 1997
were $2.9 million.
The Company's executive offices are located at 1355-B Lynnfield Road, Suite
245, Memphis, TN 38119, and its telephone number is (901) 818-5445.
20
<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock trades on the NYSE under the symbol "RZT." The
Company completed its initial public offering in May 1998 at a price of $11.00
per share. The high and low sales prices since the Common Stock commenced
trading on May 20, 1998 were $ 16.00 and $ 13.975 per share, respectively. On
June 9, 1998, the last reported sales price of the Common Stock on the NYSE was
$ 14.50 per share. At June 9, 1998, there were 77 holders of record of the
Common Stock, although the Company believes the number of beneficial holders is
substantially greater.
DIVIDEND POLICY
The Company intends to retain all of its earnings, if any, to finance the
expansion of its business and for general corporate purposes, including future
acquisitions, and does not anticipate paying any cash dividends on its Common
Stock for the foreseeable future. In addition, the Credit Facility includes
restrictions on the ability of the Company to pay dividends without the consent
of the lender.
21
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
On May 26, 1998, the Company consummated its initial public offering and
the acquisitions of the Founding Companies. For financial statement presentation
purposes, however, Aston Hotels & Resorts, one of the Founding Companies, was
designated as the "accounting acquiror." The following selected historical
financial data of Aston Hotels & Resorts at December 31, 1996 and 1997 and for
each of the three years in the period ended December 31, 1995, 1996 and 1997
have been derived from the audited financial statements of Aston Hotels &
Resorts, included elsewhere in this Prospectus. The following selected
historical financial data for Aston Hotels & Resorts at December 31, 1993, 1994
and 1995 and at March 31, 1998 and for the years ended December 31, 1993 and
1994 and for the three months ended March 31, 1997 and 1998, have been derived
from unaudited financial statements of Aston Hotels & Resorts, which have been
prepared on the same basis as the audited financial statements and, in the
opinion of Aston Hotels & Resorts, reflect all adjustments, consisting of normal
recurring adjustments necessary for a fair presentation of such data. The
selected unaudited pro forma combined financial data present data for the
Company, adjusted for (i) the effects of the Combinations on a historical basis;
(ii) the effects of certain pro forma adjustments to the historical financial
statements described below; and (iii) the consummation of the initial public
offering and the application of the net proceeds therefrom. See the Unaudited
Pro Forma Combined Financial Statements and the Notes thereto and the historical
Financial Statements of Aston Hotels & Resorts and certain of the Founding
Companies and the Notes thereto included elsewhere in the Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------------------- ---------------------
1993 1994 1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
ASTON HOTELS & RESORTS
Revenues ....................... $15,575 $20,421 $19,048 $19,460 $ 19,554 $ 5,581 $ 5,693
Operating expenses ............. 9,924 12,406 10,550 10,401 8,908 2,377 2,422
General and administra-
tive expenses ................ 3,651 5,444 5,434 5,574 5,475 1,149 1,389
------- ------- ------- ------- -------- ------- -------
Income from operations ......... 2,000 2,571 3,064 3,485 5,171 2,055 1,882
Interest expense, net .......... 93 246 771 342 86 168 185
------- ------- ------- ------- -------- ------- -------
Income from continuing
operations ................... $ 1,907 $ 2,325 $ 2,293 $ 3,143 $ 5,085 $ 1,887 $ 1,697
======= ======= ======= ======= ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------- -----------------------------
1997 1997 1998
-------------- -------------- --------------
<S> <C> <C> <C>
PRO FORMA COMBINED STATEMENT OF OPERATIONS DATA (1):
Revenue:
Property rental fees ................................. $ 30,990 $ 12,542 $ 13,754
Service fees ......................................... 12,713 3,263 4,087
Other ................................................ 13,116 3,015 3,480
----------- ----------- -----------
56,819 18,820 21,321
Operating expenses (2) ................................. 27,680 7,327 7,949
General and administrative expenses (2) ................ 12,383 2,619 3,607
Depreciation and amortization (3) ...................... 3,921 993 993
----------- ----------- -----------
Income from operations ................................. 12,835 7,881 8,772
Interest and other income, net ......................... 276 43 222
----------- ----------- -----------
Income before income taxes ............................. 13,111 7,924 8,994
Provision for income taxes ............................. 6,203 3,428 3,735
----------- ----------- -----------
Net income ............................................. $ 6,908 $ 4,496 $ 5,259
=========== =========== ===========
Net income per share ................................... $ 0.43 $ 0.28 $ 0.33
=========== =========== ===========
Shares used in computing pro forma income per share (4) 15,924,286 15,924,286 15,924,286
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
ASTON HOTELS & RESORTS
----------------------------------------------------------------
DECEMBER 31,
----------------------------------------------------------------
1993 1994 1995 1996 1997
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital surplus
(deficit) (7) .......... $ (1,248) $ (3,919) $ (3,581) $ (1,933) $ (4,588)
Total assets (8) ......... 5,310 9,373 13,904 13,470 15,062
Long-term debt ........... 1,844 2,396 2,133 2,816 2,804
Stockholders' equity
(deficit) .............. (395) (395) (395) 105 105
<CAPTION>
ASTON HOTELS & RESORTS
------------------------------- COMBINED COMPANIES
MARCH 31, 1998
MARCH 31, ---------------------------------
1998 PRO FORMA (5) AS ADJUSTED (6)
------------ --------------- ----------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital surplus
(deficit) (7) .......... $ (3,581) $ (52,464) $ 7,939
Total assets (8) ......... 12,019 137,066 141,765
Long-term debt ........... 2,301 4,468 473
Stockholders' equity
(deficit) .............. 105 44,349 108,747
</TABLE>
- ----------
(1) The unaudited pro forma combined statement of operations data assume that
the Combinations and the initial public offering were consummated on January
1, 1997 and are not necessarily indicative of the results the Company would
have obtained had these events actually then occurred or of the Company's
future results. During the period presented above, the Founding Companies
were not under common control or management and, therefore, the data
presented may not be comparable to or indicative of post-combination results
to be achieved by the Company. The pro forma combined statement of
operations data are based on preliminary estimates, available information
and certain assumptions that management deems appropriate and should be read
in conjunction with the other financial statements and notes thereto
included elsewhere in this Prospectus. The Company expects to realize
certain savings as a result of the consolidation of insurance, employee
benefits and other general and administrative expenses. The Company cannot
quantify these savings accurately at this time. Consequently, the Company is
unable to determine at this time whether these savings will be material or
not. Any such savings may be offset by the costs of being a publicly traded
company and the incremental costs related to the Company's new management
team. However, these costs, like the savings that they offset, cannot be
quantified accurately at this time. Neither these anticipated savings nor
these anticipated costs have been included in the pro forma combined
financial information of the Company.
(2) The pro forma combined statement of operations data includes the
Compensation Differential and excludes the effect of the exclusion of
certain non-operating assets and the assumption or retirement of certain
liabilities that were retained by certain stockholders of the Founding
Companies. For the year ended December 31, 1997 and the three months ended
March 31, 1997 and 1998, the Compensation Differential was approximately
$2.3 million, $299,000 and $690,000, respectively.
(3) Reflects amortization of the goodwill (which is not deductible for tax
purposes) recorded as a result of the Combinations over a 40-year period
except for the goodwill related to First Resort, which will be amortized
over a 15-year period, and computed on the basis described in the notes to
the Unaudited Pro Forma Combined Financial Statements.
(4) Includes (i) 6,119,656 shares issued to owners of the Founding Companies;
(ii) 3,134,630 shares issued to the management and founders of RQI; and
(iii) 6,670,000 shares representing the number of shares sold in the initial
public offering necessary to pay the cash portion of the consideration for
the Combinations, to repay debt assumed in the Combinations, to pay the
underwriting discount and other Offering expenses and to provided additional
working capital. Excludes options to purchase 1,697,000 shares granted
concurrently with the initial public offering at an exercise price equal to
the initial public offering price. See "Certain Transactions."
(5) The pro forma combined balance sheet data assume that the Combinations were
consummated on March 31, 1998. The unaudited pro forma combined balance
sheet data are based upon preliminary estimates, available information and
certain assumptions that management deems appropriate and should be read in
conjunction with the other financial statements and notes thereto included
elsewhere in this Prospectus.
(6) Adjusted for the sale of 6,670,000 shares of Common Stock sold in the
initial public offering (less estimated underwriting discount and offering
expenses) and the application of the net proceeds therefrom.
(7) Includes the cash portion of the consideration paid to the Founding
Companies and the amount of debt repaid from net proceeds of the initial
public offering of $60.0 million and approximately $232,000 representing
certain working capital adjustments from certain stockholders of the
Founding Companies in connection with the Combinations.
(8) Reflects (i) the creation of approximately $94.1 million of goodwill in and
(ii) a reduction of net assets, including certain non-operating assets and
the assumption of or retirement of certain liabilities of approximately $5.1
million that were excluded from the Combinations and retained by certain
stockholders of the Founding Companies.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read with "Selected Financial Data" and
the Founding Companies' Financial Statements and related Notes thereto appearing
elsewhere in this Prospectus.
INTRODUCTION
The Company is a leading provider of vacation condominium and home rentals
in premier destination resorts throughout the United States. Through the
consolidation of leading vacation rental and property management companies, the
development of a national brand and marketing initiative and best practices
management systems, the Company intends to offer vacationers a branded network
of high quality, fully furnished, privately-owned condominium and home rentals
while offering property owners superior management services designed to enhance
their rental income. On May 26, 1998, the Company consummated its initial public
offering and the acquisitions of the Founding Companies which manage
approximately 10,600 condominiums, homes and hotel rooms nationwide and in
Canada. These rental properties are located in beach and island resorts such as
the Hawaiian Islands; Bethany Beach, DE; Nantucket, MA; the Outer Banks, NC;
Sanibel and Captiva Islands, FL; and St. Simons Island, GA; and mountain resorts
such as Aspen, Breckenridge and Telluride, CO; Park City, UT; and Whistler,
British Columbia. Six of the Founding Companies also offer real estate brokerage
services. First Resort Software, one of the Founding Companies, is a leading
provider of integrated management services and reservations and accounting
software for the vacation rental and property management industry.
The Company's revenues are derived primarily from property rental fees on
vacation condominium and home rentals, and service fees from additional services
provided to vacationers and property owners. The Company receives property
rental fees when the properties are rented, which are generally a percentage of
the rental price of the vacation condominium or home ranging from approximately
3% to over 40% based upon the type of services provided by the Company to the
property owner and the type of rental unit managed. Revenues are recognized by
the Company on the property rental fees received from property owners, not on
the total rental price of the vacation condominium or home, and generally are
recognized ratably over the rental period. On a pro forma basis for the year
ended December 31, 1997, the Company recognized $31.0 million of property rental
fees, representing 54.5% of the Company's total 1997 revenues. Additional
services provided to vacationers, such as reservations, housekeeping, trip
cancellation insurance and long-distance telephone, are charged separately and
recorded as service fees revenue by the Company. During 1997, the Company
recognized $12.7 million of service fees, representing 22.4% of the Company's
total 1997 pro forma revenues. The Company's remaining $13.1 million of 1997 pro
forma revenues are derived from other sources, including management of
homeowners' associations, the sale and service of vacation rental and property
management software, net broker commissions on real estate sales, and a food &
beverage facility. The Company does not view the sources of other revenues as a
significant area of future growth, but only as a means to retain and increase
the number of rental units under Company management.
Operating expenses include direct compensation, telecommunications
expenses, housekeeping supplies, printing, marketing and food & beverage costs.
Compensation includes salary, wages, bonus and benefits for employees involved
with the rental or maintenance of the rental units, housekeeping, reservations,
marketing and the food & beverage facility. Telecommunications costs result
primarily from the cost of toll-free numbers maintained by each of the Founding
Companies, as well as the cost of telephone service provided by the Company to
property owners in certain markets. General and administrative expenses consist
primarily of salary, wages, bonus and benefits for owners as well as other non-
operations personnel, fees for professional services, depreciation, rent and
other general office expenses.
The Founding Companies have operated throughout the periods presented as
independent, privately-owned entities, and their results of operations reflect
varying tax structures (S Corporations or C Corporations) which have influenced
the historical level of owners' compensation. The owners and key employees of
the Founding Companies have agreed to certain, and in some cases substantial,
reductions in their salary, bonus and benefits in connection with the
Combinations (the "Compensation Differential"). The Compen-
24
<PAGE>
sation Differentials for the three months ended March 31, 1998 and 1997, and for
the year ended December 31, 1997, were $690,000, $299,000 and $2.3 million,
respectively, and have been reflected as pro forma adjustments in the Unaudited
Pro Forma Combined Statement of Operations of the Company.
The Company expects to realize certain savings as a result of the
consolidation of insurance, employee benefits and other general and
administrative expenses of the Founding Companies. The Company cannot quantify
these savings accurately at this time. Consequently, the Company is unable to
determine at this time whether these savings will be material or not. Any such
savings may be offset by the costs of being a publicly traded company and the
incremental costs related to the Company's new management team. However, these
costs, like the savings that they offset, cannot be quantified accurately at
this time. Neither these anticipated savings nor these anticipated costs have
been included in the pro forma combined financial information of the Company.
In July 1996, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 97 ("SAB 97") relating to business combinations
immediately prior to an initial public offering. SAB 97 requires that these
combinations be accounted for using the purchase method of acquisition
accounting. Under the purchase method, one of the companies must be designated
as the accounting acquiror. Aston Hotels & Resorts has been identified as the
accounting acquiror for financial statement presentation purposes (i.e.,
carryover basis). For the remaining companies, $68.6 million, representing the
excess of the fair value of the merger consideration received over the fair
value of the net assets to be acquired, will be recorded as "goodwill" on the
Company's balance sheet. In addition, goodwill of $25.5 million will be recorded
and attributed to the Restricted Common Stock issued to management of and
consultants to RQI. Goodwill will be amortized as a non-cash charge to the
income statement over a 40-year period other than that associated with the
acquisition of First Resort, which will be amortized over a 15-year period. The
pro forma impact of this amortization expense, which is non-deductible for tax
purposes, is $2.6 million per year on an after-tax basis. In addition, the $29.5
million paid to the owners of Aston Hotels & Resorts and has been reflected as
"Distributions in Excess of Predecessor Basis in Net Assets" in the pro forma
financial statements. See "Certain Transactions -- Organization of the Company."
SEASONALITY AND QUARTERLY FLUCTUATIONS
The business of the Founding Companies is highly seasonal. The results of
operations of each of the Founding Companies have been subject to quarterly
fluctuations caused primarily by the seasonal variations in the vacation rental
and property management industry, with peak seasons dependent on whether the
resort is primarily a summer or winter destination. During 1997, the Company
derived approximately 38% of its pro forma revenues and 61% of its operating
income in the first quarter and 25% of its pro forma revenues and 25% of its
operating income in the third quarter. Although the seasonality of the Company's
revenues and earnings may be partially mitigated by the geographic diversity of
the Founding Companies and companies that may be acquired in the future, there
is likely to continue to be a significant seasonal factor with respect to the
Company's revenues and earnings. The Company's quarterly results of operations
may also be subject to fluctuations as a result of the timing and cost of
acquisitions, the timing of real estate sales, changes in relationships with
travel providers, extreme weather conditions or other factors affecting leisure
travel and the vacation rental and property management industry. Unexpected
variations in quarterly results could also adversely affect the price of the
Common Stock which in turn could adversely effect the Company's proposed
acquisition strategy.
INFLATION
Inflation did not have a significant effect on the combined results of
operations of the Founding Companies for 1995, 1996 or 1997 or the three months
ended March 31, 1998.
PRO FORMA COMBINED STATEMENT OF OPERATIONS DATA
Results of Operations
The Founding Companies' pro forma combined results of operations for the
periods presented give effect to the Combinations and the Company's initial
public offering as if they had occurred on January 1, 1997.
25
<PAGE>
The following table sets forth the pro forma combined results of operations
of the Founding Companies on a pro forma basis and as a percentage of pro forma
revenues for the periods indicated. See the Unaudited Pro Forma Combined
Statement of Operations for the year ended December 31, 1997 and for the three
month periods ended March 31, 1997 and March 31, 1998, respectively, appearing
on pages F-6 through F-11 of the Financial Statements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------- ---------------------------------------------------
1997 1997 1998
------------------------------- ------------------------ ------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Revenues ................... $56,819 100.0% $18,820 100.0% $21,321 100.0%
Operating expenses ......... 27,680 48.7 7,327 38.9 7,949 37.3
------- ----- ------- ----- ------- -----
$29,139 51.3% $11,493 61.1% $13,372 62.7%
======= ===== ======= ===== ======= =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Revenues. Pro forma combined revenues increased $2.5 million, or 13.3%,
from $18.8 million in 1997 to $21.3 million in 1998, primarily due to an
increase in service and management fees resulting from a higher number of units
under management.
Operating Expenses. Pro forma combined operating expenses increased
$622,000, or 8.5%, from $7.3 million in 1997 to $7.9 million in 1998. As a
percentage of revenues, operating expenses decreased from 38.9% in 1997 to 37.3%
in 1998, primarily due to increased salaries, commissions and benefits.
TWELVE MONTHS ENDED DECEMBER 31, 1997
Revenues. Pro forma combined revenues of $56.8 million are comprised of
rental operations of $31.0 million (54.5%), service revenues of $12.7 million
(22.4%), and other revenues of $13.1 million (23.1%).
Operating Expenses. Pro forma combined operating expenses include salaries
and benefits of management and service personnel, facilities maintenance and
goods and services primarily related to rental operations.
COMBINED FOUNDING COMPANIES
Results of Operations
The Founding Companies' combined results of operations for the periods
presented do not represent combined results of operations presented in
accordance with generally accepted accounting principles, but are a summation of
the revenues and operating expenses of the individual Founding Companies on a
historical basis. The historical combined results of operations exclude the
effect of pro forma adjustments and may not be comparable to, and may not be
indicative of, the Company's post-combination results of operations because: (i)
the Founding Companies were not under common control or management during the
periods presented; (ii) the Company will incur incremental costs related to its
new corporate management team and the costs of being a publicly traded company;
and (iii) the combined data do not reflect potential benefits and cost savings
the Company expects to realize when operating as a combined entity.
The following table sets forth the combined results of operations of the
Founding Companies on a historical basis and as a percentage of revenues for the
periods indicated. See the Unaudited Pro Forma Combined Statement of Operations
for the year ended December 31, 1997 and for the three month periods ended March
31, 1997 and March 31, 1998, respectively, appearing on pages F-6 through F-11
of the Financial Statements.
26
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
--------------------------------------------- ---------------------------------------------
1996 1997 1997 1998
---------------------- ---------------------- ---------------------- ----------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Revenues ................... $49,980 100.0% $56,027 100.0% $18,540 100.0% $19,831 100.0%
Operating expenses ......... 29,352 58.7 28,095 50.1 7,427 40.0 7,994 40.3
------- ----- ------- ----- ------- ----- ------- -----
$20,628 41.3% $27,932 49.9% $11,113 60.0% $11,837 59.7%
======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Revenues. Revenues increased $1.3 million, or 7.0%, from $18.5 million in
1997 to $19.8 million in 1998, primarily due to an increase in real estate
commissions, and service and management fees resulting from a higher number of
units under management.
Operating Expenses. Operating expenses increased $567,000, or 7.6%, from
$7.4 million in 1997 to $8.0 million in 1998. As a percentage of revenues,
operating expenses increased from 40.0% in 1997 to 40.3% in 1998, primarily due
to increased salaries and benefits.
Liquidity and Capital Resources
The Company is a holding company that conducts all of its operations
through its subsidiaries (the Founding Companies). Accordingly, the primary
internal source of the Company's liquidity is through the cash flows of its
subsidiaries. The Company generated historical combined cash flows from
operating activities of $6.2 million in 1998, primarily due to $1.8 million of
net income from continuing operations. Historical combined cash flows used in
investing activities by the Company was $2.6 million in 1998. The Company's 1997
cash used in financing activities totalled $0.2 million, which included $3.9
million of distributions to stockholders and $684,000 net advance from long-term
debt. At March 31, 1998, the Company had working capital of $189,000 and $12.9
million of outstanding long-term debt and other long-term liabilities.
At March 31, 1998, the Company had approximately $22.6 million in cash,
cash equivalents and cash held in trust, of which $10.3 million represents cash
held in trust, and approximately $10.3 million of outstanding indebtedness. The
cash held in trust is released at varying times in accordance with state
regulations, generally based upon the guest stay. Certain assets, including real
estate, personal property, receivables and cash, that were not used in the
operations of certain Founding Companies were excluded from the Combinations and
retained by the respective stockholders of such Founding Companies. Certain
non-operating assets and the assumption of certain debt, of approximately $5.1
million, were excluded from the combinations and retained by certain
stockholders of the Founding Companies. These exclusions have been reflected in
the pro forma combined balance sheet of the Company at March 31, 1998.
At March 31, 1998, Aston Hotels & Resorts had guaranteed or co-signed debts
of its former principal stockholder in the aggregate amount of approximately
$16.4 million, which primarily relate to mortgage loans on two hotels managed by
Aston Hotels & Resorts. Management believes the likelihood that Aston Hotels &
Resorts will be called upon to perform under the guaranty is remote. These debts
are fully collateralized with real estate, cash or cash equivalents, including
shares of Common Stock, pledged either to the lenders of such debt or Aston
Hotels & Resorts to secure such debt. The former principal stockholder also has
agreed to cause Aston Hotels & Resorts' guarantee of such debt to be released as
soon as practicable. In addition, the former principal stockholder, at May 26,
1998, was indebted to Aston Hotels & Resorts in the aggregate amount of $4.0
million after the Combinations. This debt also is fully collateralized with real
estate, cash or cash equivalents pledged to Aston Hotels & Resorts.
Initial Public Offering and Combinations
On May 18, 1998, the Company's Registration Statement on Form S-1 was
declared effective. On May 26, 1998, the Company consummated its initial public
offering of its common stock, and simultaneously consummated the acquisitions of
the 13 Founding Companies. On May 26, 1998, the Company issued an aggregate of
12,789,656 shares of Common Stock in connection with the Combinations (6,119,656
shares) and the initial public offering (6,670,000 shares). Shares issued in
connection with the
27
<PAGE>
initial public offering were sold to the public at $11.00 per share. The net
proceeds to the Company from the initial public offering (after deducting
underwriting discounts, commissions and estimated offering expenses) were
approximately $64.9 million. Of this amount, $59.9 million represents the
aggregate amount paid as the cash portion of the purchase price and to repay
debt assumed in the Combinations.
Credit Facility
The Company entered into a credit agreement (the "Credit Agreement") as of
May 26, 1998 with NationsBank, N.A. and First Tennessee Bank National
Association, with respect to a $30 million revolving line of credit. The Credit
Facility may be used for letters of credit not to exceed $2.5 million,
acquisitions, capital expenditures, and for general corporate purposes. The
Credit Agreement requires the Company to comply with various loan covenants,
which include maintenance of certain financial ratios, restrictions on
additional indebtedness and restrictions on liens, guarantees, advances, capital
expenditures, sale of assets and dividends. At June 9, 1998, the Company was in
compliance with applicable loan covenants. Interest on outstanding balances of
the Credit Facility is computed at the Company's election, on the basis of
either the Prime Rate or the Eurodollar Rate plus a margin ranging form 1.25% to
2.00%, depending on certain financial ratios. Availability fees ranging from
.25% to .50% per annum depending on certain financial ratios are payable on the
unused portion of the Credit Facility. The Credit Facility has a three-year term
and is secured by substantially all the assets of the Company and its
subsidiaries, including the stock in the Founding Companies and any future
material subsidiaries, as defined. The Company, each Founding Company and all
other current and future material subsidiaries are required to guarantee
repayment of all amounts due under the Credit Facility.
The Company anticipates that its cash flow from operations will provide
cash in excess of the Company's normal working capital needs, debt service
requirements and planned capital expenditures for the foreseeable future. Total
capital expenditures for 1998 are anticipated to be between $1.5 million and
$2.0 million, of which approximately $200,000 will be for software development,
with the balance going to furniture, fixtures and equipment. The Company made
capital expenditures of approximately $480,000 for the three months ended March
31, 1998.
The Company intends to pursue attractive acquisition opportunities. There
can be no assurance that the Company will be able to identify, acquire or
profitably manage additional businesses or successfully integrate acquired
businesses into the Company without substantial costs, delays or other
operational or financial problems. Increased competition for acquisition
candidates may develop, in which event there may be fewer acquisition
opportunities available to the Company, as well as higher acquisition prices.
Further, acquisitions involve a number of special risks, including the failure
of acquired companies to achieve anticipated results, diversion of management's
attention, failure to retain key personnel, risks associated with unanticipated
events or liabilities and amortization of acquired intangible assets, some or
all of which could have a material adverse effect on the Company's business,
financial condition and results of operations.
The timing, size or success of any acquisition effort and the associated
potential capital commitments are unpredictable. The Company expects to fund
future acquisitions primarily through a combination of cash flow from operations
and borrowings, including borrowings under the Credit Facility, as well as issue
additional equity.
TWELVE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO TWELVE MONTHS ENDED DECEMBER
31, 1996
Revenues. Revenues increased $6.0 million, or 12.1%, from $50.0 million in
1996 to $56.0 million in 1997, primarily due to an increase in property rental
and service fees resulting from a higher number of units under management and
higher average rental rates.
Operating Expenses. Operating expenses remained relatively constant at
$29.4 million in 1996 and $28.1 million in 1997. As a percentage of net
revenues, operating expenses decreased from 58.7% in 1996 to 50.1% in 1997,
primarily due to the increase in revenues, leverage from higher average rental
rates, and cost controls.
28
<PAGE>
Liquidity and Capital Resources
The Company generated cash flows from operating activities of $11.5 million
in 1997, primarily due to $11.2 million of net income from continuing
operations. Cash flows used in investing activities by the Company was $8.9
million in 1997 and was primarily used for acquisition of assets, repayments of
advances of affiliates and purchase of property and equipment. The Company's
1997 cash flows from financing activities totaled $917,000 which included $6.1
million of distributions to shareholders and a $4.8 million net advance from
long-term debt. As of December 31, 1997, the Company had a working capital
deficit of $5.1 million and $14.0 million of outstanding long-term debt, other
long-term liabilities and net liabilities of discontinued operations. The
Company made capital expenditures of approximately $1.4 million in 1997.
ASTON HOTELS & RESORTS
Results of Continuing Operations
Aston Hotels & Resorts is the largest condominium resort management company
and a major hotel provider in the state of Hawaii. Aston Hotels & Resorts'
principal revenue sources for 1997 were property rental fees (41%) and service
fees (43%). Aston Hotels & Resorts has decided to discontinue its hotel leasing
and operating business and such business is not reflected in the results of
continuing operations. Results of operations for the hotel leasing and operating
business are reflected as discontinued operations. The following table sets
forth the results of continuing operations for Aston Hotels & Resorts on a
historical basis and as a percentage of net revenues for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1995 1996 1997
---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Revenues ...................... $19,048 100.0% $19,460 100.0% $19,554 100.0%
Operating expenses ............ 10,550 55.4 10,401 53.5 8,908 45.6
General and administrative
expenses ..................... 5,434 28.5 5,574 28.6 5,475 28.0
------- ----- ------- ----- ------- -----
Income from operations ........ 3,064 16.1 3,485 17.9 5,171 26.4
Other income (expense) ........ (771) ( 4.0) (342) ( 1.7) (86) ( 0.4)
------- ----- ------- ----- ------- -----
Net income .................... $ 2,293 12.1% $ 3,143 16.2% $ 5,085 26.0%
======= ===== ======= ===== ======= =====
Compensation Differential. $ 380 $ 282 $ 282
======= ======= =======
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------------------
1997 1998
--------------------- ---------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Revenues ...................... $5,581 100.0% $5,693 100.0%
Operating expenses ............ 2,377 42.6 2,422 42.5
General and administrative
expenses ..................... 1,149 20.6 1,389 24.4
------ ----- ------ -----
Income from operations ........ 2,055 36.8 1,882 33.1
Other income (expense) ........ (168) ( 3.0) (185) ( 3.3)
------ ----- ------ -----
Net income .................... $1,887 33.8% $1,697 29.8%
====== ===== ====== =====
Compensation Differential. $ 73 $ 70
====== ======
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Revenues. Revenues increased $112,000 or 2%, from $5.6 million in 1997 to
$5.7 million in 1998, due to an increase in service fees resulting from a higher
number of units under management.
Operating Expenses. Operating expenses remained relatively constant at $2.4
million for 1997 and 1998.
General and Administrative Expenses. General and administrative expenses
increased $240,000 or 0.9%, from $1.1 million for 1997 to $1.4 million for
1998. As a percentage of revenues, general and administrative expenses increased
from 20.6% in 1997 to 24.4% in 1998, primarily due to higher salaries and
benefits. As a percentage of revenues, excluding the Compensation Differential
of $73,000 in 1997 and $70,000 in 1998, operating income increases from 36.8% to
38.1% in 1997 and from 33.1% to 34.3% in 1998.
Other Income (Expense). Other income (expense) remained constant for 1997
and 1998.
Net Income. Net income decreased $190,000 or 10.1% from $1.9 million for
1997 to $1.7 million for 1998, primarily due to items discussed above.
29
<PAGE>
Liquidity and Capital Resources
Aston Hotels & Resorts generated cash flows from operating activities of
$510,000 in 1998 primarily due to $1.7 million of net income from continuing
operations. Cash provided by investing activities by Aston Hotels & Resorts was
$497,000 in 1998, due primarily to an increase in security deposits. At March
31, 1998, advances to stockholders and affiliates totaled $6.4 million. Aston
Hotels & Resorts' 1998 cash used in financing activities totaled $1.4 million,
which included a $3.3 million distribution to stockholders and $1.3 million in
payments of other long-term obligations offset by $3.2 million of repayment of
advances to stockholder and affiliates. At March 31, 1998, Aston Hotels &
Resorts had a working capital deficit of $3.6 million and $3.5 million of
outstanding long-term debt.
At March 31, 1998, Aston Hotels & Resorts had guaranteed or co-signed debts
of its former principal stockholder in the aggregate amount of approximately
$16.4 million, which primarily relates to mortgage loans on two hotels managed
by Aston Hotels & Resorts. These debts are fully collateralized with real
estate, cash or cash equivalents, including shares of Common Stock, pledged
either to the lenders of such debt or Aston Hotels & Resorts to secure such
debt. The former principal stockholder also has agreed to cause Aston Hotels &
Resorts' guarantee of such debt to be released as soon as practicable. In
addition, the former principal stockholder at May 26, 1998 was indebted to Aston
Hotels & Resorts in the aggregate amount of $4.0 million after the Combinations.
This debt also is fully collateralized with real estate, cash or cash
equivalents pledged to Aston Hotels & Resorts.
TWELVE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO TWELVE MONTHS ENDED DECEMBER
31, 1996
Revenues. Revenues were flat year over year.
Operating Expenses. Operating expenses decreased approximately $1.5
million, or 14.4%, from $10.4 million in 1996 to $8.9 million in 1997. As a
percentage of revenues, operating expenses decreased from 53.4% in 1996 to 45.6%
in 1997, primarily due to a reduction in salaries, bonuses, and promotional and
marketing expenses.
General and Administrative Expenses. General and administrative expenses in
total and as a percentage of revenues were relatively flat year over year. As a
percentage of revenues, excluding the Compensation Differential of $282,000 in
1996 and 1997, operating income increases from 17.9% to 19.4% in 1996 and from
26.4% to 27.9% in 1997.
Other Income (Expense). Other income (expense) decreased $256,000 or 74.9%
from net expense of $342,000 in 1996 to net expense of $86,000 primarily due to
gain on sale of assets.
Net income. Net income increased approximately $1.9 million or 61.8% from
$3.1 million in 1996 to $5.1 million in 1997, primarily due to items discussed
above.
TWELVE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO TWELVE MONTHS ENDED DECEMBER
31, 1995
Revenues. Revenues increased $412,000, or 2.2%, from $19.0 million in 1995
to $19.5 million in 1996.
Operating Expenses. Operating expenses decreased $149,000, or 1.4%, from
$10.6 million in 1995 to $10.4 million in 1996. As a percentage of net revenues,
operating expenses decreased from 55.4% to 53.4%, primarily due to higher
revenues.
General and Administrative Expenses. General and administrative expenses
increased $140,000, or 2.6%, from $5.4 million in 1995 to $5.6 million in 1996.
As a percentage of revenues, general and administrative expenses increased from
28.5% in 1995 to 28.6% in 1996, primarily due to higher revenues. As a
percentage of revenues, excluding the Compensation Differential of $380,000 and
$282,000 in 1995 and 1996, respectively, operating income increases from 16.1%
to 18.1% in 1995 and from 17.9% to 19.4% in 1996.
Other Income (Expense). Other income (expense) decreased $429,000 or 55.6%
from $771,000 in 1995 to $342,000 in 1996, primarily due to arbitration expenses
incurred in 1995 of $365,000, the gain on sale of assets in 1996 of $394,000 and
additional interest expense in 1996.
30
<PAGE>
Net Income. Net income increased $850,000 or 37.1% from $2.3 million in
1995 to $3.1 million in 1996, primarily due to items discussed above.
Liquidity and Capital Resources
Aston Hotels & Resorts generated cash flows from operating activities of
$5.9 million in 1997 primarily due to $5.1 million of net income from continuing
operations. Aston Hotels & Resorts' cash provided by investing activities was
$346,000 in 1997 and was primarily generated from the proceeds from sale of an
asset of a partnership. As of December 31, 1997, advances to stockholder and
affiliates totaled $9.5 million. Aston Hotels & Resorts' 1997 cash used in
financing activities totaled $6.8 million, which included a $3.6 million
distribution to a stockholder, $2.2 million of advances to affiliates and
stockholder and $960,000 in payments of other long-term obligations. As of
December 31, 1997, Aston Hotels & Resorts had a working capital deficit of $4.6
million, and $5.5 million of outstanding long-term debt, capital leases and net
liabilities of discontinued operations.
Aston Hotels & Resorts has provided guarantees for, or is the cosigner on,
business and personal debts of its principal stockholder, primarily on the two
hotels of the principal stockholder, managed by Aston Hotels & Resorts. At
December 31, 1997, those debts totaled $17.4 million. In addition, Aston Hotels
& Resorts' principal stockholder has personally guaranteed certain of Aston
Hotels & Resorts debt and capital lease obligations. As of December 31, 1997,
the guaranteed obligations totalled $2.8 million.
COLLECTION OF FINE PROPERTIES
Results of Operations
Collection of Fine Properties is a leading provider of vacation property
rentals and management services in the ski and mountain resort town of
Breckenridge, Colorado. Collection of Fine Properties' principal revenue source
for 1997 was property rental fees (82%). The following table sets forth the
combined results of operations for Collection of Fine Properties on a historical
basis and as a percentage of revenues for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1995 1996 1997
--------------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Revenues ................... $3,500 100.0% $4,141 100.0% $4,303 100.0%
Operating expenses ......... 2,621 74.9 2,777 67.1 2,830 65.8
General and administra-
tive expenses ............. 923 26.4 948 22.9 893 20.8
------ ----- ------ ----- ------ -----
Income from operations (44) ( 1.3) 416 10.0 580 13.4
Other income (expense) (13) ( 0.3) 116 2.8 133 3.2
------ ----- ------ ----- ------ -----
Net income ................. $ (57) ( 1.6)% $ 532 12.8% $ 713 16.6%
====== ===== ====== ===== ====== =====
Compensation Differen-
tial ...................... $ 64 $ 74 $ 94
====== ====== ======
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1997 1998
--------------------- ---------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Revenues ................... $2,714 100.0% $2,689 100.0%
Operating expenses ......... 1,021 37.6 930 34.6
General and administra-
tive expenses ............. 238 8.8 224 8.3
------ ----- ------ -----
Income from operations 1,455 53.6 1,535 57.1
Other income (expense) 54 2.0 49 1.8
------ ----- ------ -----
Net income ................. $1,509 55.6% $1,584 58.9%
====== ===== ====== =====
Compensation Differen-
tial ...................... $ 30 $ 21
====== ======
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Revenues. Revenues remained relatively constant at $2.7 million.
Operating Expenses. Operating expenses decreased $91,000, or 8.9%, from
$1.0 million in 1997 to $0.9 million in 1998. This decrease was due to lower
commissions paid in 1998, and the receipt by Collection of Fine Properties of a
marketing credit in 1998, which offset the related expense.
General and Administrative Expenses. General and administrative expenses
remained constant at $0.2 million. As a percentage of revenues, general and
administrative expenses decreased from 8.8% in 1997 to 8.3% in 1998. As a
percentage of revenues, excluding the Compensation Differential of $30,000 and
$21,000 in 1997 and 1998, respectively, operating income increases from 53.6% to
54.7% in 1997 and from 57.1% to 57.9% in 1998.
31
<PAGE>
Other Income (Expense). Other income (expense) remained constant for 1997
and 1998.
Net Income. Net income remained constant at approximately $1.5 million.
Liquidity and Capital Resources
Collection of Fine Properties cash used in operating activities was
$879,000 in 1998, primarily due to a decrease in customer deposits and deferred
revenue which was partially offset by net income of $1.6 million. Cash used in
investing activities was $18,000 in 1998, and was used for the purchases of
property and equipment. Collection of Fine Properties' 1998 cash used in
financing activities totaled $93,000 which included repayments on their line of
credit and notes payable, and distributions to stockholders. As of March 31,
1998, Collection of Fine Properties had working capital of $1.1 million and had
$923,000 of long-term debt outstanding. In addition, at March 31, 1998,
Collection of Fine Properties had $750,000 available under its line of credit.
TWELVE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO TWELVE MONTHS ENDED DECEMBER
31, 1996
Revenues. Revenues increased $162,000, or 3.9%, from $4.1 million in 1996
to $4.3 million in 1997, primarily due to an increase in property rental fees
resulting primarily from higher average rental rates.
Operating Expenses. Operating expenses remained relatively constant at $2.8
million. As a percentage of revenues, operating expenses decreased from 67.1% in
1996 to 65.8% in 1997, primarily due to slightly higher revenues.
General and Administrative Expenses. General and administrative expenses
decreased $55,000, or 5.8%, from $948,000 in 1996 to $893,000 in 1997. As a
percentage of revenues, general and administrative expenses decreased from 22.9%
in 1996 to 20.8% in 1997. As a percentage of revenues, excluding the
Compensation Differential of $74,000 and $94,000 in 1996 and 1997, respectively,
operating income increases from 10.0% to 11.8% in 1996 and from 13.4% to 15.7%
in 1997.
Other Income (Expense). Other income (expense) remained constant for 1996
and 1997.
Net Income. Net income increased $181,000, or 34.0%, from $532,000 in 1996
to $713,000 in 1997, primarily due to items discussed above.
TWELVE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO TWELVE MONTHS ENDED DECEMBER
31, 1995
Revenues. Revenues increased $641,000, or 18.3%, from $3.5 million in 1995
to $4.1 million in 1996, primarily due to an increase in management fees
resulting primarily from higher occupancy.
Operating Expenses. Operating expenses increased $156,000, or 6.0%, from
$2.6 million in 1995 to $2.8 million in 1996. As a percentage of revenues,
operating expenses decreased from 74.9% in 1995 to 67.1% in 1996, primarily due
to increased revenues.
General and Administrative Expenses. General and administrative expenses
increased $25,000, or 2.7%, from $923,000 in 1995 to $948,000 in 1996. As a
percentage of revenues, general and administrative expenses decreased from 26.4%
in 1995 to 22.9% in 1996 primarily due to increased revenues. As a percentage of
revenues, excluding the Compensation Differential of $64,000 and $74,000 in 1995
and 1996, respectively, operating income increases from (1.3)% to 0.6% in 1995
and from 10.0% to 11.8% in 1996.
Other Income (Expense). Other income (expense) increased $129,000 from
$(13,000) in 1995 to $116,000 in 1996 primarily due to reduction of various
costs incurred.
Net Income. Net income increased $589,000 from a loss of $57,000 in 1995 to
income of $532,000 in 1996, primarily due to items discussed above.
Liquidity and Capital Resources
Collection of Fine Properties generated cash flows from operating
activities of $1,204,000 in 1997 primarily due to $713,000 of net income. Cash
used in investing activities by Collection of Fine Properties was $136,000 in
1997 and was primarily used for the purchases of furniture and equipment.
Collection of Fine
32
<PAGE>
Properties' 1997 cash used in financing activities totalled $1,019,000 which
included repayments on their line of credit and notes payable, and distributions
to stockholders. As of December 31, 1997, Collection of Fine Properties had a
working capital deficit of $871,000 and had $299,000 of long-term debt
outstanding. In addition, at December 31, 1997, Collection of Fine Properties
had $653,000 available under its line of credit.
PRISCILLA MURPHY
Results of Operations
Priscilla Murphy is a leading provider of beach vacation property rentals,
management services and sales on the Florida islands of Sanibel and Captiva.
Priscilla Murphy's revenue sources for 1997 were property rental and service
fees (69%) and net real estate brokerage commissions (31%). Priscilla Murphy was
acquired by its current owners in January 1997. The following table sets forth
the results of operations for Priscilla Murphy and its predecessor on a
historical basis and as a percentage of revenues for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1995 1996 1997
--------------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Revenues ......................... $4,316 100.0% $4,721 100.0% $4,740 100.0%
Operating expenses ............... 1,319 30.6 1,314 27.8 1,184 25.0
General and administrative ex-
penses .......................... 2,257 52.3 2,125 45.0 1,866 39.4
------ ----- ------ ----- ------ -----
Income from operations ........... 740 17.1 1,282 27.2 1,690 35.6
Other income (expense) ........... 112 2.6 121 2.5 (182) ( 3.8)
------ ----- ------ ----- ------ -----
Net income ....................... $ 852 19.7% $1,403 29.7% $1,508 31.8%
====== ===== ====== ===== ====== =====
Compensation Differential ........ $ 250 $ 320 $ 31
====== ====== ======
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------------------
1997 1998
------------------ ---------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Revenues ......................... $1,959 100.0% $2,275 100.0%
Operating expenses ............... 283 14.4 318 14.0
General and administrative ex-
penses .......................... 485 24.8 635 27.9
------ ----- ------ -----
Income from operations ........... 1,191 60.8 1,322 58.1
Other income (expense) ........... (22) (1.1) 36 1.6
------ ----- ------ -----
Net income ....................... $1,169 59.7% $1,358 59.7%
====== ===== ====== =====
Compensation Differential ........ $ 8 $ 29
====== ======
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Revenues. Revenues increased $316,000 or 16.1% from $2.0 million in 1997 to
$2.3 million in 1998. The increase is attributable to an increase in real estate
commissions from more closings in the period and an increase in service fees due
to new services provided in 1998.
Operating Expenses. Operating expenses remained constant at $300,000. As a
percentage of revenues, operating expenses decreased from 14.4% in 1997 to 14.0%
in 1998, primarily due to better cost control measures since the acquisition,
resulting in lower salaries and benefits.
General and Administrative Expenses. General and administrative expenses
increased $150,000, or 30.9%, from $485,000 in 1997 to $635,000 in 1998. As a
percentage of revenues, general and administrative expenses increased from 24.8%
in 1997 to 27.9% in 1998, primarily due to increases in employee salaries and
benefits. As a percentage of revenues, excluding the Compensation Differential
of $8,000 and $29,000 in 1997 and 1998, respectively, operating income increases
from 60.8% to 61.2% in 1997 and from 58.1% to 59.4% in 1998.
Other Income (Expense). Other income (expense) increased $58,000 from
$(22,000) in 1997 to $36,000 in 1998 primarily due to interest earned on
increased cash deposits.
Net Income. Net income increased $189,000, or 16.0%, from $1.2 million in
1997 to $1.4 million in 1998, primarily due to items discussed above.
Liquidity and Capital Resources
Priscilla Murphy generated cash flows from operating activities of $1.4
million in 1998, primarily due to $1.4 million of net income. Cash used in
investing activities by Priscilla Murphy was $54,000 in 1998. Priscilla Murphy's
1998 cash from financing activities totalled $134,000. At March 31, 1998,
Priscilla Murphy had working capital of $1.4 million, and had $4.1 million of
long-term debt outstanding.
33
<PAGE>
TWELVE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO TWELVE MONTHS ENDED DECEMBER
31, 1996
Revenues. Revenues were relatively flat year over year.
Operating Expenses. Operating expenses decreased $130,000, or 9.9%, from
$1.3 million in 1996 to $1.2 million in 1997, primarily due to improved cost
control resulting in lower salaries and benefits. As a percentage of revenues,
operating expenses decreased from 27.8% in 1996 to 25.0% in 1997, primarily due
to lower costs.
General and Administrative Expenses. General and administrative expenses
decreased $259,000, or 12.2%, from $2.1 million in 1996 to $1.9 million in 1997.
As a percentage of revenues, general and administrative expenses decreased from
45.0% in 1996 to 39.4% in 1997. As a percentage of revenues, excluding the
Compensation Differential of $320,000 and $31,000 in 1996 and 1997,
respectively, operating income increases from 27.2% to 33.9% in 1996 and from
35.6% to 36.3% in 1997.
Other Income (Expense). Other income (expense) decreased $303,000 or 250.4%
from income of $121,000 in 1996 to net expense of $182,000 in 1997 primarily due
to increase of outstanding debt and interest incurred thereon.
Net income. Net income increased $105,000 or 7.5%, from $1.4 million in
1996 to $1.5 million in 1997, primarily due to items discussed above.
TWELVE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO TWELVE MONTHS ENDED DECEMBER
31, 1995
Revenues. Revenues increased $405,000, or 9.4%, from $4.3 million in 1995
to $4.7 million in 1996, primarily due to an increase in commissions on real
estate sales resulting from the increased number of vacation properties sold and
slightly higher property rental fees resulting primarily from higher average
rental rates.
Operating Expenses. Operating expenses were flat year over year. As a
percentage of revenues, operating expenses decreased from 30.6% in 1995 to 27.8%
in 1996, primarily due to higher revenues.
General and Administrative Expenses. General and administrative expenses
decreased $132,000, or 5.8%, from $2.3 million in 1995 to $2.1 million in 1996.
As a percentage of revenues, general and administrative expenses decreased from
52.3% in 1995 to 45.0% in 1996. As a percentage of revenues, excluding the
Compensation Differential of $250,000 and $320,000 in 1995 and 1996,
respectively, operating income increases from 17.1% to 22.9% in 1995 and from
27.2% to 33.9% in 1996.
Other Income (Expense). Other income (expense) remained constant for 1995
and 1996.
Net Income. Net income increased $551,000 or 64.7% from $852,000 in 1995 to
$1.4 million in 1996, primarily due to items discussed above.
Liquidity and Capital Resources
Priscilla Murphy generated cash flows from operating activities of $1.9
million in 1997, primarily due to $1.5 million of net income and $203,000 of
non-cash depreciation expense. Cash used in investing activities by Priscilla
Murphy was $5.8 million in 1997 and was used for the January 1997 acquisition.
Priscilla Murphy's 1997 cash from financing activities totalled $4.8 million,
which included $5.8 million in bank financing for the acquisition, offset by
$1.2 million in long-term debt repayments. At December 31, 1997, Priscilla
Murphy had a working capital deficit of $105,000, and had $3.9 million of
long-term debt outstanding.
COASTAL RESORTS
Results of Operations
Coastal Resorts is a leading provider of beach vacation property rentals,
management services and sales in the Bethany Beach area of Delaware. Coastal
Resorts' revenue sources for 1997 were net real estate commissions (35.1%),
property rental and service fees (52.1%) and other (12.8%). The following table
sets forth the combined results of operations for Coastal Resorts on a
historical basis and as a percentage of revenues for the periods indicated.
34
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------------------- -------------------------------------------
1996 1997 1997 1998
--------------------- --------------------- --------------------- ---------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Revenues ....................... $2,097 100.0% $3,615 100.0% $424 100.0% $577 100.0%
Operating expenses ............. 1,017 48.5 1,788 49.5 296 69.8 435 75.4
General and administrative
expenses ...................... 477 22.7 644 17.8 144 34.0 158 27.4
------ ----- ------ ----- ---- ----- ---- -----
Income from operations ......... 603 28.8 1,183 32.7 (16) ( 3.8) (16) ( 2.8)
Other income (expense) ......... 121 5.8 (47) ( 1.3) -- -- -- --
Income tax provision ........... 304 14.5 -- -- -- -- -- --
------ ----- ------ ----- ---- ----- ---- -----
Net income ..................... $ 420 20.1% $1,136 31.4% ($ 16) ( 3.8)% ($ 16) ( 2.8)%
====== ===== ====== ===== ==== ===== ==== =====
Compensation Differential. $ -- $ -- $ -- $ --
====== ====== ==== ====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Revenues. Revenues increased $153,000, or 36.1%, from $424,000 in 1997 to
$577,000 in 1998, primarily due to an increase in real estate brokerage
commissions resulting from the increased number of vacation properties sold, and
increased service fees due to a higher number of properties under management and
higher occupancy.
Operating Expenses. Operating expenses increased $139,000, or 47.0%, from
$296,000 in 1997 to $435,000 in 1998. As a percentage of revenues, operating
expenses increased from 69.8% in 1997 to 75.4% in 1998, primarily due to higher
property rental activities.
General and Administrative Expenses. General and administrative expenses
remained relatively constant. As a percentage of revenues, general and
administrative expenses decreased from 34.0% in 1997 to 27.4% in 1998, primarily
due to the increased revenues in 1998. There were no Compensation Differentials
for this period in 1997 or 1998.
Net Loss. Net loss remained constant for 1997 and 1998 at $(16,000).
Liquidity and Capital Resources
Coastal Resorts used cash in operating activities of $260,000 in 1998
primarily due to an increase in accounts receivables and cash held in escrow.
Coastal Resorts' 1998 cash from financing activities totaled $1.1 million,
primarily due to a decrease in receivables from related parties. At March 31,
1998, Coastal Resorts had working capital of $1.0 million and no long-term debt
outstanding.
TWELVE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO TWELVE MONTHS ENDED DECEMBER
31, 1996
Revenues. Revenues increased $1.5 million, or 72.4%, from $2.1 million in
1996 to $3.6 million in 1997, primarily due to an increase in service fees due
to a higher number of properties under management and higher occupancy.
Operating Expenses. Operating expenses increased $771,000, or 75.8%, from
$1.0 million in 1996 to $1.8 million in 1997. As a percentage of revenues,
operating expenses increased from 43.7% in 1996 to 49.5% in 1997, primarily due
to higher property rental activities.
General and Administrative Expenses. General and administrative expenses
increased $167,000, or 35.0%, from $477,000 in 1996 to $644,000 in 1997. As a
percentage of revenues, general and administrative expenses decreased from 24.9%
in 1996 to 17.8% in 1997, primarily due to the significant increase in net
revenue in 1997. There were no Compensation Differentials for this period in
1996 or 1997.
Other Income (Expense). Other income (expense) decreased $168,000 or 138.8%
from $121,000 in 1996 to $(47,000) in 1997 primarily due to payments received on
interest bearing receivable accounts in 1996 and the assumption of additional
debt in 1997.
35
<PAGE>
Income Tax Provision. Coastal Resorts Management, Inc., which is an S
corporation, and Coastal Resorts Realty L.L.C., which is taxed as a partnership,
acquired the operations from certain predecessor companies, which were C
corporations, in December 1996. Accordingly, there was a reduction of $304,000,
or 100% in income tax provision.
Net Income. Net income increased $716,000 or 170.5% from $420,000 in 1996
to $1.1 million in 1997, primarily due to items discussed above.
Liquidity and Capital Resources
Coastal Resorts generated cash flows from operating activities of $1.3
million in 1997, primarily due to $1.1 million in net income offset by a $1.1
million increase in receivables from related parties. Cash used in investing
activities by Coastal Resorts was $146,000 in 1997 and was primarily used to
purchase furniture and equipment. Coastal Resorts' 1997 cash used in financing
activities totalled $995,000. At December 31, 1997, Coastal Resorts had working
capital of $980,000 and had a $715,000 note payable to a related party which was
repaid.
TRUPP-HODNETT ENTERPRISES
Results of Operations
Trupp-Hodnett Enterprises is the leading provider of beach vacation
property rentals, management services and sales on the island of St. Simons, off
the coast of Georgia. Trupp-Hodnett Enterprises' revenue sources for 1997 were
property rental and service fees (78%) and real estate sales commissions (22%).
The following table sets forth the results of operations for Trupp-Hodnett
Enterprises on a historical basis and as a percentage of revenues for the
periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------------------- -----------------------------------------
1996 1997 1997 1998
--------------------- --------------------- ------------------- ---------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Revenues .......................... $3,431 100.0% $4,061 100.0% $767 100.0% $1,254 100.0%
Operating expenses ................ 1,652 48.1 1,838 45.3 388 50.6 519 41.4
General and administrative ex-
penses ........................... 1,653 48.2 2,024 49.8 354 46.1 650 51.8
------ ----- ------ ----- ---- ----- ------ -----
Income from operations ............ 126 3.7 199 4.9 25 3.3 85 6.8
Other income (expense) ............ (19) ( 0.6) 47 1.2 36 4.7 -- --
Income tax provision .............. 12 0.3 60 1.5 17 2.2 21 1.7
------ ----- ------ ----- ---- ----- ------ -----
Net income ........................ $ 95 2.8% $ 186 4.6% $ 44 5.8% $ 64 5.1%
====== ===== ====== ===== ==== ===== ====== =====
Compensation Differential ......... $ 865 $1,143 $ 74 $ 463
====== ====== ==== ======
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Revenues. Revenues increased $487,000, or 63.5%, from $767,000 in 1997 to
$1.3 million in 1998, primarily due to an increase in real estate brokerage
commissions resulting from the increased number of vacation properties sold, and
an increase in property rental fees resulting primarily from higher average
rental rates.
Operating Expenses. Operating expenses increased $131,000, or 33.8%, from
$388,000 in 1997 to $519,000 in 1998. As a percentage of revenues, operating
expenses decreased from 50.6% in 1997 to 41.4% in 1998. This increase was
primarily due to relatively constant level of salaries, commissions and other
expenses, while reserves increased.
General and Administrative Expenses. General and administrative expenses
increased $296,000, or 83.6%, from $354,000 in 1997 to $650,000 in 1998,
primarily due to increased salaries and benefits. As a percentage of revenues,
general and administrative expenses increased from 46.1% in 1997 to 51.8% in
1998. As a percentage of revenues, excluding the Compensation Differential of
$74,000 and $463,000 in 1997 and 1998, respectively, operating income increases
from 3.3% to 12.9% in 1997 and from 6.8% to 43.7% in 1998.
36
<PAGE>
Other Income (Expense). Other income (expense) decreased $36,000, or 100%
from $36,000 in 1997 to $0 in 1998, primarily due to gain on sale of assets
realized in 1997.
Net Income. Net income remained constant for 1997 and 1998.
Liquidity and Capital Resources
Trupp-Hodnett Enterprises' cash used in operating activities was $99,000 in
1998, primarily due to the increase in cash held in trust and accounts
receivable. Cash used in investing activities by Trupp-Hodnett Enterprises was
$49,000 in 1998 and was primarily used for the purchase of property and
equipment. Trupp-Hodnett Enterprises' 1998 cash provided by financing activities
totalled $32,000 which related to proceeds from short-term debt. At March 31,
1998, Trupp-Hodnett Enterprises had working capital of $302,000 and had no
long-term debt outstanding. In addition, Trupp-Hodnett Enterprises had $130,000
in unused lines of credits.
TWELVE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO TWELVE MONTHS ENDED DECEMBER
31, 1996
Revenues. Revenues increased $630,000, or 18.4%, from $3.4 million in 1996
to $4.1 million in 1997, primarily due to an increase in real estate brokerage
commissions resulting from the increased number of vacation properties sold and
an increase in property rental fees resulting primarily from higher average
rental rates.
Operating Expenses. Operating expenses increased $186,000, or 11.3%, from
$1.7 million in 1996 to $1.8 million in 1997. As a percentage of revenues,
operating expenses decreased from 48.1% in 1996 to 45.3% in 1997, primarily due
to higher revenues and higher average rental rates.
General and Administrative Expenses. General and administrative expenses
increased $371,000, or 22.4%, from $1.7 million in 1996 to $2.0 million in 1997.
As a percentage of revenues, general and administrative expenses increased from
48.2% in 1996 to 49.8% in 1997. As a percentage of revenues, excluding the
Compensation Differential of $865,000 and $1.1 million in 1996 and 1997,
respectively, operating income increases from 3.7% to 28.9% in 1996 and from
4.9% to 33.0% in 1997.
Other Income (Expense). Other income (expense) increased $66,000 from
$(19,000) in 1996 to $47,000 in 1997, primarily due to gain on sale of assets
realized in 1997.
Net Income. Net income increased $91,000 or 95.8% from $95,000 in 1996 to
$186,000 in 1997, primarily due to items discussed above.
Liquidity and Capital Resources
Trupp-Hodnett Enterprises generated cash flows from operating activities of
$314,000 in 1997 primarily due to $186,000 of net income and non-cash
depreciation expense of $85,000. Cash used in investing activities by
Trupp-Hodnett Enterprises was $74,000 in 1997 and was primarily used for the
purchase of property and equipment. Trupp-Hodnett Enterprises' 1997 cash used in
financing activities totalled $91,000, which included borrowings and repayments
to banks and distributions to stockholders. At December 31, 1997, Trupp-Hodnett
Enterprises had a working capital surplus of $265,000 and had no long-term debt
outstanding. In addition, Trupp-Hodnett Enterprises had $130,000 in unused lines
of credits.
BRINDLEY & BRINDLEY
Results of Operations
Brindley & Brindley is a leading provider of beach vacation property
rentals, management services and sales on the Outer Banks of North Carolina.
Brindley & Brindley's revenue sources for 1997 were property rental and services
fees (90%) and net real estate brokerage commissions (10%). Brindley & Brindley
currently manages approximately 450 rental units. Located exclusively in
Corolla, North Carolina, Brindley & Brindley offers large, upscale homes
well-suited for multiple or extended families.
37
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1997
----------------------------------------------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Revenues .......................... $4,021 100.0%
Operating expenses ................ 3,028 75.3
General and administrative ex-
penses ........................... 482 12.0
------ -----
Income from operations ............ 511 12.7
Other income (expense) ............ 42 1.0
------ -----
Net income (loss) ................. $ 553 13.7%
====== =====
Compensation Differential ......... $ 69
======
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------------------------
1997 1998
----------------------- -----------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Revenues .......................... $ 269 100.0% $ 257 100.0%
Operating expenses ................ 412 153.2 678 263.8
General and administrative ex-
penses ........................... 128 47.6 123 47.9
------ ------ ------ ------
Income from operations ............ (271) (100.8) (544) (211.7)
Other income (expense) ............ -- -- 16 6.2
------ ------ ------ ------
Net income (loss) ................. $ (271) (100.8)% $ (528) (205.5)%
====== ====== ====== ======
Compensation Differential ......... $ -- $ --
====== ======
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Revenues. Revenues remained constant at $300,000.
Operating Expenses. Operating expenses increased $266,000 or 64.6%, from
$412,000 in 1997 to $678,000 in 1998. As a percentage of revenues, operating
expenses increased from 153.2% in 1997 to 263.8% in 1998, primarily due to
increased salaries and benefits.
General and Administrative Expenses. General and administrative expenses
remained relatively constant at $100,000. As a percentage of revenues, general
and administrative expenses increased from 47.6% to 47.9%, due to an increase in
salaries and benefits. There were no Compensation Differentials for this period
in 1997 or 1998.
Other Income (Expense). Other income (expense) increased $16,000, or 100%,
from $0 in 1997 to $16,000 in 1998, primarily due to interest income earned.
Net Loss. Net loss increased $257,000 or 94.8% from $271,000 in 1997 to
$528,000 in 1998, primarily due to items discussed above.
Liquidity and Capital Resources
Brindley & Brindley generated cash from operating activities of $680,000 in
the three months ended March 31, 1998. Cash used in investing activities of
$34,000 in 1998 resulted primarily from purchases of property and equipment. In
1998, cash used in financing activities was $162,000, primarily as a result of
distrubutions to stockholders. At March 31, 1998, Brindley & Brindley had a
working capital deficit of $698,000.
TWELVE MONTHS ENDED DECEMBER 31, 1997
Revenues. Revenues of $4.0 million were comprised of $2.6 million (65%)
related to rental operations, $1.0 million (25%) related to services, and
$401,000 (10%) related to real estate commissions.
Operating Expenses. Operating expenses were primarily comprised of salaries
and benefits for cleaning and maintenance personnel, and cleaning supplies and
other similar costs.
General and Administrative Expenses. General and administrative expenses
include rent and salaries and benefits for support staff and managerial
personnel.
Liquidity and Capital Resources
Brindley & Brindley generated cash flows from operating activities of
$581,000, which was primarily due to net income of $553,000 in 1997. Cash flows
used in investing activities by Brindley & Brindley of $83,000 in 1997 were
primarily used for purchases of property and equipment. Brindley & Brindley's
1997 cash used in financing activities totalled $508,000 which included $527,000
in distributions to stockholders. At December 31, 1997, Brindley & Brindley had
a working capital deficit of $4,000 and had $22,000 of long-term debt
outstanding.
38
<PAGE>
FIRST RESORT SOFTWARE
Results of Operations
First Resort is the leading provider of software services to vacation
rental and property management companies. First Resort allows vacation rental
and property management companies to automate and computerize the three key
areas of the vacation rental and property management business: reservations,
rental management and owner accounting. First Resort's primary revenue sources
for 1996 were software sales (46%) and software service (49%). First Resort also
offers additional modules and interfaces, including a work order generator,
activities management system, credit card interface and world wide web-enabled
reservations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1997
----------------------------------------------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Revenues .................................... $2,864 100.0%
Operating expenses .......................... 1,704 59.5
General and administrative expenses ......... 417 14.6
------ -----
Income from operations ...................... 743 25.9
Other income (expense) ...................... 25 0.9
------ -----
Net income .................................. $ 768 26.8%
====== =====
Compensation Differential ................... $ (42)
======
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------------------
1997 1998
------------------- -------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Revenues .................................... $578 100.0% $828 100.0%
Operating expenses .......................... 374 64.7 448 54.1
General and administrative expenses ......... 96 16.6 126 15.2
---- ----- ---- -----
Income from operations ...................... 108 18.7 254 30.7
Other income (expense) ...................... 7 1.2 8 0.9
---- ----- ---- -----
Net income .................................. $115 19.9% $262 31.6%
==== ===== ==== =====
Compensation Differential ................... $ -- $ --
==== ====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Revenues. Revenues increased $250,000, or 43.2%, from $578,000 in 1997 to
$828,000 in 1998. This increase was due to increased sales of new management
systems, along with increased sales of support agreements and consulting
services to existing clients.
Operating Expenses. Operating expenses increased $74,000, or 19.8% from
$374,000 in 1997 to $448,000 in 1998, primarily due to increased advertising
expenses. As a percentage of revenues, operating expenses declined from 64.7% to
54.1% primarily due to increased revenues.
General and Administrative Expenses. General and administrative expenses
remained relatively constant at $100,000. As a percentage of revenues, general
and administrative expenses decreased from 16.6% to 15.2%. There were no
Compensation Differentials for this period in 1997 or 1998.
Other Income (Expense). Other income (expense) remained constant for 1997
and 1998.
Net Income. Net income increased $147,000 or 127.8% from $115,000 in 1997
to $262,000 in 1998, primarily due to items discussed above.
Liquidity and Capital Resources
First Resort generated cash flows from operating activities of $409,000 in
the three months ended March 31, 1998. Cash used in investing activities was
approximately $37,000 in 1998, principally for purchases of property and
equipment. Cash used in financing activities was $290,000 in 1998, including
payments on line-of-credit of $125,000 and net distributions to stockholders of
$165,000. At March 31, 1998, First Resort had a working capital deficit of
$92,000 and no long-term debt outstanding.
TWELVE MONTHS ENDED DECEMBER 31, 1997
Revenues. Revenues of $2.9 million were comprised of $1.3 million (45%)
related to software sales, $1.4 million (48%) related to services and $156,000
(7%) related to other revenues.
Operating Expenses. Operating expenses are primarily comprised of salaries,
commissions and benefits for sales people.
General and Administrative Expenses. General and administrative expenses
include salaries and benefits for support staff and managerial personnel, and
include rent expense.
39
<PAGE>
Liquidity and Capital Resources
First Resort generated cash flows from operating activities of $805,000,
which was primarily due to net income of $768,000 in 1997. Cash used in
investing activities by First Resort was $183,000 in 1997 and was primarily used
for purchases of property and equipment. First Resort's 1997 cash used in
financing activities totaled $606,000 which included $567,000 in distributions
to stockholders. At December 31, 1997, First Resort had a working capital
deficit of $39,000 and no long-term debt outstanding.
HOUSTON AND O'LEARY
Results of Operations
Houston and O'Leary is a leading provider of luxury vacation property
rentals and sales in the mountain resort town of Aspen, Colorado. Houston and
O'Leary's principal revenue sources for 1997 were real estate brokerage
commissions (73%) and property rental fees (19%). Currently, Houston and O'Leary
provides non-exclusive rental services for 127 rental units. Houston and
O'Leary's rental and sale properties consist primarily of unique, free-standing
houses, ranging from smaller two-bedroom cottages located in Aspen proper to
10,000-plus square foot ranch-style houses overlooking Aspen.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1997
----------------------------------------------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Revenues .................................... $1,596 100.0%
Operating expenses .......................... 494 31.0
General and administrative expenses ......... 322 20.2
------ -----
Income from operations ...................... 780 48.8
Other income (expense) ...................... (15) 0.9
------ -----
Net income .................................. $ 765 47.9%
====== =====
Compensation Differential ................... $ 58
======
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------------------------
1997 1998
---------------------- ----------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Revenues .................................... $484 100.0% $421 100.0%
Operating expenses .......................... 5 1.0 3 0.7
General and administrative expenses ......... 173 35.8 324 77.0
---- ----- ---- -----
Income from operations ...................... 306 63.2 94 22.3
Other income (expense) ...................... (5) ( 1.0) (5) ( 1.2)
------ ----- ------ -----
Net income .................................. $301 62.2% $89 21.1%
===== ===== ===== =====
Compensation Differential ................... $15 $29
===== =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Revenues. Revenues decreased $63,000 or 13.0% from $484,000 in 1997 to
$421,000 in 1998 primarily due to timing of real estate sales.
General and Administrative Expenses. General and administrative expenses
increased $151,000, or 87.3%, from $173,000 in 1997 to $324,000 in 1998. As a
percentage of revenues, general and administrative expenses increased from 35.8%
in 1997 to 77.0% in 1998. The increase was primarily due to salary and benefit
increases and increased professional fees. As a percentage of revenues,
excluding the Compensation Differential of $15,000 and $29,000 in 1997 and 1998,
respectively, operating income increases from 63.2% to 66.3% in 1997 and 22.3%
to 29.2% in 1998.
Other Income (Expense). Other income (expense) remained constant for 1997
and 1998.
Net Income. Net income decreased $212,000 or 70.4% from $301,000 in 1997 to
$89,000 primarily due to items discussed above.
Liquidity and Capital Resources
Houston and O'Leary generated cash flows from operating activities of
$35,000, which was primarily due to $89,000 in net income offset by a decrease
in deferred revenue for the three months ended March 31, 1998. Cash generated
from investing activities was $86,000 in 1998 primarily from the sale of
property and equipment. Cash used in financing activities was $172,000 in 1998,
which was primarily due to payments on long-term debt. At March 31, 1998,
Houston and O'Leary had working capital of $107,000 and no long-term debt.
40
<PAGE>
TWELVE MONTHS ENDED DECEMBER 31, 1997
Revenues. Revenues of $1.6 million were comprised of $298,000 (19%) related
to rental operations, $1.2 million (75%) related to services and real estate
commissions, and $128,000 (6%) related to other revenues.
Operating Expenses. Operating expenses are primarily comprised of salaries
for operational personnel.
General and Administrative Expenses. General and administrative expenses
are primarily related to rent expense.
Liquidity and Capital Resources
Houston and O'Leary generated cash flows from operating activities of
$811,000, which was primarily due to net income of $765,000 in 1997. Cash used
in investing activities by Houston and O'Leary was $57,000 in 1997 and was
primarily used for purchases of property and equipment. Houston and O'Leary's
1997 cash financing activities totalled $672,000, which was primarily related to
distributions to stockholders. At December 31, 1997, Houston and O'Leary had
working capital of $28,000 and no long-term debt outstanding.
THE MAURY PEOPLE
Results of Operations
The Maury People is a leading provider of beach vacation property rentals
and sales on the island of Nantucket off the coast of Massachusetts. The Maury
People's revenue sources for 1997 were net real estate brokerage commissions
(70%) and net property rental and service fees (30%). Currently, The Maury
People provides non-exclusive rental services for approximately 1,200 rental
homes, ranging from in-town residences to cottages and large, upscale ocean and
harbor-front homes.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
---------------------------------------- ---------------------------------------
1997 1997 1998
---------------------------------------- ------------------- -------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Revenues .......................... $1,183 100.0% $370 100.0% $338 100.0%
Operating expenses ................ 211 17.8 57 15.4 66 19.5
General and administrative ex-
penses ........................... 682 57.7 100 27.0 195 57.7
------ ----- ---- ----- ---- -----
Income from operations ............ 290 24.5 213 57.6 77 22.8
Other income (expense) ............ 28 2.4 2 0.5 2 0.6
------ ----- ---- ----- ---- -----
Net income ........................ $ 318 26.9% $215 58.1% $ 79 23.4%
====== ===== ==== ===== ==== =====
Compensation Differential ......... $ 142 $ 19 $ --
====== ==== ====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Revenues. Revenues decreased $32,000, or 8.6%, from $370,000 in 1997 to
$338,000 in 1998. This decrease was due to timing of real estate sales.
Operating Expenses. Operating expenses remained relatively constant at
$60,000 in both periods. As a percentage of revenues, operating expenses
increased from 15.4% to 19.5%.
General and Administrative Expenses. General and administrative expenses
increased $95,000, or 95.0% from $100,000 in 1997 to $195,000 in 1998. As a
percentage of revenues, general and administrative expenses increased from 27.0%
to 57.7%, due to an increase in leased equipment and rent expense and an
increase in salaries and benefits. As a percentage of revenues, excluding the
Compensation Differential of $19,000 for 1997, operating income increased from
57.6% to 62.7%. There was no Compensation Differential for this period in 1998.
Other Income (Expense). Other income (expense) remained constant for 1997
and 1998.
Net Income. Net income decreased $136,000 or 63.3% from $215,000 in 1997 to
$79,000 in 1998 due to items discussed above.
41
<PAGE>
Liquidity and Capital Resources
The Maury People generated cash from operating activities of $281,000 in
the three months ended March 31, 1998. In the three months ended March 31, 1998,
cash used in financing activities was $188,000, as a result of distributions to
the stockholders. At March 31, 1998, The Maury People had a working capital
deficit of $113,000 and had no long-term debt outstanding.
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
Revenues. Revenues of $1.2 million are comprised of $354,000 (30%) related
to rental operations and $829,000 (70%) related to real estate commissions.
Operating Expenses. Operating expenses are primarily comprised of direct
marketing expenses.
General and Administrative Expenses. General and administrative expenses
include rent and salaries and benefits for support staff and managerial
personnel.
Liquidity and Capital Resources
The Maury People generated cash flows from operating activities of
$373,000, which was primarily due to net income of $318,000 in 1997. Cash used
in investing activities by The Maury People was $77,000 in 1997 and was
primarily used for purchase of property and equipment. The Maury People used
cash in financing activities of $147,000, comprised primarily of distributions
to stockholders. At December 31, 1997, the Maury People had a working capital
deficit of $11,000 and no long-term debt outstanding.
RESORT PROPERTY MANAGEMENT
Results of Operations
Resort Property Management is a leading provider of vacation property
rentals and management services in the Park City, Utah mountain resort area.
Resort Property Management's revenue sources for 1997 were comprised of property
rental and service fees. Resort Property Management currently manages
approximately 330 rental units. Resort Property Management offers a variety of
free-standing homes and condominium units at various resorts throughout the Park
City region, including Deer Valley. A majority of Resort Property Management's
condominium units are located in the town of Park City and range from luxury,
three-bedroom units in the historic town center to smaller, more affordable
units in condominium complexes.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, SIX MONTHS ENDED MARCH 31,
------------------------- -------------------------------------------------
1997 1997 1998
------------------------- ----------------------- -----------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Revenues .................................... $2,295 100.0% $2,042 100.0% $2,018 100.0%
Operating expenses .......................... 1,560 68.0 1,003 49.1 977 48.4
General and administrative expenses ......... 627 27.3 348 17.0 322 15.9
------ ----- ------ ----- ------ -----
Income from operations ...................... 108 4.7 691 33.9 719 35.7
Other income (expense) ...................... 217 9.5 21 1.0 (16) ( 0.8)
Income tax provision ........................ 75 3.3 58 2.8 28 1.4
------ ----- ------ ----- ------ -----
Net income .................................. $ 250 10.9% $ 654 32.0% $ 675 33.5%
====== ===== ====== ===== ====== =====
Compensation Differential ................... $ 186 $ -- $ --
====== ====== ======
</TABLE>
SIX MONTHS ENDED MARCH 31, 1998 COMPARED TO SIX MONTHS ENDED MARCH 31, 1997
Revenues. Revenues remained relatively constant at $2.0 million.
Operating Expenses. Operating expenses remained relatively constant at $1.0
million.
General and Administrative Expenses. General and administrative expenses
remained relatively constant at $300,000. As a percent of revenues, general and
administrative expenses decreased from 17.0% in 1997 to 15.9% in 1998. There
were no Compensation Differentials for this period in 1997 or 1998.
42
<PAGE>
Other Income (Expense). Other income (expense) remained constant for 1997
and 1998.
Net Income. Net income remained constant for 1997 and 1998.
Liquidity and Capital Resources
Resort Property Management generated cash flows from operating activities
of $1.1 million in the six months ended March 31, 1998. Cash used in investing
activities was approximately $192,000 in 1998, for purchases of property and
equipment. In the six months ended March 31, 1998, cash used in financing
activities was $224,000, primarily as a result of payments on debt. At March 31,
1998, Resort Property Management had working capital of $189,000 and $116,000 of
long-term debt outstanding.
TWELVE MONTHS ENDED SEPTEMBER 30, 1997
Revenues. Revenues of $2.3 million are comprised of $1.9 million (83%)
related to rental operations and $365,000 (17%) related to services.
Operating Expenses. Operating expenses are primarily comprised of salaries
and benefits for cleaning and maintenance personnel, and cleaning supplies and
other similar costs.
General and Administrative Expenses. General and administrative expenses
includes rent, salaries and benefits for support staff and managerial personnel.
Liquidity and Capital Resources
Resort Property Management generated cash flows from operating activities
of $46,000, which was primarily due to net income of $250,000, which was offset
by a gain on sale of land of $210,000 in 1997. Cash provided by investing
activities by Resort Property Management was $102,000 in 1997, primarily due to
proceeds from the sale of office equipment, vehicles and land of $335,000, which
was offset by purchases of property and equipment of $179,000. Resort Property
Management's 1997 cash provided by financing activities totalled $32,000,
primarily as a result of net proceeds from long-term debt. At September 30,
1997, Resort Property Management had a working capital deficit of $194,000 and
long-term debt of $310,000 outstanding.
TELLURIDE RESORT ACCOMMODATIONS
Results of Operations
Telluride Resort Accommodations is a leading provider of vacation property
rentals and property management services in the Telluride, Colorado mountain
resort area. Telluride Resorts Accommodations' revenues for 1997 were derived
from property rental and service fees. Telluride Resort Accommodations currently
manages approximately 450 rental units. Telluride Resort Accommodations'
property offerings range from smaller, one-bedroom units in town to large,
luxury condominiums and free-standing homes in Telluride's new Mountain Village.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
----------------------- -------------------------------------------------
1997 1997 1998
----------------------- ----------------------- -----------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Revenues .................................... $4,313 100.0% $2,135 100.0% $2,342 100.0%
Operating expenses .......................... 3,037 70.4 967 45.3 1,066 45.5
General and administrative expenses ......... 1,030 23.9 257 12.0 361 15.4
------ ----- ------ ----- ------ -----
Income from operations ...................... 246 5.7 911 42.7 915 39.1
Other income (expense) ...................... 31 0.7 19 0.9 12 0.5
------ ----- ------ ----- ------ -----
Net income .................................. $ 277 6.4% $ 930 43.6% $ 927 39.6%
====== ===== ====== ===== ====== =====
Compensation Differential ................... $ -- $ -- $ --
====== ====== ======
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Revenues. Revenues increased $207,000, or 9.7%, from $2.1 million in 1997
to $2.3 million in 1998, primarily due to an increase in other revenues.
43
<PAGE>
Operating Expenses. Operating expenses increased $99,000, or 10.2%, from
$1.0 million in 1997 to $1.1 million in 1998. As a percentage of revenues,
operating expenses increased from 45.3% in 1997 to 45.5% in 1998.
General and Administrative Expenses. General and administrative expenses
increased $104,000 or 40.5% from $257,000 in 1997 to $361,000 in 1998. As a
percentage of revenues, general and administrative expenses increased from 12.0%
in 1997 to 15.4% in 1998. This increase resulted from higher salary and wages.
There were no Compensation Differentials for this period in 1997 or 1998.
Other Income (Expense). Other income (expense) remained constant for 1997
and 1998.
Net Income. Net income remained constant for 1997 and 1998.
Liquidity and Capital Resources
Telluride Resort Accommodations used cash in operating activities of
$224,000, which was primarily due to the decrease in customer deposits and
deferred revenue. The decrease was partially offset by $927,000 in net income
for the three months ended March 31, 1998. Cash used in financing activities was
$194,000 for payments on the line of credit. At March 31, 1998, Telluride Resort
Accommodations had working capital of $446,000 and no long-term debt.
TWELVE MONTHS ENDED DECEMBER 31, 1997
Revenues. Revenues of $4.3 million are comprised of $3.2 million (74%)
related to rental operations and $1.1 million (26%) related to services.
Operating Expenses. Operating expenses are primarily comprised of salaries
and benefits for cleaning and maintenance personnel, and includes marketing
expenses.
General and Administrative Expenses. General and administrative expenses
include salaries and benefits for support staff and managerial personnel.
Liquidity and Capital Resources
Telluride Resort Accommodations generated cash flows from operating
activities of $721,000, which was primarily due to an increase in accounts
payable and accrued liabilities of $299,000 and net income of $277,000 in 1997.
Cash used in investing activities was $25,000 in 1997 and was primarily used for
purchase of property and equipment. Telluride Resort Accommodation's 1997 cash
used in financing activities totalled $207,000 due to distributions to
stockholders of $300,000 offset by $93,000 in proceeds from Telluride Resort
Accommodation's line of credit. At December 31, 1997, Telluride had a working
capital deficit of $480,000 and had no long-term debt outstanding.
44
<PAGE>
BUSINESS
GENERAL
RQI was established to create a leading provider of vacation condominium
and home rentals in premier destination resorts throughout the United States.
Through the consolidation of leading vacation rental and property management
companies, the development of a national brand and marketing initiative and best
practices management systems, the Company intends to offer vacationers a branded
network of high quality, fully furnished, privately-owned condominium and home
rentals while offering property owners superior management services designed to
enhance their rental income. Currently, most vacationers seeking to rent a
condominium or home at a popular destination resort must use a local vacation
rental and property management firm to inquire about availability and make
reservations. Vacationers typically make rental choices with limited information
and, as a result, face great uncertainty concerning the quality of their rental.
To address this need, the Company intends to provide vacationers with consistent
quality and service, increased information and easy access to a broad array of
high quality desirable condominium and home rentals in premier destination
resorts.
On May 26, 1998, the Company consummated its initial public offering and
the acquisitions of the Founding Companies which together manage approximately
8,900 condominiums and homes nationwide and in Canada. These condominiums and
homes are located in beach and island resorts such as the Hawaiian Islands;
Bethany Beach, DE; Nantucket, MA; the Outer Banks, NC; Sanibel and Captiva
Islands, FL; and St. Simons Island, GA; and mountain resorts such as Aspen,
Breckenridge and Telluride, CO; Park City, UT, and Whistler, British Columbia.
The Company also manages 11 hotels aggregating approximately 1,650 hotel rooms
located primarily in the Hawaiian Islands.
The Company provides a wide range of services to both vacationers and
property owners. Because of the variety of the Company's resort locations
throughout the United States and Canada and the diversity of rental prices
throughout its rental pool, the Company is able to target a broad range of
vacationers, including families, couples and individuals. For vacationers, the
Company offers the convenience and accommodations of a condominium or home,
while providing many of the amenities and services of a hotel. Vacation
condominium and home rentals generally offer greater space and convenience than
resort hotel rooms, including separate living, sleeping and eating quarters. As
a result, vacationers generally have more privacy and greater flexibility in a
vacation condominium or home. The Company typically offers such services as
convenient check-in and check-out, frequent housekeeping and cleaning and
emergency maintenance assistance. In addition, in most of its markets, the
Company provides specialized concierge-type services such as arranging golf tee
times, purchasing ski lift tickets and making restaurant reservations. For
property owners, the Company offers a comprehensive set of services, including
marketing and rental services, maintenance and security.
The Company's primary source of revenue is property rental fees, which are
charged to the property owners as a percentage of the vacationers' total rental
rate. Fee percentages for vacation condominiums and homes range from
approximately 3% to over 40% of rental rates for the various Founding Companies
depending on the type of services provided to the property owner and the type of
rental unit managed. On a pro forma basis for the year ended December 31, 1997,
the Company generated total revenues of approximately $56.8 million, which
includes $31.0 million of revenues from property rental fees and net income of
$6.9 million. In addition, in many markets, the Company provides traditional
real estate brokerage services for property owners seeking to sell their
condominiums and homes. The Company believes that a national brand and superior
management services, which are designed to enhance rental income for property
owners, will provide it with a competitive advantage in attracting additional
high quality condominiums and homes in its markets.
INDUSTRY OVERVIEW
Destination resort vacationers primarily have three alternatives for
overnight accommodations: commercial lodging establishments, time share resorts
and privately owned vacation condominiums and homes. Commercial lodging consists
principally of hotels and motels in which a room is rented on a nightly or
weekly basis. Vacation ownership or timeshare interests are purchased by the
vacationer and
45
<PAGE>
typically entitle the buyer to use a furnished vacation residence at a
particular resort generally for a one-week period each year, in perpetuity.
Lastly, privately-owned vacation condominiums and homes are typically second
homes available for rent by property owners seeking incremental income. The
total market for vacation condominium, home and apartment rentals, which are
marketed predominantly by vacation rental and property management companies, was
over $10 billion in 1996, representing over 20 million vacation property
rentals. Rental revenues grew 8.7% from 1995 to 1996, and the Company believes
that this growth has been, and will continue to be, driven by two primary
factors: the overall growth in the leisure travel and tourism industry, which
reflected a 16.1% increase in revenues from 1995 to 1997 and the increasing
number of vacationers seeking to rent vacation condominiums and homes.
For many vacationers, particularly those with families, a lengthy stay at a
quality commercial lodging establishment can be expensive. Vacation condominium
and home rentals generally offer families greater space and convenience than a
resort hotel room, including separate living, sleeping and eating quarters. As a
result, families generally have more privacy and greater flexibility in a
vacation condominium or home. Furthermore, with full kitchens available in most
properties, vacationers can also save on dining costs in a vacation condominium
or home rental. In addition, vacation condominium and home rentals frequently
include access to private yards, swimming pools, tennis courts and other
recreational facilities, and generally offer a greater variety of locations,
accommodations and price ranges within a market to meet a vacationer's desires.
Vacation property rentals are also a less expensive and more flexible
alternative to timeshare interests. Unlike vacation property rentals, timeshare
interests require the purchase of an ownership interest in a vacation residence
and continuing annual maintenance payments. A timeshare owner has the right to
use the same vacation residence for the same length of time each year. Subject
to availability and the payment of a membership fee and a variable exchange fee
to join a timeshare exchange program, a timeshare owner may request that his
timeshare interval be exchanged for a timeshare interval at another
participating resort. Owners are generally limited to timeshare intervals at
participating resorts and to those units which have been assigned an equal or
lower rating by the exchange program based on the location, size and quality of
the unit, the quality of the resort and the time of year requested.
Most vacation condominiums and homes are second homes owned by individuals
who reside in different locations and are unable to easily manage the rental
process. Vacation rental and property management companies facilitate the rental
process by handling all interaction with vacationers, including accepting
reservations, rental payments and security deposits; operating check-in and
check-out locations; and arranging for inspections, security and maintenance.
The publishing of catalogs, print advertising and other marketing activities of
a successful vacation rental and property management company also can enhance
the vacation condominium or home's occupancy rate and increase rental income to
the property owner.
The vacation rental and property management industry is highly fragmented,
with an estimated 3,000 vacation rental and property management companies in the
United States. Presently, most vacation rental condominiums and homes are
managed by and booked through local vacation rental and property management
firms, whose principal means of attracting property owners and vacationers is by
referral, word of mouth, limited local advertising and direct mailings. There is
no central reservations service for vacationers or travel agents to obtain
information regarding condominium or home rental opportunities at popular
destination resorts across the country or for booking such rentals once a
destination is selected. As a result, the Company believes the vacation rental
and property management industry is highly inefficient and presents a
significant market opportunity for a well-capitalized company offering a
national network of high quality vacation condominiums and homes with superior
levels of customer service.
BUSINESS STRATEGY
The Company's objective is to enhance its position as a leading provider of
premier destination resort condominium and home rentals by pursuing the
following business strategies:
46
<PAGE>
DEVELOP A NATIONAL BRAND IN PREMIER DESTINATION RESORT CONDOMINIUM AND HOME
RENTALS. The Company intends to create the first national brand in vacation
condominium and home rentals. To date, there has been no national brand for
vacation condominium and home rentals, no industry standards for quality and a
general lack of access to reliable information regarding rental opportunities
for vacationers. By providing an extensive network of high quality condominiums
and homes in premier destination resorts throughout the United States, the
Company intends to increase the information available to vacationers and develop
a brand which provides greater confidence and ease to vacationers in making
their rental arrangements. In order to ensure high quality, the Company intends
to implement a comprehensive quality assurance program which includes the
company-wide rating of individual condominiums and homes to assure vacationers
that rental accommodations will meet their expectations, as well as customer
satisfaction surveys and follow-up calls.
OFFER VACATIONERS SUPERIOR CUSTOMER SERVICE. Management believes that
maintaining superior levels of customer service is critical to developing a
reputation for high quality condominiums and homes and attracting new customers.
Vacationers typically rent vacation condominiums and homes for greater space and
flexibility, but these customers also frequently desire many of the amenities
and services of hotel accommodations. As a result, the Company emphasizes
customer service by offering conveniently located check-in locations, efficient
check-in and check-out procedures, extended front desk hours, a commitment to
clean units and access to emergency contact and maintenance personnel. The
Company also strives to offer maximum flexibility to meet the varied needs of
its vacationers and in most markets can arrange for services such as golf tee
times, rental bicycles, ski lift tickets, grocery delivery or restaurant
reservations. By offering the convenience and accommodations of a condominium or
home while providing many of the amenities and services of a hotel, the Company
believes it will continue to strengthen the loyalty of its existing customers
and attract new vacationers into the vacation condominium and home rental
market.
ENHANCE VALUE FOR CONDOMINIUM AND HOME OWNERS. Through effective national
marketing, a recognized brand and implementation of strategies designed to
increase occupancy and rental rates, the Company plans to enhance the rental
income for vacation condominium and home owners. Since substantially all of the
condominiums and homes managed by the Company are second homes with absentee
owners, the Company offers a range of high quality vacation rental and property
management services designed to meet the broad real estate needs of these
owners. In most markets, the Company will assume broad responsibility for the
condominium or home, from marketing and handling all aspects involved in renting
the individual condominium or home to managing the common properties and
homeowners' association. In addition, the Company provides owners with concise,
timely and accurate monthly statements and payments for the rental and
management of their condominiums and homes. The Company believes that its
reputation for high quality, comprehensive management services will be a key
competitive advantage in increasing the number of condominiums and homes under
its management within its existing markets.
CAPITALIZE ON THE EXPERIENCE OF SENIOR MANAGEMENT. The Company intends to
capitalize on the industry experience of members of its senior management. David
C. Sullivan, the Chairman and Chief Executive Officer is the former Chief
Operating Officer of Promus Hotel Corporation, where he was primarily
responsible for the creation and expansion of the Hampton Inn, Homewood Suites
and Embassy Suites lines. David L. Levine, President and Chief Operating
Officer, is the former President and Chief Operating Officer of Equity Inns,
Inc., a real estate investment trust specializing in hotel acquisitions. Jeffery
M. Jarvis, Senior Vice President and Chief Financial Officer, is the former Vice
President, Controller and Principal Accounting Officer of Promus Hotel
Corporation and Jules S. Sowder, Senior Vice President of Marketing, is the
former Vice President of Marketing of Promus Hotel Corporation. In addition, W.
Michael Murphy will serve as Senior Vice President of Development. Mr. Murphy
has over 20 years experience in the hotel and resort industries, with particular
experience in planning and development.
MAINTAIN LOCAL RELATIONSHIPS AND EXPERTISE. The management teams of the
Founding Companies each have extensive experience in their respective resort
areas, and many of the individuals are very active in the local community. The
Company believes that the management teams have a valuable
47
<PAGE>
understanding of their respective markets and businesses and have developed
strong local relationships. These relationships are critical in attracting
additional condominiums and homes for rental and enable the Company to provide
additional concierge-type services to its vacationers. Accordingly, the Company
intends to operate with a decentralized management strategy and allow local
managers to utilize their knowledge and expertise about the condominiums and
homes available for rent, the offerings of local competitors and the desires of
vacationers in their areas to provide superior customer service.
GROWTH STRATEGY
The Company intends to enhance its position as a leading provider of
vacation condominium and home rentals in premier destination resorts by pursuing
the following growth strategies:
IMPLEMENT A NATIONAL MARKETING STRATEGY. The Company intends to implement a
national marketing program designed to increase vacationer awareness of its
rental condominiums and homes and establish a nationally recognized high quality
name and image, while promoting the unique characteristics of its individual
resorts. In addition, the Company will market to existing customers of the
Founding Companies to capitalize on cross-selling opportunities and increase
customer loyalty. Through its collection of approximately 10,600 beach and
mountain resort rental properties and hotel rooms and the databases of customer
information maintained by the Founding Companies, the Company intends to offer
customers of each Founding Company similar properties and services in its other
resorts. The Company believes the integrated marketing efforts of the Founding
Companies will increase customer awareness of the Company's condominiums and
homes, lead to an increased demand for the Company's rentals and result in
higher occupancy and rental rates for its condominium and home owners. The
Company also believes that the anticipated increase in rental income for owners
will ultimately be a competitive advantage in attracting new property owners.
CAPITALIZE ON TECHNOLOGY. Management believes that investment in technology
will be critical in building its national brand and will create a significant
competitive advantage. The Company intends to utilize the technological
expertise of First Resort, a Founding Company, to enhance the ease and
convenience for vacationers of accessing information and making reservations for
vacation rentals. The Company's strategy is to create a comprehensive web site
that presents all of the Company's condominium, home and hotel room rentals,
including photographs and detailed floor plans, and allows vacationers to make
reservations and payments. Several of the Founding Companies already provide
photographs and rate and availability information for condominiums and homes
over the world wide web, and the Company intends to leverage these capabilities
to implement a central reservation system with world wide web functionality. In
addition to facilitating the ability to provide one-stop shopping, the Company
intends to link the Founding Companies' and future acquired companies' databases
in order to enhance its cross-selling and direct marketing efforts.
INCREASED USE OF ADDITIONAL MARKETING CHANNELS. Currently, most vacationers
locate vacation condominiums and homes through referrals, word-of-mouth, limited
local advertising and direct mailings. The Company believes there are
significant opportunities to expand the use of additional marketing channels.
The Company intends to capitalize on its extensive market presence by increasing
the use of other marketing channels such as the world wide web, travel agents
and national print media, which are difficult for local vacation rental and
property management companies to use in a cost-effective manner. Given the
Company's size and presence in premier destination resorts, the Company believes
it will be an attractive partner to travel agents, tour package operators and
other travel providers. These relationships should be a significant source of
new customers and, in particular, will be a valuable marketing channel for
off-peak seasons. Lastly, the Company plans to focus greater marketing efforts
on European and other international travelers through a more extensive use of
international print media, wholesalers and packaged tour companies.
EXPAND MARKET SHARE OF CONDOMINIUM AND HOME RENTALS IN EXISTING MARKETS. A
key element of the Company's growth strategy is to increase its selection of
condominiums and homes in order to expand its market share and strengthen the
local brands of each of the Founding Companies. The Company intends to attract
new property owners by achieving high occupancy rates through effective national
marketing, cross-selling and by offering additional incentives to property
owners, such as par-
48
<PAGE>
ticipation in a rental exchange program. In addition, in order to capture a
higher portion of the rental business from new condominiums and homes being
built in its markets, the Company will focus on building and strengthening its
relationships with both local and national developers as well as real estate
brokerage companies.
PURSUE OPPORTUNITIES FOR PROFIT MARGIN EXPANSION VIA COST SAVINGS AND
ADDITIONAL REVENUE SOURCES. Through the implementation of best practices, the
Company believes there are numerous opportunities to improve the margins of the
Founding Companies. First, the Company will strive to improve the efficiency of
certain basic services such as reservations, housekeeping and laundry. The
Company also believes that larger inventories of condominiums and homes in its
markets will provide certain economies of scale in advertising, check-in
locations, management, housekeeping and other services. In addition, several of
the Founding Companies have developed unique additional revenue opportunities,
such as assisting property owners in refurbishing their properties, offering
trip cancellation insurance and charging fees for certain concierge-type
services, several of which are adaptable at other Founding Companies. The
Company believes that enhanced efficiency and economies of scale will reduce
overall operating costs and allow the Company to achieve increased margins by
spreading operating and corporate overhead costs over a larger revenue base.
BUILD NATIONAL MARKET PRESENCE THROUGH STRATEGIC ACQUISITIONS. The vacation
rental and property management industry is highly fragmented, with over 3,000
geographically dispersed companies in the United States. The Company believes
that such fragmentation provides significant opportunities for consolidation.
The Company intends to aggressively pursue both domestic and international
acquisitions in order to gain a presence in additional premier destination
resort locations as well as expand its market share in existing resorts. The
Company will seek companies with strong reputations and a commitment to high
quality condominiums and homes and customer service. While the Company will seek
to acquire the leading companies in each new market, the Company also plans to
pursue tuck-in acquisitions through which it can expand its selection of
condominiums and homes available for rent in its existing markets. Many
acquisition candidates utilize First Resort's software, which the Company
believes will enhance its ability to integrate such companies upon acquisition.
The Company expects to offer acquisition candidates: (i) affiliation with a
national brand; (ii) the ability to cross-sell to customers of other vacation
rental and property management companies; (iii) the ability to increase
liquidity as a result of the Company's financial strength as a public company;
and (iv) the ability to increase profitability as a result of the Company's
centralization of certain administrative functions and other economies of scale.
MARKETS
The Company currently manages condominiums and homes in many popular beach
and mountain resorts in the United States and Canada. Through the implementation
of its acquisition strategy, the Company plans to establish an international
network of vacation condominiums and homes in every major type of premier
destination resort market, including beach, mountain, golf and tennis resorts.
49
<PAGE>
The following table sets forth certain information regarding the Founding
Companies, with the exception of First Resort, at January 31, 1998:
<TABLE>
<CAPTION>
DATE NUMBER OF NUMBER OF
FOUNDED(1) CONDOMINIUMS(2) HOMES TOTAL UNITS
------------- ----------------- ---------- -----------------
<S> <C> <C> <C> <C>
BEACH AND ISLAND RESORTS
HAWAII
Aston Hotels & Resorts .................. 1948 4,771 1 4,772
Maui Condominium and Home ............... 1988 430 2 432
THE OUTER BANKS, NC
Brindley & Brindley ..................... 1985 49 397 446
BETHANY BEACH, DE
Coastal Resorts ......................... 1982 545 4 549
NANTUCKET, MA
The Maury People(3) ..................... 1969 -- 1,200 1,200
SANIBEL AND CAPTIVA ISLANDS, FL
Priscilla Murphy Realty ................. 1955 669 233 902
ST. SIMONS ISLAND, GA
Trupp-Hodnett Enterprises ............... 1987 381 54 435
MOUNTAIN RESORTS
BRECKENRIDGE, CO
Collection of Fine Properties ........... 1985 462 10 472
ASPEN, CO
Houston and O'Leary(3) .................. 1986 7 120 127
PARK CITY, UT
Resort Property Management .............. 1978 280 46 326
TELLURIDE, CO
Telluride Resort Accommodations ......... 1985 433 14 447
WHISTLER, BRITISH COLUMBIA
Whistler Chalets ........................ 1986 432 12 444
----- ----- -----
Total .................................. 8,459 2,093 10,552(2)
===== ===== ======
</TABLE>
- ----------
(1) Includes predecessors.
(2) Includes 1,545 hotel rooms at Aston Hotels & Resorts, 33 hotel rooms at
Collection of Fine Properties and 74 hotel rooms at Trupp-Hodnett
Enterprises.
(3) Houston and O'Leary and The Maury People are the only Founding Companies
which have non-exclusive rental agreements for their rental properties.
SERVICES OFFERED
SERVICES OFFERED TO VACATIONERS. The Company provides services to
vacationers during all stages of the rental transaction from the selection and
reservation of a condominium or home to the vacationers' arrival and throughout
their stay. To make the selection and reservation process as simple and
convenient as possible, the Company currently provides vacationers with catalogs
containing color photographs and descriptions of available condominiums or
homes, and reservations are taken over the phone by reservation agents at each
of its resort communities who are familiar with the specific condominiums and
homes available. Many of the Founding Companies use a rating system to ensure
that vacationers' expectations are met by the condominium or home selected and
several of the Founding Companies also have world wide web sites where
vacationers can obtain price and availability information.
For the vacationers' arrival, the Company offers conveniently located
check-in and check-out locations, many of which are located on-site at the front
desk of the Company's condominium properties. Off-site check-in locations are
typically conveniently located and easily accessible in their respective
50
<PAGE>
resort communities. In most destination resort communities, the Company
maintains more than one conveniently located check-in facility. During their
stay, vacationers at most locations are offered frequent cleaning and
housekeeping services and access to emergency contact and maintenance personnel.
In most locations, the Company offers more specialized "concierge" services such
as bicycle and ski equipment rentals, ski lift tickets sales, shuttles to ski
areas, golf tee times and restaurant reservations. The Company typically
receives a fee for the provision of such services.
SERVICES OFFERED TO CONDOMINIUM AND HOME OWNERS. The Company provides
condominium and home owners a wide range of high-quality vacation rental and
property management services designed to meet their broad real estate needs. In
most markets, the Company will assume complete responsibility for the
condominium or home, including marketing, renting and maintaining the specific
property as well as providing security and managing the common properties and
homeowners' association. The Company currently engages in extensive marketing
activities, including direct catalog mailings to prior and prospective
vacationers and direct solicitations of travel agents, wholesalers and package
tour operators. The Company also handles all interaction with vacationers,
including accepting rental payments and security deposits, operating check-in
and check-out locations and offering linen, housekeeping and other services.
Property owners are paid rental income each month for rental activity in the
preceding month and are given a concise, timely and accurate monthly statement
which details the rental activity and management of their condominiums and
homes.
Property maintenance services are provided by both Company employees and
third party independent contractors. Services are either regularly scheduled, or
provided on an "as needed" basis, depending on the service and the location. In
most markets, after each annual or semi-annual inspection, the Company makes
recommendations to property owners for maintenance, refurbishments and
renovations necessary to maintain the quality of their condominiums and homes.
In several of its destination resort markets, the Company provides professional
interior design and refurbishment services to property owners to assist with the
upkeep and appearance of their condominiums and homes. The Company includes
routine maintenance services, such as replacing light bulbs or broken china, as
part of an all inclusive commission structure in certain locations. In other
markets, the Company collects fees from property owners for maintenance services
through service and maintenance agreements and fee for service arrangements.
For owners desiring to sell their vacation condominium or home, many of the
Founding Companies provide traditional real estate brokerage services, including
listing and showing the property. In 1997, net real estate sales commissions
represented approximately 11% of combined revenues. The relative amount of such
revenue varies by Founding Company but is more significant in those markets
where the Company primarily offers free-standing homes, rather than
condominiums, such as Aspen and Nantucket. The Company believes that the
provision of real estate brokerage services provides it with a competitive
advantage in identifying and securing properties for its rental management
services and allowing it to meet all of the needs of vacation property owners.
MARKETING
The marketing efforts of traditional vacation rental and property
management companies, including the Founding Companies, are primarily through
word of mouth referrals from satisfied customers (both vacationers and property
owners), print advertising primarily in local newspapers and regional magazines
and direct mail solicitations and catalogs sent to prior customers. Potential
customers call as a result of a referral or in response to an advertisement or
other promotion and are assisted by reservation agents in selecting the
appropriate vacation property and making the reservation. In addition to these
efforts, several of the Founding Companies also market their rental inventories
to travel agents, tour package operators and other travel providers. Tour
package operators typically combine transportation to a destination resort with
the Company's vacation condominiums and homes and a car rental. Tour packages
are distributed almost exclusively through travel agents. The Company markets to
travel agents and package tour operators primarily through advertisements in
trade publications, such as the Hotel and Travel Index, and attendance at
national and regional travel industry trade shows. Several of the Founding
Companies also have sites on the world wide web that are actively updated to
increase the
51
<PAGE>
probability of meeting vacationers' search criteria for lodging in their
destination resort communities. Vacation rentals for those companies
attributable to initial contacts through their web sites have increased
significantly over the past three years. The Company estimates that combined
revenues for 1997 were derived 50% from traditional direct marketing, 30% from
package tour operators and wholesalers, 16% from travel agents and 4% from world
wide web inquiries.
The Company believes that a national marketing campaign should increase the
effectiveness of the Founding Companies and companies to be acquired in the
future, and expand the universe of potential customers for each resort location
in which the Company operates. The Company plans to leverage the reputations of
the Founding Companies to establish a nationally recognized high quality brand.
The extensive databases regarding previous and potential vacationers maintained
by the Founding Companies will be used to aggressively cross-sell vacation
opportunities in other destination resorts through direct solicitations. Similar
condominiums and homes and services in other leading markets will be offered to
customers of each Founding Company.
The Company also intends to capitalize on its extensive market presence and
increase its use of the world wide web, travel agents and the print media. The
Company plans to leverage the technology and expertise of First Resort to create
a central reservations system easily accessible on the world wide web which
vacationers ultimately can use to view photographs and detailed floor plans of
the condominiums and homes, and make reservations and payments. The Company also
believes that its extensive selection of vacation condominiums and homes will
make it an attractive partner to travel agents, tour package operators and other
travel providers. These relationships should be a significant source of new
customers and, in particular, will be a valuable marketing channel for off-peak
seasons. Lastly, the Company plans to focus greater marketing efforts on
European and other international travelers through a more extensive use of
international print media, wholesalers and packaged tour companies.
TECHNOLOGY
First Resort, one of the Founding Companies, is a leading provider of
integrated management, reservations and accounting software for the vacation
rental and property management industry. Nine of the Founding Companies and over
650 other vacation rental and property management companies use First Resort's
software programs. First Resort's software programs were developed to overcome
problems encountered by rental property managers in attempting to utilize
software programs developed for the hotel industry. First Resort's basic
software allows vacation rental and property management companies to automate
and computerize their reservations, billings, rental management and accounting
tasks. Vacation rental and property management companies can use the software to
generate current rates on individual condominiums and homes and call up specific
descriptions of those condominiums and homes for potential customers. The
software also allows companies to generate monthly revenue reports for property
owners and to coordinate maintenance and housekeeping schedules. First Resort
also offers additional modules and interfaces, including a work order generator,
activities management system, credit card interface and world wide web enabled
reservations. While the Company plans to use First Resort's resources and
expertise to enhance the technological capabilities of the other Founding
Companies, First Resort will continue to market its software products to
independent vacation rental and property management companies and provide
service and technical support.
The Company intends to rely extensively on the products and management
expertise of First Resort to implement its technology strategy. Management
believes that investment in technology will be critical in building a national,
branded vacation rental and property management company for premier destination
resorts and will be a significant competitive advantage in the future. The
Company plans to utilize First Resort software to implement a central
reservations system with world wide web functionality to allow vacationers to
make their rental arrangements at any of the Company's properties. First Resort
also is developing a JAVA Client/Server based graphical reservations application
that will allow users of its software to completely integrate their reservations
systems with the world wide web, as well as a JAVA Client/Server based version
of all of its existing software applications. First Resort's software also will
allow the Company to quickly link the Founding Companies' and future acquired
companies' databases. The Company intends to develop proprietary data mining
tools in order to enhance its cross-selling and direct marketing efforts.
52
<PAGE>
COMPETITION
The vacation rental and property management industry is highly competitive
and has low barriers to entry. The industry has two distinct customer groups:
vacation property renters and vacation property owners. The Company believes
that the principal competitive factors in attracting vacation property renters
are: (i) market share and visibility; (ii) quality, cost and breadth of services
and properties provided; and (iii) long-term customer relationships. The
principal competitive factors in attracting vacation property owners are: (i)
the ability to generate higher rental income and (ii) comprehensive management
services at competitive prices. The Company competes for vacationers and
property owners primarily with approximately 3,000 owner-operated companies that
typically operate in a limited geographic area. Some of the Company's
competitors are affiliated with the owners or operators of resorts in which such
competitor provides its services. Certain of these smaller competitors may have
lower overhead cost structures and may be able to provide their services at
lower rates.
The Company also competes for vacationers with large hotel and resort
companies. Many of these competitor companies have greater financial resources
than the Company enabling them to finance acquisition and development
opportunities, to pay higher prices for the same opportunities or to develop and
support their own operations. In addition, many of these companies can offer
vacationers services not provided by vacation rental and property management
companies, and they may have greater name recognition among vacationers. These
companies might be willing to sacrifice profitability to capture a greater
portion of the market for vacationers or pay higher prices than the Company for
the same acquisition opportunities. Consequently, the Company may encounter
significant competition in its efforts to achieve its internal and acquisition
growth objectives as well as its operating strategies focused on increasing the
profitability of the Founding Companies and subsequently acquired companies.
EMPLOYEES
The Company had approximately 1,200 employees as of May 26, 1998. The
Company relies significantly on temporary employees to meet peak season demands.
In the course of performing service and maintenance work, the Company also
utilizes the services of independent contractors. The Company believes its
relationships with its employees and independent contractors are good.
LEGAL PROCEEDINGS
The Company is involved in various legal actions arising in the ordinary
course of business. The Company believes that none of these actions will have a
material adverse effect on its business, financial condition or results of
operations.
FACILITIES
As of May 26, 1998, the Company had 53 properties, consisting principally
of offices, maintenance, laundry and storage facilities, all of which are
leased. Some of the facilities operated by the Company are leased from related
parties. See "Certain Transactions -- Leases of Facilities."
GOVERNMENTAL REGULATION
The Company's operations are subject to various federal, state and local
laws and regulations, including (i) licensing requirements applicable to real
estate operations and (ii) laws and regulations relating to consumer protection.
On a federal level, the Federal Trade Commission has taken the most active
regulatory role through the Federal Trade Commission Act, which prohibits unfair
or deceptive acts or competition in interstate commerce. Other federal
legislation to which the Company is or may be subject includes the Real Estate
Settlement Procedures Act, the Fair Debt Collection Practices Act, the
Interstate Land Sales Full Disclosure Act, Telephone Consumer Protection Act,
Telemarketing and Consumer Fraud and Abuse Prevention Act, Fair Housing Act,
Americans With Disabilities Act and the Civil Rights Acts of 1964 and 1968. Many
state and local regulations governing real estate services require permits and
licenses to be held by individuals. In some cases, a required permit or license
held by a single individual may be sufficient to authorize specified activities
for all the Company's employees
53
<PAGE>
who work in the state or county that issued the permit or license. In addition,
certain international laws and regulations may also be applicable to the
Company's international operations. The Company believes that it is in material
compliance with all federal, state, local and foreign laws and regulations to
which it is currently subject.
54
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information concerning the Company's
directors, executive officers and certain key employees.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- ----- ----------------------------------------------------
<S> <C> <C>
David C. Sullivan ............... 58 Chairman and Chief Executive Officer, Director
David L. Levine ................. 50 President and Chief Operating Officer, Director
Jeffery M. Jarvis ............... 42 Senior Vice President and Chief Financial Officer
W. Michael Murphy ............... 52 Senior Vice President, Development
Jules S. Sowder ................. 41 Senior Vice President, Marketing
John K. Lines ................... 38 Senior Vice President, General Counsel and Secre-
tary
Frederick L. Farmer ............. 48 Senior Vice President and Chief Information Officer
Luis Alonso ..................... 34 CEO-Collection of Fine Properties; Director
Douglas R. Brindley ............. 40 President-Brindley & Brindley; Director
Paul T. Dobson .................. 43 Vice President-Maui Condominium and Home;
Director
Sharon Benson Doucette .......... 60 President-The Maury People; Director
Evan H. Gull .................... 51 Vice President-First Resort; Director
Heidi O'Leary Houston ........... 45 President-Houston and O'Leary; Director
Daniel L. Meehan ................ 48 President-Resort Property Management; Director
J. Patrick McCurdy .............. 51 President-Whistler Chalets; Director
Andre S. Tatibouet .............. 57 CEO-Aston Hotels & Resorts; Director
Hans F. Trupp ................... 58 Chairman-Trupp-Hodnett Enterprises; Director
Park Brady ...................... 50 Director
Joshua M. Freeman ............... 33 Director
Charles O. Howey ................ 70 Director
Michael D. Rose ................. 56 Director
Joseph V. Vittoria .............. 63 Director
Theodore L. Weise ............... 54 Director
Elan J. Blutinger ............... 43 Director
D. Fraser Bullock ............... 43 Director
Leonard A. Potter ............... 36 Advisory Director
</TABLE>
DAVID C. SULLIVAN became the Chairman and Chief Executive Officer and a
director of the Company in May 1998. From April 1995 to December 1997, Mr.
Sullivan was the Executive Vice President and Chief Operating Officer, and a
director, of Promus Hotel Corporation, a publicly traded hotel franchisor,
manager and owner of hotels whose brands include Hampton Inn, Homewood Suites
and Embassy Suites. From 1993 to 1995, Mr. Sullivan was the Executive Vice
President and Chief Operation Officer of the Hotel Division of The Promus
Companies Incorporated ("PCI"). He was the Senior Vice President of Development
and Operations of the Hampton Inn/Homewood Suites Hotel Division of PCI from
1991 to 1993. From 1990 to 1991, Mr. Sullivan was the Vice President of
Development of the Hampton Inn Hotel Division of PCI.
DAVID L. LEVINE became the President and Chief Operating Officer and a
director of the Company in May 1998. Mr. Levine was President and Chief
Operating Officer of Equity Inns, Inc., a real estate investment trust that
specializes in hotel acquisitions, from June 1994 to April 1998. Mr. Levine was
also President and Chief Operations Officer of Trust Management Inc., which
operated Equity Inns properties, from June 1994 until November 1996. Prior to
that, he was President of North American Hospitality, Inc., a hotel management
and consulting company, which he formed in 1985.
55
<PAGE>
JEFFERY M. JARVIS became Senior Vice President and Chief Financial Officer
of the Company in May 1998. From April 1995 to January 1998, Mr. Jarvis was the
Vice President, Controller and Principal Accounting Officer of Promus Hotel
Corporation. From September 1994 to April 1995, Mr. Jarvis was the Director of
Special Projects for PCI. He was the Director of Finance of Harrah's St. Louis
Riverport from June 1994 to September 1994, and was the Assistant Controller of
PCI from 1992 to 1994. From 1979 to 1992, Mr. Jarvis was a Senior Audit Manager
of Arthur Andersen LLP.
W. MICHAEL MURPHY became the Senior Vice President of Development of the
Company in May 1998. Mr. Murphy was President of Footprints International, a
company involved in the planning of resort properties in the Bahamas, from 1996
to 1997. From 1994 to 1996, he was a Senior Managing Director of Geller & Co., a
Chicago-based hotel advisory and asset management firm. Prior to joining Geller
& Co. he acted as a hotel consultant from 1992 to 1994. Mr. Murphy was a
founding partner of the hotel investment firm of Moeckel Murphy (1990-1992) and
a founding general partner of Metric Partners (1981-1990), a real estate
investment company that was a joint venture between the partners of The Fox
Group and Metropolitan Life Insurance Company. Prior to that time, he was the
Director of Real Estate for Holiday Inns, Inc. from 1973 to 1981.
JULES S. SOWDER became the Senior Vice President of Marketing of the
Company in May 1998. Ms. Sowder was Vice President of Marketing for Promus Hotel
Corporation from 1995 to January 1998. From 1993 to 1995, she served as the Vice
President of Marketing for the Hampton Inn division of Promus Hotel Corporation.
She served as Director of Marketing for the Hampton Inn division from 1990 to
1993. Ms. Sowder has been recognized by Travel Agent Magazine as one of the Top
10 most successful women in the hotel industry.
JOHN K. LINES became Senior Vice President, General Counsel and Secretary
of the Company in May 1998. Mr. Lines was General Counsel and Secretary of
Insignia Financial Group, Inc., a fully integrated real estate services company
from 1994 until March 1998. He also served as Vice President and Secretary of
Insignia Properties Trust from 1996 until March 1998. From May 1993 until June
1994, Mr. Lines was employed as Assistant General Counsel and Vice President of
Ocwen Financial Corporation, a unitary thrift holding company. From October 1991
until April 1993, Mr. Lines was employed as Senior Attorney of Banc One
Corporation in Columbus, Ohio.
FREDERICK L. FARMER became Senior Vice President and Chief Information
Officer of the Company in May 1998. Mr. Farmer was Senior Vice President for
Internet and Desktop Services of Marriott International from November 1996 to
April 1998. He also served as Vice President of Data Resources & Services for
Marriott International from March 1992 to November 1996.
LUIS ALONSO became a director of the Company in May 1998. Mr. Alonso has
served as the Chief Executive Officer and President of Collection of Fine
Properties since January 1995, when Tyra Management Company and two other
management companies merged into the newly formed Collection of Fine Properties.
Mr. Alonso was the President of Tyra Management Company from 1985 until the
merger. Mr. Alonso is a member of the Breckenridge Town Council and is Vice
Chairman of the Breckenridge Central Reservation Board.
DOUGLAS R. BRINDLEY became a director of the Company in May 1998. Mr.
Brindley and his wife, Betty Shotton Brindley, are co-founders of both B&B On
The Beach, Inc. and Brindley & Brindley Realty & Development, Inc. Mr. Brindley
is a director and President of both companies.
PAUL T. DOBSON became a director of the Company in May 1998. Mr. Dobson is
a co-founder of Maui Condominium and Home and has served as the company's Vice
President since 1991. Mr. Dobson is the current President of the Vacation Rental
Managers Association, a trade organization representing over 300 vacation rental
and property management companies in North America.
SHARON BENSON DOUCETTE became a director of the Company in May 1998. Ms.
Doucette has been the President and/or Treasurer of The Maury People since its
incorporation in 1990. Prior to that time, Ms. Doucette was a partner in and
subsequently the sole proprietor of a predecessor real estate company, beginning
in the late 1970's.
56
<PAGE>
EVAN H. GULL became a director of the Company in May 1998. Mr. Gull is a
co-founder of First Resort and is currently a director and the Vice President of
Software Development, a position he has held since April 1995. Mr. Gull was the
Chief Operating Officer of the company from 1993 to 1995. He also served as the
Department Manager for Sales and Administration during that same time period. He
is the principal developer of First Resort's software products.
HEIDI O'LEARY HOUSTON became a director of the Company in May 1998. Ms.
Houston formed Houston and O'Leary in 1986 and has served as President and
principal broker since the company's formation.
DANIEL L. MEEHAN became a director of the Company in May 1998. Mr. Meehan
is the co-founder and has served as President of Resort Property Management
since 1982. Mr. Meehan has over 23 years of experience in the property
management industry, the last 19 of them in Park City.
J. PATRICK MCCURDY became a director of the Company in May 1998. Mr.
McCurdy has served as the President and Secretary of Whistler Chalets, since he
founded the company in 1986. Mr. McCurdy is a director and a former
Vice-President of the Vacation Rental Managers Association.
ANDRE S. TATIBOUET became a director of the Company in May 1998. Mr.
Tatibouet has been the Chairman and Chief Executive Officer of Aston Hotels &
Resorts since 1967. Mr. Tatibouet is a director of the Hawaii Hotel Association,
a director and former president of the Hawaii Visitors Bureau, and a director of
the American Hotel & Motel Association.
HANS F. TRUPP became a director of the Company in May 1998. Mr. Trupp has
served as the Chairman of Trupp-Hodnett Enterprises since 1987. He was also
Chairman of Trupp-McGinty Realty, Inc. from 1984 to 1987 and Trupp McGinty
Realtors/Insurers, which was formed in 1978.
PARK BRADY became a director of the Company in May 1998. Mr. Brady is a
founder of Telluride Resort Accommodations, and has served as the President and
a director of the company since June 1997. He has served as Director of Sales
and Marketing for Telluride Resort Accommodations from 1989 to 1994, and as
General Manager from 1987 to 1989. From 1994 to 1997, Mr. Brady developed real
estate projects in the Telluride area. Mr. Brady is a former member of the
Telluride Town Council and is also former Chairman of the Telluride Chamber
Resort Association.
JOSHUA M. FREEMAN became a director of the Company in May 1998. Mr. Freeman
has served since 1996 as President and Managing Member of Coastal Resorts Realty
L.L.C. and as President and a director of Coastal Resorts Management, Inc. Mr.
Freeman has served as the President and Chief Operating Officer of Carl M.
Freeman Associates, Inc., a real estate development and management company,
since 1992.
CHARLES O. HOWEY became a director of the Company in May 1998. Mr. Howey
has served as Chairman of Priscilla Murphy Realty since January 1997. Mr. Howey
has also been President of C.O. Management Services, a regional property
management company, since the 1950's. He is the founder and past president of
Howey & Associates, Inc., an independent insurance agency.
MICHAEL D. ROSE became a director of the Company in May 1998. Mr. Rose
served as Chairman of the Board of Promus Hotel Corporation from April 1995 to
December 1997. From June 1995 to December 1996, he was Chairman of the Board of
Harrah's Entertainment, Inc. Prior to that, Mr. Rose served as Chairman of the
Board (1989-1995) and Chief Executive Officer and President (1989-1991) of The
Promus Companies, Inc. and Chairman of the Board (1984-1990) and President and
Chief Executive Officer (1988-1990) of Holiday Corporation. Mr. Rose is also a
director of Ashland, Inc., Darden Restaurants, Inc., First Tennessee National
Corporation, General Mills, Inc., Promus Hotel Corporation and Stein Mart, Inc.
JOSEPH V. VITTORIA became a director of the Company in May 1998. Mr.
Vittoria has been the Chairman and Chief Executive Officer of Travel Services
International, Inc., a leading single source distributor of specialized leisure
travel services, since July 1997. From September 1987 to February 1997
57
<PAGE>
Mr. Vittoria was the Chairman and Chief Executive Officer of Avis, Inc., a
multinational auto rental company. Mr. Vittoria serves on the Board of Directors
of Carey International, Inc., CD Radio, Inc. Transmedia Europe, Transmedia Asia
and various non-profit associations.
THEODORE L. WEISE became a director of the Company in May 1998. Since
February 1998, Mr. Weise has been the President and Chief Executive Officer of
Federal Express Corporation, the world's largest transportation company. He was
previously Executive Vice President and Chief Operating Officer of Federal
Express Corporation from February 1996 to January 1998. From August 1991 to
February 1996 he served as Senior Vice President of Air Operations.
ELAN J. BLUTINGER has been a director of the Company since its formation in
September 1997. He is a co-founder and Managing Director of Alpine Consolidated
II, LLC, a consolidator of highly fragmented businesses. He was a co-founder of
Travel Services International, Inc. and is currently a director of the company
and Chairman of its Compensation Committee. From 1996 until December 1997, he
was a co-founder and Managing Director of Alpine Consolidated LLC. From 1987
until its acquisition in 1995, he was the Chief Executive Officer of Shoppers
Express, which became "OnCart" in 1997, an electronic retailing service in the
grocery industry, and served as a director until December 1997. From 1983 until
its acquisition in 1986 by IDI, Mr. Blutinger was Chief Executive Officer of
DSI, a pioneer in wholesale software distribution. Mr. Blutinger is an investor
in Capstone Partners, LLC.
D. FRASER BULLOCK has been a director of the Company since its formation in
September 1997. Mr. Bullock is a Managing Director of Alpine Consolidated II,
LLC. He was a co-founder of Travel Services International, Inc. and is currently
a director of the company and Chairman of its Audit Committee. From its
inception in 1994 to 1996, he was the President and Chief Operating Officer of
VISA Interactive, a wholly-owned subsidiary of VISA International. In 1993, Mr.
Bullock became the President and Chief Operating Officer of U.S. Order, Inc., a
provider of remote electronic transaction processing, until it was acquired by
VISA International in 1994. From 1991 to 1992, Mr. Bullock was the Senior Vice
President of U.S. Order, Inc. From 1986 to 1991, he was the Chief Financial
Officer and Executive Vice President of World Corp., Inc., a holding company
with various operating subsidiaries including World Airways, Inc. Mr. Bullock
was a founding partner of Bain Capital, a Manager of Bain and Company, and a
founder of MediVision, Inc., a consolidation of eye surgery centers.
LEONARD A. POTTER served as a director of the Company from its formation in
September 1997 until May 26, 1998. After the consummation of the initial public
offering, he became an Advisory Director to the Board. Mr. Potter is a
co-founder and Managing Director of Capstone Partners, LLC, a venture firm
specializing in consolidation transactions. He was a co-founder of Travel
Services International, Inc. and is currently an advisory director to its board
of directors. Capstone Partners, LLC was a co-sponsor of Staffmark, Inc., a
consolidation of six staffing service companies in September 1996 with a
simultaneous initial public offering. Prior to forming Capstone Partners, LLC in
April 1996, Mr. Potter was an attorney at Morgan, Lewis & Bockius LLP for more
than five years practicing in the areas of mergers and acquisitions and
securities law. While at Morgan, Lewis & Bockius he represented a number of
public companies in connection with their creation and subsequent implementation
of consolidation strategies similar to the Company's, including U.S. Office
Products, F.Y.I., Inc. and Cotelligent Group.
BOARD OF DIRECTORS
BOARD COMMITTEES. The Board of Directors has established an Executive
Committee, an Audit Committee, a Compensation Committee and an Operations
Committee. The Executive Committee consists of Messrs. Sullivan (Chairman),
Blutinger, Alonso, Freeman, Howey, Tatibouet, Rose, Trupp and Weise. The
Executive Committee may exercise all of the powers and authority of the Board of
Directors in the management of the business and affairs of the Company other
than the power (i) to approve or adopt, or to recommend to the stockholders, any
action expressly required by Delaware law to be submitted to the stockholders
for approval, including, the amendment of the Company's Certificate of
Incorporation, the merger or consolidation of the Company, the sale, lease or
exchange of substantially all the assets of the Company, the dissolution of the
Company or the revocation of the Company's voluntary dissolution, and (ii) to
adopt, amend or repeal any provision of the By-Laws of the Company.
58
<PAGE>
The Audit Committee consists of Messrs. Bullock (Chairman), Rose and
Sullivan. The Audit Committee makes recommendations concerning the engagement of
independent public accountants, reviews with the independent public accountants
the plans and the results of the audit engagement, approves professional
services provided by the independent public accountants and reviews
recommendations regarding the Company's accounting methods and the adequacy of
its systems of internal accounting controls.
The Compensation Committee consists of Messrs. Blutinger (Chairman), Rose
and Weise. The Compensation Committee determines compensation for the Company's
management and key employees, administers the Company's Plan and makes
recommendations to the Board of Directors with respect to the Company's
compensation policies.
The Operations Committee consists of Mr. Levine (Chairman), Mr. Farmer
(Co-Chairman), Ms. Sowder (Co-Chairman), Ms. Doucett, Ms. Houston and Messrs.
Brady, Brindley, Dobson, McCurdy and Meehan. The Operations Committee makes
recommendations regarding integration of the Company's subsidiaries.
DIRECTOR COMPENSATION. Directors who are also employees of the Company or
one of its subsidiaries do not receive additional compensation for serving as
directors. Each director who is not an employee of the Company or one of its
subsidiaries receives $2,000 for attendance at each Board of Directors meeting
and $1,000 for each committee meeting (unless held on the same day as a Board of
Directors meeting). In addition, under the Company's 1998 Long-Term Incentive
Plan, each non-employee director automatically receive an option to acquire
10,000 shares of Common Stock upon such person's initial election as a director
and, subject to a certain exception, an annual option to acquire 5,000 shares at
each annual meeting of the Company's stockholders thereafter at which such
director is re-elected or remains a director. See "-- 1998 Long-Term Incentive
Plan." Directors also are reimbursed for out-of-pocket expenses incurred in
attending meetings of the Board of Directors or committees thereof, in their
capacity as directors.
The Advisory Director attends meetings of the Board of Directors, consults
with officers and directors of the Company and provides guidance, but not
direction, concerning management and operation of the Company's business. The
Advisory Director is not a director of the Company and, accordingly, will not
have a right to vote as a director.
All officers serve at the discretion of the Board of Directors.
EXECUTIVE COMPENSATION; EMPLOYMENT AGREEMENTS; COVENANTS-NOT-TO-COMPETE
The Company was incorporated in September 1997, conducted no operations and
generated no revenues until May 26, 1998, and did not compensate any of its
executive officers for services rendered in 1997. The Company anticipates that
during 1998 its most highly compensated executive officers will be Messrs.
Sullivan, Levine, Jarvis, Murphy, Farmer, Lines and Ms. Sowder. The Company
granted Messrs. Sullivan, Levine, Jarvis, Murphy, Farmer, Lines and Ms. Sowder
options to purchase 100,000, 75,000, 50,000, 50,000, 75,000, 25,000 and 25,000
shares of Common Stock, respectively, at the initial public offering price of
$11.00 per share. These options will vest in equal installments on each of the
four anniversaries of the date of the consummation of the initial public
offering.
Messrs. Sullivan, Levine, Jarvis, Murphy, Farmer, Lines and Ms. Sowder have
entered into employment agreements with the Company, effective May 26, 1998,
providing for annual base salaries of $200,000, $162,500, $150,000, $150,000,
$125,000, $125,000 and $125,000, respectively. Each of these agreements are for
a term of three years (the "Initial Term"). In addition, certain executive
officers of the Founding Companies, including each representative of the
Founding Companies serving as a director of the Company, other than Messrs.
Brady, Freeman and Howey, have entered into employment agreements for an Initial
Term of three years, effective May 26, 1998. Unless terminated or not renewed by
the Company or the employee, the term will continue after the Initial Term on a
year-to-year basis on the same terms and conditions existing at the time of
renewal. Each employment agreement will contain a covenant not to compete (the
"Covenant") with the Company for a period of two years immediately following
termination of employment or, in the case of a termination by the Company
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without cause in the absence of a change in control, for a period of one year
following termination of employment. Under the Covenant, the executive officer
generally is prohibited from: (i) engaging in any hotel management or
non-commercial property management, rental or sales business in direct
competition with the Company within defined geographic areas in which the
Company or its subsidiaries does business; (ii) enticing a managerial employee
of the Company away from the Company; (iii) calling upon any person or entity
which is, or has been, within one year prior to the date of termination, a
customer of the Company; or (iv) calling upon a prospective acquisition
candidate which the employee knew was approached or analyzed by the Company, for
the purpose of acquiring the entity. The Covenant may be enforced by injunctions
or restraining orders and shall be construed in accordance with the changing
location of the Company.
Each of these employment agreements provides that, in the event of a
termination of employment by the Company without cause during the Initial Term
the employee will be entitled to receive from the Company an amount equal to his
or her then current salary for the remainder of the Initial Term or for one
year, whichever is greater. In the event of a termination of employment without
cause after the Initial Term of the employment agreement, the employee will be
entitled to receive an amount equal to his or her then current salary for one
year. In the event of a change in control of the Company (as defined in the
agreement) during the Initial Term, if the employee is not given at least five
days' notice of such change in control and the successor's intent to be bound by
such employment agreement, the employee may elect to terminate his or her
employment and receive in one lump sum three times the amount he or she would
receive pursuant to a termination without cause during the Initial Term. The
employment agreements also state, that in the event of a termination without
cause by the Company or a change in control, the employee may elect to waive the
right to receive severance compensation and, in such event, the noncompetition
provisions of the employment agreement will not apply. In the event the employee
is given at least five days' notice of such change in control, the employee may
elect to terminate his or her employment agreement and receive in one lump sum
two times the amount he or she would receive pursuant to a termination without
cause during the Initial Term. In such an event, the noncompetition provisions
of the employment agreement would apply for two years from the effective date of
termination.
Each Agreement and Plan of Organization also contains a covenant
prohibiting the former owners of the Founding Companies from competing with the
Company for a period of three years beginning May 26, 1998. These noncompetition
provisions will not apply with respect to a former owner of a Founding Company
who has entered into an employment agreement with the Company in the event the
former owner is terminated without cause and elects to waive the right to
receive severance compensation.
1998 LONG-TERM INCENTIVE PLAN
No stock options were granted to, or exercised by or held by any executive
officer in 1997. In March 1998, the Board of Directors and the Company's
stockholders approved the Company's 1998 Long-Term Incentive Plan (the "Plan").
The purpose of the Plan is to provide a means by which the Company can attract
and retain executive officers, employee directors, other key employees,
non-employee and advisory directors and consultants of and other service
providers to the Company and its subsidiaries and to compensate such persons in
a way that provides additional incentives and enables such persons to acquire or
increase a proprietary interest in the Company. Individual awards under the Plan
may take the form of one or more of: (i) either incentive stock options ("ISOs")
or non-qualified stock options ("NQSOs"); (ii) stock appreciation rights
("SARs"); (iii) restricted or deferred stock; (iv) dividend equivalents; (v)
bonus shares and awards in lieu of Company obligations to pay cash compensation;
(vi) non-employee directors' deferred shares; and (vii) other awards the value
of which is based in whole or in part upon the value of the Common Stock.
The Plan will generally be administered by a committee (the "Committee"),
which will initially be the Compensation Committee of the Board of Directors,
except that the Board of Directors will itself perform the Committee's functions
under the Plan for purposes of grants of awards to non-employee directors, and
may perform any other function of the Committee as well. The Committee generally
is empowered to select the individuals who will receive awards and the terms and
conditions of those
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<PAGE>
awards, including exercise prices for options and other exercisable awards,
vesting and forfeiture conditions (if any), performance conditions, the extent
to which awards may be transferable and periods during which awards will remain
outstanding. Awards may be settled in cash, shares, other awards or other
property, as determined by the Committee.
The Company has reserved 1,807,000 shares of Common Stock for use in
connection with the Plan. The maximum number of shares of Common Stock that may
be subject to outstanding awards under the Plan will not exceed 12% of the
aggregate number of shares of Common Stock outstanding, minus the number of
shares previously issued pursuant to awards granted under the Plan. Shares of
Common Stock which are attributable to awards which have expired, terminated or
been canceled or forfeited are available for issuance or use in connection with
future awards.
The Plan provides for: (i) the automatic grant to each non-employee
director and advisory director (a "Non-Employee Director") serving at the
commencement of the initial public offering of an option to purchase 10,000
shares; and thereafter (ii) the automatic grant to each Non-Employee Director of
an option to purchase 10,000 shares upon such person's initial election as a
director or appointment as an advisory director. In addition, the Plan provides
for an automatic annual grant to each Non-Employee Director of an option to
purchase 5,000 shares at each annual meeting of stockholders following the
initial public offering; provided, however, that if the first annual meeting of
stockholders following a person's initial election as a non-employee director or
appointment by the Board as an advisory director is within three months of the
date of such election or appointment, such person will not be granted an option
to purchase 5,000 shares of Common Stock at such annual meeting. These options
will have an exercise price per share equal to the fair market value of a share
at the date of grant. Options granted under the Plan will expire at the earlier
of 10 years from the date of grant or one year after termination of service as a
director or advisory director, and options will be immediately exercisable. In
addition, the Plan permits Non-Employee Directors to elect to receive, in lieu
of cash directors' fees, shares, or credits representing "deferred shares" that
may be settled at future dates, as elected by the Non-Employee Directors. The
number of shares or deferred shares received will be equal to the number of
shares which, at the date the fees would otherwise be payable, will have an
aggregate fair market value equal to the amount of such fees. At the
commencement of the initial public offering, the Non-Employee Directors were
Messrs. Blutinger, Brady, Bullock, Freeman, Howey, Potter, Rose, Vittoria and
Weise.
The Plan will remain in effect until terminated by the Board of Directors.
The Plan may be amended by the Board of Directors without the consent of the
stockholders of the Company, except that any amendment, although effective when
made, will be subject to stockholder approval if required by any federal or
state law or regulation or by the rules of any stock exchange or automated
quotation system on which the Common Stock may then be listed or quoted. The
number of shares reserved or deliverable under the Plan, the annual
per-participant limits, the number of shares subject to options automatically
granted to non-employee directors and the number of shares subject to
outstanding awards are subject to adjustment in the event of stock splits, stock
dividends and other extraordinary corporate events.
In connection with the initial public offering, options in the form of
NQSOs to purchase a total of 435,000 shares of Common Stock of the Company were
granted to management of the Company, including 100,000 shares to Mr. Sullivan,
75,000 shares to Mr. Levine, 50,000 shares to Mr. Jarvis, 50,000 shares to Mr.
Murphy, 75,000 shares to Mr. Farmer, 25,000 shares to Ms. Sowder, 25,000 shares
to Mr. Lines, an aggregate of 250,000 shares to Alpine Consolidated II, LLC and
Capstone Partners, LLC and an aggregate of 920,000 shares to the employees of
the Company and the Founding Companies. Each of the foregoing option grants will
have an exercise price equal to the initial public offering price per share, and
will vest as to 25% each on the date that is 12 months, 24 months, 36 months and
48 months after the closing of the initial public offering. Unvested options
generally will be forfeited upon a termination of employment that is voluntary
by the participant. Upon a change of control of the Company (as defined in the
Plan), vesting will be accelerated. The options generally will expire on the
earlier of 10 years after the date of grant or three months after termination of
employment (immediately in the event of a termination for cause), unless
otherwise determined by the Committee.
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CERTAIN TRANSACTIONS
ORGANIZATION OF THE COMPANY
RQI was formed in September 1997. RQI was initially capitalized by Alpine
Consolidated II, LLC, of which Elan J. Blutinger and D. Fraser Bullock, each a
Director of the Company, are Managing Directors, and Capstone Partners, LLC, of
which Leonard A. Potter, an Advisory Director of the Company, is a Managing
Director. As a result of a 8,834.76-for-one stock split effected in the form of
a stock dividend on March 9, 1998, the 293.9481 shares of Common Stock initially
issued to Alpine Consolidated II, LLC and Capstone Parnters, LLC aggregated
2,596,961 shares on the closing of the initial public offering.
In January and February of 1998, the Company issued a total of 518,369
shares of Common Stock (post-split) at $.01 (pre-split) per share to the
following directors and members of management: Mr. Sullivan -- 289,202 shares,
Mr. Levine -- 40,000 shares, Mr. Jarvis -- 40,000 shares, Mr. Murphy -- 40,000
shares, Ms. Sowder -- 25,000 shares, Mr. Lines -- 25,000 shares, Mr. Farmer --
25,000 shares, Mr. Dobson -- 2,000 shares, Mr. Brindley -- 1,167 shares and
Allen Williams -- 31,000 shares. In November and December of 1997 the Company
issued 19,300 shares (post-split) of Common Stock at $.01 per share (pre-split)
to certain consultants to the Company during the same period, none of whom was
or is an affiliate of the Company. The aggregate cash consideration received by
the Company for these shares was $0.61.
Prior to the consummation of the initial public offering, VPI Funding, LLC
("VPIF"), a Delaware limited liability company, extended loans to RQI from time
to time in an amount equal to the legal, accounting and other transactional
costs, expenses and disbursements incurred by RQI in connection with the
Combinations and the initial public offering. The member managers of VPIF are
Alpine Consolidated II, LLC and Capstone Partners, LLC. VPIF was repaid, without
interest, by the Company from the gross proceeds of the initial public offering.
Such loans aggregated $1.2 million.
The aggregate consideration paid by RQI in the Combinations consisted of
(i) approximately $54.9 million in cash and (ii) 6,119,656 shares of Common
Stock. The Company also assumed an aggregate of approximately $5.7 million of
indebtedness of the Founding Companies in connection with the Combinations. The
consideration to be paid for each of the Founding Companies was determined
through arm's-length negotiations between RQI and representatives of each
Founding Company. The factors considered by the Company in determining the
consideration to be paid included, among others, the historical operating
results, the net worth, the amount and type of indebtedness and the future
prospects of the Founding Companies. Each Founding Company was represented by
independent counsel in the negotiation of the terms and conditions of the
Combinations.
The aggregate total consideration paid by RQI for each of the Founding
Companies is as follows:
<TABLE>
<CAPTION>
SHARES OF DEBT
COMPANY CASH COMMON STOCK ASSUMED
- ----------------------------------------- -------------- -------------- ------------
<S> <C> <C> <C>
Aston Hotels & Resorts .................. $29,500,000 1,708,333 $ 30,000
Brindley & Brindley ..................... 2,000,000 195,000 44,000
Coastal Resorts ......................... -- 816,667 --
Collection of Fine Properties ........... 4,526,000 404,167 520,000
First Resort ............................ 2,854,800 290,767 --
Houston and O'Leary ..................... 2,470,000 248,167 --
Maui Condominium and Home ............... 1,620,086 166,667 --
The Maury People ........................ 2,000,000 150,000 --
Priscilla Murphy Realty ................. -- 1,144,036 4,892,000
Resort Property Management .............. 1,116,351 108,333 153,000
Telluride Resort Accommodations ......... 3,013,762 125,103 --
Trupp-Hodnett Enterprises ............... 5,000,000 627,833 --
Whistler Chalets ........................ 800,000 134,583 11,000
----------- --------- ----------
$54,900,999 6,119,656 $5,650,000
=========== ========= ==========
</TABLE>
The purchase price of certain of the Founding Companies may be increased by
working capital adjustments based on cash and receivable balances at the closing
of the Combinations of the respective Founding Companies as of May 31, 1998. In
addition, net assets of approximately $5.1 million, including
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<PAGE>
certain real estate which is currently leased or managed by the Company, certain
non-operating assets and the assumption or retirement of certain liabilities,
was excluded from the Combinations and retained by certain former stockholders
of the Founding Companies. See "Certain Transactions -- Leases of Facilities"
and "-- Management Agreements."
Pursuant to the agreements entered into in connection with the
Combinations, substantially all of the stockholders of the Founding Companies
have agreed not to compete with the Company for three years, commencing on the
date of closing of the initial public offering (until May 26, 2001).
In connection with the Combinations, and as consideration for their
ownership interests in the Founding Companies, certain executive officers,
directors and holders of more than 5% of the outstanding shares of Common Stock
of the Company, together with their spouses and trusts for the benefit of their
immediate families, received, directly or indirectly, cash and shares of Common
Stock of the Company as follows:
<TABLE>
<CAPTION>
SHARES OF
CASH COMMON STOCK
-------------------- -------------
<S> <C> <C>
Luis Alonso .................... $ 1,423,124 121,250
Park Brady ..................... 304,763 31,041
Douglas R. Brindley ............ 2,000,000 195,000
Paul T. Dobson ................. 810,043 83,334
Sharon Benson Doucette ......... 2,000,000 150,000
Joshua M. Freeman .............. -- 803,519
Evan H. Gull ................... 1,057,333 88,111
Charles O. Howey ............... 1,907,880 (1) 446,174
Heidi O'Leary Houston .......... 2,470,000 248,167
Daniel L. Meehan ............... 1,200,000 98,333
J. Patrick McCurdy ............. 800,000 134,583
Andre S. Tatibouet ............. 20,930,000 1,708,333
Hans F. Trupp .................. 1,000,000 386,692
</TABLE>
- ----------
(1) Represents estimated amount of the pro rata portion of indebtedness of
Priscilla Murphy Realty to be retired at the time of the Combinations.
LEASES OF FACILITIES
ASTON HOTELS & RESORTS. Approximately 980 square feet of office space,
which is part of a space leased by Aston Hotels & Resorts, is used by a former
stockholder and the corporate secretary of Aston Hotels & Resorts. Mr. Tatibouet
has agreed to assume responsibility for the approximately $33,000 annual rent
allocable for this space to the extent and for the period it is used for
non-business purposes and will either reimburse such amount to Aston Hotels &
Resorts or will have the existing lease amended so that a new lease of space is
issued for the minority stockholder and Aston Hotels & Resorts is released from
any obligation with respect to such space.
BRINDLEY & BRINDLEY. During 1995, 1996 and 1997, Brindley & Brindley leased
office space and facilities for its property management and real estate
brokerage activities from Douglas R. Brindley and his wife, Betty Shotton
Brindley, pursuant to two oral agreements, each on a month-to-month basis. The
aggregate annual rent paid by Brindley & Brindley to the Brindleys was $63,800,
$70,800 and $103,500 in 1995, 1996 and 1997, respectively. Brindley & Brindley
entered into two written lease agreements with the Brindleys for these
facilities that commenced on January 1, 1998. The terms of these leases expire
December 31, 2002, with options to extend for two 5-year periods at the end of
the lease periods and provide for aggregate annual rental payments of
approximately $133,500.
COASTAL RESORTS. Coastal Resorts leases office space and facilities under
three separate lease agreements from Carl M. Freeman Associates, Inc. ("CMFA").
Joshua M. Freeman is the President and a stockholder of CMFA, and his father is
the controlling stockholder of CMFA. The aggregate annual rent paid by Coastal
Resorts to CMFA under these leases was approximately $69,000 and $77,000 in
1996 and 1997, respectively. The leases terminate on December 31, 1998,
December 31, 1999 and May 21, 2002.
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COLLECTION OF FINE PROPERTIES. Certain commercial space owned by Collection
of Fine Properties was distributed to an entity or entities controlled by the
stockholders thereof, including Luis Alonso, prior to the Combinations and then
leased to the Company. The leases for such property provide for aggregate annual
rentals of approximately $73,000.
THE MAURY PEOPLE. It is presently contemplated that in early 1999, The
Maury People will transfer its offices to new facilities owned by a trust of
which Sharon Doucette is the primary beneficiary. The lease for the new
facilities will begin in April 1999 and terminate on March 31, 2004, with one
option to extend for an additional five years. The annual base rental payments
on the lease will be $185,400 for the first year, and increase each year
thereafter by the amount of increase, if any, in the Consumer Price Index,
subject to a 6% annual ceiling on increases.
PRISCILLA MURPHY REALTY. Priscilla Murphy Realty has leased office space
and facilities since August 25, 1997, from trusts affiliated with Charles O.
Howey, under three separate lease agreements. The aggregate rent paid in 1997 by
Priscilla Murphy Realty to Mr. Howey's affiliated trusts under these lease
agreements was approximately $45,000. Two of the leases terminate on June 30,
2001 and the remaining lease terminates on December 31, 2002. Priscilla Murphy
Realty entered into a fourth lease with the same trusts on January 28, 1998, to
rent an additional office property for an annual rent payment of $12,000. This
lease also terminates on December 31, 2002.
RESORT PROPERTY MANAGEMENT. Resort Property Management plans to move into
new office space that is owned by Daniel L. Meehan and his wife, Kimberlie
Meehan, in June 1998. The term of the lease is ten years with two options to
extend the lease for five years each and the annual rent for the new facilities
is approximately $100,000, with annual increases equal to the increase in the
Consumer Price Index.
TRUPP-HODNETT ENTERPRISES. Trupp-Hodnett Enterprises leases office space
and facilities that are co-owned by Hans F. Trupp for its management and real
estate brokerage activities, under four separate lease agreements. Trupp-Hodnett
Enterprises made aggregate annual rent payments of $57,313, $92,713 and $109,513
for these properties in 1995, 1996 and 1997, respectively. Two of the leases
terminate on December 31, 2009, one terminates on December 31, 2008 and the
fourth terminates on April 30, 2007.
WHISTLER CHALETS. Office space owned by Whistler Chalets was distributed to
an entity controlled by J. Patrick McCurdy prior to the Combinations and then
leased to the Company. The lease for such property has a term of 5 years, with 3
renewal options of 5 years each, and provides for annual rentals of
approximately $21,000.
MANAGEMENT AGREEMENTS
ASTON HOTELS & RESORTS. Since 1994, Aston Hotels & Resorts has managed two
hotels owned by Andre S. Tatibouet. The aggregate management fees received by
Aston Hotels & Resorts for the management of these properties were $243,000,
$501,000 and $506,000 in 1995, 1996 and 1997, respectively. The management
agreements for these hotels terminate on December 31, 2003. In addition, prior
to the Combinations, Aston Hotels & Resorts was a party to two lease and
management agreements for two hotels dated February 1, 1996 and February 21,
1991, respectively. Aston Hotels & Resorts transfered these lease and management
agreements to AST Holdings, Inc. and simultaneously entered into management
agreements with AST Holdings, Inc. to manage these properties. AST Holdings,
Inc. is owned by Mr. Tatibouet.
COLLECTION OF FINE PROPERTIES. Prior to the Combinations, Collection of
Fine Properties distributed to Luis Alonso and another stockholder eight
condominiums that were owned and managed by Collection of Fine Properties.
Collection of Fine Properties now manages these properties, pursuant to its
standard management agreement.
TRUPP-HODNETT ENTERPRISES. Pursuant to an agreement dated January 1, 1994,
Trupp-Hodnett Enterprises provides management services for a 74-room hotel that
is co-owned by Hans F. Trupp, for $42,000 a year. The management agreement
terminates on December 31, 1999. Trupp-Hodnett Enterprises also man-
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ages several vacation condominiums owned or co-owned by Mr. Trupp pursuant to
its standard management agreement. Trupp-Hodnett Enterprises has received
aggregate property management fees related to Mr. Trupp's ownership of these
properties of $53,480, $48,290 and $44,233 for 1995, 1996 and 1997,
respectively.
WHISTLER CHALETS. Prior to the Combinations, Whistler Chalets distributed
to J. Patrick McCurdy six vacation condominiums that were owned and managed by
Whistler Chalets. Whistler Chalets now manages these properties, together with
one additional vacation condominium owned by Mr. McCurdy, pursuant to its
standard management agreement. Additionally, Whistler Chalets paid management
fees to Whistler Blackcomb Central Reservations, Inc. ("Whistler Blackcomb") for
the management services of Mr. McCurdy in the amount of $359,730, $376,023 and
$20,720 for 1995, 1996 and 1997, respectively. Mr. McCurdy is the President and
owner of Whistler Blackcomb. As of December 31, 1997, Whistler Chalets was
indebted to Whistler Blackcomb in the amount of $330,268 for unpaid management
fees. These fees were paid prior to the Combinations. No management fees are
payable to Whistler Blackcomb after the Combinations.
OTHER TRANSACTIONS
ASTON HOTELS & RESORTS. Since July 22, 1997, Aston Hotels & Resorts has
provided administrative services to AST International, LLC ("AST
International"), an entity controlled by Andre S. Tatibouet, under an oral
agreement, and will continue to perform these services after the Combinations
under a written agreement. AST International has been billed $419,730 by Aston
Hotels & Resorts for its services since July 22, 1997.
Aston Hotels & Resorts receives sales representation and accounting
services from HCP, Inc. ("HCP"), a company owned by Mr. Tatibouet. Aston Hotels
& Resorts paid HCP $390,000, $481,000 and $476,000 in 1995, 1996 and 1997,
respectively, for these services. Employees of HCP providing these services were
transferred to Rep Holdings, Ltd., a new subsidiary of Aston Hotels & Resorts,
immediately after the Combinations.
Under the terms of an oral agreement, Aston Hotels & Resorts provides
management and clerical personnel for AST Development, Inc. ("AST Development")
in return for consulting and support services. AST Development is owned by Mr.
Tatibouet. The costs incurred by Aston Hotels & Resorts relative to AST
Development were $125,000, $125,000 and $126,000 for 1995, 1996 and 1997,
respectively. This agreement will continue in a limited form pursuant to a
written agreement after the Combinations.
Aston Hotels & Resorts has oral consulting agreements with Mr. Tatibouet's
wife and Mr. Tatibouet's mother, who received annual aggregate compensation from
Aston Hotels & Resorts of $229,000, $221,000 and $232,000 in 1995, 1996 and
1997, respectively. These agreements have been terminated. Additionally, Aston
Hotels & Resorts executed three promissory notes, each payable to Mr.
Tatibouet's wife, in the aggregate amount of $285,000. These notes are each
dated January 31, 1997 and each comes due on February 28, 1999. These notes were
assumed by Mr. Tatibouet prior to the Combinations.
At May 26, 1998, Mr. Tatibouet owed Aston Hotels & Resorts an aggregate
amount of $4 million. This amount bears interest at the Prime Rate less 0.5,
with a minimum of 6% and maximum of 10%, to be paid within ten years and is
fully collateralized by Mr. Tatibouet with real estate, cash or cash
equivalents, including shares of Common Stock of the Company (the "Qualifying
Collateral") pledged to the Company or by Mr. Tatibouet's personal guarantee
(not to exceed $1 million). Additionally, at March 31, 1998, Aston Hotels &
Resorts had guaranteed or cosigned on debts and obligations of Mr. Tatibouet in
the aggregate amount of $16.4 million which primarily relate to mortgage loans
on two hotels managed by Aston Hotels & Resorts. These debts of Mr. Tatibouet
are fully collateralized by Qualifying Collateral, pledged either to the lenders
of such debt or to Aston Hotels & Resorts to secure the guarantee by it of such
debt. Mr. Tatibouet also has agreed to use his reasonable efforts to cause Aston
Hotels & Resorts' guarantee of such debt to be released as soon as practicable.
Aston Hotels & Resorts leased storage space in a shopping center complex
from a limited partnership, Waikiki International Plaza, in which Mr. Tatibouet
and Aston Hotels & Resorts are each general partners with respective 45% and 5%
partnership interests. The shopping center, in-
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cluding the leased storage space, was sold to an unrelated third party in
December 1997. The aggregate annual rent paid by Aston Hotels & Resorts to
Waikiki International Plaza was $128,000, $114,000 and $110,000 in 1995, 1996
and 1997, respectively.
Aston Hotels & Resorts has entered into a 20-year royalty free license
agreement with AST Brands, LLC, an entity wholly-owned by Mr. Tatibouet, for use
of the name Aston Hotels & Resorts as well as other service marks, tradenames,
trademarks and logos.
BRINDLEY & BRINDLEY. Brindley & Brindley receives real estate sales
commissions from Outer Banks Ventures, Inc. ("Outer Banks Ventures") pursuant to
an exclusive listing agreement giving Brindley & Brindley the right to sell all
land developed by the company. Douglas R. Brindley is the Vice President of
Outer Banks Ventures and his father is the owner and President of Outer Banks
Ventures. Brindley & Brindley received commissions from Outer Banks Ventures in
the amount of $7,200, $23,800 and $69,800 in 1995, 1996 and 1997, respectively.
COASTAL RESORTS. Coastal Resorts purchased all the assets of Interstate
Realty Co., Inc. ("Interstate Realty") from CMF Properties, Inc. ("CMF
Properties") on December 30, 1996 for $700,000. Coastal Resorts purchased all
the outstanding stock of Sea Colony Management, Inc., a wholly owned subsidiary
of CMF Properties on December 30, 1996 for $100,000. CMF Properties was a
majority owned subsidiary of CMFA. These acquisitions were financed by loans
from CMFA to Coastal Resorts in the aggregate amount of $675,000 which were paid
in full on January 13, 1998.
On December 31, 1997, Coastal Resorts sold the service mark "Sea Colony" to
Sea Colony Development Corporation, Inc. ("Sea Colony Development") for $115,000
and a ten year license to use the service mark at no charge under the terms of a
license agreement. Sea Colony Development is owned by Joshua M. Freeman.
Pursuant to an exclusive listing agreement with Sea Colony Development
dated January 1, 1997, Coastal Resorts receives a real estate sales commission
of 6.5% of the purchase price of each new home sold at the Sea Colony
condominium community in Bethany Beach, Delaware. Under the agreement, Coastal
Resorts is also required to develop a marketing plan, at its own expense, to
promote home sales in the Sea Colony community. Coastal Resorts earned
commissions in the amount of $1,244,000 for 1997. As of December 31, 1997,
Coastal Resorts had a net receivable from Sea Colony Development of $673,707,
consisting of a receivable of $1,244,000 for home sales commissions and a
payable of $570,435 for commissions, marketing and advertising expenses paid by
Sea Colony Development on behalf of Coastal Resorts. This agreement terminates
on December 31, 1999.
Pursuant to an agreement dated January 1, 1997, Coastal Resorts receives
sales commissions of 6% for selling properties developed by Cove Resort Limited
Partnership ("Cove Resort"). CMFA is the general partner and a 70% owner of Cove
Resort. Under the agreement, Coastal Resorts is also required to develop a
marketing plan, at its own expense, to promote home sales in The Cove community.
Coastal Resorts was paid $18,750 under this agreement in 1997. The agreement
terminates on December 31, 1999.
Coastal Resorts has a management agreement with CMF Fitness, Inc. ("CMF
Fitness") dated June 1, 1996, to manage the Sea Colony Fitness Center for $5,834
a month. CMF Fitness is a wholly owned subsidiary of CMFA. CMF Fitness paid
Coastal Resorts $40,838 and $70,000 in 1996 and 1997, respectively, under the
agreement. The agreement terminates on the earlier of (i) December 31 of the
year in which the last new home in the Sea Colony development is sold or (ii)
December 31, 2005.
Pursuant to an agreement with Sea Colony Water Company, L.L.C. ("Sea Colony
Water") dated January 1, 1997, Coastal Resorts was appointed exclusive agent for
and manager of the Sea Colony Water Plant. Sea Colony Water is a wholly owned
subsidiary of CMFA. Under the terms of the agreement, Coastal Resorts is
entitled to retain all revenue collected by the water plant, less costs and
expenses and certain payments to Sea Colony Water. Coastal Resorts received net
revenues of $143,488 in 1997 from its management of the water plant. This
agreement terminates on December 31, 2001 or upon the sale of the water plant.
Coastal Resorts has also entered into an agreement with Sea Colony Water dated
January 1, 1997 to provide construction supervision services for an upgrade to
the water plant for two years. Coastal Resorts' fee for the services is the
direct costs it incurs plus 5%. Coastal Resorts did not receive any payments
under this agreement in 1997.
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Pursuant to an agreement with CMF Paymaster, Inc. ("Paymaster") dated
January 1, 1997, Paymaster provides administrative services relating to payroll
and employee benefit matters to Coastal Resorts, at a cost of $2 per pay period
per employee. Paymaster is indirectly owned by Mr. Freeman. Coastal Resorts did
not make any payments to Paymaster under this agreement in 1997. This agreement
terminates on December 31, 1999.
COLLECTION OF FINE PROPERTIES. Pursuant to an oral agreement, Collection of
Fine Properties performs accounting and bookkeeping services for L&D Development
Company ("L&D Development"). Luis Alonso owns 30% of L&D Development. The annual
amounts paid to Collection of Fine Properties from L&D Development were $60,000,
$57,000 and $75,000 in 1995, 1996 and 1997, respectively.
Collection of Fine Properties had obligations under a mortgage note of
$125,000 at December 31, 1997 at an interest rate of the Prime Rate plus 0.5%,
which is guaranteed by Mr. Alonso and others. This debt was assumed by them
prior to the Combinations.
In addition, at December 31, 1997, Collection of Fine Properties had
receivables in the amount of $633,509 from Mr. Alonso and persons affiliated
with him.
FIRST RESORT. First Resort purchased the rights to software designed by
Evan H. Gull under the terms of a purchase agreement dated January 1, 1987. The
agreement gave Mr. Gull the right to receive royalty payments through 1997. The
royalties paid by First Resort to Mr. Gull were $61,800, $57,040 and $24,307 in
1995, 1996 and 1997, respectively.
HOUSTON AND O'LEARY. Effective January 1, 1998 a stockholder of Houston and
O'Leary redeemed his stock and took on certain liabilities of Houston and
O'Leary in return for receiving certain assets of Houston and O'Leary, including
several notes receivable to Houston and O'Leary from the stockholder and Heidi
O'Leary Houston, in the aggregate amount of $297,000.
PRISCILLA MURPHY REALTY. Charles O. Howey loaned $200,000 to Priscilla
Murphy Realty on December 31, 1997 at an interest rate of 7.95%. At December 31,
1997, the balance on this loan was $155,000. The note does not have a set
maturity date. At December 31, 1997, Priscilla Murphy Realty also was indebted
to C.O. Condominium Corporation for $2,000,000 under the terms of a promissory
note issued to C.O. Condominium Corporation, dated January 3, 1997. The interest
rate on the note is 7.95%. C.O. Condominium Corporation is owned by Mr. Howey.
RESORT PROPERTY MANAGEMENT. Daniel L. Meehan loaned Resort Property
Management $50,000 on May 25, 1997 and $60,000 on September 29, 1997, both loans
at an interest rate of 9.5%. The loans were both paid on November 10, 1997. Mr.
Meehan also maintains a bank revolving credit agreement for $250,000 at a 10.25%
interest rate, under which he draws funds which he loans to Resort Property
Management for cash flow purposes. Resort Property Management makes interest and
principal payments on the loan directly to the bank. At the present time, the
balance on the revolving credit is zero.
TELLURIDE RESORT ACCOMMODATIONS. Park Brady entered into a consulting
agreement with the Company, effective May 26, 1998. The term of the agreement is
one year, during which time Mr. Brady will provide up to ten hours of consulting
services per week for a nominal consideration.
TRUPP-HODNETT ENTERPRISES. In 1997, Trupp-Hodnett Enterprises sold a
building, the related land (with a total book value of $135,000) and the related
$124,000 mortgage note payable to the stockholders of Trupp-Hodnett Enterprises,
including Hans F. Trupp, for $11,000 in cash.
WHISTLER CHALETS. As of December 31, 1997, Res - Resort Services Inc.
("Resort Services") was indebted to Whistler Chalets in the amount of $58,547
for various expenses paid by Whistler Chalets on behalf of Resort Services.
Resort Services is owned by J. Patrick McCurdy. Mr. McCurdy is currently
indebted to Whistler Chalets in the amount of $101,098 for advances against his
management fees and expenses. Both of these debts were paid prior to the
Combinations.
PUT-CALL AGREEMENT
The Company has entered into a put-call agreement with Scottsdale Resort
Accommodations, L.L.C. ("Scottsdale Resort Accommodations") and its stockholders
(the "Stockholders") dated December 22, 1997. The majority stockholder of
Scottsdale Resort Accommodations is a principal stockholder
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of Telluride Resort Accomodations. Pursuant to the agreement, if Scottsdale
Resort Accommodations achieves earnings before income taxes of $300,000 for any
trailing twelve-month period, the Stockholders can require the Company to
purchase the outstanding stock of Scottsdale Resort Accommodations. Conversely,
the Company has the right to purchase the outstanding stock of Scottsdale Resort
Accommodations if Scottsdale Resort Accommodations achieves earnings before
income taxes of $500,000 for a similar period. The purchase price will be seven
times Scottsdale Resort Accommodations' earnings before income taxes for the
relevant twelve-month period.
COMPANY POLICY
In the future, any transactions with officers, directors and holders of
more than 5% of the Common Stock will be approved by a majority of the Board of
Directors, including a majority of the disinterested members of the Board of
Directors.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of May 26, 1998, after giving
effect to the issuance of all the shares registered hereby by the Company in
connection with future acqusitions, by: (i) each person known to beneficially
own more than 5% of the outstanding shares of Common Stock; (ii) each of the
Company's directors; (iii) each named executive officer; and (iv) all executive
officers and directors. All persons listed have an address in care of the
Company's principal executive offices and have sole voting and investment power
with respect to their shares unless otherwise indicated.
<TABLE>
<CAPTION>
PERCENTAGE OWNED
----------------------------
NAMES AND ADDRESS BEFORE
OF BENEFICIAL OWNER SHARES OFFERING AFTER OFFERING
- ------------------------------------------------ ------------ ---------- ---------------
<S> <C> <C> <C>
David C. Sullivan ....................... 247,202 1.6 1.3
David L. Levine(1) ...................... 50,000 * *
Jeffery M. Jarvis ....................... 40,000 * *
W. Michael Murphy ....................... 40,000 * *
Jules S. Sowder ......................... 25,000 * *
John K. Lines ........................... 25,000 * *
Frederick L. Farmer ..................... 25,000
Luis Alonso(2) .......................... 124,250 * *
Park Brady (3) .......................... 41,041 * *
Douglas R. Brindley (4) ................. 196,167 1.2 1.0
Paul T. Dobson .......................... 85,334 * *
Sharon Benson Doucette .................. 150,000 * *
Joshua M. Freeman (3)(5) ................ 1,016,457 6.4 5.4
Evan H. Gull ............................ 88,111 * *
Charles O. Howey (3)(6) ................. 456,174 2.9 2.4
Heidi O'Leary Houston(7) ................ 250,667 1.6 1.3
Daniel L. Meehan ........................ 98,333 * *
J. Patrick McCurdy(8) ................... 135,162 * *
Andre S. Tatibouet ...................... 1,708,333 10.7 9.0
Hans F. Trupp ........................... 386,692 2.4 2.0
Michael D. Rose (3) ..................... 55,455 * *
Joseph V. Vittoria (3) .................. 50,000 * *
Theodore L. Weise (3) ................... 15,000 * *
Elan J. Blutinger (3)(9) ................ 1,741,924 10.9 9.2
D. Fraser Bullock (3)(9) ................ 1,741,924 10.9 9.2
Alpine Consolidated II, LLC(10) ......... 1,731,924 10.9 9.2
Capstone Partners, LLC (11) ............. 865,542 5.4 4.6
All Directors and Executive Officers as a
Group (25 persons) ..................... 8,017,289 50.3 42.4
</TABLE>
- ----------
* Less than 1.0%
(1) Includes 15,000 shares held in trust for the benefit of his minor children.
(2) Includes 3,000 shares held by his spouse as custodian for the benefit of
his minor children.
(3) Includes 10,000 shares which may be acquired upon the exercise of options.
(4) Includes 97,500 shares owned by Betty Shotton Brindley, his spouse.
(5) Includes 477,750 shares owned by CMF Coastal Resorts L.L.C.("CMF Coastal"),
in which Mr. Freeman has a 98% membership interest and 193,383 owned by CMF
RQI Holdings L.L.C. ("Holdings"). Mr. Freeman is the managing member of
Holdings and has sole voting and dispositive power for 118,633 shares and
no voting and sole dispositive power for an additional 74,750 shares held
by Holdings. Mr. Freeman disclaims beneficial ownership of 9,555 shares
held by CMF Coastal and 74,750 shares held by Holdings.
(6) Includes 102,963 shares beneficially owned by Dolores Howey, his spouse.
(7) Includes 2,500 shares held in trust for the benefit of her minor children.
(8) Includes 569 shares held by Mr. McCurdy as custodian for his minor child.
(9) Includes for each of Messrs. Blutinger and Bullock 1,731,307 shares
beneficially owned by Alpine Consolidated II, LLC. Elan J. Blutinger and D.
Fraser Bullock are Managing Directors of Alpine Consolidated II, LLC.
(10) Includes 124,864 shares held by VPIF, in which Alpine Consolidated II, LLC
has a 67% membership interest.
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(11) Includes 62,059 shares held by VPIF, in which Capstone Partners, LLC has a
33% membership interest; Leonard A. Potter, an Advisory Director, is a
Managing Director of Capstone Partners, LLC.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's authorized capital stock consists of 50,000,000 shares of
Common Stock, par value $.01 per share of which 3,134,630 shares are designated
restricted stock (the "Restricted Common Stock"), and 10,000,000 shares of
undesignated preferred stock, par value $.01 per share (the "Preferred Stock").
At May 26, 1998, the Company had outstanding 15,924,286 shares of Common Stock
(of which 3,134,630 are shares of Restricted Common Stock) and no shares of
Preferred Stock. See "Shares Eligible for Future Sale."
The following statements are brief summaries of certain provisions with
respect to the Company's capital stock contained in its Certificate of
Incorporation and By-Laws, copies of which have been filed as exhibits to the
Registration Statement of which this Prospectus is a part. The following is
qualified in its entirety by reference thereto.
COMMON STOCK AND RESTRICTED COMMON STOCK
All of the rights, privileges and obligations of the Common Stock and
Restricted Common Stock are the same, except for voting rights. The holders of
Common Stock are entitled to one vote for each share on all matters voted upon
by stockholders, including the election of directors. The holders of Restricted
Common Stock are entitled to one half of one vote for each share held on all
matters. Subject to the rights of any then outstanding shares of Preferred
Stock, the holders of Common Stock are entitled to such dividends as may be
declared in the discretion of the Board of Directors out of funds legally
available therefor. See "Dividend Policy." Holders of Common Stock are entitled
to share ratably in the net assets of the Company upon liquidation after payment
or provision for all liabilities and any preferential liquidation rights of any
Preferred Stock then outstanding. The holders of Common Stock have no preemptive
rights to purchase shares of stock of the Company. Shares of Common Stock are
not subject to any redemption provisions and are not convertible into any other
securities of the Company, except as provided in the following paragraph. All
outstanding shares of Common Stock are fully paid and non-assessable.
Each share of Restricted Common Stock will automatically convert to Common
Stock on a share for share basis: (a) in the event of a disposition of such
share of Restricted Common Stock by the holder thereof (other than a disposition
which is a distribution by a holder to its partners or beneficial owners or a
transfer to a related party of such holder (as defined in Sections 267, 707, 318
and/or 4946 of the Code) or a transfer to Alpine Consolidated II, LLC or
Capstone Partners, LLC, or any partner, affiliate or related party of such
entities); (b) in the event any person acquires beneficial ownership of 15% or
more of the outstanding shares of Common Stock of the Company; or (c) in the
event any person makes a bona fide offer to acquire 15% or more of the
outstanding shares of Common Stock of the Company. At December 31, 2000, the
Company may elect to convert any outstanding shares of Restricted Common Stock
into shares of Common Stock in the event 80% or more of the outstanding shares
of Restricted Common Stock have been converted into shares of Common Stock.
The Common Stock is listed on the New York Stock Exchange under the symbol
"RZT".
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors in one or more series. Subject to the provisions of the Company's
Certificate of Incorporation and limitations prescribed by law, the Board of
Directors is expressly authorized to adopt resolutions to issue the shares, to
fix the number of shares and to change the number of shares constituting any
series and to provide for or change the voting powers, designations, preferences
and relative, participating, optional or other special rights, qualifications,
limitations or restrictions thereof, including dividend rights (including
whether dividends are cumulative), dividend rates, terms of redemption
(including sinking fund provisions), redemption prices, conversion rights and
liquidation preferences of the shares constituting any series of the Preferred
Stock, in each case without any further action or vote by the stockholders. The
Company has no current plans to issue any shares of Preferred Stock.
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One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of the Company's management.
The issuance of shares of the Preferred Stock pursuant to the Board of
Directors' authority described above may adversely affect the rights of the
holders of Common Stock. For example, Preferred Stock issued by the Company may
rank prior to the Common Stock as to dividend rights, liquidation preference or
both, may have full or limited voting rights and may be convertible into shares
of Common Stock. Accordingly, the issuance of shares of Preferred Stock may
discourage bids for the Common Stock or may otherwise adversely affect the
market price of the Common Stock.
STATUTORY BUSINESS COMBINATION PROVISION
The Company is subject to the provisions of Section 203 of the DGCL
("Section 203"). Section 203 provides, with certain exceptions, that a Delaware
corporation may not engage in any of a broad range of business combinations with
a person or an affiliate or associate of such person, who is an "interested
stockholder" for a period of three years from the date that such person became
an interested stockholder unless: (i) the transaction resulting in a person
becoming an interested stockholder, or the business combination, is approved by
the Board of Directors of the corporation before the person becomes an
interested stockholder; (ii) the interested stockholder acquired 85% or more of
the outstanding voting stock of the corporation in the same transaction that
makes such person an interested stockholder (excluding shares owned by persons
who are both officers and directors of the corporation, and shares held by
certain employee stock ownership plans); or (iii) on or after the date the
person becomes an interested stockholder, the business combination is approved
by the corporation's board of directors and by the holders of at least 66% of
the corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder. Under Section 203, an
"interested stockholder" is defined as any person who is (i) the owner of 15% or
more of the outstanding voting stock of the corporation or (ii) an affiliate or
associate of the corporation and who was the owner of 15% or more of the
outstanding voting stock of the corporation at any time within the three-year
period immediately prior to the date on which it is sought to be determined
whether such person is an interested stockholder.
The Company's stockholders, by adopting an amendment to the Certificate of
Incorporation, may elect not to be governed by Section 203, which election would
be effective 12 months after such adoption. The provisions of Section 203 could
delay or frustrate a change in control of the Company, deny stockholders the
receipt of a premium on their Common Stock and have an adverse effect on the
Common Stock. The provisions also could discourage, impede or prevent a merger
or tender offer, even if such event would be favorable to the interests of
stockholders.
LIMITATION ON DIRECTORS' LIABILITIES
Limitation on Liability. Pursuant to the Company's Certificate of
Incorporation and as permitted by Section 102(b)(7) of the DGCL, directors of
the Company are not liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty, except for liability in connection with a
breach of duty of loyalty, for acts or omissions not in good faith or that
involve intentional misconduct or a knowing violation of law, for dividend
payments or stock repurchases that are illegal under Delaware law or for any
transaction in which a director has derived an improper personal benefit.
Indemnification. To the maximum extent permitted by law, the Certificate of
Incorporation provides for mandatory indemnification of directors and officers
of the Company against any expense, liability and loss to which they become
subject, or which they may incur as a result of having been a director or
officer of the Company. In addition, the Company must advance or reimburse
directors and officers for expenses incurred by them in connection with certain
claims.
ADVANCE NOTICE REQUIREMENTS FOR DIRECTOR NOMINEES.
The Company's By-Laws provide that nomination for election to the Board of
Directors must be made or approved by the Board of Directors. In addition, the
By-Laws establish an advance notice procedure with regard to the nomination by a
stockholder of candidates for election as directors at any
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meeting of stockholders called for the election of directors. The procedure
provides that a notice relating to the nomination of directors must be timely
given in writing to the Chairman of the Board of Directors of the Company prior
to the meeting. To be timely, notice relating to the nomination of directors
must be delivered not less than 14 days nor more than 60 days prior to any such
meeting of stockholders called for the election of directors. Notwithstanding
the forgoing, if a stockholder wishes the Board of Directors, or a duly
authorized committee of the Board of Directors, to consider nominating for
election to the Board of Directors a person recommended by such stockholder,
such stockholder must deliver a notice setting forth such recommendation to the
Chairman of the Board of Directors not less than 90 days nor more than 150 days
prior to the meeting.
Any notice to the Company from a stockholder who proposes to nominate a
person for election as a director must be accompanied by each proposed nominee's
written consent and contain the name, address and principal occupation of each
proposed nominee. Such notice must also contain the total number of shares of
capital stock of the Company that will be voted for each of the proposed
nominees, the name and address of the notifying stockholder and the number of
shares of capital stock of the Company owned by the notifying stockholder.
The Company's By-Laws (i) may have the effect of precluding a nomination
for the election of directors or precluding the conduct of business at a
particular meeting if the proper procedures are not followed or (ii) may
discourage or deter a third party from conducting a solicitation of proxies to
elect its own slate of directors or otherwise attempting to obtain control of
the Company, even if the conduct of such solicitation or such attempt might be
beneficial to the Company and its stockholders.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer & Trust Company.
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SHARES ELIGIBLE FOR FUTURE SALE
At May 26, 1998, the Company had outstanding 15,924,286 shares of Common
Stock. The 6,670,000 shares sold in the initial public offering are freely
tradable without restriction unless acquired by affiliates of the Company. None
of the remaining 9,254,286 outstanding shares of Common Stock (including
3,134,630 shares of Restricted Common Stock beneficially owned by the Company's
officers, directors and certain other stockholders) has been registered under
the Securities Act, which means that they may be resold publicly only upon
registration under the Securities Act or in compliance with an exemption from
the registration requirements of the Securities Act, including the exemption
provided by Rule 144 thereunder.
In general, under Rule 144 as currently in effect, if one year has elapsed
since the later of the date of the acquisition of the restricted shares of
Common Stock from either the Company or any affiliate of the Company, the
acquiror or subsequent holder thereof may sell, within any three-month period
commencing 90 days after the date of the Prospectus relating to the Offering, a
number of shares that does not exceed the greater of one percent of the then
outstanding shares of the Common Stock, or the average weekly trading volume of
the Common Stock on the New York Stock Exchange during the four calendar weeks
preceding the date on which notice of the proposed sale is sent to the
Commission. Sales under Rule 144 are also subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about the Company. If two years have elapsed since the later of the
date of the acquisition of restricted shares of Common Stock from the Company or
any affiliate of the Company, a person who is not deemed to have been an
affiliate of the Company at any time for 90 days preceding a sale would be
entitled to sell such shares under Rule 144 without regard to the volume
limitations, manner of sale provisions or notice requirements.
As of May 26, 1998, holders of shares of Common Stock that were not
purchased in the initial public offering own an aggregate of 9,254,286 shares of
Common Stock, including the stockholders of the Founding Companies, who received
in the aggregate 6,119,656 shares in connection with the Combinations, and
management and founders of RQI, who own an aggregate of 3,134,630 shares. These
shares have not been registered under the Securities Act and, therefore, may not
be sold unless registered under the Securities Act or sold pursuant to an
exemption from registration, such as the exemption provided by Rule 144.
Furthermore, these stockholders have separately agreed with the Company not to
sell, transfer or otherwise dispose of any of these shares for one year
following the closing of the initial public offering (until May 26, 1999). These
stockholders also have certain demand registration rights beginning two years
after the initial public offering and certain piggyback registration rights with
respect to these shares.
The Company has agreed not to offer, sell, contract to sell or otherwise
dispose of any shares of Common Stock, or any securities convertible into or
exercisable or exchangeable for Common Stock, for a period of 180 days after the
date of the initial public offering without the prior written consent of Smith
Barney Inc. on behalf of the Underwriters. The holders of all shares outstanding
prior to the initial public offering, the stockholders of the Founding Companies
who received shares of Common Stock in exchange for their stock in the Founding
Companies and certain non-employee directors have agreed not to offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock, or any
securities convertible into or exercisable or exchangeable for Common Stock for
a period of one year from the date of the closing of the initial public offering
without the prior written consent of Smith Barney Inc. on behalf of the
Underwriters. The foregoing restrictions will not apply: (i) in the case of the
Company, to options or shares of Common Stock issued pursuant to the Company's
1998 Long-Term Incentive Plan or in connection with acquisitions and (ii) in the
case of all holders shares of Common Stock disposed of as bona fide gifts,
subject in each case to any remaining portion of the one year or 180-day period,
as applicable, to any shares so issued or transferred. In evaluating any request
for a waiver of the one year or 180-day lock-up period, as applicable, Smith
Barney Inc. will consider, in accordance with its customary practice, all
relevant facts and circumstances at the time of the request, including, without
limitation, the recent trading market for the Common Stock, the size of the
request and, with respect to a request by the Company to issue additional equity
securities, the purpose of such an issuance.
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The 3,000,000 shares of Common Stock registered by the Company pursuant to
this shelf registration statement and prospectus for use as consideration in
future acquisitions will be, upon issuance thereof, freely tradable unless
acquired by parties to the acquisition or affiliates of such parties, other than
the issuer, in which case they may be sold pursuant to Rule 145 under the
Securities Act. Rule 145 permits such persons to resell immediately securities
acquired in transactions covered under the Rule, provided such securities are
resold in accordance with the public information, volume limitations and manner
of sale requirements of Rule 144. If a period of one year has elapsed since the
date such securities were acquired in such transaction and if the issuer meets
the public information requirements of Rule 144, Rule 145 permits a person who
is not an affiliate of the issuer to freely resell such securities. The Company
intends to seek contractual restrictions on the resale of these shares in
connection with future acquisitions that are as restrictive as those described
in the preceding paragraph, however, such restrictions may not be available in
certain cases, such as in transactions accounted for using the pooling of
interests method of accounting.
Sales, or the availability for sale of, substantial amounts of the Common
Stock in the public market could adversely affect prevailing market prices and
the ability of the Company to raise equity capital in the future.
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PLAN OF DISTRIBUTION
THE COMPANY
The shares of Common Stock covered by the Prospectus are available for use
in future acquisitions of businesses, properties or securities of entities or
persons engaged in the vacation rental and property management industry and
other related businesses. The consideration offered by the Company in such
acquisitions, in addition to the Common Stock offered by the Prospectus, may
include cash, debt or other Company securities, or assumption by the Company of
liabilities of the businesses being acquired, or a combination thereof. It is
contemplated that the terms of each acquisition will be determined by
negotiations between the Company and the management or the owners of the assets
to be acquired or the owners of the securities (including newly issued
securities) to be acquired, with the Company taking into account the quality of
the management, the past and potential earning power and growth of the assets or
securities to be acquired, and other relevant factors. It is anticipated that
the Common Stock issued in acquisitions hereunder will be valued at a price
reasonably related to the market value of the Common Stock either at the time
the terms of the acquisition are tentatively agreed upon or at or about the time
or times of delivery of the shares.
SELLING STOCKHOLDERS
Selling Stockholders or permitted transferees may from time to time sell
the shares offered by them hereunder in transactions in which they and any
broker-dealer through whom such shares are sold may be deemed to be underwriters
within the meaning of the Securities Act. The Company will receive none of the
proceeds from any such sales. There presently are no arrangements or
understandings, formal or informal, pertaining to the distribution of the shares
of Common Stock described herein. Upon the Company being notified by a Selling
Stockholder that any material arrangement has been entered into with a
broker-dealer for the sale of shares of Common Stock bought through a block
trade, special offering, exchange distribution or secondary distribution, a
supplemented Prospectus will be filed, pursuant to Rule 424(b) under the
Securities Act, setting forth (i) the name of each Selling Stockholder and the
participating broker-dealer(s), (ii) the number of shares involved, (iii) the
price at which the shares were sold, (iv) the commissions paid or the discounts
allowed to such broker-dealer(s), where applicable, (v) that such
broker-dealer(s) did not conduct any investigation to verify the information set
out in this Prospectus and (vi) other facts material to the transaction.
Selling Stockholders may sell the shares being offered hereby from time to
time in transactions (which may involve crosses and block transactions) on the
NYSE, in negotiated transactions or otherwise, at market prices prevailing at
the time of the sale or at negotiated prices. Selling Stockholders may sell some
or all of the shares in transactions involving broker-dealers, who may act
solely as agent and/or may acquire shares as principal. Broker-dealers
participating in such transactions as agent may receive commissions from Selling
Stockholders (and, if they act as agent for the purchaser of such shares, from
such purchaser), such commissions computed in appropriate cases in accordance
with the applicable rules of the NYSE, which commissions may be at negotiated
rates where permissible under such rules. Participating broker-dealers may agree
with Selling Stockholders to sell a specified number of shares at a stipulated
price per share and, to the extent such broker-dealer is unable to do so acting
as an agent for the Selling Stockholder, to purchase as principal any unsold
shares at the price required to fulfill the broker-dealer's commitment to
Selling Stockholders. In addition or alternatively, shares may be sold by
Selling Stockholders and/or by or through other broker-dealers in special
offerings, exchange distributions or secondary distributions pursuant to and in
compliance with the governing rules of the NYSE, and in connection therewith
commissions in excess of the customary commission prescribed by such governing
rules may be paid to participating broker-dealers, or, in the case of certain
secondary distributions, a discount or concession from the offering price may be
allowed to participating broker-dealers in excess of the customary commission.
Broker-dealers who acquire shares as principal may thereafter resell such shares
from time to time in transactions (which may involve crosses and block
transactions and which may involve sales to or through other broker-dealers,
including transactions of the nature described in the preceding two sentences)
on the NYSE, in negotiated transactions or otherwise, at market prices
prevailing at the time of the sale or at negotiated prices, and in connection
with such resales may pay to or receive commissions from the purchaser of such
shares.
76
<PAGE>
In connection with the distribution of the Common Stock, the Selling
Stockholders may enter into hedging transactions with broker-dealers. In
connection with such transactions, broker-dealers may engage in short sales of
the Common Stock registered hereunder in the course of hedging the positions
they assume with the Selling Stockholders. The Selling Stockholders may also
sell shares short and redeliver the Common Stock to close out such short
positions. The Selling Stockholders may also enter into option or other
transactions with broker-dealers which require the delivery to the broker-dealer
of the Common Stock registered hereunder, which the broker-dealer may resell or
otherwise transfer pursuant to this Prospectus. The Selling Stockholders may
also loan or pledge the Common Stock registered hereunder to a broker-dealer and
the broker-dealer may sell the Common Stock so loaned or upon a default the
broker-dealer may effect sales of the pledged Common Stock pursuant to this
Prospectus.
The Company may agree to indemnify each Selling Stockholder as an
Underwriter under the Securities Act against certain liabilities, including
liabilities arising under the Securities Act. Each Selling Stockholder may
indemnify any broker-dealer that participates in transactions involving sales of
the shares against certain liabilities, including arising under the Securities
Act.
The Selling Stockholders may resell the shares offered hereby only if such
securities are qualified for sale under applicable state securities or "blue
sky" laws or exemptions from such registration and qualified requirements are
available.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered by this
Prospectus will be passed upon for the Company by Akin, Gump, Strauss, Hauer &
Feld, L.L.P., Washington, D.C.
EXPERTS
The audited financial statements of ResortQuest International, Inc., Hotel
Corporation of the Pacific, Inc., Brindley & Brindley Realty and Development,
Inc. and B&B On The Beach, Inc., Coastal Resorts Management, Inc. and Coastal
Resorts Realty L.L.C., Interstate Realty Co., Inc. and Sea Colony Management,
Inc., First Resort Software, Inc., Houston and O'Leary Company, The Maury
People, Inc., Howey Acquisition, Inc. and Priscilla Murphy Realty, Inc., Resort
Property Management, Inc., Telluride Resort Accommodations, Inc., and
Trupp-Hodnett Enterprises, Inc. and THE Management Company, included elsewhere
in this Prospectus have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports. The audited financial statements of Collection of Fine Properties,
Inc., included elsewhere in this Prospectus have been audited by Morrison,
Brown, Argiz and Company, independent auditors, as indicated in their report
with respect thereto, and in reliance upon the authority of said firm as experts
in giving said report.
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Exchange Act,
and in accordance therewith files reports, proxy statements and other
information that may be inspected and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza Building, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549 and its regional offices located at 7
World Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of
such materials can be obtained from the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains an Internet web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. The address of such Internet web site is
http://www.sec.gov.
77
<PAGE>
The Company has filed with the Securities and Exchange Commission,
Washington, D.C., a Registration Statement on Form S-1 with respect to the
shares of Common Stock offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information pertaining to the Company and the
shares of Common Stock offered hereby, reference is made to such Registration
Statement, including the exhibits, financial statements and schedules filed
therewith. Statements contained in this Prospectus as to the contents of any
contract or any other document are not necessarily complete, and, in each
instance, reference is made to the copy of such contract or document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. The Registration Statement, including the
exhibits and schedules thereto, may be inspected and copied at the Commission's
offices listed in the preceding paragraph. A copy of the registration statement
may be obtained from the Commission's principal office in Washington, D.C. upon
payment of the fees prescribed by the Commission or through the Commission's
Internet web site.
78
<PAGE>
INDEX TO FINANCIAL STATEMENTS
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA AND
HISTORICAL FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
RESORTQUEST INTERNATIONAL, INC. PRO FORMA:
Basis of Presentation ................................................... F-3
Unaudited Pro Forma Combined Balance Sheets ............................. F-4
Unaudited Pro Forma Combined Statements of Operations ................... F-6
Notes to Unaudited Pro Forma Combined Financial Statements .............. F-12
RESORTQUEST INTERNATIONAL, INC.:
Report of Independent Public Accountants ................................ F-15
Balance Sheets .......................................................... F-16
Statement of Operations ................................................. F-17
Statement of Changes in Stockholders Equity ............................. F-18
Statement of Cash Flows ................................................. F-19
Notes to Financial Statements ........................................... F-20
HOTEL CORPORATION OF THE PACIFIC, INC.:
Report of Independent Public Accountants ................................ F-23
Balance Sheets .......................................................... F-24
Statements of Operations ................................................ F-25
Statements of Changes in Stockholders' Equity (Deficit) ................. F-26
Statements of Cash Flows ................................................ F-27
Notes to Financial Statements ........................................... F-28
BRINDLEY & BRINDLEY:
Report of Independent Public Accountants ................................ F-38
Combined Balance Sheets ................................................. F-39
Combined Statements of Operations ....................................... F-40
Combined Statements of Changes in Stockholders' Equity (Deficit) ........ F-41
Combined Statements of Cash Flows ....................................... F-42
Notes to Combined Financial Statements .................................. F-43
COASTAL RESORTS MANAGEMENT, INC. AND
COASTAL RESORTS REALTY, L.L.C.:
Reports of Independent Public Accountants ............................... F-46
Combined Balance Sheets ................................................. F-48
Combined Statements of Operations ....................................... F-49
Statements of Changes in Stockholders' and Members' Equity .............. F-50
Combined Statements of Cash Flows ....................................... F-51
Notes to Combined Financial Statements .................................. F-53
COLLECTION OF FINE PROPERTIES, INC.:
Independent Auditor's Report ............................................ F-59
Consolidated Balance Sheets ............................................. F-60
Consolidated Statements of Operations ................................... F-61
Consolidated Statements of Changes in Stockholders' Equity .............. F-62
Consolidated Statements of Cash Flows ................................... F-63
Notes to Consolidated Financial Statements .............................. F-65
FIRST RESORT SOFTWARE, INC.:
Report of Independent Public Accountants ................................ F-71
Balance Sheets .......................................................... F-72
Statements of Operations ................................................ F-73
Statements of Changes in Stockholders' Equity (Deficit) ................. F-74
Statements of Cash Flows ................................................ F-75
Notes to Financial Statements ........................................... F-76
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
HOUSTON AND O'LEARY COMPANY:
Report of Independent Public Accountants ........................... F-79
Balance Sheets ..................................................... F-80
Statements of Operations ........................................... F-81
Statements of Changes in Stockholders' Equity ...................... F-82
Statements of Cash Flows ........................................... F-83
Notes to Financial Statements ...................................... F-84
THE MAURY PEOPLE, INC.:
Report of Independent Public Accountants ........................... F-87
Balance Sheets ..................................................... F-88
Statements of Operations ........................................... F-89
Statements of Changes in Stockholders' Equity (Deficit) ............ F-90
Statements of Cash Flows ........................................... F-91
Notes to Financial Statements ...................................... F-92
HOWEY ACQUISITION, INC.
d.b.a PRISCILLA MURPHY REALTY, INC.:
Reports of Independent Public Accountants .......................... F-96
Consolidated Balance Sheets ........................................ F-98
Consolidated Statements of Operations .............................. F-99
Consolidated Statements of Changes in Stockholders' Equity ......... F-100
Consolidated Statements of Cash Flows .............................. F-101
Notes to Consolidated Financial Statements ......................... F-103
RESORT PROPERTY MANAGEMENT, INC.:
Report of Independent Public Accountants ........................... F-107
Balance Sheets ..................................................... F-108
Statements of Operations ........................................... F-109
Statements of Changes in Stockholders' Equity (Deficit) ............ F-110
Statements of Cash Flows ........................................... F-111
Notes to Financial Statements ...................................... F-112
TELLURIDE RESORT ACCOMMODATIONS, INC.:
Report of Independent Public Accountants ........................... F-116
Balance Sheets ..................................................... F-117
Statements of Operations ........................................... F-118
Statements of Changes in Stockholders' Equity (Deficit) ............ F-119
Statements of Cash Flows ........................................... F-120
Notes to Financial Statements ...................................... F-121
TRUPP HODNETT COMPANY:
Report of Independent Public Accountants ........................... F-124
Combined Balance Sheets ............................................ F-125
Combined Statements of Operations .................................. F-126
Combined Statements of Changes in Stockholders' Equity ............. F-127
Combined Statements of Cash Flows .................................. F-128
Notes to Financial Statements ...................................... F-130
</TABLE>
F-2
<PAGE>
RESORTQUEST INTERNATIONAL, INC., AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
On May 26, 1998, ResortQuest International, Inc. ("RQI" or the "Company")
consummated its initial public offering (the "Offering") and the combination
(the "Combinations") of 13 vacation rental and property management companies.
The following unaudited pro forma combined financial statements give effect to
the acquisitions by RQI, of the outstanding capital stock of Hotel Corporation
of the Pacific, Inc. ("Aston") and Brindley & Brindley Realty, Inc. and B&B On
The Beach, Inc. (collectively "Brindley and Brindley"), Coastal Resorts
Management, Inc. and Coastal Resorts Realty, L.L.C. (collectively "Coastal
Resorts"), Collection of Fine Properties, Inc. ("CFP"), First Resort Software,
Inc. ("FRS"), Houston and O'Leary Company ("H&O"), Maui Condo & Home Realty,
Inc. ("Maui"), The Maury People, Inc. ("Maury"), Howey Acquisition, Inc. and
Priscilla Murphy Realty, Inc. (collectively "PMR"), Resort Property Management,
Inc. ("RPM"), Telluride Resort Accommodations, Inc. ("TRA"), Trupp-Hodnett
Enterprises, Inc. and THE Management Company (collectively "THE"), and Whistler
Chalets Limited ("Whistler"), (collectively the "Founding Companies"). The
Combinations will be accounted for using the purchase method of accounting.
Aston, one of the Founding Companies has been designated as the accounting
acquiror in accordance with Securities and Exchange Commission Staff Accounting
Bulletin No. 97 (SAB 97) which states that the combining company which receives
the largest portion of voting rights in the combined corporation is presumed to
be the acquiror for accounting purposes unless other evidence clearly indicates
that another company is the acquiror. Management has analyzed the factors as set
forth in SAB 97 that may indicate Aston should not be deemed to be accounting
acquiror, including (1) the existing conversion rights of the Restricted Common
Stock, (2) Aston's level of representation on the Board and in the holding
company management team and (3) the market value of the shares held by Aston and
the existing shareholder group. Management has concluded that none of these
factors, either individually, or in the aggregate, is sufficient to rebut the
presumption that the shareholders of Aston should be deemed the accounting
acquiror.
The unaudited pro forma combined balance sheets give effect to the
Combinations and the Offering as if they had occurred on December 31, 1997. The
unaudited pro forma combined statement of operations gives effect to these
transactions as if they had occurred on January 1, 1997.
Following the Combinations, the Company expects to realize certain savings
as a result of (i) volume purchasing and national contracts for
telecommunications, credit fees, advertising, printing, housekeeping supplies
and other operating expenses and (ii) consolidation of insurance, employee
benefits and other general and administrative expenses. The Company cannot
quantify these savings accurately at this time. It is anticipated that these
savings will be partially offset by the costs of being a publicly traded company
and the incremental costs related to the Company's new management team. However,
these costs, like the savings that they offset, cannot be quantified accurately.
Neither these anticipated savings nor these anticipated costs have been included
in the pro forma combined financial information of the Company. To the extent
the owners and certain key employees of the Founding Companies have agreed
prospectively to reductions in salary, bonuses and benefits, these reductions
have been reflected in the unaudited pro forma combined statement of operations.
Additionally, the effects of the exclusion of certain non-operating assets and
the assumption of or retirement of certain liabilities that will be retained by
the stockholders of the Founding companies have been eliminated in the unaudited
pro forma financial statements.
The pro forma adjustments are based on preliminary estimates, available
information and certain assumptions and may be revised as additional information
becomes available. In management's opinion, the pro forma information presented
herein should not materially change from the preliminary estimates. The
unaudited pro forma financial data do not purport to represent what the
Company's financial position or results of operations would actually have been
if such transactions in fact had occurred on those dates and are not necessarily
representative of the Company's financial position or results of operations for
any future period. Since the Founding Companies were not under common control or
management, historical combined results may not be comparable to, or indicative
of, future performance. The unaudited pro forma combined financial statements
should be read in conjunction with the other financial statement and notes
thereto included elsewhere in the Prospectus. See "Risk Factors" included
elsewhere herein.
F-3
<PAGE>
PAGE 1 OF 2
RESORTQUEST INTERNATIONAL, INC., AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET - MARCH 31, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
BRINDLEY &
RQI ASTON BRINDLEY
----------- --------- ------------
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents ............................ $ -- $ 1,208 $ 508
Cash held in trust ................................... -- -- 707
Trade and other receivables, net of allowance ........ -- 2,138 50
Other current assets ................................. 2,725 310 201
--------- ------- ------
Total current assets ................................ 2,725 3,656 1,466
Advances to stockholder and affiliates, net .......... -- 6,356 --
Property and equipment, net .......................... -- 1,667 137
Goodwill ............................................. -- -- --
Other assets ......................................... -- 340 --
--------- ------- ------
Total assets ........................................ $ 2,725 $12,019 $1,603
========= ======= ======
Current Liabilities:
Current maturities of long-term debt ................. $ -- $ 594 $ 11
Customer deposits, deferred revenues ................. -- -- 2,122
Accounts payable, and accrued liabilities ............ 3,275 6,216 31
Payables to Founding Companies' Stockholders ......... -- -- --
Other current liabilities ............................ -- 427 --
--------- ------- ------
Total current liabilities ........................... 3,275 7,237 2,164
--------- ------- ------
Long-term debt, net of current maturities ............. -- 2,301 31
Other long-term liabilities ........................... -- 2,376 --
Stockholders' Equity:
Common stock 3,134,630 shares outstanding (RQI),
9,254,286 shares outstanding (pro forma
combined), 15,924,286 shares outstanding (pro forma
as adjusted) ........................................ -- 100 0
Additional paid-in-capital ........................... 5,132 5 --
Distribution in Excess of Predecessor Basis in Net
Assets .............................................. -- -- --
Retained earnings (deficit) .......................... (5,682) -- (592)
--------- ------- ------
Total stockholders's equity ......................... (550) 105 (592)
--------- ------- ------
Total liabilities and stockholder's equity .......... $ 2,725 $12,019 $1,603
========= ======= ======
<CAPTION>
COASTAL
RESORTS CFP FRS H&O MAURY
--------- --------- --------- ------- --------
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents ............................ $1,021 $1,723 $ 208 $208 $ 390
Cash held in trust ................................... 779 -- -- -- 17
Trade and other receivables, net of allowance ........ 518 1,171 290 70 --
Other current assets ................................. -- 268 230 251 --
------ ------ ------ ---- -----
Total current assets ................................ 2,318 3,162 728 529 407
Advances to stockholder and affiliates, net .......... -- -- -- -- --
Property and equipment, net .......................... 275 1,905 300 59 92
Goodwill ............................................. 705 50 -- -- --
Other assets ......................................... -- -- -- -- --
------ ------ ------ ---- -----
Total assets ........................................ $3,298 $5,117 $1,028 $588 $ 499
====== ====== ====== ==== =====
Current Liabilities:
Current maturities of long-term debt ................. $ -- $ 138 $ -- $150 $ --
Customer deposits, deferred revenues ................. 1,001 664 530 173 3
Accounts payable, and accrued liabilities ............ 323 1,287 290 99 517
Payables to Founding Companies' Stockholders ......... -- -- -- -- --
Other current liabilities ............................ -- -- -- -- --
------ ------ ------ ---- -----
Total current liabilities ........................... 1,324 2,089 820 422 520
------ ------ ------ ---- -----
Long-term debt, net of current maturities ............. -- 923 -- -- --
Other long-term liabilities ........................... -- -- -- -- --
Stockholders' Equity:
Common stock 3,134,630 shares outstanding (RQI),
9,254,286 shares outstanding (pro forma
combined), 15,924,286 shares outstanding (pro forma
as adjusted) ........................................ -- 788 3 -- 1
Additional paid-in-capital ........................... 125 -- 13 -- --
Distribution in Excess of Predecessor Basis in Net
Assets .............................................. -- -- -- -- --
Retained earnings (deficit) .......................... 1,849 1,317 192 166 (22)
------ ------ ------ ---- -----
Total stockholders's equity ......................... 1,974 2,105 208 166 (21)
------ ------ ------ ---- -----
Total liabilities and stockholder's equity .......... $3,298 $5,117 $1,028 $588 $ 499
====== ====== ====== ==== =====
</TABLE>
F-4
<PAGE>
PAGE 2 OF 2
RESORTQUEST INTERNATIONAL, INC., AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET - MARCH 31, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PMR RPM TRA THE MAUI WHISTLER
--------- --------- --------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents ............................ $ 2,375 $ 865 $1,672 $ 177 $ 290 $1,663
Cash held in trust ................................... 6,570 -- -- 922 1,329 --
Trade and other receivables, net of allowance ........ 170 4 414 350 121 250
Other current assets ................................. -- 293 78 36 131 29
------- ------ ------ ------ ------ ------
Total current assets ................................ 9,115 1,162 2,164 1,485 1,871 1,942
Advances to stockholder and affiliates, net .......... -- -- -- -- -- --
Property and equipment, net .......................... 105 355 63 286 24 1,452
Goodwill ............................................. 5,402 -- -- -- 20 --
Other assets ......................................... 185 -- -- -- 25 --
------- ------ ------ ------ ------ ------
Total assets ........................................ $14,807 $1,517 $2,227 $1,771 $1,940 $3,394
======= ====== ====== ====== ====== ======
Current Liabilities:
Current maturities of long-term debt ................. $ 803 $ 77 $ -- $ -- $ -- $ --
Customer deposits, deferred revenues ................. 6,570 166 468 890 1,329 --
Accounts payable, and accrued liabilities ............ 259 603 1,250 261 162 1,569
Payables to Founding Companies' Stockholders ......... -- -- -- -- -- --
Other current liabilities ............................ -- 127 -- 32 52 --
------- ------ ------ ------ ------ ------
Total current liabilities ........................... 7,632 973 1,718 1,183 1,543 1,569
------- ------ ------ ------ ------ ------
Long-term debt, net of current maturities ............. 4,059 116 -- -- -- 1,271
Other long-term liabilities ........................... -- 3 -- -- -- --
Stockholders' Equity (Deficit):
Common stock 3,134,630 shares outstanding (RQI),
9,254,286 shares outstanding (pro forma
combined), 15,058,416 shares outstanding (pro forma
as adjusted) ........................................ 100 -- 216 17 1 --
Additional paid-in-capital ........................... 150 26 -- -- 1 --
Distribution in Excess of Predecessor Basis in Net
Assets .............................................. -- -- -- -- -- --
Retained earnings (deficit) .......................... 2,866 399 293 571 395 554
------- ------ ------ ------ ------ ------
Total stockholders's equity ......................... 3,116 425 509 588 397 554
------- ------ ------ ------ ------ ------
Total liabilities and stockholder's equity .......... $14,807 $1,517 $2,227 $1,771 $1,940 $3,394
======= ====== ====== ====== ====== ======
<CAPTION>
PRO
PRO FORMA FORMA OFFERING AS
COMBINED ADJUSTMENTS COMBINED ADJUSTMENTS ADJUSTED
---------- ------------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents ............................ $12,308 $ (3,366) $ 8,942 $ 4,699 $ 13,641
Cash held in trust ................................... 10,324 3,639 13,963 -- 13,963
Trade and other receivables, net of allowance ........ 5,546 (664) 4,882 -- 4,882
Other current assets ................................. 4,552 1,067 5,619 -- 5,619
------- --------- --------- ---------- ---------
Total current assets ................................ 32,730 676 33,406 4,699 38,105
Advances to stockholder and affiliates, net .......... 6,356 (2,715) 3,641 -- 3,641
Property and equipment, net .......................... 6,720 (1,387) 5,333 -- 5,333
Goodwill ............................................. 6,177 87,959 94,136 -- 94,136
Other assets ......................................... 550 -- 550 -- 550
------- --------- --------- ---------- ---------
Total assets ........................................ $52,533 $ 84,533 $ 137,066 $ 4,699 $ 141,765
======= ========= ========= ========== =========
Current Liabilities:
Current maturities of long-term debt ................. $ 1,773 $ (953) $ 820 $ (803) $ 17
Customer deposits, deferred revenues ................. 13,916 -- 13,916 -- 13,916
Accounts payable, and accrued liabilities ............ 16,142 (547) 15,595 -- 15,595
Payables to Founding Companies' Stockholders ......... -- 54,901 54,901 (54,901) --
Other current liabilities ............................ 638 -- 638 -- 638
------- --------- --------- ---------- ---------
Total current liabilities ........................... 32,469 53,401 85,870 (55,704) 30,166
------- --------- --------- ---------- ---------
Long-term debt, net of current maturities ............. 8,701 (4,233) 4,468 (3,995) 473
Other long-term liabilities ........................... 2,379 -- 2,379 -- 2,379
Stockholders' Equity (Deficit):
Common stock 3,134,630 shares outstanding (RQI),
9,254,286 shares outstanding (pro forma
combined), 15,058,416 shares outstanding (pro forma
as adjusted) ........................................ 1,226 (1,133) 93 66 159
Additional paid-in-capital ........................... 5,452 64,007 69,459 64,332 133,791
Distribution in Excess of Predecessor Basis in Net
Assets .............................................. -- (29,500) (29,500) -- (29,500)
Retained earnings (deficit) .......................... 2,306 1,991 4,297 -- 4,297
------- --------- --------- ---------- ---------
Total stockholders's equity ......................... 8,984 35,365 44,349 64,398 108,747
------- --------- --------- ---------- ---------
Total liabilities and stockholder's equity .......... $52,533 $ 84,533 $ 137,066 $ 4,699 $ 141,765
======= ========= ========= ========== =========
</TABLE>
F-5
<PAGE>
PAGE 1 OF 2
RESORTQUEST INTERNATIONAL, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
BRINDLEY &
RQI ASTON BRINDLEY
----- ---------- ------------
<S> <C> <C> <C>
Revenues ...................................................... $-- $19,554 $4,021
Operating expenses ............................................ -- 8,908 3,028
General and administrative expenses ........................... -- 5,081 395
Depreciation and amortization ................................. -- 394 87
--- ------- ------
Income (loss) from operations ................................ -- 5,171 511
Interest (expense) and other income, net ...................... -- (86) 42
--- ------- ------
Income (loss) before income taxes ............................. -- 5,085 553
Provision for income taxes .................................... -- -- --
--- ------- ------
Net income (loss) ............................................. $-- $ 5,085 $ 553
=== ======= ======
PRO FORMA DATA (unaudited):
Historical net income (loss) before pro forma provision for in-
come taxes ................................................... $-- $ 5,085 $ 553
Less: pro forma provision for income taxes .................... -- 2,034 221
--- ------- ------
PRO FORMA NET INCOME (LOSS) ................................... $-- $ 3,051 $ 332
=== ======= ======
<CAPTION>
COASTAL
RESORTS CFP FRS H&O MAURY
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues ...................................................... $3,615 $4,303 $2,864 $1,596 $1,183
Operating expenses ............................................ 1,788 2,830 1,704 494 211
General and administrative expenses ........................... 559 586 372 274 654
Depreciation and amortization ................................. 85 307 45 48 28
------ ------ ------ ------ ------
Income (loss) from operations ................................ 1,183 580 743 780 290
Interest (expense) and other income, net ...................... (47) 133 25 (15) 28
------ ------ ------ ------ ------
Income (loss) before income taxes ............................. 1,136 713 768 765 318
Provision for income taxes .................................... -- -- -- -- --
------ ------ ------ ------ ------
Net income (loss) ............................................. $1,136 $ 713 $ 768 $ 765 $ 318
====== ====== ====== ====== ======
PRO FORMA DATA (unaudited):
Historical net income (loss) before pro forma provision for in-
come taxes ................................................... $1,136 $ 713 $ 768 $ 765 $ 318
Less: pro forma provision for income taxes .................... 454 285 307 306 127
------ ------ ------ ------ ------
PRO FORMA NET INCOME (LOSS) ................................... $ 682 $ 428 $ 461 $ 459 $ 191
====== ====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
combined financial statements.
F-6
<PAGE>
PAGE 2 OF 2
RESORTQUEST INTERNATIONAL, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PMR RPM TRA THE MAUI
--------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
Revenues ........................................ $4,740 $2,295 $4,313 $4,061 $1,422
Operating expenses .............................. 1,184 1,560 3,037 1,838 366
General and administrative expenses ............. 1,663 548 982 1,939 954
Depreciation and amortization ................... 203 79 48 85 25
------ ------ ------ ------ ------
Income (loss) from operations .................. 1,690 108 246 199 77
Interest (expense) and other income, net ........ (182) 217 31 47 (1)
------ ------ ------ ------ --------
Income (loss) before income taxes .............. 1,508 325 277 246 76
Provision for income taxes ..................... -- 75 -- 60 21
------ ------ ------ ------ -------
Net income (loss) .............................. $1,508 $ 250 $ 277 $ 186 $ 55
====== ====== ====== ====== =======
PRO FORMA DATA (UNAUDITED):
Historical net income (loss) before pro forma
provision for income taxes ..................... $1,508 $ 325 $ 277 $ 246 $ 76
Less: pro forma provision for income taxes ...... 603 130 111 98 30
------ ------ ------ ------ -------
PRO FORMA NET INCOME (LOSS) ..................... $ 905 $ 195 $ 166 $ 148 $ 46
====== ====== ====== ====== =======
Net income per share ............................
Shares used in computing net income per share
(Note 5) .......................................
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO
WHISTLER COMBINED (NOTE 4) FORMA
------------ ---------- ----------------- --------------
<S> <C> <C> <C> <C>
Revenues ........................................ $2,060 $56,027 $ 792 (a) $ 56,819
Operating expenses .............................. 1,147 28,095 (415)(a) 27,680
General and administrative expenses ............. 729 14,736 (2,353)(a) 12,383
Depreciation and amortization ................... 85 1,519 2,402 (b) 3,921
------ ------- ---------- ------------
Income (loss) from operations .................. 99 11,677 1,158 12,835
Interest (expense) and other income, net ........ (8) 184 92 (a) 276
-------- ------- ---------- ------------
Income (loss) before income taxes .............. 91 11,861 1,250 13,111
Provision for income taxes ..................... (18) 138 1,461 (c) 1,599
------- ------- ---------- ------------
Net income (loss) .............................. $ 109 $11,723 $ (211) $ 11,512
======= ======= ========== ============
PRO FORMA DATA (UNAUDITED):
Historical net income (loss) before pro forma
provision for income taxes ..................... $ 91 $11,861 $ 1,250 $ 13,111
Less: pro forma provision for income taxes ...... 36 4,742 1,461 6,203
------- ------- ---------- ------------
PRO FORMA NET INCOME (LOSS) ..................... $ 55 $ 7,119 $ (211) $ 6,908
======= ======= ========== ============
Net income per share ............................ $ 0.43
============
Shares used in computing net income per share
(Note 5) ....................................... 15,924,286
============
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
combined financial statements.
F-7
<PAGE>
PAGE 1 OF 2
RESORTQUEST INTERNATIONAL, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
BRINDLEY &
RQI ASTON BRINDLEY
----------- --------- ------------
<S> <C> <C> <C>
Revenues ................................................. $ -- $5,693 $ 257
Operating expenses ....................................... -- 2,422 678
General and administrative expenses ...................... 5,682 1,301 101
Depreciation and amortization ............................ 88 22
------ ------
Income (loss) from operations ........................... (5,682) 1,882 (544)
-------- ------ ------
Interest (expense) and other income, net ................. -- (185) 16
-------- ------ ------
Income (loss) before income tax expense .................. (5,682) 1,697 (528)
-------- ------ ------
Provision (benefit) for income taxes ..................... -- -- --
-------- ------ ------
Net income (loss) ........................................ $ (5,682) $1,697 $ (528)
======== ====== ======
PRO FORMA DATA (UNAUDITED):
Historical net income (loss) before pro forma provi-
sion for income taxes ................................... $ (5,682) $1,697 $ (528)
Less: pro forma provision (benefit) for income taxes ..... (2,272) 679 (211)
-------- ------ ------
PRO FORMA NET INCOME (LOSS) .............................. $ (3,410) $1,018 $ (317)
======== ====== ======
<CAPTION>
COASTAL
RESORTS CFP FRS H&O MAURY
----------- --------- ------- ---------- ------
<S> <C> <C> <C> <C> <C>
Revenues ................................................. $577 $2,689 $828 $421 $338
Operating expenses ....................................... 435 930 448 3 66
General and administrative expenses ...................... 137 147 114 312 188
Depreciation and amortization ............................ 21 77 12 12 7
---- ------ ---- ---- ----
Income (loss) from operations ........................... (16) 1,535 254 94 77
---- ------ ---- ---- ----
Interest (expense) and other income, net ................. -- 49 8 (5) 2
---- ------ ---- ------ ----
Income (loss) before income tax expense .................. (16) 1,584 262 89 79
---- ------ ---- ----- ----
Provision (benefit) for income taxes ..................... -- -- -- -- --
---- ------ ---- ----- ----
Net income (loss) ........................................ $(16) $1,584 $262 $89 $ 79
==== ====== ==== ===== ====
PRO FORMA DATA (UNAUDITED):
Historical net income (loss) before pro forma provi-
sion for income taxes ................................... $(16) $1,584 $262 $89 $ 79
Less: pro forma provision (benefit) for income taxes ..... (6) 634 105 36 32
------- ------ ---- ----- ----
PRO FORMA NET INCOME (LOSS) .............................. $(10) $ 950 $157 $53 $ 47
====== ====== ==== ===== ====
</TABLE>
F-8
<PAGE>
PAGE 2 OF 2
RESORTQUEST INTERNATIONAL, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PMR RPM TRA THE MAUI
--------- --------- --------- --------- ------
<S> <C> <C> <C> <C> <C>
Revenues ................................................... $2,275 $1,468 $2,342 $1,254 $554
Operating expenses ......................................... 318 488 1,066 519 85
General and administrative expenses ........................ 584 133 349 628 204
Depreciation and amortization .............................. 51 40 12 22 6
------ ------ ------ ------ ----
Income (loss) from operations ............................. 1,322 807 915 85 259
------ ------ ------ ------ ----
Interest (expense) and other income, net ................... 36 20 12 -- 9
Income (loss) before income tax expense .................... 1,358 827 927 85 268
------ ------ ------ ------ ----
Provision (benefit) for income taxes ....................... -- 9 -- 21 50
------ ------ ------ ------ ----
Net income (loss) .......................................... $1,358 $ 818 $ 927 $ 64 $218
====== ====== ====== ====== ====
PRO FORMA DATA (UNAUDITED)
Historical net income (loss) before pro forma provi-
sion for income taxes ..................................... $1,358 $ 827 $ 927 $ 85 $268
Less: pro forma provision (benefit) for income taxes ....... 543 331 371 34 107
------ ------ ------ ------ ----
PRO FORMA NET INCOME (LOSS) ................................ $ 815 $ 496 $ 556 $ 51 $161
====== ====== ====== ====== ====
Net income per share .......................................
Shares used in computing net income per share (Note 5).
<CAPTION>
PRO FORMA PRO
WHISTLER COMBINED ADJUSTMENTS FORMA
---------- ---------- ----------------- --------------
<S> <C> <C> <C> <C>
Revenues ................................................... $1,135 $19,831 $ 1,490 (a) $ 21,321
Operating expenses ......................................... 536 7,994 (45)(a) 7,949
General and administrative expenses ........................ 76 9,956 (667)(a) 3,607
(5,682)(d)
Depreciation and amortization .............................. 22 392 601 (b) 993
------ ------- --------- ------------
Income (loss) from operations ............................. 501 1,489 7,283 8,772
------ ------- --------- ------------
Interest (expense) and other income, net ................... 28 (10) -- 222
232 (a)
Income (loss) before income tax expense .................... 529 1,479 7,515 8,994
------ ------- --------- ------------
Provision (benefit) for income taxes ....................... -- 80 3,141 (c) 3,221
------ ------- --------- ------------
Net income (loss) .......................................... $ 529 $ 1,399 4,374 5,773
====== ======= ========= ============
PRO FORMA DATA (UNAUDITED)
Historical net income (loss) before pro forma provi-
sion for income taxes ..................................... $ 529 $ 1,479 $ 7,515 $ 8,994
Less: pro forma provision (benefit) for income taxes ....... 211 594 3,141 3,735
------ ------- --------- ------------
PRO FORMA NET INCOME (LOSS) ................................ $ 318 $ 885 $ 4,374 $ 5,259
====== ======= ========= ============
Net income per share ....................................... $ 0.33
============
Shares used in computing net income per share (Note 5). 15,924,286
============
</TABLE>
F-9
<PAGE>
PAGE 1 OF 2
RESORTQUEST INTERNATIONAL, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
BRINDLEY &
RQI ASTON BRINDLEY
------- ---------- ------------
<S> <C> <C> <C>
Revenues ...................................... $ -- $ 5,581 $ 269
Operating expenses ............................ -- 2,377 412
General and administrative expenses ........... -- 1,061 106
Depreciation and amortization ................. -- 88 22
---- ------- -------
Income (loss) from operations ................ -- 2,055 (271)
---- ------- -------
Interest (expense) and other income, net ...... -- (168) --
---- ------- -------
Income (loss) before income tax expense ....... -- 1,887 (271)
---- ------- -------
Provision (benefit) for income taxes .......... -- -- --
---- ------- -------
Net income (loss) ............................. $ -- $ 1,887 $ (271)
==== ======= =======
PRO FORMA DATA (UNAUDITED):
HISTORICAL NET INCOME (LOSS) BEFORE
PRO FORMA PROVISION FOR INCOME
TAXES ........................................ $ -- $ 1,887 $ (271)
LESS: PRO FORMA PROVISION (BENEFIT) FOR
INCOME TAXES ................................. -- 755 (108)
---- ------- -------
PRO FORMA NET INCOME (LOSS) ................... $ -- $ 1,132 $ (163)
==== ======= =======
<CAPTION>
COASTAL
RESORTS CFP FRS H&O MAURY
----------- --------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Revenues ...................................... $ 424 $ 2,714 $ 578 $ 484 $ 370
Operating expenses ............................ 296 1,021 374 5 57
General and administrative expenses ........... 123 161 84 161 93
Depreciation and amortization ................. 21 77 12 12 7
----- ------- ----- ----- -----
Income (loss) from operations ................ (16) 1,455 108 306 213
----- ------- ----- ----- -----
Interest (expense) and other income, net ...... -- 54 7 (5) 2
----- ------- ----- ------- -----
Income (loss) before income tax expense ....... (16) 1,509 115 301 215
----- ------- ----- ------ -----
Provision (benefit) for income taxes .......... -- -- -- -- --
----- ------- ----- ------ -----
Net income (loss) ............................. $ (16) $ 1,509 $ 115 $ 301 $ 215
===== ======= ===== ====== =====
PRO FORMA DATA (UNAUDITED):
HISTORICAL NET INCOME (LOSS) BEFORE
PRO FORMA PROVISION FOR INCOME
TAXES ........................................ $ (16) $ 1,509 $ 115 $ 301 $ 215
LESS: PRO FORMA PROVISION (BENEFIT) FOR
INCOME TAXES ................................. (6) 604 44 120 86
------- ------- ----- ------ -----
PRO FORMA NET INCOME (LOSS) ................... $ (10) $ 905 $ 71 $ 181 $ 129
====== ======= ===== ====== =====
</TABLE>
F-10
<PAGE>
PAGE 2 OF 2
RESORTQUEST INTERNATIONAL, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PMR RPM TRA THE MAUI
---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues ................................................... $ 1,959 $ 1,606 $ 2,135 $ 767 $ 462
Operating expenses ......................................... 283 673 967 388 64
General and administrative expenses ........................ 434 133 245 332 196
Depreciation and amortization .............................. 51 40 12 22 6
------- ------- ------- ----- -----
Income (loss) from operations ............................. 1,191 760 911 25 196
Interest (expense) and other income, net ................... (22) 22 19 36 8
------- ------- ------- ----- -----
Income (loss) before income tax expense .................... 1,169 782 930 61 204
Provision (benefit) for income taxes ....................... -- 19 -- 17 46
------- ------- ------- ----- -----
Net income (loss) .......................................... $ 1,169 $ 763 $ 930 $ 44 $ 158
======= ======= ======= ===== =====
PRO FORMA DATA (UNAUDITED)
HISTORICAL NET INCOME (LOSS) BEFORE
PRO FORMA PROVISION FOR INCOME
TAXES ..................................................... $ 1,169 $ 782 $ 930 $ 61 $ 204
LESS: PRO FORMA PROVISION (BENEFIT) FOR
INCOME TAXES .............................................. 468 313 372 24 82
------- ------- ------- ----- -----
PRO FORMA NET INCOME (LOSS) ................................ $ 701 $ 469 $ 558 $ 37 $ 122
======= ======= ======= ===== =====
Net income per share .......................................
Shares used in computing net income per share (Note 5).
<CAPTION>
PRO FORMA PRO
WHISTLER COMBINED ADJUSTMENTS FORMA
---------- ------------- --------------- --------------
<S> <C> <C> <C> <C>
Revenues ................................................... $ 1,191 $18,540 $ 280 (a) $ 18,820
Operating expenses ......................................... 510 7,427 (100)(a) 7,327
General and administrative expenses ........................ 92 3,221 (602)(a) 2,619
Depreciation and amortization .............................. 22 392 601 (b) 993
------- ------- ------- ------------
Income (loss) from operations ............................. 567 7,500 381 7,881
--
Interest (expense) and other income, net ................... 44 (3) 46 (a) 43
------- --------- ------- ------------
Income (loss) before income tax expense .................... 611 7,497 427 7,924
Provision (benefit) for income taxes ....................... -- 82 430 (c) 512
------- -------- ------- ------------
Net income (loss) .......................................... $ 611 $7,415 $ (3) $ 7,412
======= ======== ======= ============
PRO FORMA DATA (UNAUDITED)
HISTORICAL NET INCOME (LOSS) BEFORE
PRO FORMA PROVISION FOR INCOME
TAXES ..................................................... $ 611 $7,497 $ 427 $ 7,924
LESS: PRO FORMA PROVISION (BENEFIT) FOR
INCOME TAXES .............................................. 244 2,998 430 3,428
------- -------- ------- ------------
PRO FORMA NET INCOME (LOSS) ................................ $ 367 $4,499 $ (3) $ 4,496
======= ======== ======= ============
Net income per share ....................................... $ 0.28
============
Shares used in computing net income per share (Note 5). 15,924,286
============
</TABLE>
F-11
<PAGE>
RESORTQUEST INTERNATIONAL, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
1. GENERAL:
ResortQuest International, Inc. ("RQI"), was established to create a
leading single provider of vacation property rental, management and real estate
services. RQI has conducted no operations to date and acquired substantially all
of the assets of the Founding Companies concurrently with the consummation of
the Offering on May 26, 1998.
The historical financial statements reflect the financial position and
results of operations of RQI and the Founding Companies as of March 31, 1998,
and for the year ended December 31, 1997, and the three months ended March 31,
1997 and 1998, and were derived from the respective RQI and Founding Company
financial statements where indicated. The audited historical financial
statements included elsewhere herein have been included in accordance with
Securities and Exchange Commission Staff Accounting Bulletin No. 80.
2. ACQUISITION OF FOUNDING COMPANIES:
Concurrent with the closing of the Offering, RQI acquired all of the
outstanding capital stock of the Founding Companies. The Combinations will be
accounted for using the purchase method of accounting with Aston designated as
the accounting acquiror.
The following table sets forth the consideration paid (a) in cash, (b) in
shares of Common Stock to the stockholders of each of the Founding Companies and
(c) in debt assumed by RQI. The consideration paid for each of the Founding
Companies was determined through arm's-length negotiations between RQI and
representatives of each Founding Company. The factors considered by the Company
in determining the consideration paid included, among others, the historical
operating results, the net worth, the amount and type of indebtedness and the
future prospects of the Founding Companies. For purposes of computing the
estimated purchase price for accounting purposes, the value of the shares is
determined using an estimated fair value of $9.90 per share, which represents a
discount of 10 percent from the assumed initial public offering price of $11 per
share due to restrictions on the sale and transferability of the shares issued.
The purchase price for the Acquisitions is subject to certain working capital
adjustments at closing. See "Certain Transactions - Organization of the
Company."
<TABLE>
<CAPTION>
SHARES OF DEBT
CASH COMMON STOCK ASSUMED
---------------- -------------- ---------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C>
Aston Hotels & Resorts .................. $ 29,500 1,708,333 $ 30
Brindley & Brindley ..................... 2,000 195,000 44
Coastal Resorts ......................... -- 816,667 --
Collection of Fine Properties ........... 4,526 404,167 252
First Resort ............................ 2,855 290,767 --
Houston and O'Leary ..................... 2,470 248,167 --
Maui Condominium and Home ............... 1,620 166,667 --
The Maury People ........................ 2,000 150,000 --
Priscilla Murphy Realty ................. -- 1,144,036 4,897
Resort Property Management .............. 1,116 108,333 153
Telluride Resort Accommodations ......... 3,014 125,103 --
Trupp-Hodnett Enterprises ............... 5,000 627,833 --
Whistler Chalets ........................ 800 134,583 11
-------- --------- ------
$ 54,901 6,119,656 $5,382
======== ========= ======
</TABLE>
F-12
<PAGE>
RESORTQUEST INTERNATIONAL, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA - (CONTINUED )
3. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS:
The following table summarizes unaudited pro forma combined balance sheet
adjustments (in thousands):
<TABLE>
<CAPTION>
(A) (B) (C)
----------- ------------ ------------
<S> <C> <C> <C>
Cash and cash equivalents ............................ $ -- $ (3,366) $ --
Cash held in trust ................................... -- 3,639 --
Trade and other receivables .......................... -- (664) --
Other current assets ................................. -- (388) --
Property and equipment, net .......................... (1,387) -- --
Goodwill ............................................. (6,177) -- 68,636
Other assets ......................................... (2,715) -- --
Current maturities on long-term debt ................. 953 -- --
Accounts payable, and accrued liabilities ............ -- 547 --
Payable to Founding Companies' stockholders .......... -- -- (54,901)
Long-term debt ....................................... 4,233 -- --
Other long-term liabilities .......................... -- -- --
Common stock ......................................... -- 675 (61)
Additional paid-in capital ........................... -- -- (43,174)
Distribution in Excess of Predecessor Basis in Net
Assets .............................................. -- -- 29,500
Retained earnings .................................... 5,093 (443) --
--------- -------- ----------
$ -- $ -- $ --
========= ======== ==========
<CAPTION>
PRO FORMA
(D) (E) (F) ADJUSTMENTS
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Cash and cash equivalents ............................ $ -- $ -- $ -- $ (3,366)
Cash held in trust ................................... -- -- -- 3,639
Trade and other receivables .......................... -- -- -- (664)
Other current assets ................................. -- -- 1,455 1,067
Property and equipment, net .......................... -- -- -- (1,387)
Goodwill ............................................. -- 25,500 -- 87,959
Other assets ......................................... -- -- -- (2,715)
Current maturities on long-term debt ................. -- -- -- 953
Accounts payable, and accrued liabilities ............ -- -- -- 547
Payable to Founding Companies' stockholders .......... -- -- -- (54,901)
Long-term debt ....................................... -- -- -- 4,233
Other long-term liabilities .......................... -- -- -- --
Common stock ......................................... 519 -- -- 1,133
Additional paid-in capital ........................... 4,667 (25,500) -- (64,007)
Distribution in Excess of Predecessor Basis in Net
Assets .............................................. -- -- -- 29,500
Retained earnings .................................... (5,186) -- (1,455) (1,991)
--------- ---------- --------- ---------
$ -- $ -- $ -- $ --
========= ========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
OFFERING
(G) (H) ADJUSTMENTS
----------- -------------- ------------
<S> <C> <C> <C>
Cash and cash equivalents .................... $ 59,600 $ (54,901) $ 4,699
Current maturities of long-term debt ......... 803 -- 803
Payables to Founding Companies' stockholders -- 54,901 54,901
Long-term debt ............................... 3,995 -- 3,995
Common stock ................................. (66) -- (66)
Additional paid-in capital ................... (64,332) -- (64,332)
--------- ---------- ---------
$ -- $ -- $ --
========= ========== =========
</TABLE>
(a) Reflects a reduction of net assets of approximately $5.1 million
including certain non-operating assets and the assumption of or
retirement of certain liabilities that were excluded from the
Combinations and retained by certain stockholders of the Founding
Companies.
(b) Reflects certain working capital adjustments of approximately $232,000
in connection with the Combination.
(c) Reflects the Combinations of the Founding Companies including: (i) the
liability for cash consideration to be paid of $54.9 million ($29.5
million payable to Aston is reflected as a distribution in excess of
predecessor basis in net assets); (ii) the issuance of 4,411,323
shares of common stock to the stockholders of the Founding Companies
at $9.90 per share (or $43.7 million) and the issuance of 1,708,333
shares of common stock to the stockholders of Aston at carryover basis
(ie, predecessor basis in net assets); and (iii) the creation of
approximately $68.6 million of goodwill.
(d) Reflects the elimination of the Founding Companies' common stock and
retained earnings due to the Combinations.
(e) Reflects the goodwill related to the issuance of common stock to
founders and consultants of RQI.
F-13
<PAGE>
RESORTQUEST INTERNATIONAL, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA - (CONTINUED )
(f) Reflects the deferred income tax asset attributable to the temporary
differences between financial reporting and income tax bases of assets
and liabilities currently held in S Corporations.
(g) Reflects the proceeds from the issuance of 6,670,000 shares of common
stock ($73.4 million), which will be used to pay the cash portion of
the purchase price for the Founding Companies ($54.9 million) to repay
debt assumed in the Combinations ($4.9 million) and to pay estimated
offering expenses of $8.5 million.
(h) Reflects the cash portion of the consideration paid to the Founding
Companies in connection with the Combinations.
4. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS ADJUSTMENTS:
(a) Reflects (i) a reduction in salaries, bonuses and benefits derived
from contractual agreements which establish the compensation of the
owners and certain key employees of the Founding Companies subsequent
to the Offering and (ii) the effect of the exclusion of certain
non-operating assets and the assumption of or retirement of certain
liabilities (including interest expense) that will be retained by
certain stockholders of the Founding Companies.
The reduction in salaries, bonuses and benefits reflects the
difference between historical combined management compensation of
approximately $1.2 million, $762,000 and $4.1 million as compared to
the contractual compensation of $463,000, $463,000 and $1.9 million,
respectively, for the three months ended March 31, 1998 and 1997, and
the year ended December 31, 1997, respectively. See "Summary
Individual Founding Company Financial Data -- Compensation
Differential". These contractual agreements are for an initial term of
three years and thereafter on a year-to-year basis.
(b) Reflects the amortization of goodwill using a 40-year estimated life
for the goodwill associated with the acquisitions, other than First
Resort Software, Inc., which will be amortized over a 15-year
estimated life.
(c) Reflects the provision for federal and state income taxes relating to
the other statement of operations pro forma adjustments.
(d) Reflects the reduction in compensation expense and management
recruitment expense in the three months ended March 31, 1998, relating
to the non-recurring, non-cash compensation charge of $5.6 million
related to Common Stock issued to management and founders of RQI, and
other costs.
5. NET INCOME PER SHARE
The shares used in computing net income per share include: (i) 3,134,630
shares issued to management of and founders of RQI; (ii) 6,119,656 shares issued
to the stockholders of the Founding Companies in connection with the
Combinations; and (iii) 6,670,000 shares issued in connection with the Offering
necessary to pay the $54.9 million cash portion of the consideration for the
Combinations. Excludes 1,807,000 shares of Common Stock reserved for issuance
pursuant to the Company's 1998 Long-Term Incentive Plan, of which options to
purchase 1,697,000 shares granted by the Company concurrently with the Offering
at an exercise price equal to the initial public offering price.
While RQI could pay a maximum bonus of 50% (except for two executives at
100%) of a key employee's base pay, bonuses are not factored into the
prospective compensation as RQI does not anticipate paying bonuses in fiscal
1998. The maximum amount that could be paid would be $700,000. These bonuses, if
paid in future periods, would increase expenses and unfavorably impact net
earnings, accordingly.
F-14
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ResortQuest International, Inc.:
We have audited the accompanying balance sheet of ResortQuest
International, Inc., as of December 31, 1997. This financial statement is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is 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 audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of ResortQuest International, Inc., as
of December 31, 1997, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Houston, Texas
March 11, 1998
F-15
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
-------------- ----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS ............................................................. $ -- $ --
DEFERRED OFFERING COSTS ............................................................... 244 2,725
---- --------
Total Assets ....................................................................... $244 $ 2,725
==== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
AMOUNTS DUE TO VPI FUNDING, LLC ....................................................... $ 0 $ 1,169
ACCRUED LIABILITIES ................................................................... 244 2,106
Total liabilities .................................................................. 244 3,275
---- --------
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par, 10,000,000 authorized, none outstanding................... -- --
Common stock, $0.01 par, 50,000,000 shares authorized, and 2,616,261 and 3,134,630
shares outstanding, respectively ................................................... -- --
Additional paid-in capital ........................................................... -- 5,132
Retained deficit ..................................................................... -- (5,682)
---- --------
Total stockholders' equity ......................................................... -- (550)
---- --------
Total liabilities and stockholders' equity ......................................... $244 $ 2,725
==== ========
Reflects a 8,834.76-for-one stock split effective on March 9, 1998
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-16
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<S> <C>
Revenues .................................... $ --
General and Administrative Expenses ......... 5,682
--------
Loss before income taxes ................... (5,682)
Income Tax Benefit .......................... --
--------
Net Loss .................................... $ (5,682)
========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-17
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
PAID-IN EARNINGS
COMMON STOCK CAPITAL (DEFICIT) TOTAL
--------------------- ------------ ----------- -----------
SHARES AMOUNT
----------- -------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1997 .................. 2,616,261 $-- $ -- $ -- $ --
Common stock issuances (unaudited) ......... 518,369 -- 5,132 5,132
Net loss (unaudited) ....................... -- -- -- (5,682) (5,682)
--------- --- ------ -------- --------
BALANCE, March 31, 1998 (unaudited) ......... 3,134,630 $-- $5,132 $ (5,682) $ (550)
========= === ====== ======== ========
Reflects a 8,834.76-for-one stock split effective on March 9, 1998
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-18
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<S> <C>
Cash Flows From Operating Activities:
Net loss ..................................................... $ (5,682)
--------
Adjustments to reconcile net loss to cash flows from operating
activities ................................................. --
Compensation expense related to issuance of management
common stock shares ....................................... 5,132
Increase in deferred offering costs ........................ (2,481)
Increase in accrued liabilities and amounts due to VPI Fund-
ing, LLC .................................................. 3,031
Net cash flows used in operating activities ................ --
--------
Increase in cash and cash equivalents ......................... --
--------
Cash and cash equivalents, beginning of period ................ --
--------
Cash and cash equivalents, end of period ...................... $ --
========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-19
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
1. GENERAL:
ResortQuest International, Inc., a Delaware Corporation, ("RQI" or the
"Company"), formerly Vacation Properties International, Inc., was founded on
September 12, 1997 to create the leading single provider of vacation property
rental, management and real estate services. RQI acquired substantially all of
the assets of thirteen companies (the "Founding Companies") (the "Combinations")
and completed an initial public offering (the "Offering") of its common stock on
May 26, 1998.
RQI has not conducted any operations, and all activities to date have
related to the Offering and the Combinations. Cash of $200 was provided from the
initial capitalization of the Company (see Note 2). All other expenditures are
being funded by VPI Funding, LLC ("VPI"), a Delaware limited liability company
whose member managers are owners of the Company. Accordingly, statements of
operations, changes in stockholders' equity and cash flows for the period from
inception (September 12, 1997 through December 31, 1997) would not provide
meaningful information and have been omitted. As of March 31, 1998 and December
31, 1997, costs of approximately $3,275,000 (unaudited) and $244,000,
respectively, have been incurred by RQI in connection with the Offering of which
approximately $1,169,000 (unaudited) and $0, respectively were due to VPI.
2. STOCKHOLDERS' EQUITY:
Interim Financial Statements
The interim financial statements as of March 31, 1998, and for the three
months ended March 31, 1998, are unaudited, and certain information and footnote
disclosures, normally included in financial statements prepared in accordance
with generally accepted accounting principles, have been omitted. In the opinion
of management, all adjustments, consisting only of normal recurring adjustments,
necessary to fairly present the financial position, results of operations and
cash flows with respect to the interim financial statements, have been included.
The results of operations for the interim periods are not necessarily indicative
of the results for the entire fiscal year.
Common Stock and Preferred Stock
In connection with the organization and initial capitalization of RQI, the
Company issued 293.9481 pre-split and 2,596,961 post-split (see discussion
below) shares of common stock ("Common Stock") at $.01 per share to Capstone
Partners, LLC ("Capstone") and Alpine Consolidated II, LLC ("Alpine").
Additionally, certain other stockholders were issued 2.1844 pre-split and 19,300
post-split (see discussion below) shares of Common Stock at $.01 per share. On
March 1, 1998 Capstone and Alpine contributed 28.297 pre-split and 249,997
post-split (see discussion below) shares of Common Stock to VPI Funding, LLC.
In February 1998, the Company issued 58.6738 pre-split and 518,369
post-split (see discussion below) shares of Common Stock to management at $.01
per share. As a result, the Company recorded for financial statement purposes a
non-recurring, non-cash compensation charge of $5,682,000 (unaudited) for the
three months ended March 31, 1998, representing the difference between the
consideration paid and the estimated fair value of the shares at the date of
sale.
RQI effected a 8,834.76-for-one stock split (unaudited) on March 9, 1998
for each share of Common Stock then outstanding. In addition, the Company
increased the number of authorized shares of Common Stock to 50,000,000 and
authorized 10,000,000 shares of $.01 par value preferred stock. The effects of
Common Stock split and the increase in the shares of authorized Common Stock
have been retroactively reflected in the accompanying financial statements and
related notes.
Restricted Common Stock
In March 1998, the stockholders exchanged 3,134,630 shares of Common Stock
for an equal number of shares of restricted voting common stock ("Restricted
Common Stock"). The Common Stock and the Restricted Common Stock are identical
except that the holders of Restricted Common Stock are only entitled to one-half
of one vote for each share on all matters.
F-20
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS- (CONTINUED )
Long-Term Incentive Plan
In March 1998, the Board of Directors and the Company's stockholders
approved the Company's 1998 Long-Term Incentive Plan (the "Plan"). The purpose
of the Plan is to provide a means by which the Company can attract and retain
executive officers, employee directors, other key employees, non-employee and
advisory directors and consultants of and other service providers to the Company
and its subsidiaries and to compensate such persons in a way that provides
additional incentives and enables such persons to acquire or increase a
proprietary interest in the Company. Individual awards under the Plan may take
the form of one or more of: (i) either incentive stock options ("ISOs") or
non-qualified stock options ("NQSOs"); (ii) stock appreciation rights ("SARs");
(iii) restricted or deferred stock; (iv) dividend equivalents; (v) bonus shares
and awards in lieu of Company obligations to pay cash compensation; (vi)
non-employee directors' deferred shares; and (vii) other awards the value of
which is based in whole or in part upon the value of the Common Stock.
The Company has reserved 1,807,000 shares of Common Stock for use in
connection with the Plan. The maximum number of shares of Common Stock that may
be subject to outstanding awards under the Plan will not exceed 12% of the
aggregate number of shares of Common Stock outstanding, minus the number of
shares previously issued pursuant to awards granted under the Plan. Shares of
Common Stock which are attributable to awards which have expired, terminated or
been canceled or forfeited are available for issuance or use in connection with
future awards.
In connection with the Offering, options in the form of NQSOs to purchase a
total of 435,000 shares of Common Stock of the Company were granted to
management of the Company. Each of the foregoing option grants has an exercise
price equal to the initial public offering price per share in the Offering, and
will vest at a rate of 25% per year. The options generally will expire on the
earlier of 10 years after the date of grant or three months after termination of
employment (immediately in the event of a termination for cause), unless
otherwise determined by the Committee. The Plan will remain in effect until
terminated by the Company's Board of Directors.
3. STOCK BASED COMPENSATION
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation," allows entities to choose between a new fair
value based method of accounting for employee stock options or similar equity
instruments and the current intrinsic, value-based method of accounting
prescribed by Accounting Principles Board Opinion No. 25 ("APB No. 25").
Companies electing to remain with the accounting in APB Opinion No. 25 must make
pro forma disclosure of net income and earnings per share as if the fair value
method of accounting had been applied. The Company will provide pro forma
disclosure of net income and net income per share, as applicable, in the notes
to future consolidated financial statements.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings Per Share ("SFAS No. 128").
For the Company, SFAS No. 128 was effective for the year ended December 31,
1997. SFAS No. 128 simplified the standards required under previous accounting
rules for computing earnings per share and replaced the presentation of primary
earnings per share and fully diluted earnings per share with a presentation of
basic earnings per share ("basic EPS") and diluted earnings per share ("diluted
EPS"). Basic EPS excludes dilution and is determined by dividing income
available to common stockholders by the weighted average number of common shares
outstanding during the period. Diluted EPS reflects the potential dilution that
could occur if securities and other contracts to issue common stock were
exercised or converted into common stock.
F-21
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS- (CONTINUED )
4. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED)
RQI has acquired all of the Common Stock and ownership interests of
Founding Companies effective May 26, 1998. The companies acquired are:
Aston Hotels & Resorts
Brindley & Brindley
Coastal Resorts
Collection of Fine Properties
First Resort
Houston and O'Leary
Maui Condominium and Home
The Maury People
Priscilla Murphy Realty
Resort Property Management
Telluride Resort Accommodations
Trupp-Hodnett Enterprises
Whistler Chalets
The aggregate consideration paid by RQI to acquire the Founding Companies
is, subject to certain working capital adjustments, approximately $54.9 million
in cash and 6,119,656 shares of Common Stock and the assumption of $5.7 million
in outstanding indebtedness of the Founding Companies.
F-22
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Hotel Corporation of the Pacific, Inc.:
We have audited the accompanying balance sheets of Hotel Corporation of the
Pacific, Inc. (a Hawaii corporation), as of December 31, 1996 and 1997, and the
related statements of operations, changes in stockholders' equity (deficit) and
cash flows for each of the three years in the period ended December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Hotel Corporation of the
Pacific, Inc., as of December 31, 1996 and 1997, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 6, 1998
F-23
<PAGE>
HOTEL CORPORATION OF THE PACIFIC, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
--------------------- ------------
1996 1997 1998
--------- --------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ..................................... $ 2,118 $ 1,632 $ 1,208
Accounts receivable, less allowance of $97 and $75 for doubtful
accounts .................................................... 1,448 1,195 2,138
Inventories ................................................... 41 46 44
Prepaid expenses and other assets ............................. 102 83 266
------- ------- -------
Total current assets ........................................ 3,709 2,956 3,656
ADVANCES TO STOCKHOLDER ........................................ 7,611 7,735 5,719
ADVANCES TO AFFILIATES, net .................................... -- 1,799 637
SECURITY DEPOSITS .............................................. 712 641 161
PREPAID EXPENSES AND OTHER ASSETS .............................. 178 155 25
PROPERTY AND EQUIPMENT, net .................................... 1,186 1,776 1,667
NET ASSETS OF DISCONTINUED OPERATIONS .......................... 74 -- 154
------- ------- -------
Total assets ................................................ $13,470 $15,062 $12,019
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable .............................. $ 61 $ 12 $ 12
Current portion of capital lease obligations .................. 260 409 427
Current portion of other long-term obligations ................ 591 585 582
Accounts payable and accrued liabilities ...................... 4,730 6,538 6,216
------- ------- -------
Total current liabilities ................................... 5,642 7,544 7,237
SECURITY DEPOSITS .............................................. 326 270 307
EXCESS OF LOSSES OVER INVESTMENT IN PARTNER-
SHIP .......................................................... 346 -- --
ADVANCES FROM AFFILIATES ....................................... 1,235 -- --
NOTES PAYABLE .................................................. 2,816 2,804 2,301
CAPITAL LEASE OBLIGATIONS ...................................... 882 1,325 1,215
OTHER LONG-TERM OBLIGATIONS .................................... 2,118 1,611 854
NET LIABILITIES OF DISCONTINUED OPERATIONS ..................... -- 1,403 --
------- ------- -------
Total liabilities ........................................... 13,365 14,957 11,914
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $10 par value, 100,000 shares authorized,
10,000 shares outstanding ................................... 100 100 100
Paid-in surplus ............................................... 5 5 5
Retained earnings ............................................. -- -- --
------- ------- -------
Total stockholders' equity .................................. 105 105 105
------- ------- -------
Total liabilities and stockholders' equity .................. $13,470 $15,062 $12,019
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE>
HOTEL CORPORATION OF THE PACIFIC, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- -------------------
1995 1996 1997 1997 1998
--------- --------- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Property management fees ............................ $ 7,036 $ 7,540 $ 8,079 $2,843 $2,715
Service fees ........................................ 8,896 8,442 8,338 1,951 2,357
Other ............................................... 3,116 3,478 3,137 787 621
------- ------- -------- ------ ------
Total revenues ................................... 19,048 19,460 19,554 5,581 5,693
OPERATING EXPENSES ................................... 10,550 10,401 8,908 2,377 2,422
------- ------- -------- ------ ------
GENERAL AND ADMINISTRATIVE EXPENSES .................. 5,434 5,574 5,475 1,149 1,389
------- ------- -------- ------ ------
Income from operations ........................... 3,064 3,485 5,171 2,055 1,882
OTHER INCOME (EXPENSE):
Interest expense, net ............................... (406) (736) (763) (168) (185)
Gain on sales of assets ............................. -- 394 677 -- --
Arbitration expense ................................. (365) -- -- -- --
------- ------- -------- ------ ------
Total other income (expense) ........................ (771) (342) (86) (168) (185)
------- ------- -------- ------ ------
INCOME FROM CONTINUING OPERATIONS .................... 2,293 3,143 5,085 1,887 1,697
------- ------- -------- ------ ------
INCOME (LOSS) FROM DISCONTINUED OPERA-
TIONS ............................................... (32) 455 (1,328) 647 1,557
LOSS ON DISPOSAL OF DISCONTINUED OPERA-
TIONS ............................................... -- -- (166) -- --
------- ------- -------- ------ ------
NET INCOME ........................................... $ 2,261 $ 3,598 $ 3,591 $2,534 $3,254
======= ======= ======== ====== ======
PRO FORMA DATA (unaudited - Note 13)
Historical net income before income taxes and discon-
tinued operations ................................. $ 2,293 $ 3,143 $ 5,085 $1,887 $1,697
Less: pro forma provision for income taxes .......... 917 1,257 2,034 755 679
------- ------- -------- ------ ------
PRO FORMA NET INCOME FROM
CONTINUING OPERATIONS ............................... $ 1,376 $ 1,886 $ 3,051 $1,132 $1,018
======= ======= ======== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE>
HOTEL CORPORATION OF THE PACIFIC, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
-------------------- PAID-IN EARNINGS
SHARES AMOUNT SURPLUS (DEFICIT) TOTAL
--------- -------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994 .................. 100,000 $100 $ 5 $ (500) $ (395)
Net income ................................. -- -- -- 2,261 2,261
Distributions .............................. -- -- -- (2,261) (2,261)
------- ---- --- -------- --------
BALANCE, December 31, 1995 .................. 100,000 100 5 (500) (395)
Net income ................................. -- -- -- 3,598 3,598
Distributions .............................. -- -- -- (3,098) (3,098)
------- ---- --- -------- --------
BALANCE, December 31, 1996 .................. 100,000 100 5 -- 105
Net income ................................. -- -- -- 3,591 3,591
Distributions .............................. -- -- -- (3,591) (3,591)
------- ---- --- -------- --------
BALANCE, December 31, 1997 .................. 100,000 100 5 -- 105
Net income (unaudited) ..................... -- -- -- 3,254 3,254
Distributions (unaudited) .................. -- -- -- (3,254) (3,254)
------- ---- --- -------- --------
BALANCE, March 31, 1998 (unaudited) ......... 100,000 $100 $ 5 $ -- $ 105
======= ==== === ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE>
HOTEL CORPORATION OF THE PACIFIC, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------- -------------------------
1995 1996 1997 1997 1998
------------ ------------ ----------- ------------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................. $ 2,261 $ 3,598 $ 3,591 $ 2,534 $ 3,254
(Income) loss from discontinued operations ............... 32 (455) 1,328 (647) (1,557)
Loss on disposal of discontinued operations .............. -- -- 166 -- --
-------- -------- -------- -------- --------
Income from continuing operations ....................... 2,293 3,143 5,085 1,887 1,697
Adjustments to reconcile net income to net cash provided
by operating activities-
Depreciation and amortization ............................ 257 326 394 88 129
Deferred rent expense .................................... (7) (7) (14) -- --
Gain on sale of fixed assets ............................. -- (394) -- -- --
Gain on sale of principal asset of partnership ........... -- -- (677) -- --
Loss (gain) of investment in partnership ................. (7) 45 -- -- --
Changes in operating assets and liabilities-
Accounts receivable ...................................... (334) (236) 253 (164) (943)
Prepaid expenses and other assets ........................ (309) 258 37 (85) (51)
Accounts payable and accrued liabilities ................. 648 258 918 (137) (322)
Reservation and security deposits ........................ 245 (459) (56) -- --
--------- --------- -------- -------- --------
Cash provided by continuing operations .................. 2,786 2,934 5,940 1,589 510
Cash flows from discontinued operations .................... 249 (253) (17) 1,005 --
--------- --------- -------- -------- --------
Net cash provided by operating activities ............... 3,035 2,681 5,923 2,594 510
--------- --------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of principal asset of partnership ..... -- -- 331 -- --
Proceeds from sale of property and equipment ............. -- 398 -- 50 --
Purchase of property and equipment ....................... -- -- (56) -- (20)
Increase (decrease) in security deposits ................. (618) (94) 71 3 517
--------- --------- -------- -------- --------
Net cash (used in) provided by investing activities ..... (618) 304 346 53 497
--------- --------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Increase in advances) proceeds from repayment of
advances to affiliates .................................. (430) 3,625 (2,144) (1,304) 1,162
Increase in advances to stockholder ...................... (1,572) (886) (124) (511) 2,016
Increase in distributions payable to stockholder ......... -- 465 64 -- --
Distributions to stockholders ............................ (2,261) (3,098) (3,591) (2,534) (3,254)
Repayment of notes and mortgage payable .................. (283) (637) (61) (2) (503)
Increase (payment) of other long-term obligations ........ 305 (1,160) (563) (150) (760)
Principal payments under capital leases .................. (111) (241) (336) (66) (92)
Proceeds from notes payable .............................. 3,000 -- -- -- --
--------- --------- -------- --------- --------
Net cash provided by (used in) financing activities ..... (1,352) (1,932) (6,755) (4,567) (1,431)
--------- --------- -------- --------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ................................................ 1,065 1,053 (486) (1,920) (424)
CASH AND CASH EQUIVALENTS, beginning of period............... -- 1,065 2,118 2,118 1,632
--------- --------- -------- --------- --------
CASH AND CASH EQUIVALENTS, end of period .................... $ 1,065 $ 2,118 $ 1,632 $ 198 $ 1,208
========= ========= ======== ========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest ..................................... $ 339 $ 556 $ 628 $ 148 $ 154
========= ========= ======== ========= ========
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations ................................ $ 388 $ 912 $ 928 $ 66 $ 378
========= ========= ======== ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE>
HOTEL CORPORATION OF THE PACIFIC, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Hotel Corporation of the Pacific, Inc. (the "Company"), is a Hawaii
corporation which does business under the trade names "Aston Hotels & Resorts,"
"Aston Property Management" and "Aston." The Company provides hotel and resort
management and condominium association management services in the state of
Hawaii. Hotel and resort management services are provided to either individual
condominium unit owners, owners of multiple units within single condominium
projects (resort rental programs), or single-owner projects or hotel properties.
Condominium association management services are provided to associations of
apartment owners. In many instances, the Company manages both the condominium
association and a resort rental program within the same project. The Company
maintains a portfolio of approximately 5,000 units in its rental program.
Hotel and resort condominium rental program management services include
centralized sales and marketing, reservations, accounting, human resources,
electronic data processing, telephone equipment support and management of
on-site personnel. The Company also operates food and beverage facilities
located in two resorts managed by the Company. As of December 31, 1996 and 1997,
the Company provided resort and hotel management services to 28 and 29
condominium resorts or hotels, respectively, and provided condominium management
services to 17 and 16 condominium associations, respectively.
The Company also leases and operates hotel properties. The Company has
begun to implement its plan to discontinue the leasing of the leased properties
during the second quarter of 1998 as discussed in Note 5, "Discontinued
Operations and Disposition of Assets and Liabilities." Consequently, the
financial statements present the net assets (liabilities), results of operations
and cash flows of these leased properties as discontinued operations.
The Company had a working capital deficit at December 31, 1997. The Company
has funded operations with cash flows from operations and short-term borrowings
from lenders. Management expects that operations will generate sufficient cash
flows from operations to meet the Company's working capital needs during 1998.
On May 26, 1998, ResortQuest International, Inc. ("RQI") consummated its
initial public offering and acquired all of the outstanding stock of the Company
in exchange for cash and shares of RQI common stock (the "Combination"). In
connection with the Combination, certain liabilities were retained by one of the
stockholders and one stockholder agreed to reductions in salary and benefits
which would have reduced general and administrative expenses by $380,000,
$282,000 and $282,000 for 1995, 1996 and 1997, respectively. In addition,
certain stockholders retained non-operating assets and assumed or retired
certain liabilities that were excluded from the Combination.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Statements
The interim financial statements as of March 31, 1998, and for the three
months ended March 31, 1998 and 1997, are unaudited, and certain information and
footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements, have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
Revenue Recognition
The Company records property rental and management fees on the accrual
basis of accounting ratably over the term of guest stays, as earned. Other
revenues include food and beverage sales of $2,302,000, $2,185,000 and
$2,271,000 for the years 1995, 1996 and 1997 respectively.
F-28
<PAGE>
HOTEL CORPORATION OF THE PACIFIC, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED )
Operating Expenses
Operating expenses include expenses related to reservations, marketing and
advertising, accounting and other costs associated with rental and management.
Operating expenses also include food and beverage cost of sales and operating
expenses as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Reservations, marketing, accounting and other expenses ......... $ 8,382 $ 8,289 $6,956
Food and beverage cost of sales and operating expenses ......... 2,168 2,112 1,952
------- ------- ------
Total operating expenses .................................... $10,550 $10,401 $8,908
======= ======= ======
</TABLE>
Cash and Cash Equivalents
For the purposes of the balance sheets and statements of cash flows, the
Company considers all investments with original maturities of three months or
less to be cash equivalents.
Inventories
Inventories consist primarily of food and beverage items and are stated at
the lower of cost (first-in, first-out method) or market.
Property and Equipment
Property and equipment are stated at cost or, in the case of equipment
acquired under capital leases, the present value of future lease payments.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets or the remaining lease terms.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments which extend the
useful lives of existing equipment are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statements of operations.
Income Taxes
The Company has elected S Corporation status as defined by the Internal
Revenue Code and state tax statutes, whereby the Company is not subject to
taxation for federal or state purposes. Under S Corporation status, the
stockholders report their share of the Company's taxable earnings or losses in
their personal tax returns.
Concentration of Financial Instrument Assets
Concentrations of financial instrument assets primarily consist of cash
deposits and accounts receivable. The Company's policy is to deposit its cash
with high-quality financial institutions. At December 31, 1996 and 1997, the
Company's cash was deposited in demand and short-term interest-bearing accounts
with three of the larger banks in Hawaii.
Advertising Costs
All advertising and promotion costs are expensed as incurred.
Investment in Partnership
The Company was a 5 percent general partner in a limited partnership whose
principal asset was a commercial shopping mall. The Company's principal
stockholder was the other general partner and held a 45% partnership interest.
The Company used the equity method to account for its interest in the
F-29
<PAGE>
HOTEL CORPORATION OF THE PACIFIC, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED )
partnership. At December 31, 1996, the excess of the Company's cumulative equity
in net losses over its investment is reflected as a noncurrent liability. The
partnership's investment in the mall was sold during 1997. The Company's
proceeds resulted in a gain on the sale of $677,000. The partnership is expected
to be liquidated with no anticipated loss to the Company.
Use of 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.
Concentration of Risk
The Company's operations are exclusively located in the state of Hawaii and
are subject to negative events that affect travel patterns of visitors.
3. ADVANCES TO AFFILIATES:
Advances to affiliates represent advances to companies controlled by the
Company's principal stockholder. The advances have no scheduled repayment, and
the Company suspended the accrual of interest. In 1996, one affiliate made a
$2,000,000 repayment, $112,500 of which was recognized as previously unrecorded
interest. The remaining receivable balance has been guaranteed by the Company's
principal stockholder.
4. ADVANCES TO STOCKHOLDER:
Advances to stockholder relate to advances to the Company's principal
stockholder. Such advances have largely been utilized relative to the
stockholder's investment in two hotels managed by the Company. The advances are
not collateralized, are noninterest-bearing and have no scheduled repayments.
The stockholder intends to make payments of approximately $1,500,000 on these
advances prior to the Combination. A note totalling $4,000,000 is expected to be
executed in connection with the Combination which will be interest-bearing and
will be collateralized by certain assets pledged to the Company or by a personal
guarantee (not to exceed $1,000,000).
5. DISCONTINUED OPERATIONS:
The Company has decided that it will no longer continue or enter into
leasing arrangements for lodging facilities and will assign such leases to AST
Holdings, Inc., a corportion owned by the principal stockholder. The Company
will enter into management agreements on such properties with AST Holdings, Inc.
The Company has a plan in place to dispose of its other existing leased property
during the second quarter of 1998. This plan will eliminate the Company's future
obligation to make lease payments to owners of these facilities. The Company
plans to primarily focus its efforts on renting and managing condominiums, hotel
rooms and homes for the owners on a fee basis. Accordingly, for all periods
presented in the accompanying financial statements, the financial position,
results of operations and cash flows of the leased assets are reflected as
discontinued operations. Summarized financial information of the discontinued
operations is presented in the following tables.
F-30
<PAGE>
HOTEL CORPORATION OF THE PACIFIC, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED )
Net assets (liabilities) of discontinued operations are as follows
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
----------- -----------
<S> <C> <C>
Current assets ...................... $ 2,857 $ 2,955
Advances to affiliates .............. 1,304 1
Other assets ........................ 202 193
Property and equipment .............. 418 197
-------- --------
Total assets ....................... 4,781 3,346
Current liabilities ................. (3,412) (4,119)
Capital lease obligations ........... (247) (53)
Other long-term obligations ......... (1,048) (577)
-------- --------
Net assets (liabilities) ............ $ 74 $ (1,403)
======== ========
</TABLE>
Income (loss) from discontinued operations are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1996 1997
------------ ---------- ------------
<S> <C> <C> <C>
Revenue ........................................ $4,911 $29,945 $ 30,848
Operating expenses ............................. 3,609 22,833 24,826
General and administrative expenses ............ 1,326 6,631 7,317
------ ------- --------
Operating income (loss) ....................... (24) 481 (1,295)
Other expense .................................. (8) (26) (33)
-------- ------- --------
Net income (loss) from discontinued operations . $ (32) $ 455 $ (1,328)
======= ======= ========
</TABLE>
In addition to the loss from discontinued operations, the Company's
operating results for the year ended December 31, 1997, include a charge of
$166,000 for expected loss resulting from the disposal of discontinued
operations.
6. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts receivable consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1997
--------- ---------
<S> <C> <C>
Receivables from managed properties ........... $1,007 $ 610
Other ......................................... 538 660
------ ------
1,545 1,270
Less- Allowance for doubtful accounts ......... (97) (75)
------ ------
$1,448 $1,195
====== ======
</TABLE>
F-31
<PAGE>
HOTEL CORPORATION OF THE PACIFIC, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED )
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIFE ----------------------
IN YEARS 1996 1997
------------ ---------- -----------
<S> <C> <C> <C>
Leasehold interests ..................................... 3-7 $ 49 $ 91
Furniture, fixtures and equipment ....................... 3-10 842 938
Leased property ......................................... 3-7 1,255 2,305
------ --------
2,146 3,334
Less- Accumulated depreciation and amortization ......... (960) (1,558)
------ --------
Property and equipment, net ........................... $1,186 $ 1,776
====== ========
</TABLE>
Accounts payable and accrued liabilities consisted of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1997
--------- ---------
<S> <C> <C>
Accounts payable ......................................... $2,616 $3,311
Accrued payroll .......................................... 1,289 1,214
Other accrued liabilities ................................ 825 2,013
------ ------
Total accounts payable and accrued liabilities ......... $4,730 $6,538
====== ======
</TABLE>
7. NOTES PAYABLE:
At December 31, 1996 and 1997, notes payable consist of the following (in
thousands):
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Notes payable, collateralized by 586 shares of the principal stockholder's 7,500 com-
mon shares and real property in San Francisco, California, owned by the stockholder-
Interest only payable monthly at 10%, due May 11, 1999 ................................ $1,000 $1,000
Interest only payable monthly at 7.5% through February 1996, and at 15% thereafter,
due January 31, 1999(1) ............................................................. 500 500
Note payable, interest only payable monthly at 7.5% through February 1996 and at
15% thereafter, due January 31, 1999, guaranteed by principal stockholder(1) .......... 500 500
Note payable, interest only payable monthly at 20% plus contingent interest, as defined,
commencing May 31, 1996, due May 31, 2000, secured by lease deposit in same
amount(2) ............................................................................. 500 500
Notes payable to spouse of principal stockholder, unsecured-
Interest only payable quarterly at 10% and 12%, due February 28, 1999 ................. 285 285
Note payable to bank in monthly installments of $1,242 including interest at 10.25%
adjusted annually, due May 4, 2000 .................................................... 42 31
Note payable, interest at 12%, payable upon demand, collateralized by certain fixtures
and equipment ......................................................................... 50 --
------ ------
Total ............................................................................... 2,877 2,816
Less- Current portion .................................................................. (61) (12)
------ ------
Noncurrent portion .................................................................. $2,816 $2,804
====== ======
</TABLE>
F-32
<PAGE>
HOTEL CORPORATION OF THE PACIFIC, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED )
Annual maturities of long-term debt are as follows (in thousands):
1998 ................... $ 12
1999 ................... 2,299
2000 ................... 505
------
Total .................. $2,816
======
- ----------
(1) In addition to the stated interest on two of the notes described above, the
Company is required to pay additional interest on each note equal to the
lesser of 10 percent of distributable income (as defined in the agreement)
of one of the leased hotels or $50. Such additional interest amounted to $92
and $100 for the years ended December 31, 1996 and 1997, respectively.
(2) No contingent interest was accrued in 1996 or 1997.
8. OTHER LONG-TERM OBLIGATIONS:
At December 31, 1996 and 1997, other long-term obligations consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Distributions payable to stockholder ................................................ $ 465 $ 529
Severance payable to former senior executives and employees, at present value with
imputed interest rates ranging between 8.50% and 10.25% (unamortized imputed
interest of $62 and $42) ........................................................... 593 347
Termination payable to the owners of a hotel managed prior to 1992, interest at prime
rate (8.50% at December 31, 1997) .................................................. 850 500
Other accrued liabilities (Note 9) .................................................. 801 820
------ ------
Total ............................................................................ 2,709 2,196
Less- Current portion ............................................................... (591) (585)
------ ------
Noncurrent portion ............................................................... $2,118 $1,611
====== ======
</TABLE>
Future annual payments of severance and termination payables are as follows
(in thousands):
1998 ....................................... $585
1999 ....................................... 262
----
$847
====
9. LEASES:
Operating Leases
The Company leases its principal offices under an operating lease with the
initial term expiring on July 31, 2002, and with two five-year options to extend
the agreement. The lease provides for an initial period of free rent and also
specifies scheduled rent increases over the lease term.
Effective February 1, 1996, the Company entered into a noncancelable
operating lease for a hotel property on Maui with terms extending through
January 31, 1999. The lease provides for scheduled rent and security deposits
that increase over the term. In conjunction with this lease, the Company is
obligated to pay an annual retainer fee and a business referral and marketing
fee to an unrelated party who arranged the lease. The retainer fee is payable in
quarterly installments. Under the terms of the business referral and marketing
agreement, the Company is required to pay a percentage of the net profits
derived from the hotel property. The Company accrued $239,000 and $196,000 for
these fees for the periods ended December 31, 1996 and 1997, respectively. This
lease is included in the discontinued operations.
F-33
<PAGE>
HOTEL CORPORATION OF THE PACIFIC, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED )
Both the Maui hotel property lease and the office lease aggregate rental
payments over the life of the lease are being recognized as rent expense on a
straight-line basis over the terms of the leases. Accruals representing prorated
future payments under the leases are included in other long-term obligations as
of December 31, 1996 and 1997.
The Company is obligated under a noncancelable operating lease for a resort
facility on Maui with terms extending through December 31, 2000. Under terms of
the lease, the Company pays annual rent equivalent to the net operating profits,
as defined, of the facility up to a defined amount per year. No rent was
incurred in 1995 or 1996. In 1997, rent of $231,000 was incurred.
This lease is included in discontinued operations.
In addition to operating leases for office space and hotel properties, the
Company has entered into certain noncancelable operating leases for equipment
and operating space and for individual condominium units within its managed
properties. The terms of these condominium leases usually coincide with the
management agreements under which the Company manages rental pools within the
respective condominium projects. Under the terms of the front desk and operating
space leases, the Company pays the respective apartment owners association a
percentage of the room revenue generated from the rental pool. Under the terms
of the condominium leases, the Company pays individual condominium owners a
fixed monthly lease rent and, in return, is allowed to place the unit into the
respective rental pool.
At December 31, 1997, future minimum lease commitments under all
noncancelable operating leases are as follows (in thousands):
CONTINUING DISCONTINUED
OPERATIONS OPERATIONS
------------ -------------
1998 ...................... $ 823 $2,620
1999 ...................... 844 328
2000 ...................... 844 120
2001 ...................... 795 --
Thereafter ................ 332 --
------ ------
Total ..................... $3,638 $3,068
====== ======
Under terms of the leases, the Company is generally required to pay all
taxes, insurance and maintenance. Rent expense for the years ended December 31,
1995, 1996 and 1997, aggregated approximately $2,300,000, $4,750,000 and
$5,300,000, respectively.
Capital Leases
Capital leases consist principally of leases for office furnishings and
equipment and for automotive equipment. Future minimum lease payments for assets
under capital leases at December 31, 1997, are as follows (in thousands):
<TABLE>
<CAPTION>
CONTINUING DISCONTINUED
OPERATIONS OPERATIONS
------------ -------------
<S> <C> <C>
1998 .................................................. $ 583 $ 58
1999 .................................................. 508 41
2000 .................................................. 447 16
2001 .................................................. 337 --
Thereafter ............................................ 285 --
------ -----
Total minimum lease payments .......................... 2,160 115
Less- Amount representing interest .................... (416) (10)
------ -----
Present value of minimum lease payment (current portion
of $471) ............................................ $1,744 $ 105
====== =====
</TABLE>
F-34
<PAGE>
HOTEL CORPORATION OF THE PACIFIC, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED )
The capitalized cost of leased equipment totaled $1,975,000 and $2,610,000
at December 31, 1996 and 1997, respectively. The related accumulated
depreciation totaled $604,000 and $921,000 at December 31, 1996 and 1997,
respectively.
As an accommodation to certain of the managed properties, the Company
assists in obtaining leases of operating equipment. In some instances, this
assistance includes entering into the leases as the technical lessee. The
managed properties perform all obligations under the leases, including the
making of lease payments and the provision of insurance coverage. The Company
remains contingently liable under the leases until completion of the lease
terms. Because the Company undertakes the role of a technical lessee simply as
an accommodation to the managed properties and because the leased equipment is
used only for and by the managed properties, these leases have not been recorded
on the Company's books.
10. COMMITMENTS AND CONTINGENCIES:
Guarantees
The Company's principal stockholder has personally guaranteed certain of
the Company's debt and capital lease obligations. As of December 31, 1997, the
guaranteed obligations totaled $2,789,000.
The Company has provided guarantees for, or is the cosigner on, personal
and business debts of its principal stockholder. At December 31, 1997, these
personal debts totaled $17,374,000.
The Company's management agreements are obtained through negotiations with
the respective owners and are impacted by the normal market pressures of a
highly competitive industry. Contract clauses as to the management fees and
reimbursements received by the Company vary greatly.
Certain of the Company's management agreements contain provisions for
guaranteed levels of returns to owners. These agreements also contain force
majeure clauses to protect the Company from forces or occurrences beyond the
control of management. During 1995, 1996 and 1997, the Company made payments in
excess of the management fees earned on these guaranteed agreements of $620,000,
$643,000 and $793,000, respectively.
Litigation
The Company is involved in various legal actions arising in the ordinary
course of business. Management does not believe that the outcome of such legal
actions will have a material adverse effect on the Company's financial position
or results of operations.
Insurance
The Company carries a broad range of insurance coverage, including general
and business auto liability, commercial property, workers' compensation and a
general umbrella policy. The Company has not incurred significant claims or
losses on any of its insurance policies during the periods presented in the
accompanying financial statements.
Benefit Plans
The Company has a 401(k) profit-sharing plan for its employees and for the
employees of certain of its managed resort rental and hotel properties. Under
the terms of the plan, any nonunion employee with one year of service and 1,000
credited hours of service is eligible to participate. Managed property employees
may participate as approved by the owners of the individual managed properties.
Employees of managed properties are considered employees of the Company only for
purposes of participation in the 401(k) plan.
F-35
<PAGE>
HOTEL CORPORATION OF THE PACIFIC, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED )
Participating employees may defer up to 15 percent of their eligible
compensation. During 1997, the employer, either the Company or the managed
property, provided a matching contribution ranging from 37.5 percent to 50.0
percent of the employee's contribution up to the first 6 percent of the eligible
compensation. During 1996, the employer, either the Company or the managed
property, provided a matching contribution ranging from 25 percent to 50 percent
of the employee's contribution up to the first 6 percent of eligible
compensation. In 1995, the employer, either the Company or the managed property,
provided a matching contribution of 25 percent of the employee's contribution up
to 5 percent of the eligible compensation. Company contributions to the 401(k)
plan were $53,000, $107,000 and $184,000 in 1995, 1996 and 1997, respectively.
The Company has applied for qualification of a second 401(k) profit-sharing
plan for employees at one of the leased hotels with the same qualifications as
the first plan.
11. RELATED-PARTY TRANSACTIONS:
Beginning in 1997, the Company provides administrative services to AST
International LLC, an affiliate. The Company recorded a receivable for $420,000
related to these services in 1997.
The Company manages two hotels owned by its principal stockholder.
Centralized services (cooperative sales and marketing, reservations, accounting
services and other reimbursements) and management fees charged to these two
hotels approximated $501,000 and $506,000 in 1996 and 1997, respectively. The
Company leases certain office space and parking spaces in one of these hotels.
Rent expense approximated $14,000 in 1996 and 1997 for these spaces.
The Company also paid HCP, Inc., a company that is wholly owned by the
Company's principal stockholder, $390,000, $481,000 and $476,000 in 1995, 1996
and 1997, respectively, for sales representation and related accounting
services. The Company was named as a party in an arbitration related to certain
hotel properties managed by HCP, Inc., prior to 1991. The Company incurred legal
fees and other expenses totaling $365,000 in 1995 related to the arbitration
which was resolved favorably for the Company during 1995.
The Company leased storage space from a limited partnership in which the
Company was a 5 percent general partner and the Company's principal stockholder
was the other general partner. During 1995, 1996 and 1997, the Company incurred
$128,000, $114,000 and $110,000, respectively, in lease rent related to this
space. The building within which such space is located was sold to an unrelated
third party in 1997.
The Company has unwritten consulting agreements with family members of the
Company's principal stockholder. Consulting services include assistance in
community and governmental affairs. During 1995, 1996 and 1997, the Company
incurred $229,000, $221,000 and $232,000, respectively, relative to these
consulting arrangements. The Company also provides certain management and
clerical personnel for a development company owned by the Company's principal
stockholder. During 1995, 1996 and 1997, the Company incurred $125,000, $125,000
and $126,000, respectively, in salaries and benefits costs relative to this
development company. In return, the Company receives certain consulting and
support services.
At December 31, 1997, the Company was obligated to the spouse of the
principal stockholder on notes payable due February 28, 1999, totaling $285,000
(see Note 7).
12. SUBSEQUENT EVENTS (UNAUDITED):
Effective February 1, 1998, the Company's management agreement with a hotel
in Waikiki was terminated due to the sale of the property. Management fees
earned on this property were approximately $330,000 during 1997. On February 1,
1998, the Company entered into a new management contract with a condominium
hotel property in downtown Honolulu.
F-36
<PAGE>
HOTEL CORPORATION OF THE PACIFIC, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED )
13. PRO FORMA ADJUSTMENTS TO FINANCIAL STATEMENT PRESENTATION (UNAUDITED)
In conjunction with the acquisition of company stock by RQI, the Company
changed from an S Corporation to a C Corporation for federal and state income
tax reporting purposes, which requires the Company to recognize the tax
consequences of operations in its statements of operations. The supplemental pro
forma information included in the accompanying statements of operations reflect
the estimated impact of recognizing income tax expense as if the Company had
been a C Corporation for tax reporting purposes for the three months ended March
31, 1997 and 1998, and for the year ended December 31, 1997.
14. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
On February 28, 1998, the Company's lease arrangement with a hotel in
Waikiki was terminated due to the sale of the property. The hotel had gross
revenues of approximately $5,347,000 and net income of approximately $371,000
during 1997. On March 6, 1998, the Company entered into a new management
contract with a condominium hotel on Maui.
F-37
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Brindley & Brindley Realty and Development, Inc.
and B&B On The Beach, Inc.:
We have audited the accompanying combined balance sheets of Brindley &
Brindley consisting of Brindley & Brindley Realty and Development, Inc., and B&B
On The Beach, Inc., both North Carolina corporations, as of December 31, 1997,
and the related combined statements of operations, changes in stockholders'
equity and cash flows for the year then ended. These combined financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Brindley &
Brindley, as of December 31, 1997, and the results of their operations and their
cash flows for the year ended December 31, 1997 in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
January 30, 1998
F-38
<PAGE>
BRINDLEY & BRINDLEY
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
-------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................. $ 24 $ 508
Cash held in trust ........................................ 3,895 707
Accounts receivable ....................................... 62 50
Prepaid expenses and other current assets ................. 37 201
------ ------
Total current assets ................................... 4,018 1,466
PROPERTY AND EQUIPMENT, net ................................. 125 137
------ ------
Total assets ........................................... $4,143 $1,603
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt ......................... $ 19 $ 11
Customer deposits and deferred revenue .................... 3,895 2,122
Accounts payable and accrued liabilities .................. 108 31
------ ------
Total current liabilities .............................. 4,022 2,164
LONG-TERM DEBT, net of current maturities ................... 22 31
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $1 par; 200,000 shares authorized; 200 shares
outstanding .............................................. -- --
Retained earnings (deficit) ............................... 99 (592)
------ ------
Total stockholders' equity (deficit) ................... 99 (592)
------ ------
Total liabilities and stockholders' equity (deficit) ... $4,143 $1,603
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-39
<PAGE>
BRINDLEY & BRINDLEY
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, ---------------------
1997 1997 1998
------------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES:
Property rental fees ..................................... $2,642 $ 41 $ 19
Service fees ............................................. 978 106 123
Real estate commissions, net ............................. 401 122 115
------ ------ ------
Total revenues ........................................ 4,021 269 257
OPERATING EXPENSES ........................................ 3,028 412 678
------ ------ ------
GENERAL AND ADMINISTRATIVE EXPENSE ........................ 482 128 123
------ ------ ------
Income from operations ................................ 511 (271) (544)
------ ------ ------
OTHER INCOME:
Interest income, net ..................................... 42 -- 16
------ ------ ------
NET INCOME (LOSS) ......................................... $ 553 $ (271) $ (528)
====== ====== ======
PRO FORMA DATA
(unaudited -- Note 6)
Historical net income (loss) before income taxes ......... $ 553 $ (271) $ (528)
------ ------ ------
Less: pro forma provision (benefit) for income taxes 221 (108) (211)
------ ------ ------
PRO FORMA NET INCOME (LOSS) ............................... $ 332 $ (163) $ (317)
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-40
<PAGE>
BRINDLEY & BRINDLEY
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
------------------- EARNINGS
SHARES AMOUNT (DEFICIT) TOTAL
-------- -------- ---------- ---------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1996 .................. 200 $ -- $ 73 $ 73
Net income ................................. -- -- 553 553
Distributions .............................. -- -- (527) (527)
--- ---- ------- ------
BALANCE, December 31, 1997 .................. 200 -- 99 99
Net loss (unaudited) ....................... -- -- (528) (528)
Distributions (unaudited) .................. -- -- (163) (163)
--- ---- ------- ------
BALANCE, March 31, 1998 (unaudited) ......... 200 $ -- $ (592) $ (592)
=== ==== ======= ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-41
<PAGE>
BRINDLEY & BRINDLEY
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, --------------------------
1997 1997 1998
------------- ------------- ----------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................ $ 553 $ (147) $ (528)
Adjustments to reconcile net income to net cash provided by
operating activities-
Depreciation ............................................ 87 22 22
Changes in operating assets and liabilities-
Accounts receivable ..................................... (33) (8) (50)
Prepaid expenses and other current assets ............... (30) (4) 3,086
Accounts payable and accrued liabilities ................ 4 512 (1,850)
------ -------- --------
Net cash provided by operating activities .............. 581 375 680
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ........................ (83) (59) (34)
------ -------- --------
Net cash used in investing activities .................. (83) (59) (34)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from long-term debt .......................... 19 -- 1
Distributions to stockholders ............................. (527) -- (163)
------ -------- --------
Net cash used in financing activities .................. (508) -- (162)
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS ............................................... (10) 316 484
CASH AND CASH EQUIVALENTS, beginning of period ............. 34 34 24
------ -------- --------
CASH AND CASH EQUIVALENTS, end of period ................... $ 24 $ 350 $ 508
====== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest ................................. $ 3 $ -- $ 1
====== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-42
<PAGE>
BRINDLEY & BRINDLEY
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Brindley & Brindley Realty and Development, Inc. and B&B On The Beach, Inc.
(collectively "Brindley & Brindley" or the "Company") both North Carolina
companies, are leading providers of beach vacation property rentals, management
services and sales in the Outer Banks of North Carolina. Brindley and Brindley
manages approximately 450 rental homes. The Company provides its management
services to property owners pursuant to management contracts, which are
generally one year in length. The majority of such contracts allow property
owners to terminate the contract at any time. Brindley & Brindley's operations
are seasonal, with peaks during the second and third quarters of the year.
On May 26, 1998 ResortQuest International, Inc. ("RQI") consummated its
initial public offering and acquired all of the outstanding stock of the Company
in exchange for cash and shares of RQI common stock (the "Combination").
In connection with the Combination, the owner and certain key employees
have agreed to reductions in salary and benefits which would have reduced
general and administrative expenses by approximately $69,000 in 1997. In
addition, certain stockholders will retain non-operating assets and assume or
retire certain liabilities that will be excluded from the Combinations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Statements
The interim financial statements at March 31, 1998, and for the three
months ended March 31, 1998 and 1997, are unaudited, and certain information and
footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements, have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
Revenue Recognition
The Company records property rental fees on the accrual basis of
accounting, ratably over the term of guest stays, as earned. The Company
requires an advance rent equal to 50% of the rental fee at the time reservations
are booked and the remaining 50% of the rental fee 30 days prior to the expected
arrival date. These advance rents are non-refundable and are recorded as
customer deposits and deferred revenue in the accompanying combined financial
statements until the guest stay commences. The Company records revenue for
cancellations as they occur.
Service fees are recorded for a variety of services and are recognized as
the service is provided, including housekeeping, reservations and pool/spa
services.
Commissions on real estate sales are recognized at closing and are recorded
net of the related commission expense. The Company recognized commission
revenues of $1,189,000 and commission expense of $788,000 in 1997.
Operating Expenses
Operating expenses include rental agent commissions, employees salaries,
marketing and advertising expense, and other costs associated with property
sales, rental and management.
Cash and Cash Equivalents
For the purposes of the balance sheets and statements of cash flows, the
Company considers all investments with original maturities of three months or
less to be cash equivalents.
F-43
<PAGE>
BRINDLEY & BRINDLEY
NOTES TO COMBINED FINANCIAL STATEMENTS - (CONTINUED )
Property and Equipment
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the combined statements of operations.
Income Taxes
The Company has elected S Corporation status as defined by the Internal
Revenue Code and state tax statutes, whereby the Company is not subject to
taxation for federal or state purposes. Under S Corporation status, the
stockholders report their shares of the Company's taxable earnings or losses in
their personal tax returns.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and
disclosures 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.
Concentration of Risk
The Company's operations are exclusively in the Corolla, North Carolina
area and are subject to significant changes due to weather conditions.
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Property and equipment consisted of the following (in thousands):
ESTIMATED
USEFUL LIVES DECEMBER 31,
IN YEARS 1997
-------------- -------------
Buildings and improvements .............. 5-40 $ 7
Office equipment and vehicles ........... 3-7 338
------
345
Less - Accumulated depreciation ......... (220)
------
Property and equipment, net ............ $ 125
======
Accounts payable and accrued liabilities consisted of the following (in
thousands):
DECEMBER 31,
1997
-------------
Accrued compensation and benefits ................... $ 28
Accounts payable and other accrued liabilities ...... 80
----
Total accounts payable and accrued liabilities ..... $108
====
F-44
<PAGE>
BRINDLEY & BRINDLEY
NOTES TO COMBINED FINANCIAL STATEMENTS - (CONTINUED )
At December 31, 1997, maturities of long-term debt were as follows (in
thousands):
Year ending December 31,
1998 ............................................... $19
1999 ............................................... 8
2000 ............................................... 9
2001 ............................................... 5
---
$41
===
4. COMMITMENTS AND CONTINGENCIES:
Litigation
The Company is involved in various legal actions arising in the ordinary
course of business. Management does not believe that the outcome of such legal
actions will have a material adverse effect on the Company's combined financial
position or combined results of operations.
Insurance
The Company carries a broad range of insurance coverage, including general
and business auto liability, commercial property, workers' compensation and a
general umbrella policy. The Company has not incurred significant claims or
losses on any of its insurance policies during the period presented in the
accompanying combined financial statements.
Benefit Plans
The Company's 401(k) retirement plan is available to substantially all of
the Company's full-time salaried employees. The Company's contribution to the
plan is based upon a percentage of employee contributions. The cost of this plan
to the Company was approximately $14,000 in 1997.
5. RELATED PARTIES:
During 1997, the Company paid approximately $104,000 or approximately
$8,700 per month to one of the owners for rent of the office building and local
warehouse pursuant to two oral agreements, each on a month-to-month basis.
Brindley & Brindley entered into two written lease agreements with the Brindleys
for these facilities that commenced on January 1, 1998. The terms of these
leases expire December 31, 2002, with options to extend for two 5-year periods
at the end of the lease periods and provide for aggregate annual rental payments
of approximately $133,500.
During 1997, the Company received real estate sales commissions of $70,000
from Outer Banks Ventures, Inc., an affiliate.
6. PRO FORMA ADJUSTMENTS TO FINANCIAL STATEMENT PRESENTATION (UNAUDITED)
In conjunction with the acquisition of Company stock by RQI, the Company
changed from an S Corporation to a C Corporation for federal and state income
tax reporting purposes, which requires the Company to recognize the tax
consequences of operations in its statements of operations. The supplemental pro
forma information included in the accompanying statements of operations reflect
the estimated impact of recognizing income tax expense as if the Company had
been a C Corporation for tax reporting purposes for the three months ended March
31, 1997 and 1998, and for the year ended December 31, 1997.
F-45
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(COMBINED SUCCESSOR COMPANIES REPORT)
To the Shareholders of Coastal Resorts Management, Inc. and
the Members of Coastal Resorts Realty L.L.C.:
We have audited the accompanying combined balance sheets of Coastal Resorts
Management, Inc. (a Delaware corporation) and Coastal Resorts Realty L.L.C. (a
Delaware limited liability company) (collectively, the "Company") as of December
31, 1996 and 1997, and the related combined statements of operations, changes in
stockholders' and members' equity and cash flows for the period December 30,
1996 (inception) to December 31, 1996 and for the year ended December 31, 1997.
These combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Coastal
Resorts Management, Inc., and Coastal Resorts Realty L.L.C. as of December 31,
1996 and 1997, and the results of their combined operations and cash flows for
the period December 30, 1996 (inception) to December 31, 1996 and for the year
ended December 31, 1997, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Washington, D.C.
January 29, 1998
F-46
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(COMBINED PREDECESSOR COMPANIES REPORT)
To the Shareholders of Interstate Realty Co., Inc. and
Sea Colony Management, Inc.:
We have audited the accompanying combined statements of operations and cash
flows of Interstate Realty Co., Inc. (a Maryland corporation) and Sea Colony
Management, Inc. (a Delaware corporation) (collectively, the "Company") for the
period January 1, 1996 through December 30, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the results of the combined operations and
cash flows of Interstate Realty Co., Inc. and Sea Colony Management, Inc. for
the period January 1, 1996 through December 30, 1996, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Washington D.C.
January 29, 1998
F-47
<PAGE>
COASTAL RESORTS MANAGEMENT, INC.
AND
COASTAL RESORTS REALTY L.L.C.
(COMBINED SUCCESSOR COMPANIES)
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1996 1997 1998
--------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ......................................... $ 6 $ 203 $ 1,021
Cash held in escrow ............................................... 198 442 779
Accounts receivable ............................................... 143 117 518
Receivables from related parties .................................. 48 1,130 --
------ ------ -------
Total current assets ............................................ 395 1,892 2,318
PROPERTY AND EQUIPMENT, net ........................................ 68 278 275
GOODWILL AND OTHER INTANGIBLE ASSETS, net .......................... 859 718 705
------ ------ -------
Total assets .................................................... $1,322 $2,888 $ 3,298
====== ====== =======
LIABILITIES AND STOCKHOLDERS' AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Customer deposits and deferred revenue ............................ $ 163 $ 212 $ 1,001
Payable to property owners ........................................ 163 258 --
Accounts payable and accrued liabilities .......................... 196 395 323
Accounts payable and accrued liabilities-related parties .......... -- 47 --
------ ------ -------
Total current liabilities ....................................... 522 912 1,324
NOTE PAYABLE TO RELATED PARTY ...................................... 675 715 --
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' AND MEMBERS' EQUITY:
Common stock, $0.01 par; 100,000 shares authorized; 25,000
issued and outstanding .......................................... -- -- --
Capital in excess of par value .................................... 25 25 25
Members' equity ................................................... 100 100 100
Retained earnings ................................................. -- 1,136 1,849
------ ------ -------
Total stockholders' and members' equity ......................... 125 1,261 1,974
------ ------ -------
Total liabilities and stockholders' and members' equity ......... $1,322 $2,888 $ 3,298
====== ====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-48
<PAGE>
COASTAL RESORTS MANAGEMENT, INC.
AND
COASTAL RESORTS REALTY L.L.C.
(COMBINED SUCCESSOR COMPANIES)
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED PREDECESSOR COMBINED SUCCESSOR
COMPANIES COMPANIES
---------------------- ------------------------------------------
THREE MONTHS
PERIOD JANUARY 1, YEAR ENDED MARCH 31,
1996 THROUGH ENDED -----------------------
DECEMBER 30, 1996 DECEMBER 31, 1997 1997 1998
---------------------- ------------------ ----------- -----------
(UNAUDITED)
REVENUES:
<S> <C> <C> <C> <C>
Property rental fees ...................................... $ 1,481 $ 1,415 $ 186 $ 263
Real estate commissions, net including related party
commissions of $0, $1,244, $0, and $86, respectively. 414 1,268 222 240
Water plant ............................................... -- 462 -- --
Service fees .............................................. 202 470 16 74
------- ------- ----- -----
Total revenues .......................................... 2,097 3,615 424 577
OPERATING EXPENSES ......................................... 1,017 1,788 296 435
------- ------- ----- -----
GENERAL AND ADMINISTRATIVE EXPENSES ........................ 477 644 144 158
------- ------- ----- -----
Income (loss) from operations ........................... 603 1,183 (16) (16)
INTEREST INCOME (EXPENSE) .................................. 121 (47) -- --
------- ------- ----- -----
Income (loss) before income taxes ....................... 724 1,136 (16) (16)
PROVISION FOR INCOME TAXES ................................. 304 -- -- --
------- ------- ----- -----
NET INCOME (LOSS) .......................................... $ 420 $ 1,136 $(16) $ (16)
======= ======= ===== =====
PRO FORMA DATA
(unaudited -- Note 8)
Historical net income (loss) before income taxes .......... $ 724 $ 1,136 $(16) $ (16)
Less: pro forma provision (benefit) for income taxes....... 290 454 (6) (6)
------- ------- ------- --------
PRO FORMA NET INCOME (LOSS) ................................ $ 434 $ 682 $(10) $ (10)
======= ======= ====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-49
<PAGE>
COASTAL RESORTS MANAGEMENT, INC.
AND
COASTAL RESORTS REALTY L.L.C.
(COMBINED SUCCESSOR COMPANIES)
STATEMENTS OF CHANGES IN STOCKHOLDERS' AND MEMBERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
----------------- PAID-IN MEMBERS' RETAINED
SHARES AMOUNT CAPITAL EQUITY EARNINGS TOTAL
-------- -------- ----------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Initial Capitalization -- CRR,
December 30, 1996 .......................... -- $ -- $ -- $100 $ -- $ 100
Initial Capitalization -- CRM,
December 30, 1996 .......................... 25,000 -- 25 -- -- 25
Net Income ............................... -- -- -- -- -- --
------ ---- ---- ---- ------ ------
BALANCE, December 31, 1996 .................. 25,000 -- 25 100 -- 125
Net Income ............................... -- -- -- -- 1,136 1,136
------ ---- ---- ---- ------ ------
BALANCE, December 31, 1997 .................. 25,000 -- 25 100 1,136 1,261
Net income (loss) (unaudited) ............ -- -- -- -- (16) (16)
Contributions (unaudited) ................ -- -- -- -- 729 729
------ ---- ---- ---- ------ ------
BALANCE, March 31, 1998 (unaudited) ......... 25,000 $ -- $ 25 $100 $1,849 $1,974
====== ==== ==== ==== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-50
<PAGE>
COASTAL RESORTS MANAGEMENT, INC.
AND
COASTAL RESORTS REALTY L.L.C.
(COMBINED SUCCESSOR COMPANIES)
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED
PREDECESSOR
COMPANIES COMBINED SUCCESSOR COMPANIES
-------------- ------------------------------------------------
THREE MONTHS ENDED
JANUARY 1 - INCEPTION - JANUARY 1 - MARCH 31,
DECEMBER 30, DECEMBER 31, DECEMBER 31, -------------------
1996 1996 1997 1997 1998
-------------- -------------- ------------- --------- ---------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C> <C>
Net income (loss) ................................... $ 420 $ -- $1,136 $ (16) $ (16)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities--
Depreciation and amortization ...................... 28 -- 85 21 22
Gain on sale of assets ............................. -- -- (8) -- --
Changes in operating assets and liabilities--
Escrow accounts ..................................... 102 -- (244) -- (337)
Accounts receivable ................................. (32) -- 26 (103) (401)
Commission receivable ............................... (71) -- -- (103) --
Due to/from related party ........................... (334) -- -- --
Prepaid insurance and income taxes .................. 63 -- -- (18) 13
Customer deposits and deferred revenue .............. (127) 574 49 574 789
Payable to property owners .......................... -- -- 95 (163) (258)
Accounts payable and accrued liabilities ............ (16) -- 199 115 (72)
------ ---- ------- ------ ------
Net cash provided by (used in) operating activi-
ties .............................................. 33 574 1,338 307 (260)
------ ---- ------- ------ ------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-51
<PAGE>
COASTAL RESORTS MANAGEMENT, INC.
AND
COASTAL RESORTS REALTY L.L.C.
(COMBINED SUCCESSOR COMPANIES)
COMBINED STATEMENTS OF CASH FLOWS -- (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED
PREDECESSOR
COMPANIES COMBINED SUCCESSOR COMPANIES
-------------- ------------------------------------------------
THREE MONTHS ENDED
JANUARY 1 - INCEPTION - JANUARY 1 - MARCH 31,
DECEMBER 30, DECEMBER 31, DECEMBER 31, -------------------
1996 1996 1997 1997 1998
-------------- -------------- ------------- --------- ---------
(UNAUDITED)
CASH FLOWS FROM INVESTING ACTIVITIES:
<S> <C> <C> <C> <C> <C>
Purchase of businesses, net of cash acquired ............. $ -- $ (119) $ -- $ -- $ --
Purchase of property and equipment ....................... (33) -- (261) (65) --
Proceeds from sale of assets ............................. -- -- 115 -- (19)
------- ------ -------- ----- ------
Net cash used in investing activities ................... (33) (119) (146) (65) (19)
------- ------ -------- ----- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Receivables from related parties ......................... -- -- (1,082) 48 1,130
Accounts payable and accrued liabilities -- related
parties ................................................. -- -- 47 -- (47)
Proceeds from note payable to related party .............. -- -- 200 -- --
Payments on note payable to related party ................ -- -- (160) -- (715)
Capital contributions .................................... -- 125 -- -- 729
------- ------ -------- ----- ------
Net cash provided by (used in) financing activities. -- 125 (995) 48 1,097
------- ------ -------- ----- ------
NET INCREASE IN CASH AND CASH EQUIVA-
LENTS .................................................... -- 580 197 290 818
CASH AND CASH EQUIVALENTS, beginning of
period ................................................... 6 -- 6 6 203
------- ------ -------- ----- ------
CASH AND CASH EQUIVALENTS, end of period................... $ 6 $ 580 $ 203 $ 296 $1,021
======= ====== ======== ===== ======
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Fair value of assets acquired, net of cash ............... $ -- $ 885 $ -- -- --
Less: Cash paid .......................................... -- 119 $ -- -- --
Seller provided financing ................................ -- 675 -- -- --
Liabilities incurred ..................................... -- 91 -- -- --
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest ................................... $ -- $ -- $ -- $ -- $ --
======= ====== ======== ===== ======
Cash paid for taxes ...................................... $25,500 $ -- $ -- $ -- $ --
======= ====== ======== ===== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-52
<PAGE>
COASTAL RESORTS MANAGEMENT, INC.
AND
COASTAL RESORTS REALTY L.L.C.
(COMBINED SUCCESSOR COMPANIES)
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Coastal Resorts Management, Inc. ("CRM"), incorporated on September 26,
1996, and Coastal Resorts Realty L.L.C. ("CRR"), formed on August 28, 1996,
(collectively the "Companies" or the "Company") are a Delaware corporation and a
Delaware limited liability company, respectively. CRM provides property
management services to homeowner associations as well as other related service
companies. CRR provides property rental services to owners of vacation
properties and acts as an agent for sales of new and used vacation properties.
The Company manages approximately 550 rental units in Bethany Beach, Delaware.
CRR and CRM purchased their operations from Interstate Realty Co., Inc.
("Interstate") and Sea Colony Management, Inc. ("SCM"), respectively, on
December 30, 1996 (See Note 4). The Company provides its management services to
property owners pursuant to management contracts, which range in length from one
to five years. The majority of such contracts allow property owners to terminate
the contract only for cause. The Company's operations are seasonal, with peaks
during the second and third quarters of the year.
On May 26, 1998, ResortQuest International, Inc. ("RQI") consummated its
initial public offering and acquired all of the outstanding stock of the
Companies in exchange for shares of RQI common stock (the "Combination"). In
addition, the stockholders and members retained goodwill and other intangible
assets that were excluded from the Combinations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Statements
The interim financial statements at March 31, 1998, and for the three
months ended March 31, 1998 and 1997, are unaudited, and certain information and
footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements, have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
Basis of Combination and Financial Statement Presentation
The accompanying financial statements of CRM and CRR (the "Successor
Companies") have been prepared on a combined basis as the Companies are under
common control and are expected to be the subject of a consolidation with and
into RQI.
The accompanying financial statements of Interstate and SCM (the
"Predecessor Companies") have been prepared on a combined basis as the
Predecessor Companies were under common control and were the subject of an
acquisition by the Successor Companies. The financial statements of the
Predecessor Companies are presented for the purpose of complying with the rules
and regulations of the Securities and Exchange Commission.
The combined statement of operations of the Companies for the period from
December 30, 1996 (inception) to December 31, 1996, has not been presented due
to the nominal level of operations.
Revenue Recognition
The Company records property rental fees on the accrual basis of
accounting, ratably over the term of guest stays, as earned. The Company
requires a deposit equal to 33% of the rental fee 10 days after the reservation
is booked. These deposits are non-refundable and are recorded as customer
deposits and deferred revenue in the accompanying combined financial statements.
The Company records revenue for cancellations as they occur.
F-53
<PAGE>
COASTAL RESORTS MANAGEMENT, INC.
AND
COASTAL RESORTS REALTY L.L.C.
(COMBINED SUCCESSOR COMPANIES)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Service fees are recorded for a variety of services and are recognized as
the service is provided, including processing and inspection fees.
Commissions on real estate sales are recognized at closing and are recorded
net of the related commission expense. The Company recognized commission
revenues of $689,000 and $2,176,000 for the years 1996 and 1997 and commission
expense of $275,000 and $908,000 for the years 1996 and 1997.
Operating Expenses
Operating expenses include rental agent commissions, salaries, marketing
and advertising expense, and other costs associated with sales, rental and
management.
Cash and Cash Equivalents
For purposes of the balance sheets and statements of cash flows, the
Company considers all cash held and investments held with maturities of less
than 3 months as cash and cash equivalents.
Property and Equipment
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statement of operations.
Income Taxes
CRM has elected S Corporation status as defined by the Internal Revenue
Code and state tax statutes, whereby the Company is not subject to taxation for
federal or state tax purposes. Under S Corporation status, the stockholders
report their share of CRM's taxable earnings or losses in their personal tax
returns. CRR is a Limited Liability Company and is taxed as a Partnership.
Accordingly, the Company is not subject to taxation for federal or state
purposes. The members report their share of CRR's taxable earnings or losses in
their personal tax returns.
The Predecessor Companies were C Corporations and accounted for their
income taxes under the provisions of Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" ("SFAS No. 109"). Under SFAS No. 109, the
current provision for income taxes represents actual or estimated amounts
payable or refundable on tax returns filed or to be filed for each year.
Deferred tax assets and liabilities are recorded for estimated future tax
effects of: (a) temporary differences between the tax bases of assets and
liabilities and amounts reported in the consolidated balance sheets, and (b)
operating loss and tax credit carry forwards. The overall change in deferred tax
assets and liabilities for the period measures the deferred tax expense for the
period. Effects of changes in enacted tax laws on deferred tax assets and
liabilities are reflected as adjustments to tax expense in the period of the
enactment. The measurement of deferred tax assets may be reduced by a valuation
allowance based on judgmental assessment of available evidence if deemed more
likely than not that some or all of the deferred tax assets will not be
realized.
F-54
<PAGE>
COASTAL RESORTS MANAGEMENT, INC.
AND
COASTAL RESORTS REALTY L.L.C.
(COMBINED SUCCESSOR COMPANIES)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and
disclosures 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.
Concentration of Risk
The Companies' operations are exclusively in the Bethany Beach, Delaware
area and are subject to significant changes due to weather conditions.
In 1997, 26 percent of gross revenues were attributable to commissions on
new homes sales which were built by Sea Colony Development Corporation, Inc., a
related party.
3. PROPERTY AND EQUIPMENT, NET
Property and equipment consisted of the following (in thousands):
ESTIMATED DECEMBER 31,
USEFUL LIVES ---------------
IN YEARS 1996 1997
------------- ------ -------
Computer equipment ................... 5 $60 $ 88
Furniture and fixtures ............... 7 8 241
Total ............................. 68 329
--- -----
Less -- Accumulated depreciation ..... -- (51)
--- -----
Property and equipment, net .......... $68 $ 278
=== =====
4. PURCHASE:
On December 30, 1996, CRR entered into an agreement to purchase the assets
and assume certain liabilities of Interstate (a related party) for the purchase
price of $759,000. CRR borrowed $600,000 from a related party entity to finance
the purchase. The fair value of the net assets purchased totaled $2,000,
resulting in the recognition of goodwill of $642,000 and a trademark of
$115,000. The trademark was sold in 1997 (see Note 6).
On December 30, 1996, CRM entered into an agreement to purchase the common
stock of SCM (a related party) for the purchase price of $132,000. CRM borrowed
$75,000 from a related party entity to finance the purchase. The fair value of
the net assets purchased totaled $30,000, resulting in the recognition of
intangible assets, totaling $102,000.
The goodwill is being amortized over a period of 40 years.
The trademark was subsequently sold to another related party for
approximately $115,000 pursuant to an agreement effective December 31, 1997. The
trademark was being amortized over a period of 15 years.
The intangible assets associated with the purchase of SCM are being
amortized over a period of 10 years.
F-55
<PAGE>
COASTAL RESORTS MANAGEMENT, INC.
AND
COASTAL RESORTS REALTY L.L.C.
(COMBINED SUCCESSOR COMPANIES)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. COMMITMENTS AND CONTINGENCIES:
Litigation
The Companies are involved in various legal actions arising in the ordinary
course of business. Management does not believe that the outcome of such legal
actions will have a material adverse effect on the Companies' combined financial
position or results of operations.
Insurance
Through policies secured by a related party, the Companies are covered by a
broad range of insurance policies, including general and business auto
liability, commercial property, workers' compensation and a general umbrella.
The cost of these policies has not been allocated to the Companies in the
accompanying financial statements. The Companies expect to incur insurance
expense in future years.
Benefit Plans
A related party's 401(k) retirement plan (the "Plan") is available to
substantially all of the Company's employees. The Plan is 100% employee funded
and the Companies have no current or future obligations related to the Plan. The
Companies currently pay a fee for the related administration costs.
Future Minimum Lease Payments
The Company rents office space and equipment under operating leases. Rental
expense related to these leases was approximately $69,000 and $111,000 in 1996
and 1997, respectively. Rental expense related to leases with related parties
was approximately $69,000 and $77,000 in 1996 and 1997, respectively.
Minimum future lease payments under these noncancelable operating leases in
effect at December 31, 1997 are as follows (in thousands):
YEAR AMOUNT
---- ------
1998 ...................................... $132
1999 ...................................... 107
2000 ...................................... 85
2001 ...................................... 90
2002 ...................................... 38
----
Total ..................................... $452
====
6. RELATED PARTIES:
Related Party Agreements
Effective June 1, 1996, one of the Predecessor Entities entered into an
agreement with CMF Fitness, Inc., a related party. The agreement appointed the
Predecessor Entity as the manager of, and exclusive agent for, the Sea Colony
Fitness Center located in Bethany Beach, Delaware. The agreement is effective
from June 1, 1996 until December 31 of the calendar year in which the last new
home in the Sea Colony community is sold, but in no event later than December
31, 2005. CMF Fitness, Inc. paid the Company $41,000 and $70,000 in 1996 and
1997, respectively, under this agreement.
F-56
<PAGE>
COASTAL RESORTS MANAGEMENT, INC.
AND
COASTAL RESORTS REALTY L.L.C.
(COMBINED SUCCESSOR COMPANIES)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
CRM receives a management fee of approximately $6,000 per month for its
services. CRM and the Predecessor Entity earned approximately $41,000 and
$70,000 in 1996 and 1997, respectively, in relation to this management
agreement.
Effective January 1, 1997, CRM entered into an agreement with Sea Colony
Water Company, L.L.C., ("SCWC"), a related party. The agreement appointed CRM as
the manager of and exclusive agent for the Sea Colony Water Plant located in
Bethany Beach, Delaware. The agreement is effective from January 1, 1997 until
December 31, 2001 or the sale of the property. CRM is entitled to retain all
revenue collected by the water plant, less the following: (1) an annual payment
to SCWC of $100,000, (2) an annual payment to SCWC equal to 12.5% of the
cumulative value of capital improvements made to the water plant after January
1, 1997, and (3) all costs and expenses associated with the operation of the
property except capital improvements and expenditures, costs of compliance with
laws and regulations, and costs of insurance. CRM earned approximately $463,000
in revenue from the operation of the water plant in 1997. Operating expenses
plus the additional costs described above incurred by CRM related to the water
plant were approximately $319,000.
Effective January 1, 1997, CRR entered into an agreement with Sea Colony
Development Corporation, Inc. ("SCDC"), a related party. The agreement requires
CRR to develop a marketing plan to promote new homes in the Sea Colony
community. The agreement also appointed CRR as the sole and exclusive agent for
sale of new homes at Sea Colony from January 1, 1997 until December 31, 1999.
The agreement states that CRR shall receive a commission of 6.5% of the full
purchase price on all new homes sold at Sea Colony. CRR earned approximately
$1,244,000 in new home sales commissions under this agreement in 1997 and
$86,000 for the three months ended March 31, 1998. At December 31, 1997, in
connection with this agreement the Company has a net receivable of approximately
$674,000 from SCDC consisting of a receivable of approximately $1,244,000 for
commissions on new home sales in 1997 and a related payable of approximately
$570,000 for commissions, marketing and advertising expenses paid by SCDC on
behalf of CRR.
Effective January 1, 1997, the Companies entered into an agreement with CMF
Paymaster, Inc., a related party, to receive administrative services relating to
payroll and other employee matters. The agreement is effective from January 1,
1997 through December 31, 1999, and requires the Companies to pay $2.00 per pay
period per employee of the Companies.
The trademark purchased on December 30, 1996 for $115,000 was sold to SCDC
pursuant to an agreement effective December 31, 1997. As of December 31, 1997,
the Company has recorded a receivable from SCDC for $115,000 related to this
sale. A gain of $4,000 was recognized on the sale and is included in other
revenues.
Note Payable to Related Party
In connection with the purchase of Interstate and SCM on December 30, 1996
the Companies borrowed $675,000 from a related party. The loan has an effective
interest rate of 7.25% and is due December 31, 2001. During 1997 the Companies
received additional advances of $200,000 and made principal payments of
$160,000. Accrued interest payable at December 31, 1997, was $46,888. The assets
of the Company have been pledged as collateral for the note.
Related Party Leases
The Company leases office space under three separate leases with a related
party. In aggregate, the Company paid approximately $69,000 and $77,000 in 1996
and 1997, respectively.
F-57
<PAGE>
COASTAL RESORTS MANAGEMENT, INC.
AND
COASTAL RESORTS REALTY L.L.C.
(COMBINED SUCCESSOR COMPANIES)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Capital Contribution
On January 13, 1998, the owners of the Companies made a capital
contribution of approximately $762,000. On the same day, this amount was used to
repay the Companies' related party debt of $715,000 and the related accrued
interest.
7. INCOME TAXES:
The provision for income taxes consists of the following for the period
January 1 through December 30, 1996 (in thousands):
CURRENT:
Federal ........................... $ 280
State ............................. 64
-----
Total current provision ......... 344
DEFERRED:
Federal ........................... (27)
State ............................. (13)
-----
Total deferred benefit: ......... (40)
-----
Provision for income taxes ......... $ 304
=====
A reconciliation of the statutory income tax rate to the provision for
income taxes included in the statement of operations of the Predecessor
Companies for the period January 1 through December 30, 1996 is as follows (in
thousands):
Federal income tax at statutory rate .......... $253
State income taxes, net ....................... 51
----
Income tax provision .......................... $304
====
8. PRO FORMA ADJUSTMENTS TO FINANCIAL STATEMENT PRESENTATION (UNAUDITED):
In conjunction with the acquisiton of the Companies by RQI, the Companies
changed from an S Corporation and a limited liability company to a C Corporation
for federal and state income tax reporting purposes, which requires the
Companies to recognize the tax consequences of operations in its statements of
operations. The supplemental pro forma information included in the accompanying
statements of operations reflect the estimated impact of recognizing income tax
expense as if the Companies had been a C Corporation for tax reporting purposes
for the three months ended March 31, 1997 and 1998, and for the year ended
December 31, 1997.
F-58
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To Collection of Fine Properties, Inc.:
We have audited the accompanying consolidated balance sheets of Collection
of Fine Properties, Inc. as of December 31, 1997 and 1996, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the three years ended December 31, 1997, 1996 and 1995. 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 Collection
of Fine Properties, Inc. as of December 31, 1997 and 1996, and the results of
their operations and their cash flows for the three years ended December 31,
1997, 1996 and 1995, in conformity with generally accepted accounting
principles.
MORRISON, BROWN, ARGIZ AND COMPANY
Denver, Colorado
January 23, 1998
F-59
<PAGE>
COLLECTION OF FINE PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
1996 1997 1998
--------- --------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................ $2,664 $2,713 $1,723
Marketable securities ................................ 103 -- --
Accounts receivable .................................. 100 67 189
Receivables from affiliates and stockholders ......... 213 634 982
Prepaid expenses and other current assets ............ 312 434 268
------ ------ ------
Total current assets ............................... 3,392 3,848 3,162
------ ------ ------
PROPERTY AND EQUIPMENT, net ........................... 1,903 1,964 1,905
------ ------ ------
OTHER ASSETS .......................................... 98 54 50
------ ------ ------
Total assets ....................................... $5,393 $5,866 $5,117
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit ....................................... $ -- $ 97 $ --
Current portion of long-term debt .................... 397 28 82
Current portion of capital lease obligations ......... 51 55 56
Customer deposits and deferred revenue ............... 3,287 3,336 664
Payable to affiliates ................................ 42 28 28
Accounts payable and accrued liabilities ............. 938 1,175 1,259
------ ------ ------
Total current liabilities .......................... 4,715 4,719 2,089
------ ------ ------
LONG-TERM DEBT, net of current maturities ............. 188 299 923
------ ------ ------
CAPITAL LEASE OBLIGATIONS, net of current
maturities ........................................... 70 15 --
------ ------ ------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, no par value, 10,000 shares autho-
rized, issued and outstanding ...................... 788 788 788
Retained earnings (deficit) .......................... (368) 45 1,317
------ ------ ------
Total stockholders' equity ......................... 420 833 2,105
------ ------ ------
Total liabilities and stockholders' equity ......... $5,393 $5,866 $5,117
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-60
<PAGE>
COLLECTION OF FINE PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------- -------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Property rental fees ..................................... $2,734 $3,273 $3,513 $2,238 $2,199
Service fees ............................................. 266 273 243 114 76
Other .................................................... 500 595 547 362 414
------ ------ ------ ------ ------
Total revenues ......................................... 3,500 4,141 4,303 2,714 2,689
OPERATING EXPENSES ........................................ 2,621 2,777 2,830 1,021 930
------ ------ ------ ------ ------
GENERAL AND ADMINISTRATIVE EXPENSES ....................... 923 948 893 238 224
------ ------ ------ ------ ------
Income (loss) from operations ............................ (44) 416 580 1,455 1,535
OTHER INCOME (EXPENSE):
Interest income, net ..................................... 21 31 58 36 34
Other .................................................... (34) 85 75 18 15
------ ------ ------ ------ ------
NET INCOME (LOSS) ......................................... $ (57) $ 532 $ 713 $1,509 $1,584
====== ====== ====== ====== ======
PRO FORMA DATA
(unaudited -- Note 10)
Historical net income (loss) before income taxes ......... $ (57) $ 532 $ 713 $1,509 $1,584
Less: pro forma provision (benefit) for income taxes ..... (23) 213 285 604 634
------ ------ ------ ------ ------
PRO FORMA NET INCOME (LOSS) ............................... $ (34) $ 319 $ 428 $ 905 $ 950
====== ====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-61
<PAGE>
COLLECTION OF FINE PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
------------------- EARNINGS
SHARES AMOUNT (DEFICIT) TOTAL
-------- -------- ----------- ----------
<S> <C> <C> <C> <C>
BALANCE, January 1, 1995 .................... 10,000 $788 $ (443) $ 345
Net loss ................................... -- -- (57) (57)
Distributions .............................. -- -- (100) (100)
------ ---- ------ ------
BALANCE, December 31, 1995 .................. 10,000 788 (600) 188
Net income ................................. -- -- 532 532
Distributions .............................. -- -- (300) (300)
------ ---- ------ ------
BALANCE, December 31, 1996 .................. 10,000 788 (368) 420
Net income ................................. -- -- 713 713
Distributions .............................. -- -- (300) (300)
------ ---- ------ ------
BALANCE, December 31, 1997 .................. 10,000 788 45 833
Net income (unaudited) ..................... -- -- 1,584 1,584
Distributions (unaudited) .................. -- -- (312) (312)
------ ---- ------ ------
BALANCE, March 31, 1998 (unaudited) ......... 10,000 $788 $1,317 $2,105
====== ==== ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-62
<PAGE>
COLLECTION OF FINE PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------- -------------------------
1995 1996 1997 1997 1998
--------- ---------- --------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ....................................... $(57) $ 532 $ 713 $1,509 $1,584
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization ......................... 379 367 307 77 77
Gain on sale of assets ................................ -- (9) -- -- --
Changes in operating assets and liabilities:
Accounts receivable ................................... (21) 1 33 (254) (122)
Prepaid expenses and other current assets ............. 66 (21) (122) 105 170
Customer deposits and deferred revenue ................ 188 568 49 (2,567) (2,672)
Payable to affiliates ................................. 74 (363) (13) -- --
Accounts payable and accrued expenses ................. 186 (96) 237 484 84
---- ------ ------ ------ ------
Net cash provided by (used in) operating activ-
ities .............................................. 815 979 1,204 (646) (879)
---- ------ ------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from loan receivable ........................... -- 160 -- -- --
Purchases of property and equipment ..................... (360) (288) (284) (118) (18)
Proceeds from sale of property and equipment ............ -- 46 8 -- --
Other assets ............................................ 19 (10) 37 39 --
Sales and (purchases) of marketable securities .......... -- (103) 103 -- --
Proceeds from sale of land held for development ......... -- 67 -- -- --
---- ------ ------ ------ ------
Net cash used in investing activities ................ (341) (128) (136) (79) (18)
---- ------ ------ ------ ------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-63
<PAGE>
COLLECTION OF FINE PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------ -----------------------
1995 1996 1997 1997 1998
--------- ---------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances on line of credit ................................ 514 -- 752 17 --
Repayments on line of credit .............................. (724) (90) (655) -- (97)
Proceeds from notes payable ............................... 149 -- -- 128 678
Payments on notes payable ................................. (123) (26) (344) -- --
Receivables from affiliates and stockholders, net ......... 27 (105) (421) 213 (348)
Advances to stockholders .................................. -- (16) -- -- --
Payments on note payable to related parties ............... -- (154) -- --
Payments on capital leases ................................ (50) (54) (51) (65) (14)
Distributions to stockholders ............................. -- (400) (300) -- (312)
---- ---- ---- --- ----
Net cash provided by (used in) financing activities. (207) (845) (1,019) 293 (93)
---- ---- ------ --- ----
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS .......................................... 267 6 49 (432) (990)
CASH AND CASH EQUIVALENTS, beginning of
period .................................................... 2,391 2,658 2,664 2,664 2,713
----- ----- ------ ----- -----
CASH AND CASH EQUIVALENTS, end of period ................... $2,658 $2,664 $2,713 $2,232 $1,723
====== ====== ====== ====== ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid ............................................. $ 75 $ 100 $ 79 $ 16 $ 10
====== ====== ====== ====== ======
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Acquisition of assets under capitalized leases ............ $ -- $ -- $ 86 $ -- $ --
====== ====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-64
<PAGE>
COLLECTION OF FINE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Collection of Fine Properties, Inc. and its subsidiary Peak Ski Rental,
Ltd. ("Subsidiary," collectively the "Company"), a Colorado S-Corporation,
provides vacation property rental and management services for properties owned
by third parties and located in the Breckenridge, Colorado area. The properties
are primarily condominium rental units which are owned by third parties. The
Company manages approximately 470 rental units. The Company's subsidiary is
engaged in the rental of ski equipment.
On January 1, 1995, Tyra Management, Inc., Colorado Mountain Lodging, Inc.,
and River Mountain Lodge, Inc. formed a business combination accounted for as a
pooling of interests. All of the assets and liabilities of those companies were
transferred to Collection of Fine Properties, Inc. The stockholders of the
combined companies received 10,000 shares of common stock of Collection of Fine
Properties, Inc. in exchange for their stock in Tyra Management, Inc., Colorado
Mountain Lodging, Inc. and River Mountain Lodge, Inc. All existing basis in the
assets and liabilities of the combined companies was transferred to the Company.
As a result of this combination, the Company acquired 100% ownership of the
Subsidiary, which prior to the combination, was owned one-third by each of the
combining companies.
On May 26, 1998, ResortQuest International, Inc. ("RQI") consummated its
initial public offering and acquired all of the outstanding stock of the Company
in exchange for cash and shares of RQI common stock (the "Combination"). In
connection with the combination, an owner has agreed to reductions in salary and
benefits which would have reduced general and administrative expenses by
approximately $64,000, $74,000 and $94,000 for 1995, 1996, and 1997,
respectively. In addition, certain stockholders retained non-operating assets
and assumed certain liabilities that were excluded from the Combination.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Statements
The interim financial statements at March 31, 1998, and for the three
months ended March 31, 1998 and 1997, are unaudited, and certain information and
footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements, have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
Principles of consolidation
The consolidated financial statements include the accounts of Collection
of Fine Properties, Inc. and Peak Ski Rental, Ltd. All significant intercompany
accounts and transactions have been eliminated.
Revenue recognition
The Company records property rental and management fees on the accrual
basis of accounting ratably over the term of guest stays, as earned. Certain
other linen and maintenance fees are charged periodically. The Company provides
all marketing, management, housekeeping and minor maintenance.
The Company requires a non-refundable deposit equal to 100% of the rental
amount 60 days prior to the actual stay, recorded as Customer Deposits within
the accompanying consolidated balance sheets. Revenue from cancellations is
recognized when received.
F-65
<PAGE>
COLLECTION OF FINE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
Operating expenses
Operating expenses include travel agent commissions, salaries,
communications, advertising, credit card fees and other costs associated with
managing properties.
Cash and cash equivalents
The Company considers all short-term investments purchased with an original
maturity of three months or less to be cash equivalents.
Marketable securities
Marketable securities consist of corporate bonds and are classified as held
to maturity. The fair market value of the securities approximates the cost.
Held to maturity securities are securities which the Company has the
positive intent and ability to hold to maturity. Amounts are reported at
amortized cost, adjusted for the amortization of premiums and accretion of
discounts.
Inventories
Inventories consist of ski lift tickets, merchandise, uniforms, supplies
and parts used for the repair and service of the owners' units. Inventories are
stated at cost, determined on a first-in, first-out (FIFO) method. Inventories
are included in prepaid expenses and other current assets on the balance sheets.
Land held for development
Land held for development consists of raw land purchased for future
development. Cost includes original acquisition costs and costs incurred
specific to the property. During 1996, this property was sold to a related party
at cost.
Property and equipment
Property and equipment are recorded at cost.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statements of operations.
Income taxes
The Company has S-Corporation status as defined by the Internal Revenue
Code. Under S-Corporation status, the stockholders report their shares of the
Company's taxable earnings or losses in their personal tax returns.
Management 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
disclosures of contingent assets and liabilities at December 31, 1997 and 1996
and revenues and expenses during the three years ended December 31, 1997, 1996
and 1995. The actual outcome of these estimates could differ from the estimates
made in the preparation of the financial statements.
F-66
<PAGE>
COLLECTION OF FINE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
Concentration of credit risk
At December 31, 1997 and 1996, the Company had cash deposits in a financial
institution of approximately $2,341,000 and $2,085,000, respectively, in excess
of the federal insured limit of $100,000.
The Company is economically dependent upon the tourism trade and changes in
weather conditions in the Breckenridge, Colorado area. The operations are
seasonal, with peaks during the first and fourth quarters of the year.
Reclassifications
Certain items in the 1995 and 1996 financial statements have been
reclassified to conform with the 1997 presentation.
Fair value of financial instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments," requires disclosure regarding the fair
value of financial instruments for which it is practical to estimate that value.
The carrying value of cash and cash equivalents, approximates the fair value due
to the short-term nature of these instruments. The fair value of the Company's
long-term debt is estimated to approximate carrying value as the pricing and
terms are indicative of current rates and credit risk.
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------ -------
<S> <C> <C>
Merchandise ................................................ $ 31 $ 35
Parts and supplies ......................................... 27 31
Uniforms ................................................... 9 13
Ski lift tickets ........................................... 94 78
---- ----
$161 $157
==== ====
</TABLE>
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES ------------------------
IN YEARS 1996 1997
------------- --------- ---------
<S> <C> <C> <C>
Buildings ......................................... 31-39 $1,206 $1,230
Property held for investment ...................... 31-39 330 332
Furniture and equipment ........................... 3-7 962 806
Transportation equipment .......................... 5 104 203
Equipment under capital leases .................... lease term 262 242
Leasehold improvements ............................ 39 52 59
Linens ............................................ 4 216 259
3,132 3,131
Less accumulated depreciation and amortization..... 1,229 1,167
------ ------
Property and equipment, net ...................... $1,903 $1,964
====== ======
</TABLE>
F-67
<PAGE>
COLLECTION OF FINE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
Accounts payable and accrued liabilities consisted of the following (in
thousands):
<TABLE>
<CAPTION>
1996 1997
------ ---------
<S> <C> <C>
Trade payable .................................. $703 $ 915
Payroll and payroll taxes ...................... 101 111
Sales tax ...................................... 134 149
---- ------
Total accounts payable and accrued liabilities $938 $1,175
==== ======
</TABLE>
4. PROPERTY HELD UNDER CAPITAL LEASES:
The Company is subject to leases for telephone and computer equipment under
arrangements, which are accounted for as capital leases. The leases are
amortized over an estimated useful life of 5 years. Amortization on equipment
under capital leases for the years ended December 31, 1997, 1996 and 1995 was
approximately $49,000.
The following is a schedule of future minimum payments due under the
capital leases and the present value of the net minimum lease payments (in
thousands):
<TABLE>
<S> <C>
Year ending December 31,
1998 ............................................................. $ 58
1999 ............................................................. 15
-----
Total minimum lease payments ...................................... 73
Less amount representing interest ................................. 3
-----
Present value of net minimum obligations under capital leases ..... 70
Less current maturities ........................................... 55
-----
$ 15
=====
</TABLE>
5. RELATED PARTIES:
The related party balances consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------ -------
<S> <C> <C>
Receivable from affiliates ........... $162 $583
Receivable from stockholders ......... 51 51
---- ----
$213 $634
==== ====
Payable to affiliates ................ $ 42 28
==== ====
</TABLE>
Related party receivables are unsecured, non-interest bearing and are
expected to be collected in the subsequent year.
The Company has a mortgage note payable with an affiliate (Note 7).
During 1996 and 1995, the Company incurred management fees to a related
party of approximately $100,000 and $118,000, respectively, for administrative
services. No management fees were incurred during 1997.
During 1997, 1996 and 1995, the Company received expense reimbursements
from a related party of approximately $75,000, $57,000 and $60,000,
respectively.
Loan receivable
Tyra Management, Inc. sold property to a related party at its cost basis of
approximately $323,000. Tyra Management, Inc. received a note from that related
entity. At January 1, 1995, when Tyra Management, Inc. was combined into the
Company, the note had been paid down to approximately $151,000,
F-68
<PAGE>
COLLECTION OF FINE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
which included accrued interest. The note was transferred to the Company as part
of the combination. No additional payments were made by the related entity
during 1995. Interest, which accrues at the rate of 6% per annum ($9,000) was
added to the balance at December 31, 1995. The loan was paid off during 1996.
6. LINE OF CREDIT:
The Company has a $750,000 line of credit from a bank. During 1997, the
maximum balance outstanding under the line of credit was approximately $502,000
and the minimum was zero. The line is secured by certain real estate, furniture,
fixtures, equipment and inventory. The principal shareholders of the Company are
additional parties to the note. The interest charged is the New York prime rate,
which was 8.5% and 8.25% at December 31, 1997 and 1996, respectively. These
interest rates approximate the weighted average rates during the respective
years.
7. LONG-TERM DEBT:
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------ -------
<S> <C> <C>
Mortgage note, payable in monthly principal installments of $500 plus interest at
the prime rate (8.5% and 8.25% at December 31, 1997 and 1996, respectively).
The note is secured by property and matures July, 2000, at which time a balloon
payment is due. Certain shareholders are guarantors of the note. .................... $131 $125
Mortgage note, payable in monthly installments of $600 including interest at the
prime rate (8.5% and 8.25% at December 31, 1997 and 1996, respectively). The
note is secured by property and matures January, 2003, at which time a balloon
payment is due. ..................................................................... 72 71
Mortgage note, payable in monthly installments of $3.6, including interest at 9%.
The note is secured by property and matured August, 1997, at which time a
balloon payment was due. ............................................................ 319 --
Mortgage note, payable in monthly installments of $.5 to a related party including
interest at 8%. The note is secured by property and matures through November,
2023. ............................................................................... 63 62
Loan payable for purchase of vehicles, payments of $2.1, including principal and
interest ............................................................................ -- 69
---- ----
$585 $327
==== ====
</TABLE>
F-69
<PAGE>
COLLECTION OF FINE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
The aggregate maturities of long-term debt at December 31, 1997 are as
follows (in thousands):
Year ending December 31,
1998 ............................ $ 28
1999 ............................ 30
2000 ............................ 140
2001 ............................ 5
2002 ............................ 3
Thereafter ...................... 121
----
327
Less current maturities ......... 28
----
$299
====
8. BENEFIT PLAN:
The Company instituted a 401(k) Profit Sharing Plan during September, 1996.
Employer contributions to the plan during 1997 and 1996 were approximately
$20,000 and $6,000, respectively.
9. SUBSEQUENT EVENT:
During January, 1998, the Company distributed $300,000 to its stockholders.
10. PRO FORMA ADJUSTMENTS TO FINANCIAL STATEMENT PRESENTATION (UNAUDITED)
In conjunction with the acquisition of company stock by RQI, the Company
changed from an S Corporation to a C Corporation for federal and state income
tax reporting purposes, which requires the Company to recognize the tax
consequences of operations in its statements of operations. The supplemental pro
forma information included in the accompanying statements of operations reflect
the estimated impact of recognizing income tax expense as if the Company had
been a C Corporation for tax reporting purposes for the three months ended March
31, 1997 and 1998, and for the year ended December 31, 1997.
F-70
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To First Resort Software, Inc.:
We have audited the accompanying balance sheet of First Resort Software,
Inc. (a Colorado corporation) as of December 31, 1997, and the related
statements of operations, changes in stockholders' equity (deficit) and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of First Resort Software, Inc.,
as of December 31, 1997, and the results of its operations and its cash flows
for the year ended December 31, 1997, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
January 30, 1998
F-71
<PAGE>
FIRST RESORT SOFTWARE, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
-------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................................ $ 126 $ 208
Accounts receivable .................................................. 274 290
Notes receivable ..................................................... 152 193
Prepaid expenses and other current assets ............................ 45 37
----- ------
Total current assets ............................................... 597 728
PROPERTY AND EQUIPMENT, net ........................................... 275 300
----- ------
Total assets ....................................................... $ 872 $1,028
===== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Deferred revenue ..................................................... $ 506 $ 530
Accounts payable and accrued liabilities ............................. 130 290
----- ------
Total current liabilities .......................................... 636 820
LONG-TERM OBLIGATIONS ................................................. 125 --
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1 par; 50,000 shares authorized; 3,000 shares outstand-
ing ................................................................ 3 3
Additional paid in capital ........................................... 13 13
Retained earnings .................................................... 95 192
----- ------
Total stockholders' equity ......................................... 111 208
----- ------
Total liabilities and stockholders' equity ......................... $ 872 $1,028
===== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-72
<PAGE>
FIRST RESORT SOFTWARE, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1997 1997 1998
------------- ------ -------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES:
Software sales ..................................... $1,318 $254 $395
Service contracts .................................. 1,390 292 396
Other .............................................. 156 32 37
------ ---- ----
Total revenues ................................... 2,864 578 828
OPERATING EXPENSES .................................. 1,704 374 448
------ ---- ----
GENERAL AND ADMINISTRATIVE EXPENSES ................. 417 96 126
------ ---- ----
Income from operations ............................. 743 108 254
OTHER INCOME:
Interest income .................................... 25 7 8
------ ---- ----
NET INCOME .......................................... $ 768 $115 $262
====== ==== ====
PRO FORMA DATA (unaudited -- Note 6):
Historical net income before income taxes .......... $ 768 $115 $262
Less: pro forma provision for income taxes ......... 307 44 105
------ ---- ----
PRO FORMA NET INCOME ................................ $ 461 $ 71 $157
====== ==== ====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-73
<PAGE>
FIRST RESORT SOFTWARE, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
------------------- PAID IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
-------- -------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996 .................. 3,000 $ 3 $13 $ (106) $ (90)
Net income ................................. -- -- -- 768 768
Distributions .............................. -- -- -- (567) (567)
----- --- --- ------ ------
BALANCE, December 31, 1997 .................. 3,000 3 13 95 111
Net income (unaudited) ..................... -- -- -- 262 262
Distributions (unaudited) .................. -- -- -- (165) (165)
----- --- --- ------ ------
BALANCE, March 31, 1998 (unaudited) ......... 3,000 $ 3 $13 $ 192 $ 208
===== === === ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-74
<PAGE>
FIRST RESORT SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, -------------------
1997 1997 1998
------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................ $ 768 $ 115 $ 262
Adjustments to reconcile net income to net cash provided by
operating activities--
Depreciation ............................................ 45 12 12
Changes in operating assets and liabilities--
Accounts receivable ..................................... (44) 32 (16)
Notes receivable ........................................ (25) 23 (41)
Prepaid expenses and other current assets ............... 29 38 8
Deferred revenue ........................................ 49 (16) 24
Accounts payable and accrued liabilities ................ (17) 61 160
------ ------ ------
Net cash provided by operating activities .............. 805 265 409
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ........................ (183) (41) (37)
------ ------ ------
Net cash used in investing activities .................. (183) (41) (37)
------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on line of credit ................................ (39) (125) (125)
Distributions to stockholders ............................. (567) (92) (165)
------ ------ ------
Net cash used in financing activities .................. (606) (217) (290)
------ ------ ------
NET INCREASE IN CASH AND CASH EQUIVALENTS .................. 16 7 82
CASH AND CASH EQUIVALENTS, beginning of period ............. 110 110 126
------ ------ ------
CASH AND CASH EQUIVALENTS, end of period ................... $ 126 $ 117 $ 208
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-75
<PAGE>
FIRST RESORT SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
First Resort Software, Inc. (the "Company") is a Colorado corporation. The
Company was founded and began operations in 1985. The Company develops, markets
and distributes property management computer software applications and provides
its licensees with implementation services and ongoing support. The Company has
a client base of over 650 companies located in the United States, Canada and the
Caribbean.
On May 26, 1998, ResortQuest International, Inc. ("RQI") consummated its
initial public offering and acquired all of the outstanding stock of the Company
in exchange for cash and shares of RQI common stock (the "Combination"). In
connection with the Combination the stockholders have agreed to increases in
salary and benefits which would have increased general and administrative
expenses by $42,000 in 1997. In addition, certain stockholders retained
non-operating assets and assumed or retired certain liabilities that were
excluded from the Combination.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Statements
The interim financial statements at March 31, 1998, and for the three
months ended March 31, 1998 and 1997, are unaudited, and certain information and
footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements, have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
Revenue Recognition
The Company records revenue from software sales when the software is
successfully installed on the client's system.
The Company's revenue recognition policies conform to accounting principles
for software revenue recognition issued by the American Institute of Certified
Public Accountants ("AICPA"). For customer arrangements that include multiple
elements (i.e., additional software products, postcontract customer support, or
services) the contract price is generally allocated to the various elements
based on Company--specific objective evidence of fair values. Revenue related to
software maintenance agreements, which are generally one year in duration, is
generally billed in advance and recognized ratably over the term of the
maintenance contract. Customer deposits received and amounts invoiced but not
yet recognized as revenue are reflected as deferred revenue in the accompanying
balance sheet. These amounts are included in revenue when the relevant
recognition criteria are met.
Revenues related to service elements are generally recognized as the
services are provided. Should the Company enter into arrangements with customers
that require significant production, modification or customization of software,
the entire arrangement will be accounted for using progress to completion
accounting methods prescribed by the AICPA.
Operating Expenses
Operating expenses include salaries, benefits, communications, marketing,
postage and shipping, and other costs associated with developing, servicing and
marketing software.
Cash and Cash Equivalents
For the purposes of the balance sheets and statements of cash flows, the
Company considers all investments with original maturities of three months or
less to be cash equivalents.
F-76
<PAGE>
FIRST RESORT SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED )
Property and Equipment
Property and equipment are stated at cost, and depreciation is computed
using the straight--line method over the estimated useful lives of the assets.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statement of operations.
Research and Development
Research and development costs, except as discussed below, are expensed as
incurred. These costs consist primarily of salaries relating to the development
of new products and technologies.
Generally accepted accounting principles provide that costs incurred to
produce software for external sale or lease should be capitalized. Costs
eligible for capitalization are those incurred after the product's technological
feasibility has been established and before the product is ready for general
release. The establishment of technological feasibility and the ongoing
assessment of the recoverability of capitalized costs requires considerable
judgment by management with respect to certain external factors, including, but
not limited to, anticipated future product revenues, estimated economic life and
changes in software and hardware technology. The Company incurred costs through
December 31, 1997 which satisfy the above criteria of approximately $149,000 and
therefore these software development costs have been capitalized by the Company.
Income Taxes
The Company has elected S Corporation status as defined by the Internal
Revenue Code, whereby the Company is not subject to taxation. Under S
Corporation status, the stockholders report their share of the Company's taxable
earnings or losses in their personal tax returns.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and
disclosures 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.
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED USEFUL DECEMBER 31,
LIVES IN YEARS 1997
------------------ -------------
<S> <C> <C>
Furniture, fixtures and equipment ......... 5 $ 255
Leasehold improvements .................... 5 9
Computer software ......................... 5 149
413
Less - Accumulated depreciation ........... (138)
------
Property and equipment, net .............. $ 275
======
</TABLE>
F-77
<PAGE>
FIRST RESORT SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED )
4. LINE OF CREDIT:
The Company has a loan agreement with a bank providing a line of credit
("LOC") credit facility of $150,000, which is subject to renewal and review on
an annual basis. The LOC bears interest at prime plus 1.75% and matures March
25, 1998. The LOC has subsequently been renewed with interest at prime plus 1%,
maturing in March 1999. At December 31, 1997, there was no outstanding balance
on this LOC.
The owners of the Company have guaranteed the obligations and liabilities
of the Company in connection with the LOC pursuant to a continuing guaranty
dated March 25, 1994.
5. COMMITMENTS AND CONTINGENCIES:
Litigation
The Company is involved in certain legal actions arising from the ordinary
course of business. Management does not believe that the outcome of such legal
actions will have a material adverse effect on the Company's financial position
or results of operations.
Insurance
The Company carries a broad range of insurance coverage, workers'
compensation and a business liability, business personal property, loss of
business income, employee dishonesty and medical payment policy. The Company has
not incurred significant claims or losses on any of its insurance policies
during the period presented in the accompanying financial statements.
Benefit Plans
The Company's 401(k) retirement plan is available to substantially all of
the Company's employees. The Company's contribution to the plan is based upon a
percentage of employee contributions, as defined by the plan. The cost of this
plan was approximately $18,000 in 1997.
6. PRO FORMA ADJUSTMENTS TO FINANCIAL STATEMENT PRESENTATION
(UNAUDITED):
In conjunction with the acquisition of the Company by RQI, the Company
changed from an S Corporation to a C Corporation for federal and state income
tax reporting purposes, which requires the Company to recognize the tax
consequences of operations in its statements of operations. The supplemental pro
forma information included in the accompanying statements of operations reflect
the estimated impact of recognizing income tax expense as if the Company had
been a C Corporation for tax reporting purposes for the three months ended March
31, 1997 and 1998, and for the year ended December 31, 1997.
F-78
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Houston and O'Leary Company:
We have audited the accompanying balance sheet of Houston and O'Leary
Company (a Colorado corporation) as of December 31, 1997, and the related
statements of operations, changes in stockholders' equity and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Houston and O'Leary Company,
as of December 31, 1997, and the results of its operations and its cash flows
for the year then ended, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Houston, Texas
January 30, 1998
F-79
<PAGE>
HOUSTON AND O'LEARY COMPANY
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
-------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................ $259 $208
Accounts receivable .................................. 5 70
Receivables from stockholders ........................ 274 --
Prepaid expenses and other current assets ............ 45 251
---- ----
Total current assets ............................... 583 529
PROPERTY AND EQUIPMENT, net ........................... 157 59
---- ----
Total assets ....................................... $740 $588
==== ====
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt ...................................... $164 $150
Customer deposits and deferred revenue ............... 255 173
Capital lease obligations ............................ 50 --
Accounts payable and accrued liabilities ............. 86 99
---- ----
Total current liabilities .......................... 555 422
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1 par; 10,000 shares authorized; 200
shares outstanding ................................. -- --
Additional paid-in capital ........................... -- --
Retained earnings .................................... 185 166
---- ----
Total stockholders' equity ......................... 185 166
---- ----
Total liabilities and stockholders' equity ......... $740 $588
==== ====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-80
<PAGE>
HOUSTON AND O'LEARY COMPANY
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, -----------------------
1997 1997 1998
------------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES:
Real estate commissions ............................ $1,170 $381 $307
Property rental fees ............................... 298 86 113
Other .............................................. 128 17 1
------ ---- ----
Total revenues ................................... 1,596 484 421
OPERATING EXPENSES .................................. 494 5 3
------ ---- ----
GENERAL AND ADMINISTRATIVE EXPENSES. 322 173 324
------ ---- ----
Income from operations ........................... 780 306 94
OTHER INCOME (EXPENSE):
Interest expense, net .............................. (15) (5) (5)
------ ---- ---
NET INCOME .......................................... $ 765 $301 $89
====== ==== ===
PRO FORMA DATA (unaudited -- Note 6)
Historical net income before income taxes .......... $ 765 $301 $89
Less: pro forma provision for income taxes ......... 306 120 36
------ ---- ---
PRO FORMA NET INCOME ................................ $ 459 $181 $53
====== ==== ===
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-81
<PAGE>
HOUSTON AND O'LEARY COMPANY
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
------------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1996 .................. 200 $-- $ 49 $ 49
Net income ................................. -- -- 765 765
Distributions .............................. -- -- (629) (629)
--- --- ------ ------
BALANCE, December 31, 1997 .................. 200 -- 185 185
Net income (unaudited) ..................... -- -- 89 89
Distributions (unaudited) .................. -- -- (108) (108)
--- --- ------ ------
BALANCE, March 31, 1998 (unaudited) ......... 200 $-- $ 166 $ 166
=== === ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-82
<PAGE>
HOUSTON AND O'LEARY COMPANY
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, -------------------
1997 1997 1998
------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ..................................................... $ 765 $ 301 $ 89
Adjustments to reconcile net income to net cash provided by
operating activities--
Depreciation ................................................. 48 12 12
Changes in operating assets and liabilities--
Payable to property owners ................................... 20 -- --
3
Prepaid expenses and other current assets .................... (79) 3
Deferred revenue ............................................. 21 (56) (82)
Accounts payable and accrued liabilities ..................... (46) (49) 13
------ ------ ------
Net cash provided by operating activities ................... 811 129 35
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ............................. (57) -- --
Proceeds from sale of property and equipment ................... -- 11 86
------ ------ ------
Net cash provided by (used in) investing activities ......... (57) 11 86
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt ..................................... (43) 6 (64)
Distributions to stockholders .................................. (629) (187) (108)
------ ------ ------
Net cash used in financing activities ....................... (672) (181) (172)
------ ------ ------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS .................................................... 82 (41) (51)
CASH AND CASH EQUIVALENTS, beginning of period .................. 177 177 259
------ ------ ------
CASH AND CASH EQUIVALENTS, end of period ........................ $ 259 $ 136 $ 208
====== ====== ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFOR-
MATION:
Cash paid for interest ......................................... $ 15 $ 5 $ 5
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-83
<PAGE>
HOUSTON AND O'LEARY COMPANY
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Houston and O'Leary Company (the "Company"), a Colorado corporation,
provides luxury vacation property rentals and sales in Aspen, Colorado and
provides non-exclusive rental services for approximately 130 rental units. The
Company provides its management services to property owners pursuant to
management contracts, which are generally one year in length. The majority of
such contracts contain automatic renewal provisions but also allow property
owners to terminate the contract at any time.
On May 26, 1998, ResortQuest International, Inc. ("RQI") consummated its
initial public offering and acquired all of the outstanding stock of the Company
in exchange for cash and shares of RQI common stock (the "Combination"). In
addition, certain non-operating assets and related liabilities with a net asset
value of $257,000 were retained by one of the stockholders. If this transaction
had been recorded at December 31, 1997, the effect on the accompanying balance
sheet would be a decrease in assets of $357,000, and a decrease in liabilities
of $100,000 and a decrease in stockholders' equity of $257,000. In addition, the
stockholders and key management agreed to reductions in salary and benefits
which would have reduced general and administrative expenses by $58,000 in 1997.
In addition, certain stockholders retained non-operating assets and assumed or
retired certain liabilities that were excluded from the Combination.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Statements
The interim financial statements at March 31, 1998, and for the three
months ended March 31, 1998 and 1997, are unaudited, and certain information and
footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements, have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
Revenue Recognition
The Company records property rental fees on the accrual basis of
accounting, ratably over the term of guest stays, as earned. The Company
requires a deposit equal to 100% of the rental fee 45 days prior to the expected
arrival date. These deposits are non-refundable and are recorded as customer
deposits and deferred revenue in the accompanying financial statements until the
guest stay commences. The Company records revenue for cancellations as they
occur. Commissions on real estate sales are recognized at closing.
Operating Expenses
Operating expenses include broker commissions, salaries, communications,
advertising, credit card fees and other costs associated with rental and sales
of properties.
Cash and Cash Equivalents
For the purposes of the balance sheets and statements of cash flows, the
Company considers all investments with original maturities of three months or
less to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
F-84
<PAGE>
HOUSTON AND O'LEARY COMPANY
NOTES TO FINANCIAL STATEMENTS - (CONTINUED )
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statement of operations.
Income Taxes
The Company has elected S Corporation status as defined by the Internal
Revenue Code and state tax statutes, whereby, the Company is not subject to
taxation for federal or state purposes. Under S Corporation status, the
stockholders report their share of the Company's taxable earnings or losses in
their personal tax returns.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and
disclosures 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.
Concentration of Risk
The Company's operations are exclusively in the Aspen, Colorado area and
are subject to significant changes due to weather conditions.
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED USEFUL DECEMBER 31,
LIVES IN YEARS 1997
------------------ -------------
<S> <C> <C>
Furniture, fixtures and equipment ......... 5 $ 89
Artwork ................................... -- 20
Airplane .................................. 5 159
------
268
Less - Accumulated depreciation ........... (111)
------
Property and equipment, net .............. $ 157
======
</TABLE>
4. SHORT-TERM DEBT:
Short-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
-------------
<S> <C>
Term note payable to bank, interest at 1% over the prime rate as
disclosed in the Wall Street Journal; collateralized by Alpine and
guaranteed by shareholders; payable in monthly installments of
$1,059, including interest, through March 5, 2000 at which time the
remaining principal becomes payable ................................... $ 65
Revolving note payable to bank ......................................... 99
----
$164
====
</TABLE>
F-85
<PAGE>
HOUSTON AND O'LEARY COMPANY
NOTES TO FINANCIAL STATEMENTS - (CONTINUED )
Under the revolving note payable to a bank, the bank will provide a
revolving line of credit up to $100,000 to finance the Company's working capital
needs. At December 31, 1997, the Company had $99,000 outstanding on the line of
credit. Interest is payable monthly based upon the prime rate (9.50% at December
31, 1997). The note is collateralized by the assets of the Company.
Subsequent to year end, the note payable to a bank was assigned and assumed
by one of the stockholders.
5. COMMITMENTS AND CONTINGENCIES:
Litigation
The Company is involved in various legal actions arising in the ordinary
course of business. Management does not believe that the outcome of such legal
actions will have a material adverse effect on the Company's financial position
or results of operations.
Insurance
The Company carries a broad range of insurance coverage, including general
and business auto liability, commercial property, workers' compensation and a
general umbrella policy. The Company has not incurred significant claims or
losses on any of its insurance policies during the period presented in the
accompanying financial statements.
6. PRO FORMA ADJUSTMENTS TO FINANCIAL STATEMENT PRESENTATION (UNAUDITED)
In conjunction with the acquisition of company stock by RQI, the Company
changed from an S Corporation to a C Corporation for federal and state income
tax reporting purposes, which requires the Company to recognize the tax
consequences of operations in its statements of operations. The supplemental pro
forma information included in the accompanying statements of operations reflect
the estimated impact of recognizing income tax expense as if the Company had
been a C Corporation for tax reporting purposes for the three months ended March
31, 1997 and 1998, and for the year ended December 31, 1997.
F-86
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Maury People, Inc.:
We have audited the accompanying balance sheet of The Maury People, Inc. (a
Massachusetts corporation) as of December 31, 1997, and the related statements
of operations, changes in stockholder's equity(deficit) and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Maury People, Inc., as
of December 31, 1997, and the results of its operations and its cash flows for
the year ended December 31, 1997 in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
January 30, 1998
F-87
<PAGE>
THE MAURY PEOPLE, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
-------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ...................................... $ 297 $ 390
Cash held in escrow ............................................ 553 17
Prepaid expenses and other current assets ...................... 19 --
----- -----
Total current assets .......................................... 869 407
PROPERTY AND EQUIPMENT, net ...................................... 99 92
----- -----
Total assets .................................................. $ 968 $ 499
===== =====
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Escrow deposits on real estate sales ........................... $ 553 $ 3
Payable to property owners ..................................... 103 149
Accounts payable and accrued liabilities ....................... 224 368
----- -----
Total current liabilities ..................................... 880 520
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY (DEFICIT):
Common Stock, no par; 1,000 shares authorized; 200 shares issued 1 1
Retained earnings (deficit) .................................... 87 (22)
----- -----
Total stockholder's equity (deficit) .......................... 88 (21)
----- -----
Total liabilities and stockholder's equity (deficit) .......... $ 968 $ 499
===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-88
<PAGE>
THE MAURY PEOPLE, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, ----------------
1997 1997 1998
------------- ------ -------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES:
Real estate commissions, net ....................... $ 829 241 185
Property rental fees, net .......................... 354 129 153
------ --- ---
Total revenues ................................... 1,183 370 338
OPERATING EXPENSES .................................. 211 57 66
------ --- ---
GENERAL AND ADMINISTRATIVE EXPENSES ................. 682 100 195
------ --- ---
Income from operations ............................. 290 213 77
OTHER INCOME:
Interest income, net ............................... 28 2 2
------ --- ---
NET INCOME .......................................... $ 318 $215 $ 79
====== ==== ====
PRO FORMA DATA (unaudited -- Note 7)
Historical net income before income taxes .......... $ 318 $215 $ 79
Less: pro forma provision for income taxes ......... 127 86 32
------ ---- ----
PRO FORMA NET INCOME ................................ $ 191 $129 $ 47
====== ==== ====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-89
<PAGE>
THE MAURY PEOPLE, INC.
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK RETAINED TOTAL
------------------- EARNINGS ----------
SHARES AMOUNT (DEFICIT)
-------- -------- ----------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1996 .................. 200 $ 1 $ (84) $ (83)
Net income ................................. -- -- 318 318
Distributions .............................. -- -- (147) (147)
--- --- ------ ------
BALANCE, December 31, 1997 .................. 200 1 87 88
Distributions (unaudited) .................. (188) (188)
Net income (unaudited) ..................... -- -- 79 79
--- --- ------ ------
BALANCE, March 31, 1998 (unaudited) ......... 200 $ 1 $ (22) $ (21)
=== === ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-90
<PAGE>
THE MAURY PEOPLE, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, -------------------
1997 1997 1998
------------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................................ $ 318 $ 215 $ 79
Adjustments to reconcile net income to net cash provided by operat-
ing activities-
Depreciation .................................................... 28 7 7
Changes in operating assets and liabilities-
Cash held in escrow ............................................. (184) 264 536
Escrow deposits on real estate sales ............................ 184 (359) (553)
Prepaid expenses and other current assets ....................... (6) 13 19
Due to property owners .......................................... 32 81 46
Accounts payable and accrued liabilities ........................ 1 68 147
------- ------ ------
Net cash provided by operating activities ...................... 373 289 281
------- ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ................................ (77) (27) --
------- ------ ------
Net cash used in investing activities .......................... (77) (27) --
------- ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable ........................................ 50
Payments on note payable .......................................... (50)
Distributions to stockholders ..................................... (147) (81) (188)
------- ------ ------
Net cash used in financing activities .......................... (147) (81) (188)
------- ------ ------
NET INCREASE IN CASH AND CASH EQUIVALENTS .......................... 149 181 93
CASH AND CASH EQUIVALENTS, beginning of period ..................... 148 148 297
------- ------ ------
CASH AND CASH EQUIVALENTS, end of period ........................... $ 297 $ 329 $ 390
======= ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-91
<PAGE>
THE MAURY PEOPLE, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
The Maury People, Inc. (the "Company") is a Massachusetts corporation which
provides vacation property rentals and sales on the island of Nantucket off the
coast of Massachusetts. The Company provides non-exclusive rental services for
approximately 1,200 rental units. The Company's property rental operations are
seasonal, with peaks during the first and fourth quarters of the year.
On May 26, 1998 ResortQuest International, Inc. ("RQI") consummated its
initial public offering and acquired all of the outstanding stock of the Company
in exchange for cash and shares of RQI common stock (the "Combination"). In
connection with the Combination, the owner agreed to reductions in salary and
benefits which would have reduced general and administrative expenses by
approximately $142,000 for 1997. In addition, the stockholder retained
non-operating assets and assumed or retired certain liabilities that were
excluded from the Combinations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Statements
The interim financial statements at March 31, 1998, and for the three
months ended March 31, 1998 and 1997, are unaudited, and certain information and
footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements, have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
Revenue Recognition
The Company records property rental fees upon the receipt of customer
deposits. The Company requires a deposit equal to 100% of the rental fee 45 days
prior to the expected arrival date. Since these deposits are non-refundable, the
Company records its fees and a payable to property owners in the accompanying
financial statements. The Company records revenue for cancellations as they
occur.
Commissions on real estate sales are recognized at closing and are recorded
net of the related commission expense to unaffiliated brokers. The Company
recognized commission revenues of $1,949,000 and commission expense of
$1,120,000 to affiliated brokers for the year 1997.
Operating Expenses
Operating expenses include agent commissions, salaries, communications,
advertising, and other costs associated with managing and selling properties.
Cash and Cash Equivalents
For the purposes of the balance sheets and statements of cash flows, the
Company considers all investments with original maturities of three months or
less to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statement of operations.
F-92
<PAGE>
THE MAURY PEOPLE, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED )
Income Taxes
The Company has elected S Corporation status as defined by the Internal
Revenue Code and state tax statutes, whereby the Company is not subject to
taxation for federal or state purposes. Under S Corporation status, the
stockholders report their share of the Company's taxable earnings or losses in
their personal tax returns.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and
disclosures 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.
Concentration of Risk
The Company's operations are exclusively on Nantucket Island.
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
At December 31, 1997, the Company had restricted cash totaling $553,000 in
real estate sales escrow.
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES DECEMBER 31,
IN YEARS 1997
-------------- -------------
<S> <C> <C>
Leasehold improvements .................. 10 $ 56
Office equipment ........................ 5 152
------
208
Less - Accumulated depreciation ......... (109)
------
Property and equipment, net ........... $ 99
======
</TABLE>
Accounts payable and accrued liabilities consisted of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1997
-------------
<S> <C>
Accrued rental commissions ............................. $ 66
Accrued sales commissions .............................. 51
Accounts payable and other accrued liabilities ......... 107
----
Total accounts payable and accrued liabilities ......... $224
====
</TABLE>
4. COMMITMENTS AND CONTINGENCIES:
Lease Obligation
The Company leases equipment and office space under noncancelable operating
leases expiring at various times through 2004. Rental expense for the year ended
December 31, 1997 was approximately $166,000. The minimum future rental payments
under noncancelable operating leases are as follows (exclusive of certain pass
through expenses such as real estate taxes and common area maintenance expenses
and exclusive of Consumer Price Index adjustments):
F-93
<PAGE>
THE MAURY PEOPLE, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED )
<TABLE>
<S> <C>
Year ending December 31,
1998 ..................... $ 164
1999 ..................... 204
2000 ..................... 197
2001 ..................... 195
2002 ..................... 188
Thereafter ............... 232
-------
$ 1,180
=======
</TABLE>
Litigation
The Company is involved in certain legal actions arising in the ordinary
course of business. Management does not believe that the outcome of such legal
actions will have a material adverse effect on the Company's financial position
or results of operations.
Insurance
The Company carries a broad range of insurance coverage, including
multiperil, workers' compensation and an error and omissions policy. The Company
has not incurred significant claims or losses on any of its insurance policies
during the periods presented in the accompanying financial statements.
Benefit Plan
For all eligible employees, the Company sponsors a defined benefit pension
plan. Plan benefits are based on years of service and compensation. The
Company's funding policy is to make contributions at a minimum in accordance
with the requirements of applicable laws and regulations, but no more than the
amount deductible for income tax purposes. The components of net pension expense
for the Company's retirement plan for the year ended December 31, 1997 are
presented below:
<TABLE>
<S> <C>
Service cost ........................... $ 1,459
Interest cost .......................... 39,420
Actual return on plan assets ........... (95,338)
Net amortization and deferral .......... 75,875
---------
Net periodic pension expense ......... $ 21,416
=========
</TABLE>
The funded status of the Company's retirement plan and amounts included in
the Company's balance sheet at December 31, 1997 are set forth in the following
table:
<TABLE>
<S> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation ................................. $ 602,557
=========
Projected benefit obligation ................................... $ 602,557
Plan assets at fair value ...................................... 635,448
---------
Plan assets in excess of projected benefit obligations ......... 32,891
Unrecognized net gain .......................................... (70,894)
Unrecognized net transition obligation ......................... 38,637
---------
Prepaid pension asset ........................................ $ 634
=========
</TABLE>
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligations was 7.0 percent. The expected
long-term rate of return on assets was 5.0 percent.
F-94
<PAGE>
THE MAURY PEOPLE, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED )
5. RELATED PARTIES:
At present, the Company intends to transfer its offices to facilities owned
by a trust of which the owner is the primary beneficiary upon expiration of its
existing lease on March 31, 1999. The new lease term extends through March 2004,
with a five year extension option. Annual rent payments begin at $185,400 and
increase based on increases in the Consumer Price Index subject to a 6% annual
ceiling on increases.
6. NOTE PAYABLE:
During 1997, the Company had a $50,000 note payable to a bank, due in one
payment consisting of principal and interest. The note bore interest at 6.35%.
The note was secured by a security interest in a deposit account. The note was
paid in full during 1997.
7. PRO FORMA ADJUSTMENTS TO FINANCIAL STATEMENT PRESENTATION (UNAUDITED)
In conjunction with the acquisition of company stock by RQI, the Company
changed from an S Corporation to a C Corporation for federal and state income
tax reporting purposes, which requires the Company to recognize the tax
consequences of operations in its statements of operations. The supplemental pro
forma information included in the accompanying statements of operations reflect
the estimated impact of recognizing income tax expense as if the Company had
been a C Corporation for tax reporting purposes for the three months ended March
31, 1997 and 1998, and for the year ended December 31, 1997.
F-95
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(SUCCESSOR COMPANY REPORT)
To Howey Acquisition, Inc.:
We have audited the accompanying consolidated balance sheet of Howey
Acquisition, Inc. (a Florida corporation) as of December 31, 1997, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the period from January 3, 1997 (inception) through December
31, 1997. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Howey Acquisition, Inc., as of December 31, 1997, and the results of their
operations and their cash flows for the period from January 3, 1997 (inception)
through December 31, 1997, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Houston, Texas
January 30, 1998
F-96
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(PREDECESSOR COMPANY REPORT)
To Priscilla Murphy Realty, Inc.:
We have audited the accompanying balance sheet of Priscilla Murphy Realty,
Inc. (a Florida corporation) as of December 31, 1996, and the related statements
of operations, changes in stockholders' equity and cash flows for the years
ended December 31, 1995 and 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Priscilla Murphy Realty,
Inc., as of December 31, 1996, and the results of its operations and its cash
flows for the years ended December 31, 1995 and 1996, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
January 30, 1998
F-97
<PAGE>
HOWEY ACQUISITION, INC. DBA PRISCILLA MURPHY REALTY, INC
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY COMPANY
------------- --------- ------------
DECEMBER 31,
-------------------------
MARCH 31,
1996 1997 1998
------------- --------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................ $1,672 $ 904 $ 2,375
Cash held in trust ....................................... 3,736 4,036 6,570
Advances to property owners .............................. 23 39 170
Prepaid expenses and other current assets ................ 3 60 --
------ ------- -------
Total current assets ................................... 5,434 5,039 9,115
PROPERTY AND EQUIPMENT, net ............................... 148 102 105
GOODWILL, net ............................................. -- 5,436 5,402
OTHER ASSETS, net ......................................... 181 187 185
------ ------- -------
Total assets ........................................... $5,763 $10,764 $14,807
====== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt ..................... $ 100 $ 803 $ 803
Customer deposits and deferred revenue ................... 3,736 4,036 6,570
Accounts payable and accrued liabilities ................. 45 305 259
------ ------- -------
Total current liabilities .............................. 3,881 5,144 7,632
LONG-TERM DEBT, net of current maturities (includ-
ing note payable to an affiliate of $0, $2,000 and $2,000,
respectively) ............................................ 100 3,862 4,059
STOCKHOLDERS' EQUITY:
Class A Common stock, $.50 par value 40,000 shares
authorized and outstanding ............................. 1 20 20
Class B Common stock, non-voting, $.50 par value,
160,000 shares authorized and outstanding .............. -- 80 80
Additional paid-in capital ............................... -- 150 150
Retained earnings ........................................ 1,781 1,508 2,866
------ ------- -------
Total stockholders' equity ............................. 1,782 1,758 3,116
------ ------- -------
Total liabilities and stockholders' equity ............. $5,763 $10,764 $14,807
====== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-98
<PAGE>
HOWEY ACQUISITION, INC. DBA PRISCILLA MURPHY REALTY, INC
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------------- -----------------------------------------------------
YEAR ENDED PERIOD PERIOD
DECEMBER 31, JANUARY 3, 1997 JANUARY 3, 1997 THREE
------------------- THROUGH THROUGH MONTHS ENDED
1995 1996 DECEMBER 31, 1997 MARCH 31, 1997 MARCH 31, 1998
--------- --------- ------------------- ----------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Property rental fees ................... $2,347 $2,402 $ 2,514 $1,317 $1,409
Real estate commissions, net ........... 1,326 1,630 1,473 320 438
Service fees ........................... 643 689 753 322 428
------ ------ ------- ------ ------
Total revenues ....................... 4,316 4,721 4,740 1,959 2,275
OPERATING EXPENSES ...................... 1,319 1,314 1,184 283 318
------ ------ ------- ------ ------
GENERAL AND ADMINISTRA-
TIVE EXPENSES .......................... 2,257 2,125 1,866 485 635
------ ------ ------- ------ ------
Income from operations ................. 740 1,282 1,690 1,191 1,322
OTHER INCOME (EXPENSE):
Interest income (expense), net ......... 112 121 (182) (22) 36
------ ------ ------- ------ ------
NET INCOME .............................. $ 852 $1,403 $ 1,508 $1,169 $1,358
====== ====== ======= ====== ======
PRO FORMA DATA (unaudited -- Note 7)
Historical net income before income
taxes ................................ $ 852 $1,403 $ 1,508 $1,169 $1,358
Less: pro forma provision for income
taxes ................................ 341 561 603 468 543
------ ------ ------- ------ ------
PRO FORMA NET INCOME .................... $ 511 $ 842 $ 905 $ 701 $ 815
====== ====== ======= ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-99
<PAGE>
HOWEY ACQUISITION, INC. DBA PRISCILLA MURPHY REALTY, INC
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK ADDITIONAL
------------------- ------------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL
---------- -------- ---------- -------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Predecessor:
BALANCE, December 31, 1994 .................. 992 $ 1 -- $ -- $ -- $ 1,412 $ 1,413
Net income ................................. -- -- -- -- -- 852 852
Distributions .............................. -- -- -- -- -- (740) (740)
--- --- -- ---- ---- -------- --------
BALANCE, December 31, 1995 .................. 992 1 -- -- -- 1,524 1,525
Net income ................................. -- -- -- -- -- 1,403 1,403
Distributions .............................. (257) -- -- -- -- (1,146) (1,146)
---- --- -- ---- ---- -------- --------
BALANCE, December 31, 1996 .................. 735 $ 1 -- $ -- $ -- $ 1,781 $ 1,782
==== === == ==== ==== ======== ========
Company :
Capitalization Company (Note 1) ............ 40,000 $20 160,000 $ 80 $150 $ -- $ 250
Net income ................................. -- -- -- -- -- 1,508 1,508
------ --- ------- ---- ---- -------- --------
BALANCE, December 31, 1997 .................. 40,000 20 160,000 80 150 1,508 1,758
Net income (unaudited) ..................... -- -- -- -- -- 1,358 1,358
------ --- ------- ---- ---- -------- --------
BALANCE, March 31, 1998 (unaudited) ......... 40,000 $20 160,000 $ 80 $150 $ 2,866 $ 3,116
====== === ======= ==== ==== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-100
<PAGE>
HOWEY ACQUISITION, INC. DBA PRISCILLA MURPHY REALTY, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR
-------------------------
YEAR ENDED
DECEMBER 31,
-------------------------
1995 1996
----------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................ $ 852 $ 1,403
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization ....................... 239 95
Gain on sale of assets .............................. 4 --
Changes in operating assets and liabilities ........... --
Cash held in trust ................................... (491) (946)
Advances to property owners .......................... 2
Prepaid expenses and other assets .................... (56) (15)
Customer deposits and deferred revenue ............... 491 946
Accounts payable and accrued liabilities ............. (33) 46
------- --------
Net cash provided by (used in) operating ac-
tivities ......................................... 1,006 1,531
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net assets acquired (excluding cash) .................. -- --
Purchase of property and equipment .................... (108) (4)
Proceeds from sale of office equipment and vehicles 4 --
Excess of purchase price over net assets acquired ..... -- --
------- ---------
Net cash used in investing activities ............. (104) (4)
------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt .......................... -- --
Payments on long-term debt ............................ (231) (135)
Distributions to stockholders ......................... (740) (878)
Net proceeds from stock issuance ...................... -- --
------- ---------
Net cash provided by (used in) financing ac-
tivities ......................................... (971) (1,013)
------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH
EQUIVALENTS ........................................... (69) 514
CASH AND CASH EQUIVALENTS, beginning of
period ................................................ 1,227 1,158
------- ---------
CASH AND CASH EQUIVALENTS, end of period................ $ 1,158 $ 1,672
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest ............................... $ 80 $ 70
======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMPANY
----------------------------------------------------
PERIOD PERIOD
JANUARY 3, 1997 JANUARY 3, 1997 THREE
THROUGH THROUGH MONTHS ENDED
DECEMBER 31, 1997 MARCH 31, 1997 MARCH 31, 1998
------------------ ----------------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................ $ 1,508 $ 1,169 $ 1,358
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization ....................... 203 51 51
Gain on sale of assets .............................. -- --
Changes in operating assets and liabilities ...........
Cash held in trust ................................... (300) (1,445) (2,534)
Advances to property owners .......................... (39) (54) --
Prepaid expenses and other assets .................... (60) (5,575) (69)
Customer deposits and deferred revenue ............... 300 1,445 2,534
Accounts payable and accrued liabilities ............. 305 269 (46)
-------- --------- ---------
Net cash provided by (used in) operating ac-
tivities ......................................... 1,917 (4,140) 1,294
-------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net assets acquired (excluding cash) .................. (225) -- --
Purchase of property and equipment .................... -- (15) (20)
Proceeds from sale of office equipment and vehicles -- -- --
Excess of purchase price over net assets acquired ..... (5,575) -- --
-------- --------- ---------
Net cash used in investing activities ............. (5,800) (15) (20)
-------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt .......................... 5,750 5,324 197
Payments on long-term debt ............................ (1,213) -- --
Distributions to stockholders ......................... -- (1,844) --
Net proceeds from stock issuance ...................... 250 249 --
-------- --------- ---------
Net cash provided by (used in) financing ac-
tivities ......................................... 4,787 3,729 134
-------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH
EQUIVALENTS ........................................... 904 (426) 1,471
CASH AND CASH EQUIVALENTS, beginning of
period ................................................ -- 1,672 904
-------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period................ $ 904 $ 1,246 $ 2,375
======== ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest ............................... $ 211 $ 53 $ 53
======== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-101
<PAGE>
HOWEY ACQUISITION, INC. DBA PRISCILLA MURPHY REALTY, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS-(CONTINUED)
(IN THOUSANDS)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During 1996, the Company distributed certain fixed assets and liabilities
of the Company to a shareholder as follows:
<TABLE>
<S> <C>
Net book value of assets ........... $ 774
Debt assumed ....................... (506)
------
Distributed to Stockholder ......... $ 268
======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-102
<PAGE>
HOWEY ACQUISITION, INC. DBA PRISCILLA MURPHY REALTY, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Howey Acquisition, Inc. ("HAI") dba, Priscilla Murphy Realty, Inc. and its
wholly-owned subsidiaries, Priscilla Murphy Realty, Inc. ("PMR") and Realty
Consultants, Inc., (collectively the "Company"), are Florida corporations. The
Company provides vacation property rentals and sales on the Florida Islands of
Sanibel and Captiva for approximately 900 rental units. The Company provides its
management services to property owners pursuant to management contracts which
are generally one year in length. The majority of such contracts contain
automatic renewal provisions but also allow property owners to terminate the
contract at any time. The Company's operations are seasonal, with a peak during
the first quarter of the year.
On January 3, 1997, HAI entered into an agreement to purchase the assets
and assume certain liabilities of PMR. HAI borrowed $5,800,000 from a bank and a
stockholder to finance the purchase transaction. The fair value of the net
assets purchased totaled $225,000, resulting in the recognition of goodwill of
$5,575,000. The goodwill is being amortized using a 40-year estimated life.
Additionally, the Company executed a non-compete agreement with the former
shareholder valued at $200,000. The non-compete agreement is for a period of ten
years and is payable in installments of approximately $3,000 per month for 5
years.
On May 26, 1998, ResortQuest International, Inc. ("RQI") consummated its
initial public offering and acquired all of the outstanding stock of the Company
in exchange for cash and shares of RQI common stock (the "Combination"). In
connection with the Combination, stockholders agreed to reductions in salary and
benefits which would have reduced general and administrative expenses by
$250,000, $320,000 and $31,000 for 1995, 1996 and 1997, respectively. In
addition, certain stockholders retained non-operating assets and assumed or
retired certain liabilities that were excluded from the Combination.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Statements
The interim financial statements at March 31, 1998, and for the three
months ended March 31, 1998 and 1997, are unaudited, and certain information and
footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements, have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
Basis of Combination and Financial Statement Presentation
The consolidated financial statements include the accounts of HAI and its
wholly-owned subsidiary, PMR (collectively, the "Company"). All intercompany
items and transactions have been eliminated.
The financial statements of PMR (the "Predecessor Company") are presented
for the purpose of complying with the rules and regulations of the Securities
and Exchange Commission. The Predecessor Company had only one class of common
stock and is included in Class A common stock for presentation purposes in the
accompanying consolidated financial statements.
The consolidated statements of operations of the Companies for the period
from January 1, 1997 to January 3, 1997 (inception), has not been presented due
to the nominal level of operations.
Revenue Recognition
The Company records property rental fees on the accrual basis of
accounting, ratably over the term of guest stays, as earned. The Company
requires a deposit equal to 100% of the rental fee 45 days prior to the expected
arrival date. These deposits are non-refundable and are recorded as customer
deposits and deferred revenue in the accompanying financial statements until the
guest stay commences. The Company records revenue for cancellations as they
occur.
F-103
<PAGE>
HOWEY ACQUISITION, INC. DBA PRISCILLA MURPHY REALTY, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
Service fees are recorded for a variety of services and are recognized as
the service is provided, including cleaning income, repair and maintenance and
service charges.
Commissions on real estate sales are recognized at closing and are recorded
net of the related commission expense. The Company recognized commission
revenues of $4,360,000, $5,221,000 and $5,440,000 for the years 1995 and 1996
and the period ending December 31, 1997, and commission expense of $3,034,000,
$3,591,000 and $3,967,000 for the years 1995 and 1996 and the period ending
December 31, 1997, respectively.
Operating Expenses
Operating expenses include travel agent commissions, salaries,
communications, advertising, credit card fees and other costs associated with
managing and selling properties.
Cash and Cash Equivalents
For the purposes of the balance sheets and statements of cash flows, the
Company considers all investments with original maturities of three months or
less to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statement of operations.
Income Taxes
The Company has elected S Corporation status as defined by the Internal
Revenue Code and state tax statutes, whereby the Company is not subject to
taxation for federal or state tax purposes. Under S Corporation status, the
stockholders' report their shares of the Company's taxable earnings or losses in
their personal tax returns.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and
disclosures 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.
Concentration of Risk
The Companies operations are exclusively in the Fort Myers/Sanibel and
Captiva Islands, Florida area and are subject to significant changes due to
weather conditions.
3. OTHER ASSETS
Other assets consist of a non-compete agreement between the Company and the
prior owner. The total consideration for the agreement was $200,000 and is being
amortized over the term of the agreement, 10 years. The Company signed a five
year note payable for this agreement.
F-104
<PAGE>
HOWEY ACQUISITION, INC. DBA PRISCILLA MURPHY REALTY, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
4. DEBT
Long-term debt at December 31, 1997 and 1996, consist of the following (in
thousands):
<TABLE>
<CAPTION>
1996 1997
--------- ----------
<S> <C> <C>
Note payable to a bank, bearing interest at 7.50%; monthly payments of $58 through
maturity in January 2002. Secured by assets of the Company and guaranteed by
stockholder. ........................................................................ $ -- $ 2,350
Note payable to an affiliate, bearing interest at 7.95%; subordinate to bank note pay-
able; no payment may be made until bank note is paid in full. ....................... -- 2,000
Note payable to a stockholder, bearing interest at 7.95%; subordinate to bank note
payable; no payment may be made until bank note is paid in full. .................... -- 155
Note payable, monthly payments of $3 through maturity in January 2002; interest im-
puted at 7.50% unsecured. ........................................................... -- 160
Note payable to a bank, bearing interest at 7.70%; quarterly payments of $25 through
maturity in December 1998; unsecured. ............................................... 200 --
------ -------
200 4,665
Less current maturities .............................................................. (100) (803)
------ -------
$ 100 $ 3,862
====== =======
</TABLE>
5. COMMITMENTS AND CONTINGENCIES:
Litigation
The Company is involved in various legal actions arising in the ordinary
course of business. Management does not believe that the outcome of such legal
actions will have a material adverse effect on the Company's financial position
or results of operations.
Insurance
The Company carries a broad range of insurance coverage, including general
and business auto liability, commercial property, workers' compensation, error
and omission, and a general umbrella policy. The Company has not incurred
significant claims or losses on any of its insurance policies during the periods
presented in the accompanying financial statements.
Benefit Plans
The Company's 401(k) retirement plan is available to substantially all of
the Company's employees. The Company's contribution to the plan is based upon a
percentage of employee contributions. The cost of this plan was approximately
$9,000 in 1995, $12,000 in 1996 and $9,000 in 1997.
6. RELATED PARTIES:
The Company has leased office space under three separate agreements since
August 1997 from trusts affiliated with an owner. In aggregate, rents paid to
these affiliated trusts were approximately $45,000. Subsequent to year end, the
Company entered a fourth lease for an additional $12,000 per year.
F-105
<PAGE>
HOWEY ACQUISITION, INC. DBA PRISCILLA MURPHY REALTY, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
7. PRO FORMA ADJUSTMENTS TO FINANCIAL STATEMENT PRESENTATION
(UNAUDITED)
In conjunction with the acquisition of Company stock by RQI, the Company
changed from an S Corporation to a C Corporation for federal and state income
tax reporting purposes, which requires the Company to recognize the tax
consequences of operations in its statements of operations. The supplemental pro
forma information included in the accompanying statements of operations reflect
the estimated impact of recognizing income tax expense as if the Company had
been a C Corporation for tax reporting purposes for the three months ended March
31, 1997 and 1998, and for the year ended December 31, 1997.
F-106
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Resort Property Management, Inc.:
We have audited the accompanying balance sheet of Resort Property
Management, Inc. (a Utah corporation) as of September 30, 1997, and the related
statements of operations, changes in stockholders' deficit and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Resort Property Management,
Inc., as of September 30, 1997, and the results of its operations and its cash
flows for the year then ended, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Houston, Texas
January 30, 1998
F-107
<PAGE>
RESORT PROPERTY MANAGEMENT, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1997 1998
--------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ...................................... $ 186 $ 865
Due from property owners ....................................... 60 4
Receivable from stockholders ................................... 10 --
Prepaid expenses and other current assets ...................... 22 293
------ ------
Total current assets ......................................... 278 1,162
NOTE RECEIVABLE ................................................. 54 --
PROPERTY AND EQUIPMENT, net ..................................... 203 355
------ ------
Total assets ................................................. $ 535 $1,517
====== ======
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current portion of long-term debt .............................. $ 171 $ 77
Customers deposits and deferred revenue ........................ 233 166
Payable to property owners ..................................... 36 603
Accounts payable and accrued liabilities ....................... 32 127
------ ------
Total current liabilities .................................... 472 973
DEFERRED TAXES .................................................. 3 3
LONG-TERM DEBT, net of current portion .......................... 310 116
------ ------
Total liabilities ............................................ 785 1,092
------ ------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, no par; 100,000 shares authorized; 51,000 shares
outstanding .................................................. 26 26
Retained earnings (deficit) .................................... (276) 399
------ ------
Total stockholders' equity (deficit) ......................... (250) 425
------ ------
Total liabilities and stockholders' equity (deficit) ......... $ 535 $1,517
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-108
<PAGE>
RESORT PROPERTY MANAGEMENT, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED MARCH 31,
SEPTEMBER 30, ---------------------
1997 1997 1998
-------------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES:
Property rental fees ............................... $1,930 $1,792 $1,712
Service fees ....................................... 365 250 306
------ ------ ------
Total revenues ................................... 2,295 2,042 2,018
OPERATING EXPENSES .................................. 1,560 1,003 977
------ ------ ------
GENERAL AND ADMINISTRATIVE EXPENSES ................. 627 348 322
------ ------ ------
Income from operations ........................... 108 691 719
OTHER INCOME:
Interest income (expense) net ...................... 7 21 (16)
Gain on sale of land ............................... 210 -- --
------ ------ ------
Income before taxes .............................. 325 712 703
PROVISION FOR INCOME TAX ............................ 75 58 28
------ ------ ------
NET INCOME .......................................... $ 250 $ 654 $ 675
====== ====== ======
PRO FORMA DATA (unaudited -- Note):
Historical net income before income taxes .......... $ 325 $ 712 $ 703
Less: Pro forma provision for income taxes ......... 130 285 281
------ ------ ------
PRO FORMA NET INCOME ................................ $ 195 $ 427 $ 422
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-109
<PAGE>
RESORT PROPERTY MANAGEMENT, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
------------------- EARNINGS
SHARES AMOUNT (DEFICIT) TOTAL
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
BALANCE, September 30, 1996 ................. 51 $26 $ (526) $ (500)
Net income ................................. -- -- 250 250
-- --- ------ ------
BALANCE, September 30, 1997 ................. 51 26 (276) (250)
Net income (unaudited) ..................... -- -- 675 675
-- --- ------ ------
BALANCE, March 31, 1998 (unaudited) ......... 51 $26 $ 399 $ 425
== === ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-110
<PAGE>
RESORT PROPERTY MANAGEMENT, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED MARCH 31,
SEPTEMBER 30, ----------------------
1997 1997 1998
-------------- ---------- ---------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................................ $ 250 $ 654 $ 675
Adjustments to reconcile net income to net cash provided by
operating activities--
Depreciation .................................................... 36 40 40
Gain on sale of land ............................................ (210) -- --
Changes in operating assets and liabilities--
Due from property owners ........................................ (24) (19) 56
Prepaid expenses and other current assets ....................... (3) (29) (271)
Customer deposits and deferred revenue .......................... (50) (78) (67)
Payable to property owners ...................................... 16 1 528
Deferred tax liability .......................................... 3 -- --
Accounts payable and accrued liabilities ........................ 28 279 134
------- ------ ------
Net cash provided by operating activities ...................... 46 848 1,095
------- ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Note receivable ................................................... (54) -- --
Purchase of property and equipment ................................ (179) (137) (192)
Proceeds from sale of office equipment, vehicles and land ......... 335 -- --
------- ------ ------
Net cash provided by (used in) investing activities ............ 102 (137) (192)
------- ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt ...................................... 493 686 (94)
Payments on long-term debt ........................................ (451) (280) (140)
Proceeds/payment on receivables from stockholders ................. (10) -- 10
------- ------ ------
Net cash provided by (used in) financing activities ............ 32 406 (224)
------- ------ ------
NET INCREASE IN CASH AND CASH EQUIVALENTS .......................... 180 1,117 679
CASH AND CASH EQUIVALENTS, beginning of period ..................... 6 6 186
------- ------ ------
CASH AND CASH EQUIVALENTS, end of period ........................... $ 186 $1,123 $ 865
======= ====== ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW: ..............................
Cash paid for interest ............................................ $ 25 $ 6 $ 3
======= ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-111
<PAGE>
RESORT PROPERTY MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Resort Property Management, Inc. (the "Company"), a Utah corporation,
provides property rentals and management services for properties owned by third
parties and located within the Park City, Utah region. The Company manages
approximately 330 total rental units. The Company provides its management
services to property owners pursuant to management contracts, which are
generally one year in length. The majority of such contracts contain automatic
renewal provisions but also allow property owners to terminate the contract at
any time. The Company's operations are seasonal, with a peak during the second
quarter of the fiscal year.
The Company had working capital deficits at September 30, 1997 and December
31, 1997. The Company has funded its operations with cash flows from operations
and short-term borrowings from lenders. Management expects that operations will
generate sufficient cash flows from operations to meet the Company's working
capital needs in 1998.
On May 26, 1998, ResortQuest International, Inc. ("RQI") consummated its
initial public offering and acquired all of the outstanding stock of the Company
in exchange for cash and shares of RQI common stock (the "Combination"). In
connection with the Combination, the owner and certain key employees have agreed
to reductions in salary and benefits which would have reduced general and
administrative expenses by approximately $186,000 for the year ended September
30, 1997. In addition, certain stockholders retained non-operating assets and
assumed or retired certain liabilities that were excluded from the Combination.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Statements
The interim financial statements at March 31, 1998, and for the six months
ended March 31, 1998 and 1997, are unaudited, and certain information and
footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements, have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
Revenue Recognition
The Company records property rental fees on the accrual basis of
accounting, ratably over the term of guest stays, as earned. During peak
periods, the Company requires a deposit equal to 100% of the rental fee 30 days
prior to the expected arrival date. These deposits are non-refundable and are
recorded as customer deposits and deferred revenue in the accompanying combined
financial statements until the guest stay commences. The Company records revenue
for cancellations as they occur.
Service fees are recorded for a variety of services and are recognized as
the service is provided, including housekeeping, phone service and rentals.
Operating Expenses
Operating expenses include travel agent commissions, salaries,
communications, advertising, credit card fees and other costs associated with
managing and renting the properties.
Cash and Cash Equivalents
For the purposes of the balance sheets and statements of cash flows, the
Company considers all investments with original maturities of three months or
less to be cash equivalents.
F-112
<PAGE>
RESORT PROPERTY MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED )
Property and Equipment
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statement of operations.
Income Taxes
The company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No.
109"). Under SFAS No. 109, the current provision for income taxes represents
actual or estimated amounts payable or refundable on tax returns filed or to be
filed for each year. Deferred tax assets and liabilities are recorded for the
estimated future tax effects of: (a) temporary differences between the tax bases
of assets and liabilities and amounts reported in the consolidated balance
sheets, and (b) operating loss and tax credit carryforwards. The overall change
in deferred tax assets and liabilities for the period measures the deferred tax
expense for the period. Effects of changes in enacted tax laws on deferred tax
assets and liabilities are reflected as adjustments to tax expense in the period
of enactment. The measurement of deferred tax assets may be reduced by a
valuation allowance based on judgemental assessment of available evidence if
deemed more likely than not that some or all of the deferred tax assets will not
be realized.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and
disclosures 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.
Concentration of Risk
The Company's operations are exclusively in the Park City, Utah area and
are subject to significant changes in weather conditions.
F-113
<PAGE>
RESORT PROPERTY MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED )
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED USEFUL SEPTEMBER 30,
LIFE IN YEARS 1997
------------------ --------------
<S> <C> <C>
Leasehold improvements .................. 12 $ 21
Office equipment and other .............. 5 236
Vehicles ................................ 5 128
------
385
Less - Accumulated depreciation ......... (182)
------
Property and equipment, net ............. $ 203
======
</TABLE>
At September 30, 1997, maturities of long-term debt were as follows (in
thousands):
<TABLE>
<S> <C>
Year ending September 30,
1998 .................................... $171
1999 .................................... 17
2000 .................................... 19
2001 .................................... 21
Thereafter .............................. 253
----
$481
====
</TABLE>
In addition to the debt disclosed above, the Company has a revolving line
of credit with a bank. The line of credit has an interest rate of 10.25%, a
maximum limit of $250,000, expires in October 2016, and is secured by personal
property of the Company's owners. As of September 30, 1997, the line of credit
was fully drawn, and is included in long-term debt in the accompanying financial
statements.
4. INCOME TAXES:
The provision for income taxes consists of the following for the year ended
September 30, 1997 (in thousands):
<TABLE>
<S> <C>
Current ................................ $ 6
Deferred ............................... 69
---
$75
===
</TABLE>
The provision for income taxes differs from the amount computed by applying
the U.S. Federal income tax statutory rate of 34% for the following reasons:
<TABLE>
<S> <C>
U.S. corporate income tax provision at statutory rate ......... $ 111
Utilization of NOL carryforwards .............................. (36)
-----
$ 75
=====
</TABLE>
5. COMMITMENTS AND CONTINGENCIES:
Litigation
The Company is involved in various legal actions arising in the ordinary
course of business. Management does not believe that the outcome of such legal
actions will have a material adverse effect on the Company's financial position
or results of operations.
F-114
<PAGE>
RESORT PROPERTY MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED )
Insurance
The Company carries a broad range of insurance coverage, including general
and business auto liability, commercial property, workers' compensation and a
general umbrella policy. The Company has not incurred significant claims or
losses on any of its insurance policies during the periods presented in the
accompanying financial statements.
6. RELATED PARTIES:
During 1997, the Company paid rental payments to the owners in exchange for
use of the housekeeping facility in the amount of approximately $18,000.
The Company plans to enter a lease agreement with the owners in June 1998
for an initial term of 10 years and two options to extend the lease for 5
additional years. The lease agreement to be finalized prior to the Offering will
have estimated annual payments of $100,000, and annual increases of Consumer
Price Index.
Leases
The Company has entered into various leases for housekeeping and laundry
facilities, and for their corporate office. The following is a schedule of
future minimum rental payments which are required under operating leases that
have lease terms in excess of one year at September 30, 1997:
<TABLE>
<S> <C>
1998 ................................... $ 61,793
1999 ................................... 21,408
2000 ................................... 14,517
2001 ................................... 15,246
--------
$112,964
========
</TABLE>
F-115
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Telluride Resort Accommodations, Inc.:
We have audited the accompanying balance sheet of Telluride Resort
Accommodations, Inc. (a Colorado corporation) as of December 31, 1997, and the
related statements of operations, changes in stockholders' deficit and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Telluride Resort
Accommodations, Inc., as of December 31, 1997, and the results of its operations
and its cash flows for the year then ended, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
January 30, 1998
F-116
<PAGE>
TELLURIDE RESORT ACCOMMODATIONS, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
-------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ........................................... $2,103 $1,672
Accounts receivable ................................................. 392 154
Due from property owners ............................................ 152 260
Prepaid expenses and other current assets ........................... 12 78
------ ------
Total current assets .............................................. 2,659 2,164
PROPERTY AND EQUIPMENT, net .......................................... 62 63
------ ------
Total assets ...................................................... $2,721 $2,227
====== ======
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Line of credit ...................................................... $ 194 $ --
Customer deposits and deferred revenue .............................. 2,096 468
Payable to property owners .......................................... 640 --
Accounts payable and accrued liabilities ............................ 209 1,250
------ ------
Total current liabilities ......................................... 3,139 1,718
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Common Stock, no par; 1,000,000 shares authorized; 15,000 shares out-
standing .......................................................... 216 216
Retained equity (deficit) ........................................... (634) 293
------ ------
Total stockholders' equity (deficit) .............................. (418) 509
------ ------
Total liabilities and stockholders' equity (deficit) .............. $2,721 $2,227
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-117
<PAGE>
TELLURIDE RESORT ACCOMMODATIONS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, ---------------------
1997 1997 1998
------------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES:
Property rental fees ..................................... $3,204 $1,783 $1,899
Service fees ............................................. 1,109 352 443
------ ------ ------
Total revenues ......................................... 4,313 2,135 2,342
OPERATING EXPENSES ........................................ 3,037 967 1,066
------ ------ ------
GENERAL AND ADMINISTRATIVE EXPENSES ....................... 1,030 257 361
------ ------ ------
Income from operations ................................. 246 911 915
OTHER INCOME:
Interest income, net ..................................... 31 19 12
------ ------ ------
NET INCOME ................................................ $ 277 $ 930 $ 927
====== ====== ======
PRO FORMA DATA (unaudited -- Note 7):
Historical net income (loss) before income taxes ......... $ 277 $ 930 $ 927
Less: pro forma provision for income taxes ............... 111 372 371
------ ------ ------
PRO FORMA NET INCOME (LOSS) ............................... $ 166 $ 558 $ 556
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-118
<PAGE>
TELLURIDE RESORT ACCOMMODATIONS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
------------------- EARNINGS
SHARES AMOUNT (DEFICIT) TOTAL
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1996 .................. 15,000 $216 $ (611) $ (395)
Net income ................................. -- -- 277 277
Distributions .............................. -- -- (300) (300)
------ ---- ------ ------
BALANCE, December 31, 1997 .................. 15,000 216 (634) (418)
Net income (unaudited) ..................... -- -- 927 927
------ ---- ------ ------
BALANCE, March 31, 1998 (unaudited) ......... 15,000 $216 $ 293 $ 509
====== ==== ====== ======
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-119
<PAGE>
TELLURIDE RESORT ACCOMMODATIONS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, -----------------------
1997 1997 1998
------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .......................................................... $ 277 $ 930 $ 927
Adjustments to reconcile net income to net cash provided by operating
activities
Depreciation ........................................................ 48 12 12
Changes in operating assets and liabilities
Accounts receivable ............................................... 35 242 238
Prepaid expenses and other current assets ......................... 15 20 (66)
Payable to property owners, net ................................... 19 (604) (748)
Customer deposits and deferred revenue ............................ 28 (1,757) (1,628)
Accounts payable and accrued liabilities .......................... 299 1,531 1,041
------ -------- --------
Net cash provided by (used in) operating activities .............. 721 374 (224)
------ -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment .................................. (25) (108) (13)
------ -------- --------
Net cash used in investing activities ............................ (25) (108) (13)
------ -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payments on) line of credit .......................... 93 -- (194)
Distributions to stockholders ....................................... (300) -- --
------ -------- --------
Net cash used in financing activities ............................ (207) -- (194)
------ -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVA-
LENTS ............................................................... 489 266 (431)
CASH AND CASH EQUIVALENTS, beginning of period ....................... 1,614 1,614 2,103
------ -------- --------
CASH AND CASH EQUIVALENTS, end of period ............................. $2,103 $ 1,880 $ 1,672
====== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-120
<PAGE>
TELLURIDE RESORT ACCOMMODATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Telluride Resort Accommodations, Inc. (the "Company"), a Colorado
corporation, provides property rentals and management services in Telluride,
Colorado and manages approximately 450 total rental units. The Company provides
its management services to property owners pursuant to management contracts,
which are generally one year in length. The majority of such contracts contain
automatic renewal provisions but also allow property owners to terminate the
contract at any time. The Company's operations are seasonal, with a peak during
the first quarter of the year.
The Company had a working capital deficit at December 31, 1997. The Company
has funded its operations with cash flows from operations and short-term
borrowings from lenders. Management expects that operations will generate
sufficient cash flows from operations to meet the Company's working capital
needs during 1998.
On May 26, 1998, ResortQuest International, Inc. ("RQI") consummated its
initial public offering and acquired all of the outstanding stock of the Company
in exchange for cash and shares of RQI common stock (the "Combination"). Certain
stockholders retained non-operating assets and assumed or retired certain
liabilities that were excluded from the Combination.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Statements
The interim financial statements at March 31, 1998, and for the three
months ended March 31, 1998 and 1997, are unaudited, and certain information and
footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements, have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
Revenue Recognition
The Company records property rental fees on the accrual basis of
accounting, ratably over the term of guest stays, as earned. During peak
periods, the Company requires a deposit equal to 100% of the rental fee 45 days
prior to the expected arrival date. These deposits are non-refundable and are
recorded as customer deposits and deferred revenue in the accompanying financial
statements until the guest stay commences. The Company records revenue for
cancellations as they occur.
Service fees are recorded for a variety of services and are recognized as
the service is provided, including spring and fall cleaning, unit maintenance
and housekeeping.
Operating Expenses
Operating expenses include travel agent commissions, salaries, maintenance,
housekeeping, communications, advertising, credit card fees and other costs
associated with management of the properties.
Cash and Cash Equivalents
For the purposes of the balance sheets and statements of cash flows, the
Company considers all investments with original maturities of three months or
less to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful life of the assets.
F-121
<PAGE>
TELLURIDE RESORT ACCOMMODATIONS, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED )
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statement of operations.
Income Taxes
The Company has elected S Corporation status as defined by the Internal
Revenue Code and state tax statutes, whereby the Company is not subject to
taxation for federal or state tax purposes. Under S Corporation status, the
stockholders report their share of the Company's taxable earnings or losses in
their personal tax returns.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and
disclosures 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.
Concentration of Risk
The Company's operations are exclusively in the Telluride, Colorado area
and are subject to significant changes due to weather conditions.
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED USEFUL DECEMBER 31,
LIVES IN YEARS 1997
------------------ -------------
<S> <C> <C>
Furniture, fixtures and equipment ......... 5 $ 580
Leasehold improvement ..................... 5 79
Vehicles and other ........................ 5 65
724
Less - Accumulated depreciation ........... (662)
------
Property and equipment, net ............... $ 62
======
</TABLE>
Accounts payable and accrued liabilities at December 31, 1997, consisted of
the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1997
-------------
<S> <C>
Sales tax payable ............................. $127
Accounts payable and other accrued liabilities 82
----
Total accounts payable and accrued liabilities $209
====
</TABLE>
F-122
<PAGE>
TELLURIDE RESORT ACCOMMODATIONS, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED )
4. LINES OF CREDIT:
The Company has lines of credit with a bank. The first line of credit
matures June 1998 and provides a revolving line of credit up to $200,000 to
finance working capital needs. At December 31, 1997, the Company had $194,000
outstanding on this line of credit. Interest is payable monthly at 1.75% over
the Wall Street Journal Base Rate (8.5% at December 31, 1997). The second line
of credit in the amount of $90,000, matures August 31, 1998 and can be drawn
upon only in the event that certain guaranteed load factors aboard aircraft into
the Telluride area are not met. Interest is payable monthly at 2.00% over the
Wall Street Journal Base Rate (8.5% at December 31, 1997). There was no
outstanding balance on this line of credit at December 31, 1997.
5. COMMITMENTS AND CONTINGENCIES:
Litigation
The Company is involved in various legal actions arising in the ordinary
course of business. Management does not believe that the outcome of such legal
actions will have a material adverse effect on the Company's financial position
or results of operations.
Insurance
The Company carries a broad range of insurance coverage, including general
and business auto liability, commercial property, workers' compensation and a
general umbrella policy. The Company has not incurred significant claims or
losses on any of its insurance policies during the periods presented in the
accompanying financial statement.
Benefit Plans
The Company's 401(k) retirement plan is available to substantially all of
the Company's employees. The Plan allows the Company to make discretionary
contributions to the Plan. The Company has made no such contribution to the Plan
in 1997.
6. RELATED PARTIES:
During 1997, the Company paid certain stockholders $32,000 in consulting
fees. In addition, the Company rented office space from stockholders totaling
$36,000.
7. PRO FORMA ADJUSTMENTS TO FINANCIAL STATEMENT PRESENTATION (UNAUDITED)
In conjunction with the merger with RQI, the Company changed from an S
Corporation to a C Corporation for federal and state income tax reporting
purposes, which required the Company to recognize the tax consequences of
operations in its statements of operations. The supplemental pro forma
information included in the accompanying statements of operations reflect the
estimated impact of recognizing income tax expense as if the Company had been a
C Corporation for tax reporting purposes for the three months ended March 31,
1997 and 1998, and for the year ended December 31, 1997.
F-123
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Trupp-Hodnett Enterprises, Inc. and
THE Management Company:
We have audited the accompanying combined balance sheets of Trupp Hodnett
Company, consisting of Trupp-Hodnett Enterprises, Inc. and THE Management
Company (both Georgia corporations) (collectively "Trupp Hodnett Company" or the
"Company") as of December 31, 1996 and 1997, and the related combined statements
of operations, changes in stockholders' equity and cash flows for the years
ended December 31, 1996 and 1997. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Trupp
Hodnett Company, as of December 31, 1996 and 1997, and the results of their
combined operations and their cash flows for the years then ended December 31,
1996 and 1997 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
January 16, 1998
F-124
<PAGE>
TRUPP HODNETT COMPANY
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
1996 1997 1998
--------- --------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................ $ 144 $ 293 $ 177
Cash held in trust ................................... 321 347 922
Accounts receivable .................................. 69 100 350
Receivables from stockholders and employees .......... 111 32 --
Prepaid expenses and other current assets ............ 17 31 36
------ ------ -------
Total current assets ............................... 662 803 1,485
PROPERTY AND EQUIPMENT, net ........................... 245 259 286
OTHER ASSETS .......................................... 305 -- --
------ ------ -------
Total assets ....................................... $1,212 $1,062 $ 1,771
====== ====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt ...................................... $ 345 $ -- $ --
Customer deposits and deferred revenue ............... 290 331 890
Payable to property owners ........................... 31 16 --
Accounts payable and accrued liabilities ............. 130 191 293
------ ------ -------
Total current liabilities .......................... 796 538 1,183
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par; 2,000 shares
authorized; 200 shares outstanding ................. 17 17 17
Retained earnings .................................... 399 507 571
------ ------ -------
Total stockholders' equity ......................... 416 524 588
------ ------ -------
Total liabilities and stockholders' equity ......... $1,212 $1,062 $ 1,771
====== ====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-125
<PAGE>
TRUPP HODNETT COMPANY
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
------------------------ ----------------------
1996 1997 1997 1998
--------- ------------ ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Property rental fees ..................................... $2,508 $2,809 $ 525 $ 610
Real estate commissions, net ............................. 673 892 132 594
Service fees ............................................. 250 360 110 50
------ ------ ----- ------
Total revenues ......................................... 3,431 4,061 767 1,254
OPERATING EXPENSES ........................................ 1,652 1,838 388 519
------ ------ ----- ------
GENERAL AND ADMINISTRATIVE EXPENSES ....................... 1,653 2,024 354 650
------ ------ ----- ------
Income from operations ................................. 126 199 25 85
OTHER INCOME (EXPENSE):
Interest expense, net .................................... (19) (5) (8) --
Gain on sale of assets ................................... -- 52 44 --
------ ------- ------ ------
Income before income taxes ............................. 107 246 61 85
PROVISION FOR INCOME TAXES ................................ 12 60 17 21
------ ------- ------ ------
NET INCOME ................................................ $ 95 $ 186 $ 44 $ 64
====== ======= ====== ======
PRO FORMA DATA (unaudited -- Note 9)
Historical net income (loss) before income taxes ......... $ 107 $ 246 $ 61 $ 85
Less: pro forma provision for income taxes ............... 43 98 24 34
------ ------- ------ ------
PRO FORMA NET INCOME ...................................... $ 64 $ 148 $ 37 $ 51
====== ======= ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-126
<PAGE>
TRUPP HODNETT COMPANY
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
------------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
-------- -------- --------- --------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1995 .................. 200 $17 $ 304 $ 321
Net income ................................. -- -- 95 95
--- --- ----- -----
BALANCE, December 31, 1996 .................. 200 17 399 416
Net income ................................. -- -- 186 186
Distributions .............................. -- -- (78) (78)
--- --- ----- -----
BALANCE, December 31, 1997 .................. 200 17 507 524
Net income (unaudited) ..................... -- -- 64 64
--- --- ----- -----
BALANCE, March 31, 1998 (unaudited) ......... 200 $17 $ 571 $ 588
=== === ===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-127
<PAGE>
TRUPP HODNETT COMPANY
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
---------------------- -----------------------
1996 1997 1997 1998
----------- -------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ..................................................... $ 95 $ 186 $ 44 $ 64
Adjustments to reconcile net income to net cash provided by
operating activities--
Depreciation ................................................ 83 85 22 22
Gain on sale of assets ...................................... -- (52) -- --
Changes in operating assets and liabilities--
Cash held in trust ........................................... (321) (26) (532) (575)
Accounts receivable .......................................... (17) (31) (278) (250)
Receivables from stockholder and employees ................... (8) 79 111 --
Prepaid expenses and other current assets .................... (7) (14) 4 (5)
Customer deposits and deferred revenue ....................... 290 41 492 559
Payable to property owners ................................... 31 (15) (31) (16)
Accounts payable and accrued liabilities ..................... 50 61 238 102
------- ----- ------ -------
Net cash provided by (used in) operating activities ......... 196 314 70 (99)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ............................. (58) (99) (70) (49)
Purchase of other assets ....................................... (40) (80) -- --
Proceeds from sale of other assets ............................. -- 105 305 --
------- ----- ------ -------
Net cash provided by (used in) investing activities ......... (98) (74) 235 (49)
------- ----- ------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term debt .................................. -- 84 -- 32
Payments on short-term debt .................................... (73) (97) (345) --
Distributions to stockholders .................................. -- (78) -- --
------- ----- ------ -------
Net cash (used in) provided by financing activities ......... (73) (91) (345) 32
------- ----- ------ -------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS .................................................... 25 149 (40) (116)
CASH AND CASH EQUIVALENTS, beginning of period .................. 119 144 144 293
------- ----- ------ -------
CASH AND CASH EQUIVALENTS, end of period ........................ $ 144 $ 293 $ 104 $ 177
======= ===== ====== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFOR-
MATION:
Cash paid for interest ......................................... $ 35 $ 18 $ 10 $ 4
======= ===== ====== =======
Cash paid for income taxes ..................................... $ 8 $ 1 $ 2 $ --
======= ===== ====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-128
<PAGE>
TRUPP HODNETT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
(IN THOUSANDS)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
In 1997, the Company sold certain fixed assets of the Company to a third
party as follows:
<TABLE>
<S> <C>
Net book value of assets ..................... $ 385
Debt assumed ................................ (332)
------
Net assets sold ............................. $ 53
======
</TABLE>
F-129
<PAGE>
TRUPP HODNETT COMPANY
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
The Management Company ("TMC"), an S Corporation, and Trupp-Hodnett
Enterprises, Inc. ("THE"), a C Corporation, (collectively "Trupp Hodnett" or the
"Company"), both Georgia corporations, are leading providers of vacation
property rentals, management services and sales in St. Simons Island, Georgia.
Trupp Hodnett manages approximately 400 total rental units. The Company provides
its management services to property owners pursuant to management contracts,
which generally are one year in length. The majority of such contracts contain
automatic renewal provisions but also allow property owners to terminate the
contract at any time. The Company's operations are seasonal, with peaks during
the second and third quarters of the year.
On May 26, 1998, ResortQuest International, Inc. ("RQI") consummated its
initial public offering and acquired all of the outstanding stock of the Company
in exchange for cash and shares of RQI common stock (the "Combination"). In
addition, the owner and certain key employees have agreed to reductions in
salary and benefits which would have reduced general and administrative expenses
by approximately $865,000 and $1.1 million for 1996 and 1997, respectively. In
addition, certain stockholders retained non-operating assets and assumed or
retired certain liabilities that were excluded from the Combination.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Statements
The interim financial statements at March 31, 1998, and for the three
months ended March 31, 1998 and 1997, are unaudited, and certain information and
footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements, have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
Revenue Recognition
The Company records property rental fees on the accrual basis of
accounting, ratably over the term of guest stays, as earned. For weekly and
monthly stays in homes and cottages the Company requires a deposit equal to 50%
of the rental fee 60 days prior to the expected arrival date. These deposits are
refundable with 60 days notice of cancellation. Daily and weekly stays in "condo
hotels" use a credit card to guarantee arrival.
All deposits are recorded as customer deposits and deferred revenue in the
accompanying combined financial statements until the guest stay commences.
Advance deposits are recorded as payable to property owners, ratably over the
term of guest stays, as earned. The Company records revenue for cancellations as
they occur.
Service fees are recorded for a variety of services and are recognized as
the service is provided, including management fees.
Commissions on real estate sales are recognized at closing and are recorded
net of the related commission expense. The Company recognized commission
revenues of $1,308,000 and $1,621,000 for the years 1996 and 1997, respectively
and commission expense of $635,000 and $729,000 for the years 1996 and 1997,
respectively.
Operating Expenses
Operating expenses include travel agent commissions, salaries,
communications, advertising, credit card fees and other costs associated with
managing and selling properties.
F-130
<PAGE>
TRUPP HODNETT COMPANY
NOTES TO FINANCIAL STATEMENTS - (CONTINUED )
Cash and Cash Equivalents
For the purposes of the balance sheets and statements of cash flows, the
Company considers all investments with original maturities of three months or
less to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the combined statements of operations.
Other Assets
As of December 31, 1996, other assets is comprised of properties held for
resale.
Income Taxes
TMC has elected S Corporation status as defined by the Internal Revenue
Code and state tax statutes, whereby, TMC is not subject to taxation for federal
or state tax purposes. Under S Corporation status, the stockholders report their
share of the Company's taxable earnings or losses in their personal tax returns.
THE is a regular C Corporation and as such is subject to taxation for
federal and state purposes. THE accounts for income taxes under the provisions
of Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS No. 109"). Under SFAS No. 109, the current provision for income
taxes represents actual or estimated amounts payable or refundable on tax
returns filed or to be filed for each year. Deferred tax assets and liabilities
are recorded for the estimated future tax effects of: (a) temporary differences
between the tax bases of assets and liabilities and amounts reported in the
consolidated balance sheets, and (b) operating loss and tax credit
carryforwards. The overall change in deferred tax assets and liabilities for the
period measures the deferred tax expense for the period. Effects of changes in
enacted tax laws on deferred tax assets and liabilities are reflected as
adjustments to tax expense in the period of enactment. The measurement of
deferred tax assets may be reduced by a valuation allowance based on judgemental
assessment of available evidence if deemed more likely than not that some or all
of the deferred tax assets will not be realized.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and
disclosures 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.
Concentration of Risk
The Company's operations are exclusively in the St. Simons Island area and
are subject to significant changes due to weather conditions.
F-131
<PAGE>
TRUPP HODNETT COMPANY
NOTES TO FINANCIAL STATEMENTS - (CONTINUED )
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES ---------------------
IN YEARS 1996 1997
------------- --------- ---------
<S> <C> <C> <C>
Leasehold improvements .................. 31 $ 31 $ 40
Office equipment and vehicles ........... 3-7 551 635
------ ------
582 675
Less - Accumulated depreciation ......... (337) (416)
------ ------
Property and equipment, net ............ $ 245 $ 259
====== ======
</TABLE>
Accounts payable and accrued liabilities consisted of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------ -------
<S> <C> <C>
Accrued compensation and benefits .................. $ 31 $ 36
Accounts payable and other accrued liabilities ..... 99 155
---- ----
Total accounts payable and accrued liabilities..... $130 $191
==== ====
</TABLE>
4. SHORT-TERM DEBT:
As of December 31, 1996, the Company's short-term debt was comprised of
$263,000 of notes payable and $82,000 of outstanding lines of credit. The
Company repaid all of its notes payable and lines of credit in 1997.
As of December 31, 1997, the Company had two outstanding unused, unsecured
lines of credit with banks. The Company's $100,000 line of credit bears interest
at the Chase Manhattan Bank prime rate plus 1.0% and matures December 1, 1998.
The Company's $30,000 line of credit bears interest at the Wall Street Journal's
bank prime rate plus 2.0% and matures June 1, 1998.
5. SALE OF OTHER ASSETS:
During 1997, the Company sold other assets (comprised of land and a
building) with a book value totaling $250,000 and the related note payable of
$208,000 to a third-party for $94,000. The Company recorded a gain of $52,000,
which is included in other income. Additionally, a sale to a related party was
consummated (see Note 8).
6. INCOME TAXES:
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1997
------ -----
<S> <C> <C>
Current ............................ $12 $60
=== ===
</TABLE>
F-132
<PAGE>
TRUPP HODNETT COMPANY
NOTES TO FINANCIAL STATEMENTS - (CONTINUED )
The provision for income taxes differs from the amount computed by applying
the U.S. Federal income tax statutory rate of 34% for the following reasons:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
-------- --------
<S> <C> <C>
U.S. corporate income tax provision at statutory
rate .......................................... $ 36 $ 84
State income taxes ............................. 4 9
S Corporation income ........................... (28) (33)
----- -----
$ 12 $ 60
===== =====
</TABLE>
7. COMMITMENTS AND CONTINGENCIES:
Litigation
The Company is involved in various legal actions arising in the ordinary
course of business. Management does not believe that the outcome of such legal
actions will have a material adverse effect on the Company's combined financial
position or results of operations.
Insurance
The Company carries a broad range of insurance coverage, including general
and business auto liability, commercial property, workers' compensation and a
general umbrella policy. The Company is self-insured for employee medical with a
stop-loss policy beginning at $7,500. The Company has not incurred significant
claims or losses on any of its insurance policies during the periods presented
in the accompanying combined financial statements.
Benefit Plans
The Company began a 401(k) retirement plan in April of 1997 which is
available to substantially all of the Company's employees. The Company is
obligated to match the employee's contribution up to 5%. The cost of this plan
to the Company was approximately $9,000 in 1997.
8. RELATED PARTIES:
The Company's revenues include approximately $132,000 and $187,000 in 1996
and 1997, respectively for fees earned from properties in which the Company's
stockholders have an ownership interest. In 1997, the Company sold a building,
the related land (total book value of $135,000) and the related $124,000
mortgage note payable to the Company's stockholders for $11,000 in cash.
In 1995, the Company advanced the stockholders $75,000 as a note receivable
at an annual interest rate of 6%. As of December 31, 1996, the $75,000 note
balance and the related accrued interest of $9,000 was included in receivables
from stockholders and employees. The Company recorded interest income on this
note of $4,500 and $4,000 in 1996 and 1997, respectively. The stockholders
repaid the note in 1997.
F-133
<PAGE>
TRUPP HODNETT COMPANY
NOTES TO FINANCIAL STATEMENTS - (CONTINUED )
The Company has agreements to lease office space from the stockholders and
the minimum lease payments are as follows (in thousands):
<TABLE>
<S> <C>
1998 ....................................... $ 112
1999 ....................................... 117
2000 ....................................... 122
2001 ....................................... 126
2002 ....................................... 131
Thereafter ................................. 967
------
$1,575
======
</TABLE>
During 1996 and 1997, the Company recorded rental expense of $93,000 and
$110,000, respectively, relating to the above leases.
9. PRO FORMA ADJUSTMENTS TO FINANCIAL STATEMENT PRESENTATION (UNAUDITED)
In conjunction with the merger with RQI, the TMC changed from an S
Corporation to a C Corporation for federal and state income tax reporting
purposes, which required the Company to recognize the tax consequences of
operations in its statements of operations. The supplemental pro forma
information included in the accompanying statements of operations reflect the
estimated impact of recognizing income tax expense as if the Company had been a
C Corporation for tax reporting purposes during the three months ended March 31,
1998 and 1997, and for the year ended December 31, 1997.
F-134
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
=====================================================
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER 3,000,000 SHARES
PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR
TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE
OFFERING OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION RESORTQUEST
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING INTERNATIONAL, INC.
BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE SHARES
OF COMMON STOCK TO WHICH IT RELATES OR AN OFFER TO, COMMON STOCK
OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION
WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY [RESORTQUEST INTERNATIONAL LOGO]
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AT ANY
TIME SUBSEQUENT TO THE DATE HEREOF.
-------------------------- -----------------
TABLE OF CONTENTS
P R O S P E C T U S
PAGE JUNE , 1998
----------
Prospectus Summary ....................... 3 -----------------
Risk Factors ............................. 11
The Company .............................. 18
Price Range of Common Stock .............. 21
Dividend Policy .......................... 21
Selected Financial Data .................. 22
Management's Discussion and Analysis
of Financial Condition and Results of
Operations ............................ 24
Business ................................. 45
Management ............................... 55
Certain Transactions ..................... 62
Principal Stockholders ................... 69
Description of Capital Stock ............. 70
Shares Eligible for Future Sale .......... 73
Plan of Distribution ..................... 75
Legal Matters ............................ 76
Experts .................................. 76
Available Information .................... 76
Index to Financial Statements ............ F-1
UNTIL JUNE , 1998, ALL DEALERS EFFECTING TRANSACTIONS
IN THE REGISTERED SECURITIES OFFERED HEREBY, WHETHER
OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
=====================================================
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses in connection with the
offering. All of such amounts (except the SEC Registration Fee) are estimated.
<TABLE>
<S> <C>
SEC Registration Fee ................................... $ 12,500.63
New York Stock Exchange Listing Fee .................... 22,150.00
Accounting Fees and Expenses ........................... 40,000.00
Printing Costs ......................................... 12,000.00
Legal Fees and Expenses ................................ 30,000.00
Miscellaneous .......................................... 3,349.37
----------
Total ............................................... $ 120,000.00
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Subsection (a) of Section 145 of the General Corporation Law of the State
of Delaware (the "DGCL") empowers a corporation to indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation ) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending, or completed action, or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, except that no indemnification may be made in
respect of any claim, issue or matter as to which such person shall have been
made to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnify for such expenses which the Court of Chancery or such
other court shall deem proper.
Section 145 further provides that to the extent a director or officer of a
corporation has been successful on the merits or otherwise in the defense of any
action, suit or proceeding referred to in subsections (a) and (b) of Section 145
in the defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith; that indemnification provided for by Section 145
shall not be deemed exclusive of any other rights to which the indemnified party
may be entitled; that indemnification provided for by Section 145 shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of such person's heirs, executors and administrators; and empowers the
corporation to purchase and maintain insurance on
II-1
<PAGE>
behalf of a director or officer of the corporation against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such whether or not the corporation would have the power to
indemnify him against such liabilities under Section 145.
Section 102(b)(7) of the DGCL provides that a certificate of incorporation
may contain a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director provided that such provision shall not eliminate
or limit the liability of a director: (i) for any breach of the director's duty
of loyalty to the corporation or its stockholders; (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law; (iii) under Section 174 of the DGCL; or (iv) for any transaction from
which the director derived an improper personal benefit.
Articles Seventh and Eighth of the Company's Certificate of Incorporation,
as amended, states that:
"No director of the Corporation shall be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability: (1) for any breach of the director's duty of loyalty to
the Corporation or its stockholders; (2) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of the law; (3)
under Section 174 of the DGCL; or (4) for any transaction from which the
director derived an improper personal benefit,
The Corporation shall, to the fullest extent permitted by Section 145 of
the DGCL, as amended from time to time, indemnify all persons whom it may
indemnify pursuant thereto.
In addition, Article II of the Company's Bylaws further provides that the
Company shall indemnify its officers, directors and employees to the fullest
extent permitted by law.
The Company intends to enter into indemnification agreements with each of
its executive officers and directors which indemnifies such person to the
fullest extent permitted by its Amended and Restated Certificate of
Incorporation, its Bylaws and the DGCL. The Company also has to obtain directors
and officers liability insurance.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following information relates to all securities of the Company issued
or sold by the Company within the past three years which were not registered
under the Securities Act.
(a) RQI was organized in September 1997 and issued 97.9827 and 195.9654
shares of its Common Stock to its Founders, Capstone Partners, LLC and Alpine
Consolidated II, LLC, respectively, at a per share price of $.01. On March 9,
1998, the number of these shares were increased by a 8,834.76- for-one stock
split.
(b) In November and December of 1997 and the first quarter of 1998, RQI
issued 60.8584 shares of its Common Stock to 18 individuals, including
persons who were to become officers, directors or key employees of the
Company at a per share price of $.01. On March 9, 1998, the number of these
shares were increased by a 8,834.76-for-one stock split.
(c) See "Certain Transactions" for a discussion of the issuance of shares
of Common Stock and options to purchase shares of Common Stock in connection
with the Combinations.
The offers and sales of these shares was exempt from registration under the
Securities Act of 1933 in reliance on Section 4(2) thereof because, among other
things, the offers and sales were made to sophisticated investors, or officers
and directors of the Company, who had access to information about RQI and were
able to bear the risk of loss of their investment
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- --------
<S> <C> <C>
2.1 1 -- Agreement and Plan of Organization, dated at March 11, 1998, by and among Vacation Properties
International, Inc., HCP Acquisition Corp., and Hotel Corporation of the Pacific, Inc. and
Andre S. Tatibouet.
2.2 1 -- Agreement and Plan of Organization, dated at March 11, 1998, by and among Vacation Properties
International, Inc., B&B Acquisition Corp., Brindley Acquisition Corp., B&B On The Beach, Inc.,
Brindley and Brindley Realty and Development, Inc., Douglas R. Brindley and Betty Shotton
Brindley.
2.3 1 -- Agreement and Plan of Organization, dated at March 11, 1998, by and among Vacation Properties
International, Inc., Coastal Realty Acquisition LLC, Coastal Management Acquisition Corp. and
Coastal Resorts Realty L.L.C., Coastal Resorts Management, Inc., Joshua M. Freeman, T. Michael
McNally and CMF Coastal Resorts L.L.C.
2.4 1 -- Agreement and Plan of Organization, dated at March 11, 1998, by and among Vacation Properties
International, Inc. and Collection of Fine Properties, Inc., Ten Mile Holdings, Ltd., Luis Alonso,
Domingo R. Moreira, Brenda M. Lopez Ibanez and Ana Maria Moreira.
2.5 1 -- Agreement and Plan of Organization, dated at March 11, 1998, by and among Vacation Properties
International, Inc. and Houston and O'Leary Company and Heidi O'Leary Houston.
2.6 1 -- Agreement and Plan of Organization, dated at March 11, 1998, by and among Vacation Properties
International, Inc., Jupiter Acquisition Corp. and Jupiter Property Management at Park City, Inc.
and Jon R. Brinton. (Agreement terminated on April 23, 1998.)
2.7 1 -- Agreement and Plan of Organization, dated at March 11, 1998, by and among Vacation Properties
International, Inc., Maui Acquisition Corp. and Maui Condominium and Home Realty, Inc., Daniel
C. Blair and Paul T. Dobson.
2.8 1 -- Agreement and Plan of Organization, dated at March 11, 1998, by and among Vacation Properties
International, Inc., Maury Acquisition Corp. and The Maury People, Inc. and Sharon Benson
Doucette.
2.9 1 -- Agreement and Plan of Organization, dated at March 11, 1998, by and among Vacation Properties
International, Inc., Priscilla Acquisition Corp., Realty Consultants Acquisition Corp., Realty Con-
sultants, Inc., and Howey Acquisition, Inc., Charles O. Howey and Dolores C. Howey.
2.10 1 -- Agreement and Plan of Organization, dated at March 11, 1998, by and among Vacation Properties
International, Inc., Resort Property Management Acquisition Corp. and Resort Property Manage-
ment, Inc., Daniel L. Meehan, Kimberlie C. Meehan and Nancy Hess.
2.11 1 -- Agreement and Plan of Organization, dated at March 11, 1998, by and among Vacation Properties
International, Inc., Telluride Acquisition Corp., and Telluride Resort Accommodations, Inc. and
Steven A. Schein, Michael E. Gardner, Park Brady, Daniel Shaw, Carolyn S. Shaw, Virginia C.
Gordon, Joyce Allred, Ronald D. Allred, A.J. Wells, Forrest Faulconer, Thomas McNamara, Donald
J. Peterson, Nancy McNamara, Charles E. Cobb, Jr., Sue M. Cobb, Stephen A. Martori, Anthony F.
Martori, Arthur John Matori and Alan Miskin.
2.12 1 -- Agreement and Plan of Organization, dated at March 11, 1998, by and among Vacation Properties
International, Inc., Trupp Acquisition Corp., Trupp Management Acquisition Corp. and Trupp-
Hodnett Enterprises, Inc., THE Management Company, Hans F. Trupp, Roy K. Hodnett, Pat
Hodnett Cooper and Austin Trupp.
2.13 1 -- Agreement and Plan of Organization, dated at March 12, 1998, by and among Vacation Properties
International, Inc., Whistler Chalets Holding Corp. and Whistler Chalets Limited and J. Patrick
McCurdy.
2.14 1 -- Agreement and Plan of Organization, dated at March 11, 1998, by and among Vacation Properties
International, Inc., FRS Acquisition Corp and First Resort Software, Inc., Thomas A. Leddy, Evan
H. Gull and Daniel Patrick Curry.
3.1 1 -- Certificate of Incorporation, as amended.
3.2 1 -- Bylaws, as amended.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<S> <C> <C>
3.3 2 -- Certificate of Amendment of Certificate of Incorporation of the Company, dated April 23, 1998
(changing the name of the Company from Vacation Properties International, Inc. to ResortQuest
International, Inc.).
3.4 3 -- Certificate of Amendment of Certificate of Incorporation of the Company, dated May 11, 1998.
4.1 2 -- Specimen Common Stock Certificate.
4.2 4 -- Form of Restriction and Registration Rights Agreements between the Company and each of Alpine
Consolidated II, LLC, Capstone Partners, LLC, John Przywara, David Marshall, Douglas W, Com-
fort, Robert G. Falcone, Wayne Heller, Dwain Wall, Stephen J. Garchik, John Shaw, David Sullivan,
Jeffrey M. Jarvis, Frederick L. Farmer, W. Michael Murphy, Jules S. Sowder, John K. Lines, Brian S.
Sullivan, John D. Sullivan, the Sullivan Grandchildren's Trust, the David L. Levin Irrevocable Chil-
dren' Trust Under Agreement dated April 27, 1998 f/b/o Whitney Monica Levine, the David L.
Levine Irrevocable Children's Trust Under Agreement dated April 27, 1998 f/b/o Ross Michael
Levine, the David L. Levine Irrevocable Children's Trust Under Agreement dated April 27, 1998
f/b/o Keith Phillip Levine and the David L. Levine Revocable Trust Under Agreement dated April
27, 1998.
5.1 -- Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P. as to the legality of the securities being
registered.
10.1 1 -- Form of 1998 Long-Term Incentive Plan of the Company.
10.2 2 -- Form of Employment Agreement between the Company and David M. Sullivan.
10.3 2 -- Form of Employment Agreement between the Company and Jeffery M. Jarvis.
10.4 2 -- Form of Employment Agreement between the Company and W. Michael Murphy.
10.5 2 -- Form of Employment Agreement between the Company and Jules S. Sowder.
10.6 2 -- Form of Employment Agreement between the Company and David L. Levine.
10.7 2 -- Form of Employment Agreement between the Company and John K. Lines.
10.8 2 -- Form of Employment Agreement between the Company and Fred Farmer.
10.9 2 -- Form of Employment Agreement between the Company and Luis Alonso.
10.10 1 -- Form of Employment Agreement between the Company and Douglas R. Brindley.
10.11 1 -- Form of Employment Agreement between the Company and Paul T. Dobson.
10.12 1 -- Form of Employment Agreement between the Company and Sharon Benson Doucette.
10.13 1 -- Form of Employment Agreement between the Company and Evan H. Gull.
10.14 1 -- Form of Employment Agreement between the Company and Heidi O'Leary Houston.
10.15 1 -- Form of Employment Agreement between the Company and Daniel L. Meehan.
10.16 1 -- Form of Management Services Agreement between the Company and J. Patrick McCurdy.
10.17 1 -- Form of Employment Agreement between the Company and Andre S. Tatibouet.
10.18 1 -- Form of Employment Agreement between the Company and Hans F. Trupp.
10.19 2 -- Form of Officer and Director Indemnification Agreement.
10.20 2 -- Form of Consulting Agreement between the Company and Park Brady.
10.21 1 -- Promissory Note.
10.22 -- Credit Agreement dated as of May 26, 1998, in the amount of $30 million, among
ResortQuest International, Inc. as Borrower and the Financial Institutions named
thereon (the ''Bank'') and NationsBank, N.A. as agent for the Banks
21 2 -- Subsidiaries of the Company.
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of Morrison, Brown, Argiz and Company.
23.4 -- Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P. (contained in Exhibit 5.1).
24 -- Powers of Attorney (included on signature page).
27 2 -- Financial Data Schedule.
</TABLE>
- ----------
1 Previously filed on March 12, 1998 as an exhibit to the Company's
Registration Statement on Form S-1 (File No. 333-47867) and incorporated
herein by reference.
2 Previously filed on April 27, 1998 as an exhibit to Amendment No. 1 to the
Company's Registration Statement on Form S-1 (File No. 333-47867) and
incorporated herein by reference.
3 Previously filed on May 12, 1998 as an exhibit to Amendment No. 3 to the
Company's Registration Statement on Form S-1 (File No. 333-47867) and
incorporated herein by reference.
4 Previously filed on May 26, 1998 as an exhibit to the Company's Current
Report on Form 8-K and incorporated herein by reference.
II-4
<PAGE>
(b) Financial Statement Schedules
None
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes as follows:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance on Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement at the time it is declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be the initial bona fide
offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Memphis, Tennessee, on the 11th day
of June, 1998.
RESORTQUEST INTERNATIONAL, INC.
By: /s/ David C. Sullivan
----------------------------------------
David C. Sullivan
Chief Executive Officer
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints David C. Sullivan, David L. Levine and Jeffery M.
Jarvis, and each of them, with full power to act without the other, such
person's true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign this Registration Statement, any and all
amendments thereto (including post-effective amendments), any subsequent
Registration Statements pursuant to Rule 462 of the Securities Act of 1933, as
amended, and any amendments thereto and to file the same, with exhibits and
schedules thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing necessary or desirable to be done in and about the premises,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
RESORTQUEST INTERNATIONAL, INC.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ David C. Sullivan Chief Executive Officer, Director June 11, 1998
- --------------------------------
David C. Sullivan
(Principal Executive Officer)
/s/ Jeffery M. Jarvis Senior Vice President and Chief June 11, 1998
- -------------------------------- Financial Officer
Jeffery M. Jarvis
(Principal Financial and
Accounting Officer)
/s/ David L. Levine President and Chief Operating June 11, 1998
- -------------------------------- Officer, Director
David L. Levine Director
/s/ Luis Alonso
- -------------------------------- Director June 11, 1998
Luis Alonso
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Douglas R. Brindley Director June 11, 1998
- ---------------------------
Douglas R. Brindley
/s/ Paul T. Dobson Director June 11, 1998
- ---------------------------
Paul T. Dobson
Director June 11, 1998
- ---------------------------
Sharon Benson Doucette
/s/ Evan H. Gull Director June 11, 1998
- ---------------------------
Evan H. Gull
/s/ Heidi O'Leary Houston Director June 11, 1998
- ---------------------------
Heidi O'Leary Houston
Director June 11, 1998
- ---------------------------
Daniel L. Meehan
/s/ J. Patrick McCurdy Director June 11, 1998
- ---------------------------
J. Patrick McCurdy
/s/ Andre S. Tatibouet Director June 11, 1998
- ---------------------------
Andre S. Tatibouet
/s/ Hans F. Trupp Director June 11, 1998
- ---------------------------
Hans F. Trupp
Director June 11, 1998
- ---------------------------
Park Brady
/s/ Joshua M. Freeman Director June 11, 1998
- ---------------------------
Joshua M. Freeman
/s/ Charles O. Howey Director June 11, 1998
- ---------------------------
Charles O. Howey
/s/ Michael D. Rose Director June 11, 1998
- ---------------------------
Michael D. Rose
/s/ Joseph V. Vittoria Director June 11, 1998
- ---------------------------
Joseph V. Vittoria
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------- ---------- -------------
<S> <C> <C>
/s/ Theodore L. Weisse Director June 11, 1998
- ---------------------------
Theodore L. Weise
/s/ Elan J. Blutinger Director June 11, 1998
- ---------------------------
Elan J. Blutinger
/s/ D. Fraser Bullock Director June 11, 1998
- ---------------------------
D. Fraser Bullock
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
------
<S> <C> <C>
2.1 1 -- Agreement and Plan of Organization, dated at March 11, 1998, by and among Vacation Properties
International, Inc., HCP Acquisition Corp., and Hotel Corporation of the Pacific, Inc. and
Andre S. Tatibouet.
2.2 1 -- Agreement and Plan of Organization, dated at March 11, 1998, by and among Vacation Properties
International, Inc., B&B Acquisition Corp., Brindley Acquisition Corp., B&B On The Beach, Inc.,
Brindley and Brindley Realty and Development, Inc., Douglas R. Brindley and Betty Shotton
Brindley.
2.3 1 -- Agreement and Plan of Organization, dated at March 11, 1998, by and among Vacation Properties
International, Inc., Coastal Realty Acquisition LLC, Coastal Management Acquisition Corp. and
Coastal Resorts Realty L.L.C., Coastal Resorts Management, Inc., Joshua M. Freeman, T. Michael
McNally and CMF Coastal Resorts L.L.C.
2.4 1 -- Agreement and Plan of Organization, dated at March 11, 1998, by and among Vacation Properties
International, Inc. and Collection of Fine Properties, Inc., Ten Mile Holdings, Ltd., Luis Alonso,
Domingo R. Moreira, Brenda M. Lopez Ibanez and Ana Maria Moreira.
2.5 1 -- Agreement and Plan of Organization, dated at March 11, 1998, by and among Vacation Properties
International, Inc. and Houston and O'Leary Company and Heidi O'Leary Houston.
2.6 1 -- Agreement and Plan of Organization, dated at March 11, 1998, by and among Vacation Properties
International, Inc., Jupiter Acquisition Corp. and Jupiter Property Management at Park City, Inc.
and Jon R. Brinton. (Agreement terminated on April , 1998.)
2.7 1 -- Agreement and Plan of Organization, dated at March 11, 1998, by and among Vacation Properties
International, Inc., Maui Acquisition Corp. and Maui Condominium and Home Realty, Inc., Daniel
C. Blair and Paul T. Dobson.
2.8 1 -- Agreement and Plan of Organization, dated at March 11, 1998, by and among Vacation Properties
International, Inc., Maury Acquisition Corp. and The Maury People, Inc. and Sharon Benson
Doucette.
2.9 1 -- Agreement and Plan of Organization, dated at March 11, 1998, by and among Vacation Properties
International, Inc., Priscilla Acquisition Corp., Realty Consultants Acquisition Corp., Realty Con-
sultants, Inc., and Howey Acquisition, Inc., Charles O. Howey and Dolores C. Howey.
2.10 1 -- Agreement and Plan of Organization, dated at March 11, 1998, by and among Vacation Properties
International, Inc., Resort Property Management Acquisition Corp. and Resort Property Manage-
ment, Inc., Daniel L. Meehan, Kimberlie C. Meehan and Nancy Hess.
2.11 1 -- Agreement and Plan of Organization, dated at March 11, 1998, by and among Vacation Properties
International, Inc., Telluride Acquisition Corp., and Telluride Resort Accommodations, Inc. and
Steven A. Schein, Michael E. Gardner, Park Brady, Daniel Shaw, Carolyn S. Shaw, Virginia C.
Gordon, Joyce Allred, Ronald D. Allred, A.J. Wells, Forrest Faulconer, Thomas McNamara, Donald
J. Peterson, Nancy McNamara, Charles E. Cobb, Jr., Sue M. Cobb, Stephen A. Martori, Anthony F.
Martori, Arthur John Matori and Alan Miskin.
2.12 1 -- Agreement and Plan of Organization, dated at March 11, 1998, by and among Vacation Properties
International, Inc., Trupp Acquisition Corp., Trupp Management Acquisition Corp. and Trupp-
Hodnett Enterprises, Inc., THE Management Company, Hans F. Trupp, Roy K. Hodnett, Pat
Hodnett Cooper and Austin Trupp.
2.13 1 -- Agreement and Plan of Organization, dated at March 12, 1998, by and among Vacation Properties
International, Inc., Whistler Chalets Holding Corp. and Whistler Chalets Limited and J. Patrick
McCurdy.
2.14 1 -- Agreement and Plan of Organization, dated at March 11, 1998, by and among Vacation Properties
International, Inc., FRS Acquisition Corp and First Resort Software, Inc., Thomas A. Leddy, Evan
H. Gull and Daniel Patrick Curry.
3.1 1 -- Certificate of Incorporation, as amended.
3.2 1 -- Bylaws, as amended.
3.3 2 -- Certificate of Amendment of Certificate of Incorporation of the Company, dated April 23, 1998
(changing the name of the Company from Vacation Properties International, Inc. to ResortQuest
International, Inc.).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
------
<S> <C> <C>
3.4 3 -- Certificate of Amendment of Certificate of Incorporation of the Company, dated May 11, 1998.
4.1 2 -- Specimen Common Stock Certificate.
4.2 4 -- Form of Restriction and Registration Rights Agreements between the Company and each of Alpine
Consolidated II, LLC, Capstone Partners, LLC, John Przywara, David Marshall, Douglas W, Com-
fort, Robert G. Falcone, Wayne Heller, Dwain Wall, Stephen J. Garchik, John Shaw, David Sullivan,
Jeffrey M. Jarvis, Frederick L. Farmer, W. Michael Murphy, Jules S. Sowder, John K. Lines, Brian S.
Sullivan, John D. Sullivan, the Sullivan Grandchildren's Trust, the David L. Levin Irrevocable Chil-
dren' Trust Under Agreement dated April 27, 1998 f/b/o Whitney Monica Levine, the David L.
Levine Irrevocable Children's Trust Under Agreement dated April 27, 1998 f/b/o Ross Michael
Levine, the David L. Levine Irrevocable Children's Trust Under Agreement dated April 27, 1998
f/b/o Keith Phillip Levine and the David L. Levine Revocable Trust Under Agreement dated April
27, 1998.
5.1 -- Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P. as to the legality of the securities being
registered.
10.1 1 -- Form of 1998 Long-Term Incentive Plan of the Company.
10.2 2 -- Form of Employment Agreement between the Company and David M. Sullivan.
10.3 2 -- Form of Employment Agreement between the Company and Jeffery M. Jarvis.
10.4 2 -- Form of Employment Agreement between the Company and W. Michael Murphy.
10.5 2 -- Form of Employment Agreement between the Company and Jules S. Sowder.
10.6 2 -- Form of Employment Agreement between the Company and David L. Levine.
10.7 2 -- Form of Employment Agreement between the Company and John K. Lines.
10.8 2 -- Form of Employment Agreement between the Company and Fred Farmer.
10.9 2 -- Form of Employment Agreement between the Company and Luis Alonso.
10.10 1 -- Form of Employment Agreement between the Company and Douglas R. Brindley.
10.11 1 -- Form of Employment Agreement between the Company and Paul T. Dobson.
10.12 1 -- Form of Employment Agreement between the Company and Sharon Benson Doucette.
10.13 1 -- Form of Employment Agreement between the Company and Evan H. Gull.
10.14 1 -- Form of Employment Agreement between the Company and Heidi O'Leary Houston.
10.15 1 -- Form of Employment Agreement between the Company and Daniel L. Meehan.
10.16 1 -- Form of Management Services Agreement between the Company and J. Patrick McCurdy.
10.17 1 -- Form of Employment Agreement between the Company and Andre S. Tatibouet.
10.18 1 -- Form of Employment Agreement between the Company and Hans F. Trupp.
10.19 2 -- Form of Officer and Director Indemnification Agreement.
10.20 2 -- Form of Consulting Agreement between the Company and Park Brady.
10.21 1 -- Promissory Note.
10.22 -- Credit Agreement dated as of May 26, 1998, in the amount of $30 million, among
ResortQuest International, Inc. as Borrower and the Financial Institutions named
thereon (the ''Bank'') and NationsBank, N.A. as agent for the Banks
21 2 -- Subsidiaries of the Company.
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of Morrison, Brown, Argiz and Company.
23.4 -- Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P. (contained in Exhibit 5.1).
24 -- Powers of Attorney (included on signature page).
27 2 -- Financial Data Schedule.
</TABLE>
- ----------
1 Previously filed on March 12, 1998 as an exhibit to the Company's
Registration Statement on Form S-1 (File No. 333-47867) and incorporated
herein by reference.
2 Previously filed on April 27, 1998 as an exhibit to Amendment No. 1 to the
Company's Registration Statement on Form S-1 (File No. 333-47867) and
incorporated herein by reference.
3 Previously filed on May 12, 1998 as an exhibit to Amendment No. 3 to the
Company's Registration Statement on Form S-1 (File No. 333-47867) and
incorporated herein by reference.
4 Previously filed on May 26, 1998 as an exhibit to the Company's Current
Report on Form 8-K and incorporated herein by reference.
RESORTQUEST INTERNATIONAL, INC.
AMENDED BYLAWS
AS OF MAY 15, 1998
ARTICLE I
OFFICES
Section 1.01. Registered Office. The registered office of ResortQuest
International, Inc. (hereinafter referred to as the "Corporation") shall be in
the City of Wilmington, County of New Castle, State of Delaware.
Section 1.02. Additional Offices. The Corporation may also have offices at
such other places, both within and outside the State of Delaware, as the Board
of Directors may from time to time determine or as the business of the
Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 2.01. Time and Place. All meetings of stockholders for the election
of Directors shall be held at such time and place, either within or outside the
State of Delaware, as shall be designated from time to time by the Board of
Directors and stated in the notice of the meeting or in a duly executed waiver
of notice of the meeting. Meetings of stockholders for any other purpose may be
held at such time and place either within or outside the State of Delaware as
shall be stated in the notice of the meeting or in a duly executed waiver of
notice of the meeting.
Section 2.02. Annual Meeting. Annual meetings of stockholders shall be held
for the purpose of electing a Board of Directors and transacting such other
business as may properly be brought before the meeting.
Section 2.03. Notice of Annual Meeting. Written notice of the annual
meeting, stating the place, date and time of such annual meeting, shall be given
to each stockholder entitled to vote at such meeting not less than ten (10)
(unless a longer period is required by law) nor more than sixty (60) days prior
to the meeting.
Section 2.04. Special Meeting. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by the Chairman of the Board, if
any, or, if the Chairman is not present (or, if there is none), by the President
and shall be called by the President or Secretary at the request in writing of a
majority of the Board of Directors, or at the request in writing of the
stockholders owning a
<PAGE>
majority of the shares of capital stock of the Corporation issued and
outstanding and entitled to vote at such meeting. Such request shall state the
purpose or purposes of the proposed meeting. The person calling such meeting
shall cause notice of the meeting to be given in accordance with the provisions
of Section 2.05 of this Article II and of Article V.
Section 2.05. Notice of Special Meeting. Written notice of a special
meeting, stating the place, date and time of such special meeting and the
purpose or purposes for which the meeting is called, shall be delivered either
personally or mailed to his or her last address to each stockholder not less
than ten (10) (unless a longer period is required by law) nor more than sixty
(60) days prior to the meeting.
Section 2.06. List of Stockholders. The officer in charge of the stock
ledger of the Corporation or the transfer agent shall prepare and make, at least
ten (10) days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten (10) days prior to the meeting, at
a place within the city where the meeting is to be held. Such place, if other
than the place of the meeting, shall be specified in the notice of the meeting.
The list shall also be produced and kept at the time and place of the meeting
during the whole time of the meeting and may be inspected by any stockholder who
is present.
Section 2.07. Presiding Officer. Meetings of stockholders shall be presided
over by the Chairman of the Board, if any, or if the Chairman is not present (or
if there is none), by the President, or, if the President is not present, by a
Vice President, or, if a Vice President is not present, by such person who may
have been chosen by the Board of Directors, or, if none of such persons is
present, by a Chairman to be chosen by the stockholders owning a majority of the
shares of capital stock of the Corporation issued and outstanding and entitled
to vote at the meeting and who are present in person or represented by proxy.
The Secretary of the Corporation, or, if the Secretary is not present, an
Assistant Secretary, or, if an Assistant Secretary is not present, such person
as may be chosen by the Board of Directors, shall act as secretary of meetings
of stockholders, or, if none of such persons is present, the stockholders owning
a majority of the shares of capital stock of the Corporation issued and
outstanding and entitled to vote at the meeting and who are present in person or
represented by proxy shall choose any person present to act as secretary of the
meeting.
Section 2.08. Quorum and Adjournments. The holders of a majority of the
shares of capital stock of the Corporation issued and outstanding and entitled
to vote at stockholders meetings, present in person or represented by proxy,
shall be necessary to, and shall constitute a quorum for, the transaction of
business at all meetings of the stockholders, except as otherwise provided by
statute or by the Certificate of Incorporation. The stockholders present or in
person or represented by proxy at a duly organized meeting may continue to do
business until final adjournment of such meeting whether on the same day or on a
later day, notwithstanding the
2
<PAGE>
withdrawal of enough stockholders to leave less than a quorum. If a meeting
cannot be organized because a quorum has not attended, or even if a quorum shall
be present or represented at any meeting of the stockholders, the stockholders
entitled to vote at such meeting present in person or represented by proxy may
adjourn the meeting from time to time; provided, however, that if the holders of
any class of stock of the Corporation are entitled to vote separately as a class
upon any matter at such meeting, any adjournment of the meeting in respect of
action of such class upon such matter shall be determined by the holders of a
majority of the shares of such class present in person or represented by proxy
and entitled to vote at such meeting, until a quorum shall be present or
represented. Notice of the adjourned meeting need not be given if the time and
place of the adjourned meeting are announced at the meeting at which the
adjournment is taken. At any adjourned meeting at which a quorum is present in
person or represented by proxy of any class of stock entitled to vote separately
as a class, as the case may be, any business may be transacted which might have
been transacted at the meeting as originally called. If the adjournment is for
more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at such meeting.
Section 2.09. Voting.
(a) At any meeting of stockholders, every stockholder having the right
to vote shall be entitled to vote in person or by proxy, but no such proxy shall
be voted or acted upon after three (3) years from its date, unless the proxy
provides for a longer period. Except as otherwise provided by law or the
Certificate of Incorporation, each stockholder of record shall be entitled to
one (1) vote for each share of capital stock registered in his or her name on
the books of the Corporation.
(b) At a meeting at which a quorum is present, all elections of
Directors shall be determined by a plurality vote, and, except as otherwise
provided by law or the Certificate of Incorporation, all other matters shall be
determined by a vote of a majority of the shares present in person or
represented by proxy and entitled to vote on such other matters.
Section 2.10. Inspectors. When required by law or directed by the presiding
officer or upon the demand of any stockholder entitled to vote, but not
otherwise, the polls shall be opened and closed, the proxies and ballots shall
be received and taken in charge, and all questions touching the qualification of
voters, the validity of proxies and the acceptance or rejection of votes shall
be decided at any meeting of the stockholders by two or more inspectors who may
be appointed by the Board of Directors before the meeting, or if not so
appointed, shall be appointed by the presiding officer at the meeting. If any
person so appointed fails to appear or act, the vacancy may be filled by
appointment in like manner.
3
<PAGE>
Section 2.11. Consent. Unless otherwise provided in the Certificate of
Incorporation, any action required or permitted by law or the Certificate of
Incorporation to be taken at any meeting of the stockholders may be taken
without a meeting, without prior notice and without a vote, if a written
consent, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote on such action were present or represented by proxy and voted.
Such written consent shall be filed with the minutes of meetings of
stockholders. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not so consented in writing.
ARTICLE III
DIRECTORS
Section 3.01. Number and Tenure. There shall be such number of Directors,
no fewer than one (1), as shall from time to time be fixed by the Board of
Directors at the annual meeting or at any special meeting called for such
purpose. The Directors shall be elected at the annual meeting of the
stockholders, except for initial Directors named in the Certificate of
Incorporation or elected by the incorporator, and except as provided in Section
3.03 of this Article, and each Director elected shall hold office until his
successor is elected and shall qualify or until their earlier resignation or
removal. Directors need not be stockholders.
Section 3.02. Nomination of Directors.
Only persons who are nominated in accordance with the provisions set
forth in these bylaws shall be eligible to be elected as Directors at the annual
or a special meeting of stockholders. Nomination for election to the Board of
Directors shall be made or approved by the Board of Directors.
In addition, nomination for election of any person to the Board of
Directors may be made by a stockholder if written notice of the nomination of
such person shall have been delivered to the Chairman of the Board of Directors
not less than 14 days nor more than 60 days prior to any meeting of the
stockholders called for the election of Directors; provided, however, that if
fewer than 21 days notice of the meeting is given to stockholders, such written
notice shall be received not later than the close of the tenth day following the
day on which notice of the meeting was mailed to stockholders. Notwithstanding
the forgoing, if a stockholder wishes the Board of Directors, or a duly
authorized committee of the Board of Directors, to consider nominating for
election to the Board of Directors a person recommended by such stockholder,
such stockholder must deliver a notice setting forth such recommendation to, or
mail it so that it is received by, the Chairman of the Board of Directors not
less than 90 days nor more than 150 days prior to the meeting. Any notice
provided pursuant to this Section shall set forth: (i) the name and address of
the stockholder who wishes to make the nomination or recommendation; (ii)
4
<PAGE>
the total number of shares of capital stock of the Corporation owned by the
notifying stockholder; (iii) the name, address and principal occupation of each
proposed nominee; (iv) the total number of shares of capital stock of the
Corporation that will be voted for each proposed nominee by the notifying
stockholder; (v) such other information regarding each nominee proposed by such
stockholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission; and (vi)
the written consent of each nominee to serve as a director of the corporation if
so elected. Nothing in this Section 3.02 shall require the Board of Directors to
nominate or approve, as one of its nominees, any person recommended to be so
nominated by a shareholder or to give the shareholders notice of any proposed
nomination by a stockholder. The chairman of the meeting may refuse to
acknowledge the nomination of any person not made in compliance with the
foregoing procedure.
Section 3.03. Vacancies. If any vacancies occur on the Board of Directors,
or if any new Directorships are created, they shall be filled by a majority of
the Directors then in office, though less than a quorum, or by a sole remaining
Director. Each Director so chosen shall hold office until the next annual
election of Directors and until his or her successor is duly elected and shall
qualify. If there are no Directors in office, any officer or stockholder may
call a special meeting of stockholders in accordance with the provisions of the
Certificate of Incorporation or these Bylaws, at which meeting such vacancies
shall be filled.
Section 3.04. Resignation. Any Director may resign at any time by giving
written notice to the Chairman of the Board, the President or the Secretary of
the Corporation, or, in the absence of all of the foregoing, by notice to any
other Director or officer of the Corporation. Unless otherwise specified in such
written notice, a resignation shall take effect upon delivery to the designated
Director or officer. It shall not be necessary for a resignation to be accepted
before it becomes effective.
Section 3.05. Place of Meetings. The Board of Directors may hold meetings,
both regular and special, either within or outside the State of Delaware.
Section 3.06. Annual Meeting. Unless otherwise agreed by the newly elected
Directors, the annual meeting of each newly elected Board of Directors shall be
held immediately following the annual meeting of stockholders, and no notice of
such meeting to either incumbent or newly elected Directors shall be necessary.
Section 3.07. Regular Meetings. Regular meetings of the Board of Directors
may be held without notice, at such time and place as may from time to time be
determined by the Board of Directors. A copy of every resolution fixing or
changing the time or place of regular meetings shall be mailed to every Director
at least five days before the first meeting held pursuant thereto.
Section 3.08. Special Meetings. Special Meetings of the Board of Directors
may be called by the Chairman of the Board or the President on at least (1)
day's actual notice to each Director, if such Special Meeting is to be conducted
by means of conference telephone or similar
5
<PAGE>
communications equipment in accordance with Section 3.12, and otherwise, upon
two (2) days' actual notice if such notice is delivered personally or sent by
telegram. Special Meetings shall be called by the Chairman of the Board or the
President in like manner and on like notice on the written request of one-half
or more of the Directors then in office. The purpose of a Special Meeting of the
Board of Directors need not be stated in the notice of such meeting. Any and all
business other than an amendment of these Bylaws may be transacted at any
special meeting, and an amendment of these Bylaws may be acted upon if the
notice of the meeting shall have stated that the amendment of these Bylaws is
one of the purposes of the meeting. At any meeting at which every Director shall
be present, even though without any notice, any business may be transacted,
including the amendment of these Bylaws.
Section 3.09. Quorum and Adjournments. Unless otherwise provided by the
Certificate of Incorporation, at all meetings of the Board of Directors,
one-half of the total number of Directors shall constitute a quorum for the
transaction of business; provided, however, that when the Board of Directors
consists of one (1) Director, then one (1) Director shall constitute a quorum.
If a quorum is not present at any meeting of the Board of Directors, the
Directors present may adjourn the meeting, from time to time, without notice
other than announcement at the meeting, until a quorum shall be present.
Section 3.10. Presiding Officer. Meetings of the Board of Directors shall
be presided over by the Chairman of the Board of Directors, if any, or if the
Chairman is not present (or if there is none), by the President, or, if the
President is not present, by such person as the Board of Directors may appoint
for the purpose of presiding at the meeting from which the President is absent.
Section 3.11. Action by Consent. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee. Such consent shall have the same force and effect as the unanimous
vote of the Board of Directors.
Section 3.12. Telephone Meetings. Members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
Section 3.13. Compensation. The Board of Directors, by the affirmative vote
of a majority of the Directors then in office and irrespective of the personal
interest of any Director, shall have authority to establish reasonable
compensation for Directors for their services as such and may, in addition,
authorize reimbursement of any reasonable expenses incurred by Directors
6
<PAGE>
in connection with their duties.
ARTICLE IV
COMMITTEES
Section 4.01. Committees of Directors. The Board of Directors may, by
resolution passed by a majority of the whole Board of Directors, designate one
(1) or more committees, each committee to consist of one (1) or more Directors
of the Corporation. The Board of Directors may designate one (1) or more persons
who are not Directors as additional members of any committee, but such persons
shall be nonvoting members of such committee. The Board of Directors may
designate one (1) or more Directors as alternate members of any committee, who
may replace any absent or disqualified member at any meeting of the committee.
In the absence or disqualification of a member of a committee, the member or
members of the committee present at any meeting and not disqualified from
voting, whether or not such member or members constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the Corporation, and
may authorize the seal of the Corporation to be affixed to all papers that may
require it; but no such committee shall have power or authority to amend the
Certificate of Incorporation, adopt an agreement of merger or consolidation,
recommend to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommend to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
elect or remove officers or Directors, or amend these Bylaws of the Corporation;
and, unless the resolution or the Certificate of Incorporation expressly so
provides, no such committee shall have the power or authority to declare a
dividend or to authorize the issuance of stock. Such committee or committees
shall have such name or names as may be determined from time to time by
resolution adopted by the Board of Directors.
Section 4.02. Minutes of Committee Meetings. Unless otherwise provided in
the resolution of the Board of Directors establishing such committee, each
committee shall keep minutes of action taken by it and file the same with the
Secretary of the Corporation.
Section 4.03. Quorum. A majority of the number of Directors constituting
any committee shall constitute a quorum for the transaction of business, and the
affirmative vote of such Directors present at the meeting shall be required for
any action of the committee; provided, however, that when a committee of one (1)
member is authorized under the provisions of Section 4.01 of this Article, such
one (1) member shall constitute a quorum.
Section 4.04. Vacancies, Changes and Discharge. The Board of Directors
shall have the power at any time to fill vacancies in, to change the membership
of and to discharge any committee.
7
<PAGE>
Section 4.05. Compensation. The Board of Directors, by the affirmative vote
of a majority of the Directors then in office and irrespective of the personal
interest of any Director, shall have authority to establish reasonable
compensation for committee members for their services as such and may, in
addition, authorize reimbursement of any reasonable expenses incurred by
committee members in connection with their duties.
8
<PAGE>
ARTICLE V
NOTICES
Section 5.01. Form and Delivery.
(a) Whenever, under the provisions of law, the Certificate of
Incorporation or these Bylaws, notice is required to be given to any
stockholder, it shall not be construed to mean personal notice unless otherwise
specifically provided, but such notice may be given in writing, by mail,
telecopy, telegram or messenger addressed to such stockholder, at his or her
address as it appears on the records of the Corporation. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail, with
postage prepaid.
(b) Whenever, under the provisions of law, the Certificate of
Incorporation, or these Bylaws, notice is required to be given to any Director,
it shall not be construed to mean personal notice unless otherwise specifically
provided, but such notice may be given in writing, by mail, telecopy, telegram
or messenger addressed to such Director at the usual place of residence or
business of such Director as in the discretion of the person giving such notice
will be likely to be received most expeditiously by such Director. If mailed,
such notice shall be deemed to be delivered when deposited in the United States
mail, with postage prepaid.
Section 5.02. Waiver. Whenever any notice is required to be given under the
provisions of law, the Certificate of Incorporation or these Bylaws, a written
waiver of notice, signed by the person or persons entitled to said notice,
whether before or after the time for the meeting stated in such notice, shall be
deemed equivalent to such notice.
ARTICLE VI
OFFICERS
Section 6.01. Designations. The officers of the Corporation shall be chosen
by the Board of Directors and shall be a President and a Secretary. The Board of
Directors may also choose a Chairman of the Board, one (1) or more Vice
Presidents, a Treasurer, one (1) or more Assistant Secretaries and one (1) or
more Assistant Treasurers and other officers and agents as it shall deem
necessary or appropriate. Any officer of the Corporation shall have the
authority to affix the seal of the Corporation and to attest the affixing of the
seal by his or her signature. All officers and agents of the Corporation shall
exercise such powers and perform such duties as shall from time to time be
determined by the Board of Directors.
Section 6.02. Term of Office and Removal. The Board of Directors at its
annual meeting after each annual meeting of stockholders or at a special meeting
called for that purpose shall choose officers and agents, if any, in accordance
with the provisions of Section 6.01. Each officer of the Corporation shall hold
office until his or her successor is elected and shall qualify. Any officer or
agent elected or appointed by the Board of Directors may be removed, with or
without
9
<PAGE>
cause, at any time by the affirmative vote of a majority of the Directors then
in office. Any vacancy occurring in any office of the Corporation may be filled
for the unexpired portion of the term by the Board of Directors.
Section 6.03. Compensation. The salaries of all officers and agents, if
any, of the Corporation shall be fixed from time to time by the Board of
Directors, and no officer or agent shall be prevented from receiving such salary
by reason of the fact that he or she is also a Director of the Corporation.
Section 6.04. Chairman of the Board and the President. The Chairman of the
Board shall be the chief executive officer of the Corporation. If there is no
Chairman of the Board, the President shall be the chief executive officer of the
Corporation. The duties of the Chairman of the Board, and of the President at
the direction of the Chairman of the Board, shall be the following:
(i) Subject to the direction of the Board of Directors, to have
general charge of the business, affairs and property of the Corporation and
general supervision over its other officers and agents and, in general, to
perform all duties incident to the office of Chairman of the Board (or
President, as the case may be) and to see that all orders and resolutions
of the Board of Directors are carried into effect.
(ii) Unless otherwise prescribed by the Board of Directors, to have
full power and authority on behalf of the Corporation to attend, act and
vote at any meeting of security holders of other Corporations in which the
Corporation may hold securities. At such meeting the Chairman of the Board
(or the President, as the case may be) shall possess and may exercise any
and all rights and powers incident to the ownership of such securities that
the Corporation might have possessed and exercised if it had been present.
The Board of Directors may from time to time confer like powers upon any
other person or persons.
(iii) To preside over meetings of the stockholders and of the Board of
Directors, to call special meetings of stockholders, to be an ex-officio
member of all committees of the Board of Directors, and to have such other
duties as may from time to time be prescribed by the Board of Directors.
Section 6.05. The Vice President. The Vice President, if any (or in the
event there be more than one (1), the Vice Presidents in the order designated,
or in the absence of any designation, in the order of their election), shall, in
the absence of the President or in the event of his or her inability or refusal
to act, perform the duties and exercise the powers of the President and shall
generally assist the President and perform such other duties and have such other
powers as may from time to time be prescribed by the Board of Directors.
Section 6.06. The Secretary. The Secretary shall attend all meetings of the
Board of
10
<PAGE>
Directors and all meetings of stockholders and record all votes and the
proceedings of the meetings in a book to be kept for that purpose and shall
perform like duties for any committees of the Board of Directors, if requested
by such committee. The Secretary shall give, or cause to be given, notice of all
meetings of stockholders and special meetings of the Board of Directors, and
shall perform such other duties as may from time to time be prescribed by the
Board of Directors or the President, under whose supervision he or she shall
act. The Secretary shall have custody of the seal of the Corporation, and the
Secretary, or any Assistant Secretary, shall have authority to affix the same to
any instrument requiring it, and, when so affixed, the seal may be attested by
the signature of the Secretary or any such Assistant Secretary.
Section 6.07. The Assistant Secretary. The Assistant Secretary, if any (or
in the event there be more than one (1), the Assistant Secretaries in the order
designated, or in the absence of any designation, in the order of their
election), shall, in the absence of the Secretary or in the event of the
Secretary's inability or refusal to act, perform the duties and exercise the
powers of the Secretary and shall perform such other duties and have such other
powers as may from time to time be prescribed by the Board of Directors.
Section 6.08. The Treasurer. The Treasurer, if any, shall have the custody
of the corporate funds and other valuable effects, including securities, and
shall keep full and accurate accounts of receipts and disbursements in books
belonging to the Corporation and shall deposit all moneys and other valuable
effects in the name and to the credit of the Corporation in such depositories as
may from time to time be designated by the Board of Directors. The Treasurer
shall disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the President and the Board of Directors, at regular meetings of the board, or
whenever they may require it, an account of all of his or her transactions as
Treasurer and of the financial condition of the Corporation.
Section 6.09. The Assistant Treasurer. The Assistant Treasurer, if any, (or
in the event there be more than one (1), the Assistant Treasurers in the order
designated, or in the absence of any designation, in the order of their
election), shall, in the absence of the Treasurer or in the event of the
Treasurer's inability or refusal to act, perform the duties and exercise the
powers of the Treasurer and shall perform such other duties and have such other
powers as may from time to time be prescribed by the Board of Directors.
Section 6.10. Transfer of Authority. In case of the absence of any officer
or for any other reason that the Board of Directors deems sufficient, the Board
of Directors may transfer the powers or duties of that officer to any other
officer or to any Director or employee of the Corporation, provided a majority
of the full Board of Directors concurs.
Section 6.11. Giving of Bond by Officers. All officers of the Corporation,
if required to do so by the Board of Directors, shall furnish bonds to the
Corporation for the faithful performance of their duties, in such penalties and
with such conditions and security as the Board shall require.
11
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ARTICLE VII
STOCK CERTIFICATES
Section 7.01. Form and Signatures. Every holder of stock in the Corporation
shall be entitled to have a certificate, signed by or in the name of the
Corporation, by the Chairman of the Board, the President or a Vice President and
the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary
of the Corporation, certifying the number and class (and series, if any) of
shares owned by him or her, and bearing the seal of the Corporation. Such seal
and any or all of the signatures on the certificate may be a facsimile. In case
any officer, transfer agent or registrar who has signed, or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the Corporation with the same effect as if he or she were such
officer, transfer agent or registrar at the date of issue.
Section 7.02. Registration of Transfer. Upon surrender to the Corporation
or any transfer agent of the Corporation of a certificate for shares duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, it shall be the duty of the Corporation or its transfer
agent to issue a new certificate to the person entitled thereto, to cancel the
old certificate and to record the transaction upon its books.
Section 7.03. Registered Stockholders. Except as otherwise provided by law,
the Corporation shall be entitled to recognize the exclusive right of a person
who is registered on its books as the owner of shares of its capital stock to
receive dividends or other distributions, to vote as such owner, and to hold
liable for calls and assessments a person who is registered on its books as the
owner of shares of its capital stock. The Corporation shall not be bound to
recognize any equitable, legal or other claim to or interest in such share or
shares on the part of any other person whether or not it shall have express or
other notice thereof, except as otherwise provided by law.
Section 7.04. Issuance of Certificates. No certificate shall be issued for
any share until (i) consideration for such share in the form of cash, services
rendered, personal or real property, leases of real property or a combination
thereof in an amount not less than the par value or stated capital of such share
has been received by the Corporation and (ii) the Corporation has received a
binding obligation of the subscriber or purchaser to pay the balance of the
subscription or purchase price.
12
<PAGE>
Section 7.05. Lost, Stolen or Destroyed Certificates. The Board of
Directors may direct a new certificate to be issued in place of any certificate
previously issued by the Corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate, the Board of Directors may, in its discretion and as
a condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed certificate, or his or her legal representative, to
advertise the same in such manner as it shall require, and to give the
Corporation a bond in such sum, or other security in such form as it may direct,
as indemnity against any claim that may be made against the Corporation on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate.
Section 7.06. Dividends. Subject to the provisions of the Certificate of
Incorporation, the Board of Directors shall have power to declare and pay
dividends upon shares of stock of the Corporation, but only out of funds
available for the payment of dividends as provided by law.
ARTICLE VIII
INDEMNIFICATION
Section 8.01. Directors, Officers, Employees or Agents.
(a) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he or she is or was a Director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a Director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or her in connection with such action, suit or proceeding if he
or she acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interests of the Corporation and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner that he or she reasonably believed to be in or
not opposed to the best interests of the Corporation and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his or her
conduct was unlawful.
(b) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that he or she is or was a Director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a Director, officer, employee or agent of another corporation,
13
<PAGE>
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him or her in
connection with the defense or settlement of such action or suit if he or she
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of the Corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
(c) To the extent that a Director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
Article VIII, or in defense of any claim, issue or matter therein, he or she
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him or her in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this Article
VIII (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
Director, officer, employee or agent is proper in the circumstances because he
or she has met the applicable standard of conduct set forth in subsections (a)
and (b) of this Article VIII. Such determination shall be made (1) by the Board
of Directors by a majority vote of a quorum consisting of Directors who were not
parties to such action, suit or proceeding, or (2) if such a quorum is not
obtainable, or, even if obtainable a quorum of disinterested Directors so
directs, by independent legal counsel in a written opinion or (3) by the
stockholders.
(e) Expenses incurred by an officer or Director in defending a civil
or criminal action, suit or proceeding may be paid by the Corporation in advance
of the final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such Director or officer to repay such amount if
it shall ultimately be determined that he or she is not entitled to be
indemnified by the Corporation as authorized in this Article. Such expenses
incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the Board of Directors deems appropriate.
(f) The indemnification and advancement of expenses provided by these
Bylaws shall not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any agreement,
vote of stockholders or disinterested Directors or otherwise, both as to action
in his or her official capacity and as to action in another capacity while
holding such office.
(g) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article shall, unless otherwise provided when
authorized or ratified, continue as
14
<PAGE>
to a person who has ceased to be a Director, officer, employee or agent and
shall inure to the benefit of the heirs, executors and administrators of such
person.
(h) The Corporation may purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him or
her and incurred by him or her in any such capacity, or arising out of his or
her status as such, whether or not the Corporation would have the power to
indemnify him or her against such liability under this Article.
ARTICLE IX
GENERAL PROVISIONS
Section 9.01. Fiscal Year. The fiscal year of the Corporation shall be as
determined from time to time by the Board of Directors.
Section 9.02. Seal. The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its incorporation and the words "Corporate
Seal" and "Delaware." The seal or any facsimile thereof may be, but need not be,
unless required by law, impressed or affixed to any instrument executed by an
officer of the Corporation.
Section 9.03. Checks, Notes, Etc. All checks, drafts, bills of exchange,
acceptances, notes or other obligations or orders for the payment of money shall
be signed and, if so required by the Board of Directors, countersigned by such
officers of the corporation and/or other persons as the Board of Directors from
time to time shall designate.
Checks, drafts, bills of exchange, acceptance notes, obligations and orders
for the payment of money made payable to the Corporation may be endorsed for
deposit to the credit of the Corporation with a duly authorized depository by
the Treasurer and/or such other officers or persons as the Board of Directors
from time to time may designate.
Section 9.04. Loans. No loans and no renewals of any loans shall be
contracted on behalf of the Corporation except as authorized by the Board of
Directors. When authorized to do so, any officer or agent of the Corporation may
effect loans and advances for the Corporation from any bank, trust company or
other institution or from any firm, corporation or individual, and for such
other evidences of indebtedness of the Corporation. When authorized so to do,
any officer or agent of the Corporation may pledge, hypothecate or transfer, as
security for the payment of any and all loans, advances, indebtedness and
liabilities of the Corporation, and any and all stocks, securities and other
personal property at any time held by the Corporation, and to that end may
endorse, assign and deliver the same. Such authority may be general or confined
to specific instances.
15
<PAGE>
Section 9.05. Contracts. Except as otherwise provided in these Bylaws or as
otherwise directed by the Board of Directors, the President or any Vice
President shall be authorized to execute and deliver, in the name and on behalf
of the Corporation, all agreements, bonds, contracts, deeds, mortgages and other
instruments, either for the Corporation's own account or in a fiduciary or other
capacity, and the seal of the Corporation, if appropriate, shall be affixed
thereto by any of such officers or the Secretary or an Assistant Secretary. The
Board of Directors, the President or any Vice President designated by the Board
of Directors may authorize any other officer, employee or agent to execute and
deliver, in the name and on behalf of the Corporation, agreements, bonds,
contracts, deeds, mortgages and other instruments, either for the Corporation's
own account or in a fiduciary or other capacity and, if appropriate, to affix
the seal of the Corporation thereto. The grant of such authority by the Board or
any such officer may be general or confined to specific instances.
ARTICLE X
AMENDMENTS
Section 10.01. These Bylaws may be altered, amended or repealed or new
Bylaws may be adopted by the stockholders or by the Board of Directors, to the
extent that such power is conferred upon the Board of Directors by the
Certificate of Incorporation, at any regular meeting of the stockholders or of
the Board of Directors or at any special meeting of the stockholders or of the
Board of Directors if notice of such proposed alteration, amendment, repeal or
adoption of new Bylaws be contained in the notice of such special meeting.
16
June 11, 1998
ResortQuest International, Inc.
1355-B Lynnfield Road
Suite 245
Memphis, TN 38119
Subject: Shelf Registration Statement on Form S-1
Ladies and Gentlemen:
We have acted as counsel to ResortQuest International, Inc., a Delaware
corporation (the "Company"), in connection with the filing of a Shelf
Registration Statement on Form S-1, including the exhibits thereto (the
"Registration Statement"), under the Securities Act of 1933, as amended (the
"Act"), for the registration by the Company of 3,000,000 shares (the "Shares")
of Common Stock, par value $.01 per share, which may be issued (i) to the
Selling Stockholders (as such term is defined in the Registration Statement) and
(ii) from time to time in connection with the acquisition by the Company of
other businesses, and which may be reserved for issuance pursuant to, or offered
and issued upon exercise or conversion of, warrants, options, convertible notes
or other similar instruments ("Other Securities") issued by the Company from
time to time in connection with any such acquisition.
In connection with this opinion, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of the Registration
Statement and such other documents and records as we have deemed necessary. We
have assumed that (i) the Registration Statement, and any amendments thereto,
will have become effective; and (ii) all Shares will be issued in compliance
with applicable federal and state securities laws.
<PAGE>
ResortQuest International, Inc.
June 11, 1998
Page 2
With respect to the issuance of any Shares, we have assumed that the
issuance of such Shares will have been duly authorized and, if applicable, such
Shares will have been reserved for issuance upon the exercise or conversion of
Other Securities; and we have further assumed that the Shares will have been
issued, and the certificates evidencing the same will have been duly executed
and delivered, against receipt of the consideration approved by the Company
which will be no less than the par value thereof.
Based upon the foregoing, we are of the opinion that, upon issuance,
all of the Shares will be duly authorized and validly issued, fully paid and
non-assessable.
The foregoing opinion is limited to the laws of the State of Delaware.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the caption "Experts."
In giving this consent, we do not admit that we are acting within the category
of persons whose consent is required under Section 7 of the Act.
Sincerely,
AKIN, GUMP, STRAUSS, HAUER &
FELD, L.L.P.
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of May 26, 1998, (as amended, modified,
restated or supplemented from time to time, the "Credit Agreement"), is by and
among RESORTQUEST INTERNATIONAL, INC., a Delaware corporation (the "Borrower"),
the Guarantors (as defined herein), the Lenders (as defined herein) and
NATIONSBANK, N. A., as Agent for the Lenders (in such capacity, the "Agent").
W I T N E S S E T H
WHEREAS, the Borrower has requested that the Lenders provide a $30,000,000
credit facility for the purposes hereinafter set forth; and
WHEREAS, the Lenders have agreed to make the requested credit facility
available to the Borrower on the terms and conditions hereinafter set forth;
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
SECTION 1
DEFINITIONS
1.1 DEFINITIONS.
As used in this Credit Agreement, the following terms shall have the
meanings specified below unless the context otherwise requires:
"Acquisition" means the acquisition by any Person of all of the
Capital Stock or all or substantially all of the Property of another
Person, whether or not involving a merger or consolidation with such
Person.
"Additional Credit Party" means each Person that becomes a Guarantor
after the Closing Date by execution of a Joinder Agreement.
"Adjusted Base Rate" means the Base Rate plus the Applicable
Percentage.
"Adjusted Eurodollar Rate" means the Eurodollar Rate plus the
Applicable Percentage.
"Affiliate" means, with respect to any Person, any other Person (i)
directly or indirectly controlling or controlled by or under direct or
indirect common control with such Person or (ii) directly or indirectly
owning or holding five percent (5%) or more of the equity interest in such
Person. For purposes of this definition, "control" when used with respect
to any Person means the power to direct the management and policies of
1
<PAGE>
such Person, directly or indirectly, whether through the ownership of
voting securities, by contract or otherwise; and the terms "controlling"
and "controlled" have meanings correlative to the foregoing.
"Agency Services Address" means NationsBank, N.A., NC1-001-15-04, 101
North Tryon Street, Charlotte, North Carolina 28255 or such other address
as may be identified by written notice from the Agent to the Borrower.
"Agent" shall have the meaning assigned to such term in the heading
hereof, together with any successors or assigns.
"Agent's Fee Letter" means that certain letter agreement, dated as of
May 26, 1998, between the Agent and the Borrower, as amended, modified,
restated or supplemented from time to time.
"Agent's Fees" shall have the meaning assigned to such term in Section
3.5(c).
"Applicable Lending Office" means, for each Lender, the office of such
Lender (or of an Affiliate of such Lender) as such Lender may from time to
time specify to the Agent and the Borrower by written notice as the office
by which its Eurodollar Loans are made and maintained.
"Applicable Percentage" means, for purposes of calculating the
applicable interest rate for any day for any Revolving Loan, the applicable
rate of the Unused Fee for any day for purposes of Section 3.5(a) and the
applicable rate of the Letter of Credit Fee for any day, the appropriate
applicable percentage corresponding to the Leverage Ratio in effect as of
the most recent Calculation Date:
<TABLE>
<CAPTION>
=================================================================================================================================
Applicable Applicable
Percentage Percentage Applicable
Applicable For For Percentage
Leverage Percentage For Base Rate Letter of For
PRICING LEVEL Ratio Eurodollar Loans Loans Credit Fees Unused Fees
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
I less than or 1.0 to 1.0 1.25 % 0.0% 1.25% .25%
equal to
- ---------------------------------------------------------------------------------------------------------------------------------
II less than or 1.5 to 1.0 but greater 1.0 to 1.0 1.50% 0.0% 1.50% .25%
equal to than
- ---------------------------------------------------------------------------------------------------------------------------------
III less than or 2.0 to 1.0 but greater 1.5 to 1.0 1.75% 0.0% 1.75% .375%
equal to than
- ---------------------------------------------------------------------------------------------------------------------------------
IV greater than 2.0 to 1.0 2.00% 0.0% 2.00% .50%
=================================================================================================================================
</TABLE>
The Applicable Percentages shall be determined and adjusted quarterly on
the date (each a "Calculation Date") five Business Days after the date by
which the Borrower is required to provide the officer's certificate in
accordance with the provisions of Section 7.1(c) for the most recently
ended fiscal quarter of the Consolidated Parties; provided, however, that
(i) the initial Applicable Percentages shall be based on Pricing Level I
(as shown above) and shall remain at Pricing Level I until the first
Calculation Date occurring
2
<PAGE>
subsequent to June 30, 1998 and, thereafter, the Applicable Percentage
shall be determined by the Leverage Ratio as of the last day of the most
recently ended fiscal quarter of the Consolidated Parties preceding the
applicable Calculation Date, and (ii) if the Borrower fails to provide the
officer's certificate to the Agency Services Address as required by Section
7.1(c) for the last day of the most recently ended fiscal quarter of the
Consolidated Parties preceding the applicable Calculation Date, the
Applicable Percentage from such Calculation Date shall be based on Pricing
Level IV until such time as an appropriate officer's certificate is
provided, whereupon the Applicable Percentage shall be determined by the
Leverage Ratio as of the last day of the most recently ended fiscal quarter
of the Consolidated Parties preceding such Calculation Date. Each
Applicable Percentage shall be effective from one Calculation Date until
the next Calculation Date. Any adjustment in the Applicable Percentages
shall be applicable to all existing Revolving Loans as well as any new
Revolving Loans made or issued.
"Asset Disposition" means the disposition of any or all of the assets
of any Consolidated Party, whether by sale, lease, transfer or otherwise
unless such disposition is permitted by the terms of Section 8.13(i) or
(ii) hereof.
"Bankruptcy Code" means the Bankruptcy Code in Title 11 of the United
States Code, as amended, modified, succeeded or replaced from time to time.
"Bankruptcy Event" means, with respect to any Person, the occurrence
of any of the following with respect to such Person: (i) a court or
governmental agency having jurisdiction in the premises shall enter a
decree or order for relief in respect of such Person in an involuntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or appointing a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or similar official) of such Person or
for any substantial part of its Property or ordering the winding up or
liquidation of its affairs; or (ii) there shall be commenced against such
Person an involuntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, or any case, proceeding or
other action for the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or similar official) of such Person or
for any substantial part of its Property or for the winding up or
liquidation of its affairs, and such involuntary case or other case,
proceeding or other action shall remain undismissed, undischarged or
unbonded for a period of sixty (60) consecutive days; or (iii) such Person
shall commence a voluntary case under any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect, or consent to the entry of
an order for relief in an involuntary case under any such law, or consent
to the appointment or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or similar official) of such
Person or for any substantial part of its Property or make any general
assignment for the benefit of creditors; or (iv) such Person shall be
unable to, or shall admit in writing its inability to, pay its debts
generally as they become due.
"Base Rate" means, for any day, the rate per annum equal to the higher
of (a) the Federal Funds Rate for such day plus one-half of one percent
(.5%) and (b) the Prime Rate for such day. Any change in the Base Rate due
to a change in the Prime Rate or the
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Federal Funds Rate shall be effective on the effective date of such change
in the Prime Rate or Federal Funds Rate.
"Base Rate Loan" means any Loan bearing interest at a rate determined
by reference to the Base Rate.
"Borrower" means the Person identified as such in the heading hereof,
together with any permitted successors and assigns.
"Business Day" means a day other than a Saturday, Sunday or other day
on which commercial banks in Charlotte, North Carolina are authorized or
required by law to close, except that, when used in connection with a
Eurodollar Loan, such day shall also be a day on which dealings between
banks are carried on in U.S. dollar deposits in London, England.
"Calculation Date" has the meaning set forth in the definition of
"Applicable Percentage" set forth in this Section 1.1.
"Capital Lease" means, as applied to any Person, any lease of any
Property (whether real, personal or mixed) by that Person as lessee which,
in accordance with GAAP, is or should be accounted for as a capital lease
on the balance sheet of that Person.
"Capital Stock" means (i) in the case of a corporation, capital stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated)
of capital stock, (iii) in the case of a partnership, partnership interests
(whether general or limited), (iv) in the case of a limited liability
company, membership interests and (v) any other interest or participation
that confers on a Person the right to receive a share of the profits and
losses of, or distributions of assets of, the issuing Person.
"Cash Equivalents" means (a) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the
United States of America is pledged in support thereof) having maturities
of not more than twelve months from the date of acquisition, (b) U.S.
dollar denominated time deposits and certificates of deposit of (i) any
Lender, (ii) any domestic commercial bank of recognized standing having
capital and surplus in excess of $500,000,000 or (iii) any bank whose
short-term commercial paper rating from S&P is at least A-1 or the
equivalent thereof or from Moody's is at least P-1 or the equivalent
thereof (any such bank being an "Approved Bank"), in each case with
maturities of not more than 270 days from the date of acquisition, (c)
commercial paper and variable or fixed rate notes issued by any Approved
Bank (or by the parent company thereof) or any variable rate notes issued
by, or guaranteed by, any domestic corporation rated A-1 (or the equivalent
thereof) or better by S&P or P-1 (or the equivalent thereof) or better by
Moody's and maturing within six months of the date of acquisition, (d)
repurchase agreements with a bank or trust company (including any of the
Lenders) or
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recognized securities dealer having capital and surplus in excess of
$500,000,000 for direct obligations issued by or fully guaranteed by the
United States of America in which any Credit Party shall have a perfected
first priority security interest (subject to no other Liens) and having, on
the date of purchase thereof, a fair market value of at least 100% of the
amount of the repurchase obligations and (e) Investments, classified in
accordance with GAAP as current assets, in money market investment programs
registered under the Investment Company Act of 1940, as amended, which are
administered by reputable financial institutions having capital of at least
$500,000,000 and the portfolios of which are limited to Investments of the
character described in the foregoing subdivisions (a) through (d).
"Change of Control" means the occurrence of any of the following
events: (i) any Person or two or more Persons acting in concert shall have
acquired "beneficial ownership," directly or indirectly, of, or shall have
acquired by contract or otherwise, or shall have entered into a contract or
arrangement that, upon consummation, will result in its or their
acquisition of, control over, Voting Stock of the Borrower (or other
securities convertible into such Voting Stock) sufficient to elect a
majority of the Borrower's Board of Directors or (ii) during any period of
up to 24 consecutive months, commencing after the Closing Date, individuals
who at the beginning of such 24 month period were directors of the Borrower
(together with any new director whose election by the Borrower's Board of
Directors or whose nomination for election by the Borrower's shareholders
was approved by a vote of at least two-thirds of the directors then still
in office who either were directors at the beginning of such period or
whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the directors of the Borrower
then in office and David Sullivan, Elan Blutinger, Fraser Bullock and
Leonard Potter cease to be directors of the Borrower. As used herein,
"beneficial ownership" shall have the meaning provided in Rule 13d-3 of the
Securities and Exchange Commission under the Securities Act of 1934.
"Closing Date" means the date hereof.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor statute thereto, as interpreted by the rules and regulations
issued thereunder, in each case as in effect from time to time. References
to sections of the Code shall be construed also to refer to any successor
sections.
"Collateral" means a collective reference to the collateral which is
identified in, and at any time will be covered by, the Collateral
Documents.
"Collateral Documents" means a collective reference to the Security
Agreement, the Pledge Agreement, any collateral documents executed pursuant
to Section 7.12 and such other documents executed and delivered in
connection with the attachment and perfection of the Agent's security
interests in the assets of the Credit Parties, including without
limitation, UCC financing statements and patent and trademark filings.
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"Commitment" means (i) with respect to each Lender, the Revolving
Commitment of such Lender, (ii) with respect to the Issuing Lender, the LOC
Commitment, and (iii) with respect to the Swingline Lender, the Swingline
Commitment.
"Consolidated Capital Expenditures" means, for any period, all capital
expenditures of the Consolidated Parties on a consolidated basis for such
period, as determined in accordance with GAAP.
"Consolidated EBITDA" means, for any period, the sum of (i)
Consolidated Net Income for such period, plus (ii) an amount which, in the
determination of Consolidated Net Income for such period, has been deducted
for (A) Consolidated Interest Expense for such period, (B) total federal,
state, local and foreign income, value added and similar taxes for such
period and (C) depreciation and amortization expense for such period, all
as determined in accordance with GAAP; provided, however, at the option of
the Borrower, Consolidated EBITDA would also account, on a pro forma basis,
for all acquisitions as if they had been made 12 months prior to the
applicable calculation date.
"Consolidated Interest Expense" means, for any period, interest
expense (including the interest component under Capital Leases and the
implied interest component under Synthetic Leases) of the Consolidated
Parties on a consolidated basis for such period, as determined in
accordance with GAAP.
"Consolidated Net Income" means, for any period, net income (excluding
extraordinary items) after taxes for such period of the Consolidated
Parties on a consolidated basis, as determined in accordance with GAAP.
"Consolidated Net Worth" means, as of any date, shareholders' equity
or net worth of the Consolidated Parties on a consolidated basis, as
determined in accordance with GAAP.
"Consolidated Parties" means a collective reference to the Borrower
and its Subsidiaries, and "Consolidated Party" means any one of them.
"Consolidated Rent Expense" means, for any period, the total rental
expense for Operating Leases of the Consolidated Parties (whether a lease
of real property, personal property or mixed), as determined in accordance
with GAAP.
"Consolidated Scheduled Funded Debt Payments" means, as of the end of
each fiscal quarter of the Consolidated Parties, for the Consolidated
Parties on a consolidated basis, the sum of all scheduled payments of
principal on Funded Indebtedness for the applicable period ending on such
date (including the principal component of payments due on Capital Leases
during the applicable period ending on such date); it being understood that
Consolidated Scheduled Funded Debt Payments shall not include voluntary
prepayments or the mandatory prepayments required pursuant to Section 3.3.
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"Credit Documents" means a collective reference to this Credit
Agreement, the Revolving Notes, the LOC Documents, each Joinder Agreement,
the Agent's Fee Letter, the Collateral Documents and all other related
agreements and documents issued or delivered hereunder or thereunder or
pursuant hereto or thereto (in each case as the same may be amended,
modified, restated, supplemented, extended, renewed or replaced from time
to time), and "Credit Document" means any one of them.
"Credit Parties" means a collective reference to the Borrower and the
Guarantors, and "Credit Party" means any one of them.
"Credit Party Obligations" means, without duplication, (i) all of the
obligations of the Credit Parties to the Lenders (including the Issuing
Lender and Swingline Lender) and the Agent, whenever arising, under this
Credit Agreement, the Revolving Notes, the Collateral Documents or any of
the other Credit Documents (including, but not limited to, any interest
accruing after the occurrence of a Bankruptcy Event with respect to any
Credit Party, regardless of whether such interest is an allowed claim under
the Bankruptcy Code) and (ii) all liabilities and obligations, whenever
arising, owing from the Borrower to any Lender, or any Affiliate of a
Lender, arising under any Hedging Agreement.
"Debt Issuance" means the issuance of any Indebtedness for borrowed
money by any Consolidated Party.
"Default" means any event, act or condition which with notice or lapse
of time, or both, would constitute an Event of Default.
"Defaulting Lender" means, at any time, any Lender that (a) has failed
to make a Loan or purchase a Participation Interest required pursuant to
the term of this Credit Agreement within one Business Day of when due, (b)
other than as set forth in (a) above, has failed to pay to the Agent or any
Lender an amount owed by such Lender pursuant to the terms of this Credit
Agreement within one Business Day of when due, unless such amount is
subject to a good faith dispute or (c) has been deemed insolvent or has
become subject to a bankruptcy or insolvency proceeding or with respect to
which (or with respect to any of assets of which) a receiver, trustee or
similar official has been appointed.
"Dollars" and "$" means dollars in lawful currency of the United
States of America.
"Domestic Subsidiary" means, with respect to any Person, any
Subsidiary of such Person which is incorporated or organized under the laws
of any State of the United States or the District of Columbia.
"Eligible Assignee" means (i) a Lender; (ii) an Affiliate of a Lender;
and (iii) any other Person approved by the Agent and, unless an Event of
Default has occurred and is continuing at the time any assignment is
effected in accordance with Section 11.3, the Borrower (such approval not
to be unreasonably withheld or delayed by the Borrower and
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such approval to be deemed given by the Borrower if no objection is
received by the assigning Lender and the Agent from the Borrower within two
Business Days after notice of such proposed assignment has been provided by
the assigning Lender to the Borrower); provided, however, that neither the
Borrower nor an Affiliate of the Borrower shall qualify as an Eligible
Assignee. If a Lender, prior to the occurrence of an Event of Default
hereunder, proposes to assign its right, interest and obligations hereunder
to a Person that is at the time of such assignment either (i) a competitor
of the Borrower, or (ii) an Affiliate of a competitor of the Borrower or a
Person who is not engaged in the business of making commercial loans in the
ordinary course of its business, then it shall be within the Borrower's
sole discretion whether such Person is an Eligible Assignee.
"Environmental Laws" means any and all lawful and applicable Federal,
state, local and foreign statutes, laws, regulations, ordinances, rules,
judgments, orders, decrees, permits, concessions, grants, franchises,
licenses, agreements or other governmental restrictions relating to the
environment or to emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes into the environment including, without limitation,
ambient air, surface water, ground water, or land, or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of pollutants, contaminants, chemicals, or
industrial, toxic or hazardous substances or wastes.
"Equity Issuance" means any issuance by any Consolidated Party to any
Person which is not a Credit Party of (a) shares of its Capital Stock, (b)
any shares of its Capital Stock pursuant to the exercise of options or
warrants or (c) any shares of its Capital Stock pursuant to the conversion
of any debt securities to equity.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute thereto, as interpreted by the rules and
regulations thereunder, all as the same may be in effect from time to time.
References to sections of ERISA shall be construed also to refer to any
successor sections.
"ERISA Affiliate" means an entity which is under common control with
any Credit Party within the meaning of Section 4001(a)(14) of ERISA, or is
a member of a group which includes the Borrower and which is treated as a
single employer under Sections 414(b) or (c) of the Code.
"ERISA Event" means (i) with respect to any Plan, the occurrence of a
Reportable Event or the substantial cessation of operations (within the
meaning of Section 4062(e) of ERISA); (ii) the withdrawal by any
Consolidated Party or any ERISA Affiliate from a Multiple Employer Plan
during a plan year in which it was a substantial employer (as such term is
defined in Section 4001(a)(2) of ERISA), or the termination of a Multiple
Employer Plan; (iii) the distribution of a notice of intent to terminate or
the actual termination of a Plan pursuant to Section 4041(a)(2) or 4041A of
ERISA; (iv) the institution of proceedings to terminate or the actual
termination of a Plan by the PBGC under Section 4042 of ERISA; (v) any
event or condition which might constitute grounds under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to
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<PAGE>
administer, any Plan; (vi) the complete or partial withdrawal of any
Consolidated Party or any ERISA Affiliate from a Multiemployer Plan; (vii)
the conditions for imposition of a lien under Section 302(f) of ERISA exist
with respect to any Plan; or (vii) the adoption of an amendment to any Plan
requiring the provision of security to such Plan pursuant to Section 307 of
ERISA.
"Eurodollar Loan" means any Revolving Loan that bears interest at a
rate based upon the Eurodollar Rate.
"Eurodollar Rate" means, for any Eurodollar Loan for any Interest
Period therefor, the rate per annum (rounded upwards, if necessary, to the
nearest 1/100 of 1%) determined by the Agent to be equal to the quotient
obtained by dividing (a) the Interbank Offered Rate for such Eurodollar
Loan for such Interest Period by (b) 1 minus the Eurodollar Reserve
Requirement for such Eurodollar Loan for such Interest Period.
"Eurodollar Reserve Requirement" means, at any time, the maximum rate
at which reserves (including, without limitation, any marginal, special,
supplemental, or emergency reserves) are required to be maintained under
regulations issued from time to time by the Board of Governors of the
Federal Reserve System (or any successor) by member banks of the Federal
Reserve System against "Eurocurrency liabilities" (as such term is used in
Regulation D). Without limiting the effect of the foregoing, the Eurodollar
Reserve Requirement shall reflect any other reserves required to be
maintained by such member banks with respect to (i) any category of
liabilities which includes deposits by reference to which the Adjusted
Eurodollar Rate is to be determined, or (ii) any category of extensions of
credit or other assets which include Eurodollar Loans. The Adjusted
Eurodollar Rate shall be adjusted automatically on and as of the effective
date of any change in the Eurodollar Reserve Requirement.
"Event of Default" means such term as defined in Section 9.1.
"Fees" means all fees payable pursuant to Section 3.5.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members
of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business
Day next succeeding such day; provided that (a) if such day is not a
Business Day, the Federal Funds Rate for such day shall be such rate on
such transactions on the next preceding Business Day as so published on the
next succeeding Business Day, and (b) if no such rate is so published on
such next succeeding Business Day, the Federal Funds Rate for such day
shall be the average rate charged to the Agent (in its individual capacity)
on such day on such transactions as determined by the Agent.
"Fixed Charge Coverage Ratio" means, as of the end of each fiscal
quarter of the Borrower for the twelve month period ending on such date,
the ratio of (a) Consolidated EBITDA for the applicable period plus
Consolidated Rent Expense for applicable period
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to (b) the sum of Consolidated Interest Expense for the applicable period
plus Consolidated Scheduled Funded Debt Payments for the applicable period
plus Consolidated Rent Expense for the applicable period plus dividends
paid for the applicable period plus earnout payments made to the sellers of
any companies acquired by the Borrower during the applicable period.
"Foreign Subsidiary" means, with respect to any Person, any Subsidiary
of such Person which is not a Domestic Subsidiary of such Person.
"Funded Indebtedness" means, with respect to any Person, without
duplication, (a) all obligations of such Person for borrowed money, (b) all
obligations of such Person evidenced by bonds, debentures, notes or similar
instruments, or upon which interest payments are customarily made, (c) all
obligations of such Person under conditional sale or other title retention
agreements relating to Property purchased by such Person (other than
customary reservations or retentions of title under agreements with
suppliers entered into in the ordinary course of business), (d) all
obligations of such Person issued or assumed as the deferred purchase price
of Property or services purchased by such Person (other than trade debt
incurred in the ordinary course of business) which would appear as
liabilities on a balance sheet of such Person, (e) the principal portion of
all obligations of such Person under Capital Leases, (f) the maximum amount
of all standby letters of credit issued or bankers acceptances facilities
created for the account of such Person and, without duplication, all drafts
drawn thereunder (to the extent unreimbursed), (g) all preferred Capital
Stock issued by such Person and required by the terms thereof to be
redeemed, or for which mandatory sinking fund payments are due, by a fixed
date, (h) the principal portion of all obligations of such Person under
Synthetic Leases, (i) all Indebtedness of another Person of the type
referred to in clause (a)-(h) above secured by (or for which the holder of
such Funded Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Lien on, or payable out of the proceeds of production
from, Property owned or acquired by such Person, whether or not the
obligations secured thereby have been assumed, (j) all Guaranty Obligations
of such Person with respect to Indebtedness of the type referred to in
clauses (a)-(h) above of another Person and (k) Indebtedness of the type
referred to in clauses (a)-(h) above of any partnership or unincorporated
joint venture in which such Person is legally obligated or has a reasonable
expectation of being liable with respect thereto.
"GAAP" means generally accepted accounting principles in the United
States applied on a consistent basis and subject to the terms of Section
1.3.
"Governmental Authority" means any Federal, state, local or foreign
court or governmental agency, authority, instrumentality or regulatory
body.
"Guarantors" means each Subsidiary as of the date hereof and any
Material Subsidiary which may hereafter execute a Joinder Agreement,
together with their successors and permitted assigns, and "Guarantor" means
any one of them.
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"Guaranty Obligations" means, with respect to any Person, without
duplication, any obligations of such Person (other than endorsements in the
ordinary course of business of negotiable instruments for deposit or
collection) guaranteeing or intended to guarantee any Indebtedness of any
other Person in any manner, whether direct or indirect, and including
without limitation any obligation, whether or not contingent, (i) to
purchase any such Indebtedness or any Property constituting security
therefor, (ii) to advance or provide funds or other support for the payment
or purchase of any such Indebtedness or to maintain working capital,
solvency or other balance sheet condition of such other Person (including
without limitation keep well agreements, maintenance agreements, comfort
letters or similar agreements or arrangements) for the benefit of any
holder of Indebtedness of such other Person, (iii) to lease or purchase
Property, securities or services primarily for the purpose of assuring the
holder of such Indebtedness, or (iv) to otherwise assure or hold harmless
the holder of such Indebtedness against loss in respect thereof. The amount
of any Guaranty Obligation hereunder shall (subject to any limitations set
forth therein) be deemed to be an amount equal to the outstanding principal
amount (or maximum principal amount, if larger) of the Indebtedness in
respect of which such Guaranty Obligation is made.
"Hedging Agreements" means any interest rate protection agreement or
foreign currency exchange agreement between any Credit Party and any
Lender, or any Affiliate of a Lender.
"Indebtedness" of any Person means (a) all obligations of such Person
for borrowed money, (b) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, or upon which interest payments
are customarily made, (c) all obligations of such Person under conditional
sale or other title retention agreements relating to Property purchased by
such Person (other than customary reservations or retentions of title under
agreements with suppliers entered into in the ordinary course of business),
(d) all obligations of such Person issued or assumed as the deferred
purchase price of Property or services purchased by such Person (other than
trade debt incurred in the ordinary course of business which would appear
as liabilities on a balance sheet of such Person, (e) all obligations of
such Person under take-or-pay or similar arrangements or under commodities
agreements, (f) all Indebtedness of others secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise,
to be secured by) any Lien on, or payable out of the proceeds of production
from, Property owned or acquired by such Person, whether or not the
obligations secured thereby have been assumed, (g) all Guaranty Obligations
of such Person, (h) the principal portion of all obligations of such Person
under Capital Leases, (i) all obligations of such Person under Hedging
Agreements, (j) the maximum amount of all standby letters of credit issued
or bankers' acceptances facilities created for the account of such Person
and, without duplication, all drafts drawn thereunder (to the extent
unreimbursed), (k) all preferred Capital Stock issued by such Person and
required by the terms thereof to be redeemed, or for which mandatory
sinking fund payments are due, by a fixed date (l) the principal portion of
all obligations of such Person under Synthetic Leases and (m) the
Indebtedness of any partnership or unincorporated joint venture in which
such Person is a general partner or a joint venturer.
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"Interbank Offered Rate" means, for any Eurodollar Loan for any
Interest Period therefor, the rate per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) appearing on Telerate Page 3750 (or
any successor page) as the London interbank offered rate for deposits in
Dollars at approximately 11:00 a.m. (London time) two Business Days prior
to the first day of such Interest Period for a term comparable to such
Interest Period. If for any reason such rate is not available, the term
"Interbank Offered Rate" shall mean, for any Eurodollar Loan for any
Interest Period therefor, the rate per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO
Page as the London interbank offered rate for deposits in Dollars at
approximately 11:00 a.m. (London time) two Business Days prior to the first
day of such Interest Period for a term comparable to such Interest Period;
provided, however, if more than one rate is specified on Reuters Screen
LIBO Page, the applicable rate shall be the arithmetic mean of all such
rates (rounded upwards, if necessary, to the nearest 1/100 of 1%).
"Interest Payment Date" means (a) as to Base Rate Loans, the last
Business Day of each calendar month and the Maturity Date, and (b) as to
Eurodollar Loans, the last day of each applicable Interest Period and the
Maturity Date, and in addition where the applicable Interest Period for a
Eurodollar Loan is greater than three months, then also the date three
months from the beginning of the Interest Period and each three months
thereafter.
"Interest Period" means as to Eurodollar Loans which constitute all or
part of the Revolving Loans, a period of one, two, three or six months'
duration, as the Borrower may elect, commencing, in each case, on the date
of the borrowing (including continuations and conversions thereof);
provided, however, (a) if any Interest Period would end on a day which is
not a Business Day, such Interest Period shall be extended to the next
succeeding Business Day (except that where the next succeeding Business Day
falls in the next succeeding calendar month, then on the next preceding
Business Day), (b) no Interest Period shall extend beyond the Maturity
Date, and (c) where an Interest Period begins on a day for which there is
no numerically corresponding day in the calendar month in which the
Interest Period is to end, such Interest Period shall end on the last
Business Day of such calendar month.
"Investment" means (a) the acquisition (whether for cash, property,
services, assumption of Indebtedness, securities or otherwise) of assets,
shares of Capital Stock, bonds, notes, debentures, partnership, joint
ventures or other ownership interests or other securities of any Person or
(b) any deposit with, or advance, loan or other extension of credit to, any
Person (other than deposits made in connection with the purchase of
equipment or other assets in the ordinary course of business) or (c) any
other capital contribution to or investment in such Person, including,
without limitation, any Guaranty Obligations (including any support for a
letter of credit issued on behalf of such Person) incurred for the benefit
of such Person.
"Issuing Lender" means NationsBank.
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"Issuing Lender Fees" shall have the meaning assigned to such term in
Section 3.5(b)(ii).
"Joinder Agreement" means a Joinder Agreement substantially in the
form of Exhibit 7.12 hereto, executed and delivered by an Additional Credit
Party in accordance with the provisions of Section 7.12.
"Lender" means any of the Persons identified as a "Lender" on the
signature pages hereto, and any Person which may become a Lender by way of
assignment in accordance with the terms hereof, together with their
successors and permitted assigns.
"Letter of Credit" means any letter of credit issued by the Issuing
Lender for the account of the Borrower in accordance with the terms of
Section 2.2.
"Letter of Credit Fee" shall have the meaning assigned to such term in
Section 3.5(b)(i).
"Leverage Ratio" means, with respect to the Consolidated Parties on a
consolidated basis for the twelve month period ending on the last day of
any fiscal quarter, the ratio of (a) Funded Indebtedness of the
Consolidated Parties on a consolidated basis on the last day of such period
to (b) Consolidated EBITDA of the Consolidated Parties for such period.
"Lien" means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, security interest, encumbrance, lien (statutory or otherwise),
preference, priority or charge of any kind (including any agreement to give
any of the foregoing, any conditional sale or other title retention
agreement, any financing or similar statement or notice filed under the
Uniform Commercial Code as adopted and in effect in the relevant
jurisdiction or other similar recording or notice statute, and any lease in
the nature thereof).
"Loan" or "Loans" means the Revolving Loans and/or the Swingline
Loans, individually or collectively, as appropriate.
"LOC Commitment" means the commitment of the Issuing Lender to issue
Letters of Credit in an aggregate face amount at any time outstanding
(together with the amounts of any unreimbursed drawings thereon) of up to
the LOC Committed Amount.
"LOC Committed Amount" means TWO MILLION FIVE HUNDRED THOUSAND DOLLARS
($2,500,000).
"LOC Documents" means, with respect to any Letter of Credit, such
Letter of Credit, any amendments thereto, any documents delivered in
connection therewith, any application therefor, and any agreements,
instruments, guarantees or other documents (whether general in application
or applicable only to such Letter of Credit) governing or
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providing for (i) the rights and obligations of the parties concerned or at
risk or (ii) any collateral security for such obligations.
"LOC Obligations" means, at any time, the sum of (i) the maximum
amount which is, or at any time thereafter may become, available to be
drawn under Letters of Credit then outstanding, assuming compliance with
all requirements for drawings referred to in such Letters of Credit plus
(ii) the aggregate amount of all drawings under Letters of Credit honored
by the Issuing Lender but not theretofore reimbursed by the Borrower.
"Locations" shall have the meaning given to such term in Section
6.15(a) hereof.
"Material Adverse Effect" means a material adverse effect on (i) the
condition (financial or otherwise), operations, business, assets,
liabilities or prospects of the Consolidated Parties (taken as a whole),
(ii) the ability of any Credit Parties (taken as a whole) to perform any
material obligation under the Credit Documents to which it is a party or
(iii) the material rights and remedies of the Lenders under the Credit
Documents.
"Material Subsidiary" means any Subsidiary of the Borrower having
either (i) total net revenues for the preceding four fiscal quarter period
equal to or greater than 5% of the total net revenues of the Consolidated
Parties on a consolidated basis for such period or (iii) total assets, as
of the last day of the preceding fiscal quarter, equal to or greater than
10% of the total assets of the Consolidated Parties on consolidated basis
on such date, in each case, based on the Borrower's most recent annual or
quarterly financial statements delivered pursuant to Section 7.1.
"Material Foreign Subsidiary" means any Material Subsidiary of the
Borrower which is a Foreign Subsidiary.
"Materials of Environmental Concern" means any gasoline or petroleum
(including crude oil or any fraction thereof) or petroleum products or any
hazardous or toxic substances, materials or wastes, defined or regulated as
such in or under any Environmental Laws, including, without limitation,
asbestos, polychlorinated biphenyls and urea-formaldehyde insulation.
"Maturity Date" means May 26, 2001.
"Moody's" means Moody's Investors Service, Inc., or any successor or
assignee of the business of such company in the business of rating
securities.
"Multiemployer Plan" means a Plan which is a multiemployer plan as
defined in Sections 3(37) or 4001(a)(3) of ERISA.
"Multiple Employer Plan" means a Plan which any Consolidated Party or
any ERISA Affiliate and at least one employer other than the Consolidated
Parties or any ERISA Affiliate are contributing sponsors.
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"NationsBank" means NationsBank, N. A. and its successors.
"Net Cash Proceeds" means the aggregate cash proceeds received by a
Consolidated Party in respect of any Equity Issuance, any Debt Issuance or
any Asset Disposition, net of (a) direct costs (including, without
limitation, legal, accounting and investment banking fees, and sales
commissions) and (b) taxes paid or payable as a result thereof; it being
understood that "Net Cash Proceeds" with respect to any Asset Disposition
shall include, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received by any Consolidated
Party in connection with such Asset Disposition.
"Notice of Borrowing" means a written notice of borrowing in
substantially the form of Exhibit 2.1(b)(i), as required by Section
2.1(b)(i) or Section 2.3(b).
"Notice of Extension/Conversion" means the written notice of extension
or conversion in substantially the form of Exhibit 3.2, as required by
Section 3.2.
"Obligations" means, collectively, the Revolving Loans, the Swingline
Loans and the LOC Obligations.
"Operating Lease" means, as applied to any Person, any lease
(including, without limitation, leases which may be terminated by the
lessee at any time) of any Property (whether real, personal or mixed) which
is not a Capital Lease other than any such lease in which that Person is
the lessor.
"Other Taxes" means such term as is defined in Section 3.11.
"Participation Interest" means a purchase by a Lender of a
participation in Letters of Credit or LOC Obligations as provided in
Section 2.2, in Swingline Loans as provided in Section 2.3(b)(iii) and in
any Revolving Loans as provided in Section 3.14.
"PBGC" means the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA and any successor thereof.
"Permitted Acquisition" means an Acquisition by the Borrower or any
Subsidiary of the Borrower for the fair market value of the Property
acquired, provided that (i) the Property acquired in such Acquisition
relates to a line of business similar or complimentary to the business of
the Borrower or any of its Subsidiaries engaged in on the Closing Date,
(ii) in the case of an Acquisition of the capital stock of another Person,
(A) the board of directors (or other comparable governing body) of such
other Person shall have duly approved such Acquisition and (B) such Person
shall become a wholly-owned direct or indirect Subsidiary of the Borrower,
(iii) the representations and warranties made by the Credit Parties in any
Credit Document shall be true and correct in all material respects at and
as if made as of the date of such Acquisition
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(after giving effect thereto) except to the extent such representations and
warranties expressly relate to an earlier date and no Default or Event of
Default exists as of the date of such Acquisition (after giving effect
thereto), (iv) the Borrower shall have delivered to the Agent a Pro Forma
Compliance Certificate demonstrating that, upon giving effect to the
Acquisition on a Pro Forma Basis, the Credit Parties will be in compliance
with all of the covenants set forth in Section 7.11, (v) the aggregate
consideration (including cash and non-cash consideration) and any
assumption of liabilities for (A) all such Acquisitions occurring during
any calendar year shall not exceed $75,000,000 (computed on a
non-cumulative basis except that unused amounts during any such calendar
year may be carried forward to the next calendar year), and (B) for any
single Acquisition occurring after the Closing Date shall not exceed 12.5%
of Consolidated Net Worth and (vi) the aggregate cash consideration for (A)
all such Acquisitions occurring during any calendar year shall not exceed
$25,000,000 (computed on a non-cumulative basis except that unused amounts
during any such calendar year may be carried forward to the next calendar
year) and (B) for any single Acquisition occurring after the Closing Date
shall not exceed 6.25% of Consolidated Net Worth.
"Permitted Investments" means Investments which are either (i) cash
and Cash Equivalents; (ii) accounts receivable created, acquired or made by
any Consolidated Party in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; (iii) Investments
consisting of Capital Stock, obligations, securities or other property
received by any Consolidated Party in settlement of accounts receivable
(created in the ordinary course of business) from bankrupt obligors; (iv)
Investments existing as of the Closing Date and set forth in Schedule
1.1(a), (v) transactions permitted by Section 8.8, (vi) advances or loans
to agents, customers or suppliers that do not exceed $250,000 in the
aggregate at any one time outstanding for all of the Consolidated Parties;
(vii) Investments in any Credit Party, (viii) Permitted Acquisitions and
(ix) other loans, advances and investments of a nature not contemplated in
the foregoing subsections in an amount not to exceed $500,000 in the
aggregate at any time outstanding.
"Permitted Liens" means:
(i) Liens in favor of the Agent to secure the Credit Party
Obligations;
(ii) Liens (other than Liens created or imposed under ERISA) for
taxes, assessments or governmental charges or levies not yet due or Liens
for taxes being contested in good faith by appropriate proceedings for
which adequate reserves determined in accordance with GAAP have been
established (and as to which the Property subject to any such Lien is not
yet subject to foreclosure, sale or loss on account thereof);
(iii) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and suppliers and other Liens imposed
by law or pursuant to customary reservations or retentions of title arising
in the ordinary course of business, provided that such Liens secure only
amounts not yet due and payable or, if due and payable, are unfiled and no
other action has been taken to enforce the same or are being contested in
good faith by appropriate proceedings for which adequate reserves
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determined in accordance with GAAP have been established (and as to which
the Property subject to any such Lien is not yet subject to foreclosure,
sale or loss on account thereof);
(iv) Liens (other than Liens created or imposed under ERISA) incurred
or deposits made by any Consolidated Party in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security, or to secure the performance of
tenders, statutory obligations, bids, leases, government contracts,
performance and return-of-money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed money);
(v) Liens in connection with attachments or judgments (including
judgment or appeal bonds) provided that the judgments secured shall, within
30 days after the entry thereof, have been discharged or execution thereof
stayed pending appeal, or shall have been discharged within 30 days after
the expiration of any such stay;
(vi) easements, rights-of-way, restrictions (including zoning
restrictions), minor defects or irregularities in title and other similar
charges or encumbrances not, in any material respect, impairing the use of
the encumbered Property for its intended purposes;
(vii) Liens on Property securing purchase money Indebtedness
(including Capital Leases and Synthetic Leases) to the extent permitted
under Section 8.1(c), provided that any such Lien attaches to such Property
concurrently with or within 90 days after the acquisition thereof;
(viii) leases or subleases granted to others not interfering in any
material respect with the business of any Consolidated Party;
(ix) any interest of title of a lessor under, and Liens arising from
UCC financing statements (or equivalent filings, registrations or
agreements in foreign jurisdictions) relating to, leases permitted by this
Credit Agreement;
(x) normal and customary rights of setoff upon deposits of cash in
favor of banks or other depository institutions; and
(xi) Liens existing as of the Closing Date and set forth on Schedule
1.1(b); provided that (a) no such Lien shall at any time be extended to or
cover any Property other than the Property subject thereto on the Closing
Date and (b) the principal amount of the Indebtedness secured by such Liens
shall not be extended, renewed, refunded or refinanced.
"Person" means any individual, partnership, joint venture, firm,
corporation, limited liability company, association, trust or other
enterprise (whether or not incorporated) or any Governmental Authority.
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"Plan" means any employee benefit plan (as defined in Section 3(3) of
ERISA) which is covered by ERISA and with respect to which any Consolidated
Party or any ERISA Affiliate is (or, if such plan were terminated at such
time, would under Section 4069 of ERISA be deemed to be) an "employer"
within the meaning of Section 3(5) of ERISA.
"Pledge Agreement" means the pledge agreement dated as of the Closing
Date executed and delivered by the Borrower and the Guarantors in favor of
the Agent, for the benefit of the Lenders, to secure their obligations
under the Credit Documents, as amended, modified, restated or supplemented
from time to time.
"Prime Rate" means the per annum rate of interest established from
time to time by NationsBank as its prime rate, which rate may not be the
lowest rate of interest charged by NationsBank to its customers.
"Principal Office" means the principal office of NationsBank,
presently located at Charlotte, North Carolina.
"Pro Forma Compliance Certificate" means a certificate of an officer
of the Borrower delivered to the Agent in connection with a Permitted
Acquisition and containing reasonably detailed calculations, upon giving
effect to the applicable transaction on a pro forma basis, of the financial
covenants set forth in Section 7.11.
"Property" means any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Quoted Rate" means, with respect to a Swingline Loan, the rate per
annum offered by the Swingline Lender and accepted by the Borrower with
respect to such Swingline Loan.
"Register" shall have the meaning given such term in Section 11.3(c).
"Regulation G, T, U, or X" means Regulation G, T, U or X,
respectively, of the Board of Governors of the Federal Reserve System as
from time to time in effect and any successor to all or a portion thereof.
"Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping or disposing
into the environment (including the abandonment or discarding of barrels,
containers and other closed receptacles containing any Materials of
Environmental Concern).
"Reportable Event" means any of the events set forth in Section
4043(c) of ERISA, other than those events as to which the notice
requirement has been waived by regulation.
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"Required Lenders" means, at any time, Lenders which are then in
compliance with their obligations hereunder (as determined by the Agent)
and holding in the aggregate more than 51% of (i) the Commitments (and
Participation Interests therein), or (ii) if the Commitments have been
terminated, the outstanding Loans and Participation Interests (including
the Participation Interests of the Issuing Lender in any Letters of
Credit).
"Requirement of Law" means, as to any Person, the certificate of
incorporation and by-laws or other organizational or governing documents of
such Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case
applicable to or binding upon such Person or any of its material property
is subject.
"Restricted Payment" means (i) any dividend or other distribution,
direct or indirect, on account of any shares of any class of Capital Stock
of any Consolidated Party, now or hereafter outstanding, (ii) any
redemption, retirement, sinking fund or similar payment, purchase or other
acquisition for value, direct or indirect, of any shares of any class of
Capital Stock of any Consolidated Party, now or hereafter outstanding,
(iii) any payment made to retire, or to obtain the surrender of, any
outstanding warrants, options or other rights to acquire shares of any
class of Capital Stock of any Consolidated Party, now or hereafter
outstanding.
"Revolving Commitment" means, with respect to each Lender, the
commitment of such Lender in an aggregate principal amount at any time
outstanding of up to such Lender's Revolving Commitment Percentage of the
Revolving Committed Amount, (i) to make Revolving Loans in accordance with
the provisions of Section 2.1(a) and (ii) to purchase Participation
Interests in Letters of Credit in accordance with the provisions of Section
2.2(c).
"Revolving Commitment Percentage" means, for any Lender, the
percentage identified as its Revolving Commitment Percentage on Schedule
2.1(a), as such percentage may be modified in connection with any
assignment made in accordance with the provisions of Section 11.3.
"Revolving Committed Amount" means THIRTY MILLION DOLLARS
($30,000,000) or such lesser amount as the Revolving Committed Amount may
be reduced pursuant to Section 3.4.
"Revolving Loans" shall have the meaning assigned to such term in
Section 2.1(a).
"Revolving Note" or "Revolving Notes" means the promissory notes of
the Borrower in favor of each of the Lenders evidencing the Revolving Loans
provided pursuant to Section 2.1(e), individually or collectively, as
appropriate, as such promissory notes may be amended, modified, restated,
supplemented, extended, renewed or replaced from time to time.
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"Revolving Obligations" means, collectively, Revolving Loans,
Swingline Loans and LOC Obligations.
"S&P" means Standard & Poor's Ratings Group, a division of McGraw
Hill, Inc., or any successor or assignee of the business of such division
in the business of rating securities.
"Sale and Leaseback Transaction" means any direct or indirect
arrangement with any Person or to which any such Person is a party,
providing for the leasing to any Consolidated Party of any Property,
whether owned by such Consolidated Party as of the Closing Date or later
acquired, which has been or is to be sold or transferred by such
Consolidated Party to such Person or to any other Person from whom funds
have been, or are to be, advanced by such Person on the security of such
Property.
"Security Agreement" means the security agreement dated as of the
Closing Date executed and delivered by each of the Credit Parties in favor
of the Agent, for the benefit of the Lenders, to secure their obligations
under the Credit Documents, as amended, modified, restated or supplemented
from time to time.
"Single Employer Plan" means any Plan which is covered by Title IV of
ERISA, but which is not a Multiemployer Plan or a Multiple Employer Plan.
"Solvent" or "Solvency" means, with respect to any Person as of a
particular date, that on such date (i) such Person is able to realize upon
its assets and pay its debts and other liabilities, contingent obligations
and other commitments as they mature in the normal course of business, (ii)
such Person does not intend to, and does not believe that it will, incur
debts or liabilities beyond such Person's ability to pay as such debts and
liabilities mature in their ordinary course, (iii) such Person is not
engaged in a business or a transaction, and is not about to engage in a
business or a transaction, for which such Person's Property would
constitute unreasonably small capital after giving due consideration to the
prevailing practice in the industry in which such Person is engaged or is
to engage, (iv) the fair value of the Property of such Person is greater
than the total amount of liabilities, including, without limitation,
contingent liabilities, of such Person and (v) the present fair salable
value of the assets of such Person is not less than the amount that will be
required to pay the probable liability of such Person on its debts as they
become absolute and matured. In computing the amount of contingent
liabilities at any time, it is intended that such liabilities will be
computed at the amount which, in light of all the facts and circumstances
existing at such time, represents the amount that can reasonably be
expected to become an actual or matured liability
"Subsidiary" means, as to any Person, (a) any corporation more than
50% of whose Capital Stock of any class or classes having by the terms
thereof ordinary voting power to elect a majority of the directors of such
corporation (irrespective of whether or not at the time, any class or
classes of such corporation shall have or might have voting power by reason
of the happening of any contingency) is at the time owned by such
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Person directly or indirectly through Subsidiaries, and (b) any
partnership, association, joint venture or other entity in which such
Person directly or indirectly through Subsidiaries has more than 50% equity
interest at any time.
"Swingline Commitment" means the commitment of the Swingline Lender to
make Swingline Loans in an aggregate principal amount at any time
outstanding of up to the Swingline Committed Amount.
"Swingline Committed Amount" means TWO MILLION FIVE HUNDRED THOUSAND
DOLLARS ($2,500,000).
"Swingline Lender" means NationsBank, N.A.
"Swingline Loan" shall have the meaning assigned to such term in
Section 2.4(a).
"Swingline Note" means the promissory note of the Borrower in favor of
the Swingline Lender in the original principal amount of $2,500,000, as
such promissory note may be amended, modified, restated or replaced from
time to time.
"Synthetic Leases" means any synthetic lease, tax retention operating
lease, off-balance sheet loan or similar off-balance sheet financing
product where such transaction is considered borrowed money indebtedness
for tax purposes but is classified as an Operating Lease in accordance with
GAAP.
"Taxes" means such term as is defined in Section 3.11.
"Total Assets" means, as at any date, all items, which in accordance
with GAAP, would be classified as assets of the Consolidated Parties on a
consolidated basis.
"Unused Fee" shall have the meaning assigned to such term in Section
3.5(a).
"Unused Fee Calculation Period" shall have the meaning assigned to
such term in Section 3.5(a).
"Unused Revolving Committed Amount" means, for any period, the amount
by which (a) the then applicable Revolving Committed Amount exceeds (b) the
daily average sum for such period of (i) the outstanding aggregate
principal amount of all Revolving Loans plus (ii) the outstanding aggregate
principal amount of all LOC Obligations.
"Voting Stock" means, with respect to any Person, Capital Stock issued
by such Person the holders of which are ordinarily, in the absence of
contingencies, entitled to vote for the election of directors (or persons
performing similar functions) of such Person, even though the right so to
vote has been suspended by the happening of such a contingency.
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"Wholly Owned Subsidiary" of any Person means any Subsidiary 100% of
whose Voting Stock or other equity interests is at the time owned by such
Person directly or indirectly through other Wholly Owned Subsidiaries.
1.2 COMPUTATION OF TIME PERIODS.
For purposes of computation of periods of time hereunder, the word "from"
means "from and including" and the words "to" and "until" each mean "to but
excluding."
1.3 ACCOUNTING TERMS.
Except as otherwise expressly provided herein, all accounting terms used
herein shall be interpreted, and all financial statements and certificates and
reports as to financial matters required to be delivered to the Lenders
hereunder shall be prepared, in accordance with GAAP applied on a consistent
basis. All calculations made for the purposes of determining compliance with
this Credit Agreement shall (except as otherwise expressly provided herein) be
made by application of GAAP applied on a basis consistent with the most recent
annual or quarterly financial statements delivered pursuant to Section 7.1 (or,
prior to the delivery of the first financial statements pursuant to Section 7.1,
consistent with the financial statements as at March 31, 1998) provided,
however, if (a) the Borrower shall object to determining such compliance on such
basis at the time of delivery of such financial statements due to any change in
GAAP or the rules promulgated with respect thereto or (b) the Agent or the
Required Lenders shall so object in writing within 60 days after delivery of
such financial statements, then such calculations shall be made on a basis
consistent with the most recent financial statements delivered by the Borrower
to the Lenders as to which no such objection shall have been made.
Notwithstanding the above, the parties hereto acknowledge and agree that,
for purposes of all calculations made under the financial covenants set forth in
Section 7.11 (including without limitation for purposes of the definitions of
"Applicable Percentage" set forth in Section 1.1), so long as the Borrower shall
have provided the Agent with a Pro Forma Compliance Certificate with respect to
the applicable Permitted Acquisition, income statement items (whether positive
or negative) attributable to any Property acquired in any Permitted Acquisition
described in clause (viii) of the definition of "Permitted Investment" and any
Indebtedness incurred by the Borrower or any of its Subsidiaries in order to
consummate such Permitted Acquisition shall be included to the extent relating
to any period applicable in such calculations occurring after the date of such
Permitted Acquisition (and, notwithstanding the foregoing, during the first four
fiscal quarters following the date of such Permitted Acquisition, such Permitted
Acquisition and any Indebtedness incurred by the Borrower or any of its
Subsidiaries in order to consummate such Permitted Acquisition (A) shall be
deemed to have occurred on the first day of the four fiscal quarter period
immediately preceding the date of such Permitted Acquisition and (B) if such
Indebtedness has a floating or formula rate, then the implied rate of interest
for such Indebtedness for the applicable period shall be determined by utilizing
the rate which is or would be in effect with respect to such Indebtedness as at
the relevant date of determination).
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SECTION 2
CREDIT FACILITIES
2.1 REVOLVING LOANS.
(a) Revolving Commitment. Subject to the terms and conditions hereof
and in reliance upon the representations and warranties set forth herein,
each Lender severally agrees to make available to the Borrower such
Lender's Revolving Commitment Percentage of revolving credit loans
requested by the Borrower in Dollars ("Revolving Loans") from time to time
from the Closing Date until the Maturity Date, or such earlier date as the
Revolving Commitments shall have been terminated as provided herein for the
purposes hereinafter set forth; provided, however, that (i) with regard to
the Lenders collectively, the sum of the aggregate principal amount of
outstanding Revolving Loans plus LOC Obligations outstanding plus Swingline
Loans outstanding shall not exceed the Revolving Committed Amount and (ii)
with regard to each Lender individually, such Lender's outstanding
Revolving Loans shall not exceed such Lender's Revolving Commitment
Percentage of the Revolving Committed Amount. Revolving Loans may consist
of Base Rate Loans or Eurodollar Loans, or a combination thereof, as the
Borrower may request, and may be repaid and reborrowed in accordance with
the provisions hereof; provided, however, that no more than ten (10)
Eurodollar Loans shall be outstanding hereunder at any time. For purposes
hereof, Eurodollar Loans with different Interest Periods shall be
considered as separate Eurodollar Loans, even if they begin on the same
date, although borrowings, extensions and conversions may, in accordance
with the provisions hereof, be combined at the end of existing Interest
Periods to constitute a new Eurodollar Loan with a single Interest Period.
Revolving Loans hereunder may be repaid and reborrowed in accordance with
the provisions hereof.
(b) Revolving Loan Borrowings.
(i) Notice of Borrowing. The Borrower shall request a Revolving
Loan borrowing by telephonic notice (promptly confirmed in writing) to
the Agent not later than 11:00 A.M. (Charlotte, North Carolina time)
on the Business Day prior to the date of the requested borrowing in
the case of Base Rate Loans, and on the third Business Day prior to
the date of the requested borrowing in the case of Eurodollar Loans.
Each such request for borrowing shall be irrevocable and shall specify
(A) that a Revolving Loan is requested, (B) the date of the requested
borrowing (which shall be a Business Day), (C) the aggregate principal
amount to be borrowed, and (D) whether the borrowing shall be
comprised of Base Rate Loans, Eurodollar Loans or a combination
thereof, and if Eurodollar Loans are requested, the Interest Period(s)
therefor. If the Borrower shall fail to specify in any such Notice of
Borrowing (I) an applicable Interest Period in the case of a
Eurodollar Loan, then such notice shall be deemed to be a request for
an Interest Period of one month, or (II) the type of Revolving Loan
requested, then such notice shall be deemed to be a request for a Base
Rate Loan hereunder. The Agent shall give notice to each affected
Lender promptly upon receipt of each
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Notice of Borrowing pursuant to this Section 2.1(b)(i), the contents
thereof and each such Lender's share of any borrowing to be made
pursuant thereto.
(ii) Minimum Amounts. Each Base Rate Loan that is a Revolving
Loan shall be in a minimum aggregate principal amount of $250,000 and
integral multiples of $250,000 in excess thereof (or the remaining
amount of the Revolving Committed Amount, if less). Each Eurodollar
Loan that is a Revolving Loan shall be in a minimum aggregate
principal amount of $1,500,000 and integral multiples of $500,000 in
excess thereof (or the remaining amount of the Revolving Committed
Amount, if less).
(iii) Advances. Each Lender will make its Revolving Commitment
Percentage of each Revolving Loan borrowing available to the Agent for
the account of the Borrower as specified in Section 3.15(a), or in
such other manner as the Agent may specify in writing, by 1:00 P.M.
(Charlotte, North Carolina time) on the date specified in the
applicable Notice of Borrowing in Dollars and in funds immediately
available to the Agent. Such borrowing will then be made available to
the Borrower by the Agent by crediting the account of the Borrower on
the books of such office with the aggregate of the amounts made
available to the Agent by the Lenders and in like funds as received by
the Agent.
(c) Repayment. The principal amount of all Revolving Loans shall be
due and payable in full on the Maturity Date, unless accelerated sooner
pursuant to Section 9.2.
(d) Interest. Subject to the provisions of Section 3.1,
(i) Base Rate Loans. During such periods as Revolving Loans shall
be comprised in whole or in part of Base Rate Loans, such Base Rate
Loans shall bear interest at a per annum rate equal to the Adjusted
Base Rate.
(ii) Eurodollar Loans. During such periods as Revolving Loans
shall be comprised in whole or in part of Eurodollar Loans, such
Eurodollar Loans shall bear interest at a per annum rate equal to the
Adjusted Eurodollar Rate.
Interest on Revolving Loans shall be payable in arrears on each applicable
Interest Payment Date (or at such other times as may be specified herein).
(e) Revolving Notes. The Revolving Loans made by each Lender shall be
evidenced by a duly executed promissory note of the Borrower to such Lender
in an original principal amount equal to such Lender's Revolving Commitment
Percentage of the Revolving Committed Amount and in substantially the form
of Exhibit 2.1(e).
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2.2 LETTER OF CREDIT SUBFACILITY.
(a) Issuance. Subject to the terms and conditions hereof and of the
LOC Documents, if any, and any other terms and conditions which the Issuing
Lender may reasonably require and in reliance upon the representations and
warranties set forth herein, the Issuing Lender agrees to issue, and each
Lender severally agrees to participate in the issuance by the Issuing
Lender of, standby and trade Letters of Credit in Dollars from time to time
from the Closing Date until the Maturity Date as the Borrower may request,
in a form acceptable to the Issuing Lender; provided, however, that (i) the
LOC Obligations outstanding shall not at any time exceed the LOC Committed
Amount and (ii) the sum of the aggregate principal amount of outstanding
Revolving Loans plus LOC Obligations outstanding plus Swingline Loans shall
not at any time exceed the Revolving Committed Amount. No Letter of Credit
shall (x) have an original expiry date more than one year from the date of
issuance or (y) as originally issued or as extended, have an expiry date
extending beyond the Maturity Date. Each Letter of Credit shall comply with
the related LOC Documents. The issuance and expiry dates of each Letter of
Credit shall be a Business Day.
(b) Notice and Reports. The request for the issuance of a Letter of
Credit shall be submitted by the Borrower to the Issuing Lender at least
three (3) Business Days prior to the requested date of issuance. A form of
Notice of Request for Letter of Credit is attached as Exhibit 2.2(b). The
Issuing Lender will, at least quarterly and more frequently upon request,
disseminate to each of the Lenders a detailed report specifying the Letters
of Credit which are then issued and outstanding and any activity with
respect thereto which may have occurred since the date of the prior report,
and including therein, among other things, the beneficiary, the face amount
and the expiry date, as well as any payment or expirations which may have
occurred.
(c) Participation. Each Lender, upon issuance of a Letter of Credit,
shall be deemed to have purchased without recourse a Participation Interest
from the applicable Issuing Lender in such Letter of Credit and the
obligations arising thereunder and any collateral relating thereto, in each
case in an amount equal to its pro rata share of the obligations under such
Letter of Credit (based on the respective Revolving Commitment Percentages
of the Lenders) and shall absolutely, unconditionally and irrevocably
assume and be obligated to pay to the Issuing Lender and discharge when
due, its pro rata share of the obligations arising under such Letter of
Credit. Without limiting the scope and nature of each Lender's
Participation Interest in any Letter of Credit, to the extent that the
Issuing Lender has not been reimbursed as required hereunder or under any
such Letter of Credit, each such Lender shall pay to the Issuing Lender its
pro rata share of such unreimbursed drawing in same day funds on the day of
notification by the Issuing Lender of an unreimbursed drawing pursuant to
the provisions of subsection (d) below. The obligation of each Lender to so
reimburse the Issuing Lender shall be absolute and unconditional and shall
not be affected by the occurrence of a Default, an Event of Default or any
other occurrence or event. Any such reimbursement shall not relieve or
otherwise impair the obligation of the Borrower to reimburse the Issuing
Lender under any Letter of Credit, together with interest as hereinafter
provided.
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(d) Reimbursement. In the event of any drawing under any Letter of
Credit, the Issuing Lender will promptly notify the Borrower. Unless the
Borrower shall immediately notify the Issuing Lender that the Borrower
intends to otherwise reimburse the Issuing Lender for such drawing, the
Borrower shall be deemed to have requested that the Lenders make a
Revolving Loan in the amount of the drawing as provided in subsection (e)
below on the related Letter of Credit, the proceeds of which will be used
to satisfy the related reimbursement obligations. The Borrower promises to
reimburse the Issuing Lender on the day of drawing under any Letter of
Credit (either with the proceeds of a Revolving Loan obtained hereunder or
otherwise) in same day funds. If the Borrower shall fail to reimburse the
Issuing Lender as provided hereinabove, the unreimbursed amount of such
drawing shall bear interest at a per annum rate equal to the Adjusted Base
Rate plus 2%. The Borrower's reimbursement obligations hereunder shall be
absolute and unconditional under all circumstances irrespective of any
rights of setoff, counterclaim or defense to payment the Borrower may claim
or have against the Issuing Lender, the Agent, the Lenders, the beneficiary
of the Letter of Credit drawn upon or any other Person, including without
limitation any defense based on any failure of the Borrower or any other
Credit Party to receive consideration or the legality, validity, regularity
or unenforceability of the Letter of Credit. The Issuing Lender will
promptly notify the other Lenders of the amount of any unreimbursed drawing
and each Lender shall promptly pay to the Agent for the account of the
Issuing Lender in Dollars and in immediately available funds, the amount of
such Lender's pro rata share of such unreimbursed drawing. Such payment
shall be made on the day such notice is received by such Lender from the
Issuing Lender if such notice is received at or before 2:00 P.M.
(Charlotte, North Carolina time) otherwise such payment shall be made at or
before 12:00 Noon (Charlotte, North Carolina time) on the Business Day next
succeeding the day such notice is received. If such Lender does not pay
such amount to the Issuing Lender in full upon such request, such Lender
shall, on demand, pay to the Agent for the account of the Issuing Lender
interest on the unpaid amount during the period from the date of such
drawing until such Lender pays such amount to the Issuing Lender in full at
a rate per annum equal to, if paid within two (2) Business Days of the date
that such Lender is required to make payments of such amount pursuant to
the preceding sentence, the Federal Funds Rate and thereafter at a rate
equal to the Base Rate. Each Lender's obligation to make such payment to
the Issuing Lender, and the right of the Issuing Lender to receive the
same, shall be absolute and unconditional, shall not be affected by any
circumstance whatsoever and without regard to the termination of this
Credit Agreement or the Commitments hereunder, the existence of a Default
or Event of Default or the acceleration of the obligations of the Borrower
hereunder and shall be made without any offset, abatement, withholding or
reduction whatsoever. Simultaneously with the making of each such payment
by a Lender to the Issuing Lender, such Lender shall, automatically and
without any further action on the part of the Issuing Lender or such
Lender, acquire a Participation Interest in an amount equal to such payment
(excluding the portion of such payment constituting interest owing to the
Issuing Lender) in the related unreimbursed drawing portion of the LOC
Obligation and in the interest thereon and in the related LOC Documents,
and shall have a claim against the Borrower with respect thereto.
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(e) Repayment with Revolving Loans. On any day on which the Borrower
shall have requested, or been deemed to have requested, a Revolving Loan
advance to reimburse a drawing under a Letter of Credit, the Agent shall
give notice to the Lenders that a Revolving Loan has been requested or
deemed requested by the Borrower to be made in connection with a drawing
under a Letter of Credit, in which case a Revolving Loan advance comprised
of Base Rate Loans (or Eurodollar Loans to the extent the Borrower has
complied with the procedures of Section 2.1(b)(i) with respect thereto)
shall be immediately made to the Borrower by all Lenders (notwithstanding
any termination of the Commitments pursuant to Section 9.2) pro rata based
on the respective Revolving Commitment Percentages of the Lenders
(determined before giving effect to any termination of the Commitments
pursuant to Section 9.2) and the proceeds thereof shall be paid directly to
the Issuing Lender for application to the respective LOC Obligations. Each
such Lender hereby irrevocably agrees to make its pro rata share of each
such Revolving Loan immediately upon any such request or deemed request in
the amount, in the manner and on the date specified in the preceding
sentence notwithstanding (i) the amount of such borrowing may not comply
with the minimum amount for advances of Revolving Loans otherwise required
hereunder, (ii) whether any conditions specified in Section 5.2 are then
satisfied, (iii) whether a Default or an Event of Default then exists, (iv)
failure for any such request or deemed request for Revolving Loan to be
made by the time otherwise required hereunder, (v) whether the date of such
borrowing is a date on which Revolving Loans are otherwise permitted to be
made hereunder or (vi) any termination of the Commitments relating thereto
immediately prior to or contemporaneously with such borrowing. In the event
that any Revolving Loan cannot for any reason be made on the date otherwise
required above (including, without limitation, as a result of the
commencement of a proceeding under the Bankruptcy Code with respect to the
Borrower or any Credit Party), then each such Lender hereby agrees that it
shall forthwith purchase (as of the date such borrowing would otherwise
have occurred, but adjusted for any payments received from the Borrower on
or after such date and prior to such purchase) from the Issuing Lender such
Participation Interests in the outstanding LOC Obligations as shall be
necessary to cause each such Lender to share in such LOC Obligations
ratably (based upon the respective Revolving Commitment Percentages of the
Lenders (determined before giving effect to any termination of the
Commitments pursuant to Section 9.2)), provided that at the time any
purchase of Participation Interests pursuant to this sentence is actually
made, the purchasing Lender shall be required to pay to the Issuing Lender,
to the extent not paid to the Issuing Lender by the Borrower in accordance
with the terms of subsection (d) above, interest on the principal amount of
Participation Interests purchased for each day from and including the day
upon which such borrowing would otherwise have occurred to but excluding
the date of payment for such Participation Interests, at the rate equal to,
if paid within two (2) Business Days of the date of the Revolving Loan
advance, the Federal Funds Rate, and thereafter at a rate equal to the Base
Rate.
(f) Designation of Consolidated Parties as Account Parties.
Notwithstanding anything to the contrary set forth in this Credit
Agreement, including without limitation Section 2.2(a), a Letter of Credit
issued hereunder may contain a statement to the effect
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that such Letter of Credit is issued for the account of a Consolidated
Party other than the Borrower, provided that notwithstanding such
statement, the Borrower shall be the actual account party for all purposes
of this Credit Agreement for such Letter of Credit and such statement shall
not affect the Borrower's reimbursement obligations hereunder with respect
to such Letter of Credit.
(g) Renewal, Extension. The renewal or extension of any Letter of
Credit shall, for purposes hereof, be treated in all respects the same as
the issuance of a new Letter of Credit hereunder.
(h) Uniform Customs and Practices. The Issuing Lender may have the
Letters of Credit be subject to The Uniform Customs and Practice for
Documentary Credits, as published as of the date of issue by the
International Chamber of Commerce (the "UCP"), in which case the UCP may be
incorporated therein and deemed in all respects to be a part thereof.
(i) Indemnification; Nature of Issuing Lender's Duties.
(i) In addition to its other obligations under this Section 2.2,
the Borrower hereby agrees to pay, and protect, indemnify and save
each Lender harmless from and against, any and all claims, demands,
liabilities, damages, losses, costs, charges and expenses (including
reasonable attorneys' fees) that such Lender may incur or be subject
to as a direct consequence of (A) the issuance of any Letter of Credit
or (B) the failure of such Lender to honor a drawing under a Letter of
Credit as a result of any act or omission, whether rightful or
wrongful, of any present or future de jure or de facto government or
Governmental Authority (all such acts or omissions, herein called
"Government Acts").
(ii) As between the Borrower and the Lenders (including the
Issuing Lender), the Borrower shall assume all risks of the acts,
omissions or misuse of any Letter of Credit by the beneficiary
thereof. No Lender (including the Issuing Lender) shall be
responsible: (A) for the form, validity, sufficiency, accuracy,
genuineness or legal effect of any document submitted by any party in
connection with the application for and issuance of any Letter of
Credit, even if it should in fact prove to be in any or all respects
invalid, insufficient, inaccurate, fraudulent or forged; (B) for the
validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign any Letter of Credit or the rights or
benefits thereunder or proceeds thereof, in whole or in part, that may
prove to be invalid or ineffective for any reason; (C) for errors,
omissions, interruptions or delays in transmission or delivery of any
messages, by mail, cable, telegraph, telex or otherwise, whether or
not they be in cipher; (D) for any loss or delay in the transmission
or otherwise of any document required in order to make a drawing under
a Letter of Credit or of the proceeds thereof; and (E) for any
consequences arising from causes beyond the control of such Lender,
including, without limitation, any Government Acts. None of the above
shall affect, impair, or prevent the vesting of the Issuing Lender's
rights or powers hereunder.
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(iii) In furtherance and extension and not in limitation of the
specific provisions hereinabove set forth, any action taken or omitted
by any Lender (including the Issuing Lender), under or in connection
with any Letter of Credit or the related certificates, if taken or
omitted in good faith, shall not put such Lender under any resulting
liability to the Borrower or any other Credit Party. It is the
intention of the parties that this Credit Agreement shall be construed
and applied to protect and indemnify each Lender (including the
Issuing Lender) against any and all risks involved in the issuance of
the Letters of Credit, all of which risks are hereby assumed by the
Borrower (on behalf of itself and each of the other Credit Parties),
including, without limitation, any and all Government Acts. No Lender
(including the Issuing Lender) shall, in any way, be liable for any
failure by such Lender or anyone else to pay any drawing under any
Letter of Credit as a result of any Government Acts or any other cause
beyond the control of such Lender.
(iv) Nothing in this subsection (i) is intended to limit the
reimbursement obligations of the Borrower contained in subsection (d)
above. The obligations of the Borrower under this subsection (i) shall
survive the termination of this Credit Agreement. No act or omissions
of any current or prior beneficiary of a Letter of Credit shall in any
way affect or impair the rights of the Lenders (including the Issuing
Lender) to enforce any right, power or benefit under this Credit
Agreement.
(v) Notwithstanding anything to the contrary contained in this
subsection (i), the Borrower shall have no obligation to indemnify any
Lender (including the Issuing Lender) in respect of any liability
incurred by such Lender (A) arising solely out of the gross negligence
or willful misconduct of such Lender, as determined by a court of
competent jurisdiction, or (B) caused by such Lender's failure to pay
under any Letter of Credit after presentation to it of a request
strictly complying with the terms and conditions of such Letter of
Credit, as determined by a court of competent jurisdiction, unless
such payment is prohibited by any law, regulation, court order or
decree.
(j) Responsibility of Issuing Lender. It is expressly understood and
agreed that the obligations of the Issuing Lender hereunder to the Lenders
are only those expressly set forth in this Credit Agreement and that the
Issuing Lender shall be entitled to assume that the conditions precedent
set forth in Section 5.2 have been satisfied unless it shall have acquired
actual knowledge that any such condition precedent has not been satisfied;
provided, however, that nothing set forth in this Section 2.2 shall be
deemed to prejudice the right of any Lender to recover from the Issuing
Lender any amounts made available by such Lender to the Issuing Lender
pursuant to this Section 2.2 in the event that it is determined by a court
of competent jurisdiction that the payment with respect to a Letter of
Credit constituted gross negligence or willful misconduct on the part of
the Issuing Lender.
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(k) Conflict with LOC Documents. In the event of any conflict between
this Credit Agreement and any LOC Document (including any letter of credit
application), this Credit Agreement shall control.
2.3 SWINGLINE LOANS.
(a) Swingline Commitment. Subject to the terms and conditions hereof
and in reliance upon the representations and warranties herein set forth,
the Swingline Lender, in its individual capacity, agrees to make certain
revolving credit loans to the Borrower (each a "Swingline Loan" and,
collectively, the "Swingline Loans") from time to time from the Closing
Date until the Maturity Date for the purposes hereinafter set forth;
provided, however, (i) the aggregate principal amount of Swingline Loans
outstanding at any time shall not exceed the Swingline Committed Amount,
and (ii) with regard to the Lenders collectively, the aggregate principal
amount of outstanding Revolving Obligations outstanding at any time shall
not exceed the Revolving Committed Amount. Swingline Loans may be repaid
and reborrowed in accordance with the provisions hereof.
(b) Swingline Loan Advances.
(i) Notices; Disbursement. Unless the Borrower elects to request
a Swingline Loan advance in accordance with the terms of the next
succeeding sentence, Swingline Loan advances shall be made in
accordance with the provisions of any agreement between the Swingline
Lender and the Borrower establishing an "Auto Borrow" plan for, among
other things, the automatic advance to the Borrower for deposit into
an account of the Borrower with the Swingline Lender.
(ii) Repayment of Swingline Loans. The principal amount of all
Swingline Loans shall be due and payable on the Maturity Date. The
Swingline Lender may, at any time, in its sole discretion, by written
notice to the Borrower and the Lenders, demand repayment of its
Swingline Loans by way of a Revolving Loan advance, in which case the
Borrower shall be deemed to have requested a Revolving Loan advance
comprised solely of Base Rate Loans in the amount of such Swingline
Loans; provided, however, that any such demand shall be deemed to have
been given one Business Day prior to the Maturity Date and on the date
of the occurrence of any Event of Default described in Section 9.1 and
upon acceleration of the indebtedness hereunder and the exercise of
remedies in accordance with the provisions of Section 9.2. Each Lender
hereby irrevocably agrees to make its pro rata share of each such
Revolving Loan in the amount, in the manner and on the date specified
in the preceding sentence notwithstanding (I) the amount of such
borrowing may not comply with the minimum amount for advances of
Revolving Loans otherwise required hereunder, (II) whether any
conditions specified in Section 5.2 are then satisfied, (III) whether
a Default or Event of Default then exists, (IV) failure of any such
request or deemed request for Revolving Loan to be made by the time
otherwise required hereunder, (V) whether the date of such borrowing
is a date on which Revolving Loans are otherwise permitted to be made
hereunder or (VI) any termination of the Commitments relating thereto
immediately prior to or
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contemporaneously with such borrowing. In the event that any Revolving
Loan cannot for any reason be made on the date otherwise required
above (including, without limitation, as a result of the commencement
of a proceeding under the Bankruptcy Code with respect to the Borrower
or any other Credit Party), then each Lender hereby agrees that it
shall forthwith purchase (as of the date such borrowing would
otherwise have occurred, but adjusted for any payments received from
the Borrower on or after such date and prior to such purchase) from
the Swingline Lender such participations in the outstanding Swingline
Loans as shall be necessary to cause each such Lender to share in such
Swingline Loans ratably based upon its Commitment Percentage of the
Revolving Committed Amount (determined before giving effect to any
termination of the Commitments pursuant to Section 3.4), provided that
(A) all interest payable on the Swingline Loans shall be for the
account of the Swingline Lender until the date as of which the
respective participation is purchased and (B) at the time any purchase
of participations pursuant to this sentence is actually made, the
purchasing Lender shall be required to pay to the Swingline Lender by
the Borrower in accordance with the terms of subsection (c)(ii)
hereof, interest on the principal amount of participation purchased
for each day from and including the day upon which such borrowing
would otherwise have occurred to but excluding the date of payment for
such participation, at the rate equal to the Federal Funds Rate.
(c) Interest on Swingline Loans.
(i) Subject to the provisions of Section 3.1, each Swingline Loan
shall bear interest at a per annum rate (computed on the basis of the
actual number of days elapsed over a year of 365 days) equal to the
Quoted Rate.
(ii) Interest on Swingline Loans shall be payable in arrears on
the dates agreed upon by the Borrower and the Swingline Lender (or at
such other times as may be specified herein).
(d) Swingline Note. The Swingline Loans shall be evidenced by a duly
executed promissory note of the Borrower to the Swingline Lender in
substantially the form of Exhibit 2.3(d).
SECTION 3
OTHER PROVISIONS RELATING TO CREDIT FACILITIES
3.1 DEFAULT RATE.
Upon the occurrence, and during the continuance, of an Event of Default,
the principal of and, to the extent permitted by law, interest on the Loans and
any other amounts owing hereunder or under the other Credit Documents shall bear
interest, payable on demand, at a per annum equal to the Adjusted Base Rate plus
2.00%).
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3.2 EXTENSION AND CONVERSION.
Subject to the terms of Section 5.2, the Borrower shall have the option, on
any Business Day, to extend existing Loans into a subsequent permissible
Interest Period or to convert Loans into Loans of another interest rate type;
provided, however, that (i) except as provided in Section 3.8, Eurodollar Loans
may be converted into Base Rate Loans only on the last day of the Interest
Period applicable thereto, (ii) Eurodollar Loans may be extended, and Base Rate
Loans may be converted into Eurodollar Loans, only if no Default or Event of
Default is in existence on the date of extension or conversion, (iii) Loans
extended as, or converted into, Eurodollar Loans shall be subject to the terms
of the definition of "Interest Period" set forth in Section 1.1 and shall be in
such minimum amounts as provided in, with respect to Revolving Loans, Section
2.1(b)(ii), (iv) no more than ten (10) Eurodollar Loans shall be outstanding
hereunder at any time (it being understood that, for purposes hereof, Eurodollar
Loans with different Interest Periods shall be considered as separate Eurodollar
Loans, even if they begin on the same date, although borrowings, extensions and
conversions may, in accordance with the provisions hereof, be combined at the
end of existing Interest Periods to constitute a new Eurodollar Loan with a
single Interest Period) and (v) except as provided in Section 3.2(iv) above, any
request for extension or conversion of a Eurodollar Loan which shall fail to
specify an Interest Period shall be deemed to be a request for an Interest
Period of one month. Each such extension or conversion shall be effected by the
Borrower by giving a Notice of Extension/Conversion (or telephonic notice
promptly confirmed in writing) to the office of the Agent specified in specified
in Schedule 2.1(a), or at such other office as the Agent may designate in
writing, prior to 11:00 A.M. (Charlotte, North Carolina time) on the Business
Day of, in the case of the conversion of a Eurodollar Loan into a Base Rate
Loan, and on the third Business Day prior to, in the case of the extension of a
Eurodollar Loan as, or conversion of a Base Rate Loan into, a Eurodollar Loan,
the date of the proposed extension or conversion, specifying the date of the
proposed extension or conversion, the Loans to be so extended or converted, the
types of Loans into which such Loans are to be converted and, if appropriate,
the applicable Interest Periods with respect thereto. Each request for extension
or conversion shall be irrevocable and shall constitute a representation and
warranty by the Borrower of the matters specified in subsections (b), (c), (d)
and (e) of Section 5.2. In the event the Borrower fails to request extension or
conversion of any Eurodollar Loan in accordance with this Section, or any such
conversion or extension is not permitted or required by this Section, then such
Eurodollar Loan shall be automatically converted into a Base Rate Loan at the
end of the Interest Period applicable thereto. The Agent shall give each Lender
notice as promptly as practicable of any such proposed extension or conversion
affecting any Loan.
3.3 PREPAYMENTS.
(a) Voluntary Prepayments. The Borrower shall have the right to prepay
Loans in whole or in part from time to time; provided, however, (i) that
each partial prepayment of Base Rate Loans shall be in a minimum principal
amount of $250,000 and integral multiples of $250,000, (ii) that each
partial prepayment of Eurodollar Loans shall be in a minimum principal
amount of $1,500,000 and integral multiples of $500,000, (iii) Base Rate
Loans may only be prepaid after telephonic notice (promptly confirmed in
writing) to the Agent not later than 11:00 A.M. (Charlotte, North Carolina
time) on the
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Business Day of the applicable prepayment and (iv) Eurodollar Loans may
only be prepaid on three Business Days' prior notice (by telephone call
promptly confirmed in writing) to the Agent. Subject to the foregoing
terms, amounts prepaid under this Section 3.3(a) shall be applied as the
Borrower may elect; provided that if the Borrower fails to specify a
voluntary prepayment then such prepayment shall be applied first to
Revolving Loans and then the Swingline Loans, in each case first to Base
Rate Loans and then to Eurodollar Loans in direct order of Interest Period
maturities. All prepayments under this Section 3.3(a) shall be subject to
Section 3.12.
(b) Mandatory Prepayments.
(i) If at any time, (A) the sum of the aggregate principal amount
of outstanding Revolving Loans plus LOC Obligations outstanding plus
the aggregate principal amount of outstanding Swingline Loans shall
exceed the Revolving Committed Amount, (B) the aggregate amount of LOC
Obligations outstanding shall exceed the LOC Committed Amount or (C)
the aggregate amount of Swingline Loans outstanding shall exceed the
Swingline Committed Amount, the Borrower shall immediately make
payment on the Loans and/or to cash collateral account in respect of
the LOC Obligations, in an amount sufficient to eliminate such excess.
(ii) Issuances of Equity or Debt. Immediately upon receipt by a
Consolidated Party of proceeds from any Equity Issuance or Debt
Issuance, the Borrower shall prepay the Loans in an aggregate amount
equal to 100% of the Net Cash Proceeds of such Equity Issuance or Debt
Issuance to the Lenders (such prepayment to be applied as set forth in
clause (iv) below).
(iii) Asset Dispositions. Immediately upon receipt by a
Consolidated Party of proceeds from any Asset Disposition, the
Borrower shall forward 100% of the Net Cash Proceeds of such Asset
Disposition to the Lenders as a prepayment of the Loans (such
prepayment to be applied as set forth in clause (iv) below).
Notwithstanding the foregoing, the Borrower shall not be required to
forward to the Lenders as a prepayment of the Loans Net Cash Proceeds
of Asset Dispositions which do not exceed $500,000, in the aggregate,
during the term of this Credit Agreement.
(iv) Application of Mandatory Prepayments. All amounts required
to be paid pursuant to this Section 3.3(b) shall be applied as
follows: first, to Revolving Loans, second to Swingline Loans and
third (after all Revolving Loans and Swingline Loans have been repaid)
to a cash collateral account in respect of LOC Obligations. Within the
parameters of the applications set forth above, prepayments shall be
applied first to Base Rate Loans and then to Eurodollar Loans in
direct order of Interest Period maturities. All prepayments under this
Section 3.3(b) shall be subject to Section 3.12.
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3.4 VOLUNTARY REDUCTION OF REVOLVING COMMITTED AMOUNT.
The Borrower may from time to time permanently reduce or terminate the
Revolving Committed Amount in whole or in part (in minimum aggregate amounts of
$5,000,000 or in integral multiples of $1,000,000 in excess thereof (or, if
less, the full remaining amount of the then applicable Revolving Committed
Amount)) upon five Business Days' prior written or telephonic notice to the
Agent; provided, however, no such termination or reduction shall be made which
would cause the aggregate principal amount of outstanding Revolving Loans plus
LOC Obligations outstanding plus Swingline Loans outstanding to exceed the
Revolving Committed Amount, unless, concurrently with such termination or
reduction, the Revolving Loans are repaid to the extent necessary to eliminate
such excess. The Agent shall promptly notify each affected Lender of receipt by
the Agent of any notice from the Borrower pursuant to this Section 3.4.
3.5 FEES.
(a) Unused Fee. In consideration of the Revolving Commitments of the
Lenders hereunder, the Borrower agrees to pay to the Agent for the account
of each Lender a fee (the "Unused Fee") on the Unused Revolving Committed
Amount computed at a per annum rate for each day during the applicable
Unused Fee Calculation Period (hereinafter defined) at a rate equal to the
Applicable Percentage for Unused Fees in effect from time to time. The
Unused Fee shall commence to accrue on the Closing Date and shall be due
and payable in arrears on the 15th day following the last business day of
each March, June, September and December (and any date that the Revolving
Committed Amount is reduced as provided in Section 3.4 and the Maturity
Date) for the immediately preceding calendar quarter (or portion thereof)
(each such calendar quarter or portion thereof for which the Unused Fee is
payable hereunder being herein referred to as an "Unused Fee Calculation
Period"), beginning with the first of such dates to occur after the Closing
Date. For purposes of computation of the Unused Fee, the Swingline Loans
shall not be counted toward or considered usage under the Revolving Loan
facility.
(b) Letter of Credit Fees.
(i) Letter of Credit Issuance Fee. In consideration of the
issuance of Letters of Credit hereunder, the Borrower promises to pay
to the Agent for the account of each Lender a fee (the "Letter of
Credit Fee") on such Lender's Revolving Commitment Percentage of the
average daily maximum amount available to be drawn under each such
Letter of Credit computed at a per annum rate for each day from the
date of issuance to the date of expiration equal to the Applicable
Percentage. The Letter of Credit Fee will be payable quarterly in
arrears on the last Business Day of each March, June, September and
December for the immediately preceding quarter (or a portion thereof).
(ii) Issuing Lender Fees. In addition to the Letter of Credit Fee
payable pursuant to clause (i) above, the Borrower promises to pay to
the Issuing Lender for its own account without sharing by the other
Lenders upon the
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issuance of any Letter of Credit hereunder a fee equal to one-eighth
of one percent (.125%) of the face amount of such Letter of Credit and
the customary charges from time to time of the Issuing Lender with
respect to the issuance, amendment, transfer, administration,
cancellation and conversion of, and drawings under, such Letters of
Credit (collectively, the "Issuing Lender Fees").
(c) Administrative Fees. The Borrower agrees to pay to the Agent,
for its own account and NationsBanc Montgomery Securities LLC, as
applicable, the fees referred to in the Agent's Fee Letter
(collectively, the "Agent's Fees").
3.6 CAPITAL ADEQUACY.
If any Lender has determined, after the date hereof, that the adoption or
the becoming effective of, or any change in, or any change by any Governmental
Authority, central bank or comparable agency charged with the interpretation or
administration thereof in the interpretation or administration of, any
applicable law, rule or regulation regarding capital adequacy, or compliance by
such Lender with any request or directive regarding capital adequacy (whether or
not having the force of law) of any such authority, central bank or comparable
agency, has or would have the effect of reducing the rate of return on such
Lender's capital or assets as a consequence of its commitments or obligations
hereunder to a level below that which such Lender could have achieved but for
such adoption, effectiveness, change or compliance (taking into consideration
such Lender's policies with respect to capital adequacy), then, upon notice from
such Lender to the Borrower, the Borrower shall be obligated to pay to such
Lender such additional amount or amounts as will compensate such Lender for such
reduction. Each determination by any such Lender of amounts owing under this
Section shall, absent manifest error, be conclusive and binding on the parties
hereto.
3.7 LIMITATION ON EURODOLLAR LOANS.
If on or prior to the first day of any Interest Period for any Eurodollar
Loan:
(a) the Agent determines (which determination shall be conclusive)
that by reason of circumstances affecting the relevant market, adequate and
reasonable means do not exist for ascertaining the Eurodollar Rate for such
Interest Period; or
(b) the Required Lenders determine (which determination shall be
conclusive) and notify the Agent that the Eurodollar Rate will not
adequately and fairly reflect the cost to the Lenders of funding Eurodollar
Loans for such Interest Period;
then the Agent shall give the Borrower prompt notice thereof, and so long as
such condition remains in effect, the Lenders shall be under no obligation to
make additional Eurodollar Loans, continue Eurodollar Loans, or to convert Base
Rate Loans into Eurodollar Loans and the Borrower shall, on the last day(s) of
the then current Interest Period(s) for the outstanding Eurodollar Loans, either
prepay such Eurodollar Loans or convert such Eurodollar Loans into Base Rate
Loans in accordance with the terms of this Credit Agreement.
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3.8 ILLEGALITY.
Notwithstanding any other provision of this Credit Agreement, in the event
that it becomes unlawful for any Lender or its Applicable Lending Office to
make, maintain, or fund Eurodollar Loans hereunder, then such Lender shall
promptly notify the Borrower thereof and such Lender's obligation to make or
continue Eurodollar Loans and to convert Base Rate Loans into Eurodollar Loans
shall be suspended until such time as such Lender may again make, maintain, and
fund Eurodollar Loans (in which case the provisions of Section 3.10 shall be
applicable).
3.9 REQUIREMENTS OF LAW.
(a) If, after the date hereof, the adoption of any applicable law,
rule, or regulation, or any change in any applicable law, rule, or
regulation, or any change in the interpretation or administration thereof
by any Governmental Authority, central bank, or comparable agency charged
with the interpretation or administration thereof, or compliance by any
Lender (or its Applicable Lending Office) with any request or directive
(whether or not having the force of law) of any such Governmental
Authority, central bank, or comparable agency:
(i) shall subject such Lender (or its Applicable Lending Office)
to any tax, duty, or other charge with respect to any Eurodollar
Loans, its Revolving Notes, or its obligation to make Eurodollar
Loans, or change the basis of taxation of any amounts payable to such
Lender (or its Applicable Lending Office) under this Credit Agreement
or its Revolving Notes in respect of any Eurodollar Loans (other than
taxes imposed on the overall net income of such Lender by the
jurisdiction in which such Lender has its principal office or such
Applicable Lending Office);
(ii) shall impose, modify, or deem applicable any reserve,
special deposit, assessment, or similar requirement (other than the
Eurodollar Reserve Requirement utilized in the determination of the
Adjusted Eurodollar Rate) relating to any extensions of credit or
other assets of, or any deposits with or other liabilities or
commitments of, such Lender (or its Applicable Lending Office),
including the Commitment of such Lender hereunder; or
(iii) shall impose on such Lender (or its Applicable Lending
Office) or on the United States market for certificates of deposit or
the London interbank market any other condition affecting this Credit
Agreement or its Revolving Notes or any of such extensions of credit
or liabilities or commitments;
and the result of any of the foregoing is to increase the cost to such
Lender (or its Applicable Lending Office) of making, converting into,
continuing, or maintaining any Eurodollar Loans or to reduce any sum
received or receivable by such Lender (or its Applicable Lending Office)
under this Credit Agreement or its Revolving Notes with respect to any
Eurodollar Loans, then the Borrower shall pay to such Lender on demand
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such amount or amounts as will compensate such Lender for such increased
cost or reduction with respect to such Eurodollar Loans. If any Lender
requests compensation by the Borrower under this Section 3.9(a), the
Borrower may, by notice to such Lender (with a copy to the Agent), suspend
the obligation of such Lender to make or continue Eurodollar Loans, or to
convert Base Rate Loans into Eurodollar Loans, until the event or condition
giving rise to such request ceases to be in effect (in which case the
provisions of Section 3.10 shall be applicable); provided that such
suspension shall not affect the right of such Lender to receive the
compensation so requested.
(b) If, after the date hereof, any Lender shall have determined that
the adoption of any applicable law, rule, or regulation regarding capital
adequacy or any change therein or in the interpretation or administration
thereof by any Governmental Authority, central bank, or comparable agency
charged with the interpretation or administration thereof, or any request
or directive regarding capital adequacy (whether or not having the force of
law) of any such Governmental Authority, central bank, or comparable
agency, has or would have the effect of reducing the rate of return on the
capital of such Lender or any corporation controlling such Lender as a
consequence of such Lender's obligations hereunder to a level below that
which such Lender or such corporation could have achieved but for such
adoption, change, request, or directive (taking into consideration its
policies with respect to capital adequacy), then from time to time upon
demand the Borrower shall pay to such Lender such additional amount or
amounts as will compensate such Lender for such reduction.
(c) Each Lender shall promptly notify the Borrower and the Agent of
any event of which it has knowledge, occurring after the date hereof, which
will entitle such Lender to compensation pursuant to this Section 3.9 and
will designate a different Applicable Lending Office if such designation
will avoid the need for, or reduce the amount of, such compensation and
will not, in the judgment of such Lender, be otherwise disadvantageous to
it. Any Lender claiming compensation under this Section 3.9 shall furnish
to the Borrower and the Agent a statement setting forth the additional
amount or amounts to be paid to it hereunder which shall be conclusive in
the absence of manifest error. In determining such amount, such Lender may
use any reasonable averaging and attribution methods.
3.10 TREATMENT OF AFFECTED LOANS.
If the obligation of any Lender to make any Eurodollar Loan or to continue,
or to convert Base Rate Loans into, Eurodollar Loans shall be suspended pursuant
to Section 3.8 or 3.9 hereof, such Lender's Eurodollar Loans shall be
automatically converted into Base Rate Loans on the last day(s) of the then
current Interest Period(s) for such Eurodollar Loans (or, in the case of a
conversion required by Section 3.8 hereof, on such earlier date as such Lender
may specify to the Borrower with a copy to the Agent) and, unless and until such
Lender gives notice as provided below that the circumstances specified in
Section 3.8 or 3.9 hereof that gave rise to such conversion no longer exist:
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(a) to the extent that such Lender's Eurodollar Loans have been so
converted, all payments and prepayments of principal that would otherwise
be applied to such Lender's Eurodollar Loans shall be applied instead to
its Base Rate Loans; and
(b) all Loans that would otherwise be made or continued by such Lender
as Eurodollar Loans shall be made or continued instead as Base Rate Loans,
and all Base Rate Loans of such Lender that would otherwise be Converted
into Eurodollar Loans shall remain as Base Rate Loans.
If such Lender gives notice to the Borrower (with a copy to the Agent) that the
circumstances specified in Section 3.8 or 3.9 hereof that gave rise to the
conversion of such Lender's Eurodollar Loans pursuant to this Section 3.10 no
longer exist (which such Lender agrees to do promptly upon such circumstances
ceasing to exist) at a time when Eurodollar Loans made by other Lenders are
outstanding, such Lender's Base Rate Loans shall be automatically converted, on
the first day(s) of the next succeeding Interest Period(s) for such outstanding
Eurodollar Loans, to the extent necessary so that, after giving effect thereto,
all Loans held by the Lenders holding Eurodollar Loans and by such Lender are
held pro rata (as to principal amounts, interest rate basis, and Interest
Periods) in accordance with their respective Commitments.
3.11 TAXES.
(a) Any and all payments by the Borrower to or for the account of any
Lender or the Agent hereunder or under any other Credit Document shall be
made free and clear of and without deduction for any and all present or
future taxes, duties, levies, imposts, deductions, charges or withholdings,
and all liabilities with respect thereto, excluding, in the case of each
Lender and the Agent, taxes imposed on its income, and franchise taxes
imposed on it, by the jurisdiction under the laws of which such Lender (or
its Applicable Lending Office) or the Agent (as the case may be) is
organized or any political subdivision thereof (all such non-excluded
taxes, duties, levies, imposts, deductions, charges, withholdings, and
liabilities being hereinafter referred to as "Taxes"). If the Borrower
shall be required by law to deduct any Taxes from or in respect of any sum
payable under this Credit Agreement or any other Credit Document to any
Lender or the Agent, (i) the sum payable shall be increased as necessary so
that after making all required deductions (including deductions applicable
to additional sums payable under this Section 3.11) such Lender or the
Agent receives an amount equal to the sum it would have received had no
such deductions been made, (ii) the Borrower shall make such deductions,
(iii) the Borrower shall pay the full amount deducted to the relevant
taxation authority or other authority in accordance with applicable law,
and (iv) the Borrower shall furnish to the Agent, at its address referred
to in Section 11.1, the original or a certified copy of a receipt
evidencing payment thereof.
(b) In addition, the Borrower agrees to pay any and all present or
future stamp or documentary taxes and any other excise or property taxes or
charges or similar levies which arise from any payment made under this
Credit Agreement or any other Credit Document or from the execution or
delivery of, or otherwise with respect to, this Credit Agreement or any
other Credit Document (hereinafter referred to as "Other Taxes").
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(c) The Borrower agrees to indemnify each Lender and the Agent for
the full amount of Taxes and Other Taxes (including, without limitation,
any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts
payable under this Section 3.11) paid by such Lender or the Agent (as the
case may be) and any liability (including penalties, interest, and
expenses) arising therefrom or with respect thereto.
(d) Each Lender organized under the laws of a jurisdiction outside
the United States, on or prior to the date of its execution and delivery of
this Credit Agreement in the case of each Lender listed on the signature
pages hereof and on or prior to the date on which it becomes a Lender in
the case of each other Lender, and from time to time thereafter if
requested in writing by the Borrower or the Agent (but only so long as such
Lender remains lawfully able to do so), shall provide the Borrower and the
Agent with (i) Internal Revenue Service Form 1001 or 4224, as appropriate,
or any successor form prescribed by the Internal Revenue Service,
certifying that such Lender is entitled to benefits under an income tax
treaty to which the United States is a party which reduces the rate of
withholding tax on payments of interest or certifying that the income
receivable pursuant to this Credit Agreement is effectively connected with
the conduct of a trade or business in the United States, (ii) Internal
Revenue Service Form W-8 or W-9, as appropriate, or any successor form
prescribed by the Internal Revenue Service, and (iii) any other form or
certificate required by any taxing authority (including any certificate
required by Sections 871(h) and 881(c) of the Internal Revenue Code),
certifying that such Lender is entitled to an exemption from or a reduced
rate of tax on payments pursuant to this Credit Agreement or any of the
other Credit Documents.
(e) For any period with respect to which a Lender has failed to
provide the Borrower and the Agent with the appropriate form pursuant to
Section 3.11(d) (unless such failure is due to a change in treaty, law, or
regulation occurring subsequent to the date on which a form originally was
required to be provided), such Lender shall not be entitled to
indemnification under Section 3.11(a) or 3.11(b) with respect to Taxes
imposed by the United States; provided, however, that should a Lender,
which is otherwise exempt from or subject to a reduced rate of withholding
tax, become subject to Taxes because of its failure to deliver a form
required hereunder, the Borrower shall take such steps as such Lender shall
reasonably request to assist such Lender to recover such Taxes.
(f) If the Borrower is required to pay additional amounts to or for
the account of any Lender pursuant to this Section 3.11, then such Lender
will agree to use reasonable efforts to change the jurisdiction of its
Applicable Lending Office so as to eliminate or reduce any such additional
payment which may thereafter accrue if such change, in the judgment of such
Lender, is not otherwise disadvantageous to such Lender.
(g) Within thirty (30) days after the date of any payment of Taxes,
the Borrower shall furnish to the Agent the original or a certified copy of
a receipt evidencing such payment.
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(h) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower
contained in this Section 3.11 shall survive the repayment of the Loans,
LOC Obligations and other obligations under the Credit Documents and the
termination of the Commitments hereunder.
3.12 COMPENSATION.
Upon the request of any Lender, the Borrower shall pay to such Lender such
amount or amounts as shall be sufficient (in the reasonable opinion of such
Lender) to compensate it for any loss, cost, or expense (including loss of
anticipated profits) incurred by it as a result of:
(a) any payment, prepayment, or Conversion of a Eurodollar Loan for
any reason (including, without limitation, the acceleration of the Loans
pursuant to Section 9.2) on a date other than the last day of the Interest
Period for such Loan; or
(b) any failure by the Borrower for any reason (including, without
limitation, the failure of any condition precedent specified in Section 5
to be satisfied) to borrow, convert, continue, or prepay a Eurodollar Loan
on the date for such borrowing, conversion, continuation, or prepayment
specified in the relevant notice of borrowing, prepayment, continuation, or
conversion under this Credit Agreement.
With respect to Eurodollar Loans, such indemnification may include an amount
equal to the excess, if any, of (a) the amount of interest which would have
accrued on the amount so prepaid, or not so borrowed, converted or continued,
for the period from the date of such prepayment or of such failure to borrow,
convert or continue to the last day of the applicable Interest Period (or, in
the case of a failure to borrow, convert or continue, the Interest Period that
would have commenced on the date of such failure) in each case at the applicable
rate of interest for such Eurodollar Loans provided for herein (excluding,
however, the Applicable Percentage included therein, if any) over (b) the amount
of interest (as reasonably determined by such Lender) which would have accrued
to such Lender on such amount by placing such amount on deposit for a comparable
period with leading banks in the interbank Eurodollar market. The covenants of
the Borrower set forth in this Section 3.12 shall survive the repayment of the
Loans, LOC Obligations and other obligations under the Credit Documents and the
termination of the Commitments hereunder.
3.13 PRO RATA TREATMENT.
Except to the extent otherwise provided herein:
(a) Loans. Each Loan, each payment or (subject to the terms of
Section 3.3) prepayment of principal of any Loan or reimbursement
obligations arising from drawings under Letters of Credit, each payment of
interest on the Loans or reimbursement obligations arising from drawings
under Letters of Credit, each payment of Unused Fees, each payment of the
Letter of Credit Fee, each reduction of the Revolving Committed Amount and
each conversion or extension of any Loan, shall be allocated pro rata among
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the Lenders in accordance with the respective principal amounts of their
outstanding Loans and Participation Interests.
(b) Advances. No Lender shall be responsible for the failure or delay
by any other Lender in its obligation to make its ratable share of a
borrowing hereunder; provided, however, that the failure of any Lender to
fulfill its obligations hereunder shall not relieve any other Lender of its
obligations hereunder. Unless the Agent shall have been notified by any
Lender prior to the date of any requested borrowing that such Lender does
not intend to make available to the Agent its ratable share of such
borrowing to be made on such date, the Agent may assume that such Lender
has made such amount available to the Agent on the date of such borrowing,
and the Agent in reliance upon such assumption, may (in its sole discretion
but without any obligation to do so) make available to the Borrower a
corresponding amount. If such corresponding amount is not in fact made
available to the Agent, the Agent shall be able to recover such
corresponding amount from such Lender. If such Lender does not pay such
corresponding amount forthwith upon the Agent's demand therefor, the Agent
will promptly notify the Borrower, and the Borrower shall immediately pay
such corresponding amount to the Agent. The Agent shall also be entitled to
recover from the Lender or the Borrower, as the case may be, interest on
such corresponding amount in respect of each day from the date such
corresponding amount was made available by the Agent to the Borrower to the
date such corresponding amount is recovered by the Agent at a per annum
rate equal to (i) from the Borrower at the applicable rate for the
applicable borrowing pursuant to the Notice of Borrowing and (ii) from a
Lender at the Federal Funds Rate.
3.14 SHARING OF PAYMENTS.
The Lenders agree among themselves that, in the event that any Lender shall
obtain payment in respect of any Loan, LOC Obligations or any other obligation
owing to such Lender under this Credit Agreement through the exercise of a right
of setoff, banker's lien or counterclaim, or pursuant to a secured claim under
Section 506 of Title 11 of the United States Code or other security or interest
arising from, or in lieu of, such secured claim, received by such Lender under
any applicable bankruptcy, insolvency or other similar law or otherwise, or by
any other means, in excess of its pro rata share of such payment as provided for
in this Credit Agreement, such Lender shall promptly purchase from the other
Lenders a Participation Interest in such Loans, LOC Obligations and other
obligations in such amounts, and make such other adjustments from time to time,
as shall be equitable to the end that all Lenders share such payment in
accordance with their respective ratable shares as provided for in this Credit
Agreement. The Lenders further agree among themselves that if payment to a
Lender obtained by such Lender through the exercise of a right of setoff,
banker's lien, counterclaim or other event as aforesaid shall be rescinded or
must otherwise be restored, each Lender which shall have shared the benefit of
such payment shall, by repurchase of a Participation Interest theretofore sold,
return its share of that benefit (together with its share of any accrued
interest payable with respect thereto) to each Lender whose payment shall have
been rescinded or otherwise restored. The Borrower agrees that any Lender so
purchasing such a Participation Interest may, to the fullest extent permitted by
law, exercise all rights of payment, including setoff, banker's lien or
counterclaim, with respect to such Participation Interest as fully as if such
Lender were a holder
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of such Loan, LOC Obligations or other obligation in the amount of such
Participation Interest. Except as otherwise expressly provided in this Credit
Agreement, if any Lender or the Agent shall fail to remit to the Agent or any
other Lender an amount payable by such Lender or the Agent to the Agent or such
other Lender pursuant to this Credit Agreement on the date when such amount is
due, such payments shall be made together with interest thereon for each date
from the date such amount is due until the date such amount is paid to the Agent
or such other Lender at a rate per annum equal to the Federal Funds Rate. If
under any applicable bankruptcy, insolvency or other similar law, any Lender
receives a secured claim in lieu of a setoff to which this Section 3.14 applies,
such Lender shall, to the extent practicable, exercise its rights in respect of
such secured claim in a manner consistent with the rights of the Lenders under
this Section 3.14 to share in the benefits of any recovery on such secured
claim.
3.15 PAYMENTS, COMPUTATIONS, ETC.
(a) Except as otherwise specifically provided herein, all payments
hereunder shall be made to the Agent in dollars in immediately available
funds, without offset, deduction, counterclaim or withholding of any kind,
at the Agent's office specified in Schedule 2.1(a) not later than 2:00 P.M.
(Charlotte, North Carolina time) on the date when due. Payments received
after such time shall be deemed to have been received on the next
succeeding Business Day. The Agent may (but shall not be obligated to)
debit the amount of any such payment which is not made by such time to any
ordinary deposit account of the Borrower maintained with the Agent (with
notice to the Borrower). The Borrower shall, at the time it makes any
payment under this Credit Agreement, specify to the Agent the Loans, LOC
Obligations, Fees, interest or other amounts payable by the Borrower
hereunder to which such payment is to be applied (and in the event that it
fails so to specify, or if such application would be inconsistent with the
terms hereof, the Agent shall distribute such payment to the Lenders in
such manner as the Agent may determine to be appropriate in respect of
obligations owing by the Borrower hereunder, subject to the terms of
Section 3.13(a)). The Agent will distribute such payments to such Lenders,
if any such payment is received prior to 12:00 Noon (Charlotte, North
Carolina time) on a Business Day in like funds as received prior to the end
of such Business Day and otherwise the Agent will distribute such payment
to such Lenders on the next succeeding Business Day. Whenever any payment
hereunder shall be stated to be due on a day which is not a Business Day,
the due date thereof shall be extended to the next succeeding Business Day
(subject to accrual of interest and Fees for the period of such extension),
except that in the case of Eurodollar Loans, if the extension would cause
the payment to be made in the next following calendar month, then such
payment shall instead be made on the next preceding Business Day. Except as
expressly provided otherwise herein, all computations of interest and fees
shall be made on the basis of actual number of days elapsed over a year of
360 days, except with respect to computation of interest on Base Rate Loans
which (unless the Base Rate is determined by reference to the Federal Funds
Rate) shall be calculated based on a year of 365 or 366 days, as
appropriate. Interest shall accrue from and include the date of borrowing,
but exclude the date of payment.
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(b) Allocation of Payments After Event of Default. Notwithstanding any
other provisions of this Credit Agreement to the contrary, after the
occurrence and during the continuance of an Event of Default, all amounts
collected or received by the Agent or any Lender on account of the Credit
Party Obligations or any other amounts outstanding under any of the Credit
Documents or in respect of the Collateral shall be paid over or delivered
as follows:
FIRST, to the payment of all reasonable out-of-pocket costs and
expenses (including without limitation reasonable attorneys' fees) of the
Agent in connection with enforcing the rights of the Lenders under the
Credit Documents, and any protective advances made by the Agent with
respect to the Collateral under or pursuant to the terms of the Collateral
Documents, and to reimburse the Lenders for any costs and expenses of the
Agent for which the Lenders have indemnified the Agent pursuant to Section
10.5;
SECOND, to payment of any fees owed to the Agent;
THIRD, to the payment of all reasonable out-of-pocket costs and
expenses (including without limitation, reasonable attorneys' fees) of each
of the Lenders in connection with enforcing its rights under the Credit
Documents or otherwise with respect to the Credit Party Obligations owing
to such Lender;
FOURTH, to the payment of all of the Credit Party Obligations
consisting of accrued fees and interest;
FIFTH, to the payment of the outstanding principal amount of the
Credit Party Obligations (including the payment or cash collateralization
of the outstanding LOC Obligations);
SIXTH, to all other Credit Party Obligations and other obligations
which shall have become due and payable under the Credit Documents or
otherwise and not repaid pursuant to clauses "FIRST" through "FIFTH" above;
and
SEVENTH, to the payment of the surplus, if any, to whoever may be
lawfully entitled to receive such surplus.
In carrying out the foregoing, (i) amounts received shall be applied in the
numerical order provided until exhausted prior to application to the next
succeeding category; (ii) each of the Lenders shall receive an amount equal
to its pro rata share (based on the proportion that the then outstanding
Loans and LOC Obligations held by such Lender bears to the aggregate then
outstanding Loans and LOC Obligations) of amounts available to be applied
pursuant to clauses "THIRD", "FOURTH", "FIFTH" and " SIXTH" above; and
(iii) to the extent that any amounts available for distribution pursuant to
clause "FIFTH" above are attributable to the issued but undrawn amount of
outstanding Letters of Credit, such amounts shall be held by the Agent in a
cash collateral account and applied (A) first, to reimburse the Issuing
Lender from time to time for any drawings under such Letters of Credit and
(B) then, following the expiration of all Letters of Credit, to all other
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obligations of the types described in clauses "FIFTH" and "SIXTH" above in
the manner provided in this Section 3.15(b).
3.16 EVIDENCE OF DEBT.
(a) Each Lender shall maintain an account or accounts evidencing each
Loan made by such Lender to the Borrower from time to time, including the
amounts of principal and interest payable and paid to such Lender from time
to time under this Credit Agreement. Each Lender will make reasonable
efforts to maintain the accuracy of its account or accounts and to promptly
update its account or accounts from time to time, as necessary.
(b) The Agent shall maintain the Register pursuant to Section 11.3(c),
and a subaccount for each Lender, in which Register and subaccounts (taken
together) shall be recorded (i) the amount, type and Interest Period of
each such Loan hereunder, (ii) the amount of any principal or interest due
and payable or to become due and payable to each Lender hereunder and (iii)
the amount of any sum received by the Agent hereunder from or for the
account of the Borrower and each Lender's share thereof. The Agent will
make reasonable efforts to maintain the accuracy of the subaccounts
referred to in the preceding sentence and to promptly update such
subaccounts from time to time, as necessary.
(c) The entries made in the accounts, Register and subaccounts
maintained pursuant to subsection (b) of this Section 3.16 (and, if
consistent with the entries of the Agent, subsection (a)) shall be prima
facie evidence of the existence and amounts of the obligations of the
Borrower therein recorded; provided, however, that the failure of any
Lender or the Agent to maintain any such account, such Register or such
subaccount, as applicable, or any error therein, shall not in any manner
affect the obligation of the Borrower to repay the Loans made by such
Lender in accordance with the terms hereof.
SECTION 4
GUARANTY
4.1 THE GUARANTY.
Each of the Guarantors hereby jointly and severally guarantees to each
Lender, each Affiliate of a Lender that enters into a Hedging Agreement, and the
Agent as hereinafter provided the prompt payment of the Credit Party Obligations
in full when due (whether at stated maturity, as a mandatory prepayment, by
acceleration, as a mandatory cash collateralization or otherwise) strictly in
accordance with the terms thereof. The Guarantors hereby further agree that if
any of the Credit Party Obligations are not paid in full when due (whether at
stated maturity, as a mandatory prepayment, by acceleration, as a mandatory cash
collateralization or otherwise), the Guarantors will, jointly and severally,
promptly pay the same, without any demand or notice whatsoever, and that in the
case of any extension of time of payment or renewal of any of the Credit Party
Obligations, the same will be promptly paid in full when due
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(whether at extended maturity, as a mandatory prepayment, by acceleration, as a
mandatory cash collateralization or otherwise) in accordance with the terms of
such extension or renewal.
Notwithstanding any provision to the contrary contained herein or in any
other of the Credit Documents or Hedging Agreements, the obligations of each
Guarantor hereunder shall be limited to an aggregate amount equal to the largest
amount that would not render its obligations hereunder subject to avoidance
under Section 548 of the Bankruptcy Code or any comparable provisions of any
applicable state law.
4.2 OBLIGATIONS UNCONDITIONAL.
The obligations of the Guarantors under Section 4.1 are joint and several,
absolute and unconditional, irrespective of the value, genuineness, validity,
regularity or enforceability of any of the Credit Documents or Hedging
Agreements, or any other agreement or instrument referred to therein, or any
substitution, release, impairment or exchange of any other guarantee of or
security for any of the Credit Party Obligations, and, to the fullest extent
permitted by applicable law, irrespective of any other circumstance whatsoever
which might otherwise constitute a legal or equitable discharge or defense of a
surety or guarantor, it being the intent of this Section 4.2 that the
obligations of the Guarantors hereunder shall be absolute and unconditional
under any and all circumstances. Each Guarantor agrees that such Guarantor shall
have no right of subrogation, indemnity, reimbursement or contribution against
the Borrower or any other Guarantor of the Credit Party Obligations for amounts
paid under this Section 4 until such time as the Lenders (and any Affiliates of
Lenders entering into Hedging Agreements) have been paid in full, all
Commitments under this Credit Agreement have been terminated and no Person or
Governmental Authority shall have any right to request any return or
reimbursement of funds from the Lenders in connection with monies received under
the Credit Documents or Hedging Agreements. Without limiting the generality of
the foregoing, it is agreed that, to the fullest extent permitted by law, the
occurrence of any one or more of the following shall not alter or impair the
liability of any Guarantor hereunder which shall remain absolute and
unconditional as described above:
(a) at any time or from time to time, without notice to any Guarantor,
the time for any performance of or compliance with any of the Credit Party
Obligations shall be extended, or such performance or compliance shall be
waived;
(b) any of the acts mentioned in any of the provisions of any of the
Credit Documents, any Hedging Agreement or any other agreement or
instrument referred to in the Credit Documents or Hedging Agreements shall
be done or omitted;
(c) the maturity of any of the Credit Party Obligations shall be
accelerated, or any of the Credit Party Obligations shall be modified,
supplemented or amended in any respect, or any right under any of the
Credit Documents, any Hedging Agreement or any other agreement or
instrument referred to in the Credit Documents or Hedging Agreements shall
be waived or any other guarantee of any of the Credit Party Obligations or
any security therefor shall be released, impaired or exchanged in whole or
in part or otherwise dealt with;
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(d) any Lien granted to, or in favor of, the Agent or any Lender or
Lenders as security for any of the Credit Party Obligations shall fail to
attach or be perfected; or
(e) any of the Credit Party Obligations shall be determined to be void
or voidable (including, without limitation, for the benefit of any creditor
of any Guarantor) or shall be subordinated to the claims of any Person
(including, without limitation, any creditor of any Guarantor).
With respect to its obligations hereunder, each Guarantor hereby expressly
waives diligence, presentment, demand of payment, protest and all notices
whatsoever, and any requirement that the Agent or any Lender exhaust any right,
power or remedy or proceed against any Person under any of the Credit Documents,
any Hedging Agreement or any other agreement or instrument referred to in the
Credit Documents or Hedging Agreements, or against any other Person under any
other guarantee of, or security for, any of the Credit Party Obligations.
4.3 REINSTATEMENT.
The obligations of the Guarantors under this Section 4 shall be
automatically reinstated if and to the extent that for any reason any payment by
or on behalf of any Person in respect of the Credit Party Obligations is
rescinded or must be otherwise restored by any holder of any of the Credit Party
Obligations, whether as a result of any proceedings in bankruptcy or
reorganization or otherwise, and each Guarantor agrees that it will indemnify
the Agent and each Lender on demand for all reasonable costs and expenses
(including, without limitation, fees and expenses of counsel) incurred by the
Agent or such Lender in connection with such rescission or restoration,
including any such costs and expenses incurred in defending against any claim
alleging that such payment constituted a preference, fraudulent transfer or
similar payment under any bankruptcy, insolvency or similar law.
4.4 CERTAIN ADDITIONAL WAIVERS.
Without limiting the generality of the provisions of this Section 4, each
Guarantor hereby specifically waives the benefits of N.C. Gen. Stat.ss.ss.26-7
through 26-9, inclusive, to the extent applicable. Each Guarantor further agrees
that such Guarantor shall have no right of recourse to security for the Credit
Party Obligations, except through the exercise of rights of subrogation pursuant
to Section 4.2 and through the exercise of rights of contribution pursuant to
Section 4.6.
4.5 REMEDIES.
The Guarantors agree that, to the fullest extent permitted by law, as
between the Guarantors, on the one hand, and the Agent and the Lenders, on the
other hand, the Credit Party Obligations may be declared to be forthwith due and
payable as provided in Section 9.2 (and shall be deemed to have become
automatically due and payable in the circumstances provided in said Section 9.2)
for purposes of Section 4.1 notwithstanding any stay, injunction or other
prohibition preventing such declaration (or preventing the Credit Party
Obligations from becoming automatically due and payable) as against any other
Person and that, in the event of
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such declaration (or the Credit Party Obligations being deemed to have become
automatically due and payable), the Credit Party Obligations (whether or not due
and payable by any other Person) shall forthwith become due and payable by the
Guarantors for purposes of Section 4.1.
4.6 RIGHTS OF CONTRIBUTION.
The Guarantors hereby agree as among themselves that, if any Guarantor
shall make an Excess Payment (as defined below), such Guarantor shall have a
right of contribution from each other Guarantor in an amount equal to such other
Guarantor's Contribution Share (as defined below) of such Excess Payment. The
payment obligations of any Guarantor under this Section 4.6 shall be subordinate
and subject in right of payment to the prior payment in full to the Agent and
the Lenders of the Guaranteed Obligations, and none of the Guarantors shall
exercise any right or remedy under this Section 4.6 against any other Guarantor
until payment and satisfaction in full of all of such Guaranteed Obligations.
For purposes of this Section 4.6, (a) "Guaranteed Obligations" shall mean any
obligations arising under the other provisions of this Section 4; (b) "Excess
Payment" shall mean the amount paid by any Guarantor in excess of its Pro Rata
Share of any Guaranteed Obligations; (c) "Pro Rata Share" shall mean, for any
Guarantor in respect of any payment of Guaranteed Obligations, the ratio
(expressed as a percentage) as of the date of such payment of Guaranteed
Obligations of (i) the amount by which the aggregate present fair salable value
of all of its assets and properties exceeds the amount of all debts and
liabilities of such Guarantor (including contingent, subordinated, unmatured,
and unliquidated liabilities, but excluding the obligations of such Guarantor
hereunder) to (ii) the amount by which the aggregate present fair salable value
of all assets and other properties of the Borrower and all of the Guarantors
exceeds the amount of all of the debts and liabilities (including contingent,
subordinated, unmatured, and unliquidated liabilities, but excluding the
obligations of the Borrower and the Guarantors hereunder) of the Borrower and
all of the Guarantors; provided, however, that, for purposes of calculating the
Pro Rata Shares of the Guarantors in respect of any payment of Guaranteed
Obligations, any Guarantor that became a Guarantor subsequent to the date of any
such payment shall be deemed to have been a Guarantor on the date of such
payment and the financial information for such Guarantor as of the date such
Guarantor became a Guarantor shall be utilized for such Guarantor in connection
with such payment; and (d) "Contribution Share" shall mean, for any Guarantor in
respect of any Excess Payment made by any other Guarantor, the ratio (expressed
as a percentage) as of the date of such Excess Payment of (i) the amount by
which the aggregate present fair salable value of all of its assets and
properties exceeds the amount of all debts and liabilities of such Guarantor
(including contingent, subordinated, unmatured, and unliquidated liabilities,
but excluding the obligations of such Guarantor hereunder) to (ii) the amount by
which the aggregate present fair salable value of all assets and other
properties of the Borrower and all of the Guarantors other than the maker of
such Excess Payment exceeds the amount of all of the debts and liabilities
(including contingent, subordinated, unmatured, and unliquidated liabilities,
but excluding the obligations of the Borrower and the Guarantors hereunder) of
the Borrower and all of the Guarantors other than the maker of such Excess
Payment; provided, however, that, for purposes of calculating the Contribution
Shares of the Guarantors in respect of any Excess Payment, any Guarantor that
became a Guarantor subsequent to the date of any such Excess Payment shall be
deemed to have been a Guarantor on the date of such Excess Payment and the
financial information for such Guarantor as of the date such Guarantor became a
Guarantor shall be utilized for such Guarantor
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in connection with such Excess Payment. This Section 4.6 shall not be deemed to
affect any right of subrogation, indemnity, reimbursement or contribution that
any Guarantor may have under applicable law against the Borrower in respect of
any payment of Guaranteed Obligations. Notwithstanding the foregoing, all rights
of contribution against any Guarantor shall terminate from and after such time,
if ever, that such Guarantor shall be relieved of its obligations pursuant to
Section 8.4.
4.7 CONTINUING GUARANTEE.
The guarantee in this Section 4 is a continuing guarantee, and shall apply
to all Credit Party Obligations whenever arising.
SECTION 5
CONDITIONS
5.1 CLOSING CONDITIONS.
The obligation of the Lenders to enter into this Credit Agreement and to
make the initial Loans or the Issuing Lender to issue the initial Letter of
Credit, whichever shall occur first, shall be subject to satisfaction of the
following conditions (in form and substance reasonably acceptable to the
Lenders):
(a) Executed Credit Documents. Receipt by the Agent of duly executed
copies of: (i) this Credit Agreement; (ii) the Revolving Notes; (iii) the
Swingline Note; (iv) the Collateral Documents and (v) all other Credit
Documents, each in form and substance acceptable to the Lenders in their
sole discretion.
(b) Corporate Documents. Receipt by the Agent of the following:
(i) Charter Documents. Copies of the articles or certificates of
incorporation or other charter documents of each Credit Party
certified to be true and complete as of a recent date by the
appropriate Governmental Authority of the state or other jurisdiction
of its incorporation and certified by a secretary or assistant
secretary of such Credit Party to be true and correct as of the
Closing Date.
(ii) Bylaws. A copy of the bylaws of each Credit Party certified
by a secretary or assistant secretary of such Credit Party to be true
and correct as of the Closing Date.
(iii) Resolutions. Copies of resolutions of the Board of
Directors of each Credit Party approving and adopting the Credit
Documents to which it is a party, the transactions contemplated
therein and authorizing execution and
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delivery thereof, certified by a secretary or assistant secretary of
such Credit Party to be true and correct and in force and effect as of
the Closing Date.
(iv) Good Standing. Copies of (A) certificates of good standing,
existence or its equivalent with respect to each Credit Party
certified as of a recent date by the appropriate Governmental
Authorities of the state or other jurisdiction of incorporation and
each other jurisdiction in which the failure to so qualify and be in
good standing could have a Material Adverse Effect and (B) to the
extent available, a certificate indicating payment of all corporate
franchise taxes certified as of a recent date by the appropriate
governmental taxing authorities.
(v) Incumbency. An incumbency certificate of each Credit Party
certified by a secretary or assistant secretary to be true and correct
as of the Closing Date.
(c) Financial Statements. Receipt by the Agent and the Lenders of (i)
the separate audited financial statements of the Borrower and its
Subsidiaries, including balance sheets and income and cash flow statements
for the fiscal years 1996 and 1997, (ii) interim quarterly financial
statements and quarterly working capital detail for the first projected
year and (iii) such other information relating to the Borrower and its
Subsidiaries as the Agent may reasonably require in connection with the
structuring and syndication of credit facilities of the type described
herein.
(d) Opinions of Counsel. The Agent shall have received a legal opinion
in form and substance reasonably satisfactory to the Lenders dated as of
the Closing Date from counsel to the Credit Parties.
(e) Personal Property Collateral. The Agent shall have received:
(i) searches of Uniform Commercial Code filings in the
jurisdiction of the chief executive office of each Credit Party and
each jurisdiction where any Collateral is located or where a filing
would need to be made in order to perfect the Agent's security
interest in the Collateral, copies of the financing statements on file
in such jurisdictions and evidence that no Liens exist other than
Permitted Liens;
(ii) duly executed UCC financing statements for each appropriate
jurisdiction as is necessary, in the Agent's sole discretion, to
perfect the Agent's security interest in the Collateral;
(iii) searches of ownership of intellectual property in the
appropriate governmental offices and such patent/trademark/copyright
filings as requested by the Agent in order to perfect the Agent's
security interest in the Collateral;
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(iv) all instruments and chattel paper in the possession of any
of the Credit Parties, together with allonges or assignments as may be
necessary or appropriate to perfect the Agent's security interest in
the Collateral; and
(v) duly executed consents as are necessary, in the Agent's sole
discretion, to perfect the Lenders' security interest in the
Collateral.
(f) Priority of Liens. The Agent shall have received satisfactory
evidence that (i) the Agent, on behalf of the Lenders, holds a perfected,
first priority Lien on all Collateral and (ii) none of the Collateral is
subject to any other Liens other than Permitted Liens.
(g) Evidence of Insurance. Receipt by the Agent of copies of insurance
policies or certificates of insurance of the Credit Parties evidencing
liability and casualty insurance meeting the requirements set forth in the
Credit Documents, including, but not limited to, naming the Agent as sole
loss payee on behalf of the Lenders.
(h) Material Adverse Effect; Change in Market. No material adverse
change shall have occurred since March 31, 1998 in the condition (financial
or otherwise), business, management or prospects of the Consolidated
Parties taken as a whole. There shall not have occurred any material
disruption of, or any material adverse change in, banking or capital market
conditions.
(i) Litigation. There shall not exist any pending or threatened
action, suit, investigation or proceeding in any court or before any
arbitrator or Governmental Authority against a Consolidated Party that
could have a Material Adverse Effect.
(j) Officer's Certificates. The Agent shall have received a
certificate or certificates executed by an authorized officer of the
Borrower as of the Closing Date stating that (A) each Credit Party is in
compliance with all existing financial obligations, (B) all governmental,
shareholder and third party consents and approvals, if any, with respect to
the Credit Documents and the transactions contemplated thereby have been
obtained, (C) no action, suit, investigation or proceeding is pending or
threatened in any court or before any arbitrator or governmental
instrumentality that purports to affect any Consolidated Party or any
transaction contemplated by the Credit Documents, if such action, suit,
investigation or proceeding could have a Material Adverse Effect, and (D)
immediately after giving effect to this Credit Agreement, the other Credit
Documents and all the transactions contemplated therein to occur on such
date, (1) each of the Credit Parties is Solvent, (2) no Default or Event of
Default exists, (3) all representations and warranties contained herein and
in the other Credit Documents are true and correct, and (4) the Credit
Parties are in compliance with each of the financial covenants set forth in
Section 7.11.
(k) Fees and Expenses. Payment by the Credit Parties of all fees and
expenses owed by them to the Lenders and the Agent, including, without
limitation, payment to the Agent of the fees set forth in the Agent's Fee
Letter.
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(l) Initial Public Offering. Consummation of the initial public
offering of the Borrower's Capital Stock and the receipt by the Borrower of
net proceeds from such offering of no less than $50,00,000.
(m) Availability. The Borrower shall have the ability to borrow at
least $25,000,000 of Revolving Loans immediately after the funding of the
initial Revolving Loans.
(n) Year 2000 Compliance. The Agent and the Lenders shall be satisfied
that (i) the Borrower and its Subsidiaries are taking all necessary and
appropriate steps to ascertain the extent of, and to quantify and
successfully address, business and financial risks facing the Borrower and
its Subsidiaries as a result of what is commonly referred to as the "Year
2000 Problem" (i.e., the inability of certain computer applications to
recognize correctly and perform date-sensitive functions involving certain
dates prior to and after December 31, 1999), including risks resulting from
the failure of key vendors and customers of the Borrower and its
Subsidiaries to successfully address the Year 2000 Problem, and (ii) the
Borrower's and its Subsidiaries' material computer applications and those
of its key vendors and customers will, on a timely basis, adequately
address the Year 2000 Problem in all material respects.
(o) Other. Receipt by the Lenders of such other documents,
instruments, agreements or information as reasonably requested by any
Lender, including, but not limited to, information regarding litigation,
tax, accounting, labor, insurance, pension liabilities (actual or
contingent), real estate leases, material contracts, debt agreements,
property ownership and contingent liabilities of the Credit Parties.
5.2 CONDITIONS TO ALL EXTENSIONS OF CREDIT.
The obligations of each Lender to make, convert or extend any Loan and of
the Issuing Lender to issue or extend any Letter of Credit (including the
initial Loans and the initial Letter of Credit) are subject to satisfaction of
the following conditions in addition to satisfaction on the Closing Date of the
conditions set forth in Section 5.1:
(a) The Borrower shall have delivered (i) in the case of any Revolving
Loan, an appropriate Notice of Borrowing or Notice of Extension/Conversion
or (ii) in the case of any Letter of Credit, the Issuing Lender shall have
received an appropriate request for issuance in accordance with the
provisions of Section 2.2(b);
(b) The representations and warranties set forth in Section 6 shall,
subject to the limitations set forth therein, be true and correct in all
material respects as of such date (except for those which expressly relate
to an earlier date);
(c) No Default or Event of Default shall exist and be continuing
either prior to or after giving effect thereto;
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(d) No circumstances, events or conditions shall have occurred since
March 31, 1998 which has had or could have a Material Adverse Effect.
(e) Immediately after giving effect to the making of such Loan (and
the application of the proceeds thereof) or to the issuance of such Letter
of Credit, as the case may be, (i) the sum of the aggregate principal
amount of outstanding Revolving Loans plus Swingline Loans outstanding plus
LOC Obligations outstanding shall not exceed the Revolving Committed Amount
and (ii) the LOC Obligations shall not exceed the LOC Committed Amount.
The delivery of each Notice of Borrowing, each Notice of Extension/Conversion
and each request for a Letter of Credit pursuant to Section 2.2(b) shall
constitute a representation and warranty by the Borrower of the correctness of
the matters specified in subsections (b), (c), (d) and (e).
SECTION 6
REPRESENTATIONS AND WARRANTIES
The Credit Parties hereby represent to the Agent and each Lender that:
6.1 FINANCIAL CONDITION.
The financial statements delivered to the Lenders pursuant to Section
5.1(c) and Section 7.1(a) and (b), (i) have been prepared in accordance with
GAAP and (ii) present fairly (on the basis disclosed in the footnotes to such
financial statements) the consolidated and consolidating financial condition,
results of operations and cash flows of the Consolidated Parties as of such date
and for such periods.
6.2 NO MATERIAL CHANGE.
Since March 31, 1998, (a) there has been no development or event relating
to or affecting the Consolidated Parties (taken as a whole) which has had or
could have a Material Adverse Effect and (b) except as otherwise permitted under
this Credit Agreement, no dividends or other distributions have been declared,
paid or made upon the Capital Stock in a Consolidated Party nor has any of the
Capital Stock in a Consolidated Party been redeemed, retired, purchased or
otherwise acquired for value.
6.3 ORGANIZATION AND GOOD STANDING.
Each of the Credit Parties (a) is duly organized, validly existing and is
in good standing under the laws of the jurisdiction of its incorporation or
organization, (b) has the corporate or other necessary power and authority, and
the legal right, to own and operate its property, to lease the property it
operates as lessee and to conduct the business in which it is currently engaged
and (c) is duly qualified as a foreign entity and in good standing under the
laws of each jurisdiction
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where its ownership, lease or operation of property or the conduct of its
business requires such qualification, other than in such jurisdictions where the
failure to be so qualified and in good standing could have a Material Adverse
Effect.
6.4 POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS.
Each of the Credit Parties has the corporate or other necessary power and
authority, and the legal right, to make, deliver and perform the Credit
Documents to which it is a party, and in the case of the Borrower, to obtain
extensions of credit hereunder, and has taken all necessary corporate action to
authorize the borrowings and other extensions of credit on the terms and
conditions of this Credit Agreement and to authorize the execution, delivery and
performance of the Credit Documents to which it is a party. No consent or
authorization of, filing with, notice to or other similar act by or in respect
of, any Governmental Authority or any other Person is required to be obtained or
made by or on behalf of any Credit Party in connection with the borrowings or
other extensions of credit hereunder or with the execution, delivery,
performance, validity or enforceability of the Credit Documents to which such
Credit Party is a party, except for filings to perfect the Liens created by the
Collateral Documents. This Credit Agreement has been, and each other Credit
Document to which any Credit Party is a party will be, duly executed and
delivered on behalf of the Credit Parties. This Credit Agreement constitutes,
and each other Credit Document to which any Credit Party is a party when
executed and delivered will constitute, a legal, valid and binding obligation of
such Credit Party enforceable against such party in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
6.5 NO CONFLICTS.
Neither the execution and delivery of the Credit Documents, nor the
consummation of the transactions contemplated therein, nor performance of and
compliance with the terms and provisions thereof by such Credit Party will (a)
violate or conflict with any provision of its articles or certificate of
incorporation or bylaws or other organizational or governing documents of such
Person, (b) violate, contravene or materially conflict with any Requirement of
Law or any other law, regulation (including, without limitation, Regulation U or
Regulation X), order, writ, judgment, injunction, decree or permit applicable to
it, (c) violate, contravene or conflict with contractual provisions of, or cause
an event of default under, any indenture, loan agreement, mortgage, deed of
trust, contract or other agreement or instrument to which it is a party or by
which it may be bound, the violation of which could have a Material Adverse
Effect, or (d) result in or require the creation of any Lien (other than those
contemplated in or created in connection with the Credit Documents) upon or with
respect to its properties.
6.6 NO DEFAULT.
No Credit Party is in default in any respect under any contract, lease,
loan agreement, indenture, mortgage, security agreement or other agreement or
obligation to which it is a party or by which any of its properties is bound
which default could have a Material Adverse Effect. No
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Default or Event of Default has occurred or exists except as previously
disclosed in writing to the Lenders.
6.7 OWNERSHIP.
To the best of each Credit Party's knowledge, each Credit Party is the
owner of, and has good and marketable title to, all of its respective material
assets and, to the best of each Credit Party's knowledge, none of such assets is
subject to any Lien other than Permitted Liens.
6.8 LITIGATION.
There are no actions, suits or legal, equitable, arbitration or
administrative proceedings, pending or, to the knowledge of any Credit Party,
threatened against any Credit Party which might have a Material Adverse Effect.
6.9 TAXES.
Each Credit Party has filed, or caused to be filed, all tax returns
(federal, state, local and foreign) required to be filed and paid (a) all
amounts of taxes shown thereon to be due (including interest and penalties),
except to the extent the nonpayment of such amounts of taxes would not have a
Material Adverse Effect and (b) all other taxes, fees, assessments and other
governmental charges (including mortgage recording taxes, documentary stamp
taxes and intangibles taxes) owing by it, except for such taxes (i) which are
not yet delinquent, (ii) that are being contested in good faith and by proper
proceedings, and against which adequate reserves are being maintained in
accordance with GAAP or (iii) the nonpayment of which would not have a Material
Adverse Effect. No Credit Party is aware as of the Closing Date of any proposed
tax assessments against it or any other Credit Party.
6.10 COMPLIANCE WITH LAW.
To the best of the Credit Parties' knowledge, each Credit Party is in
compliance with all Requirements of Law and all other laws, rules, regulations,
orders and decrees (including without limitation Environmental Laws) applicable
to it, or to its properties, unless such failure to comply could not have a
Material Adverse Effect.
6.11 ERISA.
(a) During the five-year period prior to the date on which this
representation is made or deemed made: (i) no ERISA Event has occurred,
and, to the best knowledge of the Credit Parties, no event or condition has
occurred or exists as a result of which any ERISA Event could reasonably be
expected to occur, with respect to any Plan; (ii) no "accumulated funding
deficiency," as such term is defined in Section 302 of ERISA and Section
412 of the Code, whether or not waived, has occurred with respect to any
Plan; (iii) each Plan has been maintained, operated, and funded in
compliance with its own terms and in material compliance with the
provisions of ERISA, the Code, and any other
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applicable federal or state laws; and (iv) no lien in favor of the PBGC or
a Plan has arisen or is reasonably likely to arise on account of any Plan.
(b) The actuarial present value of all "benefit liabilities" (as
defined in Section 4001(a)(16) of ERISA), whether or not vested, under each
Single Employer Plan, as of the last annual valuation date prior to the
date on which this representation is made or deemed made (determined, in
each case, utilizing the actuarial assumptions used in such Plan's most
recent actuarial valuation report), did not exceed as of such valuation
date the fair market value of the assets of such Plan.
(c) Neither any Credit Party nor any ERISA Affiliate has incurred, or,
to the best knowledge of the Credit Parties, could be reasonably expected
to incur, any withdrawal liability under ERISA to any Multiemployer Plan or
Multiple Employer Plan. Neither any Credit Party nor any ERISA Affiliate
would become subject to any withdrawal liability under ERISA if any Credit
Party or any ERISA Affiliate were to withdraw completely from all
Multiemployer Plans and Multiple Employer Plans as of the valuation date
most closely preceding the date on which this representation is made or
deemed made. Neither any Credit Party nor any ERISA Affiliate has received
any notification that any Multiemployer Plan is in reorganization (within
the meaning of Section 4241 of ERISA), is insolvent (within the meaning of
Section 4245 of ERISA), or has been terminated (within the meaning of Title
IV of ERISA), and no Multiemployer Plan is, to the best knowledge of the
Credit Parties, reasonably expected to be in reorganization, insolvent, or
terminated.
(d) No prohibited transaction (within the meaning of Section 406 of
ERISA or Section 4975 of the Code) or breach of fiduciary responsibility
has occurred with respect to a Plan which has subjected or may subject any
Credit Party or any ERISA Affiliate to any liability under Sections 406,
409, 502(i), or 502(l) of ERISA or Section 4975 of the Code, or under any
agreement or other instrument pursuant to which any Credit Party or any
ERISA Affiliate has agreed or is required to indemnify any person against
any such liability.
(e) Neither any Credit Party nor any ERISA Affiliates has any material
liability with respect to "expected post-retirement benefit obligations"
within the meaning of the Financial Accounting Standards Board Statement
106.
6.12 SUBSIDIARIES.
Set forth on Schedule 6.12 is a complete and accurate list of all
Subsidiaries of each Consolidated Party. Information on Schedule 6.12 includes
jurisdiction of incorporation, the number of shares of each class of Capital
Stock outstanding, the number and percentage of outstanding shares of each class
owned (directly or indirectly) by such Consolidated Party; and the number and
effect, if exercised, of all outstanding options, warrants, rights of conversion
or purchase and all other similar rights with respect thereto. The outstanding
Capital Stock of all such Subsidiaries which constitute Credit Parties is
validly issued, fully paid and non-assessable and is owned by the Borrower,
directly or indirectly, free and clear of all Liens (other than those
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arising under or contemplated in connection with the Credit Documents). Other
than as set forth in Schedule 6.12, no Credit Party has outstanding any
securities convertible into or exchangeable for its Capital Stock nor does any
such Person have outstanding any rights to subscribe for or to purchase or any
options for the purchase of, or any agreements providing for the issuance
(contingent or otherwise) of, or any calls, commitments or claims of any
character relating to its Capital Stock. Schedule 6.12 may be updated from time
to time by the Borrower by giving written notice thereof to the Agent.
6.13 GOVERNMENTAL REGULATIONS, ETC.
(a) No part of the Letters of Credit or proceeds of the Loans will be
used, directly or indirectly, for the purpose of purchasing or carrying any
"margin stock" within the meaning of Regulation G or Regulation U, or for
the purpose of purchasing or carrying or trading in any securities. If
requested by any Lender or the Agent, the Borrower will furnish to the
Agent and each Lender a statement to the foregoing effect in conformity
with the requirements of FR Form U-1 referred to in Regulation U. No
indebtedness being reduced or retired out of the proceeds of the Loans was
or will be incurred for the purpose of purchasing or carrying any margin
stock within the meaning of Regulation U or any "margin security" within
the meaning of Regulation T. "Margin stock" within the meaning of
Regulation U does not constitute more than 25% of the value of the
consolidated assets of the Consolidated Parties. None of the transactions
contemplated by this Credit Agreement (including, without limitation, the
direct or indirect use of the proceeds of the Loans) will violate or result
in a violation of the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, or regulations issued pursuant thereto,
or Regulation G, T, U or X.
(b) No Credit Party is subject to regulation under the Public Utility
Holding Company Act of 1935, the Federal Power Act or the Investment
Company Act of 1940, each as amended. In addition, no Credit Party is (i)
an "investment company" registered or required to be registered under the
Investment Company Act of 1940, as amended, and is not controlled by such a
company, or (ii) a "holding company", or a "subsidiary company" of a
"holding company", or an "affiliate" of a "holding company" or of a
"subsidiary" of a "holding company", within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
(c) No director, executive officer or principal shareholder of any
Credit Party is a director, executive officer or principal shareholder of
any Lender. For the purposes hereof the terms "director", "executive
officer" and "principal shareholder" (when used with reference to any
Lender) have the respective meanings assigned thereto in Regulation O
issued by the Board of Governors of the Federal Reserve System.
(d) Each Credit Party has obtained and holds in full force and effect,
all franchises, licenses, permits, certificates, authorizations,
qualifications, accreditations, easements, rights of way and other rights,
consents and approvals which are necessary for the ownership of its
respective Property and to the conduct of its respective businesses as
presently conducted.
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(e) No Credit Party is in violation of any applicable statute,
regulation or ordinance of the United States of America, or of any state,
city, town, municipality, county or any other jurisdiction, or of any
agency thereof (including without limitation, environmental laws and
regulations), which violation could have a Material Adverse Effect.
(f) To the best of the Credit Parties' knowledge, each Credit Party is
current with all material reports and documents, if any, required to be
filed with any state or federal securities commission or similar agency and
is in full compliance in all material respects with all applicable rules
and regulations of such commissions.
6.14 PURPOSE OF LOANS AND LETTERS OF CREDIT.
The proceeds of the Loans hereunder shall be used solely by the Borrower
for (i) working capital; (ii) payment of fees and expenses incurred in
connection herewith, (iii) refinancing existing Indebtedness of the Borrower,
(iv) capital expenditures and Permitted Acquisitions and (v) general corporate
purposes. The Letters of Credit shall be used only for general corporate
purposes of the Borrower.
6.15 ENVIRONMENTAL MATTERS.
(a) To the best of the Credit Parties' knowledge, each of the
facilities and properties owned or leased by the Credit Parties (the
"Locations") and all operations at the Locations are in compliance with all
applicable Environmental Laws, and there is no violation of any
Environmental Law with respect to the Locations or the businesses operated
by the Credit Parties (the "Businesses"), and there are no conditions
relating to the Businesses or Locations that could give rise to liability
under any applicable Environmental Laws.
(b) To the best of the Credit Parties' knowledge, none of the
Locations contains any Materials of Environmental Concern at, on or under
the Locations in amounts or concentrations that constitute or constituted a
violation of, or could give rise to liability under, Environmental Laws.
(c) No Credit Party has received any written or verbal notice of, or
inquiry from any Governmental Authority regarding, any violation, alleged
violation, non-compliance, liability or potential liability regarding
environmental matters or compliance with Environmental Laws with regard to
any of the Locations or the Businesses, nor does any Credit Party have
knowledge or reason to believe that any such notice will be received or is
being threatened.
(d) No judicial proceeding or governmental or administrative action is
pending or, to the best knowledge of any Credit Party, threatened, under
any Environmental Law to which any Credit Party is named as a party, nor
are there any consent decrees or other decrees, consent orders,
administrative orders or other orders, or
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other administrative or judicial requirements outstanding under any
Environmental Law with respect to the Credit Parties, the Locations or the
Businesses.
(e) There has been no release or, threat of release of Materials of
Environmental Concern at or from the Locations, or arising from or related
to the operations (including, without limitation, disposal) of any Credit
Party in connection with the Locations or otherwise in connection with the
Businesses, in violation of or in amounts or in a manner that could give
rise to liability under Environmental Laws.
6.16 INTELLECTUAL PROPERTY.
Each Credit Party owns, or has the legal right to use, (subject to the
common law rights of another user) all trademarks, tradenames, copyrights,
technology, know-how and processes (the "Intellectual Property") necessary for
each of them to conduct its business as currently conducted except for those the
failure to own or have such legal right to use could not have a Material Adverse
Effect. Set forth on Schedule 6.16 is a list of all Intellectual Property owned
by each Credit Party or that any Credit Party has the right to use. Except as
provided on Schedule 6.16, to the best of the Credit Parties knowledge, no claim
has been asserted and is pending by any Person challenging or questioning the
use of any such Intellectual Property or the validity or effectiveness of any
such Intellectual Property, nor does any Credit Party know of any such claim,
and to the Credit Parties' knowledge the use of such Intellectual Property by
any Credit Party does not infringe on the rights of any Person, except for such
claims and infringements that in the aggregate, could not have a Material
Adverse Effect. Schedule 6.16 may be updated from time to time by the Borrower
by giving written notice thereof to the Agent.
6.17 SOLVENCY.
Each Credit Party is and, after consummation of the transactions
contemplated by this Credit Agreement, will be Solvent.
6.18 INVESTMENTS.
All Investments of each Credit Party are Permitted Investments.
6.19 LOCATION OF COLLATERAL.
Set forth on Schedule 6.19(a) is a list of all locations where any tangible
personal property of a Credit Party is located, including county and state where
located. Set forth on Schedule 6.19(b)is the chief executive office and
principal place of business of each Credit Party. Schedule 6.19(a) and 6.9(b)
may be updated from time to time by the Borrower giving written notice thereof
to the Agent.
6.20 DISCLOSURE.
Neither this Credit Agreement nor any financial statements delivered to the
Lenders nor any other document, certificate or statement furnished to the
Lenders by or on behalf of any
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executive officer of any Credit Party in connection with the transactions
contemplated hereby contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained
therein or herein not misleading.
6.21 NO BURDENSOME RESTRICTIONS.
No Credit Party is a party to any agreement or instrument or subject to any
other obligation or any charter or corporate restriction or any provision of any
applicable law, rule or regulation which, individually or in the aggregate,
could have a Material Adverse Effect.
6.22 FIRST PRIORITY LIEN.
The Agent on behalf of the Lenders will hold a first priority lien, subject
to no other Liens other than Permitted Liens in the Collateral.
6.23 YEAR 2000 COMPLIANCE.
The Borrower has (a) initiated a review and assessment of all areas within
its and each of its Subsidiaries' business and operations (including those
affected by suppliers, vendors and customers) that could be adversely affected
by the "Year 2000 Problem" (that is, the risk that computer applications used by
the Borrower or any of its Subsidiaries (or suppliers, vendors and customers)
may be unable to recognize and perform properly date-sensitive functions
involving certain dates prior to and any date after December 31, 1999) and (b)
will develop a plan and timeline for addressing the Year 2000 Problem on a
timely basis. Based on the foregoing, the Borrower believes that all computer
applications (including those of its suppliers, vendors and customers) that are
material to its or any of its Subsidiaries' business and operations are
reasonably expected on a timely basis to be able to perform properly
date-sensitive functions for all dates before and after January 1, 2000 (that
is, be "Year 2000 Compliant"), except to the extent that a failure do so could
not reasonably be expected to have a Material Adverse Effect.
SECTION 7
AFFIRMATIVE COVENANTS
Each Credit Party hereby covenants and agrees that so long as this Credit
Agreement is in effect or any amounts payable hereunder or under any other
Credit Document shall remain outstanding, and until all of the Commitments
hereunder shall have terminated:
7.1 INFORMATION COVENANTS.
The Borrower will furnish, or cause to be furnished, to the Agent and each
of the Lenders:
(a) Annual Financial Statements. As soon as available, and in any
event within 120 days after the close of each fiscal year of the
Consolidated Parties, (i) a
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consolidated balance sheet and income statement of the Consolidated
Parties, as of the end of such fiscal year, together with related
consolidated statements of operations and retained earnings and of cash
flows for such fiscal year, setting forth in comparative form consolidated
figures for the preceding fiscal year and (ii) an unaudited consolidating
balance sheet and income statement of the Borrower and its Material
Subsidiaries, as of the end of such fiscal year, together with related
consolidating statements of operations and retained earnings and of cash
flows for such fiscal year, setting forth in comparative form consolidating
figures for the preceding fiscal year, all such financial information
described above to be in reasonable form and detail and audited by Arthur
Andersen or other independent certified public accountants of recognized
national standing reasonably acceptable to the Agent and whose opinion
shall be to the effect that such financial statements have been prepared in
accordance with GAAP (except for changes with which such accountants
concur) and shall not be limited as to the scope of the audit or qualified
in any manner. The Lenders agree that the foregoing requirements for any
fiscal year shall be satisfied by the delivery to the Lenders of the
Borrower's annual report on Form 1 K within the time period specified
above.
(b) Quarterly Financial Statements. As soon as available, and in any
event within 45 days after the close of each fiscal quarter of the
Consolidated Parties (i) a consolidated balance sheet and income statement
of the Consolidated Parties, as of the end of such fiscal quarter, together
with related consolidated statements of operations and retained earnings
and of cash flows for such fiscal quarter in each case setting forth in
comparative form consolidated figures for the corresponding period of the
preceding fiscal year and (ii) a consolidating balance sheet and income
statement of the Borrower and its Material Subsidiaries, as of the end of
such fiscal quarter, together with related consolidating statements of
operations and retained earnings and of cash flows for such fiscal quarter,
in each case setting forth in comparative form consolidating figures for
the corresponding period of the preceding fiscal year, all such financial
information described above to be in reasonable form and detail and
reasonably acceptable to the Agent, and accompanied by a certificate of the
chief financial officer of the Borrower to the effect that such quarterly
financial statements fairly present in all material respects the financial
condition of the Consolidated Parties or the Borrower and its Material
Subsidiaries, as applicable, and have been prepared in accordance with
GAAP, subject to changes resulting from audit and normal year-end audit
adjustments.
(c) Officer's Certificate. At the time of delivery of the financial
statements provided for in Sections 7.1(a) and 7.1(b) above, a certificate
of the chief financial officer of the Borrower substantially in the form of
Exhibit 7.1(c), (i) demonstrating compliance with the financial covenants
contained in Section 7.11 by calculation thereof as of the end of each such
fiscal period and (ii) stating that no Default or Event of Default exists,
or if any Default or Event of Default does exist, specifying the nature and
extent thereof and what action the Credit Parties propose to take with
respect thereto.
(d) Budgets. At least 30 days prior to the end of each fiscal year of
the Borrower, beginning with the fiscal year ending December 31, 1998, an
annual budget of
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the Consolidated Parties containing, among other things, pro forma
financial statements for the next fiscal year.
(e) Accountant's Certificate. Within the period for delivery of the
annual financial statements provided in Section 7.1(a), a certificate of
the accountants conducting the annual audit stating that they have reviewed
this Credit Agreement and stating further whether, in the course of their
audit, they have become aware of any Default or Event of Default and, if
any such Default or Event of Default exists, specifying the nature and
extent thereof.
(f) Auditor's Reports. Promptly upon receipt thereof, a copy of any
other report or "management letter" submitted by independent accountants to
any Credit Party in connection with any annual, interim or special audit of
the books of such Person to the extent permitted by such independent
accountants.
(g) Reports. Promptly upon transmission or receipt thereof, (i) copies
of any filings and registrations with, and reports to or from, the
Securities and Exchange Commission, or any successor agency, and copies of
all financial statements, proxy statements, notices and reports as any
Credit Party shall send to its shareholders or to a holder of any
Indebtedness owed by any Credit Party in its capacity as such a holder and
(ii) upon the written request of the Agent, all reports and written
information to and from the United States Environmental Protection Agency,
or any state or local agency responsible for environmental matters, the
United States Occupational Health and Safety Administration, or any state
or local agency responsible for health and safety matters, or any successor
agencies or authorities concerning environmental, health or safety matters.
(h) Notices. Upon obtaining knowledge thereof, the Borrower will give
written notice to the Agent immediately of (i) the occurrence of an event
or condition consisting of a Default or Event of Default, specifying the
nature and existence thereof and what action the Credit Parties propose to
take with respect thereto, and (ii) the occurrence of any of the following
with respect to any Credit Party (A) the pendency or commencement of any
litigation, arbitral or governmental proceeding against such Person which
if adversely determined is likely to have a Material Adverse Effect, (B)
the institution of any proceedings against such Person with respect to, or
the receipt of notice by such Person of potential liability or
responsibility for violation, or alleged violation of any federal, state or
local law, rule or regulation, including but not limited to, Environmental
Laws, the violation of which could have a Material Adverse Effect, or (C)
any notice or determination concerning the imposition of any withdrawal
liability by a Multiemployer Plan against such Person or any ERISA
Affiliate, the determination that a Multiemployer Plan is, or is expected
to be, in reorganization within the meaning of Title IV of ERISA or the
termination of any Plan.
(i) ERISA. Upon obtaining knowledge thereof, the Borrower will give
written notice to the Agent promptly (and in any event within five business
days) of: (i) of any event or condition, including, but not limited to, any
Reportable Event, that constitutes, or might reasonably lead to, an ERISA
Event; (ii) with respect to any
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Multiemployer Plan, the receipt of notice as prescribed in ERISA or
otherwise of any withdrawal liability assessed against the Borrower or any
of its ERISA Affiliates, or of a determination that any Multiemployer Plan
is in reorganization or insolvent (both within the meaning of Title IV of
ERISA); (iii) the failure to make full payment on or before the due date
(including extensions) thereof of all amounts which any Credit Party or any
ERISA Affiliate is required to contribute to each Plan pursuant to its
terms and as required to meet the minimum funding standard set forth in
ERISA and the Code with respect thereto; or (iv) any change in the funding
status of any Plan that could have a Material Adverse Effect, together with
a description of any such event or condition or a copy of any such notice
and a statement by the chief financial officer of the Borrower briefly
setting forth the details regarding such event, condition, or notice, and
the action, if any, which has been or is being taken or is proposed to be
taken by the Credit Parties with respect thereto. Promptly upon request,
the Credit Parties shall furnish the Agent and the Lenders with such
additional information concerning any Plan as may be reasonably requested,
including, but not limited to, copies of each annual report/return (Form
5500 series), as well as all schedules and attachments thereto required to
be filed with the Department of Labor and/or the Internal Revenue Service
pursuant to ERISA and the Code, respectively, for each "plan year" (within
the meaning of Section 3(39) of ERISA).
(j) Other Information. With reasonable promptness upon any such
request, such other information regarding the business, properties or
financial condition of any Credit Party as the Agent or the Required
Lenders may reasonably request.
7.2 PRESERVATION OF EXISTENCE AND FRANCHISES.
Except as a result of or in connection with a dissolution, merger or
disposition of a Subsidiary permitted under Section 8.4, each Credit Party will
do all things necessary to preserve and keep in full force and effect its
existence, rights, franchises and authority.
7.3 BOOKS AND RECORDS.
Each Credit Party will keep complete and accurate books and records of its
transactions in accordance with good accounting practices on the basis of GAAP
(including the establishment and maintenance of appropriate reserves).
7.4 COMPLIANCE WITH LAW.
Each Credit Party will comply with all laws, rules, regulations and orders,
and all applicable restrictions imposed by all Governmental Authorities,
applicable to it and the Locations if noncompliance with any such law, rule,
regulation, order or restriction could have a Material Adverse Effect.
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7.5 PAYMENT OF TAXES AND OTHER INDEBTEDNESS.
Each Credit Party will pay and discharge (a) all taxes, assessments and
governmental charges or levies imposed upon it, or upon its income or profits,
or upon any of its properties, before they shall become delinquent, (b) all
lawful claims (including claims for labor, materials and supplies) which, if
unpaid, might give rise to a Lien upon any of its properties, and (c) except as
prohibited hereunder, all of its other Indebtedness as it shall become due;
provided, however, that no Credit Party shall be required to pay any such tax,
assessment, charge, levy, claim or Indebtedness which is being contested in good
faith by appropriate proceedings and as to which adequate reserves therefor have
been established in accordance with GAAP, unless the failure to make any such
payment (i) could give rise to an immediate right to foreclose on a Lien
securing such amounts or (ii) could have a Material Adverse Effect.
7.6 INSURANCE.
(a) Each Credit Party will at all times maintain in full force and
effect insurance (including worker's compensation insurance, liability
insurance, casualty insurance and business interruption insurance) in such
amounts, covering such risks and liabilities and with such deductibles or
self-insurance retentions as are in accordance with normal industry
practice (or as otherwise required by the Collateral Documents). The Agent
shall be named as loss payee or mortgagee, as its interest may appear,
and/or additional insured with respect to any such insurance providing
coverage in respect of any Collateral, and each provider of any such
insurance shall agree, by endorsement upon the policy or policies issued by
it or by independent instruments furnished to the Agent, that it will give
the Agent thirty (30) days prior written notice before any such policy or
policies shall be altered or canceled, and that no act or default of any
Credit Party or any other Person shall affect the rights of the Agent or
the Lenders under such policy or policies. The present insurance coverage
of the Credit Parties is outlined as to carrier, policy number, expiration
date, type and amount on Schedule 7.6.
(b) In case of any material loss, damage to or destruction of the
Collateral of any Credit Party or any part thereof, such Credit Party shall
promptly give written notice thereof to the Agent generally describing the
nature and extent of such damage or destruction. In case of any loss,
damage to or destruction of the Collateral of any Credit Party or any part
thereof, such Credit Party, whether or not the insurance proceeds, if any,
received on account of such damage or destruction shall be sufficient for
that purpose, at such Credit Party's cost and expense, will promptly repair
or replace the Collateral of such Credit Party so lost, damaged or
destroyed; provided, however, that such Credit Party need not repair or
replace the Collateral of such Credit Party so lost, damaged or destroyed
to the extent the failure to make such repair or replacement (i) is
desirable to the proper conduct of the business of such Credit Party in the
ordinary course and otherwise in the best interest of such Credit Party;
and (ii) would not materially impair the rights and benefits of the Agent
or the Lenders under the Collateral Documents, any other Credit Document or
any Hedging Agreement. In the event a Credit Party shall receive any
proceeds of such insurance in a net amount in excess of $100,000, such
Credit Party will immediately pay over such proceeds to the Agent, for
payment on the
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Credit Party Obligations; provided, however, that the Agent agrees to
release such insurance proceeds to such Credit Party for replacement or
restoration of the portion of the Collateral of such Credit Party lost,
damaged or destroyed if, but only if, (A) no Default or Event of Default
shall have occurred and be continuing at the time of release, (B) written
application for such release is received by the Agent from such Credit
Party within 30 days of receipt of such proceeds and (C) the Agent has
received evidence reasonably satisfactory to it that the Collateral lost,
damaged or destroyed has been or will be replaced or restored to its
condition immediately prior to the loss, destruction or other event giving
rise to the payment of such insurance proceeds.
7.7 MAINTENANCE OF PROPERTY.
Each Credit Party will maintain and preserve its properties and equipment
material to the conduct of its business in good repair, working order and
condition, normal wear and tear and casualty and condemnation excepted, and will
make, or cause to be made, in such properties and equipment from time to time
all repairs, renewals, replacements, extensions, additions, betterments and
improvements thereto as may be needed or proper, to the extent and in the manner
customary for companies in similar businesses.
7.8 PERFORMANCE OF OBLIGATIONS.
Each Credit Party will perform in all material respects all of its
obligations under the terms of all material agreements, indentures, mortgages,
security agreements or other debt instruments to which it is a party or by which
it is bound.
7.9 USE OF PROCEEDS.
The Borrower will use the proceeds of the Loans and will use the Letters of
Credit solely for the purposes set forth in Section 6.14.
7.10 AUDITS/INSPECTIONS.
Upon reasonable notice and during normal business hours, each Credit Party
will, and will cause each of its Subsidiaries to, permit representatives
appointed by the Agent, including, without limitation, independent accountants,
agents, attorneys, and appraisers to visit and inspect the Locations, including
its books and records, its accounts receivable and inventory, its facilities and
its other business assets, and to make photocopies or photographs thereof and to
write down and record any information such representative obtains and shall
permit the Agent or its representatives to investigate and verify the accuracy
of information provided to the Agent and to discuss all such matters with the
officers, employees and representatives of such Person.
7.11 FINANCIAL COVENANTS.
(a) Fixed Charge Coverage Ratio. The Fixed Charge Coverage Ratio, as
of the last day of each fiscal quarter of the Consolidated Parties, shall
be greater than or equal to 3.0 to 1.0.
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(b) Leverage Ratio. The Leverage Ratio, as of the last day of each
fiscal quarter of the Consolidated Parties, shall be less than or equal to
2.5 to 1.0:
(c) Consolidated Net Worth. At all times the Consolidated Net Worth of
the Consolidated Parties shall be greater than or equal to the sum of
$65,000,000, increased on a cumulative basis as of the end of each fiscal
quarter of the Consolidated Parties, commencing with the fiscal quarter
ending March 31, 1998 by an amount equal to 75% of Consolidated Net Income
(to the extent positive) for the fiscal quarter then ended plus 100% of the
Net Cash Proceeds from any Equity Issuance occurring after the Closing
Date.
(d) Consolidated Capital Expenditures. The Borrower shall not permit
Consolidated Capital Expenditures to exceed (i) $3,000,000 for the fiscal
year 1998, (ii) $3,500,000 for the fiscal year 1999 and (iii) $4,000,000
for the fiscal year 2000 and thereafter. In each such fiscal year
Consolidated Capital Expenditures shall be computed on a non-cumulative
basis.
7.12 ADDITIONAL CREDIT PARTIES.
As soon as practicable and in any event within 30 days after any Person
becomes a Material Subsidiary of any Credit Party, the Borrower shall provide
the Agent with written notice thereof setting forth information in reasonable
detail describing all of the assets of such Person and shall (a) if such Person
is a Domestic Subsidiary of a Credit Party, cause such Person to execute a
Joinder Agreement in substantially the same form as Exhibit 7.12, (b) cause 100%
(if such Person is a Domestic Subsidiary of a Credit Party) or 65% (if such
Person is a direct Material Foreign Subsidiary of a Credit Party) of the Capital
Stock of such Person to be delivered to the Agent (together with undated stock
powers, if any, signed in blank) and pledged to the Agent pursuant to an
appropriate pledge agreement(s) in substantially the form of the Pledge
Agreement and otherwise in form acceptable to the Agent and (c) cause such
Person to (i) if such Person is a Domestic Subsidiary, to pledge all of its
assets to the Agent pursuant to a security agreement in substantially the form
of Security Agreement and otherwise in a form acceptable to the Agent, (d) if
such Person has any Subsidiaries (i) deliver all of the Capital Stock of such
Domestic Subsidiaries and 65% of the Capital Stock of such Material Foreign
Subsidiaries (together with undated stock powers signed in blank) to the Agent
and (ii) execute a pledge agreement in substantially the form of the Pledge
Agreement and otherwise in a form acceptable to the Agent and (e) if such Person
owns or leases any real property in the United States of America execute any and
all necessary mortgages, deeds of trust, deeds to secure debt, leasehold
mortgages, collateral assignments or other appropriate real estate collateral
documentation in a form, content and scope satisfactory to the Agent and (ii)
deliver such other documentation as the Agent may reasonably request in
connection with the foregoing, including, without limitation, appropriate UCC-1
financing statements, real estate title insurance policies, environmental
reports, landlord's waivers, certified resolutions and other organizational and
authorizing documents of such Person, favorable opinions of counsel to such
Person (which shall cover, among other things, the legality, validity, binding
effect and enforceability of the
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documentation referred to above and the perfection of the Agent's liens
thereunder), all in form, content and scope reasonably satisfactory to the
Agent.
7.13 ENVIRONMENTAL LAWS.
(a) Comply in all material respects with all applicable Environmental
Laws and obtain and comply in all material respects with and maintain any
and all licenses, approvals, notifications, registrations or permits
required by applicable Environmental Laws except to the extent that failure
to do so would not reasonably be expected to have a Material Adverse
Effect;
(b) Conduct and complete all investigations, studies, sampling and
testing, and all remedial, removal and other actions required under
Environmental Laws and promptly comply in all material respects with all
lawful orders and directives of all Governmental Authorities regarding
Environmental Laws except to the extent that the same are being contested
in good faith by appropriate proceedings and the failure to do or the
pendency of such proceedings would not reasonably be expected to have a
Material Adverse Effect; and
(c) Defend, indemnify and hold harmless the Agent and the Lenders, and
their respective employees, agents, officers and directors, from and
against any and all claims, demands, penalties, fines, liabilities,
settlements, damages, costs and expenses of whatever kind or nature known
or unknown, contingent or otherwise, arising out of, or in any way relating
to the violation of, noncompliance with or liability under, any
Environmental Law applicable to the operations of the Borrower or any of
its Subsidiaries or the Properties, or any orders, requirements or demands
of Governmental Authorities related thereto, including, without limitation,
reasonable attorney's and consultant's fees, investigation and laboratory
fees, response costs, court costs and litigation expenses, except to the
extent that any of the foregoing arise out of the gross negligence or
willful misconduct of the party seeking indemnification therefor. The
agreements in this paragraph shall survive repayment of the Loans and all
other amounts payable hereunder, and termination of the Commitments.
7.14 COLLATERAL.
If, subsequent to the Closing Date, a Credit Party shall (a) acquire any
material real property or lease any material real property or (b) acquire any
intellectual property, securities instruments, chattel paper or other personal
property required to be delivered to the Agent as Collateral hereunder or under
any of the Collateral Documents, the Borrower shall notify the Agent of same in
each case as soon as practicable after the acquisition thereof or execution of
such lease agreement, as appropriate. Each Credit Party shall take such action
as requested by the Agent and at its own expense, to ensure that the Agent have
a first priority perfected Lien in all owned real property (and in such leased
real property as requested by the Agent or the Required Lenders) and all
personal property of the Credit parties (whether now owned or hereafter
acquired), subject only to Permitted Liens.
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7.15 YEAR 2000 COMPATIBILITY.
The Borrower will promptly notify the Agent in the event the Borrower
discovers or determines that any computer application (including those of its
suppliers, vendors and customers) that is material to its or any of its
Subsidiaries' business and operations will not be Year 2000 Compliant (as
defined in Section 6.23 hereof), except to the extent that such failure could
not reasonably be expected to have a Material Adverse Effect.
SECTION 8
NEGATIVE COVENANTS
Each Credit Party hereby covenants and agrees that, so long as this Credit
Agreement is in effect or any amounts payable hereunder or under any other
Credit Document shall remain outstanding, and until all of the Commitments
hereunder shall have terminated:
8.1 INDEBTEDNESS.
The Credit Parties will not permit any Consolidated Party to contract,
create, incur, assume or permit to exist any Indebtedness, except:
(a) Indebtedness arising under this Credit Agreement and the other
Credit Documents;
(b) Indebtedness of the Borrower and its Subsidiaries set forth in
Schedule 8.1;
(c) purchase money Indebtedness (including Capital Leases) or
Synthetic Leases hereafter incurred by the Borrower or any of its
Subsidiaries to finance the purchase of fixed assets provided that (i) the
total of all such Indebtedness for all such Persons taken together shall
not exceed an aggregate principal amount of $2,500,000 at any one time
outstanding (including any such Indebtedness referred to in subsection (b)
above); (ii) such Indebtedness when incurred shall not exceed the purchase
price of the asset(s) financed; and (iii) no such Indebtedness shall be
refinanced for a principal amount in excess of the principal balance
outstanding thereon at the time of such refinancing;
(d) obligations of the Borrower or any of its Subsidiaries in respect
of Hedging Agreements entered into in order to manage existing or
anticipated interest rate or exchange rate risks and not for speculative
purposes; and
(e) other unsecured Indebtedness of the Borrower and its Subsidiaries
in an amount not to exceed $3,000,000 in the aggregate at any one time.
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8.2 LIENS.
The Credit Parties will not permit any Consolidated Party to contract,
create, incur, assume or permit to exist any Lien with respect to any of its
Property, whether now owned or after acquired, except for Permitted Liens.
8.3 NATURE OF BUSINESS.
The Credit Parties (taken as a whole) will not substantively alter the
character or conduct of the business conducted by the Credit Parties (taken as a
whole) as of the Closing Date.
8.4 CONSOLIDATION, MERGER, DISSOLUTION, ETC.
The Credit Parties will not permit any Consolidated Party to enter into any
transaction of merger or consolidation or liquidate, wind up or dissolve itself
(or suffer any liquidation or dissolution); provided that, notwithstanding the
foregoing provisions of this Section 8.4, (a) the Borrower may merge or
consolidate with any of its Subsidiaries provided that (i) the Borrower shall be
the continuing or surviving corporation and (ii) the Credit Parties shall cause
to be executed and delivered such documents, instruments and certificates as the
Agent may request so as to cause the Credit Parties to be in compliance with the
terms hereof after giving effect to such transaction, (b) any Credit Party other
than the Borrower may merge or consolidate with any other Credit Party other
than the Borrower provided that the Credit Parties shall cause to be executed
and delivered such documents, instruments and certificates as the Agent may
request so as to cause the Credit Parties to be in compliance with the terms
hereof after giving effect to such transaction and (c) any Wholly-Owned
Subsidiary of the Borrower may dissolve, liquidate or wind up its affairs at any
time; provided that the Credit Parties shall have executed and delivered such
documents, instruments and certificates as the Agent may request so as to cause
the Credit Parties to be in compliance with the terms hereof after giving effect
to such dissolution, liquidation or wind-up.
8.5 INVESTMENTS.
The Credit Parties will not permit any Consolidated Party to make
Investments in or to any Person, except for Permitted Investments.
8.6 RESTRICTED PAYMENTS.
The Credit Parties will not permit any Consolidated Party to, directly or
indirectly, declare, order, make or set apart any sum for or pay any Restricted
Payment, except (a) to make dividends payable solely in the same class of
Capital Stock of such Person and (b) to make dividends or other distributions
payable to the Borrower (directly or indirectly through Subsidiaries).
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8.7 PREPAYMENTS OF INDEBTEDNESS, ETC.
The Credit Parties will not permit any Consolidated Party to (a) after the
issuance thereof, amend or modify (or permit the amendment or modification of)
any of the terms of any Indebtedness if such amendment or modification would add
or change any terms in a manner adverse to the issuer of such Indebtedness, or
shorten the final maturity or average life to maturity or require any payment to
be made sooner than originally scheduled or increase the interest rate
applicable thereto or change any subordination provision thereof or (b) make (or
give any notice with respect thereto) any voluntary or optional payment or
prepayment or redemption or acquisition for value of (including without
limitation, by way of depositing money or securities with the trustee with
respect thereto before due for the purpose of paying when due), refund,
refinance or exchange of any other Indebtedness.
8.8 TRANSACTIONS WITH AFFILIATES.
The Credit Parties will not permit any Consolidated Party to enter into or
permit to exist any transaction or series of transactions with any officer,
director, shareholder, Subsidiary or Affiliate other than (a) advances of
working capital to any Credit Party other than the Borrower, (b) transfers of
cash and assets to any Credit Party other than the Borrower, (c) transactions
permitted by Section 8.4, Section 8.5, or Section 8.6, (d) normal compensation
and reimbursement of expenses of officers and directors, and (e) except as
otherwise specifically limited in this Credit Agreement, other transactions
which are entered into in the ordinary course of such Person's business on terms
and conditions substantially as favorable to such Person as would be obtainable
by it in a comparable arms-length transaction with a Person other than an
officer, director, shareholder, Subsidiary or Affiliate.
8.9 FISCAL YEAR; ORGANIZATIONAL DOCUMENTS.
The Credit Parties will not permit any Consolidated Party to (a) change its
fiscal year or (b) amend, modify or change its articles of incorporation (or
corporate charter or other similar organizational document) or bylaws (or other
similar document) if the effect of any such amendment, modification, or change
would have a Material Adverse Effect.
8.10 LIMITATION ON RESTRICTED ACTIONS.
The Credit Parties will not permit any Consolidated Party to, directly or
indirectly, create or otherwise cause or suffer to exist or become effective any
encumbrance or restriction on the ability of any such Person to (a) pay
dividends or make any other distributions to any Credit Party on its Capital
Stock or with respect to any other interest or participation in, or measured by,
its profits, (b) pay any Indebtedness or other obligation owed to any Credit
Party, (c) make loans or advances to any Credit Party, (d) sell, lease or
transfer any of its properties or assets to any Credit Party, (e) grant a lien
on its properties or assets whether now owned or hereafter acquired or (f) act
as a Guarantor and pledge its assets pursuant to the Credit Documents or any
renewals, refinancings, exchanges, refundings or extension thereof, except (in
respect of any of the matters referred to in clauses (a)-(f) above) for such
encumbrances or restrictions existing under or by reason of (i) this Credit
Agreement and the other Credit Documents, or (ii) applicable law.
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8.11 OWNERSHIP OF SUBSIDIARIES; LIMITATIONS ON BORROWER.
Notwithstanding any other provisions of this Credit Agreement to the
contrary, the Credit Parties will not permit any Consolidated Party to (a)
permit any Person (other than the Borrower or any Wholly-Owned Subsidiary of the
Borrower) to own any Capital Stock of any Subsidiary of the Borrower, (b) permit
any Subsidiary of the Borrower to issue Capital Stock (except to the Borrower or
to a Wholly-Owned Subsidiary of the Borrower), (c) permit, create, incur, assume
or suffer to exist any Lien thereon, in each case except (i) to qualify
directors where required by applicable law or to satisfy other requirements of
applicable law with respect to the ownership of Capital Stock of Foreign
Subsidiaries, or (ii) for Permitted Liens and (d) notwithstanding anything to
the contrary contained in clause (b) above, permit any Subsidiary of the
Borrower to issue any shares of preferred Capital Stock.
8.12 SALE LEASEBACKS.
Except as permitted by Section 8.1(c), the Credit Parties will not permit
any Consolidated Party to, directly or indirectly, become or remain liable as
lessee or as guarantor or other surety with respect to any lease, whether an
Operating Lease or a Capital Lease, of any Property (whether real, personal or
mixed), whether now owned or hereafter acquired, (a) which such Consolidated
Party has sold or transferred or is to sell or transfer to a Person which is not
a Consolidated Party or (b) which such Consolidated Party intends to use for
substantially the same purpose as any other Property which has been sold or is
to be sold or transferred by such Consolidated Party to another Person which is
not a Consolidated Party in connection with such lease.
8.13 ASSET DISPOSITIONS.
The Credit Parties will not permit any Consolidated Party to sell, transfer
or otherwise dispose of any Property (including accounts and notes receivable,
with or without recourse) other than (i) the sale of inventory in the ordinary
course of business for fair consideration, (ii) the sale or disposition of
machinery and equipment no longer used or useful in the conduct of such Person's
business, (iii) the termination of management contracts in the ordinary course
of business and (iv) other sales of assets during any fiscal year having an
aggregate fair market value of less than an amount equal to the lesser of (A) 5%
of Total Assets of the Consolidated Parties and (B) for the most recent fiscal
year of the Borrower, 5% of Consolidated EBITDA of the Consolidated Parties.
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SECTION 9
EVENTS OF DEFAULT
9.1 EVENTS OF DEFAULT.
An Event of Default shall exist upon the occurrence of any of the following
specified events (each an "Event of Default"):
(a) Payment. Any Credit Party shall
(i) default in the payment when due of any principal of any of
the Loans or of any reimbursement obligations arising from drawings
under Letters of Credit, or
(ii) default, and such default shall continue for three (3) or
more Business Days, in the payment when due of any interest on the
Loans or on any reimbursement obligations arising from drawings under
Letters of Credit, or of any Fees or other amounts owing hereunder,
under any of the other Credit Documents or in connection herewith or
therewith; or
(b) Representations. Any representation, warranty or statement made
or deemed to be made by any Credit Party herein, in any of the other
Credit Documents, or in any statement or certificate delivered or
required to be delivered pursuant hereto or thereto shall prove untrue
in any material respect on the date as of which it was deemed to have
been made; or
(c) Covenants. Any Credit Party shall
(i) default in the due performance or observance of any term,
covenant or agreement contained in Sections 7.1(h), 7.11, 8.1, 8.2,
8.3, 8.4, 8.5, 8.6, 8.8, 8.10, 8.11, 8.12 or 8.13;
(ii) default in the due performance or observance of any term,
covenant or agreement contained in Sections 7.1(a), (b) or (c) and
such default shall continue unremedied for a period of at least 5 days
after the earlier of a responsible officer of a Credit Party becoming
aware of such default or notice thereof by the Agent; or
(iii) default in the due performance or observance by it of any
term, covenant or agreement (other than those referred to in
subsections (a), (b), (c)(i) or (c)(ii) of this Section 9.1) contained
in this Credit Agreement and such default shall continue unremedied
for a period of at least 30 days after the earlier of a responsible
officer of a Credit Party becoming aware of such default or notice
thereof by the Agent.
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(d) Other Credit Documents. (i) Any Credit Party shall default in the
due performance or observance of any term, covenant or agreement in any of
the other Credit Documents (subject to applicable grace or cure periods, if
any), or (ii) any Credit Document shall fail to be in full force and effect
or to give the Agent and/or the Lenders the Liens, rights, powers and
privileges purported to be created thereby, or any Credit Party shall so
state in writing; or
(e) Guaranties. Except as the result of or in connection with a
dissolution, merger or disposition of a Subsidiary permitted under Section
8.4, the guaranty given by any Guarantor hereunder (including any
Additional Credit Party) or any provision thereof shall cease to be in full
force and effect, or any Guarantor (including any Additional Credit Party)
hereunder or any Person acting by or on behalf of such Guarantor shall deny
or disaffirm such Guarantor's obligations under such guaranty, or any
Guarantor shall default in the due performance or observance of any term,
covenant or agreement on its part to be performed or observed pursuant to
any guaranty; or
(f) Bankruptcy, etc. Any Bankruptcy Event shall occur with respect to
any Credit Party; or
(g) Defaults under Other Agreements.
(i) Any Credit Party shall default in the performance or
observance (beyond the applicable grace period with respect thereto,
if any) of any material obligation or condition of any contract or
lease which has a Material Adverse Effect; or
(ii) With respect to any Indebtedness (other than Indebtedness
outstanding under this Credit Agreement) in excess of $500,000 in the
aggregate for the Consolidated Parties taken as a whole, (A) any
Consolidated Party shall (1) default in any payment (beyond the
applicable grace period with respect thereto, if any) with respect to
any such Indebtedness, or (2) the occurrence and continuance of a
default in the observance or performance relating to such Indebtedness
or contained in any instrument or agreement evidencing, securing or
relating thereto, or any other event or condition shall occur or
condition exist, the effect of which default or other event or
condition is to cause, or permit, the holder or holders of such
Indebtedness (or trustee or agent on behalf of such holders) to cause
(determined without regard to whether any notice or lapse of time is
required), any such Indebtedness to become due prior to its stated
maturity; or (B) any such Indebtedness shall be declared due and
payable, or required to be prepaid other than by a regularly scheduled
required prepayment, prior to the stated maturity thereof.
(h) Judgments. One or more judgments or decrees shall be entered
against one or more of the Consolidated Parties involving a liability of
$1,000,000 or more in the aggregate (to the extent not paid or fully
covered by insurance provided by a carrier who has acknowledged coverage
and has the ability to perform) and any such judgments or
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decrees shall not have been vacated, discharged or stayed or bonded pending
appeal within 30 days from the entry thereof; or
(i) ERISA. Any of the following events or conditions, if such event
or condition could have a Material Adverse Effect (i) any "accumulated
funding deficiency," as such term is defined in Section 302 of ERISA and
Section 412 of the Code, whether or not waived, shall exist with respect to
any Plan, or any lien shall arise on the assets of any Consolidated Party
or any ERISA Affiliate in favor of the PBGC or a Plan; (ii) an ERISA Event
shall occur with respect to a Single Employer Plan, which is, in the
reasonable opinion of the Agent, likely to result in the termination of
such Plan for purposes of Title IV of ERISA; (iii) an ERISA Event shall
occur with respect to a Multiemployer Plan or Multiple Employer Plan, which
is, in the reasonable opinion of the Agent, likely to result in (A) the
termination of such Plan for purposes of Title IV of ERISA, or (B) any
Consolidated Party or any ERISA Affiliate incurring any liability in
connection with a withdrawal from, reorganization of (within the meaning of
Section 4241 of ERISA), or insolvency or (within the meaning of Section
4245 of ERISA) such Plan; or (iv) any prohibited transaction (within the
meaning of Section 406 of ERISA or Section 4975 of the Code) or breach of
fiduciary responsibility shall occur which may subject any Consolidated
Party or any ERISA Affiliate to any liability under Sections 406, 409,
502(i), or 502(l) of ERISA or Section 4975 of the Code, or under any
agreement or other instrument pursuant to which any Consolidated Party or
any ERISA Affiliate has agreed or is required to indemnify any person
against any such liability; or
(j) Ownership. There shall occur a Change of Control.
9.2 ACCELERATION; REMEDIES.
Upon the occurrence of an Event of Default, and at any time thereafter
unless and until such Event of Default has been waived by the requisite Lenders
(pursuant to the voting requirements of Section 11.6) or cured to the
satisfaction of the requisite Lenders (pursuant to the voting procedures in
Section 11.6), the Agent shall, upon the request and direction of the Required
Lenders, by written notice to the Credit Parties take any of the following
actions:
(a) Termination of Commitments. Declare the Commitments terminated
whereupon the Commitments shall be immediately terminated.
(b) Acceleration. Declare the unpaid principal of and any accrued
interest in respect of all Loans, any reimbursement obligations arising
from drawings under Letters of Credit and any and all other indebtedness or
obligations of any and every kind owing by the Borrower to the Agent and/or
any of the Lenders hereunder to be due whereupon the same shall be
immediately due and payable without presentment, demand, protest or other
notice of any kind, all of which are hereby waived by the Borrower.
(c) Cash Collateral. Direct the Borrower to pay (and the Borrower
agrees that upon receipt of such notice, or upon the occurrence of an Event
of Default under Section 9.1(f), it will immediately pay) to the Agent
additional cash, to be held by the Agent, for
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the benefit of the Lenders, in a cash collateral account as additional
security for the LOC Obligations in respect of subsequent drawings under
all then outstanding Letters of Credit in an amount equal to the maximum
aggregate amount which may be drawn under all Letters of Credits then
outstanding.
(d) Enforcement of Rights. Enforce any and all rights and interests
created and existing under the Credit Documents including, without
limitation, all rights and remedies existing under the Collateral
Documents, all rights and remedies against a Guarantor and all rights of
set-off.
Notwithstanding the foregoing, if an Event of Default specified in Section
9.1(f) shall occur, then the Commitments shall automatically terminate and all
Loans, all reimbursement obligations arising from drawings under Letters of
Credit, all accrued interest in respect thereof, all accrued and unpaid Fees and
other indebtedness or obligations owing to the Agent and/or any of the Lenders
hereunder automatically shall immediately become due and payable without the
giving of any notice or other action by the Agent or the Lenders.
SECTION 10
AGENCY PROVISIONS
10.1 APPOINTMENT, POWERS AND IMMUNITIES.
Each Lender hereby irrevocably appoints and authorizes the Agent to act as
its agent under this Credit Agreement and the other Credit Documents with such
powers and discretion as are specifically delegated to the Agent by the terms of
this Credit Agreement and the other Credit Documents, together with such other
powers as are reasonably incidental thereto. The Agent (which term as used in
this sentence and in Section 10.5 and the first sentence of Section 10.6 hereof
shall include its Affiliates and its own and its Affiliates' officers,
directors, employees, and agents): (a) shall not have any duties or
responsibilities except those expressly set forth in this Credit Agreement and
shall not be a trustee or fiduciary for any Lender; (b) shall not be responsible
to the Lenders for any recital, statement, representation, or warranty (whether
written or oral) made in or in connection with any Credit Document or any
certificate or other document referred to or provided for in, or received by any
of them under, any Credit Document, or for the value, validity, effectiveness,
genuineness, enforceability, or sufficiency of any Credit Document, or any other
document referred to or provided for therein or for any failure by any Credit
Party or any other Person to perform any of its obligations thereunder; (c)
shall not be responsible for or have any duty to ascertain, inquire into, or
verify the performance or observance of any covenants or agreements by any
Credit Party or the satisfaction of any condition or to inspect the property
(including the books and records) of any Credit Party or any of its Subsidiaries
or Affiliates; (d) shall not be required to initiate or conduct any litigation
or collection proceedings under any Credit Document; and (e) shall not be
responsible for any action taken or omitted to be taken by it under or in
connection with any Credit Document, except for its own gross negligence or
willful misconduct. The Agent may employ agents and
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attorneys-in-fact and shall not be responsible for the negligence or misconduct
of any such agents or attorneys-in-fact selected by it with reasonable care.
10.2 RELIANCE BY AGENT.
The Agent shall be entitled to rely upon any certification, notice,
instrument, writing, or other communication (including, without limitation, any
thereof by telephone or telecopy) believed by it to be genuine and correct and
to have been signed, sent or made by or on behalf of the proper Person or
Persons, and upon advice and statements of legal counsel (including counsel for
any Credit Party), independent accountants, and other experts selected by the
Agent. The Agent may deem and treat the payee of any Note as the holder thereof
for all purposes hereof unless and until the Agent receives and accepts an
Assignment and Acceptance executed in accordance with Section 11.3(b) hereof. As
to any matters not expressly provided for by this Credit Agreement, the Agent
shall not be required to exercise any discretion or take any action, but shall
be required to act or to refrain from acting (and shall be fully protected in so
acting or refraining from acting) upon the instructions of the Required Lenders,
and such instructions shall be binding on all of the Lenders; provided, however,
that the Agent shall not be required to take any action that exposes the Agent
to personal liability or that is contrary to any Credit Document or applicable
law or unless it shall first be indemnified to its satisfaction by the Lenders
against any and all liability and expense which may be incurred by it by reason
of taking any such action.
10.3 DEFAULTS.
The Agent shall not be deemed to have knowledge or notice of the occurrence
of a Default or Event of Default unless the Agent has received written notice
from a Lender or the Borrower specifying such Default or Event of Default and
stating that such notice is a "Notice of Default". In the event that the Agent
receives such a notice of the occurrence of a Default or Event of Default, the
Agent shall give prompt notice thereof to the Lenders. The Agent shall (subject
to Section 10.2 hereof) take such action with respect to such Default or Event
of Default as shall reasonably be directed by the Required Lenders, provided
that, unless and until the Agent shall have received such directions, the Agent
may (but shall not be obligated to) take such action, or refrain from taking
such action, with respect to such Default or Event of Default as it shall deem
advisable in the best interest of the Lenders.
10.4 RIGHTS AS A LENDER.
With respect to its Commitment and the Loans made by it, NationsBank (and
any successor acting as Agent) in its capacity as a Lender hereunder shall have
the same rights and powers hereunder as any other Lender and may exercise the
same as though it were not acting as the Agent, and the term "Lender" or
"Lenders" shall, unless the context otherwise indicates, include the Agent in
its individual capacity. NationsBank (and any successor acting as Agent) and its
Affiliates may (without having to account therefor to any Lender) accept
deposits from, lend money to, make investments in, provide services to, and
generally engage in any kind of lending, trust, or other business with any
Credit Party or any of its Subsidiaries or Affiliates as if it were not acting
as Agent, and NationsBank (and any successor acting as Agent) and its
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Affiliates may accept fees and other consideration from any Credit Party or any
of its Subsidiaries or Affiliates for services in connection with this Credit
Agreement or otherwise without having to account for the same to the Lenders.
10.5 INDEMNIFICATION.
The Lenders agree to indemnify the Agent (to the extent not reimbursed
under Section 11.5 hereof, but without limiting the obligations of the Borrower
under such Section) ratably in accordance with their respective Commitments, for
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses (including attorneys' fees), or disbursements
of any kind and nature whatsoever that may be imposed on, incurred by or
asserted against the Agent (including by any Lender) in any way relating to or
arising out of any Credit Document or the transactions contemplated thereby or
any action taken or omitted by the Agent under any Credit Document; provided
that no Lender shall be liable for any of the foregoing to the extent they arise
from the gross negligence or willful misconduct of the Person to be indemnified.
Without limitation of the foregoing, each Lender agrees to reimburse the Agent
promptly upon demand for its ratable share of any costs or expenses payable by
the Borrower under Section 11.5, to the extent that the Agent is not promptly
reimbursed for such costs and expenses by the Borrower. The agreements in this
Section 10.5 shall survive the repayment of the Loans, LOC Obligations and other
obligations under the Credit Documents and the termination of the Commitments
hereunder.
10.6 NON-RELIANCE ON AGENT AND OTHER LENDERS.
Each Lender agrees that it has, independently and without reliance on the
Agent or any other Lender, and based on such documents and information as it has
deemed appropriate, made its own credit analysis of the Credit Parties and their
Subsidiaries and decision to enter into this Credit Agreement and that it will,
independently and without reliance upon the Agent or any other Lender, and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own analysis and decisions in taking or not taking action
under the Credit Documents. Except for notices, reports, and other documents and
information expressly required to be furnished to the Lenders by the Agent
hereunder, the Agent shall not have any duty or responsibility to provide any
Lender with any credit or other information concerning the affairs, financial
condition, or business of any Credit Party or any of its Subsidiaries or
Affiliates that may come into the possession of the Agent or any of its
Affiliates.
10.7 SUCCESSOR AGENT.
The Agent may resign at any time by giving notice thereof to the Lenders
and the Borrower. Upon any such resignation, the Required Lenders shall have the
right to appoint a successor Agent. If no successor Agent shall have been so
appointed by the Required Lenders and shall have accepted such appointment
within thirty (30) days after the retiring Agent's giving of notice of
resignation, then the retiring Agent may, on behalf of the Lenders, appoint a
successor Agent which shall be a commercial bank organized under the laws of the
United States of America having combined capital and surplus of at least
$100,000,000. Upon the acceptance of any appointment as Agent hereunder by a
successor, such successor shall thereupon succeed to
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and become vested with all the rights, powers, discretion, privileges, and
duties of the retiring Agent, and the retiring Agent shall be discharged from
its duties and obligations hereunder. After any retiring Agent's resignation
hereunder as Agent, the provisions of this Section 10 shall continue in effect
for its benefit in respect of any actions taken or omitted to be taken by it
while it was acting as Agent.
SECTION 11
MISCELLANEOUS
11.1 NOTICES.
Except as otherwise expressly provided herein, all notices and other
communications shall be written and shall have been duly given and shall be
effective (a) when delivered, (b) when transmitted via telecopy (or other
facsimile device) to the number set out below, (c) the Business Day following
the day on which the same has been delivered prepaid to a reputable national
overnight air courier service, or (d) the third Business Day following the day
on which the same is sent by certified or registered mail, postage prepaid, in
each case to the respective parties at the address, in the case of the Borrower,
Guarantors and the Agent, set forth below, and, in the case of the Lenders, set
forth on Schedule 2.1(a), or at such other address as such party may specify by
written notice to the other parties hereto:
if to the Borrower or any Guarantor:
1355-B Lynnfield Road, Suite 245
Memphis, Tennessee 38119
Attn: Jeffery Jarvis, Chief Financial Officer
Telephone: (901) 818-5445
Telecopy: (901) 683-1102
with a copy to:
John K. Lines, Senior Vice President,
General Counsel and Secretary
1355-B Lynnfield Road, Suite 245
Memphis, Tennessee 38119
Telephone: (901) 818-5445
Telecopy: (901) 683-1102
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Kennedy Covington Lobdell & Hickman, L.L.P.
NationsBank Corporate Center
100 North Tryon Street, Suite 4200
Charlotte, North Carolina 28202-4006
Attn: J. Donnell Lassiter, Esq.
Telephone: (704) 331-7444
Telecopy: (704) 331-7598
if to the Agent:
NationsBank, N. A.
Independence Center, 15th Floor
NC1-001-15-04
101 North Tryon Street
Charlotte, North Carolina 28255
Attn: Agency Services
Telephone: (704) 386-8958
Telecopy: (704) 386-9923
11.2 RIGHT OF SET-OFF; ADJUSTMENTS.
Upon the occurrence and during the continuance of any Event of Default,
each Lender (and each of its Affiliates) is hereby authorized at any time and
from time to time, to the fullest extent permitted by law, to set off and apply
any and all deposits (general or special, time or demand, provisional or final)
at any time held and other indebtedness at any time owing by such Lender (or any
of its Affiliates) to or for the credit or the account of any Credit Party
against any and all of the obligations of such Person now or hereafter existing
under this Credit Agreement, under the Revolving Notes, under any other Credit
Document or otherwise, irrespective of whether such Lender shall have made any
demand under hereunder or thereunder and although such obligations may be
unmatured. Each Lender agrees promptly to notify any affected Credit Party after
any such set-off and application made by such Lender; provided, however, that
the failure to give such notice shall not affect the validity of such set-off
and application. The rights of each Lender under this Section 11.2 are in
addition to other rights and remedies (including, without limitation, other
rights of set-off) that such Lender may have.
11.3 BENEFIT OF AGREEMENT.
(a) This Credit Agreement shall be binding upon and inure to the
benefit of and be enforceable by the respective successors and assigns of
the parties hereto; provided that none of the Credit Parties may assign or
transfer any of its interests and obligations without prior written consent
of the Lenders; provided further that the rights of each Lender to
transfer, assign or grant participations in its rights and/or obligations
hereunder shall be limited as set forth in this Section 11.3.
(b) Each Lender may assign to one or more Eligible Assignees all or a
portion of its rights and obligations under this Credit Agreement
(including, without limitation,
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all or a portion of its Loans, its Revolving Notes, and its Commitment);
provided, however, that
(i) each such assignment shall be to an Eligible Assignee;
(iii) except in the case of an assignment to another Lender or an
assignment of all of a Lender's rights and obligations under this
Credit Agreement, any such partial assignment shall be in an amount at
least equal to $5,000,000 (or, if less, the remaining amount of the
Commitment being assigned by such Lender) or an integral multiple of
$1,000,000 in excess thereof;
(iv) each such assignment by a Lender shall be of a constant,
and not varying, percentage of all of its rights and obligations under
this Credit Agreement and the Revolving Notes; and
(v) the parties to such assignment shall execute and deliver to
the Agent for its acceptance an Assignment and Acceptance in the form
of Exhibit 11.3(b) hereto, together with any Note subject to such
assignment and a processing fee of $3,500.
Upon execution, delivery, and acceptance of such Assignment and Acceptance,
the assignee thereunder shall be a party hereto and, to the extent of such
assignment, have the obligations, rights, and benefits of a Lender
hereunder and the assigning Lender shall, to the extent of such assignment,
relinquish its rights and be released from its obligations under this
Credit Agreement. Upon the consummation of any assignment pursuant to this
Section 11.3(b), the assignor, the Agent and the Borrower shall make
appropriate arrangements so that, if required, new Revolving Notes are
issued to the assignor and the assignee. If the assignee is not
incorporated under the laws of the United States of America or a state
thereof, it shall deliver to the Borrower and the Agent certification as to
exemption from deduction or withholding of Taxes in accordance with Section
3.11.
(c) The Agent shall maintain at its address referred to in Section
11.1 a copy of each Assignment and Acceptance delivered to and accepted by
it and a register for the recordation of the names and addresses of the
Lenders and the Commitment of, and principal amount of the Loans owing to,
each Lender from time to time (the "Register"). The entries in the Register
shall be conclusive and binding for all purposes, absent manifest error,
and the Borrower, the Agent and the Lenders may treat each Person whose
name is recorded in the Register as a Lender hereunder for all purposes of
this Credit Agreement. The Register shall be available for inspection by
the Borrower or any Lender at any reasonable time and from time to time
upon reasonable prior notice.
(d) Upon its receipt of an Assignment and Acceptance executed by the
parties thereto, together with any Note subject to such assignment and
payment of the processing fee, the Agent shall, if such Assignment and
Acceptance has been completed and is in substantially the form of Exhibit
11.3(b) hereto, (i) accept such Assignment and
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Acceptance, (ii) record the information contained therein in the Register
and (iii) give prompt notice thereof to the parties thereto.
(e) Each Lender may sell participations to one or more Persons in all
or a portion of its rights, obligations or rights and obligations under
this Credit Agreement (including all or a portion of its Commitment and its
Loans); provided, however, that (i) such Lender's obligations under this
Credit Agreement shall remain unchanged, (ii) such Lender shall remain
solely responsible to the other parties hereto for the performance of such
obligations, (iii) the participant shall be entitled to the benefit of the
yield protection provisions contained in Sections 3.7 through 3.12,
inclusive, and the right of set-off contained in Section 11.2, and (iv) the
Borrower shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Credit
Agreement, and such Lender shall retain the sole right to enforce the
obligations of the Borrower relating to its Loans and its Revolving Notes
and to approve any amendment, modification, or waiver of any provision of
this Credit Agreement (other than amendments, modifications, or waivers
decreasing the amount of principal of or the rate at which interest is
payable on such Loans or Revolving Notes, extending any scheduled principal
payment date or date fixed for the payment of interest on such Loans or
Revolving Notes, or extending its Commitment).
(f) Notwithstanding any other provision set forth in this Credit
Agreement, any Lender may at any time assign and pledge all or any portion
of its Loans and its Revolving Notes to any Federal Reserve Bank as
collateral security pursuant to Regulation A and any Operating Circular
issued by such Federal Reserve Bank. No such assignment shall release the
assigning Lender from its obligations hereunder.
(g) Any Lender may furnish any information concerning the Borrower or
any of its Subsidiaries in the possession of such Lender from time to time
to assignees and participants (including prospective assignees and
participants), subject, however, to the provisions of Section 11.14 hereof.
11.4 NO WAIVER; REMEDIES CUMULATIVE.
No failure or delay on the part of the Agent or any Lender in exercising
any right, power or privilege hereunder or under any other Credit Document and
no course of dealing between the Agent or any Lender and any of the Credit
Parties shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, power or privilege hereunder or under any other Credit
Document preclude any other or further exercise thereof or the exercise of any
other right, power or privilege hereunder or thereunder. The rights and remedies
provided herein are cumulative and not exclusive of any rights or remedies which
the Agent or any Lender would otherwise have. No notice to or demand on any
Credit Party in any case shall entitle the Borrower or any other Credit Party to
any other or further notice or demand in similar or other circumstances or
constitute a waiver of the rights of the Agent or the Lenders to any other or
further action in any circumstances without notice or demand.
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11.5 EXPENSES; INDEMNIFICATION.
(a) The Borrower agrees to pay on demand all costs and expenses of
the Agent in connection with the syndication, preparation, execution,
delivery, administration, modification, and amendment of this Credit
Agreement, the other Credit Documents, and the other documents to be
delivered hereunder, including, without limitation, the reasonable fees and
expenses of counsel for the Agent with respect thereto and with respect to
advising the Agent as to its rights and responsibilities under the Credit
Documents. The Borrower further agrees to pay on demand all costs and
expenses of the Agent and the Lenders, if any (including, without
limitation, reasonable attorneys' fees and expenses and the cost of
internal counsel), in connection with the enforcement (whether through
negotiations, legal proceedings, or otherwise) of the Credit Documents and
the other documents to be delivered hereunder.
(b) The Borrower agrees to indemnify and hold harmless the Agent and
each Lender and each of their Affiliates and their respective officers,
directors, employees, agents, and advisors (each, an "Indemnified Party")
from and against any and all claims, damages, losses (other than losses
created by a Lender's internal interest rate management policies and
practices), liabilities, costs, and expenses (including, without
limitation, reasonable attorneys' fees) that may be incurred by or asserted
or awarded against any Indemnified Party, in each case arising out of or in
connection with or by reason of (including, without limitation, in
connection with any investigation, litigation, or proceeding or preparation
of defense in connection therewith) the Credit Documents, any of the
transactions contemplated herein or the actual or proposed use of the
proceeds of the Loans, except to the extent such claim, damage, loss,
liability, cost, or expense is found in a final, non-appealable judgment by
a court of competent jurisdiction to have resulted from such Indemnified
Party's gross negligence or willful misconduct. In the case of an
investigation, litigation or other proceeding to which the indemnity in
this Section 11.5 applies, such indemnity shall be effective whether or not
such investigation, litigation or proceeding is brought by the Borrower,
its directors, shareholders or creditors or an Indemnified Party or any
other Person or any Indemnified Party is otherwise a party thereto and
whether or not the transactions contemplated hereby are consummated. The
Borrower agrees not to assert any claim against the Agent, any Lender, any
of their Affiliates, or any of their respective directors, officers,
employees, attorneys, agents, and advisers, on any theory of liability, for
special, indirect, consequential, or punitive damages arising out of or
otherwise relating to the Credit Documents, any of the transactions
contemplated herein or the actual or proposed use of the proceeds of the
Loans.
(c) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower
contained in this Section 11.5 shall survive the repayment of the Loans,
LOC Obligations and other obligations under the Credit Documents and the
termination of the Commitments hereunder.
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11.6 AMENDMENTS, WAIVERS AND CONSENTS.
Neither this Credit Agreement nor any other Credit Document nor any of the
terms hereof or thereof may be amended, changed, waived, discharged or
terminated unless such amendment, change, waiver, discharge or termination is in
writing entered into by, or approved in writing by, the Required Lenders and the
Borrower, provided, however, that:
(a) without the consent of each Lender, neither this Credit Agreement
nor any other Credit Document may be amended to:
(i) extend the final maturity of any Loan or the time of payment
of any reimbursement obligation, or any portion thereof, arising from
drawings under Letters of Credit;
(ii) reduce the rate or extend the time of payment of interest
thereon or Fees hereunder;
(iii) reduce or waive the principal amount of any Loan or of any
reimbursement obligation, or any portion thereof, arising from
drawings under Letters of Credit;
(iv) increase the Commitment of a Lender over the amount thereof
in effect (it being understood and agreed that a waiver of any Default
or Event of Default or mandatory reduction in the Commitments shall
not constitute a change in the terms of any Commitment of any Lender);
(v) release all or substantially all of the Collateral;
(vi) except as the result of or in connection with a dissolution,
merger or disposition of a Subsidiary permitted under Section 8.4,
release the Borrower or substantially all of the other Credit Parties
from its or their obligations under the Credit Documents,
(vii) amend, modify or waive any provision of this Section 11.6
or Section 3.6, 3.7, 3.8, 3.9, 3.10, 3.11, 3.12, 3.13, 3.14, 9.1(a),
the last paragraph of 9.2, 11.2, 11.3, 11.5 or 11.9;
(viii) reduce any percentage specified in, or otherwise modify,
the definition of Required Lenders; or
(ix) consent to the assignment or transfer by the Borrower or all
or substantially all of the other Credit Parties of any of its or
their rights and obligations under (or in respect of) the Credit
Documents except as permitted thereby;
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(b) without the consent of the Agent, no provision of Section 10 may
be amended;
(c) without the consent of the Issuing Lender, no provision of
Section 2.2 may be amended;
(d) without the consent of the Swingline Lender, no provision of
Section 2.4 may be amended; and
(e) without the consent of the Required Lenders, no mandatory
prepayment may be waived.
Notwithstanding the fact that the consent of all the Lenders is required in
certain circumstances as set forth above, (x) each Lender is entitled to vote as
such Lender sees fit on any bankruptcy reorganization plan that affects the
Loans, and each Lender acknowledges that the provisions of Section 1126(c) of
the Bankruptcy Code supersedes the unanimous consent provisions set forth herein
and (y) the Required Lenders may consent to allow a Credit Party to use cash
collateral in the context of a bankruptcy or insolvency proceeding.
11.7 COUNTERPARTS.
This Credit Agreement may be executed in any number of counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall constitute one and the same instrument. It shall not be necessary in
making proof of this Credit Agreement to produce or account for more than one
such counterpart for each of the parties hereto. Delivery by facsimile by any of
the parties hereto of an executed counterpart of this Credit Agreement shall be
as effective as an original executed counterpart hereof and shall be deemed a
representation that an original executed counterpart hereof will be delivered.
11.8 HEADINGS.
The headings of the sections and subsections hereof are provided for
convenience only and shall not in any way affect the meaning or construction of
any provision of this Credit Agreement.
11.9 SURVIVAL.
All indemnities set forth herein, including, without limitation, in Section
2.2(i), 3.11, 3.12, 10.5 or 11.5 shall survive the execution and delivery of
this Credit Agreement, the making of the Loans, the issuance of the Letters of
Credit, the repayment of the Loans, LOC Obligations and other obligations under
the Credit Documents and the termination of the Commitments hereunder, and all
representations and warranties made by the Credit Parties herein shall survive
delivery of the Revolving Notes and the making of the Loans hereunder.
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11.10 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE.
(a) THIS CREDIT AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE
RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE
GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NORTH CAROLINA. Any legal action or proceeding with respect to
this Agreement or any other Credit Document may be brought in the courts of
the State of North Carolina in Mecklenburg County, or of the United States
for the Western District of North Carolina, and, by execution and delivery
of this Credit Agreement, each of the Credit Parties hereby irrevocably
accepts for itself and in respect of its property, generally and
unconditionally, the nonexclusive jurisdiction of such courts. Nothing
herein shall affect the right of the Agent or any Lender to serve process
in any other manner permitted by law or to commence legal proceedings or to
otherwise proceed against any Credit Party in any other jurisdiction.
(b) Each of the Credit Parties hereby irrevocably waives any
objection which it may now or hereafter have to the laying of venue of any
of the aforesaid actions or proceedings arising out of or in connection
with this Credit Agreement or any other Credit Document brought in the
courts referred to in subsection (a) above and hereby further irrevocably
waives and agrees not to plead or claim in any such court that any such
action or proceeding brought in any such court has been brought in an
inconvenient forum.
(c) TO THE EXTENT PERMITTED BY LAW, EACH OF THE AGENT, THE LENDERS,
THE BORROWER AND THE CREDIT PARTIES HEREBY IRREVOCABLY WAIVES ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR
RELATING TO THIS CREDIT AGREEMENT, ANY OF THE OTHER CREDIT DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
11.11 SEVERABILITY.
If any provision of any of the Credit Documents is determined to be
illegal, invalid or unenforceable, such provision shall be fully severable and
the remaining provisions shall remain in full force and effect and shall be
construed without giving effect to the illegal, invalid or unenforceable
provisions.
11.12 ENTIRETY.
This Credit Agreement together with the other Credit Documents represent
the entire agreement of the parties hereto and thereto, and supersede all prior
agreements and understandings, oral or written, if any, including any commitment
letters or correspondence relating to the Credit Documents or the transactions
contemplated herein and therein.
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11.13 BINDING EFFECT; TERMINATION.
(a) This Credit Agreement shall become effective at such time on or
after the Closing Date when it shall have been executed by the Borrower,
the Guarantors and the Agent, and the Agent shall have received copies
hereof (telefaxed or otherwise) which, when taken together, bear the
signatures of each Lender, and thereafter this Credit Agreement shall be
binding upon and inure to the benefit of the Borrower, the Guarantors, the
Agent and each Lender and their respective successors and assigns.
(b) The term of this Credit Agreement shall be until no Loans, LOC
Obligations or any other amounts payable hereunder or under any of the
other Credit Documents shall remain outstanding, no Letters of Credit shall
be outstanding, all of the Credit Party Obligations have been irrevocably
satisfied in full and all of the Commitments hereunder shall have expired
or been terminated.
11.14 CONFLICT.
To the extent that there is a conflict or inconsistency between
any provision hereof, on the one hand, and any provision of any Credit
Document, on the other hand, this Credit Agreement shall control.
11.15 CONFIDENTIALITY.
The Agent and each Lender (each, a "Lending Party") agrees to keep
confidential any information furnished or made available to it by the Borrower
pursuant to this Credit Agreement that is marked confidential; provided that
nothing herein shall prevent any Lending Party from disclosing such information
(a) to any other Lending Party or any affiliate of any Lending Party, or any
officer, director, employee, agent, or advisor of any Lending Party or affiliate
of any Lending Party, (b) to any other Person if reasonably incidental to the
administration of the credit facility provided herein, (c) as required by any
law, rule or regulation, (d) upon the order of any court or administrative
agency, (e) upon the request or demand of any regulatory agency or authority,
(f) that is or becomes available to the public or that is or becomes available
to any Lending Party other than as a result of disclosure by any Lending Party
prohibited by this Credit Agreement, (g) in connection with any litigation to
which such Lending Party or any of its affiliates may be a party, (h) to the
extent necessary in connection with the exercise of any remedy under this Credit
Agreement or any other Credit Document, and (i) subject to provisions
substantially similar to those contained in this Section, to any actual or
proposed participant or assignee.
[Signature Page to Follow]
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IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of
this Credit Agreement to be duly executed and delivered as of the date first
above written.
BORROWER: RESORTQUEST INTERNATIONAL, INC.
a Delaware corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
LENDERS: NATIONSBANK, N. A.,
individually in its capacity as a
Lender and in its capacity as Agent
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
GUARANTORS: FIRST RESORT SOFTWARE, INC.,
a Colorado corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
B&B ON THE BEACH, INC.,
a North Carolina corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
BRINDLEY & BRINDLEY REALTY &
DEVELOPMENT, INC., a North Carolina corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
<PAGE>
COASTAL RESORTS REALTY L.L.C.,
a Delaware limited liability company
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
COASTAL RESORTS MANAGEMENT, INC.,
a Delaware corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
COLLECTION OF FINE PROPERTIES, INC.,
a Colorado corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
TEN MILE HOLDINGS, LTD.,
a Colorado corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
HOTEL CORPORATION OF THE PACIFIC, INC.,
a Hawaii corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
<PAGE>
HOUSTON AND O'LEARY COMPANY,
a Colorado corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
MAUI CONDOMINIUM & HOME REALTY, INC.,
a Hawaii corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
THE MAURY PEOPLE, INC.,
a Massachusetts corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
HOWEY ACQUISITION, INC.,
a Florida corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
REALTY CONSULTANTS, INC.,
a Florida corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
<PAGE>
RESORT PROPERTY MANAGEMENT, INC.,
a Utah corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
TELLURIDE RESORT ACCOMMODATIONS, INC.,
a Colorado corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
TRUPP-HODNETT ENTERPRISES, INC.,
a Georgia corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
THE MANAGEMENT COMPANY,
a Georgia corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
WHISTLER CHALETS LIMITED,
a British Columbia corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
<PAGE>
LENDERS CONTINUED: FIRST TENNESSEE BANK NATIONAL
ASSOCIATION
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS'
As Independent Public Accountants, we hereby consent to the use of our
reports for ResortQuest International, Inc. dated March 11, 1998; Hotel
Corporation of the Pacific, Inc., dated February 6, 1998; Brindley & Brindley
Realty and Development, Inc. and B & B On The Beach, Inc., dated January 30,
1998; Coastal Resorts Management, Inc. and Coastal Resorts Realty L.L.C., dated
January 29, 1998, and Interstate Realty Co., Inc. and Sea Colony Management,
Inc., dated January 29, 1998; First Resort Software, Inc. dated January 30,
1998; Houston and O'Leary Company dated January 30, 1998; The Maury People,
Inc., dated January 30, 1998; Howey Acquisition, Inc. dated January 30, 1998;
Priscilla Murphy Realty, Inc. dated January 30, 1998; Resort Property
Management, Inc. dated January 30, 1998, Telluride Resort Accommodations, Inc.
dated January 30, 1998; and Trupp-Hodnett Enterprises, Inc. and THE Management
Company, dated January 16, 1998, and all references to our Firm included in or
made a part of this Registration Statement.
Arthur Andersen LLP
Houston, TX
June 10, 1998
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
As independent auditors, we hereby consent to the use of our report for
Collection of Fine Properties, Inc., dated January 23, 1998, and to all
references to our Firm included in or made part of this Registration Statement.
Morrison, Brown, Argiz and Company
Denver, Colorado
June 10, 1998
