SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________TO
___________.
Commission File Number 333-47867
RESORTQUEST INTERNATIONAL, INC.
(Exact name of registrant in its charter)
Delaware I.R.S. No. 52-2055247
(State of Incorporation) (I.R.S. Employer Identification No.)
530 Oak Court Drive, Suite 360
Memphis, Tennessee 38117
(Address of principal executive offices)(Zip Code)
(901) 762-0600
(Registrant's telephone number, including area code)
1355-B Lynnfield Road, Suite 245
Memphis, TN 38119
(Former address of registrant)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes
of Common Stock, as of June 30, 1998.
Common Stock . . . . . . . . . . . . . . 15,924,286 shares
Page 1 of 41
Exhibit Index Page 28
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
On May 26, 1998, ResortQuest International, Inc., ("ResortQuest" or the
"Company") consummated its initial public offering (the "Offering") and the
combination (the "Combinations") of 12 vacation rental and property management
companies and one leading vacation rental and property management software
company. As a result of the combinations, ResortQuest acquired all the
outstanding capital stock of each of Hotel Corporation of the Pacific, Inc.
("Aston"), Brindley and Brindley Realty and Development, 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 Condominium and 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 consideration for the Combinations consisted of cash and Common Stock.
The Combinations were accounted for under the purchase method of accounting.
Aston has been designated as the accounting acquiror for financial statement
presentation purposes in accordance with Securities and Exchange Commission
("SEC") Staff Accounting Bulletin No. 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. Accordingly,
the historical financial statements represent those of Aston prior to the
Combinations and the Offering, and only include balances and transactions of the
Founding Companies and ResortQuest since May 27, 1998. Unless the context
otherwise requires, all references herein to the Company include Aston and the
other Founding Companies.
The accompanying unaudited consolidated condensed financial statements of
ResortQuest have been prepared in accordance with the instructions to Form 10-Q,
and therefore do not include all information and notes necessary for complete
financial statements in conformity with generally accepted accounting
principles. The results for the periods indicated are unaudited, but reflect all
adjustments (consisting only of normal recurring adjustments) which management
considers necessary for a fair presentation of operating results. Operating
results for interim periods are not necessarily indicative of the results for
full years. The financial statements included herein should be read in
conjunction with the ResortQuest unaudited pro forma combined financial
statements and the individual financial statements of ResortQuest, Aston,
Brindley & Brindley, Coastal Resorts, CFP, FRS, H & O, Maury, PMR, RPM, TRA and
THE and related notes thereto, and management's discussion and analysis of
financial condition and results of operations related thereto, all of which are
included in the Company's Registration Statement on Form S-1 (No. 333-47867), as
amended (the "Registration Statement"), filed with the SEC in connection with
the Offering.
2
<PAGE>
RESORTQUEST INTERNATIONAL,INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
----------- --------
(in thousands, except share amounts)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 1,632 $ 6,037
Cash held in escrow - 6,064
Trade and other receivables, net of allowance 1,195 3,627
Note receivable from stockholder (Note 2) - 4,000
Deferred income taxes (Note 7) - 658
Other current assets 129 1,232
------- --------
Total current assets 2,956 21,618
Property and equipment, net 1,776 4,075
Goodwill (Notes 1 and 3) - 95,429
Deferred income taxes (Note 7) - 1,692
Other assets 10,330 1,514
------- --------
$15,062 $124,328
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 597 $ 1,396
Customer deposits, deferred revenues and payable to
property owners - 11,357
Accounts payable and accrued liabilities 6,538 9,712
Other current liabilities 409 627
------- --------
Total current liabilities 7,544 23,092
Long-term debt, net of current maturities 2,804 1,992
Other long-term obligations 3,206 -
Net liabilities of discontinued operations 1,403 -
------- --------
14,957 25,084
------- --------
Commitments and contingencies (Note 5)
Stockholders' equity (Notes 1 and 4)
Common stock, $0.01 par value, 50,000,000 shares authorized,
1,708,333 and 15,924,286 shares outstanding, respectively 17 159
Additional paid-in capital 88 128,662
Excess distributions - (30,000)
Retained earnings - 423
------- --------
Total stockholders' equity 105 99,244
------- --------
Total liabilities and stockholders' equity $15,062 $124,328
======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
3
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1997 1998 1997 1998
------- ------- ------- -------
(in thousands, except share amounts)
<S> <C> <C> <C> <C>
Revenues
Property management fees $1,633 $2,921 $ 4,476 $ 6,021
Service fees 2,158 3,007 4,109 5,364
Other 706 1,930 1,493 2,551
------ ------ ------- -------
Total revenues 4,497 7,858 10,078 13,936
------ ------ ------- -------
Operating expenses
Direct operating expenses 2,870 4,360 5,247 7,167
General and administrative
expenses 1,202 2,303 2,263 3,593
Depreciation and amortization 88 469 176 568
------ ------ ------- -------
Total operating expenses 4,160 7,132 7,686 11,328
------ ------ ------- -------
Operating income 337 726 2,392 2,608
Interest and other income (expense) (165) 155 (333) (30)
------ ------ ------- -------
Income before income taxes 172 881 2,059 2,578
Provision for income taxes (Note 7) - (304) - (304)
------ ------ ------- -------
Income from continuing operations 172 577 2,059 2,274
Income (loss) from discontinued
operations (Note 6) (876) (210) (229) 1,347
------ ------ ------- -------
Net income (loss) $ (704) $ 367 $ 1,830 $ 3,621
====== ====== ======= =======
Earnings per share (Note 8)
Basic
Continuing operations $ 0.10 $ 0.08 $ 1.21 $ 0.51
Discontinued operations (0.51) (0.03) (0.14) 0.30
------ ------ ------- -------
Net income (loss) $(0.41) $ 0.05 $ 1.07 $ 0.81
====== ====== ======= =======
Diluted
Continuing operations $ 0.10 $ 0.08 $ 1.21 $ 0.50
Discontinued operations (0.51) (0.03) (0.14) 0.30
------ ------ ------- -------
Net income (loss) $(0.41) $ 0.05 $ 1.07 $ 0.80
====== ====== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
4
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF PRO FORMA INCOME
(UNAUDITED) (Note 1)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1997 1998 1997 1998
------- ------- ------- -------
(in thousands, except share amounts)
<S> <C> <C> <C> <C>
Revenues
Property management fees $ 5,275 $ 5,136 $17,749 $18,428
Service fees 3,392 3,927 6,601 8,066
Other 3,483 3,955 6,620 7,365
------- ------- ------- -------
Total revenues 12,150 13,018 30,970 33,859
------- ------- ------- -------
Operating expenses
Direct operating expenses 7,036 7,444 14,363 15,464
General and administrative
expenses 2,950 3,454 5,524 6,506
Depreciation and amortization 1,009 1,023 2,046 2,060
------- ------- ------- -------
Total operating expenses 10,995 11,921 21,933 24,030
------- ------- ------- -------
Operating income 1,155 1,097 9,037 9,829
Interest and other income (expense) (157) 73 (114) 295
------- ------- ------- -------
Income before income taxes 998 1,170 8,923 10,124
Provision for income taxes 657 726 4,085 4,566
------- ------- ------- -------
Net income $ 341 $ 444 $ 4,838 $ 5,558
======= ======= ======= =======
Earnings per share - basic and diluted
Net income $ 0.02 $ 0.03 $ 0.30 $ 0.35
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated condensed pro
forma financial statements.
5
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Excess Retained
Shares Amount Capital Distributions Earnings Total
------- -------- ---------- ------------- -------- --------
(in thousands, except share amounts)
<S> <C> <C>
Balance, December 31, 1997 1,708,333 $ 17 $ 88 $ - $ - $ 105
Net income - - - - 3,621 3,621
Initial public offering (Note 4) 6,670,000 67 59,954 - - 60,021
Distributions to Aston stockholders - - - (30,000) (3,198) (33,198)
Stock issued in connection with
Combinations (Note 4) 7,545,953 75 68,620 - - 68,695
---------- ---- -------- -------- ------- --------
Balance, June 30, 1998 15,924,286 $159 $128,662 $(30,000) $ 423 $ 99,244
========== ==== ======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
6
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30, June 30,
1997 1998
------- --------
(in thousands)
<S> <C> <C>
Cash flows from operating activities
Net income $ 1,830 $ 3,621
Loss (income) from discontinued operations 229 (1,347)
------- --------
Income from continuing operations 2,059 2,274
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization 176 568
Changes in operating assets and liabilities
Accounts receivable (515) 1,172
Prepaid expenses and other assets (153) (442)
Deferred income taxes - (164)
Accounts payable and accrued liabilities 2,266 (1,743)
Reservation and escrow deposits - 2,502
------- --------
Cash provided by continuing operations 3,833 4,167
Cash flows provided by (used in) discontinued operations 1,519 (56)
------- --------
Net cash provided by operating activities 5,352 4,111
------- --------
Cash flows from investing activities
Cash portion of Combinations - (21,341)
Purchase of property and equipment (99) (243)
Proceeds from sale of property and equipment 50 -
Other 62 528
------- --------
Net cash provided by (used in) investing activities 13 (21,056)
------- --------
Cash flows from financing activities
Net proceeds from public stock issuance - 60,889
Distributions to stockholders (1,830) (33,198)
Payment of other long-term obligations (203) (5,914)
(Decrease) increase in advances to stockholders (2,206) 2,684
Principal payments under capital leases (88) (2,625)
Increase in advances to affiliates (1,304) (486)
------- --------
Net cash (used in) provided by financing activities (5,631) 21,350
------- --------
Net (decrease) increase in cash and cash equivalents (266) 4,405
Cash and cash equivalents, beginning of period 2,118 1,632
------- --------
Cash and Cash equivalents, end of period $ 1,852 $ 6,037
======= ========
Supplemental disclosure of non-cash investing activities
Common stock portion of Combinations $ - $ 72,001
======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
7
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)
NOTE 1 - Basis of Presentation
Formation
ResortQuest, formerly known as Vacation Properties International, Inc., was
formed to create the leading provider of vacation condominium and home rentals
and management in premier destination resorts. Effective with the closing of
ResortQuest's initial public offering on May 26, 1998, the Company acquired 12
vacation rental and property management companies and one leading vacation
rental and property management software company. However, for accounting and
reporting purposes, Aston was identified as the accounting acquiror and the
remaining Founding Companies along with ResortQuest were accounted for under the
purchase method of accounting.
Accordingly, the historical unaudited consolidated condensed financial
statements for the three- and six-month periods ended June 30, 1997 and 1998
includes the financial results of Aston prior to the Combinations and the
Offering, and includes the combined balances and transactions of ResortQuest and
the Founding Companies only since May 26, 1998. Comparability of actual results
for the quarter, year to date and prior years may be misleading and are not
necessarily indicative of the results of the combined operations.
Pro Forma Financial Information
To provide better comparability, the consolidated condensed statements of
income for the three- and six-month periods ended June 30, 1997 and 1998 include
the financial results of ResortQuest and the Founding Companies as if the
Combinations had occurred at the beginning of each respective period. The
consolidated condensed statements of income include the effects of: (i) the
Combinations; (ii) the proceeds from the issuance of 6,670,000 shares of
ResortQuest Common Stock, a portion of which was used to pay the cash portion of
the purchase price for the Founding Companies, to pay offering expenses, and to
repay debt assumed in the Combinations; (iii) certain adjustments to salaries,
bonuses, and benefits to former owners and key management of the Founding
Companies effective with the Offering; (iv) reversal of compensation 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; (v) provision for income taxes as if pro forma income was subject to
federal, state or provincial income taxes during the periods and that goodwill
was not deductible for income tax purposes; (vi) amortization of goodwill
resulting from the Combinations and (vii) excludes income (loss) from
discontinued operations.
NOTE 2 - Note Receivable From Stockholder
In connection with the Combinations, Aston formalized its receivable
resulting from cash advances to its primary stockholder with a $4.0 million
promissory note (the "Note"). The Note bears interest at one-half of one percent
below prime rate of interest, but not less than six percent and not more than 10
percent. Payments under the Note are interest only, due and payable every
January and July 1st. The Note is due on demand with 180 days notice at any time
8
<PAGE>
through May 26, 1999. If payment is not requested within the notice periods, the
Note becomes due and payable on May 25, 2008.
NOTE 3 - Long-Term Debt
ResortQuest Credit Facility
On May 26, 1998, ResortQuest entered into a credit agreement (the "Credit
Agreement") 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.
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 from 1.25% to 2.00%, depending on certain financial
ratios. Availability fees ranging from 0.25% to 0.50% 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 of the assets of ResortQuest and its subsidiaries, including
the common stock of the Founding Companies and any future material subsidiaries,
as defined. At June 30, 1998, there were no borrowings under the Credit Facility
and ResortQuest was in compliance with applicable loan covenants.
Other Debt
In connection with the Combinations, ResortQuest agreed to assume $5.7
million of existing debt of the Founding Companies. As of June 30, 1998, all of
this debt was paid off. In addition, the Founding Companies collectively had
$1.8 million available to borrow under nine separate lines of credit, which
included personal guarantees of the Founding Companies owners. ResortQuest is in
the process of terminating these lines of credit and removing the personal
guarantees of the Founding Companies previous owners. At June 30, 1998, there
were no borrowings outstanding under any of the remaining lines of credit.
NOTE 4 - Stockholders' Equity
Common Stock
On May 26, 1998, ResortQuest issued an aggregate of 9,254,286 shares of
Common Stock in connection with the Combinations (1,708,333 shares to Aston
stockholders and 7,545,953 shares to the remaining stockholders involved with
the Combinations) and 6,670,000 shares of Common Stock in connection with the
Offering. Shares issued in the Offering were sold at a price to the public of
$11.00 per share. The net proceeds to ResortQuest from the Offering (after
deducting underwriting discounts, commissions and offering expenses) were
approximately $60.0 million. As of June 30, 1998, ResortQuest had 15,924,286
shares of Common Stock issued and outstanding (12,789,656 shares of Common Stock
and 3,134,630 shares of restricted Common Stock). The Common Stock and
restricted Common Stock are identical except that the holders of restricted
9
<PAGE>
Common Stock are only entitled to one-half of one vote for each share on all
matters.
On June 25, 1998, ResortQuest registered 3.0 million shares of Common Stock
with the Securities and Exchange Commission pursuant to a shelf registration
statement. These shares are available and could be used for future acquisitions.
Long-Term Incentive Plan
ResortQuest has reserved 1,910,914 shares of Common Stock for use in
connection with the 1998 Long-Term Incentive Plan. In connection with the
Offering, options in the form of non-qualified stock options to purchase a total
of 1,695,000 shares of Common Stock of the Company at $11.00 per share were
granted to management of the Founding Companies, corporate management, certain
stockholders, and non-employee directors.
Preferred Stock
ResortQuest's authorized capital includes 10.0 million shares of
undesignated preferred stock with a $0.01 par value.
NOTE 5 - Commitments and Contingencies
Aston Guarantees
Prior to the Combinations, Aston had guaranteed or co-signed debts of its
former principal stockholder in the aggregate amount of approximately $16.4
million, as of March 31, 1998, which primarily relates to mortgage loans on two
hotels managed by Aston. 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 to secure such debt. The former principal
stockholder also has agreed to cause Aston's, and henceforth ResortQuest's,
guarantees of such debt to be released as soon as practicable. As of July 24,
1998, only $860,000 of these loans remains outstanding.
Certain of Aston'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.
Acquisition Indemnification
Subject to certain limitations, pursuant to the Agreement and Plan Of
Organization entered into by and between each of the Founding Companies and
ResortQuest (each an "Agreement"), the stockholders of the Founding Companies
have indemnified ResortQuest against losses, claims, damages, actions, suits,
proceedings, demands, assessments, adjustments, costs and expenses as a result
of or arising from (i) any breach of the representations and warranties in the
Agreement and its schedules and certificates by the stockholders of the Founding
Companies, (ii) any breach of any agreement on the part of the stockholders set
forth in the Agreement, (iii) any liability under the 1933 Act, the 1934 Act or
other federal or state law or regulation arising out of or based upon any untrue
statement of a material fact relating solely to the Founding Company or the
stockholders and (iv) certain other identified claims or litigation. In
addition, pursuant to each Agreement and subject to certain limitations,
10
<PAGE>
ResortQuest agreed to indemnify the stockholders against losses, claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses incurred by the stockholders as a result of or arising from (i) any
breach by ResortQuest or of its representations and warranties in the Agreement
and its schedules and certificates, (ii) any breach of any agreement on the part
of ResortQuest under this Agreement, (iii) any liability under the 1933 Act, the
1934 Act or other federal or state law or regulation, at common law or
otherwise, arising out of or based upon any untrue statement or alleged untrue
statement of a material fact relating to ResortQuest or any of the other
Founding Companies contained in certain filings with the Securities and Exchange
Commission, or (v) the matters described in the schedules to the Agreement
relating to guarantees.
ResortQuest is not aware of any events that have or could have caused any
party to such indemnification under any of the Agreements during the periods
presented in the accompanying consolidated condensed financial statements.
Litigation
ResortQuest and its subsidiaries are involved in various legal actions
arising in the ordinary course of business. While any proceeding or litigation
has an element of uncertainty, management believes that the final outcome of
these matters will not have a materially adverse effect upon ResortQuest's
consolidated financial position or results of operations.
Insurance
ResortQuest carries a broad range of insurance coverage, including
directors and officers, prospectus liability, errors and omissions, general
liability, auto liability, and workers' compensation. ResortQuest has not
incurred significant claims or losses on any of its insurance policies during
the periods presented in the accompanying consolidated condensed financial
statements.
Employment Agreements
Effective with the Combinations, ResortQuest entered into employment
agreements with all senior corporate officers and several subsidiary level key
employees. Among other things, these agreements allow for severance payments and
acceleration of stock option awards upon a change in control of ResortQuest, as
defined under the agreements. The maximum amount of compensation that would be
payable under all agreements if a change in control occurred without prior
written notice as of June 30, 1998, would be approximately $22.8 million.
11
<PAGE>
NOTE 6 - Discontinued Operations
ResortQuest has decided that they will no longer continue or enter into
leasing arrangements for lodging facilities. 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. Concurrent with the Combinations, Aston assigned such
leases to AST Holdings, Inc., a corporation owned by Aston's principal
stockholder. On May 27, 1998, ResortQuest entered into a contract with AST
Holdings to manage these facilities for a fee. Summarized financial information
of the discontinued operations is presented in the following table.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1997 1998 1997 1998
------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C>
Revenues $6,944 $4,187 $16,051 $14,304
Operating expenses 5,852 3,651 12,141 10,120
General and administrative expenses 1,957 749 4,118 2,839
------ ------ ------- -------
Operating income (loss) (865) (213) (208) 1,345
Other expense (income) 11 (3) 21 (2)
------ ------ ------- -------
Income (loss) from discontinued operations $ (876) $ (210) $ (229) $ 1,347
====== ====== ======= =======
</TABLE>
NOTE 7 - Income Taxes
ResortQuest intends to file a consolidated federal income tax return, which
will include the operations of the Founding Companies commencing with the
Combinations. The Founding Companies previous owners are individually
responsible for filing federal, state and provincial income tax returns for
operations prior to the Combinations. The ResortQuest provision for income taxes
and effective tax rate for the periods ended June 30, 1998, are impacted by: (i)
Aston book earnings prior to May 26, 1998 which will not be included in
ResortQuest's consolidated income tax returns; (ii) book amortization of
goodwill which is not deductible for income tax purposes; and (iii) recording a
one-time deferred income tax catch-up entry for Aston who was previously taxed
under S corporation status.
12
<PAGE>
NOTE 8 - Earnings Per Share
Actual Results
Income per share included in the consolidated condensed statements of
income for the historical periods ended June 30, 1997, includes Aston's results
of operations under its historical capital and income tax structure.
Accordingly, the shares outstanding of Aston are utilized to calculate weighted
average shares for all 1997 periods.
Income per share included in the consolidated condensed statements of
income for the historical periods ended June 30, 1998, includes Aston's results
of operations under its historical capital and income tax structure through May
26, 1998, and the combined balances and transactions of ResortQuest and the
Founding Companies from May 27, 1998 through June 30, 1998. The shares
outstanding for Aston through May 26, 1998, and the shares outstanding for
ResortQuest from May 27, 1998 through June 30, 1998, were used to calculate
weighted average shares for all 1998 periods.
The following table reflects ResortQuest's weighted average common shares
outstanding and the impact of its primary common share equivalents.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1997 1998 1997 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Basic weighted average
shares outstanding 1,708,333 7,176,007 1,708,333 4,457,274
Effect of dilutive
securities - Stock options - 113,728 - 57,178
--------- --------- --------- ---------
Diluted weighted average
shares outstanding 1,708,333 7,289,735 1,708,333 4,514,452
========= ========= ========= =========
</TABLE>
Pro Forma Results
Pro forma income per share included in the consolidated condensed statement
of pro forma operations is based on pro forma net income after considering the
pro forma adjustments described in Note 1 above. The pro forma weighted average
shares for all periods reflect the issuance of Common Stock in connection with
the Combinations, the public offering and issued to ResortQuest shareholders and
management as though such shares were outstanding for the entire periods.
However, the 1998 calculations also include the dilutive impact of options
outstanding from May 27, 1998 through June 30, 1998.
13
<PAGE>
The following table reflects ResortQuest's pro forma weighted average
common shares outstanding and the impact of its dilutive common share
equivalents.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1997 1998 1997 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Basic weighted average
shares outstanding 15,924,286 15,924,286 15,924,286 15,924,286
Effect of dilutive
securities - Stock options - 113,728 - 57,178
---------- ---------- ---------- ----------
Diluted weighted average
shares outstanding 15,924,286 16,038,014 15,924,286 15,981,464
========== ========== ========== ==========
</TABLE>
NOTE 9 - Subsequent Events - Acquisitions
In July 1998, ResortQuest entered into a definitive agreement to acquire
Plantation Resort Management, Inc., a vacation rental and property management
company in Gulf Shores, Alabama, with 378 units under contract, executed a
letter of intent to acquire the holding company of Whistler Exclusive
Properties, a vacation rental and property management company in Whistler,
British Columbia, with 46 units under contract, and agreed to acquire 20
property management contracts from Goldpoint Lodging & Realty, Inc. in
Breckenridge, Colorado. Aggregate consideration for the acquisitions will
consist of Common Stock and cash. The cash portion will be funded primarily with
the Credit Facility. ResortQuest expects to account for the Plantation Resort
acquisition using the pooling of interests method of accounting and the
remaining two acquisitions by the purchase method. The acquisitions, which are
subject to customary closing conditions, are expected to be completed by August
31, 1998, and are not included in the accompanying financial results for the
periods ended June 30, 1998.
14
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Introduction
ResortQuest, formerly known as Vacation Properties International, Inc., was
formed to create the leading provider of vacation condominium and home rentals
and management in premier destination resorts. Effective with the closing of
ResortQuest's initial public offing on May 26, 1998, the Company acquired 12
vacation rental and property management companies and one leading vacation
rental and property management software company. However, for accounting and
reporting purposes, Aston was identified as the accounting acquiror and the
remaining Founding Companies along with ResortQuest were accounted for under the
purchase method of accounting.
Accordingly, the ResortQuest historical consolidated financial information
for the three- and six-month periods ended June 30, 1997 and 1998 includes the
results of Aston prior to the Combinations and the Offering, and includes the
combined balances and transactions of ResortQuest and the Founding Companies
only since May 27, 1998. Comparability of actual results for the quarter, year
to date and prior years may be misleading and are not necessarily indicative of
the results of the combined operations.
Results of Operations - Historical
The following table sets forth the historical consolidated results of
operations for the three- and six-month periods ended June 30, 1997 and 1998.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1997 1998 1997 1998
------------- ------------- -------------- --------------
(amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $4,497 100.0% $7,858 100.0% $10,078 100.0% $13,936 100.0%
Operating expenses 4,160 92.5% 7,132 90.8% 7,686 76.3% 11,328 81.3%
Operating income $ 337 7.5% $ 726 9.2% $ 2,392 23.7% $ 2,608 18.7%
</TABLE>
Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1998 -
Actual
Revenues. Revenues increased $3.4 million, or 74.7%, from $4.5 million in
1997 to $7.9 million in 1998, primarily due to the Combinations. The 1997 and
1998 results of operations include Aston for the entire periods and the results
of operations for the remaining Founding Companies are reflected for the period
from May 27, 1998 through June 30, 1998.
Operating expenses. Operating expenses increased $3.0 million, or 71.4%,
from $4.2 million in 1997 to $7.1 million in 1998, which is primarily due to the
1997 results of operations only including Aston and the 1998 results of
operations includes Aston and the remaining Founding Companies from May 27, 1998
through June 30, 1998. As a percentage of revenues, operating expenses decreased
from 92.5% in 1997 to 90.8% in 1998. Expenses during the second quarter are
generally higher as a percentage of revenues due to the transition from our peak
winter season to the summer season. In addition, the 1998 operating expenses
include costs associated with being a public company and corporate overhead,
which did not exist prior to the Offering.
15
<PAGE>
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1998 -
Actual
Revenues. Revenues increased $3.9 million, or 38.3%, from $10.1 million in
1997 to $13.9 million in 1998, primarily due to the Combinations. The 1997 and
1998 results of operations include Aston for the entire periods and the results
of operations for the remaining Founding Companies are reflected for the period
from the May 27, 1998 through June 30, 1998.
Operating expenses. Operating expenses increased $3.6 million, or 47.4%,
from $7.7 million in 1997 to $11.3 million in 1998, which is primarily due to
the 1997 results of operations only including Aston and the 1998 results of
operations includes Aston and the remaining Founding Companies from May 27, 1998
through June 30, 1998. As a percentage of revenues, operating expenses increased
from 76.3% in 1997 to 81.3% in 1998, primarily resulting from the 1998 operating
expenses including costs associated with being a public company and corporate
overhead, which did not exist prior to the Offering.
ResortQuest's effective tax rate for the periods ended June 30, 1998, are
impacted by: (i) Aston earnings prior to May 26, 1998 which will not be included
in ResortQuest's consolidated income tax returns; (ii) amortization of goodwill
which is not deductible for income tax purposes; and (iii) recording a one-time
deferred income tax catch-up entry for Aston who was previously taxed under S
Corporation status. The effective tax rate for the periods ended June 30, 1997,
are not applicable since Aston qualified and filed with an S corporation status.
Other
The following table sets forth other historical items affecting
consolidated net income for the three- and six-month periods ended June 30, 1997
and 1998.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1997 1998 1997 1998
----- ------ ----- ------
(amounts in thousands)
<S> <C> <C> <C> <C>
Interest and other income
(expense) $(165) $ 155 $(333) $ (30)
Income (loss) from
discontinued operations (876) (210) (229) 1,347
Effective tax rate -% 34.5% -% 11.8%
</TABLE>
Aston's operations were primarily financed through working capital and
long-term financing resulting in higher levels of interest expense prior to the
Combinations. Concurrent with the Combinations, ResortQuest did not assume any
of Aston's previous debt. However, ResortQuest did assume approximately $5.4
million of debt from the other Founding Companies, which was subsequently paid
off by the Company after the Offering. The assumption of debt by Aston's primary
stockholder and the proceeds from the Offering on May 26, 1998, resulted in
lower levels of interest expense and higher levels of interest income during the
periods ended June 30, 1998.
ResortQuest has decided that they will no longer continue or enter into
leasing arrangements for lodging facilities. Accordingly, for all periods
presented, the results of operations for the leased operations are reflected as
discontinued operations. Concurrent with the Combinations, Aston assigned such
leases to AST Holdings, Inc., a corporation owned by Aston's principal
stockholder. On May 27, 1998, ResortQuest entered into a contract with AST
Holdings to manage these facilities for a fee.
ResortQuest's effective tax rate for the periods ended June 30, 1998, are
impacted by: (i) Aston earnings prior to May 26, 1998 which will not be included
in ResortQuest's conssolidated income tax returns; (ii) amortization of goodwill
which is not deductible for income tax purposes; and (iii) recording a one-time
deferred income tax catch-up entry for Aston who was previously taxed under S
Corporation status. The effective tax rate for the periods ended June 30, 1997,
are not applicable since Aston qualified and filed with an S corporation status.
16
<PAGE>
Results of Operations - Pro Forma
To provide better comparability, the combined pro forma results of
operations for the three- and six-month periods ended June 30, 1997 and 1998
include the results of ResortQuest and the Founding Companies as if the
Combinations had occurred at the beginning of each respective periods. The
combined pro forma results of operations include the effects of: (i) the
Combinations; (ii) the proceeds from the issuance of 6,670,000 shares of
ResortQuest Common Stock, which was used to pay the cash portion of the purchase
price for the Founding Companies, to repay debt assumed in the Combinations, and
to pay offering expenses; (iii) certain adjustments to salaries, bonuses, and
benefits to former owners and key management of the Founding Companies effective
with the Offering (iv) reversal of compensation 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; (v)
provision for income taxes as if pro forma income was subject to federal, state
or provincial income taxes during the periods and that goodwill was not
deductible for income tax purposes; (vi) amortization of goodwill resulting from
the Combinations and (vii) excludes income (loss) from discontinued operations.
Goodwill Allocation
The following table summarizes goodwill amortization by entities in which
it relates, and is reflected in the combined pro forma results of operations
discussed below.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1997 1998 1997 1998
---- ---- ------ ------
(amounts in thousands)
<S> <C> <C> <C> <C>
Hawaiian islands $ 20 $ 20 $ 40 $ 40
Mountain 124 124 248 248
Beach 249 249 498 498
Other 252 252 504 504
---- ---- ------ ------
Total $645 $645 $1,290 $1,290
==== ==== ====== ======
</TABLE>
Hawaiian Islands
The Hawaiian island resorts' combined pro forma results of operation for
the second quarter reflect the end of the peak winter vacation season, which can
impact margins on a quarterly basis. The following table sets forth the Hawaiian
island resorts combined pro forma results of operations for the three- and
six-month periods ended June 30, 1997 and 1998.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1997 1998 1997 1998
------------- ------------- -------------- --------------
(amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $5,024 100.0% $4,847 100.0% $11,363 100.0% $12,122 100.0%
Operating expenses 4,335 86.3% 4,161 85.8% 8,032 70.7% 8,254 68.1%
Operating income $ 689 13.7% $ 686 14.2% $ 3,331 29.3% $ 3,868 31.9%
</TABLE>
17
<PAGE>
Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1998 -
Hawaii
Revenues. Revenues decreased $177,000, or 3.5%, from $5.0 million in 1997
to $4.8 million in 1998, primarily due to a lower number of units under
management contract in 1998, offset by a slight increase in revenue per
available unit.
Operating expenses. Operating expenses decreased $174,000, or 4.0%, from
$4.3 million in 1997 to $4.2 million in 1998. However, as a percentage of
revenues, operating expenses remained constant at 86.3% in 1997 and 85.8% in
1998. This was achieved primarily through the lower number of units and cost
controls.
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1998 -
Hawaii
Revenues. Revenues increased $759,000, or 6.7%, from $11.4 million in 1997
to $12.1 million in 1998, primarily due to higher average daily rates.
Operating expenses. Operating expenses were relatively flat. However, as a
percentage of revenues, operating expenses decreased from 70.7% in 1997 to 68.1%
in 1998. This was achieved primarily through higher revenues and cost controls.
Mountain
The mountain resorts' combined pro forma results of operation for the
second quarter reflect the end of the peak winter ski season, which can impact
margins on a quarterly basis. The following table sets forth the mountain
resorts combined pro forma results of operations for the three- and six-month
periods ended June 30, 1997 and 1998, which includes: Aspen, Breckenridge and
Telluride, Colorado; Park City, Utah; and Whistler, British Columbia.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1997 1998 1997 1998
------------- ------------- -------------- --------------
(amounts in thousands
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $1,911 100.0% $1,710 100.0% $10,025 100.0% $ 9,748 100.0%
Operating expenses 2,617 136.9% 2,678 156.6% 6,638 66.2% 6,628 68.0%
Operating income (loss) $ (706) (36.9)% $ (968) (56.6)% $ 3,387 33.8% $ 3,120 32.0%
</TABLE>
Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1998 -
Mountain
Revenues. Revenues decreased $201,000, or 10.5%, from $1.9 million in 1997
to $1.7 million in 1998, primarily due to a $248,000 reduction in real estate
sales commission revenue. The number of real estate sales closed during 1998
were higher, however, the average sales price of the 1998 homes sales was
considerably lower. Otherwise, revenues from property management and rentals
were relatively flat.
18
<PAGE>
Operating expenses. Operating expenses were relatively flat with prior
year.
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1998 -
Mountain
Revenues. Revenues decreased $277,000, or 2.8%, from $10.0 million in 1997
to $9.7 million in 1998, primarily due to a $323,000 reduction in real estate
sales commission revenue. The average sales price of the 1998 home sales was
considerably lower. Otherwise, revenues from property management and rentals
were relatively flat.
Operating expenses. Operating expenses were relatively flat with prior
year.
Beach
The beach resorts' combined pro forma results of operations for the second
quarter reflect the beginnings of the peak summer vacation season, except for
the southern Florida resorts which peak in first quarter, which can impact
margins on a quarterly basis. The following table sets forth the beach resorts
(excluding Hawaii) combined pro forma results of operations for the three- and
six-month periods ended June 30, 1997 and 1998, which includes: Bethany Beach,
Delaware; Nantucket, Massachusetts; Outer Banks, North Carolina; Sanibel and
Captiva Islands, Florida; and St. Simons Island, Georgia.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1997 1998 1997 1998
------------- ------------- ------------- --------------
(amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $4,451 100.0% $5,660 100.0% $8,240 100.0% $10,361 100.0%
Operating expenses 3,268 73.4% 3,841 67.9% 5,764 70.0% 7,100 68.5%
Operating income $1,183 26.6% $1,819 32.1% $2,476 30.0% $ 3,261 31.5%
</TABLE>
Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1998 -
Beach
Revenues. Revenues increased $1.2 million, or 27.2%, from $4.5 million in
1997 to $5.7 million in 1998, due to a 22.4% increase in revenue per available
unit, a higher number of units under management, and a $493,000 increase in real
estate sales commission revenue. Both the average sales price and the number of
real estate sales closed in 1998 were higher.
Operating expenses. Operating expenses increased $573,000, or 17.5%, from
$3.3 million in 1997 to $3.8 million in 1998. This increase was primarily
attributable to increased salaries and wages to service increased demand and
units. As a percentage of revenues, operating expenses decreased from 73.4% in
1997 to 67.9% in 1998, resulting from higher revenues.
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1998 -
Beach
Revenues. Revenues increased $2.1 million, or 25.7%, from $8.2 million in
1997 to $10.4 million in 1998, due to average increases of over 4.0% in both
occupancy and rates, a higher number of units under management, and a $1.2
million increase in real estate sales commission revenue. Both the average sales
price and the number of real estate sales closed in 1998 were higher.
Operating expenses. Operating expenses increased $1.3 million, or 23.2%,
from $5.8 million in 1997 to $7.1 million in 1998. As a percentage of revenues,
operating expenses decreased from 70.0% in 1997 to 68.5% in 1998. This decrease
was primarily attributable to higher real estate sales commission revenues, off
set by increased salaries and wages to service the anticipated increased summer
demand.
19
<PAGE>
Other Operations
The following table sets forth the other combined pro forma results of
operations for the three- and six-month periods ended June 30, 1997 and 1998,
which includes: First Resort and corporate.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1997 1998 1997 1998
----------- ------------- ------------- -------------
(amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $764 100.0% $ 801 100.0% $1,342 100.0% $1,628 100.0%
Operating expenses 775 101.4% 1,241 154.9% 1,499 111.7% 2,048 125.8%
Operating income $(11) (1.4)% $ (440) (54.9)% $ (157) (11.7)% $ (420) (25.8)%
</TABLE>
Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1998 -
Other
Revenues. Revenues increased $37,000, or 4.8%, from $764,000 in 1997 to
$801,000 in 1998, primarily due to the increased software service fees.
Operating expenses. Operating expenses increased by $466,000, or 60.1%,
from $775,000 in 1997 to $1.2 million in 1998. This increase primarily results
from expenses associated with being a public company and corporate overhead,
which did not exist prior to the Offering.
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1998 -
Other
Revenues. Revenues increased $286,000, or 21.3%, from $1.3 million in 1997
to $1.6 million in 1998, due to both the increased sales of software and
software service fees.
Operating expenses. Operating expenses increased by $549,000, or 36.6%,
from $1.5 million in 1997 to $2.0 million in 1998. This increase primarily
results from expenses associated with being a public company and corporate
overhead, which did not exist prior to the Offering.
Liquidity and Capital Resources
ResortQuest is a holding company that conducts all of its operations
through the Founding Companies. The Company's growth strategy is to grow through
continued acquisitions of resort condominium and home management companies in
new or existing resort markets. Accordingly, the primary internal source of
ResortQuest's liquidity is through cash flows from operations, a $30 million
credit facility and ResortQuest Common Stock. At June 30,1998, ResortQuest had
approximately $6.0 million of cash and cash equivalents, and $6.1 million of
cash held in trust. Cash held in trust is forwarded to the condominium and
homeowner and released as corporate funds at varying times in accordance with
applicable state or provincial regulations.
20
<PAGE>
Cash Flows
During the six months ended June 30, 1998, ResortQuest generated cash flows
from operating activities of $4.2 million. Cash flows used in investing
activities by the Company was $21.1 million during the six months ended June 30,
1998, which included $21.3 million payments to acquire the Founding Companies.
ResortQuest generated cash flows from financing activities of $21.4 million
during the six months ended June 30, 1998, including the net proceeds of $60.9
million from the initial public offering, offset by distributions to
stockholders of $33.2 million and the repayment of $5.9 million in debt.
Note Receivable
In connection with the Combinations, Aston formalized their receivable
resulting from cash advances to its primary stockholder with a $4.0 million
promissory note (the "Note"). The Note bears interest at one-half of one percent
below prime rate of interest, but not less than six percent and not more than 10
percent. Payments under the Note are interest only, due and payable every
January and July 1st. The Note is due on demand with 180 days notice for any
time through May 26, 1999. If payment is not requested within the notice
periods, the Note becomes due and payable on May 25, 2008.
Offering and Combinations
On May 26, 1998, ResortQuest issued an aggregate of 9,254,286 shares of
Common Stock in connection with the Combinations (1,708,333 shares to Aston
stockholders and 7,545,953 shares to the remaining stockholders involved with
the Combinations) and 6,670,000 shares of Common Stock in connection with the
Offering. Shares issued in the Offering were sold at a price to the public of
$11.00 per share. The net proceeds to ResortQuest from the Offering (after
deducting underwriting discounts, commissions and offering expenses) were
approximately $60.0 million. Pursuant to the Combinations, ResortQuest
consummated the acquisitions of the Founding Companies for an aggregate of
approximately $54.9 million in cash, 6,119,656 shares of Common Stock and the
assumption of $5.7 million in debt. As of June 30, 1998, the net proceeds have
been used as follows: (i) $54.9 million to pay the cash portion of the
consideration for the Combinations, and (ii) $5.2 million to pay off assumed
indebtedness. As of June 30, 1998, ResortQuest had 15,924,286 shares of Common
Stock issued and outstanding.
Shelf Registration
On June 25, 1998, ResortQuest registered 3.0 million shares of Common Stock
with the Securities Exchange Commission pursuant to a shelf registration
statement. The shares are available and could be used for future acquisitions.
Credit Facilities and Loan Guarantees
On May 26, 1998, ResortQuest entered into a credit agreement (the "Credit
Agreement") 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. The Credit Facility has a three-year
21
<PAGE>
term and is secured by substantially all of the assets of ResortQuest and its
subsidiaries, including the common stock of the Founding Companies and any
future material subsidiaries, as defined. At June 30, 1998, there were no
borrowings under the Credit Facility and ResortQuest was in compliance with
applicable loan covenants.
In connection with the Combinations, ResortQuest agreed to assume $5.7
million of existing debt of the Founding Companies. As of June 30, 1998, all of
this debt was paid off. In addition, the Founding Companies collectively had
$1.8 million available to borrow under nine separate lines of credit, which
included personal guarantees of the Founding Companies owners. ResortQuest is in
the process of terminating these lines of credit and removing the personal
guarantees of the Founding Companies previous owners. As of June 30, 1998, there
were no borrowings outstanding under any of the remaining lines of credit.
Prior to the Combinations, Aston had guaranteed or co-signed debts of its
former principal stockholder in the aggregate amount of approximately $16.4
million, as of March 31, 1998, which primarily relates to mortgage loans on two
hotels managed by Aston. 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 to secure such debt. The former principal
stockholder also has agreed to cause Aston's, and henceforth ResortQuest's,
guarantees of such debt to be released as soon as practicable. As of July 24,
1998, only $860,000 of these loans remains outstanding.
Management Contract Guarantees
Certain of Aston'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.
Capital Spending
It is anticipated that cash flows from operations will provide sufficient
flows to satisfy working capital needs, debt service requirements and normal
capital expenditure needs. ResortQuest made capital expenditures of
approximately $243,000 during the six months ended June 30, 1998. Total pro
forma 1998 capital expenditures for ResortQuest and the Founding Companies are
anticipated to range from $1.5 million to $2.0 million, of which approximately
$200,000 will be for software development, with the balance for furniture,
fixtures and equipment.
Acquisitions
ResortQuest 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 ResortQuest 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
22
<PAGE>
all of which could have a material adverse effect on ResortQuest'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. ResortQuest expects to fund
future acquisitions primarily through a combination of cash flow from
operations, borrowings under the Credit Facility and issuance of Common Stock.
Seasonality and Quarterly Fluctuations
The ResortQuest business is highly seasonal. The pro forma results of
operations 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. ResortQuest'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.
Risks Associated With Forward Looking Statements
This filing contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act of 1934, as amended, which are intended to be covered by the safe harbors
created thereby. Investors are cautioned that all forward-looking statements
involve risks and uncertainties, including but not limited to the risks
associated with; successful integration of the Founding Companies and additional
required companies factors affecting internal growth and management of growth,
ResortQuest's acquisition strategy and availability of financing, the tour and
travel industry, seasonality, quarterly fluctuations and general economic
conditions, dependence on technology and travel providers, and other factors
discussed in the Registration Statement. Although the Company believes that the
assumptions underlying the forward-looking statements contained herein are
reasonable, any of the assumptions could be inaccurate, and, therefore, there
can be no assurance that the forward-looking statements included in this filing
will prove to be accurate. In light of the significant uncertainties inherent in
the forward-looking statements included herein, the inclusion of such
information should not be regarded as a representation by ResortQuest or any
other person that the objectives and plans of the Company will be achieved.
23
<PAGE>
Performance Statistics
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, Inc./ June 30, June 30, Inc./
1997 1998 Dec. 1997 1998 Dec.
------- ------- ----- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Hawaii
Occupancy 67.9% 68.2% 0.3pts 73.7% 73.4% (0.3)pts
ADR $98.05 $99.12 1.1% $106.21 $106.67 0.4%
RevPAU $66.54 $67.63 1.6% $78.28 $78.29 -
Total Units 5,242 5,145 (1.9)% 5,242 5,145 (1.9)%
Mountain
Occupancy 19.2% 20.0% 0.8pts 41.8% 42.2% 0.4pts
ADR $101.91 $108.45 6.4% $191.47 $183.44 (4.2)%
RevPAU $19.60 $21.72 10.8% $80.10 $77.40 (3.4)%
Total Units 1,463 1,551 6.0% 1,463 1,551 6.0%
Beach
Occupancy 39.2% 44.9% 5.7pts 41.3% 45.8% 4.5pts
ADR $164.35 $175.94 7.1% $150.98 $159.61 5.7%
RevPAU $64.48 $78.91 22.4% $62.41 $73.18 17.3%
Total Units 2,113 2,291 8.4% 2,113 2,291 8.4%
Total
Occupancy 54.3% 55.5% 1.2pts 62.3% 62.8% 0.5pts
ADR $107.25 $111.09 3.6% $121.36 $122.93 1.3%
RevPAU $58.28 $61.69 5.9% $75.64 $77.20 2.1%
Total Units 8,818 8,987 1.9% 8,818 8,987 1.9%
</TABLE>
Houston & O'Leary and The Maury People with approximately 130 and 1,385
units, respectively have been excluded from these statistics. Also excluded from
these statistics are owner use nights and renovation nights which were
approximately 12.0% of gross available nights in the six months ended June 30,
1998 and 10.3% of gross available nights in the six months ended June 30, 1997.
For the three months ended June 30 for 1998 and 1997, owner use nights and
renovation nights were 11.8% and 10.0%, respectively.
24
<PAGE>
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Initial Public Offering
In connection with the Offering, the ResortQuest's Registration Statement
on Form S-1 (File No. 333-47867) was declared effective by the Securities and
Exchange Commission on May 18, 1998. The managing underwriters of the Offering
were Salomon Smith Barney, NationsBanc Montgomery Securities LLC and Furman
Selz. The Offering commenced on May 20, 1998, all securities registered and sold
in the Offering consisted of 5,800,000 shares, plus an underwriter overallotment
of 870,000 shares totaling 6,670,000 shares (the "Offered Shares") of Common
Stock, $.01 par value per share, all of which were sold for the account of the
Company.
The Offered Shares were sold at a price to the public of $11.00 per share,
for aggregate gross proceeds of $73.4 million. The total expenses incurred in
connection with the Offering, including underwriting discounts and commissions,
are estimated to be approximately $13.4 million. Such expenses did not include
any direct or indirect payments to directors, officers, 10% stockholders or
affiliates of the company. As of June 30, 1998, the net proceeds have been used
as follows: (i) $54.9 million to pay the cash portion of the consideration for
the Combinations, and (ii) $5.1 million to pay off assumed indebtedness. Cash
consideration paid in connection with the Combinations include payments made
directly or indirectly to individuals that are either directors, officers or 10%
stockholders of the Company.
Also in connection with the consummation of the Combinations, the Company
issued an aggregate of 6,119,656 shares of Common Stock as the stock portion of
the consideration. Such shares were not registered under the Securities Act of
1933, as amended, and were issued in reliance on the exemption provided by
Section 4(2) of such act.
Shelf Registration
On June 25, 1998, the Securities and Exchange Commission declared effective
3.0 million shares of Common Stock registered by ResortQuest through a shelf
registration statement. These shares are available and could be used for future
acquisitions.
Credit Facility
The ResortQuest Credit Facility requires the Company to maintain certain
specific financial covenants. Although the payment of dividends is not
prohibited by the credit agreement, the covenants are structured such that
ResortQuest's ability to pay dividends is limited.
25
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
EX-10.1 Form of Officer and Director Indemnification Agreement (1)
Ex-27 Financial Date Schedule (1)
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended June 30, 1998.
- ----------
Footnotes
(1) Filed herewith
26
<PAGE>
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf be the
undersigned thereunto duly authorized.
RESORTQUEST INTERNATIONAL, INC.
August 14, 1998 By: /s/ JEFFERY M. JARVIS
----------------------------
Jeffery M. Jarvis
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer,
Chief Accounting Officer
and Duly Authorized Officer)
27
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Sequential
Exhibit No. Description Page No.
- ----------- ---------------------------------------------- ----------
<S> <C> <C>
EX-10.1 Form of Officer and Director Indemnification
Agreement (1) 29
EX-27 Financial Data Schedule (1) 41
</TABLE>
- ---------
Footnotes
(1) Filed herewith
28
EXHIBIT 10.1
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the "Agreement") dated as of July __, 1998
is by and between ResortQuest International, Inc., a Delaware corporation (the
"Company"), and ______________ ("Indemnitee").
RECITALS
A. Indemnitee is a member of the Board of Directors of the Company and in
such capacity is performing a valuable service to the Company.
B. The Company's Bylaws (the "Bylaws") provide for the indemnification of
directors, officers, employees and agents of the Company.
C. The Amended and Restated Certificate of Incorporation of the Company
(the "Certificate") provides that the Company shall, to the fullest extent
permitted by Section 145 of the General Corporation Law of the State of
Delaware, as amended from time to time (the "Corporation Law") indemnify the
directors, officers, employees and agents of the Company.
D. The Corporation Law specifically provides that indemnification and
advancement of expenses provided in such statute shall not be exclusive of any
other rights under any agreement, and thereby contemplates that agreements may
be entered into between the Company and members of the Board of Directors or
officers of the Company with respect to the indemnification of such directors or
officers.
E. In accordance with the authorization provided in the Corporation Law,
the Company has purchased and presently maintains a policy or policies of
directors' and officers' liabilities insurance (the "Insurance") covering
certain liabilities which may be incurred by the Company's directors and
officers in the performance of their services to the Company.
F. The general availability of directors' and officers' liability insurance
covering certain liabilities which may be incurred by the Company's directors
and officers in the performance of their services to the Company and the
applicability, amendment and enforcement of statutory and bylaw provisions have
raised questions concerning the adequacy and reliability of the protection
afforded to directors and officers.
G. In order to induce Indemnitee to serve as a member of the Board of
Directors of the Company for the current term and for any subsequent term to
which he is elected or nominated, the Company has deemed it to be in its best
interest to enter into this Agreement with Indemnitee.
29
<PAGE>
NOW, THEREFORE, in consideration of Indemnitee's agreement to serve as a
member of the Board of Directors of the Company after the date hereof, the
parties hereto agree as follows:
1. Definitions.
As used in this Agreement, the following terms shall have the following
meanings:
(a) Change in Control. A "Change in Control" shall be deemed to have
occurred if any of the following shall have occurred unless the transaction
or event shall have been approved by at least two-thirds (2/3) of the Board
of Directors of RQI:
(i) any person or entity, other than RQI or an employee benefit
plan of RQI, acquires directly or indirectly the Beneficial Ownership
(as defined in Section 13(d) of the Securities Exchange Act of 1934,
as amended) of any voting security of RQI and immediately after such
acquisition such person or entity is, directly or indirectly, the
Beneficial Owner of voting securities representing 50% or more of the
total voting power of all of the then-outstanding voting securities of
RQI;
(ii) the following individuals no longer constitute a majority of
the members of the Board of Directors of RQI: (A) the individuals who,
as of the closing date of RQI's initial public offering, constitute
the Board of Directors of RQI (the "Original Directors"); (B) the
individuals who thereafter are elected to the Board of Directors of
RQI and whose election, or nomination for election, to the Board of
Directors of RQI was approved by a vote of at least two-thirds (2/3)
of the Original Directors then still in office (such directors
becoming "Additional Original Directors" immediately following their
election); and (C) the individuals who are elected to the Board of
Directors of RQI and whose election, or nomination for election, to
the Board of Directors of RQI was approved by a vote of at least
two-thirds (2/3) of the Original Directors and Additional Original
Directors then still in office (such directors also becoming
"Additional Original Directors" immediately following their election);
(iii) the stockholders of RQI shall approve a merger,
consolidation, recapitalization or reorganization of RQI, a reverse
stock split of outstanding voting securities, or consummation of any
such transaction if stockholder approval is not obtained, other than
any such transaction which would result in at least 75% of the total
voting power represented by the voting securities of the surviving
entity outstanding immediately after such transaction being
Beneficially Owned by at least 75% of the holders of outstanding
voting securities of RQI immediately prior to the transaction, with
the voting power of each such continuing holder relative to other such
continuing holders not substantially altered in the transaction; or
30
<PAGE>
(iv) the stockholders of RQI shall approve a plan of complete
liquidation of RQI or an agreement for the sale or disposition by RQI
of all or a substantial portion of RQI's assets (i.e., 50% or more of
the total assets of RQI).
(b) Reviewing Party. A "Reviewing Party" means (i) the Board of
Directors or a committee of directors of the Company, who are not officers,
appointed by the Board of Directors, provided that a majority of such
directors are not parties to the claim, or (ii) special, independent
counsel selected and appointed by the Board of Directors or by a committee
of directors of the Company who are not officers.
2. Indemnification of Indemnitee.
The Company hereby agrees that it shall hold harmless and indemnify
Indemnitee to the fullest extent authorized and permitted by the provisions of
the Certificate and Bylaws and the provisions of the Corporation Law, or by any
amendment thereof, but in the case of any such amendment, only to the extent
that such amendment permits the Company to provide broader indemnification
rights than the Certificate, Bylaws or Corporation Law permitted the Company to
provide prior to such amendment, or other statutory provisions authorizing or
permitting such indemnification which is adopted after the date hereof.
3. Insurance.
3.1 Insurance Policies. So long as Indemnitee may be subject to any
possible claim or threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that Indemnitee is or was a director or officer, to the extent that the Company
maintains one or more insurance policy or policies providing directors' and
officers' liability insurance, Indemnitee shall be covered by such policy or
policies in accordance with its or their terms, to the maximum extent of the
coverage applicable to any director or officer then serving the Company.
3.2 Maintenance of Insurance. The Company shall not be required to maintain
the Insurance or any policy or policies of comparable insurance, as the case may
be, if such insurance is not reasonably available or if, in the reasonable
business judgment of the Board of Directors of the Company which shall be
conclusively established by such determination by the Board of Directors, or any
appropriate committee thereof, either (i) the premium cost for such insurance is
substantially disproportionate to the amount of coverage thereunder, or (ii) the
coverage provided by such insurance is so limited by exclusions that there is
insufficient benefit from such insurance.
31
<PAGE>
3.3 Self-Insurance. To the extent Indemnitee is not indemnified under
other Sections of this Agreement and is not fully, by reason of deductible or
otherwise, covered by directors' and officers' liability insurance, the Company
shall maintain self-insurance for, and thereby indemnify and hold harmless,
Indemnitee from and against any and all expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by Indemnitee in connection with any possible claim or threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, in which Indemnitee was or is made party or was or is involved by
reason of the fact that Indemnitee is or was a director or officer of the
Company. Notwithstanding the foregoing, payments of self-insurance under this
Section to Indemnitee by the Company shall be limited in accordance with Section
5 hereof. An "event" as used in the preceding sentence in reference to a
limitation on self-insurance shall include the same acts or omissions by
Indemnitee and interrelated, repeated or continuous acts or omissions.
4. Additional Indemnification.
Subject only to the exclusions set forth in Section 5 hereof, the Company
hereby agrees that it shall hold harmless and indemnify Indemnitee:
(a) against any and all expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement actually and reasonably
incurred by Indemnitee in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, including an action by or on behalf of
stockholders of the Company or by or in the right of the Company, to which
Indemnitee is, was or at any time becomes a party, or is threatened to be
made a party, by reason of the fact that Indemnitee is, was or at any time
becomes a director, advisory director, officer, employee or agent of the
Company, or is or was serving or at any time serves at the request of the
Company as a director, advisory director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise;
and
(b) otherwise to the fullest extent as may be provided to Indemnitee
by the Company under the non-exclusivity provisions of the Corporation Law.
5. Limitations on Additional Indemnification.
No indemnification pursuant to this Agreement shall be paid by the Company:
(a) in respect to any transaction if it shall be determined by the
Reviewing Party, or by final judgment or other final adjudication, that
Indemnitee derived an improper personal benefit;
32
<PAGE>
(b) on account of Indemnitee's conduct which is determined by the
Reviewing Party, or by final judgment or other final adjudication, to have
involved acts or omissions not in good faith, intentional misconduct or a
knowing violation of law; or
(c) if the Reviewing Party or a court having jurisdiction in the
matter shall determine that such indemnification is in violation of the
Certificate, the Bylaws or the law.
6. Advancement of Expenses.
In the event of any threatened or pending action, suit or proceeding in
which Indemnitee is a party or is involved and which may give rise to a right of
indemnification under this Agreement, following written request to the Company
by Indemnitee the Company shall promptly pay to Indemnitee amounts to cover
expenses incurred by Indemnitee in such proceeding in advance of its final
disposition upon the receipt by the Company of (i) a written undertaking
executed by or on behalf of Indemnitee to repay the advance if it shall
ultimately be determined that Indemnitee is not entitled to be indemnified by
the Company as provided in this Agreement, and (ii) satisfactory evidence as to
the amount of such expenses.
7. Repayment of Expenses.
Indemnitee agrees that Indemnitee shall reimburse the Company for all
reasonable expenses paid by the Company in defending any civil, criminal,
administrative or investigative action, suit or proceeding against Indemnitee in
the event and only to the extent that it shall be determined by final judgment
or other final adjudication that Indemnitee is not entitled to be indemnified by
the Company for such expenses under the provisions of the Corporation Law or any
applicable law.
8. Determination of Indemnification; Burden of Proof.
With respect to all matters concerning the rights of Indemnitee to
indemnification and payment of expenses under this Agreement or under the
provisions of the Certificate and Bylaws now or hereafter in effect, the Company
shall appoint a Reviewing Party and any determination by the Reviewing Party
shall be conclusive and binding on the Company and Indemnitee. If under
applicable law, the entitlement of Indemnitee to be indemnified under this
Agreement depends on whether a standard of conduct has been met, the burden of
proof of establishing that Indemnitee did not act in accordance with such
standard of conduct shall rest with the Company. Indemnitee shall be presumed to
have acted in accordance with such standard and entitled to indemnification or
advancement of expenses hereunder, as the case may be, unless, based upon a
preponderance of the evidence, it shall be determined by the Reviewing Party
that Indemnitee did not meet such standard. For purposes of this Agreement,
unless otherwise expressly stated herein, the termination of any action, suit or
proceeding by judgment, order, settlement, whether with or without court
approval, or conviction, or upon a plea of nolo contendere or its
33
<PAGE>
equivalent shall not create a presumption that Indemnitee did not meet any
particular standard of conduct or have any particular belief or that a court has
determined that indemnification is not permitted by applicable law.
9. Effect of Change in Control.
If there has not been a Change in Control after the date of this Agreement,
the determination of (i) the rights of Indemnitee to indemnification and payment
of expenses under this Agreement or under the provisions of the Certificate and
the Bylaws, (ii) standard of conduct, and (iii) evaluation of the reasonableness
of amounts claimed by Indemnitee shall be made by the Reviewing Party or such
other body or persons as may be permitted by the Corporation Law. If there has
been a Change in Control after the date of this Agreement, such determination
and evaluation shall be made by a special, independent counsel who is selected
by Indemnitee and approved by the Company, which approval shall not be
unreasonably withheld, and who has not otherwise performed services for
Indemnitee or the Company.
10. Continuation of Indemnification.
All agreements and obligations of the Company contained herein shall
continue during the period that Indemnitee is a director, advisory director,
officer, employee or agent of the Company, or is or was serving at the request
of the Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, and shall continue
thereafter so long as Indemnitee shall be subject to any possible claim or
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that Indemnitee
was a director, advisory director or officer of the Company or serving in any
other capacity referred to herein.
11. Notification and Defense of Claim.
Promptly after receipt by Indemnitee of notice of the commencement of any
action, suit or proceeding, Indemnitee shall, if a claim in respect hereof is to
be made against the Company under this Agreement, notify the Company of the
commencement thereof; provided, however, that delay in so notifying the Company
shall not constitute a waiver or release by Indemnitee of rights hereunder and
that omission by Indemnitee to so notify the Company shall not relieve the
Company from any liability which it may have to Indemnitee otherwise than under
this Agreement. With respect to any such action, suit or proceeding as to which
Indemnitee notifies the Company of the commencement thereof:
(a) The Company shall be entitled to participate therein at its own
expense; and
(b) Except as otherwise provided below, to the extent that it may wish, the
Company, jointly with any other indemnifying party similarly notified,
shall be entitled to assume the defense thereof and to employ counsel
reasonably satisfactory to Indemnitee. After notice from the Company to
Indemnitee of its election to so assume the defense thereof, the Company
shall not be liable to Indemnitee under this Agreement for any legal or
other expenses subsequently incurred by Indemnitee in connection with the
defense thereof other than reasonable costs of investigation or as
otherwise provided below. Indemnitee shall have the right to employ counsel
of his own choosing in such action, suit or proceeding but the fees and
expenses of such counsel incurred after notice from the Company of
assumption by the Company of the defense thereof shall be at the expense of
Indemnitee unless: (i) the employment of counsel by Indemnitee has been
specifically authorized by the Company, such authorization to be
conclusively established by action by disinterested members of the Board of
Directors though less than a quorum; (ii) representation by the same
counsel of both Indemnitee and the Company would, in the reasonable
judgment of Indemnitee and the Company, be inappropriate due to an actual
or potential conflict of interest between the Company and Indemnitee in the
conduct of the defense of such action, such conflict of interest to be
conclusively established by an opinion of counsel to the Company to such
effect; (iii) the counsel employed by the Company and reasonably
satisfactory to Indemnitee has advised Indemnitee in writing that such
counsel's representation of Indemnitee would likely involve such counsel in
representing differing interests which could adversely affect the judgment
or loyalty of such counsel to Indemnitee, whether it be a conflicting,
inconsistent, diverse or other interest; or (iv) the Company shall not in
fact have employed counsel to assume the defense of such action, in each of
which cases the fees and expenses of counsel shall be paid by the Company.
The Company shall not be entitled to assume the defense of any action, suit
or proceeding brought by or on behalf of the Company or as to which a
conflict of interest has been established as provided in (ii) hereof.
Notwithstanding the foregoing, if an insurance company has supplied
directors' and officers' liability insurance covering an action, suit or
proceeding, then such insurance company shall employ counsel to conduct the
defense of such action, suit or proceeding unless Indemnitee and the
Company reasonably concur in writing that such counsel is unacceptable.
34
<PAGE>
(c) The Company shall not be liable to indemnify Indemnitee under this
Agreement for any amounts paid in settlement of any action or claim
effected without its written consent. The Company shall not settle any
action or claim in any manner which would impose any liability or penalty
on Indemnitee without Indemnitee's written consent. Neither the Company nor
Indemnitee shall unreasonably withhold consent to any proposed settlement.
12. Enforcement.
(a) The Company expressly confirms and agrees that it has entered into this
Agreement and assumed the obligations imposed on the Company hereby in order to
induce Indemnitee to serve as a director, advisory director or officer of the
Company and acknowledges that Indemnitee is relying upon this Agreement in
continuing in such capacity.
35
<PAGE>
(b) If a claim for indemnification or advancement of expenses is not paid
in full by the Company within thirty (30) days after a written claim by
Indemnitee has been received by the Company, Indemnitee may at any time assert
the claim and bring suit against the Company to recover the unpaid amount of the
claim. In the event Indemnitee is required to bring any action to enforce rights
or to collect moneys due under this Agreement and is successful in such action,
the Company shall reimburse Indemnitee for all of Indemnitee's reasonable
attorneys' fees and expenses in bringing and pursuing such action.
13. Proceedings by Indemnitee.
The Company shall not be liable to make any payment under this Agreement in
connection with any action, suit or proceeding, or any part thereof, initiated
by Indemnitee unless such action, suit or proceeding, or part thereof, (i) was
authorized by the Company, such authorization to be conclusively established by
action by disinterested members of the Board of Directors though less than a
quorum, or (ii) was brought by Indemnitee pursuant to Section 12(b) hereof.
14. Effectiveness.
This Agreement is effective for, and shall apply to, (i) any claim which is
asserted or threatened before, on or after the date of this Agreement but for
which no action, suit or proceeding has been brought prior to the date hereof,
and (ii) any action, suit or proceeding which is threatened before, on or after
the date of this Agreement but which is not pending prior to the date hereof.
This Agreement shall not apply to any action, suit or proceeding which was
brought before the date of this Agreement. So long as the foregoing is
satisfied, this Agreement shall be effective for, and be applicable to, acts or
omissions occurring prior to, on or after the date hereof.
15. Non-exclusivity.
The rights of Indemnitee under this Agreement shall not be deemed
exclusive, or in limitation of, any rights to which Indemnitee may be entitled
under any applicable common or statutory law, or pursuant to the Certificate,
the Bylaws, a vote of the stockholders or otherwise.
16. Other Payments.
The Company shall not be liable to make any payment under this Agreement in
connection with any action, suit or proceeding against Indemnitee to the extent
Indemnitee has otherwise received payment of the amounts otherwise payable by
the Company hereunder.
36
<PAGE>
17. Subrogation.
In the event the Company makes any payment under this Agreement, the
Company shall be subrogated, to the extent of such payment, to all rights of
recovery of Indemnitee with respect thereto, and Indemnitee shall execute all
agreements, instruments, certificates or other documents and do or cause to be
done all things necessary or appropriate to secure such recovery rights to the
Company including, without limitation, executing such documents as shall enable
the Company to bring an action or suit to enforce such recovery rights.
18. Survival; Continuation.
The rights of Indemnitee under this Agreement shall inure to the benefit of
Indemnitee, his heirs, executors, administrators, personal representatives and
assigns, and this Agreement shall be binding upon the Company, its successors
and assigns. The rights of Indemnitee under this Agreement shall continue so
long as Indemnitee may be subject to any action, suit or proceeding because of
the fact that Indemnitee is or was a director, advisory director, officer,
employee or agent of the Company or is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise. If the Company, in a
single transaction or series of related transactions, sells, leases, exchanges,
or otherwise disposes of all or substantially all of its property and assets,
the Company shall, as a condition precedent to any such transaction, cause
effective provision to be made so that the persons or entities acquiring such
property and assets shall become bound by and replace the Company under this
Agreement.
19. Amendment and Termination.
No amendment, modification, termination or cancellation of this Agreement
shall be effective unless made in writing signed by both parties hereto.
20. Headings.
Section headings of the sections and paragraphs of this Agreement have been
inserted for convenience of reference only and do not constitute a part of this
Agreement.
21. Notices.
All notices and other communications hereunder shall be in writing and
shall be deemed to have been duly given if delivered personally, mailed by
certified mail (return receipt requested) or sent by overnight delivery service,
cable, telegram, facsimile transmission or telex to the parties at the following
addresses or at such other addresses as shall be specified by the parties by
like notice:
(a) if to the Company:
37
<PAGE>
ResortQuest International, Inc.
1355-B Lynnfield Road
Suite 245
Memphis, TN 38119
Attn: Secretary
with a copy to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1333 New Hampshire Avenue, N.W.
Suite 400
Washington, D.C. 20036
Attn: Bruce S. Mendelsohn, Esq.
(b) if to the Indemnitee
-----------------------------------
-----------------------------------
-----------------------------------
Notice so given shall, in the case of notice so given by mail, be deemed to be
given and received on the fourth calendar day after posting, in the case of
notice so given by overnight delivery service, on the date of actual delivery
and, in the case of notice so given by cable, telegram, facsimile transmission,
telex or personal delivery, on the date of actual transmission or, as the case
may be, personal delivery.
22. Severability.
If any provision of this Agreement shall be held to be illegal, invalid or
unenforceable under any applicable law, then such contravention or invalidity
shall not invalidate the entire Agreement. Such provision shall be deemed to be
modified to the extent necessary to render it legal, valid and enforceable, and
if no such modification shall render it legal, valid and enforceable, then this
Agreement shall be construed as if not containing the provision held to be
invalid, and the rights and obligations of the parties shall be construed and
enforced accordingly.
23. Complete Agreement.
This Agreement, those documents expressly referred to herein and other
documents of even date herewith embody the complete agreement and understanding
among the parties and supersede and preempt any prior understandings, agreements
or representations by or among the parties, written or oral, which may have
related to the subject matter hereof in any way.
24. Counterparts.
This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, with the same effect as if
all parties had signed the same document. All such counterparts shall be deemed
an original, shall be construed together and shall constitute one and the same
instrument.
38
<PAGE>
25. Choice of Law.
This agreement will be governed by the internal law, and not the law of
conflicts, of the State of Delaware.
[Signature page follows]
39
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
ResortQuest International, Inc.
By:
--------------------------------
John K. Lines
Senior Vice President
By:
--------------------------------
Indemnitee
40
<TABLE> <S> <C>
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<NAME> ResortQuest International, Inc.
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
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<CASH> 6,037
<SECURITIES> 0
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0
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<COMMON> 159
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