AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 16, 1998
REGISTRATION NO. 333-10623
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
POST-EFFECTIVE AMENDMENT NO. 1
TO
REGISTRATION STATEMENT ON FORM S-1
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 62-1750532
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
530 Oak Court Drive
Suite 360
Memphis, TN 38117
(901) 762-0600
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
-----------
DAVID C. SULLIVAN
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
RESORTQUEST INTERNATIONAL, INC.
530 Oak Court Drive
Suite 360
Memphis, TN 38117
(901) 762-0600
(Name and address, including zip code, and telephone
number, including area code, of agent for service)
Copies to:
<TABLE>
<S> <C>
John K. Lines Bruce S. Mendelsohn, Esq.
Senior Vice President and General Counsel Paul A. Belvin, Esq.
ResortQuest International, Inc. Akin, Gump, Strauss, Hauer & Feld, L.L.P.
530 Oak Court Drive 1333 New Hampshire Avenue, N.W.
Suite 360 Washington, D.C. 20036
Memphis, TN 38117 (202) 887-4000
(901) 762-0600
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
-----------
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. [ ]
================================================================================
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 16, 1998
P R O S P E C T U S
3,000,000 SHARES
[RESORTQUEST INTERNATIONAL LOGO OMITTED]
COMMON STOCK
ResortQuest International, Inc. is a leading provider of vacation
condominium and home rentals in premier destination resorts throughout the
United States. We manage approximately 13,000 condominiums, homes and hotel
rooms in nine states and Canada.
This prospectus covers 3,000,000 shares of our Common Stock which we may
issue from time to time in connection with our acquisition of other businesses
or assets, and which we may issue upon the exercise of options or other similar
instruments we may issue in connection with any such acquisition. ResortQuest
and the owners or controlling persons of the businesses or assets we may seek to
acquire will negotiate the terms of such acquisition. We expect that the value
of the Common Stock issued in any such acquisition will be reasonably related to
the market value of the Common Stock either at the time we enter into an
agreement on the terms of an acquisition or at the time of delivery of the
Common Stock.
Persons who receive shares of Common Stock in connection with an
acquisition by us also may use this prospectus to offer and sell such shares.
ResortQuest will not receive any of the proceeds from such sales.
We have previously issued 919,965 shares of Common Stock pursuant to this
registration statement. The company's shares are listed on the New York Stock
Exchange under the symbol "RZT."
------------
SEE "RISK FACTORS" BEGINNING ON PAGE 11 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT YOU SHOULD CONSIDER BEFORE YOU INVEST IN THE COMMON
STOCK.
------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
, 1998
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. The prospectus is not an offer
to sell these securities and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
<PAGE>
[INSERT PICTURES]
Aston(Reg. TM) and Aston Hotels & Resorts(Reg. TM) are registered tradenames and
trademarks of AST Brands, LLC.
================
Reference in this prospectus to: the "Company" or "ResortQuest" means
ResortQuest International, Inc. and its operating subsidiaries; the "Operating
Companies" means the 12 vacation rental and property management companies and
one software company ResortQuest acquired simultaneously on May 26, 1998 (each a
"Founding Company" and collectively, the "Founding Companies") and the three
additional vacation rental and property management companies acquired since May
26, 1998; "RQI" means the parent company ResortQuest International, Inc.; the
"Combinations" means the acquisitions of the Founding Companies; and the "IPO"
means ResortQuest's initial public offering completed on May 26, 1998. Except as
indicated otherwise, all references to Common Stock include Restricted Common
Stock as described in the section captioned "Description of Capital Stock."
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and may not contain all the information you should
consider before investing in the common stock. You should read the entire
prospectus carefully. Unless otherwise indicated, we have adjusted all share,
per share and financial information in this prospectus to give effect to (i) the
Combinations (ii) an 8,834.76-for-one stock split effected on March 9, 1998 and
(iii) the acquisition of Abbott Realty Services, Inc. The pro forma disclosures
herein include the financial statement impact of the IPO, the Combinations and
the acquisition of Abbott Realty Services, Inc. The pro forma disclosures do not
reflect the financial statement impact of ResortQuest's acquisitions of
Plantation Resort Management Inc. and Whistler Exclusive Properties, as such
acquisitions are immaterial to ResortQuest for presentation purposes.
RESORTQUEST INTERNATIONAL
ResortQuest International, Inc. is a leading provider of vacation
condominium and home rentals in premier destination resorts throughout the
United States. We commenced operations on May 26, 1998, concurrently with our
initial public offering and the acquisitions of 12 leading vacation rental and
property management companies and one leading vacation rental and property
management software company. Since that time, we have acquired three additional
vacation rental and property management companies.
We currently manage approximately 11,300 condominiums and homes in nine
states and in Canada. These condominiums and homes are located in the following
beach and island and mountain resorts:
BEACH AND ISLAND RESORTS MOUNTAIN RESORTS
- ------------------------------------------ ---------------------------
The Hawaiian Islands Aspen, Colorado
Bethany Beach, Delaware Breckenridge, Colorado
Destin, Florida Telluride, Colorado
Gulf Shores, Alabama Park City, Utah
Nantucket, Massachusetts Whistler, British Columbia
The Outer Banks, North Carolina
Sanibel and Captiva Islands, Florida
St. Simons Island, Georgia
The company also manages 11 hotels, with an aggregate of approximately 1,700
hotel rooms located primarily in the Hawaiian Islands.
ResortQuest provides a wide range of services to both vacationers and
property owners. Because of the variety of our resort locations throughout the
United States and Canada and the diversity of rental prices throughout our
rental pool, we are able to target a broad range of vacationers, including
families, couples and individuals. For vacationers, we offer the convenience and
accommodations of a condominium or home, as well as 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. We
typically offer such services as convenient check-in and check-out, frequent
housekeeping and cleaning and emergency maintenance assistance. In addition, in
most of our markets, we provide specialized concierge-type services such as
arranging golf tee times, purchasing ski lift tickets and making restaurant
reservations.
For property owners, we offer a comprehensive set of services, including
marketing and rental services, maintenance and security. Our primary source of
revenue is property rental fees, which are charged to the property owners as a
percentage of the vacationers' total rental price. In addition, in many markets,
we provide traditional real estate brokerage services for property owners
seeking to sell their condominiums and homes.
5
<PAGE>
On a pro forma basis for the year ended December 31, 1997, ResortQuest
generated total revenues of approximately $83.2 million, which includes $43.6
million of revenues from property rental fees, and net income of $7.0 million.
OUR STRATEGY
BUSINESS STRATEGY
The vacation rental and property management industry is highly fragmented
and inefficient. There are approximately 3,000 vacation rental and property
management companies in the United States. Most vacation rental condominiums and
homes are managed by and booked through local vacation rental and property
management firms. Their principal means of attracting property owners and
vacationers are by referral, word of mouth, limited local advertising and direct
mailings. Consequently, most vacationers make rental choices with limited
information and, as a result, face great uncertainty concerning the quality of
their rental. We believe this presents a significant market penetration
opportunity for a well-capitalized company offering a large, national network of
high quality vacation condominiums and homes.
ResortQuest's objective is to enhance its position as a leading provider of
premier destination resort condominium and home rentals by pursuing the
following business strategy:
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 David
Sullivan, Chairman and Chief Executive Officer, who was the Chief
Operating Officer of Promus Hotel Corporation, David L. Levine,
President and Chief Operating Officer, who was the President and Chief
Operating Officer of Equity Inns, Inc., and the other members of the
Company's Senior Management, 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 Operating Companies, each of which has
extensive experience in their respective resort areas.
GROWTH STRATEGY
We believe ResortQuest can achieve significant growth both internally and
through an active acquisition program.
INTERNAL GROWTH. The primary elements of the Company's internal growth
strategy include:
o NATIONAL MARKETING STRATEGY. Implementing a national marketing
strategy emphasizing: (1) cross-selling to existing customers; (2)
bringing in new customers; and (3) increasing the use of marketing
channels such as the world wide web, travel agents and national
printmedia, which are difficult for local vacation rental and property
management companies to use in a cost-effective manner;
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<PAGE>
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 (1) includes all of the Company's
condominium, home and hotel rentals and (2) permits vacationers
ultimately to view photographs and detailed floor plans of the
Company's rental properties and to 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. This
strategy includes the implementation of best practices developed by
tapping the industry experience of the management teams in each of the
Operating Companies.
ACQUISITIONS. We also intend to build a national market presence through
strategic acquisitions. While we will seek to acquire the leading companies in
each new market, we also plan to pursue tuck-in acquisitions through which we
can expand our selection of condominiums and homes available for rent in our
existing markets. We believe that the opportunity to join with ResortQuest will
be attractive to many vacation rental and property management companies.
ResortQuest expects to offer acquisition candidates:
o affiliation with a national brand;
o the ability to cross-sell to customers of other vacation rental and
property management companies;
o the ability to increase liquidity as a result of our financial
strength as a public company; and
o the ability to increase profitability as a result of the
centralization of certain administrative functions and other economies
of scale.
RECENT RESORTQUEST DEVELOPMENTS
Since the completion of its initial public offering and the acquisition of
the Founding Companies on May 26, 1998, ResortQuest has acquired three
additional vacation rental and property management companies. The acquisition in
July 1998 of Plantation Resort Management, Inc., ("Plantation Resort") located
in Gulf Shores, Alabama, marked our entry into a new resort destination.
Plantation Resort manages 378 rental units. Also in July 1998, we expanded our
presence in Whistler, British Columbia by acquiring Whistler Exclusive
Properties ("Whistler Exclusive"). Whistler Exclusive manages 46 rental units.
On September 30, 1998, ResortQuest completed the acquisition of Abbott
Realty Services, Inc. ("Abbott Resorts"), the largest property management
company in Florida. Abbott Resorts manages approximately 2,400 condominiums and
home rentals located in the Gulf Coast cities of Fort Walton Beach, Destin and
South Walton, Florida. In addition, Abbott Resorts operates the largest vacation
home and condominium real estate sales organization in the Emerald Coast area of
Florida.
The Company's executive offices are located at 530 Oak Court Drive, Suite
360, Memphis, TN 38117, and its telephone number is (901) 762-0600.
7
<PAGE>
SECURITIES COVERED BY THE PROSPECTUS
This Prospectus covers shares of Common Stock that 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 we will offer in such acquisitions,
in addition to the Common Stock, may include cash, debt or other ResortQuest
securities, or assumption by ResortQuest of liabilities of the business being
acquired, or a combination thereof. ResortQuest and the management or owners of
the assets we may acquire or the owners of the securities (including newly
issued securities) we may acquire, will negotiate the terms of each acquisition.
In those negotiations, we will consider 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. We also expect that the value placed on
the Common Stock issued in any such acquisition will be reasonably related to
the market value of the Common Stock either at the time we enter into an
agreement on the terms of the acquisition or at the time of delivery of the
shares.
Persons who receive shares of Common Stock in connection with an
acquisition by ResortQuest also may use this prospectus to offer and sell such
shares. We will not receive any of the proceeds from any such sale.
We have previously issued 919,965 shares of Common Stock pursuant to this
registration statement.
8
<PAGE>
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
On May 26, 1998, ResortQuest consummated the IPO 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." Additionally, the Company acquired
Abbott Resorts on September 30, 1998. 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 related to the historical financial statements of
the Combinations; and (iii) the effects of the historical financial statements
and certain pro forma adjustments related to the acquisition of Abbott Resorts.
See the Unaudited Pro Forma Combined Financial Statements and the notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA COMBINED
-------------------------------------------------
SIX MONTHS ENDED
YEAR ENDED ------------------------------
DECEMBER 31, 1997 JUNE 30, 1997 JUNE 30, 1998
------------------ --------------- --------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA (1):
Revenues:
Property rental fees (2) ............................. $ 43,590 $ 23,965 $ 25,241
Service fees ......................................... 23,207 11,849 13,982
Other ................................................ 16,370 7,603 8,808
----------- ----------- -----------
83,167 43,417 48,031
Operating expenses (2) ................................ 42,078 21,197 23,022
General and administrative expenses (2) ............... 20,336 9,385 11,285
Depreciation and amortization (2)(3) .................. 5,266 2,735 2,757
----------- ----------- -----------
Income from operations ................................ 15,487 10,100 10,967
Interest and other income, net (2) .................... (1,790) (1,178) (814)
----------- ----------- -----------
Income before income taxes ............................ 13,697 8,922 10,153
Provision for income taxes (4) ........................ 6,740 4,236 4,728
----------- ----------- -----------
Net income ........................................... $ 6,957 $ 4,686 $ 5,425
=========== =========== ===========
Basic net income per share ............................ $ 0.42 $ 0.28 $ 0.33
=========== =========== ===========
Shares used in computing basic net income per share
(5) .................................................. 16,681,326 16,681,326 16,681,326
=========== =========== ===========
Diluted net income per share .......................... $ 0.42 $ 0.28 $ 0.32
=========== =========== ===========
Shares used in computing diluted net income per
share (5) ............................................ 16,681,326 16,681,326 16,738,504
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1998
----------------
PRO FORMA
COMBINED (6)(7)
----------------
<S> <C>
BALANCE SHEET DATA:
Working capital surplus (deficit) ................. $ (3,874)
Total assets ...................................... 180,674
Long-term debt, net of current maturities ......... 34,611
Stockholders' equity .............................. 105,876
</TABLE>
- -----------
(1) The unaudited pro forma combined statement of operations data assume that
the Combinations and the acquisition of Abbott Resorts occurred on January
1, 1997 and are not necessarily indicative of the results the Company would
have realized had such acquisitions actually then occurred or of the
Company's future results. During the periods presented above, the Founding
Companies and Abbott Resorts 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
9
<PAGE>
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 unaudited pro forma combined statement of operations data include pro
forma (i) additional revenue that ResortQuest would have realized related
to certain property management contracts with affiliates of the Founding
Companies and Abbott Resorts (at contractual rates that were not reflective
of market conditions), (ii) reductions in salary, bonuses and benefits
derived from contractual agreements which establish the compensation of the
owners and certain key employees of the Founding Companies and Abbott
Resorts (the "Compensation Differential"), (iii) effects 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, and (iv) estimated interest
expense related to the debt assumed in conjunction with ResortQuest funding
the cash portion of the purchase price related to the acquisition of Abbott
Resorts. See notes to the Unaudited Pro Forma Combined Financial
Statements.
(3) Reflects amortization of goodwill (which is not deductible for income tax
purposes) recorded as a result of the Combinations and the acquisition of
Abbott Resorts over a 40-year period, except for the goodwill related to
First Resort (defined herein), 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 the provision for federal and state income taxes relating to
converting certain operations to C Corporation status and including the tax
impact of pro forma adjustments.
(5) 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; (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, and (iv) 757,040 shares used to pay
for a portion of the purchase price related to the acquisition of Abbott
Resorts. Related to the six month period ended June 30, 1998, diluted net
income per share includes the effect of 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."
(6) The unaudited pro forma combined balance sheet data assume the Company
acquired Abbott Resorts on June 30, 1998. The unaudited pro forma combined
balance sheet data is based upon preliminary estimates, available
information and certain assumptions that management deems appropriate and
should be read in conjunction with the notes to the Unaudited Pro Forma
Combined Financial Statements.
(7) Adjusted for the increase in goodwill primarily related to the pro forma
issuance of $26.5 million in long-term debt and $6.6 million in Common
Stock in conjunction with the acquisition of Abbott Resorts.
10
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered by this prospectus
involves a high degree of risk. You should carefully consider the following
factors and other information in this prospectus before deciding to invest in
shares of Common Stock.
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. Since that time, we have
acquired three additional vacation rental and property management companies.
Prior to such acquisitions, each of the Operating Companies operated as separate
independent entities. Currently, the Company has no centralized financial
reporting system and relies on the existing reporting systems of the Operating
Companies. The pro forma combined financial statements of the Founding Companies
and Abbott Resorts cover periods when these companies and RQI were not under
common control or management. Consequently, they may not be indicative of our
future financial or operating results.
The Company's senior management group was assembled in connection with the
initial public offering. We cannot assure you that the management group will be
able to integrate and manage effectively the combined entity or effectively
implement our operating and growth strategies. If we are unable to integrate
successfully the Operating Companies and future acquisitions, it would have a
material adverse effect on our business and financial results. It also would
make it unlikely that our 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 Operating 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 Operating 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 Operating Companies.
RISKS ASSOCIATED WITH THE VACATION RENTAL AND PROPERTY MANAGEMENT INDUSTRY;
GENERAL ECONOMIC CONDITIONS
Our business and financial results are dependent upon various factors
affecting the vacation rental and property management industry. Factors such as
the following could have a material adverse effect on our business and financial
results:
o a reduction in the demand for vacation properties, particularly for
beach and island resort properties and mountain resort properties;
o adverse changes in travel and vacation patterns;
o adverse changes in the tax treatment of second homes;
o an oversupply of vacation properties;
o a downturn in the leisure and tourism industry;
o increases in gasoline or airfare prices; and
o adverse weather conditions or natural disasters, such as hurricanes,
tidal waves or tornadoes.
SEASONALITY AND QUARTERLY FLUCTUATIONS
Our business is highly seasonal. The financial results of each of the
Operating Companies have been subject to quarterly fluctuations caused primarily
by the seasonal variations in the vacation rental and property management
industry. Peak seasons for the Operating Companies depend upon
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whether the resort is primarily a summer or winter destination. During 1997, we
derived approximately 31% of our pro forma revenues and 53% of our operating
income in the first quarter and 30% of our pro forma revenues and 28% of our
operating income in the third quarter. Although the seasonality of our financial
results may be partially mitigated by the geographic diversity of the Operating
Companies and any future acquisitions, we expect a significant seasonal factor
with respect to our financial results to continue.
Our quarterly financial results 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 our quarterly financial results
could adversely affect the price of the Common Stock which in turn could
adversely affect our proposed acquisition strategy. See "Management's Discussion
of Financial Condition and Results of Operations."
RISKS OF DEPENDENCE ON THIRD PARTIES
We manage properties that are generally located in destination resorts
which depend upon third parties for the development of new homes and
condominiums, as well as resort amenities such as golf courses and chair lifts.
If such third parties fail to continue to develop or to invest in resort
facilities and amenities, it could have a material adverse effect on the rental
value of the Company's properties and, consequently, on our business and
financial results.
We also depend on travel agents, package tour providers and wholesalers for
a significant portion of our revenues. During 1997, we derived approximately 34%
of our combined revenues from sales made through or to travel agents, package
tour providers and wholesalers. If travel agents, package tour providers and
wholesalers fail to continue to recommend or package ResortQuest's vacation
properties, it could have a material adverse effect on our business and
financial results.
FACTORS AFFECTING INTERNAL GROWTH
ResortQuest has experienced revenue and earnings growth on a pro forma
combined basis over the past few years, including approximately 14.3% and 95.4%
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. We
cannot assure you that we or the total market for vacation property rentals will
continue to experience growth. Factors affecting our ability to continue to
experience internal growth include, the ability to maintain existing
relationships with property owners, expand the number of properties under
management and cross-sell among the Operating 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
ResortQuest manages properties that are significantly concentrated in beach
and island resorts located in Florida and the Hawaiian Islands and mountain
resorts located in Colorado and Utah. The following table sets forth the
combined revenue and percentage of total revenues derived from each location.
COMBINED % OF TOTAL
REGION REVENUES REVENUES
-------------------------------------- ------- -------
Florida $30,553 37%
Hawaii $20,976 26%
Colorado and Utah $15,371 19%
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Adverse events or conditions which affect these 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
our operations, than if our operations were more geographically diverse.
RISKS ASSOCIATED WITH ACQUISITIONS
ResortQuest 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. We cannot assure you that we
will be able to identify, acquire or profitably manage additional businesses or
successfully integrate acquired businesses into our existing operations without
substantial costs, delays or other operational or financial problems. It is
possible that competition may increase for companies we might seek to acquire.
In such event, there may be fewer acquisition opportunities available to us, as
well as higher acquisition prices.
Acquisitions also involve a number of special risks which could have a
material adverse effect on our business and financial results. These risks
include the following:
o the failure of acquired companies to achieve expected financial
results;
o diversion of management's attention;
o failure to retain key personnel;
o amortization of acquired intangible assets; and
o increased potential for customer dissatisfaction or performance
problems at a single acquired company to affect adversely our
reputation and brand name.
We may also seek international acquisitions that may be subject to additional
risks associated with doing business in such countries. See "Business -- Growth
Strategy."
ResortQuest intends to use shares of Common Stock to finance a portion of
the consideration for future acquisitions. If the Common Stock does not maintain
a sufficient market value, or the owners of businesses we may seek to acquire
are otherwise unwilling to accept shares of Common Stock as part of the
consideration for the sale of their businesses, we may be required to utilize
more of our cash resources, if available, in order to implement our acquisition
strategy. If we have insufficient cash resources, our growth could be limited
unless we are able to obtain additional funds through debt or equity financings.
We cannot assure you that our cash resources will be sufficient, or that other
financing will be available on terms we find acceptable. If we are unable to
obtain financing sufficient for all of our desired acquisitions, we may be
unable to implement fully our acquisition strategy. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
MANAGEMENT OF GROWTH
We plan to continue to grow internally and through acquisitions. We will
expend significant time and effort in expanding the Operating Companies and in
identifying, completing and integrating acquisitions. We cannot assure you that
our systems, procedures and controls will be adequate to support our 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. We cannot assure
you that we will be able to identify and retain such additional management. If
we are unable to manage our growth efficiently and effectively, or we are unable
to attract and retain additional qualified management, it could have a material
adverse effect on our business and financial results. See "Business -- Business
Strategy" and "Management."
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RELIANCE ON KEY PERSONNEL
Our business substantially depends on the efforts and relationships of
David C. Sullivan, Chairman and Chief Executive Officer, the other executive
officers of the Company and the senior management of the Operating Companies.
Furthermore, we 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, or if we are unable to attract and retain other
qualified employees, it could have a material adverse effect on our business and
financial results. Although ResortQuest has entered into employment agreements
with each of ResortQuest's executive officers and the chief executive officers
of the Operating Companies, we cannot assure you that any of these individuals
will continue in his or her present capacity for any particular period of time.
See "Management."
SUBSTANTIAL AMOUNTS OF GOODWILL
Approximately $127.0 million, or 70.3%, of the Company's pro forma total
assets as of June 30, 1998, is goodwill, which represents the excess of
consideration we paid over the estimated fair market value of net assets we
acquired in business combinations accounted for under the purchase method.
ResortQuest generally amortizes goodwill on a straight line method over a period
of 40 years with the amount amortized in a particular period constituting a
non-cash expense that reduces our net income. Amortization of goodwill resulting
from certain past acquisitions, and additional goodwill recorded in certain
future acquisitions may not be deductible for tax purposes. In addition, we will
be required periodically to evaluate the recoverability of goodwill by reviewing
the anticipated undiscounted future cash flows from operations and comparing
such cash flows to the carrying value of the associated goodwill. If goodwill
becomes impaired, we would be required to write down the carrying value of the
goodwill and incur a related charge to our income. A reduction in net income
resulting from a write down of goodwill would currently affect our financial
results and could have a material and adverse impact upon the market price of
the Common Stock.
SHORT-TERM RENTAL AND PROPERTY MANAGEMENT CONTRACTS
We provide 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. If property owners do not
renew a significant number of management contracts or we are unable to attract
additional property owners, it would have a material adverse effect on our
business and financial results. In addition, although most of our contracts are
exclusives, industry standards in certain geographic markets dictate that rental
services be provided on a non-exclusive basis. Approximately 1.4% of our
revenues for 1997 on a pro forma combined basis were derived from rental
services provided on a non-exclusive basis. We are 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
We currently provide homeowners' association management services at
numerous condominium developments pursuant to contracts with the homeowners'
association present at such developments. We frequently provide rental
management services for a significant percentage of the condominiums within
these developments. Providing management services for homeowners' associations
frequently leads the associations to request that we manage and control the
front desk operations, laundry facilities and other related services of the
condominium developments. Controlling these services often gives us a
competitive advantage over other vacation rental and property management
companies in retaining the condominiums we currently manage and in attracting
new property owners.
We cannot assure you that a homeowners' association will not terminate its
management agreement with us. If a homeowners' association terminates a
management agreement, we could lose the control or management of the front desk
and related services, thereby eliminating our competitive
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advantage. If we lose our competitive advantage, it could cause a reduction in
the number of properties we manage and an increase in the expenses required to
retain and maintain the condominiums we manage at that site. Any such
termination could have a material adverse effect on our business and financial
results.
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. We compete for
vacationers and property owners primarily with local vacation rental and
property management companies located in our 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.
We also compete for vacationers with large hotel and resort companies. Many
of these competitors are large companies with greater financial resources than
ResortQuest, 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, they would
constitute formidable competition for our business. Such competition could cause
us to lose management contracts, increase expenses or reduce management fees
which could have a material adverse effect on our business and financial
results. See "Business -- Competition."
MAJORITY CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS
The executive officers and directors of ResortQuest, the founders of RQI
and the former stockholders of the Operating Companies and entities affiliated
with them, as of September 30, 1998, own shares of Common Stock representing
approximately 50% of the total voting power of the Common Stock (approximately
54% if all shares of Restricted Common Stock (as defined herein) were converted
into Common Stock). These persons, if acting together, will be able to exercise
control over the Company's affairs, to elect all of the 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
We derived approximately 11% of our revenues for 1997 on a combined basis
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 our business and financial results.
GOVERNMENT REGULATION OF VACATION RENTAL AND PROPERTY MANAGEMENT INDUSTRY
ResortQuest's operations are subject to various federal, state and local
laws and regulations, including licensing requirements applicable to real estate
operations, laws and regulations relating to consumer protection and local
ordinances. Many states have adopted specific laws and regulations which
regulate our activities, such as:
o real estate and travel services provider license requirements;
o anti-fraud laws;
o telemarketing laws;
o environmental laws;
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o the Fair Housing Act;
o the Americans With Disabilities Act; and
o labor laws.
We believe that we are in material compliance with all federal, state,
local and foreign laws and regulations to which we are currently subject.
However, we cannot assure you that the cost of qualifying under applicable
regulations in all jurisdictions in which we desire to conduct business will not
be significant or that we are actually in compliance with all applicable
federal, state, local and foreign laws and regulations. Compliance with or
violation of any current or future laws or regulations could require us to make
material expenditures or otherwise have a material adverse effect on our
business and financial results. 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 acquisitions of the Founding Companies. We also entered
into certain similar agreements that became effective upon such acquisitions. In
addition, we may enter into similar agreements in the future. Although we
believe that the existing agreements we have entered into with related persons,
other than a loan agreement with the former principal stockholder of Aston
Hotels & Resorts, are and that all future agreements will be on terms no less
favorable to ResortQuest than it could obtain unrelated third parties, conflicts
of interests may arise between the Company and these related persons.
At September 30, 1998 the former principal stockholder of Aston Hotels &
Resorts is indebted to us in the aggregate amount of $4.0 million. This
receivable is fully collateralized by cash or cash equivalents and real estate.
For a description of this agreement see "Certain Transactions -- Other
Transactions."
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON STOCK
The market price of the Common Stock could drop as a result of the sale of
substantial amounts of Common Stock in the public market, or the perception that
such sales could occur.
ResortQuest has 16,873,265 shares of Common Stock outstanding as of
September 30, 1998. The 6,670,000 shares of Common Stock sold in the initial
public offering are freely tradable unless held by affiliates of the Company.
Simultaneous with the closing of the Combinations, the stockholders of the
Founding Companies received, in the aggregate, 6,119,656 shares. Management and
founders of RQI own 3,134,630 shares. These 9,254,286 shares have not been
registered 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
ResortQuest 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.
ResortQuest has issued 948,979 shares of Common Stock in connection with
the three acquisitions which have closed since the IPO. Of these shares, 919,965
shares were covered by this registration statement and 748,363 shares are
subject to certain contractual transfer restrictions until October 2000.
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, and certain non-employee directors have
agreed not to offer, sell, contract to
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<PAGE>
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.
This prospectus registers 3,000,000 shares of Common Stock under the
Securities Act for use by the Company as consideration for future acquisitions.
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. See
"Shares Eligible for Future Sale" and "Underwriting."
POSSIBLE VOLATILITY OF STOCK PRICE
There was no public market for the Common Stock prior to the initial public
offering. Although a public market for the common stock has developed, we cannot
assure you that the public market for the Common Stock will be active or
continue. The following factors, among others, may cause the market price of the
Common Stock to significantly increase or decrease:
o variations in our annual or quarterly financial results or the
financial results of our competitors;
o changes by financial research analysts in their estimates of our
earnings;
o our failure to meet financial research analysts' estimates of our
earnings;
o conditions in the general economy, or the vacation and property rental
management or leisure and travel industries in particular;
o unfavorable publicity about ResortQuest or our industry; and
o significant price and volume volatility in the stock market in general
for reasons unrelated to ResortQuest.
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BY-LAW PROVISIONS
Certain provisions of our Certificate of Incorporation could make it more
difficult for a third party to acquire control of ResortQuest, even if such
change in control would be beneficial to stockholders. The directors are allowed
to issue preferred stock without stockholder approval. Such issuances could make
it more difficult for a third party to acquire ResortQuest. 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."
FORWARD-LOOKING STATEMENTS
There are a number of statements in this prospectus that address
activities, events or developments which we expect or anticipate will or may
occur in the future, including such matters as our 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 "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are based on certain assumptions and analyses we have made in light
of our perception of historical trends, current business and economic conditions
and expected future development as well as other factors we believe are
reasonable or appropriate. However, whether actual results and developments will
conform with our 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 ResortQuest; and changes
in laws or regulations and other factors, most of which are beyond our control.
Consequently, we cannot assure you that the actual results or developments we
anticipate will be realized or, even if substantially realized, that they will
have the expected consequences to or effects on ResortQuest.
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THE COMPANY
ResortQuest 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, we intend 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. Since that time we have
acquired three additional vacation rental and property management companies,
including Abbott Resorts. We currently manage approximately 13,000 condominiums,
homes and hotel rooms in nine 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
Operating 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
$83.2 million, which includes $43.6 million of revenues from property rental
fees, and net income of $7.0 million, which includes an adjustment for the
Compensation Differential of approximately $3.6 million. See "Selected Financial
Data -- Pro Forma Combined Statement of Operations Data." The following is a
brief description of each of the Operating Companies. Information presented
regarding the number of rental units is at June 30, 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 4,718 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 427 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.
ABBOTT RESORTS. Abbott Resorts, founded in 1976, is the largest provider of
beach vacation property rentals, management services and real estate sales in
Florida. Abbott Resorts manages 2,296 rental units located in Fort Walton Beach,
Destin and South Walton, Florida. Abbott Resorts also manages Tops'l Beach and
Racquet Club, a 55-acre tennis complex rated among the top 50 in the United
States by Tennis magazine. Abbott Resorts' revenue sources for 1997 were
property rental and service fees (88%) and net real estate brokerage commissions
(12%). Abbott Resorts offers a variety of services, including general
maintenance, housekeeping and linen services. Abbott Resorts' revenues for 1997
were $25.8 million.
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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 456
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.
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 593 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.
PLANTATION RESORT. Plantation Resort, founded in 1985, is a leading
provider of beach vacation property rentals, management services and sales on
the Gulf Coast of Alabama. Plantation Resort manages 378 condominiums and homes
at Gulf Shores Plantation, a gated resort community offering golf, tennis and
fishing. Plantation Resort's revenue sources for 1997 were property rental and
service fees (96%) and net real estate brokerage commissions (4%). Plantation
Resort offers a variety of services, including housekeeping services and general
maintenance. Plantation Resort's revenues for 1997 were $3.8 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 825 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 417 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.
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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 369 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 130 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. 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 324 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 432
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 426 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.
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WHISTLER EXCLUSIVE. Whistler Exclusive, founded in 1990, manages 46
vacation condominiums and homes in Whistler, British Columbia. Whistler
Exclusive's revenues for 1997 were derived exclusively from property rental and
service fees. Whistler Exclusive offers a variety of services including general
maintenance and housekeeping and linen services. Whistler Exclusive's revenues
for 1997 were $280,000.
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 700 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 530 Oak Court Drive, Suite
360, Memphis, TN 38117, and its telephone number is (901) 762-0600.
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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 following table sets forth the high and low sales prices for the
Common Stock for the second and third quarters of 1998.
<TABLE>
<CAPTION>
HIGH LOW
------------ -------------
<S> <C> <C>
Second Quarter (from May 20, 1998) .......... $ 18.750 $ 13.9375
Third Quarter ............................... $ 17.125 $ 8.8125
</TABLE>
On October 12, 1998, the last reported sales price of the Common Stock on
the NYSE was $6.875 per share. On September 30, 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 (as defined
herein) includes restrictions on the ability of the Company to pay dividends
without the consent of the lenders.
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SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
On May 26, 1998, ResortQuest consummated the IPO and the acquisitions of
the Founding Companies. For financial statement presentation purposes, Aston
Hotels & Resorts, one of the Founding Companies, was designated as the
"accounting acquiror." Additionally, the Company acquired Abbott Resorts on
September 30, 1998. The historical financial statement data include the
financial results of Aston Hotels and Resorts prior to the Combinations and the
IPO, and include the combined balances and transactions of ResortQuest and the
Founding Companies only since May 26, 1998. 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 related to the historical financial statements
of the Combinations and (iii) the effects of the historical financial statements
and certain pro forma adjustments related to the acquisition of Abbott Resorts.
See the Unaudited Pro Forma Combined Financial Statements and the notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------ ---------------------
1993 1994 1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
RESORTQUEST
STATEMENT OF OPERATIONS DATA:
Revenues ............................. $15,575 $20,421 $19,048 $19,460 $19,554 $10,078 $13,936
Operating expenses ................... 9,924 12,406 10,550 10,401 8,908 5,247 7,167
General and administrative expenses,
including depreciation and
amortization ....................... 3,651 5,444 5,434 5,574 5,475 2,439 4,161
------- ------- ------- ------- ------- ------- -------
Income from operations ............... 2,000 2,571 3,064 3,485 5,171 2,392 2,608
Interest expense, net ................ 93 246 771 342 86 333 30
Provision for income taxes ........... -- -- -- -- -- -- 304
------- ------- ------- ------- ------- ------- -------
Income from continuing operations..... $ 1,907 $ 2,325 $ 2,293 $ 3,143 $ 5,085 $ 2,059 $ 2,274
======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
YEAR ENDED -----------------------------
DECEMBER 31, 1997 1997 1998
------------------ -------------- --------------
<S> <C> <C> <C>
PRO FORMA COMBINED STATEMENT OF OPERATIONS DATA (1):
Revenue:
Property rental fees (2) .............................................. $ 43,590 $ 23,965 $ 25,241
Service Fees .......................................................... 23,207 11,849 13,982
Other ................................................................. 16,370 7,603 8,808
----------- ----------- -----------
83,167 43,417 48,031
Operating Expenses (2) .................................................. 42,078 21,197 23,022
General and administrative expenses (2) ................................. 20,336 9,385 11,285
Depreciation and amortization (2)(3) .................................... 5,266 2,735 2,757
----------- ----------- -----------
Income from operations .................................................. 15,487 10,100 10,967
Interest and other income, net (2) ...................................... (1,790) (1,178) (814)
----------- ----------- -----------
Income before income taxes .............................................. 13,697 8,922 10,153
Provision for income taxes (4) .......................................... 6,740 4,236 4,728
----------- ----------- -----------
Net income .............................................................. $ 6,957 $ 4,686 $ 5,425
=========== =========== ===========
Basic net income per share .............................................. $ 0.42 $ 0.28 $ 0.33
=========== =========== ===========
Shares used in computing basic pro forma income per share (5) ........... 16,681,326 16,681,326 16,681,326
=========== =========== ===========
Diluted net income per share ............................................ $ 0.42 $ 0.28 $ 0.32
=========== =========== ===========
Shares used in computing diluted pro forma income per share (5) ......... 16,681,326 16,681,326 16,738,504
=========== =========== ===========
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
---------------------------------------------------------------- COMBINED
1993 1994 1995 1996 1997 JUNE 30, 1998 (6)(7)
------------ ------------ ------------ ------------ ------------ ---------------------
<S> <C> <C> <C> <C> <C> <C>
RESORTQUEST
BALANCE SHEET DATA:
Working capital surplus
(deficit) .................. $ (1,248) $ (3,919) $ (3,581) $ (1,933) $ (4,588) $ (3,874)
Total assets ................. 5,310 9,373 13,904 12,970 14,562 180,674
Long-term debt, net of
current maturities ......... 1,844 2,396 2,133 2,816 2,804 34,611
Stockholders' equity
(deficit) .................. (395) (395) (395) (395) (395) 105,876
</TABLE>
- ----------
(1) The unaudited pro forma combined statement of operations data assume that
the Combinations and the acquisition of Abbott Resorts occurred on January
1, 1997 and are not necessarily indicative of the results the Company would
have realized had such acquisitions actually then occurred or of the
Company's future results. During the periods presented above, the Founding
Companies and Abbott Resorts 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.
(2) The unaudited pro forma combined statement of operations data include pro
forma (i) additional revenue that ResortQuest would have realized related
to certain property management contracts with affiliates of the Founding
Companies and Abbott Resorts (at contractual rates that were not reflective
of market conditions), (ii) the Compensation Differential, (iii) effects 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, and (iv)
estimated interest expense related to the debt assumed in conjunction with
ResortQuest funding the cash portion of the purchase price related to the
acquisition of Abbott Resorts. See notes to the Unaudited Pro Forma
Combined Financial Statements.
(3) Reflects amortization of goodwill (which is not deductible for income tax
purposes) recorded as a result of the Combinations and the acquisition of
Abbott Resorts 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 the provision for federal and state income taxes relating to
converting certain operations to C Corporation status and including the tax
impact of pro forma adjustments.
(5) 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; (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, and (iv) 757,040 shares used to pay
for a portion of the purchase price related to the acquisition of Abbott
Resorts. Related to the six month period ended June 30, 1998, diluted net
income per share includes the effect of 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."
(6) The unaudited pro forma combined balance sheet data assume the Company
acquired Abbott Resorts on June 30, 1998. The unaudited pro forma combined
balance sheet data is based upon preliminary estimates, available
information and certain assumptions that management deems appropriate and
should be read in conjunction with the notes to the Unaudited Pro Forma
Combined Financial Statements.
(7) Adjusted for the increase in goodwill primarily related to the pro forma
issuance of $26.5 million in long-term debt and $6.6 million in Common
Stock in conjunction with the acquisition of Abbott Resorts.
24
<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 Financial Statements and related Notes thereto of the Founding Companies and
Abbott Resorts appearing elsewhere in this Prospectus.
INTRODUCTION
ResortQuest 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. Since that time, we
have acquired three additional vacation rental and property management
companies, including Abbott Resorts. ResortQuest currently manages approximately
13,000 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; Gulf Shores, AL; Nantucket, MA; the Outer Banks, NC;
Destin, Fort Walton Beach and South Walton, FL; 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. Eight of the
Operating Companies also offer real estate brokerage services. First Resort, 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 $43.6 million of property rental
fees, representing 52.4% 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 $23.2 million of service fees, representing 27.9% of the Company's
total 1997 pro forma revenues. The Company's remaining $16.4 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 Operating
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.
25
<PAGE>
The Operating 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 Operating Companies have agreed to certain, and in some cases substantial,
reductions in their salary, bonus and benefits in connection with the
acquisitions.
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 Operating 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, $70.1 million, representing the
excess of the fair value of the merger consideration received over the fair
value of the net assets acquired, was recorded as "goodwill" on the Company's
balance sheet. In addition, goodwill of $25.5 million was recorded and
attributed to the Restricted Common Stock issued to management of and
consultants to RQI. Additionally, the Company expects to record additional
goodwill of $31.5 million in conjunction with the acquisition of Abbott Resorts.
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 $3.2 million
per year. In addition, the $29.5 million paid to the owners of Aston Hotels &
Resorts 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 Operating Companies is highly seasonal. The results of
operations of each of the Operating Companies are 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 31% of its pro forma revenues and 53% of its operating
income in the first quarter and 30% of its pro forma revenues and 28% 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 Operating Companies, and any future acquisitions 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 affect the Company's proposed acquisition strategy.
INFLATION
Inflation did not have a significant effect on the results of operations
of the Operating Companies for 1995, 1996 or 1997 or the six months ended June
30, 1998.
26
<PAGE>
PRO FORMA COMBINED STATEMENT OF OPERATIONS DATA
Results of Operations
ResortQuest's pro forma combined results of operations for the periods
presented give effect to the Combinations, the IPO and the acquisition of Abbott
Resorts as if such transactions had occurred on January 1, 1997.
The following table sets forth the pro forma combined results of operations
of ResortQuest 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 six month periods
ended June 30, 1997 and June 30, 1998, respectively, appearing on pages F-6
through F-11 of the Financial Statements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------ ---------------------------------------------------
1997 1997 1998
------------------------ ------------------------ ------------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Revenues ................... $83,167 100.0% $43,417 100.0% $48,031 100.0%
Operating expenses ......... 42,078 50.6 21,197 48.8 23,022 47.9
------- ----- ------- ----- ------- -----
$41,089 49.4% $22,220 51.2% $25,009 52.1%
======= ===== ======= ===== ======= =====
</TABLE>
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Revenues. Pro forma combined revenues increased $4.6 million, or 10.6%,
from $43.4 million in 1997 to $48.0 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 $1.8
million, or 8.6%, from $21.2 million in 1997 to $23.0 million in 1998.
Operating expenses increased in 1998 primarily due to increased salaries,
commissions and benefits.
TWELVE MONTHS ENDED DECEMBER 31, 1997
Revenues. Pro forma combined revenues of $83.2 million are comprised of
rental operations of $43.6 million (52.4%), service revenues of $23.2 million
(27.9%), and other revenues of $16.4 million (19.7%).
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.
RESORTQUEST
Results of Continuing Operations
Effective with the closing of ResortQuest's 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
financial accounting reporting purposes, Aston Hotels & Resorts was identified
as the accounting acquiror and the remaining Founding Companies (including RQI)
were accounted for under the purchase method of accounting.
For discussion of the operating results herein, periods prior to the IPO
include only the results of Aston Hotels & Resorts and periods after the
Offering include the results of the Combinations and Aston Hotels & Resorts.
Comparability of actual results for the six month periods may be misleading and
are not necessarily indicative of the results of the combined operations.
27
<PAGE>
<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)
------- ----- ------- ----- ------- -----
Income from continuing
operations before taxes...... $ 2,293 12.1% $ 3,143 16.2% $ 5,085 26.0%
======= ===== ======= ===== ======= =====
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------------------------
1997 1998
---------------------- ----------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Revenues ..................... $10,078 100.0% $13,936 100.0%
Operating expenses ........... 5,247 52.1 7,167 51.4
General and administrative
expenses .................... 2,439 24.2 4,161 29.9
------- ----- ------- -----
Income from operations ....... 2,392 23.7 2,608 18.7
Other income (expense) ....... (333) ( 3.3) (30) ( 0.2)
------- ----- ------- -----
Income from continuing
operations before taxes...... $ 2,059 20.4% $ 2,578 18.5%
======= ===== ======= =====
</TABLE>
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
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 May 27, 1998 through June 30, 1998.
Operating Expenses. Operating expenses increased $1.9 million, or 36.6%
from $5.2 million in 1997 to $7.2 million in 1998 primarily due to the
Combinations. The 1997 and 1998 results of operations include Aston Hotels &
Resorts 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.
General and Administrative Expenses. General and administrative expenses
increased $1.7 million or 70.6%, from $2.4 million for 1997 to $4.2 million for
1998. As a percentage of revenues, general and administrative expenses increased
from 24.2% in 1997 to 29.9% in 1998, primarily due to the Combinations. The 1997
and 1998 results of operations include Aston Hotels & Resorts 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.
Other Income (Expense). Other income (expense) decreased approximately
$303,000 primarily due to the Combinations. Aston Hotels & Resorts' 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 Hotels
& Resorts' previous debt. However, ResortQuest did assume approximately $5.7
million of debt from the other Founding Companies, which was paid off by the
Company subsequent to the IPO. The assumption of debt by Aston Hotels & Resorts'
primary stockholder and the proceeds from the IPO on May 26, 1998, resulted in
lower levels of interest expense and higher levels of interest income during the
period ended June 30, 1998.
Income from Continuing Operations. Net income increased $519,000 or 25.2%
from $2.1 million for 1997 to $2.6 million for 1998, primarily due to items
discussed above.
Liquidity and Capital Resources
The Company is a holding company that conducts all of its operations
through its subsidiaries (the Operating Companies). Accordingly, the primary
internal source of the Company's liquidity is through the cash flows of its
subsidiaries.
ResortQuest generated cash flows from operating activities of $4.1 million
in 1998 primarily due to income from continuing operations and an increase in
reservation and escrow deposits partially offset by a decrease in accounts
payable and accrued liabilities. Cash used in investing activities by
ResortQuest was approximately $21.1 million in 1998, due primarily to the cash
portions of the Combinations. At June 30, 1998, ResortQuest's 1998 cash provided
by financing activities totaled $21.4 million, which included $60.9
28
<PAGE>
million due primarily from the proceeds of the public stock issuance partially
offset by distributions to Aston Hotels & Resorts' stockholders. At June 30,
1998, ResortQuest had a working capital deficit of $1.5 million and $2.0 million
of long-term debt outstanding.
At June 30, 1998, the Company had approximately $12.1 million in cash, cash
equivalents and cash held in trust, of which $6.1 million represents cash held
in trust, and approximately $3.4 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
retained by certain stockholders of the Founding Companies. These exclusions
have been reflected in the balance sheet of the Company at June 30, 1998.
At June 30, 1998, the former principal stockholder of Aston Hotels &
Resorts was indebted to the Company in the aggregate amount of $4.0 million.
This debt is fully collateralized with real estate, cash or cash equivalents
pledged to the Company.
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.
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 October 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.
As of September 30, 1998, outstanding borrowings under the Credit Facility
totalled $29.0 million principally as a result of the acquisition of Abbott
Resorts. On September 30, 1998, the Company executed a promissory note (the
"Note Agreement") maturing on January 31, 1999 in favor of NationsBank, N.A.,
with respect to an additional $5.0 million revolving line of credit. The
interest rate on outstanding balances, the interest payment dates and the terms
of default under the Note Agreement are the same as those provided for in the
Credit Facility. The Note Agreement is secured on the same terms as the Credit
Facility. ResortQuest also has entered into discussions with NationsBank, N.A.
and certain other lenders to increase the size of the Credit Facility to provide
cash for future acquisitions.
29
<PAGE>
Management does not believe it is in the best interests of the Company to
use shares of Common Stock at current market values to fund the consideration of
future acquisitions. Unless the Company is able to obtain additional funds
through debt financings the Company could be unable to fully implement its
acquisition strategy.
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 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.
Year 2000 Compliance
The vacation property management industry uses a complex suit of software.
The areas of greatest risk of software failure due to Year 2000 problem are:
o Property Management Systems (guest services and back-office
accounting)
o Reservations/Inventory Management
o Hardware BIOS (the software that runs "beneath" the operating system)
o Analysis and/or management reporting tools
o Imbedded control systems (HVAC, elevator controls, etc.)
The Company is in the process of evaluating the various components of its
operating environment (personal computer workstations and related equipment,
Network servers, telephone and data communication equipment, point of sale
devices, software applications (both third party and internally developed
software) ), and embedded technology such as microcontrollers. The Company
expects to complete the analysis, and implement any corrective measures, in
early 1999. The Year 2000 project is not expected to delay or supercede other
planned IT projects.
Based upon the information gathered to date, the Company estimates the
upper range of the cost of the analysis and subsequent replacement or upgrade of
system components which are not Year 2000 compliant is approximately $600,000. A
significant portion of the total potential expense estimate relates to the cost
of replacement of personal computer hardware, servers, and telecommunications
equipment. Funding of Year 2000 costs is expected to be provided by cash flow
from operations.
The impact upon the Company by Year 2000 issues is greatest in the areas of
property management systems, telecommunications, and financial
accounting/reporting. The Company believes that the consequences of Year 2000
issues with the respect to adverse impact upon the Company's results of
operations will not be material.
The Company expects to have contingency plans in place designed to mitigate
the impact of Year 2000 issues. The contingency plan will include items such as:
offsite and/or manual reservations/inventory management, property management
(guest services, back-office functions, work order administration), financial
accounting and reporting, and management reporting. All contingency plans are
expected to be developed, tested and implemented by the end of 1999.
30
<PAGE>
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 53.5% 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 53.5%, 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.
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
ResortQuest generated cash flows from operating activities of $5.9 million
in 1997 primarily due to $5.1 million of net income from continuing operations.
ResortQuest's 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. At
December 31, 1997, advances to stockholder and affiliates totaled $9.5 million.
ResortQuest's 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. At December 31, 1997, ResortQuest 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.
Prior to the Combinations, Aston Hotels & Resorts provided guarantees for,
or was 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. At December 31, 1997, the guaranteed obligations totalled $2.8
million.
31
<PAGE>
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 administrative
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%
====== ===== ====== ===== ====== =====
<CAPTION>
JANUARY 1
SIX MONTHS THROUGH
ENDED JUNE 30, MAY 26,
1997 1998
--------------------- ---------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Revenues ....................... $3,071 100.0% $2,929 100.0%
Operating expenses ............. 1,538 50.1 1,397 47.7
General and administrative
expenses ...................... 432 14.1 331 11.3
------ ----- ------ -----
Income from operations ......... 1,101 35.8 1,201 41.0
Other income (expense) ......... 53 1.7 58 2.0
------ ----- ------ -----
Net income ..................... $1,154 37.5 $1,259 43.0
====== ===== ====== =====
</TABLE>
PERIOD FROM JANUARY 1, 1998 THROUGH MAY 26, 1998 COMPARED TO THE SIX MONTHS
ENDED JUNE 30, 1997
Revenues. As the current year period is comprised of activity for
approximately five months compared to activity for six months of 1997, revenues
decreased approximately $142,000, or 4.6%, from $3.1 million in 1997 to $2.9
million in 1998.
Operating Expenses. As the current year period is comprised of activity for
approximately five months compared to activity for six months of 1997, operating
expenses decreased approximately $141,000, or 9.2%, from $1.5 million in 1997 to
$1.4 million in 1998.
General and Administrative Expenses. As the current year period is
comprised of activity for approximately five months compared to activity for six
months of 1997, general and administrative expenses decreased approximately
$101,000, or 23.4%. As a percentage of revenues, general and administrative
expenses decreased from 14.1% in 1997 to 11.3% in 1998.
Other Income (Expense). Other income increased approximately $5,000, or
9.4%.
Net income. Net income increased approximately $105,000, or 9.1%, from $1.2
million in 1997 to $1.3 million in 1998. Net income increased because Collection
of Fine Properties is a ski resort that incurs losses in the month of June. The
1998 net income amount only considers the period from January 1 through May 26.
Liquidity and Capital Resources
Collection of Fine Properties' cash used in operating activities was $1.4
million in 1998, primarily due to a decrease in customer deposits and deferred
revenues which was partially offset by net income of $1.3 million. No cash was
used for investing activities thus far in 1998. Collection of Fine Properties'
cash used in financing activities totaled $1.0 million which included
distributions to stockholders of $819,000. At May 26, 1998, Collection of Fine
Properties had a working capital deficit of $298,000 and had $194,000 of
long-term debt outstanding.
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.
32
<PAGE>
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 Properties' 1997 cash used in financing activities totaled
$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.
33
<PAGE>
<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
expenses ...................... 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%
====== ===== ====== ===== ====== =====
<CAPTION>
JANUARY 1
SIX MONTHS THROUGH
ENDED JUNE 30, MAY 26,
1997 1998
--------------------- ------------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Revenues ....................... $3,019 100.0% $3,148 100.0%
Operating expenses ............. 545 18.1 482 15.3
General and administrative
expenses ...................... 910 30.1 949 30.1
------ ----- ------ -----
Income from operations ......... 1,564 51.8 1,717 54.6
Other income (expense) ......... (29) (1.0) (17) (.5)
------ ----- ------ -----
Net income ..................... $1,535 50.8% $1,700 54.1%
====== ===== ====== =====
</TABLE>
PERIOD FROM JANUARY 1, 1998 THROUGH MAY 26, 1998 COMPARED TO THE SIX MONTHS
ENDED JUNE 30, 1997
Revenues. Although the current year period is comprised of activity for
approximately five months compared to activity for six months of 1997, revenues
increased approximately $129,000, or 4.3%, from $3.0 million in 1997 to $3.2
million in 1998 due 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 decreased approximately $63,000, or
11.6%, from $545,000 in 1997 to $482,000 in 1998, primarily due to better cost
control measures, resulting in lower salaries and benefits.
General and Administrative Expenses. General and administrative expenses
increased approximately $39,000, or 4.3%. As a percentage of revenues, general
and administrative expenses remained constant.
Other Income (Expense). Other expense decreased approximately $12,000, or
41.4%, primarily due to interest earned on increased cash deposits.
Net income. Net income increased approximately $165,000, or 10.8%, from
$1.5 million in 1997 to $1.7 million in 1998, primarily due to the increase in
revenue discussed above.
Liquidity and Capital Resources
Priscilla Murphy's cash provided by operating activities was $2.0 million
in 1998, primarily due to net income and cash held in trust. Cash used in
investing activities through May 26, 1998 was $11,000 and was primarily used for
purchases of property and equipment. Priscilla Murphy's cash used in financing
activities totaled $2.8 million which included distributions to shareholders and
payments on long-term debt. At May 26, 1998, Priscilla Murphy had a working
capital deficit of $952,000 and had $3.9 million of long-term debt outstanding.
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.
34
<PAGE>
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.
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 totaled $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.
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.
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.
<TABLE>
<CAPTION>
JANUARY 1
YEAR ENDED DECEMBER 31, SIX MONTHS THROUGH
------------------------------------------- ENDED JUNE 30, MAY 26,
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% $1,220 100.0% $1,168 100.0%
Operating expenses ............. 1,017 48.5 1,788 49.5 604 49.5 718 61.5
General and administrative
expenses ...................... 477 22.7 644 17.8 277 22.7 278 23.8
------ ----- ------ ----- ------ ----- ------ -----
Income from operations ......... 603 28.8 1,183 32.7 339 27.8 172 14.7
Other income (expense) ......... 121 5.8 (47) (1.3) -- -- 8 .7
Income tax provision ........... 304 14.5 -- -- -- -- -- --
------ ----- ------ ----- ------ ----- ------ -----
</TABLE>
35
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$420 20.1% $1,136 31.4% $339 27.8% $180 15.4%
Net income ......... ====== ======= ======== ======= ====== ======= ====== ======
</TABLE>
PERIOD FROM JANUARY 1, 1998 THROUGH MAY 26, 1998 COMPARED TO THE SIX MONTHS
ENDED JUNE 30, 1997
Revenues. As the current year period is comprised of activity for
approximately five months compared to activity for six months of 1997, revenues
decreased approximately $52,000, or 4.3%, from $1.2 million in 1997 to $1.2
million in 1998.
Operating Expenses. Operating expenses increased approximately $114,000, or
18.9%, from $604,000 in 1997 to $718,000 in 1998, primarily due to higher
property rental activities.
General and Administrative Expenses. Although the current year period is
comprised of activity for approximately five months compared to activity for six
months of 1997, general and administrative expenses remained constant. As a
percentage of revenues, general and administrative expenses increased from 22.7%
in 1997 to 23.8% in 1998 because revenues are lower as discussed above.
Other Income (Expense). Other income increased approximately $8,000.
Net income. As the current year period is comprised of activity for
approximately five months compared to activity for six months of 1997, net
income decreased approximately $159,000, or 46.9%, from $339,000 in 1997 to
$180,000 in 1998. Coastal is a beach resort and has increased revenue in the
month of June.
Liquidity and Capital Resources
Coastal Resorts' cash provided by operating activities was $303,000 in
1998, primarily due to net income and an increase in customer deposits and
deferred revenues which was partially offset by an increase in accounts
receivable. Cash used in investing activities was approximately $58,000 for
purchases of property and equipment. Coastal Resorts' cash provided by financing
activities totaled $289,000 which included decreases in receivables from related
parties that were partially offset by payments on notes payables to related
parties. At May 26, 1998, Coastal Resorts had working capital of $57,000 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 48.5% 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 22.7%
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.
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.
36
<PAGE>
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 totaled $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>
JANUARY 1
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED THROUGH
------------------------------------------- JUNE 30, MAY 26,
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% $1,915 100.0% $1,969 100.0%
Operating expenses ............. 1,652 48.1 1,838 45.3 831 43.4 901 45.8
General and administrative
expenses ...................... 1,653 48.2 2,024 49.8 999 52.2 1,071 54.4
------ ----- ------ ----- ------ ----- ------ ------
Income from operations ......... 126 3.7 199 4.9 85 4.4 (3) (.2)
Other income (expense) ......... (19) (0.6) 47 1.2 40 2.1 1 .1
Income tax provision ........... 12 0.3 60 1.5 23 1.2 -- --
------ ----- ------ ----- ------ ----- ------- ------
Net income ..................... $ 95 2.8% $ 186 4.6% $ 102 5.3% $ (2) (.1)%
====== ===== ====== ===== ====== ===== ======= ======
</TABLE>
PERIOD FROM JANUARY 1, 1998 THROUGH MAY 26, 1998 COMPARED TO THE SIX MONTHS
ENDED JUNE 30, 1997
Revenues. Although the current year period is comprised of activity for
approximately five months compared to activity for six months of 1997, revenues
increased approximately $54,000, or 2.8%, from $1.9 million in 1997 to $2.0
million in 1998 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 from higher average rental rates.
Operating Expenses. Although the current year period is comprised of
activity for approximately five months compared to activity for six months of
1997, operating expenses increased approximately $70,000, or 8.4%, from $831,000
in 1997 to $901,000 in 1998, primarily due to relatively constant salary levels
and increasing revenues.
General and Administrative Expenses. Although the current year period is
comprised of activity for approximately five months compared to activity for six
months of 1997, general and administrative expenses increased approximately
$72,000, or 7.2% primarily due to increased salaries and benefits. As a
percentage of revenues, general and administrative expenses increased from 52.2%
in 1997 to 54.4% in 1998.
Other Income (Expense). Other income decreased approximately $39,000 from
$40,000 to $1,000, primarily due to a gain on the sale of assets in 1997.
Net income. Net income decreased approximately $104,000 from $102,000 in
1997 to a net loss of $2,000 in 1998 primarily because Trupp-Hodnett Enterprises
has increased revenue in the month of June as it is a summer resort destination.
The 1998 net income amount does not reflect activity for the month of June.
37
<PAGE>
Liquidity and Capital Resources
Trupp-Hodnett Enterprises' cash provided by operating activities was
$184,000 in 1998, primarily due to an increase in customer deposits and deferred
revenues and an increase in accounts payable and accrued liabilities which was
partially offset by a decrease in cash held in trust. Cash used in investing
activities was approximately $52,000 in 1998 and was primarily used for
purchases of property and equipment. Trupp-Hodnett Enterprises' cash used in
financing activities totaled $19,000 which primarily included distributions to
stockholders. At May 26, 1998, Trupp-Hodnett Enterprises had no working capital
and no long-term debt outstanding.
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.
<TABLE>
<CAPTION>
JANUARY 1
YEAR ENDED SIX MONTHS ENDED THROUGH
DECEMBER 31, JUNE 30, MAY 26,
1997 1997 1998
------------ ---------------- ------------
<S> <C>
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
REVENUES $ 4,021 100.0% $1,425 100.0% $ 635 100.0%
Operating expenses .......................... 3,028 75.3 1,193 83.7 1,327 209.0
General and administrative expenses ......... 482 12.0 248 17.4 262 41.3
----- ---- ----- ---- ----- ------
Income from operations ...................... 511 12.7 (16) (1.1) (954) (150.3)
Other income (expense) ...................... 42 1.0 (2) (0.1) 27 4.3
----- ---- -------- ---- ----- ------
Net income (loss) ........................... $ 553 13.7% $ (18) (1.2)% $ (927) (146.0)%
====== ==== ======= ==== ====== ======
</TABLE>
PERIOD FROM JANUARY 1, 1998 THROUGH MAY 26, 1998 COMPARED TO THE SIX MONTHS
ENDED JUNE 30, 1997
Revenues. As the current year period is comprised of activity for
approximately five months compared to activity for six months of 1997, and as
Brindley & Brindley is a summer resort destination, there is little revenue
activity through May. As such, revenues decreased approximately $790,000, or
55.4%, from $1.43 million in 1997 to $635,000 in 1998.
Operating Expenses. Although the current year period is comprised of
activity for approximately five months compared to activity for six months of
1997, operating expenses increased approximately $134,000, or 11.2%, from $1.2
million in 1997 to $1.3 million in 1998, primarily due to increased salaries and
benefits.
General and Administrative Expenses. Although the current year period is
comprised of activity for approximately five months compared to activity for six
months of 1997, general and administrative expenses increased approximately
$14,000, or 5.7%. As a percentage of revenues, general and administrative
expenses increased from 17.4% in 1997 to 41.3% in 1998, primarily due to
increased salaries and benefits and reduced revenues due to seasonality.
Other Income (Expense). Other income increased approximately $29,000,
primarily due to interest income earned.
Net income. As the current year period is comprised of activity for
approximately five months compared to activity for six months of 1997, net loss
increased approximately $909,000 from $18,000 in 1997 to $927,000 in 1998,
primarily due to the revenue items discussed above.
Liquidity and Capital Resources
Brindley & Brindley's cash provided by operating activities was $1.1
million in 1998, primarily due to an increase in cash held in escrow which was
partially offset by a net loss. Cash used in investing activities was $48,000
and was primarily used for the purchase of property and equipment. Brindley &
Brindley's cash used in financing activities totaled $355,000 which primarily
included distributions to stockholders. At May 26, 1998, Brindley & Brindley had
a working capital deficit of $1.6 million and had $41,000 of long-term debt
outstanding.
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 &
39
<PAGE>
Brindley's 1997 cash used in financing activities totaled $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.
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>
JANUARY 1
YEAR ENDED SIX MONTHS ENDED THROUGH
DECEMBER 31, JUNE 30, MAY 26,
1997 1997 1998
----------------------- ----------------------- -----------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Revenues .................................... $2,864 100.0% $1,342 100.0% $1,401 100.0%
Operating expenses .......................... 1,704 59.5 791 58.9 679 48.5
General and administrative expenses ......... 417 14.6 200 14.9 313 22.3
------ ----- ------ ----- ------ -----
Income from operations ...................... 743 25.9 351 26.2 409 29.2
Other income (expense) ...................... 25 0.9 12 0.9 12 0.9
------ ----- ------ ----- ------ -----
Net income .................................. $ 768 26.8% $ 363 27.1% $ 421 30.1%
====== ===== ====== ===== ====== =====
</TABLE>
PERIOD FROM JANUARY 1, 1998 THROUGH MAY 26, 1998 COMPARED TO THE SIX MONTHS
ENDED JUNE 30, 1997
Revenues. Although the current year period is comprised of activity for
approximately five months compared to activity for six months of 1997, revenues
increased approximately $59,000, or 4.4%, from $1.3 million in 1997 to $1.4
million in 1998, primarily due to increased sales of new management systems,
along with increased sales of support agreements and consulting services to
existing.
Operating Expenses. As the current year period is comprised of activity for
approximately five months compared to activity for six months of 1997, operating
expenses decreased approximately $112,000, or 14.2%, from $791,000 in 1997 to
$679,000 in 1998.
General and Administrative Expenses. Although the current year period is
comprised of activity for approximately five months compared to activity for six
months of 1997, general and administrative expenses increased approximately
$113,000, or 56.5%, primarily due to a new management bonus program designed to
increase retention. It is based on percentage of net income increases. As a
percentage of revenues, general and administrative expenses increased from 14.9%
in 1997 to 22.3% in 1998.
Other Income (Expense). Other income remained relatively constant.
Net income. Net income increased approximately $58,000, or 16.0%, from
$363,000 in 1997 to $421,000 in 1998 primarily due to the revenue increases
discussed above.
Liquidity and Capital Resources
First Resort Software's cash provided by operating activities was $409,000
in 1998, primarily due to net income. Cash used in investing activities was
approximately $72,000 and was primarily used for purchases of property and
equipment. First Resort Software's cash used in financing activities totaled
$355,000 which primarily consisted of distributions to stockholders. At May 26,
1998, First Resort Software had working capital of $32,000 and had no long-term
debt outstanding.
40
<PAGE>
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.
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>
JANUARY 1
YEAR ENDED SIX MONTHS ENDED THROUGH
DECEMBER 31, JUNE 30, MAY 26,
1997 1997 1998
---------------------- ------------------------ ----------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Revenues .................................... $1,596 100.0% $1,180 100.0% $648 100.0%
Operating expenses .......................... 494 31.0 125 10.6 224 34.6
General and administrative expenses ......... 322 20.2 240 20.3 118 18.2
------ ----- ------ ----- ---- ------
Income from operations ...................... 780 48.8 815 69.1 306 47.2
Other income (expense) ...................... (15) (0.9) (9) (0.8) (4) (0.6)
------ ----- ------ ----- ---- ------
Net income .................................. $ 765 47.9% $ 806 68.3% $302 46.6%
====== ===== ====== ===== ==== ======
</TABLE>
PERIOD FROM JANUARY 1, 1998 THROUGH MAY 26, 1998 COMPARED TO THE SIX MONTHS
ENDED JUNE 30, 1997
Revenues. As the current year period is comprised of activity for
approximately five months compared to activity for six months of 1997, revenues
decreased approximately $532,000, or 45.1%, from $1.2 million in 1997 to
$648,000 in 1998.
Operating Expenses. Although the current year period is comprised of
activity for approximately five months compared to activity for six months of
1997, operating expenses increased approximately $99,000, or 79.2%, from
$125,000 in 1997 to $224,000 in 1998, primarily due to salary and benefit
increases.
General and Administrative Expenses. As the current year period is
comprised of activity for approximately five months compared to activity for six
months of 1997, general and administrative expenses decreased approximately
$122,000, or 50.8%. As a percentage of revenues, general and administrative
expenses decreased from 20.3% in 1997 to 18.2% in 1998.
Other Income (Expense). Other expense decreased approximately $5,000.
Net income. Net income decreased approximately $504,000, or 62.5%, from
$806,000 in 1997 to $302,000 in 1998 due to reasons discussed above.
41
<PAGE>
Liquidity and Capital Resources
Houston and O'Leary's cash provided by operating activities was $257,000 in
1998, primarily due to net income. Cash used in investing activities was
approximately $3,000 and was primarily used for the purchase of property and
equipment. Houston and O'Leary's cash used in financing activities totaled
$269,000 which primarily consisted of payments on long-term debt and
distributions to stockholders. At May 26, 1998, Houston and O'Leary had a
working capital deficit of $49,000 and no long-term debt outstanding.
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 (73%) related to services and real estate
commissions, and $128,000 (8%) 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 totaled $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.
42
<PAGE>
<TABLE>
<CAPTION>
JANUARY 1
YEAR ENDED SIX MONTHS ENDED THROUGH
DECEMBER 31, JUNE 30, MAY 26,
1997 1997 1998
--------------------- --------------------- ---------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Revenues ....................... $1,183 100.0% $661 100.0% $439 100.0%
Operating expenses ............. 211 17.8 115 17.4 89 20.3
General and administrative
expenses ...................... 682 57.7 290 43.9 251 57.2
------ ----- ---- ----- ---- -----
Income from operations ......... 290 24.5 256 38.7 99 22.5
Other income (expense) ......... 28 2.4 7 1.1 5 1.1
------ ----- ---- ----- ---- -----
Net income ..................... $ 318 26.9% $263 39.8% $104 23.6%
====== ===== ==== ===== ==== =====
</TABLE>
PERIOD FROM JANUARY 1, 1998 THROUGH MAY 26, 1998 COMPARED TO THE SIX MONTHS
ENDED JUNE 30, 1997
Revenues. As the current year period is comprised of activity for
approximately five months compared to activity for six months of 1997, revenues
decreased approximately $222,000, or 33.6%, from $661,000 in 1997 to $439,000 in
1998.
Operating Expenses. As the current year period is comprised of activity for
approximately five months compared to activity for six months of 1997, operating
expenses decreased approximately $26,000, or 22.6%, from $115,000 in 1997 to
$89,000 in 1998.
General and Administrative Expenses. As the current year period is
comprised of activity for approximately five months compared to activity for six
months of 1997, general and administrative expenses decreased approximately
$39,000, or 13.5%. As a percentage of revenues, general and administrative
expenses increased from 43.9% in 1997 to 57.2% in 1998.
Other Income (Expense). Other income decreased approximately $2,000.
Net income. Net income decreased approximately $159,000, or 60.5%, from
$263,000 in 1997 to $104,000 in 1998, primarily due to items discussed above.
Liquidity and Capital Resources
The Maury People's cash provided by operating activities was $362,000 in
1998, primarily due to an increase in cash held in escrow offset by a decrease
in escrow deposits. No cash was used in investing activities in 1998. The Maury
People's cash used in financing activities totaled $52,000 which primarily
related to distributions to stockholders. At May 26, 1998, The Maury People had
working capital of $53,000 and 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.
43
<PAGE>
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>
OCTOBER 1, 1997
YEAR ENDED NINE MONTHS ENDED THROUGH
SEPTEMBER 30, JUNE 30, MAY 26,
1997 1997 1998
----------------------- ----------------------- -----------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Revenues .................................... $2,295 100.0% $2,169 100.0% $2,053 100.0%
Operating expenses .......................... 1,560 68.0 1,372 63.3 1,227 59.8
General and administrative expenses ......... 627 27.3 523 24.1 493 24.0
------ ----- ------ ----- ------ -----
Income from operations ...................... 108 4.7 274 12.6 333 16.2
Other income (expense) ...................... 217 9.5 28 1.3 18 0.9
Income tax provision ........................ 75 3.3 56 2.6 140 6.8
------ ----- ------ ----- ------ -----
Net income .................................. $ 250 10.9% $ 246 11.3% $ 211 10.3%
====== ===== ====== ===== ====== =====
</TABLE>
PERIOD FROM OCTOBER 1, 1997 THROUGH MAY 26, 1998 COMPARED TO THE NINE MONTHS
ENDED JUNE 30, 1997
Revenues. As the current year period is comprised of activity for
approximately eight months compared to activity for nine months of 1997,
revenues decreased approximately $116,000, or 5.4%, from $2.2 million in 1997 to
$2.1 million in 1998.
Operating Expenses. As the current year period is comprised of activity for
approximately eight months compared to activity for nine months of 1997,
operating expenses decreased approximately $145,000, or 10.6%, from $1.4 million
in 1997 to $1.2 million in 1998.
General and Administrative Expenses. As the current year period is
comprised of activity for approximately eight months compared to activity for
nine months of 1997, general and administrative expenses decreased approximately
$30,000, or 5.7%. As a percentage of revenues, general and administrative
expenses remained relatively constant.
Other Income (Expense). Other income decreased approximately $10,000.
Net income. Net income decreased approximately $35,000, or 14.2%, from
$246,000 in 1997 to $211,000 in 1998 due to items discussed above.
Liquidity and Capital Resources
Resort Property Management's cash provided by operating activities was
$274,000 in 1998, primarily due to net income and increases in accounts payable
and accrued liabilities partially offset by a decrease in customer deposits and
deferred revenues. Cash used in investing activities was $120,000 and was used
primarily for purchases of property and equipment. Resort Property Management's
cash used in financing activities totaled $332,000 which primarily included
payments on long-term debt. At May 26, 1998, Resort Property Management had a
working capital deficit of $231,000 and $149,000 of long-term debt oustanding.
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.
44
<PAGE>
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 totaled $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>
JANUARY 1
YEAR ENDED SIX MONTHS ENDED THROUGH
DECEMBER 31, JUNE 30, MAY 26,
1997 1997 1998
----------------------- ----------------------- -----------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Revenues .................................... $4,313 100.0% $2,738 100.0% $2,749 100.0%
Operating expenses .......................... 3,037 70.4 1,611 58.8 1,575 57.3
General and administrative expenses ......... 1,030 23.9 501 18.3 458 16.7
------ ----- ------ ----- ------ -----
Income from operations ...................... 246 5.7 626 22.9 716 26.0
Other income (expense) ...................... 31 0.7 25 0.9 35 1.3
------ ----- ------ ----- ------ -----
Net income .................................. $ 277 6.4% $ 651 23.8% $ 751 27.3%
====== ===== ====== ===== ====== =====
</TABLE>
PERIOD FROM JANUARY 1, 1998 THROUGH MAY 26, 1998 COMPARED TO THE SIX MONTHS
ENDED JUNE 30, 1997
Revenues. Although the current year period is comprised of activity for
approximately five months compared to activity for six months of 1997, revenues
increased approximately $11,000, or 0.4%, from $2.7 million in 1997 to $2.8
million in 1998 primarily due to an increase in other revenues.
Operating Expenses. As the current year period is comprised of activity for
approximately five months compared to activity for six months of 1997, operating
expenses decreased approximately $36,000, or 2.2%, from $1.6 million in 1997 to
$1.6 million in 1998.
General and Administrative Expenses. As the current year period is
comprised of activity for approximately five months compared to activity for six
months of 1997, general and administrative expenses decreased approximately
$43,000, or 8.6% from $501,000 in 1997 to $458,000 in 1998. As a percentage of
revenues, general and administrative expenses decreased from 18.3% in 1997 to
16.7% in 1998.
Other Income (Expense). Other income increased approximately $10,000.
45
<PAGE>
Net income. Net income increased approximately $100,000, or 15.4%, from
$651,000 in 1997 to $751,000 in 1998 primarily because Telluride Resort
Accomodations is a ski resort that incurs losses in the month of June and the
1998 period only considers activity through May 26.
Liquidity and Capital Resources
Telluride Resort Accommodations' cash used in operating activities was $1.3
million in 1998, primarily due to a decrease in customer deposits and deferred
revenues and a decrease in payable to property owners which was partially offset
by net income of $751,000. Cash used in investing activities was $67,000 and was
primarily used for the purchase of property and equipment. Telluride Resort
Accommodations' cash used in financing activities totaled $346,000 which
included payments on the line of credit and distributions to stockholders. At
May 26, 1998, Telluride Resort Accommodations had working capital of $24,000 and
no long-term debt outstanding.
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 totaled $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.
ABBOTT RESORTS
Results of Operations
Abbott Resorts is a leading provider of beach vacation property rentals,
management services and real estate sales in Destin, Fort Walton Beach and South
Walton, Florida. Abbott Resorts revenue sources for the twelve months ended July
31, 1998 were property rental and services fees (88%) and net real estate
brokerage commissions (12%). Abbott Resorts currently manages approximately
2,300 rental units.
YEAR ENDED
JULY 31, 1998
------------------------
(DOLLARS IN THOUSANDS)
Revenues .................................... $28,432 100.0%
Operating expenses .......................... 15,612 54.9
General and administrative expenses ......... 11,770 41.4
------- -----
Income from operations ...................... 1,050 3.7
Other income (expense) ...................... (677) ( 2.4)
------- -----
Net income (loss) ........................... $ 373 1.3%
======= =====
TWELVE MONTHS ENDED JULY 31, 1998
Revenues. Revenues of $28.4 million were comprised of $13.5 million (48%)
related to rental operations, $11.4 million (40%) related to services, and $3.5
million (12%) related to real estate commissions.
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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
Abbott Resorts generated cash flows from operating activities of $3.4,
which was primarily due to net income and increases in customer deposits,
deferred revenues, payable to property owners, accounts payable and accrued
liabilities. Cash flows used in investing activities by Abbott Resorts of $1.7
million were primarily used for purchases of property and equipment. Abbott
Resorts cash flows provided by financing activities totaled $368,000 which
included $1.2 million in debt proceeds partially offset by $900,000 in debt
payments in distributions to stockholders. At July 31, 1998, Abbott Resorts had
a working capital deficit of $274,000 and had $6.0 million of long-term debt
outstanding.
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BUSINESS
GENERAL
ResortQuest 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. 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.
The Company commenced operations on May 26, 1998, concurrently with its
initial public offering and the acquisitions of the Founding Companies. Since
that time, ResortQuest has acquired three additional vacation rental and
property management companies. The Company currently manages approximately
11,300 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; Destin, FL; Gulf Shores, AL; 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 1,700 hotel rooms located primarily in the Hawaiian Islands.
ResortQuest 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 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 $83.2 million, which includes $43.6 million of
revenues from property rental fees and net income of $7.0 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
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on a nightly or weekly basis. Vacation ownership or timeshare interests are
purchased by the vacationer and 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 are
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:
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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.
MAINTAIN LOCAL RELATIONSHIPS AND EXPERTISE. The management teams of the
Operating 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 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
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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 to
capitalize on cross-selling opportunities and increase customer loyalty. Through
its collection of approximately 13,000 beach and mountain resort rental
properties and hotel rooms and the databases of customer information maintained
by the Operating Companies, the Company intends to offer customers similar
properties and services in its other resorts. The Company believes the
integrated marketing efforts of the Operating 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 Operating 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 Operating 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 Operating 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 participation 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.
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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
Operating 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 Operating 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 Operating 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.
The following table sets forth certain information regarding the Operating
Companies, with the exception of First Resort, at June 30, 1998:
DATE
FOUNDED (1) TOTAL UNITS (2)
------------- ----------------
BEACH AND ISLAND RESORTS
HAWAII
Aston Hotels & Resorts ............ 1948 4,718
Maui Condominium and Home ......... 1988 427
DESTIN, FL
Abbot Resorts ..................... 1976 2,296
THE OUTER BANKS, NC
Brindley & Brindley ............... 1985 456
BETHANY BEACH, DE
Coastal Resorts ................... 1982 593
NANTUCKET, MA
The Maury People(3) ............... 1969 1,200
GULF SHORES, AL
Plantation Resort ................. 1985 378
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DATE
FOUNDED (1) TOTAL UNITS (2)
------------- ----------------
SANIBEL AND CAPTIVA ISLANDS, FL
Priscilla Murphy Realty ................. 1955 825
ST. SIMONS ISLAND, GA
Trupp-Hodnett Enterprises ............... 1987 417
MOUNTAIN RESORTS
BRECKENRIDGE, CO
Collection of Fine Properties ........... 1985 369
ASPEN, CO
Houston and O'Leary(3) .................. 1986 130
PARK CITY, UT
Resort Property Management .............. 1978 324
TELLURIDE, CO
Telluride Resort Accommodations ......... 1985 432
WHISTLER, BRITISH COLUMBIA
Whistler Chalets ........................ 1986 444
Whistler Exclusive ...................... 1990 46
Total .................................. 13,055 (2)
======
- ----------
(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 Operating Companies use a rating system to ensure
that vacationers' expectations are met by the condominium or home selected and
several of the Operating 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 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'
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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
Operating 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 Operating 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 Operating 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 Operating 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 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 63% from traditional direct marketing, 21% from
package tour operators and wholesalers, 13% from travel agents and 3% 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 Operating Companies to establish a nationally recognized high quality brand.
The extensive databases regarding previous and potential vacationers maintained
by the
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Operating 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 Operating 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. Ten of the Operating Companies and over
700 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 Operating
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 Operating 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.
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
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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 Operating Companies and subsequently acquired companies.
EMPLOYEES
The Company had approximately 2200 employees as of September 30, 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 September 30, 1998, the Company had 91 properties, consisting
principally of offices, maintenance, laundry and storage facilities, 76 of which
are leased and 15 of which are owned. 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 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.
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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 ................. 42 Senior Vice President, Marketing
John K. Lines ................... 39 Senior Vice President, General Counsel and
Secretary
Frederick L. Farmer ............. 48 Senior Vice President and Chief Information Officer
Luis Alonso ..................... 34 CEO-Collection of Fine Properties; Director
William W. Abbott, Jr. .......... 52 Director
Douglas R. Brindley ............. 41 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 .................... 52 Vice President-First Resort; Director
Heidi O'Leary Houston ........... 45 President-Houston and O'Leary; Director
Daniel L. Meehan ................ 49 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 ...................... 51 Director
Joshua M. Freeman ............... 34 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.
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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.
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.
WILLIAM W. ABBOTT, JR. became a director of the Company in October 1998.
Mr. Abbott has served as Vice Chairman of Abbott Resorts since March 1997. He
served as President and Chairman of the Board of Abbott Resorts from 1976 to
March 1997. Mr. Abbott also is a director of Regions Bank of Florida.
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.
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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.
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.
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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 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
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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.
The Audit Committee consists of Messrs. Bullock (Chairman), Rose and
Freeman. 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 receives 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
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agreements are for a term of three years (the "Initial Term"). In addition,
certain executive officers of the Operating Companies, including each
representative of the Operating 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. 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 contains 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
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
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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 is administered by a committee (the "Committee"), which currently
is 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 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 2,020,268 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
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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 has an exercise price equal to the initial public offering price
per share, and vests 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.
Additional options to purchase 1,000 shares of Common Stock were granted at
fair market value at the date of grant in connection with the acquisition of
Whistler Exclusive Properties. The remaining key terms of these options are
identical to those contained in the options granted to the employees of the
Founding Companies. ResortQuest is committed to issue additional options to
purchase shares of Common Stock in connection with the acquisitions of Abbott
Resorts and Plantation Resort equal to 3% of the purchase price for such
acquisitions divided by the market price of the Common Stock on the date the
options are issued.
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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 an 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 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
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million, including 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:
SHARES OF
CASH COMMON STOCK
-------------------- -------------
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
- ----------
(1) Represents estimated amount of the pro rata portion of indebtedness of
Priscilla Murphy Realty to be retired at the time of the Combinations.
On September 30, 1998, the Company completed the acquisition of all of the
outstanding stock of Abbott Resorts. Under the Stock Purchase Agreement by and
among the Company, Abbott Resorts and its stockholders, the Company agreed to
pay a total of $33.7 million comprised of shares of Company common stock and
cash as well as assume certain indebtedness of Abbott Resorts. The aggregate
consideration paid for Abbott Resorts consisted of $26.7 million in cash,
757,040 shares of Common Stock of the Company (valued at approximately $6.6
million based on the average of the closing prices of the Company's Common Stock
for the ten trading days prior to the effective date of the Stock Purchase
Agreement) and $6.9 million in debt assumed. At the Closing, Mr. Abbott received
$6.1 million in cash and 115,308 shares of Common Stock in exchange for his
interests in Abbott Resorts.
LEASES OF FACILITIES
ABBOTT RESORTS. Abbott Resorts leases 9,350 square feet of office space in
Destin, FL for the main office for its property management and real estate
brokerage activities from SAVA Properties, a Florida general partnership which
is 25.5% owned by William Abbott. The aggregate annual rent paid by Abbott
Resorts is $112,200. Abbott Resorts leases approximately 3,706 square feet of
indoor and outdoor space in Santa Rosa, Florida for its rental property
management and real estate sales activities in the Santa Rosa and Grayton Beach,
Florida areas. This space is leased pursuant to a 20-year lease with multiple
options to renew from VAGAS Properties, a Florida general partnership which is
20% owned by William Abbott.
Abbott Resorts leases 1,665 square feet of office space in Fort Walton
Beach, Florida for real estate sales activities. This property is leased from
A&A Partnership ("AAP"), a general partnership
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which is 50% owned by William Abbott, pursuant to the terms of a lease agreement
which expires January 31, 2001. The aggregate annual rent paid by Abbott Resorts
is $19,980. As part of such lease, Abbott Resorts also leases a two-bedroom
apartment at such site, which is subleased to unaffiliated third parties. Abbott
Resorts also leases 2,000 square feet of office space in Destin, Florida from
AAP for use as its personnel office. The lease agreement expires August 31, 2001
and provides for aggregate annual rent of $22,596.
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.
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 moved 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
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$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 manages 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
ABBOTT RESORTS. The Company and Mr. Abbott have reached agreements with
respect to the handling of commissions on certain properties which were listed
for sale or whose sale was pending as of the date of the Company's acquisition
of Abbott Resorts. Pursuant to such agreement, the Company has agreed to pay
upon closing of the applicable transaction to which the applicable listing
and/or selling fee relates in the aggregate, up to $1,403,827 in listing and/or
selling commissions on such properties.
In connection with the acquisition of Abbott Resorts by the Company, Mr.
Abbott entered into a three-year consulting agreement with the Company. For all
services rendered by Mr. Abbott pursuant to the consulting agreement, the
Company has agreed to compensate Mr. Abbott as follows: (1) to pay a consulting
fee of $125,000 per year; (2) to pay premiums for coverage for Mr. Abbott and
his
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immediate family under such health, hospitalization, disability, dental, life
and other insurance plans that the Company may have in effect from time to time;
(3) by reimbursing Mr. Abbott for all business travel and other out-of-pocket
expenses reasonably incurred by him in the performance of his duties; and (4) to
pay for a full membership in the Tops'l Beach and Racquet Club (the current cost
for which is $1,200 per year). The consulting agreement is terminable by the
Company or Mr. Abbott, with cause on ten (10) days written notice and or without
cause thirty (30) days written notice.
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 $942,149 by Aston
Hotels & Resorts for its services through August 31, 1998.
Prior to May 26, 1998, Aston Hotels & Resorts received 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.
Prior to May 26, 1998, Aston Hotels & Resorts had 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 September 30, 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 pledged to the
Company or by Mr. Tatibouet's personal guarantee (not to exceed $1 million).
Prior to 1998, 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, including 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.
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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.
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.
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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. Both of
these notes were repaid in June 1998.
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.
Prior to June 1998, Mr. Meehan also maintained a bank revolving credit agreement
for $250,000 at a 10.25% interest rate, under which he drew funds which he
loaned to Resort Property Management for cash flow purposes.
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 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 September 30, 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 AFTER
OF BENEFICIAL OWNER SHARES OFFERING OFFERING
- ------------------------------------------------ ------------ ---------- ---------
<S> <C> <C> <C>
David C. Sullivan ....................... 247,202 1.5 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 * *
William W. Abbott, Jr. .................. 115,308 * *
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 6.0 5.4
Evan H. Gull ............................ 88,111 * *
Charles O. Howey (3)(6) ................. 456,174 2.7 2.4
Heidi O'Leary Houston (7) ............... 250,667 1.5 1.3
Daniel L. Meehan ........................ 98,333 * *
J. Patrick McCurdy (8) .................. 135,162 * *
Andre S. Tatibouet ...................... 1,708,333 10.1 9.0
Hans F. Trupp (9) ....................... 651,142 3.9 3.4
Michael D. Rose (3) ..................... 55,455 * *
Joseph V. Vittoria (3) .................. 50,000 * *
Theodore L. Weise (3) ................... 15,000 * *
Elan J. Blutinger (3) ................... 608,538 3.6 3.2
D. Fraser Bullock (3)(10) ............... 627,568 3.7 3.3
All Directors and Executive Officers as a
Group (26 persons) ..................... 6,925,242 41.0 36.5
</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 264,450 shares for which Mr. Trupp has sole voting power pursuant
to a revocable proxy.
(10) Includes 3,000 shares held by Mr. Bullock as custodian of his minor
children.
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<PAGE>
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 September 30, 1998, the Company had outstanding 16,873,265 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: (1) 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); (2) in the event any person acquires beneficial ownership of 15% or
more of the outstanding shares of Common Stock of the Company; or (3) 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
73
<PAGE>
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.
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.
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<PAGE>
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 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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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
At September 30, 1998, the Company had outstanding 16,873,265 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. The stockholders of the Founding Companies received in the aggregate
6,119,656 shares in connection with the Combinations, and management and
founders of ResortQuest own an aggregate of 3,134,630 shares. These 9,254,286
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.
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.
ResortQuest has issued 948,979 shares of Common Stock in connection with
the acquisitions of Abbott Resorts and Plantation Resort of these shares,
919,965 shares were covered by this registration statement and 748,363 shares
are subject to certain contractual transfer restrictions until October 2000.
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.
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
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<PAGE>
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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<PAGE>
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
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<PAGE>
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.
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.,
(formerly Hotel Corporation of the Pacific, Inc.), Abbott Realty Services, 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., Trupp-Hodnett Enterprises, Inc. and THE Management
Company and ResortQuest International, Inc. (Pre-Offering 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
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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.
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.
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INDEX TO FINANCIAL STATEMENTS
PAGE
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RESORTQUEST INTERNATIONAL, INC. PRO FORMA:
Basis of Presentation .............................................. F-3
Unaudited Pro Forma Combined Balance Sheet ......................... F-5
Unaudited Pro Forma Combined Statements of Operations .............. F-6
Notes to Unaudited Pro Forma Combined Financial Statements ......... F-12
RESORTQUEST INTERNATIONAL, INC. (FORMERLY KNOWN AS HOTEL
CORPORATION OF THE PACIFIC, INC.):
Report of Independent Public Accountants ........................... F-15
Balance Sheets ..................................................... F-16
Statements of Operations ........................................... F-17
Statements of Changes in Stockholders' Equity (Deficit) ............ F-18
Statements of Cash Flows ........................................... F-19
Notes to Financial Statements ...................................... F-20
ABBOTT REALTY SERVICES, INC. AND SUBSIDIARIES:
Report of Independent Public Accountants ........................... F-33
Consolidated Balance Sheet ......................................... F-34
Consolidated Statement of Operations ............................... F-35
Consolidated Statement of Changes in Stockholders' Equity .......... F-36
Consolidated Statement of Cash Flows ............................... F-37
Notes to Consolidated Financial Statements ......................... F-38
BRINDLEY & BRINDLEY:
Report of Independent Public Accountants ........................... F-44
Combined Balance Sheets ............................................ F-45
Combined Statements of Operations .................................. F-46
Combined Statements of Changes in Stockholders' Equity (Deficit) ... F-47
Combined Statements of Cash Flows .................................. F-48
Notes to Combined Financial Statements ............................. F-49
COASTAL RESORTS MANAGEMENT, INC. AND
COASTAL RESORTS REALTY, L.L.C.:
Reports of Independent Public Accountants .......................... F-53
Combined Balance Sheets ............................................ F-55
Combined Statements of Operations .................................. F-56
Statements of Changes in Stockholders' and Members' Equity ......... F-57
Combined Statements of Cash Flows .................................. F-58
Notes to Combined Financial Statements ............................. F-60
COLLECTION OF FINE PROPERTIES, INC.:
Independent Auditor's Report ....................................... F-67
Consolidated Balance Sheets ........................................ F-68
Consolidated Statements of Operations .............................. F-69
Consolidated Statements of Changes in Stockholders' Equity ......... F-70
Consolidated Statements of Cash Flows .............................. F-71
Notes to Consolidated Financial Statements ......................... F-73
FIRST RESORT SOFTWARE, INC.:
Report of Independent Public Accountants ........................... F-79
Balance Sheets ..................................................... F-80
Statements of Operations ........................................... F-81
Statements of Changes in Stockholders' Equity (Deficit) ............ F-82
Statements of Cash Flows ........................................... F-83
Notes to Financial Statements ...................................... F-84
F-1
<PAGE>
PAGE
----
HOUSTON AND O'LEARY COMPANY:
Report of Independent Public Accountants ........................... F-87
Balance Sheets ..................................................... F-88
Statements of Operations ........................................... F-89
Statements of Changes in Stockholders' Equity ...................... F-90
Statements of Cash Flows ........................................... F-91
Notes to Financial Statements ...................................... F-92
THE MAURY PEOPLE, INC.:
Report of Independent Public Accountants ........................... F-95
Balance Sheets ..................................................... F-96
Statements of Operations ........................................... F-97
Statements of Changes in Stockholders' Equity (Deficit) ............ F-98
Statements of Cash Flows ........................................... F-99
Notes to Financial Statements ...................................... F-100
HOWEY ACQUISITION, INC.
d.b.a PRISCILLA MURPHY REALTY, INC.:
Reports of Independent Public Accountants .......................... F-104
Consolidated Balance Sheets ........................................ F-106
Consolidated Statements of Operations .............................. F-107
Consolidated Statements of Changes in Stockholders' Equity ......... F-108
Consolidated Statements of Cash Flows .............................. F-109
Notes to Consolidated Financial Statements ......................... F-111
RESORT PROPERTY MANAGEMENT, INC.:
Report of Independent Public Accountants ........................... F-115
Balance Sheets ..................................................... F-116
Statements of Operations ........................................... F-117
Statements of Changes in Stockholders' Equity (Deficit) ............ F-118
Statements of Cash Flows ........................................... F-119
Notes to Financial Statements ...................................... F-120
TELLURIDE RESORT ACCOMMODATIONS, INC.:
Report of Independent Public Accountants ........................... F-124
Balance Sheet ...................................................... F-125
Statements of Operations ........................................... F-126
Statements of Changes in Stockholders' Equity (Deficit) ............ F-127
Statements of Cash Flows ........................................... F-128
Notes to Financial Statements ...................................... F-129
TRUPP HODNETT COMPANY:
Report of Independent Public Accountants ........................... F-132
Combined Balance Sheets ............................................ F-133
Combined Statements of Operations .................................. F-134
Combined Statements of Changes in Stockholders' Equity ............. F-135
Combined Statements of Cash Flows .................................. F-136
Notes to Financial Statements ...................................... F-138
RESORTQUEST INTERNATIONAL, INC. (PRE-OFFERING COMPANY):
Report of Independent Public Accountants ........................... F-143
Balance Sheets ..................................................... F-144
Statements of Operations ........................................... F-145
Statements of Changes in Stockholders Equity ....................... F-146
Statements of Cash Flow ............................................ F-147
Notes to Financial Statements ...................................... F-148
F-2
<PAGE>
RESORTQUEST INTERNATIONAL, INC.,
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
On May 26, 1998, ResortQuest International, Inc. ("ResortQuest" or the
"Company") consummated its initial public offering (the "IPO") and the
combination (the "Combinations") of 12 vacation rental and property management
companies and one leading vacation rental and property management software
company. Additionally, on September 30, 1998, ResortQuest completed the
acquisition of Abbott Realty Services, Inc. ("Abbott Resorts"). The following
unaudited pro forma combined financial statements give effect to the
acquisition of Abbott Resorts and the acquisitions by ResortQuest, of the
outstanding capital stock of Hotel Corporation of the Pacific, Inc. ("Aston
Hotels & Resorts"), 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 acquisitions of
Abbott Resorts and the Combinations are accounted for using the purchase method
of accounting. Aston Hotels & Resorts, one of the Founding Companies, has been
designated as the accounting acquiror (for financial statement presentation
purposes) in the Combinations 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 Hotels & Resorts should not be deemed to be accounting acquiror,
including (1) the existing conversion rights of the Restricted Common Stock,
(2) Aston Hotels & Resorts' level of representation on the Board and in the
holding company management team and (3) the market value of the shares held by
Aston Hotels & Resorts 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 Hotels &
Resorts should be deemed the accounting acquiror.
The unaudited pro forma combined balance sheets give effect to i) the
recorded balances of ResortQuest at June 30, 1998, and ii) the acquisition of
Abbott Resorts by ResortQuest as if such transaction had occurred on June 30,
1998. The unaudited pro forma combined statements of operations give effect to
the Combinations, the IPO and the acquisition of Abbott Resorts as if such
transactions had occurred on January 1, 1997.
The unaudited pro forma combined statement of operations of ResortQuest for
the six months ended June 30, 1998 does not include the compensation expense and
management recruitment expense, relating to the non-recurring charge of $6.1
million, in conjunction with the issuance of common stock to management and
founders of ResortQuest and other costs, prior to the Offering. Additionally,
the unaudited pro forma combined balance sheets and statements of operations do
not include the effects of the Company's acquisitions of Plantation Resort and
Whistler Exclusive, as such acquisitions are immaterial to ResortQuest for
presentation purposes.
In conjunction with the consummation of the above transactions, 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,
F-3
<PAGE>
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 Combinations and Abbott Resorts have agreed prospectively to reductions
in salary, bonuses and benefits, these reductions have been reflected in the
unaudited pro forma combined statements of operations.
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 and Abbott Resorts 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-4
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET - JUNE 30, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
ABBOTT ADJUSTMENTS
RESORTQUEST RESORTS (NOTE 2) AS ADJUSTED
------------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents ................................. $ 6,037 $11,409 $ -- $ 17,446
Cash held in trust ........................................ 6,064 604 -- 6,668
Trade and other receivables, net of allowance ............. 3,627 851 -- 4,478
Other current assets ...................................... 5,890 1,098 -- 6,988
--------- ------- -------- ---------
Total current assets ..................................... 21,618 13,962 -- 35,580
Property and equipment, net ................................ 4,075 9,376 -- 13,451
Goodwill ................................................... 95,429 -- 31,547 126,976
Other assets ............................................... 3,206 1,461 -- 4,667
--------- ------- -------- ---------
Total assets ............................................. $ 124,328 $24,799 $ 31,547 $ 180,674
========= ======= ======== =========
Current Liabilities:
Current maturities of long-term debt ...................... $ 1,396 $ 827 $ -- $ 2,223
Customer deposits, deferred revenue and payable to
homeowners ............................................... 11,357 11,820 -- 23,177
Accounts payable and accrued liabilities .................. 9,712 3,400 -- 13,112
Other current liabilities ................................. 627 315 -- 942
--------- ------- -------- ---------
Total current liabilities ................................ 23,092 16,362 -- 39,454
Long-term debt, net of current maturities .................. 1,992 6,089 26,530 34,611
Other long-term liabilities ................................ -- 1,170 (437) 733
Stockholders' Equity:
Common stock, 15,924,286 shares outstanding (ResortQuest)
and 16,681,326 shares outstanding (pro forma as adjusted) 159 1 7 167
Additional paid-in-capital ................................ 128,662 7 6,617 135,286
Distribution in excess of predecessor basis in net assets . (29,500) -- -- (29,500)
Retained earnings ......................................... (77) 1,170 (1,170) (77)
--------- ------- -------- ---------
Total stockholders' equity ............................... 99,244 1,178 5,454 105,876
--------- ------- -------- ---------
Total liabilities and stockholders' equity ............... $ 124,328 $24,799 $ 31,547 $ 180,674
========= ======= ======== =========
</TABLE>
The accompanying notes are an integral part of these unaudited
pro forma combined financial statements.
F-5
<PAGE>
PAGE 1 OF 2
RESORTQUEST INTERNATIONAL, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ABBOTT BRINDLEY &
RESORTQUEST RESORTS BRINDLEY
------------- ----------- ------------
<S> <C> <C> <C>
Revenues .................................................. $19,554 $25,813 $4,021
Operating expenses ........................................ 8,908 14,654 3,028
General and administrative expenses ....................... 5,081 9,235 395
Depreciation and amortization ............................. 394 595 87
------- ------- ------
Income (loss) from operations ............................. 5,171 1,329 511
Interest (expense) and other income, net .................. (86) (167) 42
------- ------- ------
Income (loss) before income taxes ......................... 5,085 1,162 553
Provision for income taxes ................................ -- 465 --
------- ------- ------
Net income (loss) ......................................... $ 5,085 $ 697 $ 553
======= ======= ======
PRO FORMA DATA (unaudited):
Historical net income (loss) before pro forma provision for
income taxes ............................................. $ 5,085 $ 1,162 $ 553
Less: pro forma provision for income taxes ................ 2,034 465 221
------- ------- ------
PRO FORMA NET INCOME (LOSS) ............................... $ 3,051 $ 697 $ 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
income 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.
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 31
------ ------ ------ ------ ------
PRO FORMA NET INCOME (LOSS) ..................... $ 905 $ 195 $ 166 $ 148 $ 45
====== ====== ====== ====== ======
Basic and diluted pro forma net income per
share ..........................................
Shares used in computing pro forma net income
per share (Note 4) .............................
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO
WHISTLER COMBINED (NOTE 3) FORMA
------------ ---------- ---------------------- --------------
<S> <C> <C> <C> <C>
Revenues ........................................ $2,060 $81,840 $ 1,327 (a) $ 83,167
Operating expenses .............................. 1,147 42,749 (671)(b) 42,078
General and administrative expenses ............. 729 23,971 (3,635)(b) 20,336
Depreciation and amortization ................... 85 2,114 3,152 (b)(c) 5,266
------ ------- ------------ ------------
Income (loss) from operations ................... 99 13,006 2,481 15,487
Interest (expense) and other income, net ........ (8) 17 (1,807)(b)(e) (1,790)
------ ------- ------------ ------------
Income (loss) before income taxes ............... 91 13,023 674 13,697
Provision for income taxes ...................... (18) 603 6,137 (d) 6,740
------ ------- ------------ ------------
Net income (loss) ............................... $ 109 $12,420 $ (5,463) $ 6,957
====== ======= ============ ============
PRO FORMA DATA (unaudited):
Historical net income (loss) before pro forma
provision for income taxes ..................... $ 91 $13,023 $ 674 $ 13,697
Less: pro forma provision for income taxes ...... 37 5,209 1,531 6,740
------ ------- ------------ ------------
PRO FORMA NET INCOME (LOSS) ..................... $ 54 $ 7,814 $ (857) $ 6,957
====== ======= ============ ============
Basic and diluted pro forma net income per
share .......................................... $ 0.42
============
Shares used in computing pro forma net income
per share (Note 4) ............................. 16,681,326
============
</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.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
ABBOTT BRINDLEY &
RESORTQUEST RESORTS BRINDLEY
------------- ----------- ------------
<S> <C> <C> <C>
Revenues ...................................................... $13,936 $13,909 $ 635
Operating expenses ............................................ 7,167 7,579 1,327
General and administrative expenses ........................... 3,593 6,019 225
Depreciation and amortization ................................. 568 321 37
------- ------- ------
Income (loss) from operations ................................. 2,608 (10) (954)
Interest (expense) and other income, net ...................... (30) (157) 27
------- ------- ------
Income (loss) before income tax expense ....................... 2,578 (167) (927)
Provision (benefit) for income taxes .......................... 304 (67) --
------- ------- ------
Net income (loss) ............................................. $ 2,274 (100) $ (927)
======= ======= ======
PRO FORMA DATA (unaudited):
Historical net income (loss) before pro forma provision for
income taxes ................................................. $ 2,578 $ (167) $ (927)
Less: pro forma provision (benefit) for income taxes .......... 1,031 (67) (371)
------- ------- ------
PRO FORMA NET INCOME (LOSS) ................................... $ 1,547 $ (100) $ (556)
======= ======= ======
<CAPTION>
COASTAL
RESORTS CFP FRS H&O MAURY
--------- --------- --------- ---------- ------
<S> <C> <C> <C> <C> <C>
Revenues ...................................................... $1,168 $2,929 $1,401 $648 $439
Operating expenses ............................................ 718 1,397 679 224 89
General and administrative expenses ........................... 243 203 293 98 239
Depreciation and amortization ................................. 35 128 20 20 12
------ ------ ------ ---- ----
Income (loss) from operations ................................. 172 1,201 409 306 99
Interest (expense) and other income, net ...................... 8 58 12 (4) 5
------ ------ ------ ---- ----
Income (loss) before income tax expense ....................... 180 1,259 421 302 104
Provision (benefit) for income taxes .......................... -- -- - - --
------ ------ ------ ---- ----
Net income (loss) ............................................. $ 180 $1,259 $ 421 $302 $104
====== ====== ====== ==== ====
PRO FORMA DATA (unaudited):
Historical net income (loss) before pro forma provision for
income taxes ................................................. $ 180 $1,259 $ 421 $302 $104
Less: pro forma provision (benefit) for income taxes .......... 72 504 168 121 42
------ ------ ------ ---- ----
PRO FORMA NET INCOME (LOSS) ................................... $ 108 $ 755 $ 253 $181 $ 62
====== ====== ====== ==== ====
</TABLE>
The accompanying notes are an integral part of these unaudited
pro forma combined financial statements.
F-8
<PAGE>
PAGE 2 OF 2
RESORTQUEST INTERNATIONAL, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PMR RPM TRA THE MAUI
--------- --------- --------- ------------ ------
<S> <C> <C> <C> <C> <C>
Revenues ......................................... $3,148 $1,552 $2,749 $1,969 $905
Operating expenses ............................... 482 659 1,575 901 132
General and administrative expenses .............. 864 270 438 1,034 323
Depreciation and amortization .................... 85 75 20 37 3
------ ------ ------ ------ ----
Income (loss) from operations .................... 1,717 548 716 (3) 447
Interest (expense) and other income, net ......... (17) 21 35 1 17
------ ------ ------ ------ ----
Income (loss) before income taxes ................ 1,700 569 751 (2) 464
Provision (benefit) for income taxes ............. -- 28 -- -- 32
------ ------ ------ ------ ----
Net income (loss) ................................ $1,700 $ 541 $ 751 $ (2) $432
====== ====== ====== ====== ====
PRO FORMA DATA (unaudited):
Historical net income (loss) before pro forma
provision for income taxes ...................... $1,700 $ 569 $ 751 $ (2) $464
Less: pro forma provision (benefit) for income
taxes ........................................... 680 227 300 (1) 187
------ ------ ------ ------ ----
PRO FORMA NET INCOME (loss): $1,020 $ 342 $ 451 $ (1) $277
====== ====== ====== ====== ====
Basic pro forma net income per share .............
Shares used in computing basic pro forma net
income per share (Note 4) .......................
Diluted pro forma net income per share ...........
Shares used in computing diluted pro forma net
income per share (Note 4) .......................
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO
WHISTLER COMBINED (NOTE 3) FORMA
---------- ---------- ---------------------- --------------
<S> <C> <C> <C> <C>
Revenues ......................................... $1,297 $46,685 $ 1,346 (a) $ 48,031
Operating expenses ............................... 664 23,593 (571)(b) 23,022
General and administrative expenses .............. 140 13,982 (2,697)(b) 11,285
Depreciation and amortization .................... 33 1,394 1,363 (b)(c) 2,757
------ ------- ----------- ------------
Income (loss) from operations .................... 460 7,716 3,251 10,967
Interest (expense) and other income, net ......... 26 2 (816)(b)(e) (814)
------ ------- ----------- ------------
Income (loss) before income taxes ................ 486 7,718 2,435 10,153
Provision (benefit) for income taxes ............. (20) 277 4,451 (d) 4,728
------ ------- ----------- ------------
Net income (loss) ................................ $ 506 $ 7,441 $ (2,016) $ 5,425
====== ======= =========== ============
PRO FORMA DATA (unaudited):
Historical net income (loss) before pro forma
provision for income taxes ...................... $ 486 $ 7,718 $ 2,435 $ 10,153
Less: pro forma provision (benefit) for income
taxes ........................................... 192 3,085 1,643 4,728
------ ------- ----------- ------------
PRO FORMA NET INCOME (loss): $ 294 $ 4,633 $ 792 $ 5,425
====== ======= =========== ============
Basic pro forma net income per share ............. $ 0.33
============
Shares used in computing basic pro forma net
income per share (Note 4) ....................... 16,681,326
============
Diluted pro forma net income per share ........... $ 0.32
============
Shares used in computing diluted pro forma net
income per share (Note 4) ....................... 16,738,504
============
</TABLE>
The accompanying notes are an integral part of these unaudited
pro forma combined financial statements.
F-9
<PAGE>
PAGE 1 OF 2
RESORTQUEST INTERNATIONAL, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ABBOTT BRINDLEY &
RESORTQUEST RESORTS BRINDLEY
------------- ----------- ------------
<S> <C> <C> <C>
Revenues .................................................. $10,078 $12,191 $ 1,425
Operating expenses ........................................ 5,247 6,852 1,193
General and administrative expenses ....................... 2,263 4,402 204
Depreciation and amortization ............................. 176 312 44
------- ------- -------
Income (loss) from operations ............................. 2,392 625 (16)
Interest (expense) and other income, net .................. (333) (114) (2)
------- ------- -------
Income (loss) before income taxes ......................... 2,059 511 (18)
Provision for income taxes ................................ -- 204 --
------- ------- -------
Net income (loss) ......................................... $ 2,059 $ 307 $ (18)
======= ======= =======
PRO FORMA DATA (unaudited):
Historical net income (loss) before pro forma provision for
income taxes ............................................. $ 2,059 $ 511 $ (18)
Less: pro forma provision for income taxes ................ 824 204 (7)
------- ------- -------
PRO FORMA NET INCOME (LOSS) ............................... $ 1,235 $ 307 $ (11)
======= ======= =======
<CAPTION>
COASTAL
RESORTS CFP FRS H&O MAURY
--------- --------- --------- ------------ ------
<S> <C> <C> <C> <C> <C>
Revenues .................................................. $1,220 $3,071 $1,342 $1,180 $661
Operating expenses ........................................ 604 1,538 791 125 115
General and administrative expenses ....................... 235 279 176 216 276
Depreciation and amortization ............................. 42 153 24 24 14
------ ------ ------ ------ ----
Income (loss) from operations ............................. 339 1,101 351 815 256
Interest (expense) and other income, net .................. -- 53 12 (9) 7
------ ------ ------ ------ ----
Income (loss) before income taxes ......................... 339 1,154 363 806 263
Provision for income taxes ................................ -- -- -- -- --
------ ------ ------ ------ ----
Net income (loss) ......................................... $ 339 $1,154 $ 363 $ 806 $263
====== ====== ====== ====== ====
PRO FORMA DATA (unaudited):
Historical net income (loss) before pro forma provision for
income taxes ............................................. $ 339 $1,154 $ 363 $ 806 $263
Less: pro forma provision for income taxes ................ 136 462 145 322 105
------ ------ ------ ------ ----
PRO FORMA NET INCOME (LOSS) ............................... $ 203 $ 692 $ 218 $ 484 $158
====== ====== ====== ====== ====
</TABLE>
The accompanying notes are an integral part of these unaudited
pro forma combined financial statements.
F-10
<PAGE>
PAGE 2 OF 2
RESORTQUEST INTERNATIONAL, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PMR RPM TRA THE MAUI
--------- --------- --------- --------- ------
<S> <C> <C> <C> <C> <C>
Revenues ........................................ $3,019 $1,733 $2,738 $1,915 $759
Operating expenses .............................. 545 978 1,611 831 158
General and administrative expenses ............. 808 243 477 955 393
Depreciation and amortization ................... 102 53 24 44 12
------ ------ ------ ------ ----
Income (loss) from operations ................... 1,564 459 626 85 196
Interest (expense) and other income, net ........ (29) 18 25 40 15
------ ------ ------ ------ ----
Income (loss) before income taxes ............... 1,535 477 651 125 211
Provision for income taxes ...................... -- 38 -- 23 48
------ ------ ------ ------ ----
Net income (loss) ............................... $1,535 $ 439 $ 651 $ 102 $163
====== ====== ====== ====== ====
PRO FORMA DATA (unaudited):
Historical net income (loss) before pro forma
provision for income taxes ..................... $1,535 $ 477 $ 651 $ 125 $211
Less: pro forma provision for income taxes ...... 614 191 260 50 84
------ ------ ------ ------ ----
PRO FORMA NET INCOME (LOSS): .................... $ 921 $ 286 $ 391 $ 75 $127
====== ====== ====== ====== ====
Basic and diluted pro forma net income per
share ..........................................
Shares used in computing pro forma net income
per share (Note 4) .............................
<CAPTION>
PRO FORMA
ADJUSTMENTS
WHISTLER COMBINED (NOTE 3) PRO FORMA
---------- ---------- ---------------------- --------------
<S> <C> <C> <C> <C>
Revenues ........................................ $1,378 $42,710 $ 707 (a) $ 43,417
Operating expenses .............................. 833 21,421 (224)(b) 21,197
General and administrative expenses ............. 214 11,141 (1,756)(b) 9,385
Depreciation and amortization ................... 44 1,068 1,667 (b)(c) 2,735
------ ------- ----------- ------------
Income (loss) from operations ................... 287 9,080 1,020 10,100
Interest (expense) and other income, net ........ 27 (290) (888)(b)(e) (1,178)
------ ------- ----------- ------------
Income (loss) before income taxes ............... 314 8,790 132 8,922
Provision for income taxes ...................... (18) 295 3,941 (d) 4,236
------ ------- ----------- ------------
Net income (loss) ............................... $ 332 $ 8,495 $ (3,809) $ 4,686
====== ======= =========== ============
PRO FORMA DATA (unaudited):
Historical net income (loss) before pro forma
provision for income taxes ..................... $ 314 $ 8,790 $ 132 $ 8,922
Less: pro forma provision for income taxes ...... 126 3,516 720 4,236
------ ------- ----------- ------------
PRO FORMA NET INCOME (LOSS): .................... $ 188 $ 5,274 $ (588) $ 4,686
====== ======= =========== ============
Basic and diluted pro forma net income per
share .......................................... $ 0.28
============
Shares used in computing pro forma net income
per share (Note 4) ............................. 16,681,326
============
</TABLE>
The accompanying notes are an integral part of these unaudited
pro forma combined financial statements.
F-11
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
1. GENERAL:
On May 26, 1998, ResortQuest consummated the IPO and completed the
Combinations of 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 Hotels & Resorts has been designated as
the accounting acquiror for financial statement presentation purposes in
accordance with Securities and Exchange Commission 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. On September 30, 1998, ResortQuest completed the
acquisition of Abbot Resorts. Accordingly, the historical financial statements
of ResortQuest reflect the financial position and results of operations of the
parent company of ResortQuest ("RQI"), the Founding Companies and Abbott Resorts
as of June 30, 1998, and for the year ended December 31, 1997, and the six
months ended June 30, 1997 and 1998, and were derived from the respective
financial statements where indicated. The historical financial statements of
ResortQuest represent the results of Aston Hotels & Resorts prior to the
Combinations and the IPO, and only include balances and transactions of the
Founding Companies since May 27, 1998. Additionally, the unaudited pro forma
combined balance sheets and statements of operations do not include the effects
of the Company's acquisitions of Plantation Resort and Whistler Exclusive, as
such acquisitions are immaterial to ResortQuest for presentation purposes.
The unaudited pro forma statement of operations of ResortQuest for the six
months ended June 30, 1998 does not include the compensation expense and
management recruitment expense, relating to the non-recurring charge of $6.1
million, in conjunction with the issuances of common stock to management and
founders of RQI and other costs, prior to the Offering.
2. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS:
The following table summarizes unaudited pro forma combined balance sheet
adjustments (in thousands):
DESCRIPTION AMOUNT
---------------------------------------------- ------------------
Goodwill ..................................... $ 31,547 (a)
Long-term debt, net of current maturities .... (26,530)(b)
Other long-term liabilities .................. 437 (c)
Common stock ................................. (7)(d)
Additional paid-in-capital ................... (6,617)(e)
Retained earnings ............................ 1,170 (f)
----------
$ --
==========
- ----------
The above table reflects the adjustments related to the acquisition of
Abbott Resorts including:
(a) The goodwill related to the issuance of Common Stock and the cash paid
to satisfy the purchase price.
(b) The increase in ResortQuest's line of credit to fund the cash portion
of the purchase price.
(c) The elimination of minority interest liability.
(d) Issuance of 757,040 shares of Common Stock to satisfy the purchase
price at a par value of $.01 per share, net of the elimination of the
Abbott Resorts' common stock.
(e) The increase in additional paid-in-capital for the issuance of 757,040
shares of Common Stock at fair value, net of the elimination of Abbott
Resorts' additional paid-in-capital.
F-12
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS - (CONTINUED )
(f) The elimination of Abbott Resorts' retained earnings.
3. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS ADJUSTMENTS:
(a) Reflects additional revenue that ResortQuest would have realized
related to certain property management contracts with affiliates of
the Founding Companies and Abbott Resorts. These management contracts
were reflective of below market rates and have been renegotiated in
conjunction with the acquisitions.
(b) 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 and Abbott
Resorts 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 $2.5 million, $1.3 million and $5.5 million as compared
to the contractual compensation of $771,000, $771,000 and $1.9
million, respectively, for the six months ended June 30, 1998 and
1997, and the year ended December 31, 1997, respectively.
(c) Reflects amortization of goodwill (which is not deductible for income
tax purposes) recorded as a result of the Combinations and the
acquisition of Abbott Resorts over a 40-year period, except for the
goodwill related to First Resort, which will be amortized
straight-line over a 15-year period.
(d) Reflects the provision for federal and state income taxes relating to
converting certain operations to C Corporation status and including
the tax impact of pro forma adjustments.
(e) Reflects the estimated interest expense related to the debt assumed in
conjunction with ResortQuest funding the cash portion of the purchase
price related to the acquisition of Abbott Resorts.
While ResortQuest 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 ResortQuest 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.
4. 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 and (iv) 757,040 shares issued to pay for a portion of the purchase
price related to the acquisition of Abbott Resorts. Related to the six month
period ended June 30, 1998, diluted net income per share includes the effect of
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.
F-13
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS - (CONTINUED )
5. ABBOTT RESORTS INFORMATION
The 1998 unaudited pro forma results of Abbott Resorts are as of and for
the six months ended June 30, 1998. The audited financial statements for Abbott
Resorts as of and for the year ended July 31, 1998 are included within this
Prospectus. Due to the seasonal nature of Abbott Resorts' operations, operating
income may vary significantly. For the twelve months ended July 31, 1998, the
following operating income and unaudited pro forma adjustments were noted:
DESCRIPTION AMOUNT
--------------------------------------------------------------- -------------
Operating income, including interest income of $333,962........ $1,383,717
Pro forma adjustments:
Add stockholder salaries and benefits to be reduced or
terminated ................................................. 2,203,000
Add increase in rental commissions related to contracts at
favorable terms with affiliates ............................ 546,000
----------
$4,132,717
==========
Additionally, the above adjustments do not reflect an additional revenue
source related to a reservation fee surcharge implemented in June, 1998, which
if annualized, would approximate $780,000.
F-14
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ResortQuest International, Inc.:
We have audited the accompanying balance sheets of ResortQuest
International, Inc., formerly Hotel Corporation of the Pacific, Inc. (Delaware
and Hawaii corporations, respectively), 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 ResortQuest International,
Inc., formerly 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 (except with respect to
Note 1, as to which the date is May 26,
1998)
F-15
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
(FORMERLY HOTEL CORPORATION OF THE PACIFIC, INC.)
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1996 1997 1998
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ....................................... $ 2,118 $ 1,632 $ 6,037
Cash held in escrow ............................................. -- -- 6,064
Accounts receivable, less allowance of $97 and $75 for doubt-
ful accounts .................................................. 1,448 1,195 3,627
Notes receivable from stockholder ............................... -- -- 4,000
Deferred income taxes ........................................... -- -- 658
Prepaid expenses and other assets ............................... 143 129 1,232
------- ------- ---------
Total current assets .......................................... 3,709 2,956 21,618
ADVANCES TO STOCKHOLDER .......................................... 7,111 7,235 --
ADVANCES TO AFFILIATES, net ...................................... -- 1,799 --
SECURITY DEPOSITS ................................................ 712 641 --
PREPAID EXPENSES AND OTHER ASSETS ................................ 178 155 1,514
PROPERTY AND EQUIPMENT, net ...................................... 1,186 1,776 4,075
GOODWILL ......................................................... -- -- 95,429
DEFERRED INCOME TAXES ............................................ -- -- 1,692
NET ASSETS OF DISCONTINUED OPERATIONS ............................ 74 -- --
------- ------- ---------
Total assets .................................................. $12,970 $14,562 $ 124,328
======= ======= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable ................................ $ 61 $ 12 $ 1,396
Current portion of capital lease obligations .................... 260 409 --
Current portion of other long-term obligations .................. 591 585 --
Customer deposits, deferred revenues and payable to property
owners ........................................................ -- -- 11,357
Accounts payable and accrued liabilities ........................ 4,730 6,538 9,712
Other current liabilities ....................................... -- -- 627
------- ------- ---------
Total current liabilities ..................................... 5,642 7,544 23,092
SECURITY DEPOSITS ................................................ 326 270 --
EXCESS OF LOSSES OVER INVESTMENT IN PARTNER-
SHIP ............................................................ 346 -- --
ADVANCES FROM AFFILIATES ......................................... 1,235 -- --
NOTES PAYABLE .................................................... 2,816 2,804 1,992
CAPITAL LEASE OBLIGATIONS ........................................ 882 1,325 --
OTHER LONG-TERM OBLIGATIONS ...................................... 2,118 1,611 --
NET LIABILITIES OF DISCONTINUED OPERATIONS ....................... -- 1,403 --
------- ------- ---------
Total liabilities ............................................. 13,365 14,957 25,084
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 50,000,000 shares authorized,
1,708,333, 1,708,333 and 15,924,286 shares outstanding, respec-
tively ........................................................ 17 17 159
Additional paid-in-capital ...................................... 88 88 128,662
Excess distributions ............................................ -- -- (29,500)
Retained earnings ............................................... (500) (500) (77)
------- ------- ---------
Total stockholders' equity .................................... (395) (395) 99,244
------- ------- ---------
Total liabilities and stockholders' equity .................... $12,970 $14,562 $ 124,328
======= ======= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-16
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
(FORMERLY HOTEL CORPORATION OF THE PACIFIC, INC.)
STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------- ----------------------
1995 1996 1997 1997 1998
---------- ---------- ----------- ---------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Property management fees ........................ $ 7,036 $ 7,540 $ 8,079 $ 4,476 $ 6,021
Service fees .................................... 8,896 8,442 8,338 4,109 5,364
Other ........................................... 3,116 3,478 3,137 1,493 2,551
------- ------- -------- ------- -------
Total revenues ............................... 19,048 19,460 19,554 10,078 13,936
OPERATING EXPENSES ............................... 10,550 10,401 8,908 5,247 7,167
GENERAL AND ADMINISTRATIVE
EXPENSES ........................................ 5,434 5,574 5,475 2,439 4,161
------- ------- -------- ------- -------
Income from operations ....................... 3,064 3,485 5,171 2,392 2,608
OTHER INCOME (EXPENSE):
Interest expense, net ........................... (406) (736) (763) (333) (30)
Gain on sales of assets ......................... -- 394 677 -- --
Arbitration expense ............................. (365) -- -- -- --
------- ------- -------- ------- -------
Total other income (expense) .................... (771) (342) (86) (333) (30)
------- ------- -------- ------- -------
INCOME BEFORE PROVISION FOR INCOME
TAXES AND DISCONTINUED OPERATIONS................ 2,293 3,143 5,085 2,059 2,578
------- ------- -------- ------- -------
PROVISION FOR INCOME TAX EXPENSE ................. -- -- -- -- 304
NET INCOME FROM CONTINUING OPERA-
TIONS ........................................... 2,293 3,143 5,085 2,059 2,274
NET INCOME (LOSS) FROM DISCONTINUED
OPERATIONS ...................................... (32) 455 (1,328) (229) 1,347
LOSS ON DISPOSAL OF DISCONTINUED
OPERATIONS ...................................... -- -- (166) -- --
------- ------- -------- ------- -------
NET INCOME ....................................... $ 2,261 $ 3,598 $ 3,591 $ 1,830 $ 3,621
======= ======= ======== ======= =======
EARNINGS PER SHARE (Note 12):
Basic
Continuing operations .......................... $ 1.34 $ 1.84 $ 2.98 $ 1.21 $ .51
Discontinued operations ........................ ( .02) .27 ( .88) ( .14) .30
------- ------- -------- ------- -------
Net income per share ........................... $ 1.32 $ 2.11 $ 2.10 $ 1.07 $ 0.81
======= ======= ======== ======= =======
Diluted
Continuing operations .......................... $ 1.34 $ 1.84 $ 2.98 $ 1.21 $ .50
Discontinued operations ........................ ( .02) .27 ( .88) ( .14) .30
------- ------- -------- ------- -------
Net income per share ........................... $ 1.32 $ 2.11 $ 2.10 $ 1.07 $ 0.80
======= ======= ======== ======= =======
PRO FORMA DATA (unaudited -- Note 2)
Historical net income before provision for income
taxes and discontinued operations .............. $ 2,293 $ 3,143 $ 5,085 $ 2,059 $ 2,578
Less: pro forma provision for income taxes ...... 917 1,257 2,034 824 1,031
------- ------- -------- ------- -------
PRO FORMA NET INCOME FROM
CONTINUING OPERATIONS ........................... $ 1,376 $ 1,886 $ 3,051 $ 1,235 $ 1,547
======= ======= ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-17
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
(FORMERLY HOTEL CORPORATION OF THE PACIFIC, INC.)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
--------------------- PAID-IN EXCESS EARNINGS
SHARES AMOUNT CAPITAL DISTRIBUTIONS (DEFICIT) TOTAL
------------ -------- ------------ --------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994 ................... 1,708,333 $ 17 $ 88 $ -- $ (500) $ (395)
Net income .................................. -- -- -- -- 2,261 2,261
Distributions ............................... -- -- -- -- (2,261) (2,261)
--------- ----- -------- --------- -------- ---------
BALANCE, December 31, 1995 ................... 1,708,333 17 88 -- (500) (395)
Net income .................................. -- -- -- -- 3,598 3,598
Distributions ............................... -- -- -- -- (3,598) (3,598)
--------- ----- -------- --------- -------- ---------
BALANCE, December 31, 1996 ................... 1,708,333 17 88 -- (500) (395)
Net income .................................. -- -- -- -- 3,591 3,591
Distributions ............................... -- -- -- -- (3,591) (3,591)
--------- ----- -------- --------- -------- ---------
BALANCE, December 31, 1997 ................... 1,708,333 17 88 -- (500) (395)
Net income (unaudited) ...................... -- -- -- -- 3,621 3,621
Initial public offering (unaudited) ......... 6,670,000 67 59,954 -- -- 60,021
Distributions to stockholders
(unaudited) ............................... -- -- -- (29,500) (3,198) (32,698)
Stock issued in connection with the
combinations (unaudited) .................. 7,545,953 75 68,620 -- -- 68,695
--------- ----- -------- --------- -------- ---------
BALANCE, June 30, 1998 (unaudited) ........... 15,924,286 $ 159 $128,662 $ (29,500) $ (77) $ 99,244
========== ===== ======== ========= ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
(FORMERLY HOTEL CORPORATION OF THE PACIFIC, INC.)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------- -----------------------
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 $ 1,830 $ 3,621
(Income) loss from discontinued operations .................. 32 (455) 1,328 229 (1,347)
Loss on disposal of discontinued operations ................. -- -- 166 -- --
-------- -------- -------- -------- ---------
Income from continuing operations .......................... 2,293 3,143 5,085 2,059 2,274
Adjustments to reconcile net income to net cash pro-
vided by operating activities-
Depreciation and amortization ............................... 257 326 394 176 568
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 (515) 1,172
Prepaid expenses and other assets ........................... (309) 258 37 (153) (606)
Accounts payable and accrued liabilities .................... 648 258 918 2,266 (1,743)
Reservation and security deposits ........................... 245 (459) (56) -- 2,502
--------- --------- -------- -------- ---------
Cash provided by continuing operations ..................... 2,786 2,934 5,940 3,833 4,167
Cash flows from discontinued operations ...................... 249 (253) (17) 1,519 (56)
--------- --------- -------- -------- ---------
Net cash provided by operating activities .................. 3,035 2,681 5,923 5,352 4,111
--------- --------- -------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of principal asset of partnership ........ -- -- 331 -- --
Cash portion of combinations ................................ -- -- -- -- (21,341)
Proceeds from sale of property and equipment ................ -- 398 -- 50 --
Purchase of property and equipment .......................... -- -- (56) (99) (243)
Increase (decrease) in security deposits and other .......... (618) (94) 71 62 528
--------- --------- -------- -------- ---------
Net cash (used in) provided by investing activities ........ (618) 304 346 13 (21,056)
--------- --------- -------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Increase in advances) proceeds from repayment of
advances to affiliates ..................................... (430) 3,625 (2,144) (1,304) (486)
Increase in advances to stockholder ......................... (1,572) (886) (124) (2,206) 2,684
Increase in distributions payable to stockholder ............ -- 465 64 -- --
Proceeds from public stock issuance ......................... -- -- -- -- 60,889
Distributions to stockholders ............................... (2,261) (3,098) (3,591) (1,830) (33,198)
Repayment of notes and mortgage payable ..................... (283) (637) (61) -- --
Increase (payment) of other long-term obligations ........... 305 (1,160) (563) (203) (5,914)
Principal payments under capital leases ..................... (111) (241) (336) (88) (2,625)
Proceeds from notes payable ................................. 3,000 -- -- -- --
--------- --------- -------- -------- ---------
Net cash provided by (used in) financing activities ........ (1,352) (1,932) (6,755) (5,631) 21,350
--------- --------- -------- -------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS .................................................. 1,065 1,053 (486) (266) 4,405
CASH AND CASH EQUIVALENTS, beginning of pe-
riod ......................................................... -- 1,065 2,118 2,118 1,632
--------- --------- -------- -------- ---------
CASH AND CASH EQUIVALENTS, end of period ...................... $ 1,065 $ 2,118 $ 1,632 $ 1,852 $ 6,037
========= ========= ======== ======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest ....................................... $ 339 $ 556 $ 628 $ 354 $ --
========= ========= ======== ======== =========
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations ................................... $ 388 $ 912 $ 928 $ 66 $ --
========= ========= ======== ======== =========
SUPPLEMENTAL DISCLOSURE OF NONCASH IN-
VESTING ACTIVITIES: Common Stock Portion of
Combinations ................................................. $ -- $ -- $ -- $ -- $ 72,001
========= ========= ======== ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
(FORMERLY HOTEL CORPORATION OF THE PACIFIC, INC.)
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
ResortQuest International, Inc. (the "Company" or "ResortQuest") formerly
known as Hotel Corporation of the Pacific, Inc. (the "Company" or "Aston"), 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 (the "IPO") on May 26, 1998, the Company
acquired 12 vacation rental and property management companies and one leading
vacation rental and property management software company (the "Combinations").
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 financial statements for
the three- and six-month periods ended June 30, 1997 and 1998 include the
financial results of Aston prior to the Combinations and the IPO, and include
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.
Hotel Corporation of the Pacific, Inc. was a Hawaii corporation which
operated under the trade names "Aston Hotels & Resorts," "Aston Property
Management" and "Aston." Aston 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 began 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.
In connection with the Combinations, 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 Combinations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Statements
The interim financial statements as of June 30, 1998, and for the six
months ended June 30, 1998 and June 30, 1997, are unaudited, and certain
information and footnote disclosures, normally included in financial statements
prepared in accordance with generally accepted accounting principles, have
F-20
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
(FORMERLY HOTEL CORPORATION OF THE PACIFIC, INC.)
NOTES TO FINANCIAL STATEMENTS- (CONTINUED)
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.
The Company requires certain minimum deposits when the reservation is
booked. These deposits are non-refundable and are recorded as a component of
customer deposits, deferred revenue and payable to property owners in the
accompanying financial statements. The Company records revenue for cancellations
upon occurrence.
Service fees are recorded for a variety of services and are recognized as
the service is provided.
Commissions on real estate sales are recognized at closing and are recorded
net of the related commission expense to agents.
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.
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.
F-21
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
(FORMERLY HOTEL CORPORATION OF THE PACIFIC, INC.)
NOTES TO FINANCIAL STATEMENTS- (CONTINUED)
Intangible Assets and Amortization
The Combinations were accounted for using the purchase method of
accounting. The excess of consideration paid over the estimated fair value of
the net assets acquired less liabilities assumed is recorded as goodwill.
Allocations of the purchase price to assets acquired and liabilities assumed
have been initially assigned and recorded based on preliminary estimates of fair
value and may be revised as additional information concerning the valuation of
such assets and liabilities becomes available.
Goodwill is being amortized on a straight-line basis over 40 years, other
than that associated with the acquisition of the property management software
company, which will be amortized over 15 years, representing the approximate
remaining useful life of acquired intangible assets. In accordance with
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed",
subsequent to an acquisition, the Company continually evaluates whether later
events and circumstances have occurred that indicate the remaining net book
value may warrant revision or may not be recoverable. When factors indicate that
the net book value should be evaluated for possible impairment, the Company uses
an estimate of the related business's undiscounted operating income over the
remaining life of the cost in excess of net assets of acquired businesses, in
measuring whether such cost is recoverable.
Income Taxes
Aston had 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.
In conjunction with the Combinations, 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 six months ended June 30, 1997
and 1998, and for the years ended December 31, 1997, 1996 and 1995.
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
partnership. At December 31, 1996, the excess of the Company's cumulative equity
in net losses
F-22
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
(FORMERLY HOTEL CORPORATION OF THE PACIFIC, INC.)
NOTES TO FINANCIAL STATEMENTS- (CONTINUED)
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
Aston's principal stockholder. The advances have no scheduled repayment, and
Aston 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 was guaranteed by Aston's principal
stockholder and was repaid during 1998.
4. ADVANCES TO STOCKHOLDER:
Advances to stockholder relate to advances to the Aston 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 made payments of approximately $1,500,000 on these advances
prior to the Combination. An interest bearing note totalling $4.0 million was
executed in connection with the Combination and is collateralized by certain
assets pledged to the Company and 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-23
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
(FORMERLY HOTEL CORPORATION OF THE PACIFIC, INC.)
NOTES TO FINANCIAL STATEMENTS- (CONTINUED)
Net assets (liabilities) of discontinued operations are as follows (in
thousands):
DECEMBER 31,
-----------------------
1996 1997
----------- -----------
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)
======== ========
Income (loss) from discontinued operations are as follows (in thousands):
<TABLE>
<CAPTION>
SIX MONTH
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------- --------------------------
1995 1996 1997 1997 1998
------------ ---------- ------------ ---------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue ........................................ $4,911 $29,945 $ 30,848 $16,051 $14,304
Operating expenses ............................. 3,609 22,833 24,826 12,141 10,120
General and administrative expenses ............ 1,326 6,631 7,317 4,118 2,839
------ ------- -------- ------- -------
Operating income (loss) ....................... (24) 481 (1,295) (208) 1,345
Other expense .................................. (8) (26) (33) 21 (2)
------ ------- -------- ------- -------
Net income (loss) from discontinued operations . $ (32) $ 455 $ (1,328) $ (229) $ 1,347
====== ======= ======== ======= =======
</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-24
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
(FORMERLY 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 common 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-25
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
(FORMERLY 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.
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 convenants,
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.
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.
F-26
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
(FORMERLY HOTEL CORPORATION OF THE PACIFIC, INC.)
NOTES TO FINANCIAL STATEMENTS- (CONTINUED)
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.
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.
F-27
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
(FORMERLY HOTEL CORPORATION OF THE PACIFIC, INC.)
NOTES TO FINANCIAL STATEMENTS- (CONTINUED)
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>
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.
F-28
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
(FORMERLY HOTEL CORPORATION OF THE PACIFIC, INC.)
NOTES TO FINANCIAL STATEMENTS- (CONTINUED)
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.
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.
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 former principal stockholder of Aston
has agreed to cause these guarantees to be released as soon as practical. As of
June 30, 1998, only $860,000 (unaudited) of these loans remain outstanding.
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.
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 1993 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,
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
F-29
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
(FORMERLY HOTEL CORPORATION OF THE PACIFIC, INC.)
NOTES TO FINANCIAL STATEMENTS- (CONTINUED)
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
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.
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.
F-30
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
(FORMERLY HOTEL CORPORATION OF THE PACIFIC, INC.)
NOTES TO FINANCIAL STATEMENTS- (CONTINUED)
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. STOCKHOLDERS' EQUITY
Common Stock
On May 26, 1998, ResortQuest issued an aggregate of 9,254,286 shares of
Common Stock (3,134,630 shares are restricted voting 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 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.
F-31
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
(FORMERLY HOTEL CORPORATION OF THE PACIFIC, INC.)
NOTES TO FINANCIAL STATEMENTS- (CONTINUED)
Preferred Stock
ResortQuest's authorized capital includes 10.0 million shares of
undesignated preferred stock with a $0.01 par value.
Earnings Per Share
Income per share included in the consolidated statements of operations for
the historical periods ended June 30, 1997 and prior, 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 and those prior to 1997.
Income per share included in the consolidated statements of operations 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
of the 1998 period.
The following table reflects ResortQuest's weighted average common shares
outstanding and the impact of its primary common share equivalents.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------- -------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Basic weighted average shares outstanding .............. 1,708,333 1,708,333 1,708,333 1,708,333 4,457,274
Effect of dilutive securities -- Stock options ......... -- -- -- -- 57,178
--------- --------- --------- --------- ---------
Diluted weighted average shares outstanding ............ 1,708,333 1,708,333 1,708,333 1,708,333 4,514,452
========= ========= ========= ========= =========
</TABLE>
F-32
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Abbott Realty Services, Inc.:
We have audited the accompanying consolidated balance sheet of Abbott
Realty Services, Inc. (a Florida corporation) and Subsidiaries (collectively the
"Company") as of July 31, 1998, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for the year then
ended. 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
Abbott Realty Services, Inc. and Subsidiaries, as of July 31, 1998, and the
results of their operations and their cash flows for the year then ended, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Memphis, Tennessee,
September 18, 1998
F-33
<PAGE>
ABBOTT REALTY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JULY 31, 1998
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ...................................................... $14,580
Cash held in escrow ............................................................ 392
Trade and other receivables .................................................... 726
Deferred income taxes .......................................................... 116
Other current assets ........................................................... 899
-------
Total current assets .......................................................... 16,713
PROPERTY AND EQUIPMENT, net ..................................................... 9,501
DEFERRED INCOME TAXES ........................................................... 72
OTHER ASSETS .................................................................... 1,381
-------
Total assets ................................................................. $27,667
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt ........................................... $ 806
Customer deposits, deferred revenue and payable to property owners ............. 12,055
Accounts payable and accrued liabilities ....................................... 3,818
Other current liabilities ...................................................... 308
-------
Total current liabilities ..................................................... 16,987
LONG-TERM DEBT, net of current maturities ....................................... 6,039
OTHER LONG-TERM OBLIGATIONS ..................................................... 732
MINORITY INTEREST ............................................................... 438
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1 par value, 1,000 shares authorized, issued and outstanding..... 1
Additional paid in capital ..................................................... 7
Retained earnings .............................................................. 3,463
-------
Total stockholders' equity .................................................... 3,471
-------
Total liabilities and stockholders' equity .................................... $27,667
=======
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
F-34
<PAGE>
ABBOTT REALTY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED JULY 31, 1998
(IN THOUSANDS)
<TABLE>
<S> <C>
REVENUES:
Property management fees ............................................................ $13,572
Service fees and other .............................................................. 11,376
Real estate commissions, net including related party commissions of approximately
of $590,000 ....................................................................... 3,484
-------
Total revenues ..................................................................... 28,432
OPERATING EXPENSES ................................................................... 15,612
GENERAL AND ADMINISTRATIVE EXPENSES .................................................. 11,770
-------
Income from Operations ............................................................ 1,050
OTHER INCOME (EXPENSE):
Interest Expense, net ............................................................. (208)
-------
Income before provision for income taxes and minority interest .................... 842
PROVISION FOR INCOME TAXES ........................................................... 337
MINORITY INTEREST .................................................................... 132
-------
NET INCOME ........................................................................... $ 373
=======
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
F-35
<PAGE>
ABBOTT REALTY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED JULY 31, 1998
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
-------------------
ADDITIONAL RETAINED
SHARES AMOUNT PAID IN CAPITAL EARNINGS TOTAL
-------- -------- ----------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE, July 31, 1997 ......... 1,000 $ 1 $ 7 $3,090 $3,098
Net income ..................... -- -- -- 373 373
----- --- --- ------ ------
BALANCE, July 31, 1998 ......... 1,000 $ 1 $ 7 $3,463 $3,471
===== === === ====== ======
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
F-36
<PAGE>
ABBOTT REALTY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JULY 31, 1998
(IN THOUSANDS)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ...................................................................... $ 373
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ................................................... 645
Changes in operating assets and liabilities:
Cash held in escrow ........................................................... 322
Trade and other receivables ................................................... 484
Deferred income taxes ......................................................... 66
Other assets .................................................................. (249)
Customer deposits, deferred revenue and payable to property owners ............ 781
Accounts payable and accrued liabilities ...................................... 944
Other liabilities ............................................................. (3)
-------
Net cash provided by operating activities .................................... 3,363
-------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment ............................................. (1,757)
Proceeds from sale of property and equipment .................................... 59
-------
Net cash used in investing activities ...................................... (1,698)
-------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt .................................................... 1,224
Principal payments on long-term debt ............................................ (900)
Repayment of loan from shareholders ............................................. (88)
Change in minority interest payable ............................................. 132
-------
Net cash provided by financing activities .................................. 368
-------
NET INCREASE IN CASH AND CASH EQUIVALENTS ........................................ 2,033
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ................................... 12,547
-------
CASH AND CASH EQUIVALENTS, END OF PERIOD ......................................... $14,580
=======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest .......................................................... $ 550
=======
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
F-37
<PAGE>
ABBOTT REALTY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
JULY 31, 1998
1. BUSINESS AND ORGANIZATION:
Abbott Realty Services, Inc. is a Florida corporation comprised of Abbott
Resorts, Inc. and an 80% ownership in Abbott and Andrews Realty, Inc. ("Abbott
and Andrews"), which owns Tops'l Club of NW Florida, Inc., Tops'l Group, Inc.,
and SIIK, Inc. (collectively the "Company" or "Abbott"). The Company's two
principal operations include providing property management services to owners
of vacation properties and providing real estate services for sales of new and
previously owned vacation properties in the Destin, Fort Walton and South
Walton areas of Florida.
The Company provides 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. At
July 31, 1998, the Company had approximately 2,400 rental homes and condominiums
under management. Abbott's operations are seasonal, with primary customer
concentration during May through August of each year.
In conjunction with providing property management services, the Company
realizes certain revenues related to food and beverage, housekeeping,
maintenance, laundry, etc. Revenues realized related to these activities are
classified as service fees and other in the accompanying consolidated statement
of income.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Accounting and Principles of Consolidation
The accompanying consolidated financial statements are prepared on the
accrual basis of accounting and include the accounts of the Company and its
majority-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Cash and Cash Equivalents
For purpose of the statement of cash flows, the Company considers all
investments with original maturities of three months or less to be cash
equivalents.
Cash Held in Escrow
Cash held in escrow represents customer deposits related to real estate
sales that have been placed in escrow accounts until such sales are finalized.
Other Current Assets
Other current assets consist of prepaid advertising, prepaid insurance
premiums and inventories.
Advertising and insurance costs are expensed ratably over the expected
benefit period. At July 31, 1998, the Company maintained a prepaid balance of
approximately $718,000 related to these items.
Inventories are carried at weighted average cost and consist primarily of
linens, food and beverage. At July 31, 1998, the Company maintained an inventory
balance of approximately $180,000 related to these items.
F-38
<PAGE>
ABBOTT REALTY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
Other Assets
Other assets primarily consist of a note receivable and certain
investments.
On June 1, 1995, in conjunction with purchasing certain property, Abbott
agreed to accept a note receivable for a portion of the property that was
previously sold. The note receivable represents a 50-month note for $700,000,
which bears interest at 8.7% per annum. Principal and interest payments
approximating $7,000 are due monthly with a final balloon payment of
approximately $593,000 due on August 1, 1999. At July 31, 1998, the note
receivable approximated $664,000.
The Company maintains a common stock investment in a local financial
institution. The Company accounts for this stock using the cost method, and the
investment balance approximated $90,000 at July 31, 1998. Subsequent to July 31,
1998, the Company recorded shareholder receivables for this balance as the
common stock was transferred to Abbott stockholders.
The Company has an ultimate 10% limited partnership interest in a
condominium development located in Destin, Florida. Due to the nature of this
investment, the Company accounts for this investment under the cost method. At
July 31, 1998, the investment balance approximated $600,000.
Minority Interest
As the Company owns 80% of Abbott and Andrews, the accompanying
consolidated financial statements reflect minority interest for 20% of the
current year net income of Abbott and Andrews and a minority interest payable to
shareholder for 20% of the retained earnings of Abbott and Andrews.
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 minimum deposit of $50 when the reservation is booked. These deposits
are non-refundable and are recorded as a component of customer deposits,
deferred revenue and payable to property owner in the accompanying consolidated
balance sheet. The Company records revenue for cancellations upon occurrence.
Service fees are recorded for a variety of services and are recognized as
the service is provided.
Commissions on real estate sales are recognized at closing and are recorded
net of the related commission expense to agents. The Company recognized gross
commission revenues of approximately $10,077,000 and commission expenses of
approximately $6,593,000 for the year ended July 31, 1998.
Operating Expenses
Operating expenses include travel agent commissions, salaries, marketing
expense and other costs associated with property management and real estate
sales.
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. The gross amount of assets
recorded under capital leases totaled $692,649 and accumulated amortization
related to those assets totaled $352,382.
F-39
<PAGE>
ABBOTT REALTY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
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 accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues,
and expenses and the disclosure of contingent assets and liabilities. While
management endeavors to make accurate estimates, actual results could differ
from these estimates.
Concentration of Risk
The Company's operations are exclusively in the Destin, Fort Walton and
South Walton, Florida area and are subject to significant changes due to weather
conditions.
3. PROPERTY AND EQUIPMENT:
At July 31, 1998, property and equipment consisted of the following (in
thousands):
ESTIMATED
USEFUL LIFE
IN YEARS AMOUNT
------------ -----------
Leasehold improvements .................... 5 - 15 $ 904
Building .................................. 15 - 40 5,248
Furniture, fixtures and equipment ......... 3 - 10 4,259
Vehicles .................................. 3 - 7 479
Land ...................................... 1,581
--------
12,471
Less: Accumulated Depreciation ............ (2,969)
--------
$ 9,502
========
F-40
<PAGE>
ABBOTT REALTY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
4. LONG TERM DEBT:
Long-term debt consisted of the following at July 31, 1998 (in thousands):
<TABLE>
<CAPTION>
DESCRIPTION AMOUNT
- ------------------------------------------------------------------------------------ ----------
<S> <C>
Various notes secured by certain assets held with Regions Bank. At July 31, 1998 the
interest rates on these obligations ranged from 7.5% to 9% and mature at various
dates between December, 1998 through December 2002. ............................... $ 5,058
Two notes secured by certain assets held with SunTrust Bank. At July 31, 1998 the
interest rates on these obligations were 8.5% and Prime+1% and mature in August
and September 2001. ............................................................... 598
Two notes secured by buildings held with First City Bank. At July 31, 1998 the
variable interest rates on these obligations were 7.5% and mature in February
2013. ............................................................................. 404
Various notes secured by certain assets and a line of credit held with AmSouth Bank.
At July 31, 1998 the interest rates on these obligations ranged from Prime to 8.75%
and mature at various dates between December, 1998 through December 2002. ......... 356
Other secured and unsecured notes held with various entities. At July 31, 1998 the
interest rates on these obligations were 7.3% and Prime+.5% and mature in
December 1998 and May 1999. ....................................................... 31
Various capital leases with IBM Credit for computer hardware. At July 31, 1998 the
interest rates on these obligations ranged from 8.1% to 10.3% and expire in
January 2000 and April 2002. ...................................................... 398
-------
Less current maturities .......................................................... (806)
-------
$ 6,039
=======
</TABLE>
At July 31, 1998, the estimated future maturities of long-term debt were as
follows (in thousands):
YEAR
ENDED
JULY 31 AMOUNT
--------------------------------- ------
1999 .......................... $ 806
2000 .......................... 538
2001 .......................... 3,463
2002 .......................... 771
2003 .......................... 305
Thereafter..................... 962
------
$6,845
======
5. INCOME TAXES:
Abbott recorded the following income tax provision for the year ended July
31, 1998 (in thousands):
AMOUNT
-------
Current ............................... $271
Deferred .............................. 66
----
$337
====
F-41
<PAGE>
ABBOTT REALTY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
At July 31, 1998, the Company recorded the following deferred tax assets
and liabilities:
DESCRIPTION AMOUNT
- ------------------------------------------------- ---------
Deferred tax assets
Vacation liability ...................... $ 116
Workers' compensation liability ......... 178
------
Total deferred tax assets .............. 294
Deferred tax liability
Property and equipment .................. (106)
------
$ 188
======
The provision for income taxes differs from the amount computed by applying
the statutory federal income tax rate of 34% for the following reasons (in
thousands):
DESCRIPTION AMOUNT
- -------------------------------------------------------------- -------
Income tax expense at federal statutory rate .......... $286
State taxes, net of federal tax benefit ............... 30
Other ................................................. 21
----
$337
====
6. COMMITMENTS AND CONTINGENCIES:
Guaranty
The Company is a partial guarantor on a $26,000,000 construction loan
pertaining to the condominium development which the Company has a 10% limited
partnership interest as discussed in Note 2. The Company's guarantee under this
arrangement is not to exceed approximately $1,700,000.
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.
Benefit Plans
The Company has a 401(k) profit-sharing plan for all employees who have
completed 1,000 hours of service in a 12-month period and are 21 or older.
Eligible employees may elect to make pre-tax contributions to the plan subject
to statutory limits. The Company matches 25 percent of employee contributions on
the first four percent of base compensation. All contributions to the plan are
invested in one or more investment funds at each participant's option. The
Company's contributions were $50,105 for the year ended July 31, 1998.
Future Minimum Lease Payments
The Company rents office space, automobiles, and equipment under operating
leases. Rental expense related to these leases was approximately $550,000 for
the year ended July 31, 1998. Rental expense related to leases with related
parties was approximately $109,860 for the year ended July 31, 1998.
F-42
<PAGE>
ABBOTT REALTY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
Minimum future lease payments under these noncancelable operating leases in
effect at July 31, 1998 are as follows (in thousands):
YEAR AMOUNT
-------------------------- ---------
1999 ................... $ 462
2000 ................... 326
2001 ................... 204
2002 ................... 174
2003 ................... 92
------
Total .................. $1,258
======
7. RELATED PARTY TRANSACTIONS:
The Company manages at favorable rental commission rates approximately 100
rental units owned by stockholders and employees of the Company. For the year
ended July 31, 1998, property management fee revenue and service fee revenue
approximated $417,000 and $776,000, respectively, related to the management of
these properties.
All stockholders are employed by the Company. For the year ended July 31,
1998, the shareholders received approximately $2,203,000 in salaries and
benefits. Additionally, the Company paid approximately $590,000 in real estate
commissions to certain stockholders for the year ended July 31, 1998.
At July 31, 1998, trade and other accounts receivable includes unsecured,
non-interest bearing receivables from certain stockholders approximating
$104,000.
The Company processes payroll for certain non-consolidated affiliates and
is reimbursed by these affiliates in the subsequent month. These receivables are
unsecured, non-interest bearing and approximated $90,000 at July 31, 1998.
8. SUBSEQUENT EVENT:
On September 30, 1998, ResortQuest International, Inc. ("ResortQuest")
acquired all of the outstanding common stock of Abbott in exchange for cash and
shares of ResortQuest common stock (the "Acquisition"). In connection with the
Acquisition, the owners and certain key employees have agreed to reductions and
or terminations of salary and benefits.
F-43
<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-44
<PAGE>
BRINDLEY & BRINDLEY
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, MAY 26,
1997 1998
-------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................. $ 24 $ 685
Cash held in trust ........................................ 3,895 1,880
Accounts receivable ....................................... 62 48
Prepaid expenses and other current assets ................. 37 135
------ --------
Total current assets ................................... 4,018 2,748
PROPERTY AND EQUIPMENT, net ................................. 125 148
------ --------
Total assets ........................................... $4,143 $ 2,896
====== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt ......................... $ 19 $ --
Customer deposits and deferred revenue .................... 3,895 2,127
Accounts payable and accrued liabilities .................. 108 2,211
------ --------
Total current liabilities .............................. 4,022 4,338
LONG-TERM DEBT, net of current maturities ................... 22 41
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $1 par; 200,000 shares authorized; 200 shares
outstanding .............................................. -- --
Retained earnings (deficit) ............................... 99 (1,483)
------ --------
Total stockholders' equity (deficit) ................... 99 (1,483)
------ --------
Total liabilities and stockholders' equity (deficit) ... $4,143 $ 2,896
====== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-45
<PAGE>
BRINDLEY & BRINDLEY
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 1
YEAR ENDED SIX MONTHS THROUGH
DECEMBER 31, ENDED JUNE 30, MAY 26,
1997 1997 1998
------------- ---------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
REVENUES:
Property rental fees ..................................... $2,642 $ 729 $ 261
Service fees ............................................. 978 421 238
Real estate commissions, net ............................. 401 275 136
------ ----- ------
Total revenues ........................................ 4,021 1,425 635
OPERATING EXPENSES ........................................ 3,028 1,193 1,327
GENERAL AND ADMINISTRATIVE
EXPENSES ................................................. 482 248 262
------ ----- ------
Income from operations ................................ 511 (16) (954)
------ ----- ------
OTHER INCOME:
Interest income, net ..................................... 42 (2) 27
------ ----- ------
NET INCOME (LOSS) ......................................... $ 553 $ (18) $ (927)
====== ===== ======
PRO FORMA DATA
(unaudited -- Note 6)
Historical net income (loss) before income taxes ......... $ 553 $ (18) $ (927)
------ ----- ------
Less: pro forma provision (benefit) for income
taxes .................................................. 221 (7) (371)
------ ----- ------
PRO FORMA NET INCOME (LOSS) ............................... $ 332 $ (11) $ (556)
====== ===== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-46
<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) ..................... -- -- (927) (927)
Distributions (unaudited) ................ -- -- (655) (655)
--- ---- -------- --------
BALANCE, May 26, 1998 (unaudited) ......... 200 $ -- $ (1,483) $ (1,483)
=== ==== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-47
<PAGE>
BRINDLEY & BRINDLEY
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 1
YEAR ENDED SIX MONTHS THROUGH
DECEMBER 31, ENDED JUNE 30, MAY 26,
1997 1997 1998
------------- ---------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ......................................... $ 553 $ (18) $ (927)
Adjustments to reconcile net income to net cash provided by
operating activities-
Depreciation ............................................ 87 44 25
Changes in operating assets and liabilities-
Accounts receivable ..................................... (33) 19 14
Cash held in escrow ..................................... -- -- 2,015
Prepaid expenses and other current assets ............... (30) 245 (98)
Accounts payable and accrued liabilities ................ 4 (9) 35
------ -------- ------
Net cash provided by operating activities .............. 581 281 1,064
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ........................ (83) (81) (48)
------ ------- ------
Net cash used in investing activities .................. (83) (81) (48)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from long-term debt .......................... 19 -- --
Distributions to stockholders ............................. (527) 633 (355)
------ ------- ------
Net cash used in financing activities .................. (508) 633 (355)
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS ............................................... (10) 833 661
CASH AND CASH EQUIVALENTS, beginning of period ............. 34 34 24
------ ------- ------
CASH AND CASH EQUIVALENTS, end of period ................... $ 24 $ 867 $ 685
====== ======= ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest ................................. $ 3 $ -- $ 7
====== ======= ======
SUPPLEMENTAL DISCLOSURE OF NON-CASH
FINANCING INFORMATION
Accrued distributions to shareholders .................. $ $ -- $ 300
====== ======= ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-48
<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. ("ResortQuest") consummated
its initial public offering and acquired all of the outstanding stock of the
Company in exchange for cash and shares of ResortQuest 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 retained non-operating assets and assumed or
retired certain liabilities that were excluded from the Combinations and the
purchase price for the Company was adjusted by certain working capital
adjustments.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Statements
The interim financial statements at May 26, 1998, and for the period from
January 1 through May 26, 1998 and six months ended June 30, 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.
F-49
<PAGE>
BRINDLEY & BRINDLEY
NOTES TO COMBINED 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.
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):
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES DECEMBER 31,
IN YEARS 1997
-------------- -------------
<S> <C> <C>
Buildings and improvements .............. 5-40 $ 7
Office equipment and vehicles ........... 3-7 338
------
345
Less - Accumulated depreciation ......... (220)
------
Property and equipment, net ............ $ 125
======
</TABLE>
F-50
<PAGE>
BRINDLEY & BRINDLEY
NOTES TO COMBINED FINANCIAL STATEMENTS - (CONTINUED)
Accountspayable and accrued liabilities consisted of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1997
-------------
<S> <C>
Accrued compensation and benefits ................... $ 28
Accounts payable and other accrued liabilities ...... 80
----
Total accounts payable and accrued liabilities ..... $108
====
</TABLE>
At December 31, 1997, maturities of long-term debt were as follows (in
thousands):
<TABLE>
<S> <C>
Year ending December 31,
1998 .................. $19
1999 .................. 8
2000 .................. 9
2001 .................. 5
---
$41
===
</TABLE>
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.
F-51
<PAGE>
BRINDLEY & BRINDLEY
NOTES TO COMBINED FINANCIAL STATEMENTS - (CONTINUED)
6. PRO FORMA ADJUSTMENTS TO FINANCIAL STATEMENT PRESENTATION
(UNAUDITED)
In conjunction with the acquisition of Company stock by ResortQuest, 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 six months ended June
30, 1997 and the period from January 1 through May 26, 1998, and for the year
ended December 31, 1997.
F-52
<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-53
<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-54
<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,
-------------------- MAY 26,
1996 1997 1998
--------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ......................................... $ 6 $ 203 $ 737
Cash held in escrow ............................................... 198 442 634
Accounts receivable ............................................... 143 117 515
Receivables from related parties .................................. 48 1,130 --
------ ------ ------
Total current assets ............................................ 395 1,892 1,886
PROPERTY AND EQUIPMENT, net ........................................ 68 278 317
GOODWILL AND OTHER INTANGIBLE ASSETS, net .......................... 859 718 699
------ ------ ------
Total assets .................................................... $1,322 $2,888 $2,902
====== ====== ======
LIABILITIES AND STOCKHOLDERS' AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Customer deposits and deferred revenue ............................ $ 163 $ 212 $1,033
Payable to property owners ........................................ 163 258 330
Accounts payable and accrued liabilities .......................... 196 395 6
Accounts payable and accrued liabilities-related parties .......... -- 47 460
------ ------ ------
Total current liabilities ....................................... 522 912 1,829
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 ................................................. -- 1,136 948
------ ------ ------
Total stockholders' and members' equity ......................... 125 1,261 1,073
------ ------ ------
Total liabilities and stockholders' and members' equity ......... $1,322 $2,888 $2,902
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-55
<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
---------------------- -----------------------------------------------
JANUARY 1
JANUARY 1 YEAR SIX MONTHS THROUGH
THROUGH ENDED ENDED JUNE 30, MAY 26,
DECEMBER 30, 1996 DECEMBER 31, 1997 1997 1998
---------------------- ------------------- ---------------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Property rental fees ...................... $ 1,481 $ 1,415 $ 565 $ 363
Real estate commissions, net including
related party commissions of $0,
$1,244, $0, and $375 respectively........ 414 1,268 547 699
Water plant ............................... -- 462 -- --
Service fees .............................. 202 470 108 106
------- ------- ------ ------
Total revenues .......................... 2,097 3,615 1,220 1,168
OPERATING EXPENSES ......................... 1,017 1,788 604 718
GENERAL AND ADMINISTRATIVE
EXPENSES .................................. 477 644 277 278
------- ------- ------ ------
Income (loss) from operations ........... 603 1,183 339 172
INTEREST INCOME (EXPENSE) .................. 121 (47) -- 8
------- ------- ------ ------
Income (loss) before income taxes ....... 724 1,136 339 180
PROVISION FOR INCOME TAXES ................. 304 -- -- --
------- ------- ------ ------
NET INCOME (LOSS) .......................... $ 420 $ 1,136 $ 339 $ 180
======= ======= ====== ======
PRO FORMA DATA
(unaudited -- Note 8)
Historical net income (loss) before
income taxes ............................ $ 724 $ 1,136 $ 339 $ 180
Less: pro forma provision (benefit) for
income taxes ............................ 290 454 136 72
------- ------- ------ ------
PRO FORMA NET INCOME (LOSS) ................ $ 434 $ 682 $ 203 $ 108
======= ======= ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-56
<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 (unaudited) ................. -- -- -- -- 180 180
Contributions (unaudited) .............. -- -- -- -- 762 762
Distributions (unaudited) .............. -- -- -- -- (1,130) (1,130)
------ ---- ---- ---- -------- --------
BALANCE, May 26, 1998 (unaudited) ......... 25,000 $ -- $ 25 $100 $ 948 $ 1,073
====== ==== ==== ==== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-57
<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
-------------- -----------------------------------------------------------
JANUARY 1
JANUARY 1 - INCEPTION - JANUARY 1 - SIX MONTHS THROUGH
DECEMBER 30, DECEMBER 31, DECEMBER 31, ENDED JUNE 30, MAY 26,
1996 1996 1997 1997 1998
-------------- -------------- -------------- ---------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) ............................... $ 420 $ -- $1,136 $ 339 $ 180
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities--
Depreciation and amortization .................. 28 -- 85 42 39
Gain on sale of assets ......................... -- -- (8) -- --
Changes in operating assets and liabilities--
Escrow accounts ................................. 102 -- (244) (990) (193)
Accounts receivable ............................. (32) -- 26 (369) (398)
Commission receivable ........................... (71) -- -- -- --
Due to/from related party ....................... (334) -- -- -- --
Prepaid insurance and income taxes .............. 63 -- -- 18 --
Customer deposits and deferred revenue .......... (127) 574 49 550 821
Payable to property owners ...................... -- -- 95 895 72
Accounts payable and accrued liabilities ........ (16) -- 199 44 (218)
------ ---- ------- ------ ------
Net cash provided by (used in) operating
activities .................................... 33 574 1,338 529 303
------ ---- ------- ------ ------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-58
<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
-------------- ------------------------------------------------------------
JANUARY 1
JANUARY 1 - INCEPTION - JANUARY 1 - SIX MONTHS ENDED THROUGH
DECEMBER 30, DECEMBER 31, DECEMBER 31, JUNE 30, MAY 26,
1996 1996 1997 1997 1998
-------------- -------------- ------------- ------------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM INVESTING
ACTIVITIES: ...................................
Purchase of businesses, net of cash
acquired ..................................... $ -- $ (119) $ -- $ -- $ --
Purchase of property and equipment ............ (33) -- (261) (138) (58)
Proceeds from sale of assets .................. -- -- 115 -- --
------- ------ -------- ----- ------
Net cash used in investing activities ........ (33) (119) (146) (138) (58)
------- ------ -------- ----- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Receivables from related parties .............. -- -- (1,082) 48 1,147
Accounts payable and accrued liabilities
-- related parties ........................... -- -- 47 -- 225
Proceeds from note payable to related
party ........................................ -- -- 200 -- --
Payments on note payable to related
party ........................................ -- -- (160) (50) (715)
Capital contributions (distributions) ......... -- 125 -- -- (368)
------- ------ -------- ----- ------
Net cash provided by (used in)
financing activities ........................ -- 125 (995) (2) 289
------- ------ -------- ----- ------
NET INCREASE IN CASH AND CASH
EQUIVALENTS ................................... -- 580 197 389 534
CASH AND CASH EQUIVALENTS,
beginning of period ........................... 6 -- 6 6 203
------- ------ -------- ----- ------
CASH AND CASH EQUIVALENTS, end
of period ..................................... $ 6 $ 580 $ 203 $ 395 $ 737
======= ====== ======== ===== ======
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-59
<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. ("ResortQuest")
consummated its initial public offering and acquired all of the outstanding
stock of the Companies in exchange for shares of ResortQuest common stock (the
"Combination"). In addition, the stockholders and members retained goodwill and
other intangible assets that were excluded from the Combinations and the
purchase price for the Company was adjusted for certain working capital
adjustments.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Statements
The interim financial statements at May 26, 1998, and for the period
January 1 through May 26, 1998 and six months ended June 30, 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 ResortQuest.
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-60
<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-61
<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):
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES ---------------
IN YEARS 1996 1997
------------- ------ -------
<S> <C> <C> <C>
Computer equipment ................... 5 $60 $ 88
Furniture and fixtures ............... 7 8 241
Total ............................. 68 329
--- -----
Less -- Accumulated depreciation ..... -- (51)
--- -----
Property and equipment, net .......... $68 $ 278
=== =====
</TABLE>
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-62
<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):
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- ------
<S> <C>
1998 ................................ $132
1999 ................................ 107
2000 ................................ 85
2001 ................................ 90
2002 ................................ 38
----
Total ............................... $452
====
</TABLE>
F-63
<PAGE>
COASTAL RESORTS MANAGEMENT, INC.
AND
COASTAL RESORTS REALTY L.L.C.
(COMBINED SUCCESSOR COMPANIES)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-64
<PAGE>
COASTAL RESORTS MANAGEMENT, INC.
AND
COASTAL RESORTS REALTY L.L.C.
(COMBINED SUCCESSOR COMPANIES)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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):
<TABLE>
<S> <C>
CURRENT:
Federal ........................... $ 280
State ............................. 64
-----
Total current provision ......... 344
DEFERRED:
Federal ........................... (27)
State ............................. (13)
-----
Total deferred benefit: ......... (40)
-----
Provision for income taxes ......... $ 304
=====
</TABLE>
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):
<TABLE>
<S> <C>
Federal income tax at statutory rate ......... $253
State income taxes, net ...................... 51
----
Income tax provision ......................... $304
====
</TABLE>
F-65
<PAGE>
COASTAL RESORTS MANAGEMENT, INC.
AND
COASTAL RESORTS REALTY L.L.C.
(COMBINED SUCCESSOR COMPANIES)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
8. PRO FORMA ADJUSTMENTS TO FINANCIAL STATEMENT PRESENTATION (UNAUDITED):
In conjunction with the acquisiton of the Companies by ResortQuest, 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 six months ended June 30 , 1997 and the period
January 1 through May 26, 1998, and for the year ended December 31, 1997.
F-66
<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-67
<PAGE>
COLLECTION OF FINE PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MAY 26,
1996 1997 1998
--------- --------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................ $2,664 $2,713 $ 275
Marketable securities ................................ 103 -- --
Accounts receivable .................................. 100 67 21
Receivables from affiliates and stockholders ......... 213 634 431
Prepaid expenses and other current assets ............ 312 434 221
------ ------ ------
Total current assets ............................... 3,392 3,848 948
PROPERTY AND EQUIPMENT, net ........................... 1,903 1,964 487
OTHER ASSETS .......................................... 98 54 52
------ ------ ------
Total assets ....................................... $5,393 $5,866 $1,487
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit ....................................... $ -- $ 97 $ --
Current portion of long-term debt .................... 397 28 300
Current portion of capital lease obligations ......... 51 55 --
Customer deposits and deferred revenue ............... 3,287 3,336 447
Payable to affiliates ................................ 42 28 237
Accounts payable and accrued liabilities ............. 938 1,175 262
------ ------ ------
Total current liabilities .......................... 4,715 4,719 1,246
LONG-TERM DEBT, net of current maturities ............. 188 299 194
CAPITAL LEASE OBLIGATIONS, net of current
maturities ........................................... 70 15 5
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, no par value, 10,000 shares
authorized, issued and outstanding ................. 788 788 788
Retained earnings (deficit) .......................... (368) 45 (746)
------ ------ ------
Total stockholders' equity ......................... 420 833 42
------ ------ ------
Total liabilities and stockholders' equity ......... $5,393 $5,866 $1,487
====== ====== ======
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-68
<PAGE>
COLLECTION OF FINE PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 1
SIX MONTHS THROUGH
YEAR ENDED DECEMBER 31, ENDED JUNE 30, MAY 26,
----------------------------- ---------------- ------------
1995 1996 1997 1997 1998
--------- --------- --------- ---------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Property rental fees ..................................... $2,734 $3,273 $3,513 $2,500 $2,427
Service fees ............................................. 266 273 243 155 84
Other .................................................... 500 595 547 416 418
------ ------ ------ ------ ------
Total revenues ......................................... 3,500 4,141 4,303 3,071 2,929
OPERATING EXPENSES ........................................ 2,621 2,777 2,830 1,538 1,397
GENERAL AND ADMINISTRATIVE
EXPENSES ................................................. 923 948 893 432 331
------ ------ ------ ------ ------
Income (loss) from operations ............................ (44) 416 580 1,101 1,201
OTHER INCOME (EXPENSE):
Interest income, net ..................................... 21 31 58 53 32
Other .................................................... (34) 85 75 -- 26
------ ------ ------ ------ ------
NET INCOME (LOSS) ......................................... $ (57) $ 532 $ 713 $1,154 $1,259
====== ====== ====== ====== ======
PRO FORMA DATA
(unaudited -- Note 10)
Historical net income (loss) before income taxes ......... $ (57) $ 532 $ 713 $1,154 $1,259
Less: pro forma provision (benefit) for income
taxes .................................................. (23) 213 285 462 504
------ ------ ------ ------ ------
PRO FORMA NET INCOME (LOSS) ............................... $ (34) $ 319 $ 428 $ 692 $ 755
====== ====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-69
<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) ................... -- -- 1,259 1,259
Distributions (unaudited) ................ -- -- (2,213) (2,213)
Contributions (unaudited) ................ -- -- 163 163
------ ---- -------- --------
BALANCE, May 26, 1998 (unaudited) ......... 10,000 $788 $ (746) $ 42
====== ==== ======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-70
<PAGE>
COLLECTION OF FINE PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 1
YEAR ENDED DECEMBER 31, SIX MONTHS THROUGH
------------------------------ ENDED JUNE 30, MAY 26,
1995 1996 1997 1997 1998
--------- ---------- --------- ---------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ....................................... $ (57) $ 532 $ 713 $ 1,154 $ 1,259
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization ......................... 379 367 307 154 98
Gain on sale of assets ................................ -- (9) -- -- --
Changes in operating assets and liabilities:
Accounts receivable ................................... (21) 1 33 (219) 46
Prepaid expenses and other assets ..................... 66 (21) (122) 121 199
Customer deposits and deferred revenue ................ 188 568 49 (2,730) (2,889)
Not Payable to affiliates ............................. 74 (363) (13) -- 499
Accounts payable and accrued expenses ................. 186 (96) 237 (915) (643)
------ ------- ------ -------- --------
Net cash provided by (used in) operating
activities ......................................... 815 979 1,204 (2,435) (1,431)
------ ------- ------ -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from loan receivable ........................... -- 160 -- -- --
Purchases of property and equipment ..................... (360) (288) (284) (178) --
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) (139) --
------ ------- ------ -------- --------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-71
<PAGE>
COLLECTION OF FINE PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 1
YEAR ENDED DECEMBER 31, SIX MONTHS THROUGH
-------------------------------- ENDED JUNE 30, MAY 26,
1995 1996 1997 1997 1998
--------- ---------- ----------- ---------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances on line of credit ................................ 514 -- 752 -- --
Repayments on line of credit .............................. (724) (90) (655) -- (188)
Proceeds from notes payable ............................... 149 -- -- -- --
Payments on notes payable ................................. (123) (26) (344) 219 --
Receivables from affiliates and stockholders, net ......... 27 (105) (421) 240 --
Advances to stockholders .................................. -- (16) -- -- --
Payments on note payable to related parties ............... -- (154) -- -- --
Payments on capital leases ................................ (50) (54) (51) (78) --
Distributions to stockholders ............................. -- (400) (300) (355) (819)
---- ---- ---- ---- ----
Net cash provided by (used in) financing
activities ............................................. (207) (845) (1,019) 26 (1,007)
---- ---- ------ ---- ------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS .......................................... 267 6 49 (2,548) (2,438)
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 $ 116 $ 275
====== ====== ======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid ............................................. $ 75 $ 100 $ 79 $ 32 $ 15
====== ====== ======== ======== ========
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Acquisition of assets under capitalized leases ............ $ -- $ -- $ 86 $ -- $ --
====== ====== ======== ======== ========
Net assets retained by stockholders ....................... $ -- $ -- $ -- $ -- $ 1,394
====== ====== ======== ======== ========
Accrued contributions from stockholders ................... $ -- $ -- $ -- $ -- $ 163
====== ====== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-72
<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. ("ResortQuest")
consummated its initial public offering and acquired all of the outstanding
stock of the Company in exchange for cash and shares of ResortQuest 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 and the purchase price for the Company was adjusted by certain
working capital adjustments.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Statements
The interim financial statements at May 26, 1998, and for the period
January 1 through May 26, 1998 and six months ended June 30, 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-73
<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-74
<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-75
<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
F-76
<PAGE>
COLLECTION OF FINE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
approximately $151,000, 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-77
<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):
<TABLE>
<S> <C>
Year ending December 31,
1998 ......................................... $ 28
1999 ......................................... 30
2000 ......................................... 140
2001 ......................................... 5
2002 ......................................... 3
Thereafter ................................... 121
----
327
Less current maturities ...................... 28
----
$299
====
</TABLE>
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 ResortQuest, 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 six months ended June
30, 1997 and the period January 1 through May 26, 1998, and for the year ended
December 31, 1997.
F-78
<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-79
<PAGE>
FIRST RESORT SOFTWARE, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, MAY 26,
1997 1998
-------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................................. $ 126 $ 108
Accounts receivable ........................................ 274 381
Notes receivable ........................................... 152 235
Prepaid expenses and other current assets .................. 45 33
----- ------
Total current assets ..................................... 597 757
PROPERTY AND EQUIPMENT, net ................................. 275 270
----- ------
Total assets ............................................. $ 872 $1,027
===== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Deferred revenue ........................................... $ 506 $ 579
Accounts payable and accrued liabilities ................... 130 146
----- ------
Total current liabilities ................................ 636 725
LONG-TERM OBLIGATIONS ....................................... 125 125
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1 par; 50,000 shares authorized; 3,000 shares
outstanding .............................................. 3 3
Additional paid in capital ................................. 13 13
Retained earnings .......................................... 95 161
----- ------
Total stockholders' equity ............................... 111 177
----- ------
Total liabilities and stockholders' equity ............... $ 872 $1,027
===== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-80
<PAGE>
FIRST RESORT SOFTWARE, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 1
YEAR ENDED SIX MONTHS THROUGH
DECEMBER 31, ENDED JUNE 30, MAY 26,
1997 1997 1998
------------- ---------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
REVENUES:
Software sales ..................................... $1,318 $ 618 $ 626
Service contracts .................................. 1,390 651 685
Other .............................................. 156 73 90
------ ------ ------
Total revenues ................................... 2,864 1,342 1,401
OPERATING EXPENSES .................................. 1,704 791 679
GENERAL AND ADMINISTRATIVE
EXPENSES ........................................... 417 200 313
------ ------ ------
Income from operations ............................. 743 351 409
OTHER INCOME:
Interest income .................................... 25 12 12
------ ------ ------
NET INCOME .......................................... $ 768 $ 363 $ 421
====== ====== ======
PRO FORMA DATA (unaudited -- Note 6):
Historical net income before income taxes .......... $ 768 $ 363 $ 421
Less: pro forma provision for income taxes ......... 307 145 168
------ ------ ------
PRO FORMA NET INCOME ................................ $ 461 $ 218 $ 253
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-81
<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) ................... -- -- -- 421 421
Distributions (unaudited) ................ -- -- -- (355) (355)
----- --- --- ------ ------
BALANCE, May 26, 1998 (unaudited) ......... 3,000 $ 3 $13 $ 161 $ 177
===== === === ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-82
<PAGE>
FIRST RESORT SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 1
YEAR ENDED SIX MONTHS THROUGH
DECEMBER 31, ENDED JUNE 30, MAY 26,
1997 1997 1998
-------------- ---------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................... $ 768 $ 330 $ 421
Adjustments to reconcile net income to net cash
provided by operating activities--
Depreciation ....................................... 45 24 66
Changes in operating assets and liabilities--
Accounts receivable ................................ (44) 24 (109)
Notes receivable ................................... (25) 23 (70)
Prepaid expenses and other current assets .......... 29 45 11
Deferred revenue ................................... 49 46 67
Accounts payable and accrued liabilities ........... (17) 101 23
------ ------ ------
Net cash provided by operating activities ......... 805 593 409
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ................... (183) (118) (72)
------ ------ ------
Net cash used in investing activities ............. (183) (118) (72)
------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on line of credit ........................... (39) (125) --
Distributions to stockholders ........................ (567) (225) (355)
------ ------ ------
Net cash used in financing activities ............. (606) (350) (355)
------ ------ ------
NET INCREASE IN CASH AND CASH
EQUIVALENTS .......................................... 16 125 (18)
CASH AND CASH EQUIVALENTS, beginning of
period ............................................... 110 110 126
------ ------ ------
CASH AND CASH EQUIVALENTS, end of
period ............................................... $ 126 $ 235 $ 108
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-83
<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. ("ResortQuest")
consummated its initial public offering and acquired all of the outstanding
stock of the Company in exchange for cash and shares of ResortQuest 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 and the purchase price for
the Company was adjusted for certain working capital adjustments.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Statements
The interim financial statements at May 26, 1998, and for the period
January 1 through May 26, 1998 and six months ended June 30, 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.
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-84
<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-85
<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 ResortQuest, 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 six months ended June
30, 1997 and the period January 1, through May 26, 1998, and for the year ended
December 31, 1997.
F-86
<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-87
<PAGE>
HOUSTON AND O'LEARY COMPANY
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, MAY 26,
1997 1998
-------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................ $259 $244
Accounts receivable .................................. 5 60
Receivables from stockholders ........................ 274 137
Prepaid expenses and other current assets ............ 45 37
---- ----
Total current assets ............................... 583 478
PROPERTY AND EQUIPMENT, net ........................... 157 73
---- ----
Total assets ....................................... $740 $551
==== ====
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt ...................................... $164 $102
Customer deposits and deferred revenue ............... 255 159
Capital lease obligations ............................ 50 --
Accounts payable and accrued liabilities ............. 86 168
---- ----
Total current liabilities .......................... 555 429
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1 par; 10,000 shares authorized;
200 shares outstanding ............................. -- --
Additional paid-in capital ........................... -- --
Retained earnings .................................... 185 122
---- ----
Total stockholders' equity ......................... 185 122
---- ----
Total liabilities and stockholders' equity ......... $740 $551
==== ====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-88
<PAGE>
HOUSTON AND O'LEARY COMPANY
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 1
YEAR ENDED SIX MONTHS THROUGH
DECEMBER 31, ENDED JUNE 30, MAY 26,
1997 1997 1998
-------------- ---------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
REVENUES:
Real estate commissions ............................ $1,170 $ 865 $557
Property rental fees ............................... 298 220 90
Other .............................................. 128 95 1
------ ----- -----
Total revenues ................................... 1,596 1,180 648
OPERATING EXPENSES .................................. 494 125 224
GENERAL AND ADMINISTRATIVE
EXPENSES ........................................... 322 240 118
------ ----- -----
Income from operations ........................... 780 815 306
OTHER INCOME (EXPENSE):
Interest expense, net .............................. (15) (9) (4)
------ ----- -----
NET INCOME .......................................... $ 765 $ 806 $302
====== ===== =====
PRO FORMA DATA
(unaudited -- Note 6)
Historical net income before income taxes .......... $ 765 $ 806 $302
Less: pro forma provision for income taxes ......... 306 322 121
------ ----- -----
PRO FORMA NET INCOME ................................ $ 459 $ 484 $181
====== ===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-89
<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) ................... -- -- 302 302
Distributions (unaudited) ................ -- -- (502) (502)
Contributions (unaudited) ................ -- -- 137 137
--- --- ------ ------
BALANCE, May 26, 1998 (unaudited) ......... 200 $-- $ 122 $ 122
=== === ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-90
<PAGE>
HOUSTON AND O'LEARY COMPANY
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 1
YEAR ENDED SIX MONTHS THROUGH
DECEMBER 31, ENDED JUNE 30, MAY 26,
1997 1997 1998
------------- ---------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ..................................................... $ 765 $ 806 $ 302
Adjustments to reconcile net income to net cash provided by
operating activities--
Depreciation ................................................. 48 24 7
Changes in operating assets and liabilities--
Receivable from stockholders ................................. 23 -- --
Prepaid expenses and other current assets .................... -- 43 8
Customer deposits and deferred revenue ....................... 21 (82) (96)
Accounts payable and accrued liabilities ..................... (46) 153 36
------ ------ -----
Net cash provided by operating activities ................... 811 944 257
------ ------ -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ............................. (57) (35) (3)
Proceeds from sale of property and equipment ................... -- 11 --
------ ------ -----
Net cash provided by (used in) investing activities ......... (57) (24) (3)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt ..................................... (43) (129) (113)
Distributions to stockholders .................................. (629) (737) (156)
------ ------ -----
Net cash used in financing activities ....................... (672) (866) (269)
------ ------ -----
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS .................................................... 82 54 (15)
CASH AND CASH EQUIVALENTS, beginning of period .................. 177 177 259
------ ------ -----
CASH AND CASH EQUIVALENTS, end of period ........................ $ 259 $ 231 $ 244
====== ====== =====
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest ......................................... $ 15 $ 10 $ 6
====== ====== =====
SUPPLEMENTAL DISCLOSURE OF NON-CASH
FINANCING ACTIVITIES:
Accrued contributions from stockholders ........................ $ -- $ -- $ 137
====== ====== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-91
<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. ("ResortQuest")
consummated its initial public offering and acquired all of the outstanding
stock of the Company in exchange for cash and shares of ResortQuest 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 and the purchase price for
the Company was adjusted for certain working capital adjustments.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Statements
The interim financial statements at May 26, 1998, and for the period
January 1 throuhg May 26, 1998 and six months ended June 30, 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-92
<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-93
<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 ResortQuest, 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 six months ended June
30, 1997 and the period January 1 through May 26, 1998, and for the year ended
December 31, 1997.
F-94
<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-95
<PAGE>
THE MAURY PEOPLE, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, MAY 26
1997 1998
-------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................... $ 297 $607
Cash held in escrow ..................................... 553 39
Prepaid expenses and other current assets ............... 19 15
----- ----
Total current assets ................................... 869 661
PROPERTY AND EQUIPMENT, net ............................... 99 87
----- ----
Total assets ........................................... $ 968 $748
===== ====
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Escrow deposits on real estate sales .................... $ 553 $ 75
Payable to property owners .............................. 103 257
Accounts payable and accrued liabilities ................ 224 276
----- ----
Total current liabilities .............................. 880 608
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY (DEFICIT):
Common Stock, no par; 1,000 shares authorized; 200 shares
issued ................................................. 1 1
Retained earnings (deficit) ............................. 87 139
----- ----
Total stockholder's equity (deficit) ................... 88 140
----- ----
Total liabilities and stockholder's equity (deficit) ... $ 968 $748
===== ====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-96
<PAGE>
THE MAURY PEOPLE, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS JANUARY 1
DECEMBER 31, ENDED JUNE 30, THROUGH
1997 1997 MAY 26,
-------------- ---------------- 1998
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
REVENUES:
Real estate commissions, net ....................... $ 829 298 259
Property rental fees, net .......................... 354 363 180
------ --- ---
Total revenues ................................... 1,183 661 439
OPERATING EXPENSES .................................. 211 115 89
GENERAL AND ADMINISTRATIVE
EXPENSES ........................................... 682 290 251
------ --- ---
Income from operations ............................. 290 256 99
OTHER INCOME:
Interest income, net ............................... 28 7 5
------ --- ---
NET INCOME .......................................... $ 318 $263 $104
====== ==== ====
PRO FORMA DATA (unaudited -- Note 7)
Historical net income before income taxes .......... $ 318 $263 $104
Less: pro forma provision for income taxes ......... 127 105 42
------ ---- ----
PRO FORMA NET INCOME ................................ $ 191 $158 $ 62
====== ==== ====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-97
<PAGE>
THE MAURY PEOPLE, INC.
STATEMENTS OF CHANGES IN STOCKHOLDER'S 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 $ 1 $ (84) $ (83)
Net income .............................. -- -- 318 318
Distributions ........................... -- -- (147) (147)
--- --- ------ ------
BALANCE, December 31, 1997 ............... 200 1 87 88
Net income (unaudited) .................. -- -- 104 104
Contributions (unaudited) ............... -- -- 136 136
Distributions (unaudited) ............... -- -- (188) (188)
--- --- ------ ------
BALANCE May 26, 1998 (unaudited) ......... 200 $ 1 $ 139 $ 140
=== === ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-98
<PAGE>
THE MAURY PEOPLE, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 1
YEAR ENDED SIX MONTHS THROUGH
DECEMBER 31, ENDED JUNE 30, MAY 26,
1997 1997 1998
-------------- ---------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................... $ 318 $ 263 $ 104
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation ....................................... 28 14 12
Changes in operating assets and liabilities-
Cash held in escrow ................................ (184) 351 632
Escrow deposits on real estate sales ............... 184 (359) (405)
Prepaid expenses and other current assets .......... (6) (83) 40
Due to property owners ............................. 32 197 --
Accounts payable and accrued liabilities ........... 1 663 (21)
------ ------ ------
Net cash provided by operating activities ......... 373 1,046 362
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ................... (77) (48) --
------ ------ ------
Net cash used in investing activities ............. (77) (48) --
------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable ........................... 50 -- --
Payments on note payable ............................. (50) -- --
Distributions to stockholders ........................ (147) (126) (52)
------ ------ ------
Net cash used in financing activities ............. (147) (126) (52)
------ ------ ------
NET INCREASE IN CASH AND CASH
EQUIVALENTS .......................................... 149 872 310
CASH AND CASH EQUIVALENTS, beginning of
period ............................................... 148 148 297
------ ------ ------
CASH AND CASH EQUIVALENTS, end of
period ............................................... $ 297 $1,020 $ 607
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-99
<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. ("ResortQuest") consummated
its initial public offering and acquired all of the outstanding stock of the
Company in exchange for cash and shares of ResortQuest 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 and the purchase price for
the Company was adjusted for certain working capital adjustments.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Statements
The interim financial statements at May 26, 1998, and for the period
January 1 through May 26, 1998 and six months ended June 30, 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.
F-100
<PAGE>
THE MAURY PEOPLE, 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 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-101
<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>
F-102
<PAGE>
THE MAURY PEOPLE, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
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.
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 ResortQuest, 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 six months ended June
30, 1997 and the period January 1 through May 26, 1998, and for the year ended
December 31, 1997.
F-103
<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-104
<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-105
<PAGE>
HOWEY ACQUISITION, INC. DBA PRISCILLA MURPHY REALTY, INC
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------- -------------------------
DECEMBER 31,
-------------------------- MAY 26,
1996 1997 1998
------------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................ $1,672 $ 904 $ 130
Cash held in trust ................................... 3,736 4,036 2,734
Advances to property owners .......................... 23 39 26
Prepaid expenses and other current assets ............ 3 60 9
------ ------- ------
Total current assets ............................... 5,434 5,039 2,899
PROPERTY AND EQUIPMENT, net ........................... 148 102 100
GOODWILL, net ......................................... -- 5,436 5,379
OTHER ASSETS, net ..................................... 181 187 183
------ ------- ------
Total assets ....................................... $5,763 $10,764 $8,561
====== ======= ======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt ................. $ 100 $ 803 $ 803
Customer deposits and deferred revenue ............... 3,736 4,036 2,734
Accounts payable and accrued liabilities ............. 45 305 314
------ ------- ------
Total current liabilities .......................... 3,881 5,144 3,851
LONG-TERM DEBT, net of current maturities
(including note payable to an affiliate of $0, $2,000
and $2,000, respectively)............................. 100 3,862 3,862
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 1,508 598
------ ------- ------
Total stockholders' equity ......................... 1,782 1,758 848
------ ------- ------
Total liabilities and stockholders' equity ......... $5,763 $10,764 $8,561
====== ======= ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-106
<PAGE>
HOWEY ACQUISITION, INC. DBA PRISCILLA MURPHY REALTY, INC
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------------- ------------------------------------------------
YEAR ENDED PERIOD
DECEMBER 31, JANUARY 3, 1997 SIX JANUARY 1
------------------- THROUGH MONTHS ENDED THROUGH
1995 1996 DECEMBER 31, 1997 JUNE 30,1997 MAY 26, 1998
--------- --------- ------------------- -------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Property rental fees ................... $2,347 $2,402 $ 2,514 $1,766 $1,815
Real estate commissions, net ........... 1,326 1,630 1,473 763 836
Service fees ........................... 643 689 753 490 497
------ ------ ------- ------ ------
Total revenues ....................... 4,316 4,721 4,740 3,019 3,148
OPERATING EXPENSES ...................... 1,319 1,314 1,184 545 482
GENERAL AND ADMINISTRATIVE
EXPENSES ............................... 2,257 2,125 1,866 910 949
------ ------ ------- ------ ------
Income from operations ................. 740 1,282 1,690 1,564 1,717
OTHER INCOME (EXPENSE):
Interest income (expense), net ......... 112 121 (182) (29) (17)
------ ------ ------- ------ ------
NET INCOME .............................. $ 852 $1,403 $ 1,508 $1,535 $1,700
====== ====== ======= ====== ======
PRO FORMA DATA (unaudited -- Note 7)
Historical net income before income
taxes ................................ $ 852 $1,403 $ 1,508 $1,535 $1,700
Less: pro forma provision for income
taxes ................................ 341 561 603 614 680
------ ------ ------- ------ ------
PRO FORMA NET INCOME .................... $ 511 $ 842 $ 905 $ 921 $1,020
====== ====== ======= ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-107
<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) ................... -- -- -- -- -- 1,700 1,700
Distributions (unaudited) ................ -- -- -- -- -- (2,610) (2,610)
BALANCE, May 26, 1998 (unaudited) ......... 40,000 $20 160,000 $ 80 $150 $ 598 $ 848
====== === ======= ==== ==== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-108
<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
activities ....................................... 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
activities ....................................... (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
======= =========
<CAPTION>
COMPANY
------------------------------------------------
PERIOD
JANUARY 3, 1997 SIX JANUARY 1
THROUGH MONTHS ENDED THROUGH
DECEMBER 31, 1997 JUNE 30, 1997 MAY 26, 1998
------------------ --------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................ $ 1,508 $ 1,535 $ 1,700
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization ....................... 203 102 75
Gain on sale of assets .............................. -- -- --
Changes in operating assets and liabilities ...........
Cash held in trust ................................... (300) 1,208 1,302
Advances to property owners .......................... (39) (26) 13
Prepaid expenses and other assets .................... (60) (5,747) 51
Customer deposits and deferred revenue ............... 300 (1,208) (1,302)
Accounts payable and accrued liabilities ............. 305 159 155
-------- --------- ---------
Net cash provided by (used in) operating
activities ....................................... 1,917 (3,977) 1,994
-------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net assets acquired (excluding cash) .................. (225) -- --
Purchase of property and equipment .................... -- (49) (11)
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) (49) (11)
-------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt .......................... 5,750 4,250 --
Payments on long-term debt ............................ (1,213) 699 (147)
Distributions to stockholders ......................... -- (1,844) (2,610)
Net proceeds from stock issuance ...................... 250 249 --
-------- --------- ---------
Net cash provided by (used in) financing
activities ....................................... 4,787 3,354 (2,757)
-------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASHEQUIVALENTS ....................................... 904 (672) (774)
CASH AND CASH EQUIVALENTS, beginning of
period ................................................ -- 1,672 904
-------- --------- ---------
CASH AND CASH EQUIVALENTS, end of
period ................................................ $ 904 $ 1,000 $ 130
======== ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid for interest ............................... $ 211 $ 106 $ 60
======== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-109
<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-110
<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. ("ResortQuest")
consummated its initial public offering and acquired all of the outstanding
stock of the Company in exchange for cash and shares of ResortQuest 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 and the purchase price for the Company was adjusted for certain
working capital adjustments.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Statements
The interim financial statements at May 26, 1998, and for the period
January 1 through May 26, 1998 and six months ended June 30, 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.
F-111
<PAGE>
HOWEY ACQUISITION, INC. DBA PRISCILLA MURPHY REALTY, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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.
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 Company's operations are exclusively in the Fort Myers/Sanibel and
Captiva Islands, Florida area and are subject to significant changes due to
weather conditions.
F-112
<PAGE>
HOWEY ACQUISITION, INC. DBA PRISCILLA MURPHY REALTY, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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.
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
payable; 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
imputed 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-113
<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 ResortQuest, 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 six months ended June
30, 1997 and January 1 through May 26, 1998, and for the year ended December 31,
1997.
F-114
<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-115
<PAGE>
RESORT PROPERTY MANAGEMENT, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, MAY 26,
1997 1998
--------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ...................................... $ 186 $ 8
Due from property owners ....................................... 60 --
Receivable from stockholders ................................... 10 92
Prepaid expenses and other current assets ...................... 22 8
------ -----
Total current assets ......................................... 278 108
NOTE RECEIVABLE ................................................. 54 54
PROPERTY AND EQUIPMENT, net ..................................... 203 287
------ -----
Total assets ................................................. $ 535 $ 449
====== =====
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current portion of long-term debt .............................. $ 171 $ --
Customers deposits and deferred revenue ........................ 233 66
Payable to property owners ..................................... 36 --
Accounts payable and accrued liabilities ....................... 32 273
------ -----
Total current liabilities .................................... 472 339
DEFERRED TAXES .................................................. 3 --
LONG-TERM DEBT, net of current portion .......................... 310 149
------ -----
Total liabilities ............................................ 785 488
------ -----
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, no par; 100,000 shares authorized; 51,000
shares outstanding ........................................... 26 26
Retained earnings (deficit) .................................... (276) (65)
------ -----
Total stockholders' equity (deficit) ......................... (250) (39)
------ -----
Total liabilities and stockholders' equity (deficit) ......... $ 535 $ 449
====== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-116
<PAGE>
RESORT PROPERTY MANAGEMENT, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS OCTOBER 1
YEAR ENDED ENDED THROUGH
SEPTEMBER 30, JUNE 30, MAY 26,
1997 1997 1998
-------------- ------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
REVENUES:
Property rental fees .............................. $1,930 $1,866 $1,728
Service fees ...................................... 365 303 325
------ ------ ------
Total revenues .................................. 2,295 2,169 2,053
OPERATING EXPENSES ................................. 1,560 1,372 1,227
GENERAL AND ADMINISTRATIVE EXPENSES ................ 627 523 493
------ ------ ------
Income from operations .......................... 108 274 333
OTHER INCOME:
Interest income (expense) net ..................... 7 28 18
Gain on sale of land .............................. 210 -- --
------ ------ ------
Income before taxes ............................. 325 302 351
PROVISION FOR INCOME TAX ........................... 75 56 140
------ ------ ------
NET INCOME ......................................... $ 250 $ 246 $ 211
====== ====== ======
PRO FORMA DATA (unaudited -- Note):
Historical net income before income taxes ......... $ 325 $ 302 $ 351
Less: Pro forma provision for income taxes ........ 130 121 140
------ ------ ------
PRO FORMA NET INCOME ............................... $ 195 $ 181 $ 211
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-117
<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) ................... -- -- 211 211
-- --- ------ ------
BALANCE, May 26, 1998 (unaudited) ......... 51 $26 $ (65) $ (39)
== === ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-118
<PAGE>
RESORT PROPERTY MANAGEMENT, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
OCTOBER 1
YEAR ENDED NINE MONTHS THROUGH
SEPTEMBER 30, ENDED JUNE 30, MAY 26,
1997 1997 1998
-------------- ---------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................................ $ 250 $ 246 $ 211
Adjustments to reconcile net income to net cash provided by
operating activities--
Depreciation .................................................... 36 23 36
Gain on sale of land ............................................ (210) -- --
Changes in operating assets and liabilities--
Due from property owners ........................................ (24) (78) (20)
Prepaid expenses and other current assets ....................... (3) (20) 15
Customer deposits and deferred revenue .......................... (50) (215) (167)
Payable to property owners ...................................... 16 (45) --
Deferred tax liability .......................................... 3 -- --
Accounts payable and accrued liabilities ........................ 28 (98) 199
------- ----- ------
Net cash provided by operating activities ...................... 46 (187) 274
------- ----- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Note receivable ................................................... (54) -- --
Purchase of property and equipment ................................ (179) (144) (120)
Proceeds from sale of office equipment, vehicles and land ......... 335 335 --
------- ----- ------
Net cash provided by (used in) investing activities ............ 102 191 (120)
------- ----- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt ...................................... 493 447 --
Payments on long-term debt ........................................ (451) (447) (332)
Proceeds/payment on receivables from stockholders ................. (10) (10) --
------- ----- ------
Net cash provided by (used in) financing activities ............ 32 (10) (332)
------- ----- ------
NET INCREASE IN CASH AND CASH EQUIVALENTS .......................... 180 (6) (178)
CASH AND CASH EQUIVALENTS, beginning of period ..................... 6 6 186
------- ----- ------
CASH AND CASH EQUIVALENTS, end of period ........................... $ 186 $ -- $ 8
======= ===== ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW: ..............................
Cash paid for interest ............................................ $ 25 $ 12 $ 2
======= ===== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-119
<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. ("ResortQuest")
consummated its initial public offering and acquired all of the outstanding
stock of the Company in exchange for cash and shares of ResortQuest 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 retain
non-operating assets and assumed or retired certain liabilities that were
excluded from the Combination and the purchase price for the Company was
adjusted for certain working capital adjustments.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Statements
The interim financial statements at May 26, 1998, and for the period
January 1 through May 26, 1998 and nine months ended June 30, 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-120
<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-121
<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>
F-122
<PAGE>
RESORT PROPERTY MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
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 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-123
<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-124
<PAGE>
TELLURIDE RESORT ACCOMMODATIONS, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, MAY 26,
1997 1998
-------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ...................................... $2,103 $ 358
Accounts receivable ............................................ 392 475
Due from property owners ....................................... 152 --
Prepaid expenses and other current assets ...................... 12 37
------ -----
Total current assets ......................................... 2,659 870
PROPERTY AND EQUIPMENT, net ..................................... 62 109
------ -----
Total assets ................................................. $2,721 $ 979
====== =====
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Line of credit ................................................. $ 194 $ --
Customer deposits and deferred revenue ......................... 2,096 500
Payable to property owners ..................................... 640 --
Accounts payable and accrued liabilities ....................... 209 346
------ -----
Total current liabilities .................................... 3,139 846
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Common Stock, no par; 1,000,000 shares authorized; 15,000 shares
outstanding .................................................. 216 216
Retained equity (deficit) ...................................... (634) (83)
------ -----
Total stockholders' equity (deficit) ......................... (418) 133
------ -----
Total liabilities and stockholders' equity (deficit) ......... $2,721 $ 979
====== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-125
<PAGE>
TELLURIDE RESORT ACCOMMODATIONS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 1
YEAR ENDED SIX MONTHS THROUGH
DECEMBER 31, ENDED JUNE 30, MAY 26,
1997 1997 1998
------------- ---------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
REVENUES:
Property rental fees ................................. $3,204 $2,102 $2,101
Service fees ......................................... 1,109 636 648
------ ------ ------
Total revenues ..................................... 4,313 2,738 2,749
OPERATING EXPENSES .................................... 3,037 1,611 1,575
GENERAL AND ADMINISTRATIVE EXPENSES ................... 1,030 501 458
------ ------ ------
Income from operations ............................. 246 626 716
OTHER INCOME:
Interest income, net ................................. 31 25 35
------ ------ ------
NET INCOME ............................................ $ 277 $ 651 $ 751
====== ====== ======
PRO FORMA DATA (unaudited -- Note 7):
Historical net income (loss) before income taxes ..... $ 277 $ 651 $ 751
Less: pro forma provision for income taxes ........... 111 260 300
------ ------ ------
PRO FORMA NET INCOME (LOSS) ........................... $ 166 $ 391 $ 451
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-126
<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) ................... -- -- 751 751
Distributions (unaudited) ................ -- -- (200) (200)
------ ---- ------ ------
BALANCE, May 26, 1998 (unaudited) ......... 15,000 $216 $ (83) $ 133
====== ==== ====== ======
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-127
<PAGE>
TELLURIDE RESORT ACCOMMODATIONS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 1
YEAR ENDED SIX MONTHS THROUGH
DECEMBER 31, ENDED JUNE 30, MAY 26,
1997 1997 1998
------------- ---------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................. $ 277 $ 651 $ 751
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation ............................................... 48 24 20
Changes in operating assets and liabilities
Accounts receivable ...................................... 35 255 291
Prepaid expenses and other current assets ................ 15 20 (26)
Payable to property owners, net .......................... 19 (603) (861)
Customer deposits and deferred revenue ................... 28 (1,810) (1,596)
Accounts payable and accrued liabilities ................. 299 524 89
------ -------- --------
Net cash provided by (used in) operating activities ..... 721 (939) (1,332)
------ -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ......................... (25) (120) (67)
------ -------- --------
Net cash used in investing activities ................... (25) (120) (67)
------ -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payments on) line of credit ................. 93 -- (146)
Distributions to stockholders .............................. (300) (93) (200)
------ -------- --------
Net cash used in financing activities ................... (207) (93) (346)
------ -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ................................................ 489 (1,152) (1,745)
CASH AND CASH EQUIVALENTS, beginning of period .............. 1,614 1,614 2,103
------ -------- --------
CASH AND CASH EQUIVALENTS, end of period .................... $2,103 $ 462 $ 358
====== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-128
<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. ("ResortQuest")
consummated its initial public offering and acquired all of the outstanding
stock of the Company in exchange for cash and shares of ResortQuest common stock
(the "Combination"). Certain stockholders retained non-operating assets and
assumed or retired certain liabilities that were excluded from the Combination
and the purchase price for the Company was adjusted for certain working capital
adjustments.
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-129
<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-130
<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 ResortQuest, 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 six months ended June 30, 1997
and January 1 through May 26, 1998, and for the year ended December 31, 1997.
F-131
<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-132
<PAGE>
TRUPP HODNETT COMPANY
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MAY 26,
1996 1997 1998
--------- --------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................ $ 144 $ 293 $ 406
Cash held in trust ................................... 321 347 642
Accounts receivable .................................. 69 100 69
Receivables from stockholders and employees .......... 111 32 15
Prepaid expenses and other current assets ............ 17 31 72
------ ------ ------
Total current assets ............................... 662 803 1,204
PROPERTY AND EQUIPMENT, net ........................... 245 259 282
OTHER ASSETS .......................................... 305 -- --
------ ------ ------
Total assets ....................................... $1,212 $1,062 $1,486
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt ...................................... $ 345 $ -- $ --
Customer deposits and deferred revenue ............... 290 331 641
Payable to property owners ........................... 31 16 1
Accounts payable and accrued liabilities ............. 130 191 341
Payable to stockholders .............................. -- -- 221
------ ------ ------
Total current liabilities .......................... 796 538 1,204
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par; 2,000 shares
authorized; 200 shares outstanding ................. 17 17 17
Retained earnings .................................... 399 507 265
------ ------ ------
Total stockholders' equity ......................... 416 524 282
------ ------ ------
Total liabilities and stockholders' equity ......... $1,212 $1,062 $1,486
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-133
<PAGE>
TRUPP HODNETT COMPANY
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 1
YEAR ENDED SIX MONTHS THROUGH
DECEMBER 31, ENDED JUNE 30, MAY 26,
------------------------ ---------------- ------------
1996 1997 1997 1998
--------- ------------ ---------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Property rental fees ..................................... $2,508 $2,809 $1,320 $1,169
Real estate commissions, net ............................. 673 892 399 698
Service fees ............................................. 250 360 196 102
------ ------ ------ ------
Total revenues ......................................... 3,431 4,061 1,915 1,969
OPERATING EXPENSES ........................................ 1,652 1,838 831 901
GENERAL AND ADMINISTRATIVE
EXPENSES ................................................. 1,653 2,024 999 1,071
------ ------ ------ ------
Income from operations ................................. 126 199 85 (3)
OTHER INCOME (EXPENSE):
Interest expense, net .................................... (19) (5) 40 1
Gain on sale of assets ................................... -- 52 -- --
------ ------ ------ -------
Income before income taxes ............................. 107 246 125 (2)
PROVISION FOR INCOME TAXES ................................ 12 60 23 --
------ ------ ------ -------
NET INCOME ................................................ $ 95 $ 186 $ 102 $ (2)
====== ====== ====== =======
PRO FORMA DATA
(unaudited -- Note 9)
Historical net income (loss) before income taxes ......... $ 107 $ 246 $ 125 $ (2)
Less: pro forma provision for income taxes ............... 43 98 50 (1)
------ ------ ------ --------
PRO FORMA NET INCOME ...................................... $ 64 $ 148 $ 75 $ (1)
====== ====== ====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-134
<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 loss (unaudited) ..................... -- -- (2) (2)
Distributions (unaudited) ................ -- -- (240) (240)
--- --- ------- -------
BALANCE, May 26, 1998 (unaudited) ......... 200 $17 $ 265 $ 282
=== === ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-135
<PAGE>
TRUPP HODNETT COMPANY
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 1
YEARS ENDED SIX MONTHS THROUGH
DECEMBER 31, ENDED JUNE 30, MAY 26,
---------------------- ---------------- ----------
1996 1997 1997 1998
----------- -------- ---------------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................... $ 95 $ 186 $ 102 $ (2)
Adjustments to reconcile net income to net cash
provided by
operating activities--
Depreciation ...................................... 83 85 44 29
Gain on sale of assets ............................ -- (52) -- --
Changes in operating assets and liabilities--
Cash held in trust ................................. (321) (26) 321 (295)
Accounts receivable ................................ (17) (31) (364) 31
Receivables from stockholder and employees ......... (8) 79 -- 17
Prepaid expenses and other current assets .......... (7) (14) 16 (41)
Customer deposits and deferred revenue ............. 290 41 (290) 310
Payable to property owners ......................... 31 (15) (31) (15)
Accounts payable and accrued liabilities ........... 50 61 228 150
------- ----- ------ ------
Net cash provided by (used in) operating
activities ...................................... 196 314 26 184
------- ----- ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ................... (58) (99) (283) (52)
Purchase of other assets ............................. (40) (80) -- --
Proceeds from sale of other assets ................... -- 105 305 --
------- ----- ------ ------
Net cash provided by (used in) investing
activities ...................................... (98) (74) 22 (52)
------- ----- ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term debt ........................ -- 84 -- --
Payments on short-term debt .......................... (73) (97) (345) --
Distributions to stockholders ........................ -- (78) 224 (19)
------- ----- ------ ------
Net cash (used in) provided by financing
activities ...................................... (73) (91) (121) (19)
------- ----- ------ ------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ..................................... 25 149 (73) 113
CASH AND CASH EQUIVALENTS, beginning of
period ............................................... 119 144 144 293
------- ----- ------ ------
CASH AND CASH EQUIVALENTS, end of period $ 144 $ 293 $ 71 $ 406
======= ===== ====== ======
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid for interest ............................... $ 35 $ 18 $ 20 $ 2
======= ===== ====== ======
Cash paid for income taxes ........................... $ 8 $ 1 $ 4 $ --
======= ===== ====== ======
SUPPLEMENTAL DISCLOSURE OF NON-CASH
FINANCING ACTIVITIES:
Accrued distribution to stockholders ................. $ -- $ -- $ -- $ 221
======= ===== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-136
<PAGE>
TRUPP HODNETT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
(IN THOUSANDS)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING 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-137
<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. ("ResortQuest")
consummated its initial public offering and acquired all of the outstanding
stock of the Company in exchange for cash and shares of ResortQuest 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 and the purchase price for the Company was adjusted for certain
working capital adjustments.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Statements
The interim financial statements at May 26, 1998, and for the period
January 1 through May 26, 1998 and six months ended June 30, 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.
F-138
<PAGE>
TRUPP HODNETT COMPANY
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
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 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-139
<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-140
<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-141
<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 ResortQuest, 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 six months ended June 30,
1997 and January 1 through May 26, 1998 and for the year ended December 31,
1997.
F-142
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(PRE-OFFERING COMPANY REPORT)
To ResortQuest International, Inc.:
We have audited the accompanying balance sheet of ResortQuest
International, Inc. (a Delaware Corporation), 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-143
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
(PRE-OFFERING COMPANY)
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JANUARY 1
THROUGH
DECEMBER 31, MAY 26,
1997 1998
-------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS ................................................ $ -- $ --
DEFERRED OFFERING COSTS .................................................. 244 3,525
---- --------
Total Assets .......................................................... $244 $ 3,525
==== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
AMOUNTS DUE TO VPI FUNDING, LLC .......................................... $ -- $ 1,210
ACCRUED LIABILITIES ...................................................... 244 3,255
---- --------
Total liabilities ..................................................... 244 4,465
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 ........................................................ -- (6,072)
---- --------
Total stockholders' equity ............................................ -- (940)
---- --------
Total liabilities and stockholders' equity ............................ $244 $ 3,525
==== ========
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-144
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
(PRE-OFFERING COMPANY)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1, 1998
THROUGH MAY 26, 1998 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<S> <C>
Revenues .................................... $ --
General and Administrative Expenses ......... 6,072
--------
Loss before income taxes ................... (6,072)
Income Tax Benefit .......................... --
--------
Net Loss .................................... $ (6,072)
========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-145
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
(PRE-OFFERING COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 1, 1998 THROUGH MAY 26, 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) ....................... -- -- -- (6,072) (6,072)
--------- --- ------ -------- --------
BALANCE, May 26, 1998 (unaudited) ........... 3,134,630 $-- $5,132 $ (6,072) $ (940)
========= === ====== ======== ========
Reflects an 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-146
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
(PRE-OFFERING COMPANY)
STATEMENT OF CASH FLOWS
PERIOD FROM JANUARY 1, 1998 THROUGH MAY 26, 1998 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<S> <C>
Cash Flows From Operating Activities:
Net loss ............................................... $ (6,072)
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 .................. (3,281)
Increase in accrued liabilities and amounts due to VPI
Funding, LLC ........................................ 4,221
--------
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-147
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
(PRE-OFFERING COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. GENERAL:
ResortQuest International, Inc., a Delaware Corporation, ("ResortQuest" 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. ResortQuest 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. However, for accounting and reporting purposes,
Aston Hotels & Resorts ("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, these financial statements
present the financial results of ResortQuest prior to the Combinations and the
Offering.
ResortQuest 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 May 26, 1998 and
December 31, 1997, costs of approximately $3,525,000 (unaudited) and $244,000,
respectively, have been incurred by ResortQuest in connection with the Offering
of which approximately $1,210,000 (unaudited) and $0, respectively were due to
VPI.
2. STOCKHOLDERS' EQUITY:
Interim Financial Statements
The interim financial statements as of May 26, 1998, and for the period
January 1 through May 26, 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
ResortQuest, 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.
F-148
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
(PRE-OFFERING COMPANY)
NOTES TO FINANCIAL STATEMENTS- (CONTINUED)
ResortQuest effected an 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.
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.
F-149
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
(PRE-OFFERING COMPANY)
NOTES TO FINANCIAL STATEMENTS- (CONTINUED)
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.
4. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED)
ResortQuest 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 ResortQuest 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-150
<PAGE>
<TABLE>
<S> <C>
========================================================== =============================================
PROSPECTIVE INVESTORS SHOULD RELY
ONLY ON THE INFORMATION CONTAINED IN
THIS PROSPECTUS. RESORTQUEST HAS NOT
AUTHORIZED ANYONE TO PROVIDE PROSPECTIVE 3,000,000 SHARES
INVESTORS WITH INFORMATION DIFFERENT
FROM THAT CONTAINED IN THIS PROSPECTUS.
THIS PROSPECTUS IS NOT AN OFFER TO SELL
NOR IS IT SEEKING AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE
OFFER OR SALE IS NOT PERMITTED. THE RESORTQUEST
INFORMATION CONTAINED IN THIS PROSPECTUS INTERNATIONAL, INC.
IS CORRECT ONLY AS OF THE DATE OF THIS
PROSPECTUS, REGARDLESS OF THE TIME OF
THE DELIVERY OF THIS PROSPECTUS OR ANY
SALE OF THESE SECURITIES.
-------------------------- COMMON STOCK
TABLE OF CONTENTS
<CAPTION>
PAGE
----------
<S> <C>
Prospectus Summary ....................... 5
Risk Factors ............................. 11
The Company .............................. 18
Price Range of Common Stock .............. 22 [GRAPHIC OMITTED]
Dividend Policy .......................... 22
Selected Financial Data .................. 23
Management's Discussion and Analysis
of Financial Condition and Results of
Operations ............................ 25
Business ................................. 48 -----------------
Management ............................... 57 P R O S P E C T U S
Certain Transactions ..................... 65
Principal Stockholders ................... 72 , 1998
Description of Capital Stock ............. 73
Shares Eligible for Future Sale .......... 76 -----------------
Plan of Distribution ..................... 78
Legal Matters ............................ 79
Experts .................................. 79
Available Information .................... 79
Index to Financial Statements ............ F-1
=========================================================== ===========================================
</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 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.
II-1
<PAGE>
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 has entered 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 obtained 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
Consultants, 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
Management, 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.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ----------
<S> <C> <C>
2.15 -- Stock Purchase Agreement, dated at September 11, 1998, by and among ResortQuest
International, Inc., Abbott Realty Services, Inc., Tops'l Sales Group Inc., William W. Abbott, Jr.,
Stephen J. Abbott, James R. Steiner, Charles H. Van Driver, Sue C. Van Driver and Angus G.
Andrews.
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.).
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. Comfort,
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
Children's 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(5) -- 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(5) -- 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.
10.23 -- Promissory note by the Company, dated September 30, 1998.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ----------
<S> <C> <C>
10.24 -- Amendment to Credit Agreement, dated September 30, 1998, among ResortQuest International,
Inc. as Borrower and the Financial Institutions named thereon (the "Bank") and NationsBank,
N.A., as Agent for the Banks.
10.25 -- Consulting Agreement, dated as of September 30, 1998, by and among Abbott Realty Services,
Inc. and William W. Abbott, Jr.
10.26 -- Letter Agreement, dated September 30, 1998, between the Company and Abbott Resorts.
21(2) -- Subsidiaries of the Company.
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of Arthur Andersen LLP.
23.3 -- Consent of Morrison, Brown, Argiz and Company.
23.4 -- Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
24(5) -- Powers of Attorney (included on signature page).
27 -- 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.
(5) Previously filed on June 11, 1998 as an exhibit to the Company's
Registration Statement on Form S-1 (File No. 333-56703) and incorporated
herein by reference.
(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 16th day
of October, 1998.
RESORTQUEST INTERNATIONAL, INC.
By: /s/ Jeffery M. Jarvis
----------------------------------------
Jeffery M. Jarvis
Chief Financial Officer
RESORTQUEST INTERNATIONAL, INC.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
David C. Sullivan* Chief Executive Officer, Director October 16, 1998
- -----------------------------
David C. Sullivan
(Principal Executive Officer)
/s/ Jeffery M. Jarvis Senior Vice President and Chief October 16, 1998
- ----------------------------- Financial Officer
Jeffery M. Jarvis
(Principal Financial and
Accounting Officer)
David L. Levine* President and Chief Operating October 16, 1998
- ----------------------------- Officer, Director
David L. Levine
Luis Alonso* Director October 16, 1998
- -----------------------------
Luis Alonso
Douglas R. Brindley* Director October 16, 1998
- -----------------------------
Douglas R. Brindley
Paul T. Dobson* Director October 16, 1998
- -----------------------------
Paul T. Dobson
Director October 16, 1998
- -----------------------------
Sharon Benson Doucette
Evan H. Gull* Director October 16, 1998
- -----------------------------
Evan H. Gull
Heidi O'Leary Houston* Director October 16, 1998
- -----------------------------
Heidi O'Leary Houston
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Director October 16, 1998
- ---------------------------
Daniel L. Meehan
J. Patrick McCurdy* Director October 16, 1998
- ---------------------------
J. Patrick McCurdy
Andre S. Tatibouet* Director October 16, 1998
- ---------------------------
Andre S. Tatibouet
Hans F. Trupp* Director October 16, 1998
- ---------------------------
Hans F. Trupp
Director October 16, 1998
- ---------------------------
Park Brady
Joshua M. Freeman* Director October 16, 1998
- ---------------------------
Joshua M. Freeman
Charles O. Howey* Director October 16, 1998
- ---------------------------
Charles O. Howey
Michael D. Rose* Director October 16, 1998
- ---------------------------
Michael D. Rose
Joseph V. Vittoria* Director October 16, 1998
- ---------------------------
Joseph V. Vittoria
Theodore L. Weise* Director October 16, 1998
- ---------------------------
Theodore L. Weise
Elan J. Blutinger* Director October 16, 1998
- ---------------------------
Elan J. Blutinger
D. Fraser Bullock* Director October 16, 1998
- ---------------------------
D. Fraser Bullock
</TABLE>
*By: /s/ Jeffery M. Jarvis
-----------------------
Jeffery M. Jarvis
Attorney-In-Fact
II-7
<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 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
Consultants, 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
Management, 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.
2.15 -- Stock Purchase Agreement, dated at September 11, 1998, by and among ResortQuest
International, Inc., Abbott Realty Services, Inc. Tops'l Sales Group Inc., William W. Abbott, Jr.,
Stephen J. Abbott, James R. Steiner, Charles H. Van Driver, Sue C. Van Driver and Angus G.
Andrews.
3.1(1) -- Certificate of Incorporation, as amended.
3.2(1) -- Bylaws, as amended.
</TABLE>
<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. Comfort, 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 Children's 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(5) -- 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 by the Company, dated January 8, 1998.
10.22(5) -- Credit Agreement dated as of May 26, 1998, in the amount of $30 million.
10.23 -- Promissory note by the Company, dated September 30, 1998.
10.24 -- Amendment to Credit Agreement, dated September 30, 1998, among ResortQuest International,
Inc. as Borrower and the Financial Institutions named thereon (the "Bank") and NationsBank,
N.A., as Agent for the Banks.
10.25 -- Consulting Agreement, dated as of September 30, 1998, by and among Abbott Realty Services,
Inc. and William W. Abbott, Jr.
10.26 -- Letter Agreement, dated September 30, 1998, between the Company and Abbott Resorts.
21(2) -- Subsidiaries of the Company.
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of Arthur Andersen LLP.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
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<S> <C> <C>
23.3 -- Consent of Morrison, Brown, Argiz and Company.
23.4 -- Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
24(5) -- Powers of Attorney (included on signature page).
27 -- 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.
(5) Previously filed on June 11, 1998 as an exhibit to the Company's
Registration Statement on form S-1 (File No. 333-56703) and incorporated
herein by reference.
Exhibit 2.15
STOCK PURCHASE AGREEMENT
BY AND AMONG
RESORTQUEST INTERNATIONAL, INC.
AND
ABBOTT REALTY SERVICES, INC.,
TOPS'L SALES GROUP, INC.
AND
THE SHAREHOLDERS LISTED ON THE
SIGNATURE PAGES HERETO
DATED AS OF SEPTEMBER 11, 1998
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I. SALE AND TRANSFER OF STOCK; CLOSING; AGREEMENTS..................1
1.1 Stock............................................................1
1.2 Purchase Price; Escrowed Funds...................................1
1.3 Employment Agreements and Consulting Agreements..................3
1.4 Closing..........................................................3
1.5 Closing Obligations..............................................3
1.6 Buyer Stock Transfer Restrictions................................5
1.7 Subscription Agreement...........................................6
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF SELLERS........................7
2.1 Organization, Qualification, etc.................................7
2.2 Subsidiaries.....................................................7
2.3 Capitalization...................................................8
2.4 Corporate Record Books...........................................8
2.5 Title to Stock...................................................8
2.6 Options and Rights...............................................9
2.7 Authorization, Etc...............................................9
2.8 No Violation; Consents and Approvals.............................9
2.9 Financial Statements; Undisclosed Liabilities...................10
2.10 Customer Deposits...............................................10
2.11 Employees.......................................................10
2.12 Absence of Changes..............................................11
2.13 Contracts.......................................................12
2.14 Real Estate and Personal Property Matters.......................15
2.15 Litigation......................................................15
2.16 Tax Matters.....................................................16
2.17 Compliance with Regulations and Orders; Permits; Affiliations...17
2.18 ERISA and Related Matters.......................................17
2.19 Intellectual Property...........................................19
2.20 Environmental Matters...........................................20
2.21 Banking Arrangements............................................21
2.22 Insurance.......................................................21
2.23 Inventories.....................................................21
2.24 Brokerage.......................................................21
2.25 Improper and Other Payments.....................................22
2.26 Financial Condition as of Effective Date........................22
2.27 Disclosure......................................................22
2.28 Significant Customers and Suppliers; Material
Plans and Commitments.................................22
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF BUYER ........................23
3.1 Corporate Organization, Etc.....................................23
3.2 Authorization, Etc..............................................23
i
<PAGE>
3.3 No Violation....................................................23
3.4 Governmental Authorities........................................23
3.5 Brokerage.......................................................24
3.6 Disclosure......................................................24
ARTICLE IV. COVENANTS OF THE COMPANIES AND THE SELLERS......................24
4.1 Regular Course of Business......................................24
4.2 Certain Restrictions............................................24
4.3 Cash and Cash Equivalents.......................................25
4.4 Interim Financial Information...................................25
4.5 Full Access and Disclosure......................................25
4.6 Fulfillment of Conditions Precedent.............................26
4.7 Tax Returns.....................................................26
4.8 No Solicitation or Negotiation..................................26
4.9 Public Announcements............................................26
4.10 Termination of Agreements.......................................27
ARTICLE V. COVENANTS OF BUYER..............................................27
5.1 Full Access and Disclosure......................................27
5.2 Rule 145 Best Efforts...........................................27
5.3 Release and Assumption of Guarantees............................27
ARTICLE VI. OTHER AGREEMENTS................................................28
6.1 Further Assurances..............................................28
6.2 Consents........................................................28
6.3 No Termination of Sellers' Obligations by Subsequent
Incapacity, Etc........................................28
6.4 Confidentiality.................................................28
6.5 Non Competition Covenant........................................29
6.6 Non-disclosure; Confidentiality.................................31
6.7 Buyer Stock Option Plan.........................................32
6.8 Retention Bonuses to certain Cathedral Employees................33
6.9 Subsequent Controlled Affiliate Properties......................33
6.10 Information as to 401(k) Plans..................................33
ARTICLE VII. CONDITIONS TO THE OBLIGATIONS OF THE BUYER......................33
7.1 Representations and Warranties; Covenants and Agreements........33
7.2 No Injunction...................................................33
7.3 Third Party Consents............................................34
7.4 Regulatory Approvals............................................34
7.5 No Material Adverse Change......................................34
7.6 Directors and Officers..........................................34
7.7 Indebtedness....................................................34
7.8 Due Diligence. ................................................34
7.9 FIRPTA Certificate..............................................34
7.10 Sellers' Closing Documents......................................35
ii
<PAGE>
7.11 Hart-Scott-Rodino Act...........................................35
7.12 Management Agreements...........................................35
7.13 Termination of Certain Agreements and Plans.....................35
7.14 Leased Premises.................................................35
7.15 Grant of License................................................35
ARTICLE VIII. CONDITIONS TO THE OBLIGATIONS OF THE SELLERS....................35
8.1 Representations and Warranties; Performance.....................35
8.2 No Injunction...................................................36
8.3 Purchase Price..................................................36
8.4 Buyer's Closing Documents.......................................36
ARTICLE IX. TERMINATION AND ABANDONMENT.....................................36
9.1 Methods of Termination..........................................36
9.2 Procedure Upon Termination......................................36
9.3 Breakup Fee.....................................................37
ARTICLE X. SURVIVAL OF TERMS; INDEMNIFICATION..............................37
10.1 Survival; Knowledge.............................................37
10.2 Indemnification by the Sellers..................................38
10.3 Indemnification by Buyer........................................39
10.4 Third Party Claims..............................................39
10.5 Limitation on Indemnification...................................40
10.6 Payment of Sellers' Indemnification Obligations.................41
10.7 Survival of Indemnification.....................................42
ARTICLE XI. MISCELLANEOUS PROVISIONS........................................42
11.1 Amendment and Modification......................................42
11.2 Entire Agreement................................................42
11.3 Certain Definitions.............................................42
11.4 Notices.........................................................48
11.5 Exhibits and Schedules..........................................49
11.6 Waiver of Compliance; Consents..................................49
11.7 Assignment......................................................49
11.8 Governing Law...................................................49
11.9 Consent to Jurisdiction; Service of Process.....................49
11.10 Injunctive Relief...............................................49
11.11 Headings........................................................49
11.12 Pronouns and Plurals............................................50
11.13 Construction....................................................50
11.14 Dealings in Good Faith; Best Efforts............................50
11.15 Binding Effect..................................................50
11.16 Delays or Omissions.............................................50
11.17 Severability....................................................50
11.18 Expenses........................................................50
11.19 Attorneys' Fees.................................................50
iii
<PAGE>
11.20 Counterparts....................................................51
11.21 Completion of Schedules or Exhibits.............................51
iv
<PAGE>
SCHEDULES
Schedule 1.2 Allocation of Purchase Price
Schedule 1.3 Employees and Consultants
Schedule 1.5 Converted Property Units
Schedule 2.1 Organization, Qualification, etc.
Schedule 2.2 Subsidiaries
Schedule 2.3 Authorized Capital Stock of each Company
Schedule 2.5 Title to Stock
Schedule 2.6 Options and Rights
Schedule 2.8 No Violations; Consents and Approvals
Schedule 2.9 Financial Statements; Undisclosed Liabilities
Schedule 2.10 Customer Deposits
Schedule 2.11 Employees
Schedule 2.13 Contracts
Schedule 2.14 Real Estate
Schedule 2.15 Litigation
Schedule 2.16 Tax Matters
Schedule 2.17 Compliance With Regulations and Orders; Permits; Affiliations
Schedule 2.18 Employee Benefits and Related Matters
Schedule 2.19 Intellectual Property
Schedule 2.20 Environmental Matters
Schedule 2.21 Banking Arrangements
Schedule 2.22 Insurance
Schedule 2.25 Improper and Other Payments
Schedule 2.28 Significant Customers and Suppliers; Material Plans and
Commitments
Schedule 3.5 Buyer's Broker
Schedule 4.1 Exceptions to Ordinary Course of Business
Schedule 4.2 Capital Expenditures
Schedule 4.10 Certain Agreements
Schedule 6.4 Confidentiality Agreement
Schedule 6.8 Employee Retention Bonuses
Schedule 7.7 Cathedral Group Creditors
Schedule 7.14 Leased Premises
Schedule 10.5(a) Exceptions to the Buyer Indemnified Parties Indemnification
v
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") is made and entered into as of
September 11, 1998 by and among RESORTQUEST INTERNATIONAL, INC., a Delaware
corporation ("RQI"), or a wholly-owned direct or indirect subsidiary
thereof ("Acquisition Sub"; Acquisition Sub and RQI are sometimes
hereinafter referred to collectively as "Buyer"), TOPS'L SALES GROUP, INC.,
a Florida corporation ("Chapel"), ABBOTT REALTY SERVICES, INC., a Florida
corporation ("Cathedral"; and together with Chapel, the "Companies"), and
the stockholders listed on the signature pages hereto (collectively, the
"Sellers").
RECITALS
WHEREAS, the members of the Cathedral Group are engaged in the business of
providing vacation property rental services, including brokerage, sales and
property management services (the "Services");
WHEREAS, certain of the Sellers own all of the issued and outstanding
shares of the capital stock of Cathedral (the "Cathedral Shares") and
certain of the Sellers own all of the issued and outstanding shares of the
capital stock of Chapel (the "Chapel Shares; and together with the
Cathedral Shares, the "Companies Shares");
WHEREAS, Sellers desire to sell, and Buyer desires to purchase, the
Cathedral Shares and the Chapel Shares and thereby to acquire and to
integrate the Cathedral Group into the Buyer's existing operations as a
major provider of the Services.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:
ARTICLE I. SALE AND TRANSFER OF STOCK; CLOSING; AGREEMENTS
1.1 Stock. Subject to the terms and conditions of this Agreement, at the
Closing, the Sellers agree to sell, convey, assign, transfer and deliver to
Buyer, and Buyer agrees to purchase and acquire from the Sellers, all of
the Sellers' right, title and interest in and to the Cathedral Shares and
the Chapel Shares.
1.2 Purchase Price; Escrowed Funds. The Purchase Price shall be an amount
equal to Thirty-three Million Eight-Hundred Sixty-Two Thousand Dollars
($33,862,000) minus the Bonus Amount.
<PAGE>
(a) Closing. Subject to the satisfaction of the terms and conditions
of this Agreement or waiver by Buyer in writing thereof, the Sellers shall
receive at the Closing:
(i) Cash in an amount equal to eighty percent (80%) of the Purchase
Price, including without limitation the Interim Cash Deposit and, if made, the
Additional Cash Deposit (collectively the "Closing Cash Consideration"), shall
be paid by wire transfer of immediately available funds to one or more bank
accounts designated by the Sellers' Representative; and
(ii) A portion of the balance of the Purchase Price shall be paid by
delivering to the Closing Escrow Agent, for the benefit of the Sellers and
subject to the terms and conditions of the Closing Escrow Agreement (in the form
attached hereto as EXHIBIT H), that number of fully paid and nonassessable
shares of common stock of RQI, par value $.01 per share (hereinafter sometimes
referred to as the "RQI Stock") equal to (A) $2,000,000 divided by (B) the
average of the daily closing sales prices of RQI Stock as reported on the New
York Stock Exchange - Composite Transactions for the ten (10) consecutive
trading-day period ending on the second trading day prior to the Closing Date
(the "Average Price") (the "Indemnification Stock "); and
(iii) The remainder of the Purchase Price, after deducting the
respective amounts of the Closing Cash Consideration and the Indemnification
Stock (the "Remainder Amount"), shall be paid by delivering to the Sellers that
number of shares of RQI Stock equal to the Remainder Amount divided by the
Average Price (collectively the "Remainder Stock" and, with the Indemnification
Stock, collectively the "Closing Stock Consideration").
(b) Interim Escrow Agent. RQI shall, after approval of this Agreement
and the transactions contemplated hereby (collectively the "Transaction")
by RQI's Board of Directors and prior to RQI making a public announcement
with respect to the Transaction, pay over and deliver to First Tennessee
Bank National Association (the "Bank" and, in relation to the Interim
Escrow Agreement, the "Interim Escrow Agent"), to be held and distributed
pursuant to an Interim Escrow Agreement in the form attached hereto as
EXHIBIT I, the sum of One Million Dollars ($1,000,000) (together with any
interest accrued thereon, the "Interim Cash Deposit") which, at Closing,
shall be paid to the Sellers as part of the Closing Cash Consideration. In
the event that Buyer determines to extend the Proposed Closing Date beyond
October 15, 1998, Buyer shall pay over and deliver to the Interim Escrow
Agent an additional sum of One Million Dollars ($1,000,000)(together with
any interest accrued thereon, the "Additional Cash Deposit"), to be held
and distributed in accordance with the Interim Escrow Agreement, whereupon
the Proposed Closing Date shall be and become November 15, 1998.
<PAGE>
(c) Closing Escrow Agent. The escrow agent under the Closing Escrow
Agreement shall be the Bank (in relation to the Closing Escrow Agreement,
the "Closing Escrow Agent").
(d) Payment to Sellers; Fractional Shares. The Closing Cash
Consideration (including without limitation the Interim Cash Deposit and,
if applicable, the Additional Cash Deposit), the Indemnification Stock and
the Remainder Stock shall be allocated among the Sellers in the respective
portions or amounts set forth in SCHEDULE 1.2 hereto. In the event that the
allocation of the Indemnification Stock or the Remainder Stock among the
Sellers (as allocated for purposes of Closing or as allocated for
distribution out of the Closing Escrow Agreement), results in any
fractional shares, any such fractional share shall be rounded upward or
downward to the nearest whole share prior to delivery thereof.
1.3 Employment Agreements and Consulting Agreements. Simultaneously with
the Closing, each of the individuals identified on SCHEDULE 1.3 as an
"Employee" will enter into an employment agreement with Buyer in the form
of EXHIBIT F hereto (collectively, the "Employment Agreements"), and each
of the individuals identified on SCHEDULE 1.3 as a "Consultant" will enter
into a consulting agreement with Buyer in the form of EXHIBIT G hereto
(collectively the "Consulting Agreements"), in each case to be effective
upon the Effective Date.
1.4 Closing. Unless this Agreement is terminated in accordance with SECTION
9 hereof, the purchase and sale (the "Closing") provided for in this
Agreement will take place at the offices of Smith, Gambrell & Russell, LLP,
1230 Peachtree St., Suite 3100, Atlanta, Georgia at 10:00 a.m. (local time)
on the later of (i) October 15, 1998 (the "Proposed Closing Date") or (ii)
the HSR Termination Date, or at such other time and place as the Buyer and
Sellers' Representative may mutually agree (collectively the "Closing
Date"). Subject to the provisions of SECTION 9, failure to consummate the
purchase and sale provided for in this Agreement on the date and time and
at the place determined pursuant to this SECTION 1.4 will not result in the
termination of this Agreement and will not relieve any party of any
obligation under this Agreement.
1.5 Closing Obligations. At the Closing:
(a) Sellers will deliver to Buyer the following agreements, documents,
opinion and certificates (hereinafter referred to as the "Sellers' Closing
Documents"):
(i) certificates, in genuine and unaltered form, representing,
individually, their respective Cathedral Shares and Chapel Shares and, in the
aggregate, representing all of the Cathedral Shares and all of the Chapel
Shares, free and clear of all Encumbrances, duly endorsed in blank or
accompanied by duly executed stock powers endorsed in blank, for transfer to
Buyer;
<PAGE>
(ii) the Employment Agreements and the Consulting Agreements, executed
by the individuals identified on SCHEDULE 1.3;
(iii) a Shareholder's certificate, substantially in the form of
EXHIBIT A, executed by each of the Sellers;
(iv) a General Release Agreement, substantially in the form of EXHIBIT
B, executed by each of the Sellers;
(v) the Closing Escrow Agreement, executed by each of the Sellers;
(vi) a certificate of the Secretary of each of the Companies,
substantially in the form of EXHIBIT C hereto ("Secretary's Certificate");
(vii) a certificate of an officer of each of the Companies,
substantially in the form of EXHIBIT D hereto ("Officer's Certificate");
(viii) evidence acceptable to Buyer, in its sole discretion, of the
termination of the Cathedral Shareholder Agreement and any other shareholder or
buy/sell agreement among the shareholders of any of the companies in the
Cathedral Group;
(ix) evidence acceptable to Buyer, in its sole discretion, that the
Sellers (other than Andrews) have acquired all of the issued and outstanding
shares of the capital stock of Abbott & Andrews Realty, Inc., a Florida
corporation (the "A&A Shares") (and of any other Subsidiary of Cathedral) owned
by any Person other than the Sellers (excluding Andrews), Cathedral or a
wholly-owned direct or indirect Subsidiary of Cathedral, including without
limitation the A&A Shares owned by Mr. Angus G. Andrews ("Andrews"), free and
clear of any and all Liens, claims or other interests, and have contributed such
shares to the capital of Cathedral;
(x) evidence acceptable to Buyer, in its sole discretion, that the
Controlled Affiliate Properties have become subject to written agreements
between a member of the Cathedral Group and the respective owners of the
Controlled Affiliate Properties which have terms of at least five (5) years from
and after the Effective Date and are otherwise on terms acceptable to Buyer in
its sole discretion;
(xi) evidence acceptable to Buyer, in its sole discretion, that all of
the Companies' indebtedness to creditors may be paid in full at any time without
premium or penalty and that the creditors will release all Liens with respect
thereto;
(xii) credible evidence, reasonably acceptable to Buyer, that the Year
2000 Compliance program presently being implemented by the Cathedral Group with
respect to certain software and applications will result in all embedded systems
and control systems of the Cathedral Group being Year 2000 compliant not later
than March 31, 1999;
<PAGE>
(xiii) evidence acceptable to Buyer, in its sole discretion, that each
and all of the Properties listed and described in SCHEDULE 1.5 have become
Converted Units;
(xiv) evidence acceptable to Buyer, in its sole discretion, that the
Destin Bank Debt has been satisfied in full;
(xv) a letter of instruction to the Interim Escrow Agent, in a form
mutually agreeable to the Sellers and the Buyer, executed by the Sellers,
directing the Interim Escrow Agent to pay the Interim Cash Deposit and, if made,
the Additional Cash Deposit, together with any interest thereon, to the Sellers
as part of the Closing Cash Consideration (the "Joint Written Direction");
(xvi) an agreement from each Seller, substantially in the form of
EXHIBIT E hereto (the "Affiliate Agreements") executed by each of the Sellers;
(xvii) a written waiver from each Seller (and any other shareholder or
holder of any Options of the Cathedral Group) of any preemptive or other right
to acquire additional shares of the capital stock of any of the Cathedral Group,
in form and substance acceptable to Buyer;
(xviii) an opinion of counsel to Sellers, Cathedral and Chapel, dated
the Closing Date, in a form mutually agreed upon by the parties and from a firm
acceptable to Buyer; and
(xix) such other certificates, documents and agreements as Buyer may
reasonably request.
(b) Buyer will deliver to Sellers the following agreements, documents,
opinion and certificates (hereinafter referred to as the "Buyer's Closing
Documents"):
(i) the Closing Cash Consideration, including without limitation the
Interim Cash Deposit and, if made, the Additional Cash Deposit pursuant to
instructions contained in a counterpart of the Joint Written Direction executed
by Buyer, by wire transfer of immediately available funds to such account(s) as
the Sellers' Representative may direct by written notice delivered to Buyer at
least two (2) Business Days before the Closing Date;
(ii) the Employment Agreements and the Consulting Agreements, executed
by Buyer;
(iii) the Closing Escrow Agreement, executed by Buyer;
(iv) the Affiliate Agreements, acknowledged by Buyer;
<PAGE>
(v) a Secretary's Certificate, executed by Buyer;
(vi) an Officer's Certificate, executed by Buyer;
(vii) the Membership Letters, executed by Buyer; and
(viii) an opinion of Smith, Gambrell & Russell, LLP, counsel to Buyer,
dated the Closing Date, in a form mutually agreed upon by the parties.
1.6 Buyer Stock Transfer Restrictions.
(a) Transfer Restrictions; Affiliate Agreements. The Sellers
acknowledge that each of them may be deemed to be an "affiliate" of the
Companies, as that term is defined for purposes of paragraphs (c) and (d)
of Rule 145 ("Rule 145") of the Securities Act of 1933, as amended (the
"Securities Act") which rule subjects such affiliates to certain
limitations and restrictions with respect to the sale or transfer of
certain stock. Accordingly, the Sellers agree that the RQI Stock and any
and all other or additional shares of capital stock of RQI issued or
delivered by RQI with respect to the RQI Stock, including, without
limitation, any shares of capital stock of RQI issued or delivered as a
result of any stock split, stock dividend, stock distribution,
recapitalization or similar transaction (collectively with the RQI Stock,
the "Restricted RQI Stock") shall be subject to the conditions and
restrictions set forth in this SECTION 1.6 and in the Affiliate Agreements
to be executed by each of the Sellers contemporaneously herewith.
(b) Restrictions on Transfer
(i) Other than transfers to immediate family members who agree to be
bound by the restrictions set forth in this SECTION 1.6 (or trusts for the
benefit of family members of the Sellers, the trustees of which so agree), the
Sellers shall not sell, assign, exchange, transfer, pledge, hypothecate,
encumber, distribute or otherwise dispose of (collectively, "Transfer") any
shares of Restricted RQI Stock received by the Sellers hereunder, except in
compliance with (A) federal and state securities laws, rules and regulations
(collectively, "Securities Laws") including, without limitation, Rule 145, and
(B) each Seller's Affiliate Agreement. The certificates evidencing the
Restricted RQI Stock delivered to the Sellers pursuant to this Agreement shall
bear a legend substantially in the form set forth in the Affiliate Agreement and
shall contain such other information as RQI may deem necessary or appropriate.
(ii) If any Seller desires to make a Transfer, the Seller shall first
provide written notice thereof to RQI, together with the name of the broker or
market maker through whom such Seller desires to make the Transfer. As soon as
reasonably practicable, but not more than three (3) business days, after receipt
of such notice by RQI, RQI shall either (i) permit such Seller to use his or her
broker or market maker, or (ii) designate in writing to such Seller the names
and other pertinent information of at least
<PAGE>
two other brokers or market makers who actively make a market of RQI Stock and
through whom the Transfer may be made (subject to Rule 145 limitations and
restrictions on resale, as applicable). RQI shall not record a Transfer upon its
books of any shares of Restricted RQI Stock unless prior thereto RQI shall have
received from counsel to such Seller, reasonably acceptable to RQI, an opinion
of such counsel, in form and substance satisfactory to RQI that such Transfer is
in compliance with this SECTION 1.6 and Rule 145 or registered under the
Securities Act.
(iii) With respect to the Restricted RQI Stock, RQI shall pay (A) any
and all New York Stock Exchange listing fees and (B) any stock brokerage or
other fees, if any, related to the issuance and delivery of the Restricted RQI
Stock at Closing.
1.7 Subscription Agreement. Prior to the Closing, each of the Sellers shall
prepare, execute and deliver a copy of the Subscription Agreement,
Questionnaire and Investment Representation, attached hereto as EXHIBIT J.
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF SELLERS
The Sellers, Cathedral and Chapel, jointly and severally, make the
following representations and warranties to Buyer, each of which shall be
deemed material (and Buyer, in executing, delivering and consummating this
Agreement, has relied and will rely upon the correctness and completeness
of each of such representations and warranties notwithstanding independent
investigation, if any). References in this ARTICLE 2 to the Cathedral Group
shall be deemed to relate to each member thereof and the information to be
provided in the Schedules hereto for the Cathedral Group shall be set forth
by company:
2.1 Organization, Qualification, etc.
(a) Each of the Companies is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation with full corporate power and authority to carry on its
business as it is now being conducted and proposed to be conducted, and to
own, operate and lease its properties and assets.
(b) Each of the Companies is duly qualified, licensed or admitted to
do business and in good standing in the jurisdictions set forth on SCHEDULE
2.1 attached hereto, which, to the Knowledge of any Seller or either
Company, are the only jurisdictions in which the conduct of its business,
the ownership, operation or leasing of its properties and assets, or the
transactions contemplated by this Agreement, require it to be so qualified,
licensed or admitted, except for those jurisdictions in which such failure
to be so qualified, licensed or admitted and in good standing would not
have a Material Adverse Effect. Neither of the Companies conducts,
transacts or solicits business in any state or jurisdiction except those
listed in SCHEDULE 2.1 hereto.
<PAGE>
(c) True, complete and correct copies of each Company's articles of
incorporation and by-laws (collectively, the "Charter Documents"), as
presently in effect, are attached to SCHEDULE 2.1.
2.2 Subsidiaries.
(a) Except as set forth on SCHEDULE 2.2, neither of the Companies has
any Subsidiaries or any investment or other interest in, or any outstanding
loan or advance to or from, any Person, including any officer, director,
shareholder or Affiliate.
(b) Each Subsidiary is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation
identified in SCHEDULE 2.2, and has full corporate power and authority to
carry on its business as it is now being conducted and to own, operate and
lease its properties and assets. Each Subsidiary is duly qualified,
licensed or admitted to do business and is in good standing in those
jurisdictions specified in SCHEDULE 2.2, which, to the Knowledge of any
Seller or either Company, are the only jurisdictions in which the
ownership, operation or leasing of such Subsidiary's properties and assets,
the conduct or nature of its business, or the consummation of the
transactions contemplated herein makes such qualification, licensing or
admission necessary, except for those jurisdictions in which such failures
to be qualified, licensed or admitted and in good standing would not have a
Material Adverse Effect.
(c) SCHEDULE 2.2 lists for each Subsidiary the amount of its
authorized capital stock, the amount of its outstanding capital stock and
the record owners of such outstanding capital stock. Except as disclosed in
SCHEDULE 2.2, (i) all of the outstanding shares of capital stock of each
Subsidiary have been duly authorized and validly issued, are fully paid and
nonassessable, and are owned, beneficially and of record, by one of the
Companies or Subsidiaries wholly owned by one of the Companies free and
clear of all Liens and (ii) there are no outstanding Options with respect
to any Subsidiary.
(d) The name of each director and officer of each Subsidiary on the
date hereof, and the position with such Subsidiary held by each, are listed
in SCHEDULE 2.2.
(e) Sellers have prior to the execution of this Agreement delivered to
Buyer true and complete copies of the certificate or articles of
incorporation and by-laws (or other comparable corporate charter documents)
of each of the Subsidiaries as in effect on the date hereof. The corporate
minute books of each Subsidiary have been made available to Buyer, are
complete and correct and contain all of the proceedings of the shareholders
and directors of each such Subsidiary.
<PAGE>
2.3 Capitalization. SCHEDULE 2.3 sets forth, as of the date hereof, the
authorized capital stock of each Company, the par value and the number of
issued and outstanding shares thereof. The Cathedral Shares and the Chapel
Shares constitute all of the issued and outstanding shares of capital stock
of the Cathedral and Chapel, respectively. All of the issued and
outstanding Cathedral Shares and Chapel Shares have been duly authorized
and validly issued, and fully paid and non-assessable, and were offered,
issued, sold and delivered by such company in compliance with all
applicable state and federal securities laws. The stock record books of
each of the Companies have been delivered to Buyer for inspection prior to
the date hereof and each is true, complete and correct.
2.4 Corporate Record Books. The corporate minute books of each of the
Companies have been made available to Buyer, are complete and correct and
contain all of the proceedings of the shareholders and directors of each
Company.
2.5 Title to Stock. All of the issued and outstanding shares of the capital
stock of the each of the Companies are and immediately prior to Closing
will be owned beneficially and of record by the Sellers in the amounts and
as set forth on SCHEDULE 2.5 hereto, free and clear of all Liens. Upon
delivery to each Seller by Buyer of such Seller's pro rata share of the
Purchase Price at the Closing, each Seller will convey, and Buyer will own
and hold, good and marketable title to the Cathedral Shares and the Chapel
Shares, free and clear of any and all Encumbrances or contractual
restrictions or limitations whatsoever.
2.6 Options and Rights. Except as otherwise described on SCHEDULE 2.6
hereto, there are no outstanding subscriptions, options, warrants, rights,
securities, contracts, commitments, understandings or arrangements under
which the either of the Companies is bound or obligated to issue any
additional shares of its capital stock or rights to purchase shares of its
capital stock (collectively, the "Options"). There are no agreements,
arrangements or understandings between any Seller, either of the Companies
and any other Person regarding the Cathedral Shares or the Chapel Shares
(or the transfer, disposition, holding or voting thereof). To the extent
any Seller has any preemptive or other right to acquire any Shares of the
capital stock of either of the Companies, (i) such rights are described in
SCHEDULE 2.6 and (ii) such Seller hereby waives any such preemptive or
other right and shall deliver a separate written waiver thereof.
2.7 Authorization, Etc. Each of the Companies has full corporate power and
authority and each of the Sellers has full legal right, power and capacity
to enter into this Agreement and the agreements and documents contemplated
hereby and perform their respective obligations hereunder and thereunder.
The execution, delivery and performance of this Agreement and all other
agreements, documents, instruments and certificates contemplated herein or
related hereto (the "Ancillary Documents") and the transactions
contemplated hereby and thereby have been duly authorized by the Board of
Directors and shareholders of each of the Companies and no other corporate
proceedings on its part are necessary to
<PAGE>
authorize this Agreement, the Ancillary Documents and the transactions
contemplated hereby and thereby. Each of the Sellers was represented by and
had the benefit of legal counsel who participated in the preparation and
negotiation of this Agreement. Upon execution and delivery of this
Agreement and the Ancillary Documents by the parties hereto and thereto,
this Agreement and each of the Ancillary Documents shall constitute the
legal, valid and binding obligation of each of the Companies and each
Seller party hereto and thereto, enforceable against each such party in
accordance with their respective terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditor rights generally and by
general equitable principles.
2.8 No Violation; Consents and Approvals. Except as set forth on SCHEDULE
2.8 hereto, the execution and delivery by each of the Companies and the
Sellers of this Agreement, the Ancillary Documents to which each is a party
and the fulfillment of and compliance with the respective terms hereof and
thereof by each of the Companies and the Sellers do not and will not, (a)
conflict with or result in a breach of the terms, conditions or provisions
of, (b) constitute a default or event of default under (with due notice,
lapse of time or both), (c) result in the creation of any Lien upon the
capital stock or assets of either of the Companies pursuant to, (d) give
any third party the right to accelerate any obligation under, (e) result in
a violation of, or (f) require any authorization, consent, approval,
exemption or other action by or notice to any Authority or other third
party (including, without limitation, any creditor, customer or supplier)
pursuant to, the Charter Documents of either of the Companies or any
Regulation, Order or Contract to which any of the Companies or Sellers is
subject. Each of the Companies and each of the Sellers has complied with
all applicable Regulations and Orders in connection with the execution,
delivery and performance of this Agreement, the Ancillary Documents to
which each is a party and the transactions contemplated hereby and thereby.
None of the Companies or Sellers is required to submit any notice, report,
or other filing with any governmental authority in connection with its
execution or delivery of this Agreement, the Ancillary Documents to which
it is a party or the consummation of the transactions contemplated hereby
and thereby. No authorization, consent, approval, exemption or notice is
required to be obtained by any of the Companies or Sellers in connection
with the execution, delivery, and performance of this Agreement, the
Ancillary Documents to which it is a party and the transactions
contemplated hereby and thereby.
2.9 Financial Statements; Undisclosed Liabilities.
(a) Financial Statements. Attached as SCHEDULE 2.9 hereto are the
following financial statements of the Cathedral Group: (i) unaudited
consolidated balance sheets as of March 31, 1995, March 31, 1996 and March
31, 1997 (each a "Balance Sheet" and collectively, the "Balance Sheets";
(ii) unaudited consolidated statements of income, changes in stockholders
equity and cash flow
<PAGE>
and related schedules thereto for the fiscal years ended March 31, 1995,
1996 and 1997 (the "Related Statements"); and (iii) an unaudited
consolidated balance sheet as of and the statement of revenues and expenses
and the related schedules thereto for the four (4) month period ended, July
31, 1998 (the "Interim Financial Statements" and, collectively with the
Balance Sheets and the Related Statements, the "Financial Statements"). The
Financial Statements (x) were prepared in accordance with GAAP, (y) fairly
present in all material respects the financial position, condition and
results of operations of the Cathedral Group at the respective dates
thereof (except as stated therein or in the notes or schedules thereto)
applied on a consistent basis, and (z) were compiled from the books and
records of the Cathedral Group regularly maintained by management and used
to prepare the financial statements thereof.
(b) Undisclosed Liabilities. Except as set forth on SCHEDULE 2.9
attached hereto, none of the Cathedral Group has any liability, whether
accrued, absolute or contingent, of a type required to be reflected on a
balance sheet or described in the notes thereto in accordance with GAAP, in
excess of $1,000 for any single undisclosed liability or $20,000 for all
such undisclosed liabilities.
2.10 Customer Deposits.
The Deposits are held by the Cathedral Group in segregated and separately
identified bank accounts as set forth on SCHEDULE 2.10 by company and are
not commingled with cash or other property thereof.
2.11 Employees.
(a) Attached as SCHEDULE 2.11 hereto is an accurate list showing all
officers, directors and key employees of the Cathedral Group, listing by
company all employment agreements with such officers, directors and key
employees and the annual rate of compensation (and the portions thereof
attributable to salary, bonus and other compensation, respectively) of each
of such persons (i) as of the end of such company's most recent fiscal year
(the "Balance Sheet Date") and (ii) as of the date hereof. Attached to
SCHEDULE 2.11 are true, complete and correct copies of any employment
agreements for persons listed on SCHEDULE 2.11. Since the Balance Sheet
Date, there have been no increases in the compensation or benefits payable
to or to become payable to, or any special bonuses, to any officer,
director, key employee or other employee, except ordinary salary increases
implemented on a basis and in amounts consistent with past practices and
amounts, except as set forth on SCHEDULE 2.11. Except as set forth on
SCHEDULE 2.11, no Seller is related by blood or marriage to, or otherwise
affiliated with, any person listed on SCHEDULE 2.11.
(b) Set forth on SCHEDULE 2.11 hereto is, as of the date hereof, the
approximate number of employees for the Cathedral Group by company. To the
Knowledge of any Seller or either Company, the Cathedral Group has been for
the
<PAGE>
past four years, and currently is, in compliance in all material respects
with all Federal, State and local Regulations and Orders affecting
employment and employment practices applicable thereto, including, without
limitation, those Regulations promulgated by the Equal Employment
Opportunity Commission, and those relating to terms and conditions of
employment and wages and hours. Except as set forth on SCHEDULE 2.11: (i)
the Cathedral Group is not bound by or subject to (and none of its assets
or properties is bound by or subject to) any arrangement with any labor
union; (ii) no employees of the Cathedral Group are represented by any
labor or trade union or covered by any collective bargaining agreement with
the Cathedral Group; (iii) no campaign to establish such representation is
in progress; and (iv) there is no pending or, to the Knowledge of any
Seller or either Company, threatened labor dispute involving the Cathedral
Group and any group of its employees nor has the Cathedral Group
experienced any labor interruptions over the past three years. The
Cathedral Group believes its relationship with employees to be good.
(c) SCHEDULE 2.11 hereto sets forth an accurate list by company of all
of the Permits, including, without limitation, real estate, liquor,
hospitality and other business licenses or permits held by any officer,
director or employee of the Cathedral Group and required for, or used in,
the conduct of the businesses of the Cathedral Group.
2.12 Absence of Changes. Since the date of the most recent Balance Sheet,
the Cathedral Group has conducted its business only in the Ordinary Course
of Business and there has not been: (a) any Material Adverse Change; (b)
any material damage, destruction or loss, whether covered by insurance or
not, with regard to the Cathedral Group's properties and business; (c) any
payment by the Cathedral Group to, or any notice to or acknowledgment by
the Cathedral Group of any amount due or owing to, the Cathedral Group's
self-insured carrier, if any, in connection with any self-insured amounts
or liabilities under health insurance covering employees of the Cathedral
Group, in each case, in excess of a reserve therefor on the most recent
Balance Sheet and in the Interim Financial Statements; (d) any amendment or
change in the Cathedral Group's authorized or issued capital stock, or
Charter Documents; (e) any declaration, setting aside or payment of any
dividend or distribution (whether in cash, stock or property) in respect
of, the capital stock of the Cathedral Group, any purchase, retirement,
redemption or other acquisition of, any grant of any stock option, warrant
or other right to purchase shares of, or the grant of any registration
rights with respect to, the capital stock of the Cathedral Group; (f) any
cancellation of, or agreement to cancel any indebtedness or obligation
owing to the Cathedral Group in excess of $5,000 on an individual basis or
$10,000 in the aggregate; (g) any amendment, modification or termination of
any existing Permits or Contracts, or entering into any new Contract or
plan relating to any salary, bonus, insurance, pension, health or other
employee welfare or benefit plan for or with any directors, officers,
employees or consultants of the Cathedral Group; (h) to the Knowledge of
any Seller or either Company, any entry into any material Contract not in
the Ordinary
<PAGE>
Course of Business, including, without limitation, relating to any
borrowing, capital expenditure or the sale or purchase of any property,
rights, or assets or any options or similar agreements with respect to the
foregoing; (i) to the Knowledge of any Seller or either Company, any
disposition by the Cathedral Group of any material asset; (j) to the
Knowledge of any Seller or either Company, any adverse change in any
Contract or relationship with any customer or supplier the sales patterns,
pricing policies, accounts receivable or accounts payable relating to the
Cathedral Group; (k) any write-down of the value of any inventory having an
aggregate value in excess of $5,000, or write-off, as uncollectible, of any
notes, trade accounts or other receivables having an aggregate value in
excess of $5,000; (l) any change by the Cathedral Group in accounting
methods or principles; or (m) any material change in the cash and cash
equivalents of the Cathedral Group from the amounts shown on the balance
sheet as of the date of the Interim Financial Statements.
2.13 Contracts.
(a) Listed by company on SCHEDULE 2.13 are summary descriptions of all
written contracts, commitments and similar agreements to which the
Cathedral Group is a party or by which it or any of its properties are
bound as of the date hereof and, in each case, has delivered true, complete
and correct copies of the following such agreements to Buyer, including,
without limitation, the following:
(i) Contracts relating to any services provided by the Cathedral Group
including, without limitation, property management, real property rentals and
sales, homeowners association management representation and any other contracts
relating to real property services;
(ii) pension, profit sharing, bonus, retirement, stock option, stock
purchase or other plan providing for deferred or other compensation to employees
or any other employee benefit plan (other than as set forth in SCHEDULE 2.18
hereto), or any Contract with any labor union;
(iii) Contracts relating to brokerage, consulting, independent
contractor and other similar agreements for the payment of compensation, not
terminable on notice of 30 days' or less by the Cathedral Group without penalty
or other financial obligation (and, except as set forth on SCHEDULE 2.11, no
officer or employee of the Cathedral Group receives total salary, bonus and
other compensation from the Cathedral Group of $25,000.00 or more per annum);
(iv) Contracts relating to any joint ventures, partnerships and
investments;
(v) Contracts containing covenants or agreements limiting the freedom
of the Cathedral Group or any of its employees to compete in any line of
business
<PAGE>
presently conducted by the Cathedral Group with any Person or to compete in any
such line of business in any area;
(vi) Contracts with any Affiliate of the Cathedral Group, any Seller
or with any Affiliate or relative of any Seller;
(vii) Contracts relating to or providing for loans to officers,
directors, employees or Affiliates;
(viii) Contracts under which the Cathedral Group has advanced or
loaned, or is obligated to advance or loan, funds to any Person;
(ix) Contracts relating to the incurrence, assumption or guarantee of
any indebtedness, obligation or liability (in respect of money or funds
borrowed), including, without limitation, any loan agreement, indemnity, bonds,
mortgages, notes or letters of credit, or otherwise pledging, granting a
security interest in or placing a Lien on any asset of the Cathedral Group;
(x) Contracts relating to the guarantee or endorsement of any
obligation;
(xi) Contracts under which the Cathedral Group is lessee of or holds
or operates any property, real or personal, owned by any other party;
(xii) Contracts pursuant to which the Cathedral Group is lessor of or
permits any third party to hold or operate any property, real or personal, owned
or controlled by the Cathedral Group;
(xiii) assignments, licenses, indemnifications and Contracts with
respect to any intangible property (including, without limitation, any
Intellectual Properties);
(xiv) warranty Contracts with respect to services rendered (or to be
rendered);
(xv) Contracts for, or with, any telephone switch, long distance or
toll-free telephone providers;
(xvi) Contracts with central reservation or resort booking systems;
(xvii) override agreements with travel agencies, other customers or
suppliers;
(xviii) Contracts which prohibit, restrict or limit in any way the
payment of dividends or distributions by the Cathedral Group;
<PAGE>
(xix) Contracts under which it has granted any Person any registration
rights (including piggyback and demand rights) with respect to any securities;
(xx) Contracts for the purchase, acquisition or supply of inventory
and other property and assets, whether for resale or otherwise;
(xxi) Contracts with independent agents, brokers, dealers or
distributors;
(xxii) sales, commissions, advertising or marketing Contracts;
(xxiii) Contracts providing for "take or pay" or similar unconditional
purchase or payment obligations;
(xxiv) Contracts with Persons with which, directly or indirectly, any
Seller also has a Contract;
(xxv) Governmental Contracts subject to redetermination or
renegotiation; or
(xxvi) any other Contract which is material to the Cathedral Group's
operations or business prospects, except those which (x) were made in the
Ordinary Course of Business, and (y) are terminable on 30 days' or less notice
by the Cathedral Group without penalty or other financial obligation.
(b) Except as set forth on SCHEDULE 2.8, no consent of any party to
any Contract is required in connection with the execution, delivery or
performance of this Agreement, or the consummation of the transactions
contemplated hereby. To the Knowledge of any Seller or either Company, none
of the Cathedral Group is rendering performance under the terms of any oral
agreements.
(c) Each Contract identified or required to be identified in SCHEDULE
2.13 hereof is in full force and effect and is valid and enforceable in
accordance with its terms. The Cathedral Group has performed in all
material respects all obligations required to be performed by it and (i) to
the Knowledge of any Seller or either Company, is not in default in any
respect under or in breach of, and (ii) is not in receipt of any claim of
default or breach under any Contract listed on SCHEDULE 2.13. No event has
occurred which with the passage of time or the giving of notice or both
would result in a default, breach or event of non-compliance under any
material Contract to which the Cathedral Group is subject (including
without limitation all performance bonds, warranty obligations or
otherwise). The Cathedral Group does not have any present expectation or
intention of not fully performing all such obligations. The Cathedral Group
does not have any knowledge of any breach or anticipated breach by the
other parties to any such Contract to which it is a party.
<PAGE>
(d) Copies of all Contracts and documents delivered and to be
delivered hereunder by the Sellers or the Cathedral Group are and will be
true, correct and complete copies of such agreements, contracts and
documents.
2.14 Real Estate and Personal Property Matters.
(a) SCHEDULE 2.14 hereto sets forth a description by company of all
real property owned or leased by the Cathedral Group, including the
location/address of the property, the purpose for which the property is
used, whether it is income generating property, the amount of debt on the
owned property, and the lessor, term and monthly lease payments (including
percentage rent, escalation and other such contingent rental payments) with
respect to leased property.
(b) The Cathedral Group has good and marketable title to all of the
properties and assets reflected in the balance sheet as of the date of the
Interim Financial Statements or acquired after the date thereof, other than
properties sold or otherwise disposed of since the date thereof in the
Ordinary Course of Business, free and clear of all Liens, except (i)
statutory Liens not yet delinquent, (ii) such imperfections or
irregularities of title, Liens, easements, charges or other encumbrances
that do not detract from or interfere with the present use of the
properties or assets subject thereto or affected thereby, otherwise impair
present business operations at such properties, or do not detract from the
value of such properties and assets, taken as a whole, or (iii) as
reflected in the balance sheets included in Financial Statements or the
notes thereto.
(c) The Cathedral Group owns, and will on the Effective Date own, good
and marketable title to all the personal property and personal assets,
tangible or intangible, used in its business except as to those assets
leased, all of which leases are in good standing and no party is in default
thereunder. Except as set forth on SCHEDULE 2.14, none of the assets
belonging to or held by the Cathedral Group is or will be on the Effective
Date subject to any (i) Contracts of sale or lease, or (ii) Liens. Except
for normal breakdowns and servicing requirements, all machinery and
equipment regularly used by the Cathedral Group in the conduct of its
business is in good operating condition and repair, ordinary wear and tear
excepted.
(d) There has not been since the date of the most recent Balance
Sheet, and will not be prior to the Effective Date, any sale, lease, or any
other disposition or distribution by the Cathedral Group of any of its
assets or properties and any other assets now or hereafter owned by it,
except transactions in the Ordinary Course of Business or as otherwise
consented to by Buyer. On and after the Effective Date, the Cathedral
Group, as direct or indirect wholly-owned subsidiaries of Buyer, will own,
or have the unrestricted right to use, all properties and assets that are
currently used in connection with the business thereof.
<PAGE>
2.15 Litigation. Except as set forth on SCHEDULE 2.15, there is no Claim
pending or, to the Knowledge of any Seller or either Company, threatened
against, relating to or affecting any of the Sellers, the Cathedral Group
or any of the assets or properties of the Cathedral Group nor is there any
Order outstanding against any of the Sellers, the Cathedral Group or any of
the assets or properties of the Cathedral Group.
2.16 Tax Matters.
(a) The Cathedral Group has filed all federal, state, and local tax
reports, returns, information returns and other documents (collectively,
the "Tax Returns") required to be filed with any federal, state, local or
other taxing authorities (each a "Taxing Authority", collectively, the
"Taxing Authorities") in respect of all relevant taxes, including without
limitation income, premium, gross receipts, net proceeds, alternative or
add on minimum, ad valorem, value added, turnover, sales, use, property,
personal property (tangible and intangible), stamp, leasing, lease, user,
excise, duty, franchise, transfer, license, withholding, payroll,
employment, fuel, excess profits, occupational and interest equalization,
windfall profits, severance, and other charges (including interest and
penalties) (collectively, the "Taxes") and in accordance with all tax
sharing agreements to which the Sellers or the Cathedral Group may be a
party. All Taxes required or anticipated to be paid for all periods prior
to and including the Effective Date have been paid or are adequately
provided for in the Financial Statements, including any of the Cathedral
Group's Taxes that may be due or claimed to be due as a result of the
consummation of the transactions contemplated by this Agreement. All Taxes
which are required to be withheld or collected by the Cathedral Group have
been duly withheld or collected and, to the extent required, have been paid
to the proper Taxing Authority or properly segregated or deposited as
required by applicable laws. There are no Liens for Taxes upon any property
or assets of the Cathedral Group except for Liens for Taxes not yet due and
payable. Neither the Sellers nor the Cathedral Group has executed a waiver
of the statute of limitations on the right of the Internal Revenue Service
or any other Taxing Authority to assess additional Taxes or to contest the
income or loss with respect to any Tax Return. The basis of any depreciable
assets, and the methods used in determining allowable depreciation
(including cost recovery), is correct and in compliance with the Internal
Revenue Code of 1986, as amended and the regulations thereunder (the
"Code") in all material respects.
(b) No audit of the Cathedral Group or the Cathedral Group's Tax
Returns by any Taxing Authority is currently pending or threatened, and,
except as set forth on SCHEDULE 2.16, no issues have been raised by any
Taxing Authority in connection with any Tax Returns. No material issues
have been raised in any examination by any Taxing Authority with respect to
the Cathedral Group which reasonably could be expected to result in a
proposed deficiency for any other period not so examined, and there are no
unresolved issues or unpaid deficiencies relating to such examinations. The
items relating to the business, properties or
<PAGE>
operations of the Cathedral Group on the Tax Returns filed by or on behalf
of the Cathedral Group for all taxable years (including the supporting
schedules filed therewith), available copies of which have been supplied to
Buyer, state accurately the information requested with respect to the
Cathedral Group and such information was derived from the books and records
of the Cathedral Group.
(c) The Cathedral Group has not made nor has become obligated to make,
nor will as a result of any event connected with the Closing become
obligated to make, any "excess parachute payment" as defined in Section
280G of the Code (without regard to subsection (b)(4) thereof).
(d) Except for Chapel, none of the Cathedral Group is a Subchapter S
corporation and has not been, within the five-year period prior to the
Closing, a Subchapter S corporation. Chapel is, and has been since its
incorporation, a Subchapter S corporation.
2.17 Compliance with Regulations and Orders; Permits; Affiliations.
(a) Compliance. To the Knowledge of any Seller or either Company, the
Cathedral Group is presently complying with all applicable Regulations and
Orders of Authorities in respect of its operations, equipment, practices,
real property, plants, structures and other properties, and all other
aspects of its business and operations, including, without limitation, all
Regulations and Orders relating to the safe conduct of business, hazardous
waste, environmental protection, handicapped access, fair housing, quality
and labeling, antitrust, Taxes, consumer protection, equal opportunity,
discrimination, health, sanitation, fire, zoning, building and occupational
safety where such failure or failures would individually or in the
aggregate have a Material Adverse Effect. There are no Claims pending, nor,
to the Knowledge of any Seller or either Company, are there any Claims
threatened, nor have the Sellers or the Cathedral Group received any
written notice, regarding any violations of, or defaults under, any
Regulations and Orders enforced by any Authority claiming jurisdiction over
the Cathedral Group, including, without limitation, any requirement of
OSHA, any pollution and environmental control agency (including air and
water) or the agencies having responsibility for the Real Estate Settlement
Procedures Act, the Fair Housing Act, Americans With Disabilities Act, or
any similar regulations.
(b) Permits. SCHEDULE 2.17 hereto sets forth by company all of the
Cathedral Group's permits, licenses, provider numbers, orders, franchises,
registrations and approvals (collectively, "Permits") from all Authorities.
To the Knowledge of any Seller or either Company, the Permits listed on
SCHEDULE 2.17 are the only Permits that are required for the Cathedral
Group to conduct its business as presently conducted. Each such Permit is
valid and in full force and effect and, to the Knowledge of any Seller or
either Company, no suspension or cancellation of any such Permit is
threatened and there is no basis for believing that such Permit will not be
renewable upon expiration.
<PAGE>
(c) Affiliations. SCHEDULE 2.17 attached hereto sets forth all
industry affiliations and memberships of the Sellers and the Cathedral
Group by company in any business or industry group relating to the
operation of the Cathedral Group (collectively, the "Business Groups").
None of the Cathedral Group nor any of the Sellers is in violation of any
Regulation, Order, rule or requirement with respect to any such Business
Group. Except as set forth on SCHEDULE 2.17, no consent of any such
Business Group is required for the Cathedral Group and the Sellers to
consummate the transactions contemplated by this Agreement.
2.18 ERISA and Related Matters.
(a) Benefit Plans; Obligations to Employees. Except as set forth in
SCHEDULE 2.18 hereto, none of the Cathedral Group, nor any ERISA Affiliate
of the Cathedral Group, is a party to or participates in or has any
liability or contingent liability with respect to:
(i) any "employee welfare benefit plan" or "employee pension benefit
plan" or "multi-employer plan" (as those terms are respectively defined in
Sections 3(1), 3(2) and 3(37) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"));
(ii) any retirement or deferred compensation plan, incentive
compensation plan, stock plan, unemployment compensation plan, vacation pay,
severance pay, bonus or benefit arrangement, insurance or hospitalization
program or any other fringe benefit arrangements for any employee, director,
consultant or agent, whether pursuant to contract, arrangement, custom or
informal understanding, which does not constitute an "employee benefit plan" (as
defined in Section 3(3) of ERISA); or
(iii) any employment agreement not terminable on 30 days' or less
written notice, without further liability.
Any plan, arrangement or agreement required to be listed on SCHEDULE
2.18 for which any Seller or any ERISA Affiliate of any Seller may have any
liability or contingent liability is sometimes hereinafter referred to as a
"Benefit Plan". For purposes of this Section, the term "ERISA Affiliate"
shall mean any trade or business, whether or not incorporated, that
together with the Cathedral Group would be deemed a "single employer"
within the meaning of Section 4001(b)(i) of ERISA.
(b) Plan Documents and Reports. A true, correct and complete copy of
each of the Benefit Plans listed on SCHEDULE 2.18, and all contracts
relating thereto, or to the funding thereof, including, without limitation,
all trust agreements, insurance contracts, investment management
agreements, subscription and participation agreements and record keeping
agreements, each as in effect on the date hereof, is attached to SCHEDULE
2.18. In the case of any
<PAGE>
Benefit Plan that is not in written form, Buyer has been supplied with an
accurate description of such Benefit Plan as in effect on the date hereof.
A true, correct and complete copy of: (i) the three most recent annual
reports and accompanying schedules; (ii) the three most recent actuarial
reports; (iii) the most recent summary plan description and Internal
Revenue Service determination letter with respect to each such Benefit
Plan, to the extent applicable; (iv) a current schedule of assets (and the
fair market value thereof assuming liquidation of any asset which is not
readily tradeable) held with respect to any funded Benefit Plan; (v) all
documents establishing, creating or amending any Benefit Plan; (vi) all
trust agreements, funding agreements, insurance contracts and investment
management agreements; (vii) all financial statements and accounting
statements and reports, investment reports and actuarial reports for each
of the last seven years; (viii) any and all other reports, returns, filings
and material correspondence with any Governmental Authority in the last
seven years; (ix) all booklets, summaries, descriptions or manuals prepared
for or circulated to, and written communications of a general nature to
employees concerning any Benefit Plan; (x) all professional opinions
(whether or not internally prepared) with respect to each Benefit Plan; and
(vii) all material internal memoranda concerning each Benefit Plan prepared
within the last seven years, has been supplied to Buyer by the Cathedral
Group, and there have been no material changes in the financial condition
in the respective Benefit Plans from that stated in the annual reports and
actuarial reports supplied.
(c) Compliance with Laws; Liabilities. Except as set forth on SCHEDULE
2.18, the Cathedral Group is in compliance in all material respects with
the terms of all of its Benefit Plans and every Benefit Plan is in
compliance with all of the requirements and provisions of ERISA and all
other Regulations and Orders applicable thereto, including without
limitation the timely filing of all annual reports or other filings
required with respect to such Benefit Plans. None of the assets of any
Benefit Plan are invested in employer securities or employer real property,
as those terms are defined in Section 407(d) of ERISA. There have been no
"prohibited transactions" (as described in Section 406 of ERISA or Section
4975 of the Code) with respect to any Benefit Plan and neither the
Cathedral Group nor any ERISA Affiliate of the Cathedral Group has
otherwise engaged in any prohibited transaction. There has been no
"accumulated funding deficiency" as defined in Section 302 of ERISA, nor
has any reportable event as defined in Section 4043(b) of ERISA occurred
with respect to any Benefit Plan. Actuarially adequate accruals for all
obligations or contingent obligations under the Benefit Plans are reflected
in the most recent Balance Sheet provided to Buyer and such obligations
include a pro rata amount of the contributions which would otherwise have
been made in accordance with past practices for the plan years which
include the Closing Date.
2.19 Intellectual Property.
<PAGE>
(a) Except as set forth on SCHEDULE 2.19, the Cathedral Group has no
trade name, service mark, patent, copyright, trademark or other
Intellectual Property related to its business.
(b) The Cathedral Group has the right to use the Intellectual Property
listed in SCHEDULE 2.19, and except as otherwise set forth therein, the
Intellectual Property is, and will be on the Effective Date, free and clear
of all royalty obligations and Liens. There are no Claims pending, or, to
the Knowledge of any Seller or either Company, threatened, against the
Sellers or the Cathedral Group that the Cathedral Group's use of any of the
Intellectual Property listed on SCHEDULE 2.19 infringes the rights of any
Person. The Sellers (i) have no knowledge of any use of any of the
Intellectual Property constituting an infringement thereof, and (ii) have
no right, claim or interest in or to any of the Intellectual Property.
(c) Except as set forth on SCHEDULE 2.19 hereto, the Cathedral Group
is not a party in any capacity to any franchise, license or royalty
agreement respecting any of the Intellectual Property and there is no
conflict with the rights of others in respect to any of the Intellectual
Property now used in the conduct of its business.
(d) The current software applications used by the Cathedral Group in
the operation of its business are set forth and described on SCHEDULE 2.19
hereto (the "Software"). Except as set forth on SCHEDULE 2.19, all of the
Software used by the Cathedral Group for applications commonly referred to
as "Front Office, Back Office, Inventory Management, Reservations and Guest
Services" complies with the necessary requirements to function efficiently
in and after the year 2000. The Software, to the extent it is licensed from
any third party licensor or it constitutes "off-the-shelf" software, is
held by the Cathedral Group under valid, binding and enforceable licenses
and is fully transferable to Buyer without any third party consent. To the
Knowledge of any Seller or either Company, all of the Cathedral Group's
computer hardware has validly licensed software installed therein. None of
the Cathedral Group has sold, assigned, licensed, distributed or in any
other way disposed of or encumbered the Software.
2.20 Environmental Matters. Except as disclosed in SCHEDULE 2.20: (i) to
the Knowledge of any Seller or either Company, neither the Cathedral
Group's business nor the operation thereof violates any applicable
Environmental Law, and no condition or occurrence (any accident, happening
or event which occurs or has occurred at any time prior to the Effective
Date, which results in or could result in a claim against the Cathedral
Group or Buyer or creates or could create a liability or loss for the
Cathedral Group or Buyer) exists or has occurred which, with notice or the
passage of time or both, would constitute a violation of any Environmental
Law; (ii) to the Knowledge of any Seller or either Company, the Cathedral
Group is in possession of all Environmental Permits required under any
applicable Environmental Law for the conduct or operation of the Cathedral
<PAGE>
Group's business (or any part thereof), and the Cathedral Group is in full
compliance with all of the requirements and limitations included in such
Environmental Permits; (iii) to the Knowledge of any Seller or either
Company, the Cathedral Group has not stored or used any Hazardous Material
on or at any property or facility now or previously owned, leased or
operated by the Cathedral Group except for inventories of chemicals which
are used or to be used in the Ordinary Course of Business (which
inventories have been sorted or used in accordance with all applicable
Environmental Permits and all Environmental Laws, including all so called
"Right to Know" laws); (iv) the Cathedral Group has not received any notice
from any Authority or other Person that the Cathedral Group's business or
the operation of any of its facilities is in violation of any Environmental
Law or any Environmental Permit or that it is responsible (or potentially
responsible) for the cleanup of any Hazardous Materials at, on or beneath
any property or facility now or previously owned, leased or operated by the
Cathedral Group, or at, on or beneath any land adjacent thereto or in
connection with any waste or contamination site; (v) the Cathedral Group is
not the subject of any Claim by any Authority or other Person involving a
demand for damages or other potential liability with respect to a violation
of Environmental Laws or under any common law theories relating to
operations or the condition of any facilities or property (including
underlying groundwater) owned, leased, or operated by the Cathedral Group;
(vi) to the Knowledge of any Seller or either Company, the Cathedral Group
has not buried, dumped, disposed, spilled or released any Hazardous
Materials on, beneath or adjacent to any property or facility now or
previously owned, leased or operated by the Cathedral Group or any property
adjacent thereto; (vii) to the Knowledge of any Seller or either Company,
no property or facility now or previously owned, leased or operated by the
Cathedral Group, is listed or proposed for listing on the National
Priorities List pursuant to CERCLA, on the CERCLIS or on any other federal
or state list of sites requiring investigation or clean-up; (viii) to the
Knowledge of any Seller or either Company, there are no underground storage
tanks, active or abandoned, including petroleum storage tanks, on or under
any property or facility now or previously owned, leased or operated by the
Cathedral Group; (ix) to the Knowledge of any Seller or either Company, the
Cathedral Group has not directly transported or directly arranged for the
transportation of any Hazardous Materials to any location which is listed
or proposed for listing on the National Priorities List pursuant to CERCLA,
on the CERCLIS or on any federal or state list or which is the subject of
any enforcement action or other investigation by any Authority which may
lead to material Claims against the Cathedral Group for any remedial work,
damage to natural resources or personal injury, including Claims under
CERCLA; and (x) to the Knowledge of any Seller or either Company, there are
no polychlorinated biphenyls, radioactive materials or friable asbestos
present at any property or facility now or previously owned or leased by
the Cathedral Group. To the Knowledge of any Seller or either Company, the
Cathedral Group has timely filed all reports required to be filed with
respect to all of its property and facilities and has generated and
maintained all required data, documentation and records under all
applicable Environmental Laws.
<PAGE>
2.21 Banking Arrangements. SCHEDULE 2.21 attached hereto sets forth by
company the name of each bank in or with which the Cathedral Group has an
account, credit line or safety deposit box, and a brief description of each
such account, credit line or safety deposit box, including the names of all
Persons currently authorized to draw thereon or having access thereto.
Except as may be disclosed in the Financial Statements or on SCHEDULE 2.21
hereto, the Cathedral Group has no liability or obligation relating to
funds or money borrowed by or loaned to the Cathedral Group (whether under
any credit facility, line of credit, loan, indenture, advance, pledge or
otherwise).
2.22 Insurance. SCHEDULE 2.22 attached hereto sets forth by company a list
and brief description, including dollar amounts of coverage, of all
policies of property, fire, liability, business interruption, workers'
compensation and other forms of insurance held by the Cathedral Group as of
the date hereof, as well as a schedule of Claims filed with the Cathedral
Group's current insurance carrier, including a history of such Claims and a
description and estimated dollar amount of any unresolved Claims. To the
Knowledge of any Seller or either Company, such policies are valid,
outstanding and enforceable policies, as to which all premiums due have
been paid. Except as disclosed on SCHEDULE 2.15, none of the Cathedral
Group nor the Sellers know of any state of facts, or of the occurrence of
any event which might reasonably (a) form the basis for any claim against
the Cathedral Group not fully covered by insurance for liability on account
of any express or implied warranty or tortious omission or commission, or
(b) result in material increase in insurance premiums of the Cathedral
Group.
2.23 Inventories. The inventories, if any, reflected on the audited balance
sheets included in the Financial Statements, and the inventories held by
the Cathedral Group on the date hereof, (i) consists of a quality and
quantity usable and salable in the Ordinary Course of Business of the
Cathedral Group, except as reserved in the Financial Statements, and (ii)
have been reflected on such balance sheets at the lower of cost or market
value (taking into account the usability or salability thereof). All such
inventories are owned free and clear and are not subject to any Lien except
to the extent reserved against or reflected in the Financial Statements, in
this Agreement or the Schedules attached hereto. The Cathedral Group is not
aware of any Material Adverse Changes affecting the supply of inventory
available to the Cathedral Group, and, to the Knowledge of any Seller or
either Company, the consummation of the transactions contemplated hereby
will not adversely affect any such supply.
2.24 Brokerage. None of the Cathedral Group nor any Seller has employed any
broker, finder, advisor, consultant or other intermediary in connection
with this Agreement or the transactions contemplated by this Agreement who
is or might be entitled to any fee, commission or other compensation from
the Cathedral Group or any Seller, or from Buyer or its Affiliates, upon or
as a result of the
<PAGE>
execution of this Agreement or the consummation of the transactions
contemplated hereby.
2.25 Improper and Other Payments. Except as set forth on SCHEDULE 2.25
hereto, to the Knowledge of any Seller or either Company: (a) none of the
Cathedral Group, any director, officer, employee thereof, nor, to the
Knowledge of any Seller or either Company, any agent or representative of
the Cathedral Group nor any Person acting on behalf of any of them, (i) has
made, paid or received any contribution, gift, bribe, rebate, payoff,
influence payment, kickbacks or other similar payments to or from any
Person or Authority, whether in money, property or services (1) to obtain
favorable treatment in securing business, (2) to pay for favorable
treatment for business secured, (3) to obtain special concessions or for
special concessions already obtained, or (4) in violation of any Regulation
or Order or (ii) established or maintained a fund or asset that has not
been recorded on the books and records of the Cathedral Group; (b) no
contributions have been made, directly or indirectly, to a domestic or
foreign political party or candidate; (c) no improper foreign payment (as
defined in the Foreign Corrupt Practices Act) has been made; and (d) the
internal accounting controls of the Cathedral Group are believed by the
Cathedral Group's management to be adequate to detect any of the foregoing
under current circumstances.
2.26 Financial Condition as of Effective Date. The Cathedral Group has, and
as of the Effective Date will have, a positive cash balance on a book basis
and bank balance basis net of any and all outstanding checks or drafts, and
fully funded all Deposits in cash or cash equivalents which are segregated
in separately identified bank accounts and not commingled with any funds of
the Cathedral Group; provided, however, that none of the foregoing
provisions shall be construed to authorize or permit any transfer or
distribution of any property or money by the Cathedral Group which would be
prohibited, conditioned or limited by another provision of this Agreement.
For purposes of this SECTION 2.26 and as used elsewhere in this Agreement,
"Deposits" shall mean and include each and all of the following: (a) the
aggregate monetary deposits received by the Cathedral Group from clients or
customers (collectively "Clients") to secure such persons' obligations with
respect to future rentals or equivalent or related obligations; (b) without
duplication, the aggregate amount of all deposits for damage, cleaning,
telephone charges and similar amounts received from Clients as security for
such expenses; and (c) without duplication, the aggregate amount of all
money, funds or other property which is held in escrow by the Cathedral
Group, or which the Cathedral Group holds as agent or trustee, for the
benefit of any other person.
2.27 Disclosure. Neither this Agreement nor any of the exhibits,
attachments, written statements, documents, certificates or other items
prepared by or at the instructions of Sellers, for or supplied to Buyer by
or on behalf of the Sellers or the Cathedral Group with respect to the
transactions contemplated hereby contains
<PAGE>
any untrue statement of a material fact or omits a material fact necessary
to make each statement contained herein or therein not misleading.
2.28 Significant Customers and Suppliers; Material Plans and Commitments.
Set forth by company on SCHEDULE 2.28 hereto is an accurate list of the
customers and suppliers of the Cathedral Group, representing 5% or more of
the Cathedral Group's annual revenues as of the Balance Sheet Date and the
date of the Interim Financial Statements. Except to the extent set forth on
SCHEDULE 2.28, none of the Cathedral Group's significant customers (or
persons or entities that are sources of a significant number of customers)
have canceled or substantially reduced or, to the Knowledge of any Seller
or either Company, are currently attempting or threatening to cancel a
contract or substantially reduce utilization of the services provided by
the Cathedral Group. The Cathedral Group has also set forth on SCHEDULE
2.28 a summary description of all plans or projects involving the opening
of new operations, expansion of existing operations, the acquisition of any
personal property, business or assets requiring, in any event, the payments
of more than $25,000 by the Cathedral Group.
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Sellers as follows:
3.1 Corporate Organization, Etc. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation with full corporate power and authority to carry on its
business as it is now being conducted and to own, operate and lease its
properties and assets.
3.2 Authorization, Etc. Buyer has full corporate power and authority to
enter into this Agreement and the Ancillary Documents to which it is a
party and to carry out the transactions contemplated hereby and thereby.
The Board of Directors of Buyer has duly authorized the execution, delivery
and performance of this Agreement, the Ancillary Documents to which it is a
party and the transactions contemplated hereby and thereby, and no other
corporate proceedings on its part are necessary to authorize this
Agreement, such Ancillary Documents and the transactions contemplated
hereby and thereby. Upon execution and delivery of this Agreement and the
Ancillary Documents by the parties hereto and thereto, this Agreement and
the Ancillary Documents to which Buyer is a party shall constitute the
legal, valid and binding obligation of Buyer, enforceable against Buyer in
accordance with their respective terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors rights generally and by
general equitable principles.
3.3 No Violation. The execution, delivery and performance by Buyer of this
Agreement and the Ancillary Documents to which it is a party, and the
fulfillment of and compliance with the respective terms hereof and thereof
by Buyer, do not
<PAGE>
and will not (a) conflict with or result in a material breach of the terms,
conditions or provisions of, (b) result in a violation of, or (c) require
any authorization, consent, approval, exemption or other action by or
notice to any Authority pursuant to, the certificate of incorporation or
by-laws of Buyer, or any Regulation to which Buyer is subject, or any
material Contract or Order to which Buyer or its properties are subject.
Buyer will comply with all applicable Regulations and Orders in connection
with its execution, delivery and performance of this Agreement and the
transactions contemplated hereby.
3.4 Governmental Authorities. Buyer has complied in all material respects
with all applicable Regulations in connection with its execution, delivery
and performance of this Agreement, the Ancillary Documents to which it is a
party and the transactions contemplated hereby and thereby. Buyer is not
required to submit any notice, report, or other filing with any
governmental authority in connection with its execution or delivery of this
Agreement, the Ancillary Documents to which it is a party or the
consummation of the transactions contemplated hereby and thereby. No
authorization, consent, approval, exemption or notice is required to be
obtained by Buyer in connection with the execution, delivery, and
performance of this Agreement, the Ancillary Documents to which it is a
party and the transactions contemplated hereby and thereby.
3.5 Brokerage. Except as set forth on SCHEDULE 3.5 hereto (the "Buyer's
Broker"), Buyer has not employed any broker, finder, advisor, consultant or
other intermediary in connection with this Agreement or the transactions
contemplated by this Agreement who is or might be entitled to any fee,
commission or other compensation from Buyer, upon or as a result of the
execution of this Agreement or the consummation of the transactions
contemplated hereby. Buyer shall be solely responsible for any and all
fees, commissions or other compensation to the Buyer's Broker.
3.6 Disclosure. Neither this Agreement or any of the Ancillary Documents to
which it is a party nor any exhibits, attachments, written statements,
documents, certificates or other items prepared for or supplied to the
Sellers or the Companies by Buyer with respect to the transactions
contemplated hereby contains any untrue statement of a material fact or
omits a material fact necessary to make each statement contained herein or
therein not misleading.
ARTICLE IV. COVENANTS OF THE COMPANIES AND THE SELLERS
From the date hereof until the Effective Date, except as otherwise
consented to or approved by Buyer in writing, each of the Companies shall,
and shall cause its Subsidiaries to, and the Sellers shall, and shall cause
the Cathedral Group to:
4.1 Regular Course of Business. Except as set forth on SCHEDULE 4.1 hereto,
operate its business diligently and in good faith and in the Ordinary
Course of Business, including, without limitation: (i) maintaining all of
its respective
<PAGE>
properties in good order and condition; (ii) maintaining (except for
expiration due to lapse of time) all Contracts in effect without change
except as expressly provided herein; (iii) complying with the provisions of
all Regulations and Orders applicable to the Cathedral Group and the
conduct of its respective business; (iv) maintaining insurance and
reinsurance coverage as in effect on the date hereof up to the Effective
Date; (v) preserving the business of the Cathedral Group intact; (vi) using
its best efforts to keep available for the Cathedral Group and Buyer, the
services of the officers and employees of the Cathedral Group; and (vii)
preserving the good will of clients, suppliers and others having business
relations with the Cathedral Group.
4.2 Certain Restrictions. Refrain from: (i) changing or amending the
Charter Documents of the Cathedral Group; (ii) merging with or into or
consolidating with any other Person; (iii) acquiring all or substantially
all of the stock or the assets of any Person or changing the character of
its business; (iv) issuing or selling any shares of its capital stock of
any class or any securities convertible into, or options, warrants to
purchase or rights to subscribe to, any shares of its capital stock; (v)
permitting any liens upon, pledging or otherwise encumbering any shares of
its capital stock or any of its assets or properties; (vi) declaring,
paying or setting aside for payment any dividend or other distribution to
any of the stockholders of the Companies, in respect of its capital stock
or otherwise, provided, however, that Cathedral may distribute to one or
more of the Sellers, prior to Closing, the Matthew Blvd. Property,
conditioned on the assumption of any debt related to the Matthew Blvd.
Property by such transferee(s); (vii) directly or indirectly, redeeming,
retiring, purchasing or otherwise acquiring any shares of its capital stock
or any of its indebtedness for money borrowed in advance of any scheduled
repayment date; (viii) except as set forth on SCHEDULE 4.2, making any
capital expenditures, or commitments with respect thereto in excess of
$20,000; (ix) incurring, assuming or guaranteeing any indebtedness,
obligations or liabilities or entering into any transactions or making any
commitment to do any of the foregoing except in the Ordinary Course of
Business or for purposes of consummation of the transactions contemplated
by this Agreement and in any case only after consultation with Buyer; (x)
canceling, releasing, waiving or compromising any debt, Claim or right in
its favor; (xi) altering the rate or basis of compensation of any of its
officers, directors, employees or consultants; and (xii) taking any action
or failing to take any action as a result of which any of the other changes
or events listed in SECTION 2.12 hereof is likely to occur.
4.3 Cash and Cash Equivalents. Preserve, and expend solely in the Ordinary
Course of Business, its cash and cash equivalents.
4.4 Interim Financial Information. To the extent prepared in the Ordinary
Course of Business, furnish to Buyer unaudited financial statements
(including, without limitation, balance sheets and statements of income,
changes in stockholders' equity and cash flow) and information for each
calendar month,
<PAGE>
promptly following the conclusion of such month, and as Buyer may otherwise
reasonably request.
4.5 Full Access and Disclosure.
(a) Afford to Buyer and its counsel, accountants and other authorized
representatives reasonable access during business hours to the Cathedral
Group's facilities, properties, books and records in order that Buyer may
have full opportunity to make such reasonable investigations as it shall
desire to make of the affairs of the Cathedral Group's, including financial
statement and other audits at the sole cost and expense of Buyer; and the
Sellers shall cause the Cathedral Group's officers, employees and auditors
to furnish on a timely basis such additional financial and operating data
and other information as Buyer shall from time to time reasonably request
including, without limitation, any internal control recommendations
applicable to the Cathedral Group made by the Cathedral Group's independent
auditors in connection with any examination of the Cathedral Group's
Financial Statements and books and records.
(b) Promptly notify Buyer in writing if any Seller or the Cathedral
Group becomes aware of any fact or condition that causes or constitutes a
breach of any representation or warranty of any Seller or the Cathedral
Group as of the date of this Agreement, or if such Seller or the Cathedral
Group becomes aware of the occurrence after the date of this Agreement of
any fact or condition that would (except as expressly contemplated by this
Agreement) cause or constitute a breach of any such representation or
warranty had such representation or warranty been made as of the time of
occurrence or discovery of such fact or condition. Should any such fact or
condition require any change in any schedule hereto, Sellers will promptly
deliver to Buyer a proposed amendment or supplement to such schedule
specifying such change. No such proposed amendment or supplement to a
schedule shall constitute an amendment or supplement to such schedule until
Buyer shall have consented thereto. Each Seller will promptly notify Buyer
of the occurrence of any breach of any covenant of Sellers in this ARTICLE
4 or ARTICLE 6 or of the occurrence of any event that may make the
satisfaction of the conditions in ARTICLE 7 impossible or unlikely.
4.6 Fulfillment of Conditions Precedent. Refrain from taking any action
which, if taken on or prior to the Effective Date, would constitute a
breach of this Agreement. The Cathedral Group and the Sellers shall use
their best efforts to obtain at their expense, on or prior to the Closing
Date, all such waivers, Permits, consents, approvals or other
authorizations from third parties and Authorities, and to do all things as
may be necessary or desirable in connection with the transactions
contemplated by this Agreement in order to fully and expeditiously
consummate the transactions contemplated by this Agreement.
4.7 Tax Returns. File all Tax Returns and reports with respect to Taxes
which are required to be filed for Tax periods ending on or before the
Effective Date (a
<PAGE>
"Pre-Closing Tax Return"), and the Cathedral Group shall pay all Taxes due
in respect of such Pre-Closing Tax Returns to the appropriate Taxing
Authority; and the Cathedral Group shall pay all costs associated with the
preparation thereof.
4.8 No Solicitation or Negotiation. Refrain from, and cause its directors,
officers, employees, representatives, agents, advisors, accountants and
attorneys to refrain from, initiating, soliciting or encouraging, directly
or indirectly, any inquiries or the making of any proposal with respect to,
or engage in negotiations concerning, or provide any confidential
information or data to any Person with respect to, or have any discussions
with any Persons relating to, any acquisition, business combination or
purchase of all or any significant asset of, or any equity interest in, the
Cathedral Group, or otherwise facilitate any effort or attempt to do or
seek any of the foregoing, and shall immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any of the foregoing. Should
the Cathedral Group or any Seller be contacted with respect to any offer,
inquiry or proposal, the Cathedral Group and the Sellers shall immediately
advise Buyer in writing of the name, address and phone number of the
contact and the nature of the inquiry.
4.9 Public Announcements. Refrain from disclosing any of the terms of this
Agreement to any third party (other than Buyer's advisors and senior
lending group and the Sellers' advisors) without the other party's prior
written consent unless required by any applicable law. The form, content
and timing of any and all press releases, public announcements or publicity
statements (except for any disclosures under or pursuant to Federal or
State securities laws in connection with the registration of Buyer's
securities or otherwise) with respect to this Agreement or the transactions
contemplated hereby shall be subject to the prior approval of the Buyer and
the Sellers' Representative.
4.10 Termination of Agreements. Terminate or cause to be terminated, on or
prior to the Effective Date, (i) any stockholders agreements, voting
agreements, voting trusts, options, warrants and employment agreements
between the Cathedral Group and any employee and (ii) any existing
agreement between the Cathedral Group and any stockholder of the Cathedral
Group not reflecting fair market terms, except such existing agreements as
are set forth on SCHEDULE 4.10. Such termination agreements are listed on
SCHEDULE 4.10 and copies thereof are attached hereto.
ARTICLE V. COVENANTS OF BUYER
Buyer hereby covenants and agrees with the Companies and the Sellers that
prior to the Closing or the termination of this Agreement:
5.1 Full Access and Disclosure.
<PAGE>
(a) Buyer shall afford to the Companies and each Seller, and their
counsel, accountants and other authorized representatives an opportunity to
make such reasonable investigations as they shall desire to make of the
business of Buyer; and Buyer shall cause its officers, employees and
auditors to furnish such additional financial and operating data and other
information as the Sellers shall from time to time reasonably request.
(b) From time to time prior to the Closing Date, Buyer shall promptly
supplement or amend information previously delivered to the Companies
and/or the Sellers with respect to any matter hereafter arising which, if
existing or occurring at the date of this Agreement, would have been
required to be set forth herein or disclosed.
5.2 Rule 145 Best Efforts. While RQI is a public company with its
securities registered under the Securities Act, and listed or quoted for
trading by a national securities exchange or inter-dealer quotation system,
RQI will use commercially reasonable efforts to see that RQI is in
compliance with the requirements of Rule 144 under the Securities Act
applicable to the issuer of securities, so as to facilitate non-registered
sales of RQI Stock by the Sellers who then own RQI Stock consistent with
the requirements and limitations of Rule 145. Nothing in this SECTION 5.2
shall be deemed as either (i) any representation or warranty that RQI will
remain a public company with securities registered under the Securities
Act, or (ii) any covenant or agreement by RQI to register, under the
Securities Laws or otherwise, any RQI securities issued to, or held by, the
Sellers.
5.3 Release and Assumption of Guarantees. Buyer shall use commercially
reasonable efforts to have each of the Sellers released, contemporaneously
with the Closing Date, from any and all guarantees on any indebtedness
personally guaranteed by any of them and from any and all pledges of assets
pledged by any of them to secure such indebtedness for the benefit of the
Cathedral Group, with all such guarantees on indebtedness being assumed by
the Buyer. In the event that Buyer cannot obtain such releases from the
lenders of any such guaranteed indebtedness on the Closing Date, Buyer
shall repay all indebtedness of the Cathedral Group relating to such
personal guarantees within 60 days after the Closing Date. Buyer shall
indemnify and hold harmless the Sellers from the payment of any guaranties
on any indebtedness or contractual obligations that the Sellers had
incurred prior to the Closing Date provided that such indebtedness or
obligations are related to the business of the Cathedral Group as being
conducted at the Closing Date.
ARTICLE VI. OTHER AGREEMENTS
6.1 Further Assurances. Subject to the terms and conditions of this
Agreement, each of the parties hereto shall use its best efforts to take,
or cause to be taken, all action, and to do, or cause to be done, all
things necessary, proper or advisable under applicable Regulations to
consummate and make effective the
<PAGE>
transactions contemplated by this Agreement. If at any time after the
Closing Date Buyer, on the one hand, or the Sellers, on the other hand,
shall consider or be advised that any further agreements, instruments,
documents, deeds, papers, assignments or assurances in law or in any other
things are necessary, desirable or proper to vest, perfect or confirm, of
record or otherwise, in such party, the title to any property or rights of
the other acquired or to be acquired by reason of, or as a result of, this
Agreement or any of the transactions contemplated herein, the other party
agrees that it or they shall execute and deliver all such proper
agreements, instruments, documents, deeds, papers, assignments and
assurances in law and do all things necessary, desirable or proper to vest,
perfect or confirm title to such property or rights in such party and
otherwise to carry out the purpose of this Agreement.
6.2 Consents. Without limiting the generality of SECTION 6.1, each of the
parties hereto shall use their best efforts to obtain all Permits of all
Persons and Authorities necessary, proper or advisable in connection with
the consummation of the transactions contemplated by this Agreement prior
to the Closing Date. With respect to every material Contract of the
Cathedral Group, even those Contracts for which a consent or approval is
not required under the terms of such Contract, upon the execution and
delivery of this Agreement, each party to each such Contract shall, after
consultation with and coordination by Buyer, be advised of the transaction
contemplated hereby.
6.3 No Termination of Sellers' Obligations by Subsequent Incapacity, Etc.
Each Seller specifically agrees that the obligations of such Seller
hereunder, including, without limitation, obligations pursuant to ARTICLE
11 and SECTION 6.4 shall not be terminated by the death or incapacity of
any Seller.
6.4 Confidentiality. From the date hereof to and including the Effective
Date, Buyer, on the one hand, and each Seller and the Cathedral Group, on
the other hand, shall, in accordance with that certain confidentiality
agreement (the "Confidentiality Agreement") between Buyer and Cathedral,
attached hereto as SCHEDULE 6.4 (which agreement (i) the terms and
conditions of which are incorporated by reference herein and (ii) will
terminate on the earlier of one (1) year after the execution thereof or the
Effective Date) cause its principals, officers and other personnel and
authorized representatives to abide by the terms of such agreement and hold
in confidence, and not disclose to any other Person without the other
party's prior consent, all written and oral information furnished or
disclosed by or received from such party or its officers, directors,
employees, agents, counsel and auditors in connection with the transactions
contemplated hereby except as may be contemplated therein.
6.5 Non Competition Covenant.
(a) Each Seller acknowledges that: (i) this Agreement includes certain
consideration in respect of the goodwill associated with the operation of
the
<PAGE>
Restricted Businesses by the Sellers; (ii) the covenants of the Sellers
contained in this SECTION 6.5 are a material inducement to Buyer to enter
into this Agreement; (iii) Buyer and each of its Affiliates (each an "Buyer
Entity" and collectively, the "Buyer Entities") has expended and will
expend considerable time, effort and capital to develop the Restricted
Businesses; and (iv) Buyer and each of the other Buyer Entities has a
legitimate business interest in protecting its investment in the Restricted
Businesses and would be irreparably damaged if any of the Sellers were to
breach the covenants set forth in this SECTION 6.5. Accordingly, each of
the Sellers agrees that the covenants set forth in this SECTION 6.5: (i)
are separate and independent covenants for which valuable consideration has
been paid, the receipt, adequacy and sufficiency of which are acknowledged
by each Seller; (ii) are cumulative to all other covenants of the Sellers
in favor of Buyer and the other Buyer Entities contained in this Agreement
and shall survive the termination of this Agreement for the purposes
intended; (iii) are reasonable and necessary to protect and preserve the
conduct and operation of the Restricted Businesses by Buyer and the other
Buyer Entities; and (iv) do not impose an undue hardship upon any Seller,
do not unreasonably restrict any one of them with respect to or from the
performance of services of, relating to or connected with the Restricted
Businesses, the management thereof or otherwise, and are reasonable with
respect to their duration, geographical area and scope.
(b) Each Seller covenants and agrees that, during the Restricted
Period, he or she shall not, directly or indirectly, either individually,
in partnership, jointly or in conjunction with any other Person, whether as
principal, agent, officer, director, shareholder, owner, partner, joint
venturer, manager, employee, independent contractor, consultant, advisor,
sales representative or any other capacity whatsoever:
(i) engage, in any Restricted Business in competition with Buyer or
any other Buyer Entity within the Restricted Territory;
(ii) solicit, interfere with, disturb, or seek to interfere with or
disturb the relationship with (contractual or otherwise) any Person who is, at
that time, or who has been within one (1) year prior to that time, an employee
of any Buyer Entity for the purpose or with the intent of inducing or enticing
such employee away from or out of the employ of any Buyer Entity;
(iii) employ or otherwise engage as an employee, independent
contractor, consultant or any capacity whatsoever, any Person employed by any
Buyer Entity in the Restricted Territory;
(iv) solicit, interfere with, disturb, or seek to interfere with or
disturb the relationship with (contractual or otherwise) any Person which is, at
that time, or which has been within one (1) year prior to that time, a customer
or supplier of any Buyer Entity for the purpose of soliciting or selling
products or services in competition with any
<PAGE>
Buyer Entity within the Restricted Territory or inducing such customer or
supplier to cease doing business with any Buyer Entity; or
(v) solicit, interfere with, disturb, or seek to interfere with or
disturb the relationship with (contractual or otherwise) any prospective
acquisition candidate, on such Seller's own behalf or on behalf of any
competitor or potential competitor, which candidate was, to such Seller's
Knowledge, either called upon by any Buyer Entity or for which any Buyer Entity
made an acquisition analysis, for the purpose of acquiring such entity.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit any Seller from acquiring as an investment not more than two percent
(2%) of the capital stock of a competing business, whose stock is traded on a
national securities exchange or over-the-counter.
(c) In recognition of the substantial nature of such potential damages
and the difficulty of measuring economic losses to any Buyer Entity as a
result of a breach of the foregoing covenants, and because of the immediate
and irreparable damage that could be caused to any such Buyer Entity for
which it would have no other adequate remedy, each Seller agrees that in
the event of breach by such Seller of the foregoing covenant, such Buyer
Entity shall be entitled to specific performance of this provision and
co-injunctive and other equitable relief, and that each Seller will be
responsible for the payment of court costs and reasonable attorneys' fees
incurred by such Buyer Entity in successfully obtaining the relief sought
in connection with the enforcement of the covenants set forth in this
SECTION 6.5.
(d) It is the intent of Buyer and the Sellers that the covenants in
this SECTION 6.5 applicable to any of the Sellers that are employed or
engaged as a consultant by any of the Cathedral Group companies after the
Effective Date be construed and enforced, as to the Restricted Territory,
in accordance with the changing locations of the Buyer Entities with
respect to the Restricted Businesses, before and as of the date of
termination of the employment or consulting relationship of such Seller.
For example, if, during the Restricted Period, a Buyer Entity establishes
new locations for one or more of the Restricted Businesses in addition to
its existing locations established therefor, then such Seller will be
precluded from soliciting the customers or employees of such Restricted
Business from such new location and from directly competing with such
Restricted Business within a 100 mile radius of its then-established
operating location(s) through the balance of the Restricted Period.
(e) The covenants in this SECTION 6.5 are severable and separate, and
the unenforceability of any specific covenant shall not affect the
provisions of any other covenant. Moreover, in the event any court of
competent jurisdiction shall determine that the scope, time or territorial
restrictions set forth are unreasonable, then it is the intention of the
parties that such restrictions be enforced to the fullest
<PAGE>
extent which the court deems reasonable, and the Agreement shall be
reformed in accordance therewith.
(f) All of the covenants in this SECTION 6.5 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of any Seller against any Buyer
Entity, whether predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by any Buyer Entity of such
covenants. Further, this SECTION 6.5 shall survive the Closing and the
termination of such Seller's employment with an Buyer Entity. It is
specifically agreed that the Restricted Period, during which the agreements
and covenants of the Sellers made in this SECTION 6.5 shall be effective,
shall be computed by excluding from such computation any time during which
such Seller is in violation of any provision of this SECTION 6.5.
(g) Any or all of the Sellers may (i) develop Properties and (ii) act,
or continue to act, as real estate brokers on behalf of one or more of the
Buyer Entities, pursuant to the terms of a standard brokerage agreement in
effect from time to time.
6.6 Non-disclosure; Confidentiality.
(a) Confidential Information. By virtue of each Seller's employment,
or engagement hereafter as a consultant, association or involvement with
the Cathedral Group and any due diligence with respect to the Buyer
Entities, each Seller has obtained and may obtain confidential or
proprietary information developed, or to be developed, by the Cathedral
Group and an Buyer Entity. "Confidential Information" means all proprietary
or business sensitive information, whether in oral, written, graphic,
machine-readable or tangible form, and whether or not registered, and
including all notes, plans, records, documents and other evidence thereof,
including but not limited to all: patents, patent applications, copyrights,
trademarks, trade names, service marks, service names, "know-how," customer
lists, details of client or consulting contracts, pricing policies,
operational methods, marketing plans or strategies, product development
techniques or plans, procurement and sales activities, promotion and
pricing techniques, credit and financial data concerning customers,
business acquisition plans or any portion or phase of any scientific or
technical information, discoveries, computer software or programs used or
developed in whole or in part by the Cathedral Group or any Buyer Entity
(including source or object codes), processes, procedures, formulas or
improvements of the Cathedral Group or any Buyer Entity; algorithms;
computer processing systems and techniques; price lists; customer lists;
procedures; improvements, concepts and ideas; business plans and proposals;
technical plans and proposals; research and development; budgets and
projections; technical memoranda, research reports, designs and
specifications; new product and service developments; comparative analyses
of competitive products, services and operating procedures; and other
information, data and documents now existing or later acquired by the
Cathedral Group or any
<PAGE>
Buyer Entity, regardless of whether any of such information, data or
documents qualify as a "trade secret" under applicable Federal or State
law. "Confidential Information" shall not include: (a) any information
which becomes generally available to the public other than as a result of
disclosure by any Seller or any relative, agent or representative thereof;
(b) becomes available to any Seller on a non-confidential basis from a
source other than the Cathedral Group or any Buyer Entity or any of its
respective employees, agents or representatives, provided that such source
lawfully obtained such information and is not bound by a confidentiality
agreement with the Cathedral Group or any Buyer Entity; or (c) is required
to be disclosed by law provided, that if such Seller is required by law
(including, without limitation, any judicial or administrative proceeding
or any governmental or regulatory authority) to disclose any of the
Confidential Information, Seller shall provide Buyer with prompt written
notice of any such requirement and shall cooperate in full with Buyer to
obtain a protective order or to pursue an action to obtain a waiver from
such requirement. If, in the absence of a protective order or other remedy,
Seller is nonetheless, in the written opinion of Seller's outside counsel,
legally compelled to disclose Confidential Information, Seller may, without
liability hereunder disclose the Confidential Information, provided, that,
(i) Seller gives Buyer prior written notice of the information to be
disclosed, (ii) only discloses that portion of the Confidential Information
which Seller's counsel advises is legally required to be disclosed, and
(iii) Seller use his or her best efforts to preserve the confidentiality
thereof by obtaining reasonable assurance that confidential treatment will
be accorded the Confidential Information.
(b) Non-Disclosure. Each Seller agrees that, he or she will not at any
time, without the prior express written authorization of Buyer, disclose to
any Person or use any Confidential Information whatsoever for any purpose
whatsoever, or permit any Person whatsoever to examine and/or make copies
of any reports or any documents or software (whether in written form or
stored on magnetic, optical or other mass storage media) which contain or
are derived from any Confidential Information. Each Seller further agrees
that, no Confidential Information shall be removed from the premises of the
Cathedral Group or any Buyer Entity, without the prior express written
consent of such entity.
(c) Buyer Group Property. As used in this Agreement, the term "Buyer
Group Property" means all documents, papers, computer printouts and disks,
records, customer or customer lists, files, manuals, supplies, computer
hardware and software, equipment, inventory and other materials that have
been created, used or obtained by the Cathedral Group or any Buyer Entity,
or otherwise belonging to the Cathedral Group or any Buyer Entity, as well
as any other materials containing Confidential Information as defined
above. Each Seller recognizes and agrees that:
(i) All Buyer Group Property shall be and remain the property of the
Buyer Entity to which such property belongs;
<PAGE>
(ii) Each Seller will preserve, use and hold Buyer Group Property only
for the benefit of Buyer and its Affiliates and to carry out the business of
Buyer and its Affiliates; and
(iii) Except as to those Sellers employed by an Buyer Entity after the
Closing and subject to a confidentiality agreement with such entity, each Seller
will immediately deliver and surrender to Buyer all Buyer Group Property,
including all copies, extracts or any other types of reproductions, which such
Seller has in his possession or control.
6.7 Buyer Stock Option Plan. After the Effective Date, Buyer shall award to
certain key employees of the Cathedral Group identified prior to the
Closing, whom will be retained and employed by Buyer, non-qualified options
to purchase shares of RQI Stock in an aggregate amount for all such
employees equal to three percent (3%) of the Purchase Price, subject to the
terms and conditions of the Buyer 1998 Long Term Incentive Plan. The
options would vest 25% per year beginning on the first anniversary of
employment with Buyer and each annual anniversary thereafter up to 100% on
the fourth anniversary thereof.
6.8 Retention Bonuses to certain Cathedral Employees. Within three (3)
business days after the Effective Date, Buyer shall pay to the Cathedral
employees set forth on SCHEDULE 6.8 the respective amounts set forth
opposite such employees' names, as one-time bonuses intended to induce such
employees to remain in their respective current positions.
6.9 Subsequent Controlled Affiliate Properties. In the event that the
Sellers or Affliates of the Sellers, within the Restricted Period, acquire
interests, directly or indirectly, in Properties which fall within the
definition of Controlled Affiliate Properties, the Sellers agree to cause
such Controlled Affiliate Properties, promptly after the acquisition
thereof, to become subject to rental management agreements with Buyer for a
term which, in each such case, ends on the last day of the Restricted
Period, and otherwise on terms substantially analogous to the terms of the
Controlled Affiliate Propery Agreements, except with respect to the
properties set forth on SCHEDULE 7.12 which shall be on such terms as are
specified with respect thereto.
6.10 Information as to 401(k) Plans. Buyer shall cooperate with Sellers
with respect to any Seller's interests and accounts under any 401(k) plan
of the Cathedral Group, and shall make such provision with respect thereto
as any such Seller may elect, consistent with the terms of such plan and
applicable law.
ARTICLE VII. CONDITIONS TO THE OBLIGATIONS OF THE BUYER
<PAGE>
Each and every obligation of Buyer under this Agreement shall be subject to
the satisfaction, on or before the Closing Date, of each of the following
conditions, unless waived in writing by Buyer:
7.1 Representations and Warranties; Covenants and Agreements. The
representations and warranties of the Sellers contained in ARTICLE 2 and
elsewhere in this Agreement and all information contained in any exhibit,
certificate, schedule or attachment hereto or in any writing delivered by,
or on behalf of, the Sellers or the Companies to Buyer, shall be true and
correct when made and shall be true and correct in all material respects on
the Closing Date as though then made, except as expressly provided herein.
The Sellers and the Companies shall have performed and complied with all
agreements, covenants and conditions and shall have made all deliveries
required by this Agreement to be performed, delivered and complied with by
them prior to the Closing Date or at the Closing. Each of the Sellers and
the president of the Companies shall have executed and delivered to Buyer a
certificate, dated the Closing Date, certifying to the foregoing.
7.2 No Injunction. No preliminary or permanent injunction or other Order,
decree or ruling issued by any Authority, or any Regulation promulgated or
enacted by any Authority shall be in effect, which would prevent the
consummation of the transactions contemplated hereby.
7.3 Third Party Consents. Buyer, the Sellers and the Companies shall have
obtained all consents, approvals, waivers or other authorizations listed in
SCHEDULE 2.8 with respect to the execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated
hereby, such that each of the Contracts of the Cathedral Group remains in
effect (without default, acceleration, termination, assignment, right of
termination or assignment, payment, increase in rates or compensation
payable, penalty, interest or other adverse effect) from and after the
Effective Date as such Contracts operated and were in effect before the
Effective Date. With respect to the material Contracts of the Cathedral
Group for which notice of the transaction had been, or should have been,
delivered to the other party thereto pursuant to SECTION 6.2 hereof; (a)
all such parties to such Contracts shall have been notified of the
transactions contemplated hereby and (b) none of Buyer, any Seller or the
Cathedral Group shall have received any notice of terminations or
amendments of, or any indication from such party of their intent to
terminate or amend, such contract, unless such amendment shall not
adversely affect the Cathedral Group or any Seller.
7.4 Regulatory Approvals. The Authorities listed in SCHEDULE 2.8 hereto
shall have approved the applications listed in such Schedule with respect
to the change of control represented by the transactions contemplated by
this Agreement, and such approval shall not impose financial obligations on
the Cathedral Group or Buyer that are objectionable to it.
<PAGE>
7.5 No Material Adverse Change. There shall have been no Material Adverse
Change since the date of this Agreement. Buyer shall have received
certificates (which shall be addressed to Buyer), dated the Closing Date,
of the president and chief financial officer of each of the Companies,
certifying to the foregoing.
7.6 Directors and Officers. The Buyer shall have received the resignations
of the directors and any officers of the Cathedral Group specified by
Buyer, which resignations shall be effective as of the Effective Date.
7.7 Indebtedness. The Buyer shall have determined to its satisfaction that
the Cathedral Group's indebtedness to the creditors set forth on SCHEDULE
7.7 hereto may be paid or prepaid in full at any time without premium or
penalty.
7.8 Due Diligence. Buyer shall have completed its due diligence
investigation with respect to the Cathedral Group including, but not
limited to, business, financial, legal, operational, customer, worker's
compensation, employee (both internal and external) and real estate due
diligence, with results satisfactory to Buyer in its sole discretion.
7.9 FIRPTA Certificate. Each of the Sellers shall have delivered to Buyer a
certificate to the effect that such Seller is not a foreign person pursuant
to Section 1.1445-2(b) of the Treasury regulations.
7.10 Sellers' Closing Documents. The Seller shall have delivered to Buyer
executed originals of each of the Sellers Closing Documents.
7.11 Hart-Scott-Rodino Act. Any waiting period (and any extension thereof)
applicable to the consummation of the transactions contemplated herein
under the Hart-Scott-Rodino Act shall have expired or been terminated (the
date on which all such waiting periods have expired or been terminated is
referred to herein as the "HSR Termination Date").
7.12 Management Agreements. The Cathedral Group shall have (a) obtained
from the other parties under the Cathedral Group's management agreements
consent pursuant to any change of control provisions therein or shall have
caused the lessors to execute and deliver new or amended and restated
agreements satisfactory in form and substance to Buyer and (b) entered into
written management agreements with respect to the properties identified on
SCHEDULE 7.12, generally on the terms set forth in SCHEDULE 7.12 and
otherwise on terms and conditions mutually agreeable to Buyers and Sellers.
7.13 Termination of Certain Agreements and Plans. The Cathedral Group shall
have terminated (i) any qualified "defined benefit plan" (as defined in
Section 3(35) of ERISA) in accordance with applicable laws and regulations,
(ii) any life insurance policies on the lives of any of the Executives and
other officers of the
<PAGE>
Cathedral Group, together with any agreements to provide any of such
policies at the expense of the Cathedral Group, and (iii) any and all
leases of employee vehicles and any agreements with employees related to
the provision of company vehicles, or for the payment of a periodic vehicle
allowance, by the Cathedral Group.
7.14 Leased Premises. The Cathedral Group shall have entered into a new or
modified lease agreement or an assignment of the existing lease agreement,
as well as any other agreements with respect to the premises currently
occupied or otherwise used by the Cathedral Group in connection with the
operation of the business and activities of the Cathedral Group, each of
which shall be satisfactory in form and substance to Buyer. As part of the
satisfaction of this condition, amendments shall be executed and delivered,
prior to Closing, with respect to the properties identified on SCHEDULE
7.14 generally on the terms contained in such schedule and otherwise on
terms and conditions mutually acceptable to Buyer and the respective owners
of such properties.
7.15 Board Approval. Buyer's Board of Directors shall have approved this
Agreement and the transactions contemplated herein.
ARTICLE VIII. CONDITIONS TO THE OBLIGATIONS OF THE SELLERS
Each and every obligation of the Sellers under this Agreement shall be
subject to the satisfaction, on or before the Closing Date, of each of the
following conditions unless waived in writing by the Sellers:
8.1 Representations and Warranties; Performance. The representations and
warranties of Buyer contained in ARTICLE 3 and elsewhere in this Agreement
and all information contained in any exhibit, schedule or attachment
hereto, or in any writing delivered by Buyer to the Sellers and the
Companies, shall be true and correct in all material respects when made and
shall be true and correct in all material respects on the Closing Date as
though then made, except as expressly provided herein. Buyer shall have
performed and complied in all material respects with all agreements,
covenants and conditions required by this Agreement to be performed and
complied with by them prior to the Closing Date. An authorized officer of
Buyer shall have delivered to the Sellers a certificate, dated the Closing
Date, certifying to the foregoing.
8.2 No Injunction. No preliminary or permanent injunction or other Order,
decree or ruling issued by any Authority, or any Regulation promulgated or
enacted by any Authority shall be in effect, which would prevent the
consummation of the transactions contemplated hereby.
8.3 Purchase Price. The Sellers shall have received their respective
pro-rata portion of the Purchase Price required to be delivered at Closing
and to which such Seller is entitled pursuant to SECTION 1.2 hereof.
<PAGE>
8.4 Buyer's Closing Documents. Buyer shall have delivered to the Sellers
executed originals of each of the other Buyer's Closing Documents.
ARTICLE IX. TERMINATION AND ABANDONMENT
9.1 Methods of Termination. This Agreement may be terminated and the
transactions herein contemplated may be abandoned at any time:
(a) by mutual consent of Buyer, the Sellers' Representative and the
Companies;
(b) by Buyer or the Sellers and the Companies if this Agreement is not
closed on or before the later of (i) the Proposed Closing Date or (ii) the
HSR Termination Date; provided, however, that if any party has breached or
defaulted with respect to its respective obligations under this Agreement
on or before such date, such party may not terminate this Agreement
pursuant to this SECTION 9.1(b), and each other party to this Agreement
shall at its option enforce its rights against such breaching or defaulting
party and seek any remedies against such party, in either case as provided
hereunder and by applicable law;
(c) by Buyer if as of the Closing Date (including any extensions) any
of the conditions specified in ARTICLE 7 hereof shall not have been
satisfied or if any of the Companies or Sellers is otherwise in default
under this Agreement; or
(d) by the Sellers and the Companies if, as of the Closing Date
(including any extensions), any of the conditions specified in ARTICLE 8
hereof shall not have been satisfied, or if Buyer is in default under this
Agreement.
9.2 Procedure Upon Termination. In the event of termination and abandonment
pursuant to SECTION 9.1 hereof, and subject to the provision contained in
SECTION 9.1(b), this Agreement shall terminate and shall be abandoned,
without further action by any of the parties hereto. If this Agreement is
terminated as provided herein:
(a) each party shall redeliver all documents and other material of any
other party relating to the transactions contemplated hereby, whether
obtained before or after the execution hereof, to the party furnishing the
same;
(b) all information received by any party hereto with respect to the
business of any other party or the Cathedral Group (other than information
which is a matter of public knowledge or which has heretofore been or is
hereafter published in any publication for public distribution or filed as
public information with any governmental authority) shall not at any time
be used for the advantage of, or disclosed to third parties by, such party
to the detriment of the party furnishing such information; and
<PAGE>
(c) no party hereto shall have any further liability or obligation to
any other party under or in connection with this Agreement; provided,
however, the non-breaching or non-defaulting party shall not be foreclosed
from bringing a Claim or cause of action or otherwise recovering from the
breaching or defaulting party.
9.3 Breakup Fee. Notwithstanding anything herein to the contrary, in the
event that Buyer terminates this Agreement solely in reliance on SECTION
7.8 hereof, on or after the date on which Buyer has delivered the Interim
Cash Deposit to the Interim Escrow Agent, the Interim Cash Deposit and, if
then held by the Interim Escrow Agent, the Additional Cash Deposit,
together with any interest accrued thereon but net of all costs and
expenses of the Interim Escrow Agent, shall be paid over and delivered by
the Interim Escrow Agent to the Sellers, in the respective amounts set
forth on SCHEDULE 1.2, it being the intent of the parties hereto that this
be the sole remedy for any damages incurred by the Sellers in connection
with the termination of this Agreement by Buyer in reliance on such
Section; provided, however, that no termination hereof shall operate to
terminate the Confidentiality Agreement.
ARTICLE X. SURVIVAL OF TERMS; INDEMNIFICATION
10.1 Survival; Knowledge.
(a) All of the terms and conditions of this Agreement, together with
the representations, warranties and covenants contained herein or in any
instrument or document delivered or to be delivered pursuant to this
Agreement, shall survive the execution of this Agreement and the Closing
notwithstanding any investigation heretofore or hereafter made by or on
behalf of any party hereto; provided, however, that (i) the agreements and
covenants set forth in this Agreement shall survive and continue until all
obligations set forth therein shall have been performed and satisfied; and
(ii) all representations and warranties shall survive and continue until
one year from the Effective Date (the "Anniversary Date"), except for
representations and warranties for which a claim for indemnification
hereunder (an "Indemnification Claim") shall be pending as of the
Anniversary Date, in which event such representations and warranties shall
survive with respect to such Indemnification Claim until the final
disposition thereof.
(b) The right to indemnification, payment of damages or other remedy
based on such representations, warranties, covenants, and obligations will
not be affected by any investigation conducted with respect to, or any
knowledge acquired (or capable of being acquired) at any time, whether
before or after the execution and delivery of this Agreement or the
Effective Date, with respect to the accuracy or inaccuracy of or compliance
with, any such representation, warranty, covenant, or obligation. The
waiver of any condition based on the
<PAGE>
accuracy of any representation or warranty, or on the performance of or
compliance with any covenant or obligation, will not affect the right to
indemnification, payment of damages, or other remedy based on such
representations, warranties, covenants, and obligations.
10.2 Indemnification by the Sellers. Subject to this ARTICLE 10, Sellers
and each of the Companies shall, jointly and severally, indemnify, defend
and hold harmless Buyer and each of the other Buyer Entities and each of
the officers, directors, employees, shareholders, attorneys, accountants,
partners, representatives, agents, successors and assigns of each of the
foregoing (each an "Buyer Indemnified Party" and collectively, the "Buyer
Indemnified Parties"), at all times after the date of this Agreement,
against and in respect of any and all Claims (including, without
limitation, the fees and expenses of counsel) resulting from, or in respect
of, any of the following:
(a) Any misrepresentation, breach of warranty, or nonfulfillment of
any covenant or other obligation on the part of any Seller or the Companies
under this Agreement, any document relating thereto or contained in any
schedule (without giving effect to any amendment or supplement thereto) or
exhibit to this Agreement or from any misrepresentation in or omission from
any certificate, schedule, other agreement or instrument by any of the
Sellers or the Companies hereunder;
(b) Any conduct, action or inaction of any of the Sellers or the
Companies occurring or arising from or relating to the operation,
management or ownership of the Cathedral Group on or prior to the Effective
Date or any circumstance related to the operation, management or ownership
of the Cathedral Group on or prior to the Effective Date, whether known or
unknown on the Effective Date;
(c) Any and all liabilities of the Cathedral Group of any nature
whether accrued, absolute, contingent or otherwise, and whether known or
unknown, existing at the Effective Date to the extent not reflected and
reserved against in the balance sheet included in the Interim Financial
Statements or not otherwise adequately disclosed in this Agreement or the
schedules or exhibits thereto, including, without limitation:
(i) All Tax liabilities of the Cathedral Group, together with any
interest or penalties thereon or related thereto, through the Effective Date and
any Tax liability of the Cathedral Group arising in connection with the
transactions contemplated hereby. Any Taxes, penalties or interest attributable
to the operations of the Cathedral Group payable as a result of an audit of any
tax return shall be deemed to have accrued in the period to which such Taxes,
penalties or interest are attributable;
(ii) All environmental liabilities relating to any of the Cathedral
Group's properties, including federal, state and local environmental liability,
together
<PAGE>
with any interest or penalties thereon or related thereto, through the Effective
Date, but excluding any amount for which there is an adequate accrual and
reserve on the balance sheet included in the Interim Financial Statements; and
(d) All demands, assessments, judgments, costs and reasonable legal
and other expenses arising from, or in connection with any Claim incident
to any of the foregoing.
10.3 Indemnification by Buyer. Subject to this ARTICLE 10, Buyer shall
indemnify, defend and hold harmless each of the Sellers and their
respective heirs, successors, assigns, representatives, attorneys,
accountants, partners and agents (each, a "Seller Indemnified Party" and
collectively, the "Seller Indemnified Parties"), at all times after the
date of this Agreement, against and in respect of any and all Claims
(including, without limitation, the fees and expenses of counsel) resulting
from, or in respect of: (i) any misrepresentation, breach of warranty, or
nonfulfillment of any covenant or other obligation on the part of Buyer
under this Agreement, any document relating thereto or contained in any
schedule or exhibit to this Agreement; (ii) from any misrepresentation in
or omission from any certificate, schedule, other agreement or instrument
by Buyer hereunder; or (iii) any conduct, action, inaction of the Cathedral
Group or Buyer arising from or relating to the operation, management or
ownership of the Cathedral Group after the Effective Date or any
circumstance related to the operation, management or ownership of the
Cathedral Group after the Effective Date.
10.4 Third Party Claims.
(a) Except as otherwise provided in this Agreement, the following
procedures shall be applicable with respect to indemnification for third
party Claims. Promptly after receipt by the party seeking indemnification
hereunder (hereinafter referred to as the "Indemnitee") of notice of the
commencement of any (a) Tax audit or proceeding for the assessment of Tax
by any taxing authority or any other proceeding likely to result in the
imposition of a Tax liability or obligation, or (b) any action or the
assertion of any Claim, liability or obligation by a third party (whether
by legal process or otherwise), against which Claim, liability or
obligation the other party to this Agreement (hereinafter the "Indemnitor")
is, or may be, required under this Agreement to indemnify such Indemnitee,
the Indemnitee will, if a Claim thereon is to be, or may be, made against
the Indemnitor, notify the Indemnitor in writing of the commencement or
assertion thereof and give the Indemnitor a copy of such Claim, process and
all legal pleadings. The Indemnitor shall have the right to participate in
the defense of such action with counsel of reputable standing. The
Indemnitor shall have the right to assume the defense of such action unless
such action (i) may result in injunctions or other equitable remedies in
respect of the Indemnitee or its business; (ii) may result in liabilities
which, taken with other then existing Claims under this ARTICLE 10, would
not be fully indemnified hereunder; or (iii) may have
<PAGE>
an adverse impact on the business or financial condition of the Indemnitee
after the Effective Date (including an effect on the Tax liabilities,
earnings or ongoing business relationships of the Indemnitee). The
Indemnitor and the Indemnitee shall cooperate in the defense of such
Claims. In the case that the Indemnitor shall assume or participate in the
defense of such audit, assessment or other proceeding as provided herein,
the Indemnitee shall make available to the Indemnitor all relevant records
and take such other action and sign such documents as are necessary to
defend such audit, assessment or other proceeding in a timely manner.
(b) Upon judgment, determination, settlement or compromise of any
third party Claim, the Indemnitor shall pay promptly on behalf of the
Indemnitee, and/or to the Indemnitee in reimbursement of any amount
theretofore required to be paid by it, the amount so determined by
judgment, determination, settlement or compromise, unless in the case of a
judgment an appeal is made from the judgment, plus all other Claims of the
Indemnitee with respect thereto (including legal fees and expenses). If the
Indemnitor desires to appeal from an adverse judgment, then the Indemnitor
shall post and pay the cost of the security or bond to stay execution of
the judgment pending appeal. Upon the payment in full by the Indemnitor of
such amounts, the Indemnitor shall succeed to the rights of such
Indemnitee, to the extent not waived in settlement, against the third party
who made such third party Claim.
(c) Prior to paying or settling any Claim against which an Indemnitor
is, or may be, obligated under this Agreement to indemnify an Indemnitee,
the Indemnitee must first supply the Indemnitor with a copy of a final
court judgment or decree holding the Indemnitee liable on such claim or
failing such judgment or decree, and must first receive the written
approval of the terms and conditions of such settlement from the
Indemnitor. An Indemnitor shall have the right to settle any Claim against
it or as to which it has assumed the defense, subject to the prior written
approval of the Indemnitee, which approval shall not be unreasonably
withheld provided that such settlement involves only the payment of a fixed
sum which the Indemnitor is obligated to pay and does not include any
admission of liability or other such similar admissions by or related to
Indemnitee with respect to such Claim.
(d) An Indemnitee shall have the right to employ its own counsel in
any case, but the fees and expenses of such counsel shall be at the expense
of the Indemnitee unless: (i) the employment of such counsel shall have
been authorized in writing by the Indemnitor in connection with the defense
of such action or Claim; (ii) the Indemnitor shall not have employed, or is
prohibited under this SECTION 10.4 from employing, counsel in the defense
of such action or Claim; or (iii) such Indemnitee shall have reasonably
concluded that there may be defenses available to it which are contrary to,
or inconsistent with, those available to the Indemnitor, in any of which
events such fees and expenses of not more than one additional counsel for
the indemnified parties shall be borne by the Indemnitor.
<PAGE>
10.5 Limitation on Indemnification.
(a) None of the Buyer Indemnified Parties shall assert any
Indemnification Claim hereunder against the Sellers until such time as, and
solely to the extent that, the aggregate of all such claims which such
parties may have against the Sellers shall exceed two percent (2%) of the
value of the Closing Stock Consideration (the "Sellers' Indemnification
Threshold"), provided, however, that the Buyer Indemnified Parties may
assert and shall be indemnified for any claim set forth in SCHEDULE 10.5(a)
at any time, regardless of whether the aggregate of all Indemnification
Claims which such parties may have against the Sellers exceeds the
Indemnification Threshold, it being understood that the amount of any such
claim set forth in SCHEDULE 10.5(a) shall not be counted towards the
Indemnification Threshold.
(b) None of the Seller Indemnified Parties shall assert any
Indemnification Claim hereunder against Buyer until such time as, and
solely to the extent that, the aggregate of all such claims which the
Sellers may have against Buyer shall exceed $50,000 (the "Buyer
Indemnification Threshold").
(c) Notwithstanding any other term of this Agreement, the Sellers
shall not be liable under this ARTICLE 10 for an amount which exceeds
$2,000,000 (the "Initial Indemnification Tranche"), provided however, that
with respect to those items set forth in SCHEDULE 10.5(a) the Sellers shall
be liable for indemnification obligations with respect thereto up to an
additional amount of $1,000,000 (the "Schedule 10.5(a) Indemnification
Tranche"; and together with the Initial Indemnification Tranche, the
"Indemnification Tranches"), the Claims for which items shall be allocated
first to the Schedule 10.5(a) Indemnification Tranche and then to the
Initial Indemnification Tranche, and, provided further, that with respect
to the representations and warranties set forth in SECTION 2.5, Title to
Stock, hereof, the Sellers' Indemnification obligations shall not be so
limited and the Claims for which items shall not be allocated to either of
the Indemnification Tranches. Any indemnification payment made by the
Sellers pursuant to this ARTICLE 10 shall be deemed to be a reduction in
the Purchase Price received by the Sellers pursuant to ARTICLE 1.
10.6 Payment of Sellers' Indemnification Obligations.
(a) To the extent that any Seller shall be required to indemnify Buyer
pursuant to this ARTICLE 10, such Indemnification Claim shall be satisfied
for all purposes hereunder by delivering to Buyer certificates, duly
endorsed for transfer, representing that number of shares of Buyer Stock
having a value (based on the Initial Average Price), rounded to the nearest
share, equal to the amount due hereunder, subject to subsection (b) of this
SECTION 10.6. To the extent that any Seller has insufficient shares of
Buyer Stock to satisfy any indemnification obligation hereunder, such
Seller shall satisfy the remaining amount of such obligation by cash
payment to Buyer. To secure the obligations of the Sellers
<PAGE>
to make any payments required hereunder, at the Closing the Sellers and
Buyer will enter into the Escrow Agreement. At any time that Buyer shall
make any Indemnification Claim against any or all of the Sellers, Buyer may
simultaneously therewith or at any time thereafter give the Escrow Agent
notice under the Escrow Agreement pursuant to the terms set forth therein.
Buyer shall not be limited in recovery to the amount of Buyer Stock held by
the Escrow Agent and may, at their election, proceed to recover the amount
of any Indemnification Claim owed by the Sellers from the Sellers, the
Escrow Agent or both.
(b) In the event that a Seller (i) is or may be deemed to be covered
by Section 16 of the Securities Exchange Act of 1934, and (ii) has an
indemnification obligation which such Seller desires to pay in shares of
Buyer Stock hereunder has, within six months prior to the time that such
obligation arises, purchased any shares of Buyer Stock, such Seller shall
be entitled to delay payment of his indemnification obligation hereunder
until after six months have passed from the date of the last purchase
preceding the date on which the obligation arose if as a condition to such
postponement such Seller provides security for his obligations which is
reasonably satisfactory to Buyer.
10.7 Survival of Indemnification. These indemnification provisions shall
survive the termination or other expiration of this Agreement until the
first anniversary of the Effective Date, except for those Indemnification
Claims which shall be pending as of the first anniversary of the Effective
Date, in which event, such Indemnification Claims and the related
indemnification provisions shall survive until the final disposition
thereof.
ARTICLE XI. MISCELLANEOUS PROVISIONS
11.1 Amendment and Modification. Subject to applicable law, this Agreement
may be amended, modified and supplemented only by a written agreement
signed by the Companies, Buyer and the Sellers.
11.2 Entire Agreement. This Agreement, including the schedules and exhibits
hereto and the documents, annexes, attachments, certificates and
instruments referred to herein and therein, embodies the entire agreement
and understanding of the parties hereto in respect of the agreements and
transactions contemplated by this Agreement and supersedes all prior
agreements, representations, warranties, promises, covenants, arrangements,
communications and understandings, oral or written, express or implied,
between the parties with respect to such transactions. There are no
agreements, representations, warranties, promises, covenants, arrangements
or understandings between the parties with respect to such transactions,
other than those expressly set forth or referred to herein.
11.3 Certain Definitions. As used herein, the following defined terms shall
have the following respective meanings:
<PAGE>
"Affiliate" means, with regard to any Person, (a) any Person, directly
or indirectly, controlled by, under common control of, or controlling such
Person, (b) any Person, directly or indirectly, in which such Person holds,
of record or beneficially, five percent or more of the equity or voting
securities, (c) any Person that holds, of record or beneficially, five
percent or more of the equity or voting securities of such Person, (d) any
Person that, through Contract, relationship or otherwise, exerts a
substantial influence on the management of such Person's affairs, (e) any
Person that, through Contract, relationship or otherwise, is influenced
substantially in the management of their affairs by such Person, or (f) any
director, officer, partner or individual holding a similar position in
respect of such Person.
"Affiliate Agreement" shall have the meaning assigned to such term in
SECTION 1.5(a)(viii) hereof.
"Ancillary Documents" shall have the meaning assigned to such term in
SECTION 2.7 hereof.
"Assets" of any Person as of any date means all assets of such Person
as presented on a balance sheet prepared in accordance with GAAP as of such
date, but excluding therefrom any and all Restricted Cash of such Person.
"Authority" means any international, federal, state local or municipal
governmental, regulatory or administrative body, agency, department,
division, subdivision, office, arbitrator or other authority, any court or
judicial authority, or any public, private or industry regulatory agency or
authority.
"Average Price" shall have the meaning assigned to such term in
SECTION 1.2 hereof.
"Bonus Amount" means an amount equal the aggregate amount of the
bonuses set forth on SCHEDULE 6.8.
"Buyer Closing Documents" shall have the meaning assigned to such term
in SECTION 1.5(b) hereof.
"Buyer Entity" shall have the meaning assigned to such term in SECTION
6.5 hereof.
"Cathedral Group" means Chapel, Cathedral and the Cathedral
subisidiaries Abbott Resorts, Inc., a Florida corporation, Abbott & Andrews
Realty, Inc., a Florida corporation, S.I.I.K., Inc., a Florida corporation,
Tops'l Group, Inc., a Florida corporation, Tops'l Club of NW Florida, Inc.,
a Florida corporation; where necessary or appropriate, a reference to "the
Cathedral Group" shall be read to mean "the members of the Cathedral
Group", "each of the
<PAGE>
members of the Cathedral Group" or "any of the members of the Cathedral
Group".
"Charter Documents" shall have the meaning assigned to such term in
SECTION 2.1(c) hereof.
"Claim" means any action, claim, obligation, liability, damage, loss,
deficiency, cost, expense, commitment, lawsuit, demand, suit, inquiry,
hearing, investigation, notice of a violation, litigation, proceeding,
arbitration, or other dispute, whether civil, criminal, administrative or
otherwise, whether pursuant to contractual obligations or otherwise.
"Closing" shall have the meaning assigned to such term in SECTION 1.4
hereof.
"Closing Balance Sheet" shall mean an unaudited consolidated and
consolidating balance sheet of the Cathedral Group, prepared in accordance
with the requirements of SECTION 2.9(a) hereof, as of the day immediately
preceding the Effective Date.
"Closing Date" shall have the meaning assigned to such term in SECTION
1.4 hereof.
"Consolidated Assets of the Cathedral Group" as of any date means an
aggregate amount equal to all of the Assets of all members of the Cathedral
Group as of such date.
"Consolidated Current Assets of the Cathedral Group" as of any date
means an aggregate amount equal to all of the Current Assets of all members
of the Cathedral Group as of such date.
"Consolidated Current Liabilities of the Cathedral Group" as of any
date means an aggregate amount equal to all of the Current Liabilities of
all members of the Cathedral Group as of such date.
"Consolidated Liabilities of the Cathedral Group" means, as of any
date, an aggregate amount equal to all of the Liabilities of all members of
the Cathedral Group as of such date.
"Contract" means any agreement, contract, commitment, instrument or
other binding arrangement or understanding, whether written or oral.
"Converted Unit" means a Property owned by an Affiliate of the
Cathedral Group (an "Affiliate Property") which has become subject to a
written rental management agreement with the Cathedral Group which has a
term of at least one year and is otherwise on terms, including without
limitation the applicable rental
<PAGE>
rates therefor and the commission payable to the Cathedral Group, which are
(A) equivalent to the terms contained in rental management agreements for
an equivalent Property which is owned by a Person not an Affiliate of the
Cathedral Group and (B) otherwise acceptable to Buyer in its sole
discretion.
"Controlled Affiliate Property" means an Affiliate Property which is
owned by (i) one or more Sellers or (ii) by an entity which is owned or
controlled by one or more of the Sellers.
"Current Assets" of any Person as of any date means all current assets
of such Person as presented on a balance sheet prepared in accordance with
GAAP as of such date, but excluding therefrom any and all Restricted Cash
of such Person.
"Debt" means, for any Person as of any date, the aggregate outstanding
and unpaid balance (including but not limited to unpaid principal, accrued
interest, costs and expenses) of all indebtedness of such Person which
bears interest that would be included in Interest Expense of such Person
for a fiscal period that includes such date.
"Deposits" shall have the meaning assigned to such term in SECTION
2.26 hereof.
"Destin Bank Debt" means obligations of the Sellers (other than Angus
G. Andrews, Jr.) to Cathedral, in the approximate amount of $90,000, in
respect of the transfer of certain shares of stock in the Destin Bank by
Cathedral to such Sellers.
"Effective Date" means the Closing Date, unless an agreement executed
prior to or simultaneously with the Closing specifies a different date.
"Employment Agreement" shall have the meaning assigned to such term in
SECTION 1.5 hereof.
"Environmental Law" means any Regulation, Order, settlement agreement
or governmental requirement, which relates to or otherwise imposes
liability or standards of conduct concerning mining or reclamation of mined
land, discharges, emissions, releases or threatened releases of noises,
odors or any pollutants, contaminants or hazardous or toxic wastes,
substances or materials, whether as matter or energy, into ambient air,
water, or land, or otherwise relating to the manufacture, processing,
generation, distribution, use, treatment, storage, disposal, cleanup,
transport or handling of pollutants, contaminants, or hazardous wastes,
substances or materials, including (but not limited to) the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the
Superfund Amendments and Reauthorization Act of 1986, as amended, the
Resource Conservation and Recovery Act of 1976, as amended, the Toxic
Substances
<PAGE>
Control Act of 1976, as amended, the Federal Water Pollution Control Act
Amendments of 1972, the Clean Water Act of 1977, as amended, any so called
"Superlien" law, and any other similar Federal, state or local statutes.
"Environmental Permit" shall mean Permits, certificates, approvals,
licenses and other authorizations relating to or required by Environmental
Law and necessary or desirable for the Corporation's business.
"GAAP" means generally accepted accounting principles, applied on a
consistent basis.
"Hazardous Material" means (A) any petroleum or petroleum products,
flammable explosives, radioactive materials, asbestos in any form that is
or could become friable, urea formaldehyde foam insulation and transformers
or other equipment that contain dielectric fluid containing levels of
polychlorinated biphenyls (PCBs); (B) any chemicals or other materials or
substances which are now or hereafter become defined as or included in the
definition of "hazardous substances," "hazardous wastes," "hazardous
materials," "extremely hazardous wastes," "restricted hazardous wastes,"
"toxic substances," "toxic pollutants" or words of similar import under any
Environmental Law; and (C) any other chemical or other material or
substance, exposure to which is now or hereafter prohibited, limited or
regulated by any Authority under any Environmental Law.
"HSR Termination Date" shall have the meaning assigned to such term in
SECTION 7.11 hereof.
"Interest Expense" of any Person for any fiscal period means the
amount of interest expense deducted from revenue in arriving at Net Income
Before Taxes of such Person for such fiscal period, all as calculated in
accordance with GAAP.
"Knowledge" means, with respect to any Person, if such Person is an
individual, that (i) such Person has actual knowledge or awareness of a
particular fact or matter or (ii) if circumstances exist such that a
reasonable and prudent person would make further inquiry, and thereupon,
with due diligence and conducting a reasonably comprehensive investigation
concerning the existence of such fact or matter, such Person could be
expected to discover or otherwise become aware of such fact or matter. If
other than an individual, that any individual serving as director, officer,
employee, partner, executor, trustee or any similar capacity whatsoever of
such Person, has, or at any time had, knowledge of such fact or matter.
"Lien" means any security interest, lien, mortgage, pledge,
hypothecation, encumbrance, Claim, easement, restriction or interest of
another Person of any kind or nature.
<PAGE>
"Material Adverse Change" means any development or change which has,
had or would have a Material Adverse Effect.
"Material Adverse Effect" means, as to any Person, any circumstances,
events, state of facts or matters which has had, or might reasonably be
expected to have, a material adverse effect on (i) such Person's business,
operations, properties, assets, condition (financial or otherwise),
results, plans, strategies or prospects, or (ii) the ability of such Person
to consummate any of the transactions contemplated by this Agreement or any
of the related agreements, instruments or documents or (iii) the benefits
contemplated to be conferred on such Person by this Agreement or any of the
related agreements, instruments or documents.
"Matthew Blvd. Property" means, collectively, (a) that certain parcel
of real property owned by Cathedral and located at the intersection of
Matthew Blvd. and Old Highway 98, and (b) Cathedral's undivided interest in
the parcel of real property adjacent to the parcel described in clause (a).
"Membership Letters" means letters from Buyer to each Seller granting
to each such Seller, for so long as Buyer, directly or indirectly, owns
Tops'l Club of N.W. Florida, Inc., status as a "Full Member" of Tops'l
Beach & Racquet Club without payment of any dues by any such Seller,
provided that Seller shall pay for any desired "a la carte services",
including without limitation personal training and tennis lessons.
"Net Income Before Taxes" of any Person for any fiscal period means
such Person's net income before federal, state and local income taxes for
such fiscal period, all as calculated in accordance with GAAP.
"Options"shall have the meaning assigned to such term in SECTION 2.6
hereof.
"Order" means any decree, consent decree, judgment, award, order,
injunction, consent of or by an Authority.
"Ordinary Course of Business" shall mean an action taken by a Person
only if:
(a) such action is consistent with the past practices of such
Person and is taken in the ordinary course of the normal day-to-day
operations of such Person;
(b) such action is not required to be authorized by the board of
directors of such Person (or by any Person or group of Persons exercising
similar authority); and
<PAGE>
(c) such action is similar in nature and magnitude to actions
customarily taken, without any authorization by the board of directors (or
by any Person or group of Persons exercising similar authority), in the
ordinary course of the normal day-to-day operations of other Persons that
are in the same line of business as such Person.
"Person" means any individual, corporation, partnership, limited
partnership, limited liability partnership or company, joint venture,
company, syndicate, union, unincorporated organization, association, trust,
entity, Authority or natural person.
"Properties" means each and every type of home, condominium, hotel
room, suite or other residential accommodation which Cathedral, any of its
Subsidiaries or Chapel offers or otherwise makes available to rent as
occupancy for any Person for a period of up to one (1) year.
"Intellectual Property" means any patent, patent application,
copyright, trademark, trade name, service mark, service name, trade secret,
knowhow, confidential information or other intellectual property or
proprietary rights.
"Regulation" means any law, statute, rule, regulation, ordinance,
requirement, announcement or other binding action of or by an Authority.
"Restricted Businesses" shall mean the business, products, services
and activities of Buyer and the Cathedral Group and any of their respective
Affiliates in connection with the rental, management and provision of
related services with respect to Properties.
"Restricted Period" shall mean a period of five (5) years, from the
Effective Date to the fifth (5th) annual anniversary of the Effective Date.
"Restricted Territory" shall mean the geographic area within a
100-mile radius of any location at which the Cathedral Group or any Buyer
Entity presently conducts or operates, or within twelve (12) months after
the date hereof is conducting or operating, any Restricted Business.
"Rule 145" shall have the meaning assigned to such term in SECTION 1.6
hereof.
"Securities Act" shall have the meaning assigned to such term in
SECTION 1.6 hereof.
"Sellers Closing Documents" shall have the meaning assigned to such
term in SECTION 1.5(a) hereof.
"Sellers' Representative" means William W. Abbott, Jr.
<PAGE>
"Subsidiary" means any Person which Buyer or the Cathedral Group, as
the case may be, owns, directly or indirectly, 50% or more of the
outstanding stock or other equity interests.
11.4 Notices. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed to
have been duly given when delivered by hand or mailed, first class
certified mail with postage paid or by overnight receipted courier service:
If to the Sellers or the Cathedral Group, to:
William W. Abbott, Jr.
506 Highway 98 East
Destin, Florida 32541
with a copy to:
James W. Grimsley
25 Walter Martin Road, N.E.
Fort Walton Beach, Florida 32549
or to such other person or address as the Sellers' Representative or
the Cathedral Group shall furnish by notice to Buyer in writing.
If to Buyer to:
ResortQuest International, Inc.
530 Oak Court Drive
Suite 360
Memphis, TN 38117
with a copy to:
Smith, Gambrell & Russell, LLP
1230 Peachtree Street, N.E.
Suite 3100
Atlanta, Georgia 30309
Attn.: Bruce W. Moorhead, Jr., Esq., or
Dennis O. Doherty, Esq.
or to such other person or address as Buyer shall furnish by notice to
the Sellers' Representative in writing.
11.5 Exhibits and Schedules. The Exhibits and Schedules referred to in this
Agreement are attached hereto and incorporated herein by this reference.
Disclosure of a specific item in any one Schedule shall be deemed restricted
only to the Section of this
<PAGE>
Agreement to which such disclosure relates, except where, and to the extent
that, there is an explicit cross-reference in such Schedule to another Schedule.
11.6 Waiver of Compliance; Consents. Any failure of any party hereto to
comply with any obligation, covenant, agreement or condition herein may be
waived in writing by the other parties hereto, but such waiver or failure to
insist upon strict compliance with such obligation, covenant, agreement or
condition shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure. Whenever this Agreement requires or permits consent
by or on behalf of any party hereto, such consent shall be given in writing.
11.7 Assignment. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, but neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto without the prior written consent of the other parties, except
that Buyer may assign its rights, interests and obligations hereunder to any
wholly-owned Subsidiary, and may grant Liens or security interests in respect of
its rights and interests hereunder, without the prior approval of the Sellers.
11.8 Governing Law. The Agreement shall be governed by the internal laws of
the State of Delaware as to all matters, including but not limited to matters of
validity, construction, effect and performance.
11.9 Consent to Jurisdiction; Service of Process. The Companies and each of
the Sellers hereby irrevocably submit to the jurisdiction of any United States
District Court in which venue is proper in connection with any suit, action or
other proceeding arising out of or relating to this Agreement and the
transactions contemplated hereby, and hereby agree not to assert, by way of
motion, as a defense, or otherwise in any such suit, action or proceeding that
the suit, action or proceeding is brought in an inconvenient forum, that the
venue of the suit, action or proceeding is improper or that this Agreement or
the subject matter hereof may not be enforced by such courts.
11.10 Injunctive Relief. The parties hereto agree that in the event of a
breach of any provision of this Agreement, the aggrieved party or parties may be
without an adequate remedy at law. The parties therefore agree that in the event
of a breach of any provision of this Agreement, the aggrieved party or parties
may elect to institute and prosecute proceedings in any court of competent
jurisdiction to enforce specific performance or to enjoin the continuing breach
of such provision, as well as to obtain damages for breach of this Agreement. By
seeking or obtaining any such relief, the aggrieved party shall not be precluded
from seeking or obtaining any other relief to which it may be entitled.
11.11 Headings. The article, section and other headings contained in this
Agreement are for reference purposes only and do not affect in any way the
meaning or interpretation of this Agreement (or any provision hereof).
<PAGE>
11.12 Pronouns and Plurals. Whenever the context may require, any pronoun
used in this Agreement shall include the corresponding masculine, feminine, or
neuter forms, and the singular forms of nouns, pronouns, and verbs include the
plural and vice versa.
11.13 Construction. The parties acknowledge that each party has reviewed
and revised this Agreement and that the normal rule of construction to the
effect that any ambiguities are to be resolved against the drafting party shall
not be employed in the interpretation of this Agreement.
11.14 Dealings in Good Faith; Best Efforts. Each party hereto agrees to act
in good faith with respect to the other party in exercising its rights and
discharging its obligations under this Agreement. Each party further agrees to
use its best efforts to ensure that the purposes of this Agreement are realized
and to take all further steps as are reasonably necessary to implement the
provisions of this Agreement. Each party agrees to execute, deliver and file any
document or instrument necessary or advisable to implement or satisfy the
express provisions of this Agreement.
11.15 Binding Effect. This Agreement shall not be construed so as to confer
any right or benefit upon any Person other than the signatories to this
Agreement and each of their respective successors and permitted assigns.
11.16 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any party hereto, upon any breach or default of any
other party under this Agreement, shall impair any such right, power or remedy
of such party nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of or in any similar breach or default
thereafter occurring; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on
the part of any party hereto of any breach or default under this Agreement, or
any waiver on the part of any party of any provisions or conditions of this
Agreement must be made in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement or by law or otherwise afforded to any party, shall be cumulative and
not alternative.
11.17 Severability. Unless otherwise provided herein, if any provision of
this Agreement shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
11.18 Expenses. All fees, costs and expenses (including, without
limitation, legal, auditing and accounting fees, costs and expenses) incurred in
connection with considering, pursuing, negotiating, documenting or consummating
this Agreement and the transactions contemplated hereby shall be borne and paid
solely by the party incurring such fees, costs and expenses.
11.19 Attorneys' Fees. If any party to this Agreement seeks to enforce the
terms and provisions of this Agreement, then the prevailing party in such action
shall be entitled to recover from the losing party all costs in connection with
such action, including without limitation
<PAGE>
reasonable attorneys' fees, expenses and costs incurred with respect to trials,
appeals and collection.
11.20 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.21 Completion of Schedules or Exhibits. In the event that any Schedule
or Exhibit hereto, as of the date hereof, is marked or otherwise indicated as
"To be Provided", each such Schedule or Exhibit shall be attached hereto and
become a part hereof at such time as the Buyer and Sellers' Representative have
approved and initialed such Schedule or Exhibit.
* * * *
<PAGE>
IN WITNESS WHEREOF, the parties hereto have made and entered into this
Agreement the date first hereinabove set forth.
RESORTQUEST INTERNATIONAL, INC.
By: /s/ David C. Sullivan
---------------------------------
Name: David C. Sullivan
Title: Chairman and CEO
ABBOTT REALTY SERVICES, INC.
By: /s/ William W. Abbott, Jr.
---------------------------------
Name: William W. Abbott, Jr.
Title: Vice-Chairman
TOPS'L SALES GROUP, INC.
By: /s/ William W. Abbott, Jr.
---------------------------------
Name: William W. Abbott, Jr.
Title: President
SELLERS:
/s/ William W. Abbott, Jr.
------------------------------------
William W. Abbott, Jr., individually
/s/ Stephen J. Abbott
------------------------------------
Stephen J. Abbott, individually
/s/ James R. Steiner
------------------------------------
James R. Steiner, individually
/s/ Charles H. Van Diver
------------------------------------
Charles H. Van Diver, individually
<PAGE>
/s/ Sue C. Van Diver
------------------------------------
Sue C. Van Diver, individually
/s/ Angus G. Andrews
------------------------------------
Angus G. Andrews, individually
<PAGE>
SCHEDULE 1.2
ALLOCATION OF PURCHASE PRICE
The Purchase Price shall be allocated among the Sellers in the following manner;
in each case, after determining a dollar amount with respect to each of the
respective Sellers based on the following allocations, such amount shall be
further allocated between cash (80%) and RQI Stock (20%), including without
limitation the Indemnification Stock.
First, ten percent (10%) of the Purchase Price shall be allocated to Angus G.
Andrews, Jr. (the "Andrews Amount").
Second, the "Remaining Purchase Price" shall be calculated by subtracting the
Andrews Amount from the Purchase Price.
Third, the Remaining Purchase Price shall be allocated as follows:
William W. Abbott, Jr. 25.5%
Stephen J. Abbott 25.5%
James R. Steiner 24.5%
Charles H. and Susan C. 24.5% (70% of 24.5% Charles H. Van Diver; 30% of
Van Diver 24.5% Sue C. Van Diver)
<PAGE>
SCHEDULE 1.3
EMPLOYEES AND CONSULTANTS
Employee: James W. Olin
Consultants: William W. Abbott, Jr.
Stephen J. Abbott
<PAGE>
SCHEDULE 3.5
BUYER'S BROKER
Sparky Lovelace
<PAGE>
SCHEDULE 7.12
CERTAIN MANAGEMENT AGREEMENTS
Properties: Henderson Park Inn
Henderson Park Villas
Seagrove Villas
Term: Five (5) years after Effective Date
Special Termination
Right: Owners of any of these properties may terminate the management
agreement if, following a ninety (90) day period after written notice specifying
in detail performance deficiencies of the manager, the manager has not cured
such specified deficiencies to the reasonable satisfaction of such owner. In the
event that any owner exercises such Special Termination Right, thereafter such
owner may manage such property and shall pay to the Cathedral Group five percent
(5%) of adjusted gross revenue of such property plus any fees and costs
attendant to any continuing services which such owner wishes to continue
receiving from the Cathedral Group, including without limitation reservation
fees.
<PAGE>
SCHEDULE 7.14
LEASED PREMISES
The following are the general terms of amendments to certain lease
agreements with respect to the follwing properties:
Main Office: Base Rent = $9,350 per month
Gulf Place Office: Base Rent = $4,139 per month
Base Rents, above, are in effect for first five (5) years of amended terms. For
purposes of computing adjusted rents, the leases shall be treated as having
fourteen (14) five-year terms. Prior to the beginning of the second, and each
successive, five-year term the rent payable under each lease shall be adjusted
upward for such successive term by the greater of (a) fifteen percent (15%) of
the then current rent or (b) a percentage equal to the aggregate percentage
increase in the Consumer Price Index during such then current period.
Amended Terms for each property:
Initial Term: 20 years
Renewal Terms: Ten (10) successive five-year renewal terms, at the option of
lessee.
Right of First Refusal: Tenant shall have a right of first refusal to purchase
either of the above properties.
<PAGE>
SCHEDULE 10.5(A)
EXCEPTIONS TO THE BUYER INDEMNIFIED PARTIES INDEMNIFICATION LIMITATIONS
1. Any Claims in connection with, arising from or relating to sexual harassment
by any of the Sellers on or prior to the Effective Date.
2. Any Claims in connection with, arising from or relating to a breach of the
representations or warranties in SECTION 2.16, Taxes, hereof provided, that such
claims on an individual basis are in excess of $250,000;
3. Any Claims in connection with, arising from or relating to a breach of the
any of the Seller's representations or warranties of which any of the Sellers
have Knowledge but which were not disclosed to Buyer prior to the execution
hereof;
4. Any Claims in connection with, arising from or relating to any of the
Cathedral Groups contracts, instruments, agreements or other documents which
were not disclosed to Buyer;
5. Any Claims in connection with, arising from or relating to a breach of the
representations or warranties in SECTION 2.10, Customer Deposits, and SECTION
2.26(IV), Financial Condition as of Effective Date, with respect to the funding
of such deposits.
6. Any Claims in connection with, arising from or relating to a breach of the
representations or warranties in SECTION 2.5, Title to Stock.
EXHIBIT 10.23
PROMISSORY NOTE
$5,000,000 September 30, 1998
FOR VALUE RECEIVED, RESORTQUEST INTERNATIONAL, INC., a Delaware corporation
(the "Borrower"), hereby promises to pay to the order of NATIONSBANK, N.A., a
national banking association, its successors or assigns (the "Bank"), at such
place or places as the Bank may designate, the maximum principal amount of FIVE
MILLION DOLLARS ($5,000,000), or such lesser amount as may constitute the unpaid
principal amount of the Advances (as hereinafter defined), on January 31, 1999
(the "Maturity Date"). Capitalized terms used herein and not otherwise defined
shall have the meanings set forth in the Credit Agreement defined below.
The Borrower, so long as no Event of Default exists hereunder, may from
time to time until the Maturity Date request advances from the Bank up to an
aggregate principal amount of $5,000,000 at any time outstanding (the
"Advances"). Amounts repaid by the Borrower may be reborrowed in accordance with
the terms hereof.
The outstanding principal balance of this Note shall bear interest in
accordance with the terms of the Credit Agreement. Accrued interest hereunder
shall be payable on any Interest Payment Date and on the Maturity Date. Whenever
a payment on this Note is stated to be due on a day which is not a Business Day,
such payment shall be made on the next succeeding Business Day (except, with
respect to Eurodollar Loans, that where the next succeeding Business Day falls
in the next succeeding calendar month, then on the next preceding Business Day)
with interest accruing to the date of payment. Interest hereunder shall be
computed for the actual number of days elapsed on the basis of a 360-day year.
Notwithstanding the provisions contained herein, in the event of the
occurrence of an Event of Default hereunder, interest on the unpaid principal
amount of this Note (and interest thereon to the extent permitted by law) for
the period commencing on the date of such Event of Default until such principal
amount is paid in full or such applicable Event of Default is waived by the Bank
at a rate per annum equal to the Adjusted Base Rate from time to time in effect
plus two percent (2%) per annum.
For purposes hereof the following terms shall have the following meanings:
(a) "Credit Agreement" shall mean that certain Credit Agreement, dated
as of May 26, 1998, by and among the Borrower, the Material Subsidiaries of
the Borrower, as Guarantors, the Lenders party thereto and the Bank, as
Agent for the Lenders, as such Credit Agreement may be amended, modified,
supplemented or restated from time to time; and
(b) "Letter Agreement" shall mean that certain letter agreement, dated
as of the date hereof, by and among the Borrower, the Guarantors and the
Lenders.
<PAGE>
The Borrower shall have the right at any time and from time to time to
prepay, without premium or penalty, amounts outstanding under this Note. Amounts
prepaid may not be reborrowed.
The following shall constitute "Events of Default" hereunder: (i) if any
payment of principal, interest, fees or other amounts is not made on the date
required for such payment under this Note, (ii) the occurrence of any Event of
Default under the Credit Agreement, or (iii) the termination of the Credit
Agreement. Upon the occurrence of any Event of Default, the unpaid principal
amount under this Note, together with all accrued but unpaid interest hereon,
may become, or may be declared to be, immediately due and payable without
presentation, demand, protest or notice of any kind, all of which are hereby
waived by the Borrower.
No delay or omission on the part of the holder of this Note in exercising
any right hereunder shall operate as a waiver of such right or of any right of
such holder nor shall any delay, omission or waiver on any one occasion be
deemed a bar to or waiver of the same or any other right on any future occasion.
The Borrower shall pay (i) all reasonable out-of-pocket expenses of the
Bank associated with the preparation, execution, delivery and administration of
this Note, including reasonable fees and disbursements of special counsel for
the Bank in connection with the administration of this Note, any waiver or
consent hereunder or any amendment hereof or any Event of Default or alleged
Event of Default hereunder, or (ii) if an Event of Default occurs, all
reasonable out-of-pocket expenses incurred by the Bank, including reasonable
fees and disbursements of counsel, actually incurred in connection with such
Event of Default and any collection, bankruptcy, insolvency and other
enforcement proceedings resulting therefrom.
This Note shall be governed by and construed in accordance with the laws of
the State of North Carolina. The Borrower hereby submits to the nonexclusive
jurisdiction of the United States District Court of the Western District of
North Carolina and of any North Carolina State court sitting in Mecklenburg
County for purposes of all legal proceedings arising out of or relating to this
Note or the transactions contemplated hereby. The Borrower irrevocably waives,
to the fullest extent permitted by law, any objection which it may now or
hereafter have to the laying of the venue of any such proceeding brought in such
a court and any claim that any such proceeding brought in such a court has been
brought in an inconvenient forum.
In addition to any rights now or hereafter granted under applicable law or
otherwise, upon default in payment hereof or hereunder the Bank is hereby
authorized at any time and from time to time without notice to the Borrower to
set off and apply any and all deposits (general or special) and any other
indebtedness at any time held or owing by the Bank to or for the credit or
account of the Borrower against and on account of the obligation of the Borrower
under this Note, irrespective of whether or not the Bank shall have made any
demand hereunder and although said liabilities or claims, or any of them, shall
be contingent or unmatured.
THE BORROWER WAIVES DEMAND, NOTICE OF INTENT TO DEMAND, PRESENTMENT FOR
PAYMENT, NOTICE OF NONPAYMENT, PROTEST, NOTICE OF
-2-
<PAGE>
PROTEST, GRACE, NOTICE OF DISHONOR, NOTICE OF INTENT TO ACCELERATE MATURITY,
NOTICE OF ACCELERATION OF MATURITY, AND DILIGENCE IN COLLECTION. THE BORROWER
WAIVES NOTICE OF ANY AND ALL RENEWALS, EXTENSIONS, REARRANGEMENTS, AND
MODIFICATIONS OF THIS NOTE.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed and
delivered by its duly authorized officer as of the date first above written.
RESORTQUEST INTERNATIONAL, INC.,
a Delaware corporation
By:/s/ Jeffery M. Jarvis
--------------------------------
Name: Jeffery M. Jarvis
-------------------------------
Title:Chief Financial Officer
------------------------------
-3-
EXHIBIT 10.24
September 30, 1998
ResortQuest International, Inc.
530 Oak Court Drive, Suite 360
Memphis, TN 38117
Attn: John K. Lines, Senior Vice President,
General Counsel and Secretary
Re: Credit Agreement dated as of May 26, 1998 (the "Credit Agreement")
among ResortQuest International, Inc. (the "Borrower"), the other
Credit Parties party thereto, the Lenders party thereto (the
"Lenders") and NationsBank, N.A., as Agent for the Lenders (in such
capacity, the "Agent")
Ladies and Gentlemen:
Reference is made to the Credit Agreement described above, the defined terms of
which are incorporated herein by reference.
The Lenders and the Credit Parties hereby agree that Section 8.1 of the Credit
Agreement is amended by adding the following subsection (f) thereto and making
the appropriate grammatical changes:
(f) Indebtedness evidenced by that certain promissory note, dated as
of September 30, 1998, made by the Borrower and payable to the order of
NationsBank in the principal amount of $5,000,000.
The Lenders and the Credit Parties further agree that the definition of
"Permitted Liens" set forth in Section 1.1 of the Credit Agreement is hereby
amended by adding the following clause (xii) thereto and making the appropriate
grammatical changes:
(xii) Liens in favor of the Agent on behalf of NationsBank to secure
the obligations and liabilities of the Borrower to NationsBank evidenced by
the promissory note referenced in Section 8.1(f).
With respect to the Acquisitions by the Borrower of all of the outstanding
shares of stock of Tops'l Sales Group, Inc., a Florida corporation, and Abbott
Realty Services, Inc., a Florida corporation (collectively, the "Target
Companies"), the Lenders hereby agree (a) to waive the requirements of Sections
6.18 and 8.5 of the Credit Agreement and clauses (v)(B) and (vi)(B) of the
definition of "Permitted Acquisition" set forth in Section 1.1 of the Credit
Agreement and (b) that after giving effect to the Acquisitions of the Target
Companies, the cash consideration limit set forth in clause (vi)(A) of such
definition of "Permitted Acquisition" shall be deemed
<PAGE>
$12,500,000 for the remainder of calendar year 1998. With respect to the
promissory note referenced in Section 8.1(f) of the Credit Agreement (the
"NationsBank Note"), the Lenders agree to waive the requirements of Section 8.7
of the Credit Agreement.
The Credit Parties and the Lenders agree that the obligations and liabilities of
the Borrower under the NationsBank Note (i) shall be secured by the Collateral
pro rata with the Credit Party Obligations and the Credit Parties hereby grant
to the Agent a security interest in the Collateral to secure such obligations
and liabilities and (ii) shall be guaranteed by the Guarantors pursuant to, and
in accordance with the terms and provisions of, the guaranty set forth in
Section 4 of the Credit Agreement and the Guarantors hereby guarantee for the
benefit of the Agent such obligations and liabilities in accordance with such
Section 4.
Nothing herein contained shall be deemed to constitute a waiver of any rights or
remedies the Lenders may have under the Credit Agreement or any other Credit
Documents or under applicable law. The waivers set forth in this letter
agreement shall be effective only in the specific circumstances provided for
above and only for the purposes for which given.
Except as waived, amended or otherwise modified hereby, all of the terms and
provisions of the Credit Agreement (specifically including, without limitation,
the terms of clause (v)(A) of the definition of "Permitted Acquisition" set
forth in Section 1.1 of the Credit Agreement) shall remain in full force and
effect.
The effectiveness of this letter agreement is subject to receipt by the Agent of
(i) an executed original counterpart of this letter agreement or facsimile
thereof (the delivery of such facsimile constituting a representation that an
original counterpart will be delivered thereafter) from each of the Credit
Parties and Required Lenders, (ii) a fully executed original copy of the
NationsBank Note or a facsimile thereof (the delivery of such facsimile
constituting a representation that the original NationsBank Note will be
delivered thereafter) and (iii) a Pro Forma Compliance Certificate with respect
to the Acquisitions of the Target Companies.
All references in the Credit Agreement and the other Credit Documents to the
"Credit Agreement" shall be deemed to refer to the Credit Agreement as modified
hereby.
This letter agreement shall be governed by and construed in accordance with the
laws of the State of North Carolina.
2
<PAGE>
This letter may be executed in any number of counterparts, each of which shall
constitute an original, but all of which when taken together shall constitute
but one contract.
Sincerely,
NATIONSBANK, N.A., in its individual capacity
and in its capacity as Agent for the Lenders
By: /s/ Richard G. Parkhurst, Jr.
------------------------------------------
Name: Richard G. Parkhurst, Jr.
----------------------------------------
Title: Senior Vice President
---------------------------------------
FIRST TENNESSEE BANK NATIONAL
ASSOCIATION
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
<PAGE>
ACCEPTED AND AGREED AS OF
THE DATE FIRST ABOVE WRITTEN:
BORROWER: RESORTQUEST INTERNATIONAL, INC.
a Delaware corporation
By: /s/ Jeffery M. Jarvis
---------------------------------------
Name: Jeffery M. Jarvis
----------------------------------------
Title: Chief Financial Officer
---------------------------------------
GUARANTORS: FIRST RESORT SOFTWARE, INC.,
a Colorado corporation
By: /s/ John K. Lines
----------------------------------------
Name: John K. Lines
----------------------------------------
Title: Vice President
----------------------------------------
B&B ON THE BEACH, INC.,
a North Carolina corporation
By: /s/ John K. Lines
----------------------------------------
Name: John K. Lines
----------------------------------------
Title: Vice President
----------------------------------------
BRINDLEY & BRINDLEY REALTY &
DEVELOPMENT, INC., a North Carolina corporation
By: /s/ John K. Lines
----------------------------------------
Name: John K. Lines
----------------------------------------
Title: Vice President
----------------------------------------
<PAGE>
COASTAL RESORTS REALTY L.L.C.,
a Delaware limited liability company
By: /s/ John K. Lines
----------------------------------------
Name: John K. Lines
----------------------------------------
Title: Vice President
----------------------------------------
COASTAL RESORTS MANAGEMENT, INC.,
a Delaware corporation
By: /s/ John K. Lines
----------------------------------------
Name: John K. Lines
----------------------------------------
Title: Vice President
----------------------------------------
COLLECTION OF FINE PROPERTIES, INC.,
a Colorado corporation
By: /s/ John K. Lines
----------------------------------------
Name: John K. Lines
----------------------------------------
Title: Vice President
----------------------------------------
TEN MILE HOLDINGS, LTD.,
a Colorado corporation
By: /s/ John K. Lines
----------------------------------------
Name: John K. Lines
----------------------------------------
Title: Vice President
----------------------------------------
HOTEL CORPORATION OF THE PACIFIC, INC.,
a Hawaii corporation
By: /s/ John K. Lines
----------------------------------------
Name: John K. Lines
----------------------------------------
Title: Vice President
----------------------------------------
<PAGE>
HOUSTON AND O'LEARY COMPANY,
a Colorado corporation
By: /s/ John K. Lines
----------------------------------------
Name: John K. Lines
----------------------------------------
Title: Vice President
----------------------------------------
MAUI CONDOMINIUM & HOME REALTY, INC.,
a Hawaii corporation
By: /s/ John K. Lines
----------------------------------------
Name: John K. Lines
----------------------------------------
Title: Vice President
----------------------------------------
THE MAURY PEOPLE, INC.,
a Massachusetts corporation
By:
By: /s/ John K. Lines
----------------------------------------
Name: John K. Lines
----------------------------------------
Title: Vice President
----------------------------------------
HOWEY ACQUISITION, INC.,
a Florida corporation
By: /s/ John K. Lines
----------------------------------------
Name: John K. Lines
----------------------------------------
Title: Vice President
----------------------------------------
REALTY CONSULTANTS, INC.,
a Florida corporation
By: /s/ John K. Lines
----------------------------------------
Name: John K. Lines
----------------------------------------
Title: Vice President
----------------------------------------
<PAGE>
RESORT PROPERTY MANAGEMENT, INC.,
a Utah corporation
By:
By: /s/ John K. Lines
----------------------------------------
Name: John K. Lines
----------------------------------------
Title: Vice President
----------------------------------------
TELLURIDE RESORT ACCOMMODATIONS, INC.,
a Colorado corporation
By: /s/ John K. Lines
----------------------------------------
Name: John K. Lines
----------------------------------------
Title: Vice President
----------------------------------------
TRUPP-HODNETT ENTERPRISES, INC.,
a Georgia corporation
By: /s/ John K. Lines
----------------------------------------
Name: John K. Lines
----------------------------------------
Title: Vice President
----------------------------------------
THE MANAGEMENT COMPANY,
a Georgia corporation
By: /s/ John K. Lines
----------------------------------------
Name: John K. Lines
----------------------------------------
Title: Vice President
----------------------------------------
WHISTLER CHALETS LIMITED,
a British Columbia corporation
By: /s/ John K. Lines
----------------------------------------
Name: John K. Lines
----------------------------------------
Title: Vice President
----------------------------------------
EXHIBIT 10.25
CONSULTING AGREEMENT
This CONSULTING AGREEMENT (the "Agreement") dated of this 30th day of
September, 1998, by and among ABBOTT REALTY SERVICES, INC., a Florida
corporation (the "Company"), and WILLIAM W. ABBOTT, JR., an individual residing
in Florida ("Consultant").
RECITALS
WHEREAS, the Company and each of its respective affiliates and subsidiaries
(collectively, the "RQI Group Companies") are engaged primarily in the business
of providing property management, brokerage, rental and sales services (the
"Business");
WHEREAS, the Consultant provides consulting services in connection with the
Business; and
WHEREAS, the Company desires to engage Consultant to provide consulting
services in connection with the Business pursuant to the terms and conditions
hereof.
AGREEMENTS
NOW, THEREFORE, in consideration of the mutual promises, terms, covenants
and conditions set forth herein and the performance of each, the parties hereto
hereby agree as follows:
Section 1. CONSULTING SERVICES.
(a) The Company hereby engages Consultant and Consultant hereby accepts the
engagement upon the terms and conditions hereinafter set forth. Consultant shall
(i) consult, advise and assist the Company with respect to managing all aspects
of the relationship with the developers of the Tops'l project including, without
limitation, [with respect to construction management, property management and
management of the operation and administration thereof], (ii) use his best
efforts to promote the business and activities of and be an "ambassador of
goodwill" with respect to the RQI Group Companies and the Cathedral Group and
(iii) act as a "secret shopper" with respect to the Cathedral Group properties
(collectively, the "Engagement"). Consultant shall have such responsibilities,
duties and authority in connection with the Engagement as an Executive Officer
or the Chairman of the Board of Directors of either RQI (the "RQI Board") or the
Company (the "Company Board") may require or assign.
(b) Consultant hereby agrees to devote such time, attention, energy and
efforts to the business of the Company as shall be reasonably required in order
to meet the objectives of the Engagement. Consultant shall be a real estate
broker for the Company subject to the terms and conditions of a standard brokers
agreement in effect from time to time.
<PAGE>
(c) Consultant shall adhere to, execute and fulfill all policies
established by the Company in connection with the Engagement. Consultant shall
not commit any act, or make any statement, which would be deleterious to the
reputation and goodwill of the Company or any of the corporations affiliated
with the Company. Consultant agrees that he will use his best efforts to
represent the Company within the scope of the engagement and that he will act in
good faith in the best interests of the Company.
Section 2. COMPENSATION.
For all services rendered by Consultant, the Company shall compensate
Consultant as follows:
(a) Consulting Fees. The consulting fee payable to Consultant shall be
$125,000 per year, payable on a regular basis in accordance with the Company's
standard payroll procedures but not less frequently than monthly.
(b) Other Compensation and Benefits. Consultant shall be entitled to
receive additional benefits and other compensation from the Company in such form
and to such extent as specified below:
(i) Preferential brokerage commissions payable in accordance with the
terms and conditions of the standard Cathedral Group brokerage agreement in
amounts equal to thirty percent (30%) for property listings and fifty
percent (50%) for property sales.
(ii) Payment of all premiums for coverage for Consultant and family
under health, hospitalization, disability, dental, life and other insurance
plans that the Company may have in effect from time to time.
(iii) Reimbursement for all business travel and other out-of-pocket
expenses reasonably incurred by Consultant in the performance of
Consultant's services pursuant to this Agreement and consistent with the
Company's policy for the reimbursement of such consulting expenses in
effect from time to time, other than expenses relating to any car, car
phones, gas or car insurance incurred by Consultant. All reimbursable
expenses shall be appropriately documented in reasonable detail by
Consultant upon submission of any request for reimbursement, and in a
format and manner consistent with the Company's expense reporting policy.
(iv) The Company shall pay for or reimburse Consultant for a Full
Membership in the Tops'l Beach and Racquet Club excluding any expenses or
members costs relating to personal training, tennis lessons and other
separate ("a la carte") expenses.
Section 3. INTENTIONALLY DELETED.
Section 4. TERM; CESSATION; RIGHTS ON CESSATION.
2
<PAGE>
The term of this Agreement shall commence on the date hereof and continue
for three (3) years, (the "Term"). This Agreement and Consultant's Engagement
may be terminated in any one of the following ways:
(a) Death. The death of Consultant shall immediately terminate this
Agreement with no compensation due to Consultant's estate hereunder or
otherwise, except as set forth in subsection (f) of this SECTION 4.
(b) Disability. Subject to and conditioned upon the Company's compliance
with applicable law, if, as a result of incapacity due to physical or mental
illness or injury, Consultant shall have been absent from Consultant's full-time
duties hereunder for one hundred twenty (120) consecutive days, then thirty (30)
days after receiving written notice (which notice may occur before or after the
end of such one hundred twenty (120) day period, but which shall not be
effective earlier than the last day of such one hundred twenty (120) day
period), the Company may terminate Consultant's Engagement hereunder provided
Consultant is unable to resume Consultant's full-time duties at the conclusion
of such thirty (30) day notice period. Also, Consultant may terminate
Consultant's Engagement hereunder if his or her health should become impaired to
an extent that makes the continued performance of Consultant's duties hereunder
hazardous to Consultant's physical or mental health or life, provided that
Consultant shall have furnished the Company with a written statement from a
qualified doctor to such effect and provided, further, that, at the Company's
request made within thirty (30) days of the date of such written statement,
Consultant shall submit to an examination by a doctor selected by the Company
and such doctor shall have concurred in the conclusion of Consultant's doctor.
In the event this Agreement is terminated as a result of Consultant's
disability, Consultant shall have no right to any compensation hereunder or
otherwise, except as set forth in subsection (f) of this SECTION 4.
(c) Good Cause. The Company may terminate the Agreement ten (10) days after
delivery of written notice to Consultant for good cause, which shall be: (1)
Consultant's breach of this Agreement, or failure to comply with any lawful
directive of the RQI Group Companies, the RQI Board, the Company Board or an
Executive Officer of RQI or the Company; (2) Consultant's failure to adequately
perform any of Consultant's material duties and responsibilities hereunder; (3)
Consultant's willful dishonesty, fraud, misconduct or any conduct constituting
or exhibiting moral turpitude or which adversely affects the operations or
reputation of the Company or any of the other RQI Group Companies; (4)
Consultant's conviction in a court of competent jurisdiction of a felony or any
misdemeanor other than a minor traffic violation; (5) chronic alcohol abuse or
illegal drug use by Consultant; (6) the usurpation of any corporate opportunity
of the Company or any of the other RQI Group Companies; or (7) the breach by
Consultant of any of the representations, warranties or covenants in the Stock
Purchase Agreement. In the event of a termination for good cause, as enumerated
above, Consultant shall have no right to any compensation hereunder or
otherwise, except as set forth in subsection (f) of this SECTION 4.
(d) By Either Party. At any time after the commencement of the Engagement,
either Consultant or the Company may terminate this Agreement effective thirty
(30) days after written
3
<PAGE>
notice is provided to the other party. Upon termination by either party,
Consultant shall receive no compensation hereunder or otherwise, except as set
forth in subsection (f) of this SECTION 4.
(e) Upon termination of this Agreement for any reason provided herein, (i)
Consultant shall be entitled to receive all fees earned and all expenses due
through the Cessation Date, and (ii) except as otherwise provided by SECTION 18
hereof all other rights, duties and obligations of the Company and the
Consultant under this Agreement shall cease and terminate as of the Cessation
Date.
Section 5. RETURN OF COMPANY PROPERTY.
All Proprietary Information including, without limitation, records,
designs, patents, business plans, financial statements, manuals, correspondence,
reports, charts, advertising materials, memoranda, lists and other property
delivered to or compiled by Consultant by or on behalf of the Company, any of
the other RQI Group Companies, or any of their representatives, suppliers,
vendors or customers which pertain to the business, activities or future plans
of the Company or any of the other RQI Group Companies shall be and remain the
property of such company, as the case may be, and be subject at all times to
their discretion and control and shall be, upon cessation of Consultant's
Engagement with the Company collected by Consultant and delivered promptly to
the General Counsel of the Company without request by the Company.
Section 6. LIMIT OF ENGAGEMENT.
This Agreement does not and shall not be construed to create any employment
relationship, partnership or agency whatsoever beyond the purposes set forth in
SECTION 1 above. Consultant acknowledges and agrees that he is an independent
contractor vis-a-vis the Company and that Consultant shall not be deemed to be a
partner, employee, agent, or legal representative of the Company for any purpose
other than the purposes of this Agreement set forth in said SECTION 1, nor shall
Consultant have any authority or power to act for, or to undertake any
obligation or responsibility on behalf of, the Company, or corporations
affiliated with the Company, other than as expressly herein provided. Consultant
represents and warrants that he conducts a business enterprise independent of
the Company. Further, Consultant acknowledges and agrees that the amounts paid
under SECTION 2 hereof are in full satisfaction of all amounts due by the
Company for services rendered by Consultant hereunder and Consultant disclaims
any right, title, or interest in employee benefits or insurance offered by the
Company or other compensation without regard to the reclassification or other
characterization of Consultant's relationship with the Company at a future point
in time by any Federal, State, or local government or agency. In this regard,
Consultant shall be solely responsible for obtaining his own benefits, including
Medicare, unemployment, workers' compensation or other insurance and the payment
of self-employment taxes excluding the insurance coverage referenced in SECTION
2(b)(ii) hereof.
Section 7. UNAUTHORIZED ACTS.
4
<PAGE>
(a) Consultant represents and agrees with the Company that he will make no
disbursement or other payment of any kind or character out of the compensation
paid to him hereunder or with any other fund, or take or authorize the taking of
any other action which contravenes any statute or rule, regulation, or order of
any jurisdiction. Consultant further agrees to indemnify and save harmless the
RQI Group Companies, each of their respective subsidiaries and affiliates and
their directors, officers, and employees from any and all liabilities,
obligations, claims, penalties, fines or losses resulting from any unauthorized
or unlawful acts of Consultant (or from any violations by Consultant of any laws
or regulations, whether willful or not) and for any acts by Consultant against
Company policy, except to the extent such acts were undertaken at the direction
of the Company. Consultant further represents and warrants that under no
circumstances shall Consultant solicit or accept either directly or indirectly
any form of remuneration from any third party including but not limited to any
business owner or broker for or related to the performance of Consultant's
services hereunder. The provisions of this SECTION 7 shall survive the
termination or expiration of this Agreement.
(b) Consultant agrees to disclose honestly and fully to the Company or its
authorized representatives all information and documentation in his possession
concerning all transactions or events relating to or affecting the Company or
any other RQI Group Company as and to the extent such information or
documentation (i) was acquired or developed by Consultant during his engagement
under this Agreement and (ii) is requested by the Company or the authorized
representative thereof.
Section 8. NO PRIOR AGREEMENTS.
Consultant hereby represents and warrants to the Company that the execution
of this Agreement by Consultant and his or her Engagement by the Company and the
performance of Consultant's duties hereunder will not violate or be a breach of
any oral or written agreement with, or other duty owed to, a former employer,
client or any other Person. Further, Consultant agrees to indemnify the Company
from and against any and all claims, judgments, fines, actions, suits, demands,
charges, costs and expenses including but not limited to attorneys' fees and
expenses (collectively, "Claims"), (i) relating to, arising from, or in
connection with any actions by Consultant outside the scope of Consultants
duties hereunder or as directed by the Company Board, the RQI Board or any
Executive Officer or (ii) any breach by Consultant of any oral or written
agreement between Consultant and any third party or any other duty owed by
Consultant to any third party.
Section 9. ASSIGNMENT; BINDING EFFECT.
Consultant understands that he or she has been selected for the Engagement
by the Company on the basis of Consultant's personal qualifications, experience
and skills. Consultant, therefore, shall not assign all or any portion of
Consultant's performance under this Agreement. Subject to the preceding two (2)
sentences, this Agreement shall be binding upon, inure to the benefit of and be
enforceable by the parties hereto and their respective heirs, legal
representatives, successors and assigns.
5
<PAGE>
Section 10. DEFINITIONS
For purposes of this Agreement, the following terms shall have the
respective meanings ascribed thereto in this SECTION 10:
(a) "Agreement" shall have the meaning assigned to such term in the
Recitals hereto.
(b) "Cathedral Group" shall mean Abbott Realty Services, Inc., a Florida
corporation, Tops'l Sales Group, Inc, a Florida corporation, Abbott Resorts,
Inc., a Florida corporation, Abbott & Andrews Realty, Inc., a Florida
corporation, S.I.I.K., Inc., a Florida corporation, Tops'l Group, Inc., a
Florida corporation and Tops'l Club of NW Florida, Inc. , a Florida corporation
and any other subsidiaries and affiliates thereof during the term hereof.
(c) "Cessation Date" means the date of cessation of Consultant's Engagement
with the Company.
(d) "Claims" shall have the meaning assigned to such term in the SECTION 8
hereof.
(e) "Company" shall have the meaning assigned to such term in the Recitals
hereto.
(f) "Company Board" shall mean the Board of Directors of the Company.
(g) "Consultant" shall have the meaning assigned to such term in the
Recitals hereto.
(h) "Executive Officer" means any of the Chief Executive Officer, the Chief
Operating Officer, the President, the Senior Vice President, the Chief Financial
Officer, the Secretary, the Treasurer, and the General Counsel of the Company
and of RQI.
(i) "Person" means any individual, firm, company, limited liability
company, partnership (including, without limitation, any general, limited,
limited liability or limited liability limited partnership), corporation
(including not-for-profit), joint venture, unincorporated organization or
association, trust, union, governmental entity, department or agency, or any
other entity, business or organization of whatever nature.
(j) "RQI" shall mean ResortQuest International, Inc., and its successors
and assigns.
(k) "RQI Board" shall have the meaning assigned to such term in SECTION
1(a) hereof.
(l) "RQI Group Companies" shall have the meaning assigned to such term in
the Recitals hereto.
(m) "Term" shall have the meaning assigned to such term in SECTION 4
hereof.
6
<PAGE>
Section 11. COMPLETE AGREEMENT; AMENDMENT.
(a) This Agreement supersedes any other agreements or understandings,
written or oral, among the Company and Consultant, and Consultant has no oral
representations, understandings or agreements with the Company or any of its
officers, directors or representatives covering the same subject matter as this
Agreement. This written Agreement is the final, complete and exclusive statement
and expression of the agreement between the Company and Consultant and of all
the terms of this Agreement, and it cannot be varied, contradicted or
supplemented by evidence of any prior or contemporaneous oral or written
agreements.
(b) This written Agreement may not be later modified except by a written
instrument signed by a duly authorized officer of the Company and Consultant,
and no term of this Agreement may be waived except by a written instrument
signed by the party waiving the benefit of such term.
Section 12. NOTICE.
Any and all notices given in connection with this Agreement shall be deemed
adequately given only if in writing and personally delivered, sent by first
class registered or certified mail, postage prepaid, return receipt requested,
sent by overnight national courier service, sent by facsimile, provided a hard
copy is mailed on that day to the party for whom such notices are intended or
sent by other means at least as fast and reliable as first class mail. A written
notice shall be deemed to have been given to the recipient party on the earlier
of (i) the date it shall be delivered to the address required by this Agreement,
(ii) the date delivery shall have been refused at the address required by this
Agreement, (iii) with respect to notices sent by mail, the date as of which the
postal service shall have indicated that the notice has been delivered to the
address required by this Agreement, (iv) with respect to a facsimile, the date
on which the facsimile is sent. Any and all notices referred to in this
Agreement, or which any party desires to give the other, shall be addressed as
follows:
To the Company: ResortQuest International, Inc.
530 Oak Court Drive, Suite 360
Memphis, Tennessee 38117
Attn: John K. Lines, Senior Vice President, General Counsel
and Secretary
with a copy to: Smith, Gambrell & Russell, LLP
1230 Peachtree Street, N.E. Suite 3100
Atlanta, Georgia 30309
Attn: Bruce W. Moorhead, Jr., Esq. or
Dennis O. Doherty, Esq.
To Consultant: William W. Abbott Jr.
506 Highway 98 East
Destin, Florida 32541
7
<PAGE>
with a copy to: James Grimsley, Esq.
Smith, Grimsley, Bauman, Pinkerton, Petermann, Saxer & Wells
25 N.E. Walter Martin Road
Fort Walton Beach, Florida 32548
Section 13. SEVERABILITY; HEADINGS.
If any portion of this Agreement is held invalid or inoperative, the other
portions of this Agreement shall be deemed valid and operative and, so far as is
reasonable and possible, effect shall be given to the intent manifested by the
portion held invalid or inoperative. The paragraph headings herein are for
reference purposes only and are not intended in any way to describe, interpret,
define or limit the extent or intent of the Agreement or of any part hereof.
Section 14. GOVERNING LAW.
This Agreement shall in all respects be construed according to the laws of
the State of Delaware.
Section 15. CONSENT TO JURISDICTION; SERVICE OF PROCESS
The Company and Consultant hereby irrevocably submit to the jurisdiction of
the federal courts located in Florida in connection with any suit, action or
other proceeding arising out of or relating to this Agreement, and hereby agree
not to assert, by way of motion, as a defense, or otherwise in any such suit,
action or proceeding that the suit, action or proceeding is brought in an
inconvenient forum, that the venue of the suit, action or proceeding is improper
or that this Agreement or the subject matter hereof may not be enforced by such
courts.
Section 16. WAIVER OF JURY TRIAL.
BECAUSE DISPUTES ARISING IN CONNECTION WITH COMMERCIAL MATTERS, INCLUDING
CONSULTING AGREEMENTS, ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN
EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL
LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR
DISPUTES (IF ANY) BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS.
THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL
SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHTS TO TRIAL BY JURY
IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER
ARISING IN CONTRACT, TORT, OR OTHERWISE BETWEEN THE PARTIES ARISING OUT OF,
CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
BETWEEN THEM IN CONNECTION WITH THIS CONSULTING AGREEMENT OR MATTERS RELATED
HERETO.
8
<PAGE>
Section 17. CONSTRUCTION AND INTERPRETATION
Should any provision of this Agreement require judicial interpretation, the
parties hereto agree that the court interpreting or construing the same shall
not apply a presumption that the terms hereof shall be more strictly construed
against one party by reason of the rule of construction that a document is to be
more strictly construed against the party that itself, or through its agent,
prepared the same, and it is expressly agreed and acknowledged that the
Consultant, the Company and their respective representatives, legal and
otherwise, have participated in the preparation hereof.
Section 18. SURVIVAL
Notwithstanding anything in this Agreement to the contrary, SECTIONS 3, 5,
6, 7, 8, 12, 14, 15, 16, 17, 18 and 19 of this Agreement shall survive any
termination of this Agreement or of the Consultant's Engagement hereunder until
the expiration of the respective statute(s) of limitations applicable thereto.
Section 19. THIRD PARTY BENEFICIARIES.
Except as expressly provided herein with respect to affiliates of the
Company, this Agreement does not create, and shall not be construed as creating,
any rights enforceable by any person or entity not a party to this Agreement.
Section 20. COUNTERPARTS.
This Agreement may be executed simultaneously in two (2) or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
ABBOTT REALTY SERVICES, INC.
By:/s/ John K. Lines
---------------------------------------
Name: John K. Lines
Title: Senior Vice President and Secretary
"CONSULTANT"
/s/ William W. Abbott, Jr.
-----------------------------------------
William W. Abbott, Jr., individually
10
EXHIBIT 10.26
September 30, 1998
Mr. James S. Olin
President
Abbott Resorts
35000 Emerald Coast Parkway
Destin, Florida 32541
Dear Jim:
This confirms that ResortQuest International has received and approves the
attached real estate transactions and the commission arrangements for the
specific transactions indicated therein.
I want to reiterate that the currently contemplated management of the retail
portion of the Gulf Place complex, now under construction, will not constitute a
violation of the Non-Competition provisions of either the Stock Purchase
Agreement or any Consulting Agreements.
I am looking forward to working with you.
Best regards,
/s/ W. Michael Murphy
- ---------------------
W. Michael Murphy
MM/cs
cc: David L. Levine
John K. Lines
<PAGE>
<TABLE>
<CAPTION>
PENDING SALES:
--------------
Total
#of Total Purchase Gross Commission # of
Property Units Price Commission Due Agent Gross
- -------- ----- -------------- ---------- --------- -----
<S> <C> <C> <C> <C> <C>
Leeward Key 1006 $ 226,000 $ 11,300 $ 9,605 89.5%
Tides 154 $ 46,738,300 $2,258,550 $574,628 25%
Tides 140,911,011,302 $ 43,700 $ 21,850 50%
304 $ 14,050 $ 14,050
Tides 1406,1003 $ 68,050 $ 82,944 92%
907 & 1107
Tides 1507 $ 14,600 $ 7,300 50%
Tides 1306 $ 13,100 $ 6,550 65%
Silver Shells
- ------------
St. Croix 9 $ 3,559,595 $ 213,575 $ 53,394 25%
St. Maarian 25 $12,080,424 $ 724,825 $181,206 25%
Penthouse #8 $ 666,627 $ 36,664 $ 31,184 85%
St. Thomas 8 $ 5,062,420 $ 303,745 $ 75,936 25%
Oceania 601 1 $ 800,000 $ 48,000 $ 28,800 60%
Gulf PI Cabanas 31 $ 4,138,800 $ 208,926 $ 75,851 30%
Gulf PI Cabanas 301,303 $ 250,245 $ 12,512 $ 8,132 85%
Gulf PI Cabanas 401,402 $ 267,744 $ 13,387 $ 8,701 65%
Gulf PI Cabanas 311,410,411 $ $00,244 $ 20,012 $ 13,007 65%
<CAPTION>
Property Amount Owner is Due
- -------- -------------------
<S> <C>
Leeward Key Bill Abbott - Personal unit
Tides Bill Abbott - Listing fee
Tides Gus Andrews - Selling fee
Gus Andrews - Personal unit
Tides Bill Abbott - Selling fee & listing fee - Personal units
Tides Charlie Vandiver - Selling fee
Tides Steve Abbott - Selling fee
Silver Shells
- ------------
St. Croix Bill Abbott - Listing fee $26,696/ PB-no net
Steve Abbott -Listing fee $26,696
St. Maarian Bill Abbott - Listing fee $80,603
Steve Abbott - Listing fee $90,603
Bill & Steve - personal unit
St. Thomas Bill Abbott - Listing fee
Oceania 601 Steve Abbott - Listing fee
Gulf PI Cabanas Gus Andrews - Listing fee of all Gulf Place Cabanas
Gulf PI Cabanas Bill & Steve - personal units
Gulf PI Cabanas Gus Andrews - Personal units
Gulf PI Cabanas Jim Steiner - Personal units
</TABLE>
<TABLE>
<CAPTION>
LISTED FOR SALE:
---------------
Total
#of Total Purchase Gross Commission # of
Property Units Price Commission Due Agent Gross
- -------- ----- -------------- ---------- --------- -----
<S> <C> <C> <C> <C> <C>
Nantucket Cottages 13 $ 2,609,750 $ 156,585 $ 98,648 63%
Captiva at TOPS'L 6 $ 1,988,000 $ 119,280 $ 29,280 25%
Leeward Key 70 $15,338,000 $ 766,280 $230,070 30%
Grove lots 11 $ 846,900 $ 51,752 $ 3,879 25%
Majestic Sun Ph1 144 $38,293,538 $1,540,084 $462,025 30%
Majestic Sun Ph2 144 $40,985,922 $2,049,296 $614,788 30%
Seagrove 100 $41,713,000 $2,085,650 $625,695 30%
Perdido Key 115 $31,000,000 $1,550,000 $465,000 30%
<CAPTION>
Property Amount Owner is Due
- -------- -------------------
<S> <C>
Nantucket Cottages Bill Abbott - Listing fee. Commisssion reduced at closing.
Only pay Sales fee and manager over-ride based upon 6%
commission. Property is owned by Bill Abbott & Jay Odorn
Captiva at TOPS'L Bill Abbott - Listing fee
Leeward Key Bill Abbott - 1/3 listing fee $76,690
Steve Abbott - 1/3 listing fee $76,690
Grove lots Gus Andrews - 25% listing referral
Majestic Sun Ph1 Gus Andrews
Majestic Sun Ph2 Gus Andrews
Seagrove Gus Andrews & Steve Abbott
Perdido Key Steve Abbott
</TABLE>
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; ResortQuest
International, Inc. (formerly 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; Trupp-Hodnett Enterprises, Inc.;
THE Management Company, dated January 16, 1998; and ResortQuest International,
Inc. (Pre-Offering Company) dated March 11, 1998 and all references to our Firm
included in or made a part of this Registration Statement.
Arthur Andersen LLP
Houston, TX
October 14, 1998
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS'
As Independent Public Accountants, we hereby consent to the use of our
report for Abbott Realty Services, Inc., dated September 18, 1998, and all
references to our Firm included in or made a part of this Registration
Statement.
Arthur Andersen LLP
Memphis, TN
October 14, 1998
EXHIBIT 23.3
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
October 12, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 1057507
<NAME> ResortQuest International, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1.000
<CASH> 6,037
<SECURITIES> 0
<RECEIVABLES> 3,627
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 21,618
<PP&E> 4,075
<DEPRECIATION> 0
<TOTAL-ASSETS> 124,328
<CURRENT-LIABILITIES> 23,092
<BONDS> 0
0
0
<COMMON> 159
<OTHER-SE> 99,085
<TOTAL-LIABILITY-AND-EQUITY> 124,328
<SALES> 0
<TOTAL-REVENUES> 13,936
<CGS> 0
<TOTAL-COSTS> 7,167
<OTHER-EXPENSES> 4,161
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30
<INCOME-PRETAX> 2,578
<INCOME-TAX> 304
<INCOME-CONTINUING> 2,274
<DISCONTINUED> 1,347
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,621
<EPS-PRIMARY> 0.81
<EPS-DILUTED> 0.80
</TABLE>