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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period to
Commission file number 1-14115
RESORTQUEST INTERNATIONAL, INC.
DELAWARE 62-1750352
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
530 OAK COURT DRIVE
SUITE 360
MEMPHIS, TN 38117
(Address of principal executive offices) (Zip Code)
(901) 762-0600
(Registrant's telephone number including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, $.01 par value New York Stock Exchange
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT.
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulations S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in the definitive proxy or information
statement incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ]
<PAGE>
The aggregate market value of the voting stock held by non-affiliates of
the registrant computed by reference to the closing price at which the stock was
sold as of March 23, 1999 was approximately $170,630,460.
The number of shares outstanding of each of the registrant's classes of
common stock as of March 23, 1999 was 17,188,804 shares of common stock, all of
one class.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1998 Annual Report Parts I, II and IV
to Shareholders
Portions of the Proxy Statement Parts I, III and IV
for the 1999 Annual Meeting of Shareholders
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TABLE OF CONTENTS
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PART I .............................................................................. 1
ITEM 1. Business .................................................................... 1
General ..................................................................... 1
Industry Overview ........................................................... 2
Business Strategy ........................................................... 4
Growth Strategy ............................................................. 5
Markets ..................................................................... 7
Services Offered ............................................................ 8
Marketing ................................................................... 10
Technology .................................................................. 11
Year 2000 Compliance......................................................... 12
Competition ................................................................. 13
Employees ................................................................... 13
Factors That May Affect Future Results ...................................... 14
Government Regulation ....................................................... 21
ITEM 2. Properties .................................................................. 24
ITEM 3. Legal Proceedings ........................................................... 24
ITEM 4. Submission of Matters to a Vote ............................................. 24
Executive Officers of the Company ........................................... 24
PART II ............................................................................. 26
ITEM 5. Market for the Company's Common Equity and Related Stockholder
Matters ..................................................................... 26
ITEM 6. Selected Financial Data ..................................................... 27
ITEM 7. Management's Discussion and Analysis of Financial Condition and Result of
Operations .................................................................. 27
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk .................. 27
ITEM 8. Financial Statements and Supplementary Data ................................. 28
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ........................................................ 28
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PART III ............................................................................. 28
ITEM 10. Directors and Executive Officers of the Company ............................. 28
ITEM 11. Executive Compensation ...................................................... 28
ITEM 12. Security Ownership of Certain Beneficial Owners and Management .............. 28
ITEM 13. Certain Relationships and Related Transactions .............................. 28
PART IV ............................................................................. 29
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Forms 8-K ............ 29
14(a)(1) Financial Statements ............................................... 29
14(a)(2) Financial Statement Schedules ...................................... 30
14(a)(3) Exhibits ........................................................... 30
14(b) Reports on Form 8-K ................................................... 37
</TABLE>
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PART I
ITEM 1. BUSINESS
GENERAL
ResortQuest International, Inc. 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 offers vacationers
through its operating subsidiaries (the "Operating Companies") a branded network
of high quality, fully furnished, privately-owned condominium and home rentals.
ResortQuest offers property owners superior management services designed to
enhance their rental income.
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 in
November 1998, established quality standards and segmented most of its
approximately 14,400 vacation homes and condominiums into five levels (Quest
Home, Platinum, Gold, Silver and Bronze). In January 1999, ResortQuest launched
resortquest.com, a comprehensive web site that enables consumers to search
through all of the ResortQuest vacation home and condominium rentals, including
photographs and detailed floor plans, and to make reservations directly on-line.
The Company commenced operations on May 26, 1998, concurrently with its
initial public offering and the acquisitions of 12 leading vacation rental and
property management companies and the industry's leading management software
company ("the Founding Companies"). Since that time, ResortQuest has acquired
ten additional vacation rental and property management companies, five in 1998
and five in 1999. The Company currently manages approximately 14,400
condominiums and homes at 29 premier destination resorts nationwide and in
Canada. These resort locations include Gulf Shores, AL; Scottsdale/Phoenix, AZ;
Palm Desert, CA; Aspen, Breckenridge, Dillon and Telluride, CO; Bethany Beach,
DE; Captiva Island, Destin, Ft. Walton Beach and Sanibel Island, FL; St. Simons
Island, GA; Hawaii, Maui, Oahu, and Kauai, HI; Nantucket, MA; Big Sky, MT; the
Outer Banks of North Carolina; Sunriver, OR; Hilton Head Island, SC; 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
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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 suchservices 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. For owners desiring to sell their vacation home or
condominium, ResortQuest offers traditional real estate brokerage services at
many of its resort locations. Owners of vacation homes and condominiums managed
by the Company also may participate in QuestClub, an exclusive travel benefits
program for homeowners initiated in December 1998.
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, 1998, the "1998 Operating Companies"
(consisting of the "Founding Companies" (Aston Hotels & Resorts; Maui
Condominium and Home; Brindley and Brindley; Coastal Resorts; The Maury People;
Trupp-Hodnett Enterprises; Collection of Fine Properties; Houston and O'Leary;
Resort Property Management; Telluride Resort Accommodations; Whistler Chalets
and First Resort Software) and the "1998 Acquired Companies" (Abbott Resorts;
Plantation Resort; Whistler Exclusive Properties; Goldpoint Lodging and
Columbine Management)), generated total revenues of approximately $69.4 million,
which includes $35.3 million of revenues from property rental fees and net
income of $6.4 million. In addition, in many markets, the Company provides
traditional real estate brokerage services for property owners seeking to sell
their condominiums and homes. The Company believes that a national brand and
superior management services, which are designed to enhance rental income for
property owners, will provide it with a competitive advantage in attracting
additional high quality condominiums and homes in its markets.
INDUSTRY OVERVIEW
Destination resort vacationers primarily have three alternatives for
overnight accommodations: commercial lodging establishments, time share resorts
and privately owned vacation condominiums and homes. Commercial lodging consists
principally of hotels and motels in which a room is rented on a nightly or
weekly basis. Vacation ownership or timeshare interests are purchased by the
vacationer and 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%
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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. 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. Before
ResortQuest, there was no central reservations service for vacationers or travel
agents to obtain information regarding most condominium or home rental
opportunities at popular destination resorts across the country or for booking
such rentals once a destination was selected. 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.
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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:
Develop a National Brand in Premier Destination Resort Condominium and Home
Rentals. Prior to ResortQuest, 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
has increased the information available to vacationers and developed a brand
which provides greater confidence and ease to vacationers in making their rental
arrangements. In order to ensure high quality, the Company on November 1, 1998
implemented a comprehensive quality assurance program to assure vacationers that
rental accommodations will meet their expectations. As part of its quality
assurance initiative, ResortQuest has established a basic set of criteria based
on quality, appearance, and amenity standards and has categorized most of the
ResortQuest rental homes and condominiums on five levels.
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
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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's senior
management team has a proven track record of building and operating successful
brands, and breadth of experience to effectively execute ResortQuest's business
plan. David C. Sullivan, Chairman and Chief Executive Officer, is the former
Chief Operating Officer of Promus Hotel Corporation, where he was responsible
for developing, expanding and managing the Hampton Inn, Homewood Suites and
Embassy Suites hotel brands -- all leaders in their market segments. David L.
Levine, President and Chief Operating Officer, is the former President and Chief
Operating Officer of Equity Inns, Inc., a leading real estate investment trust
specializing in hotel acquisitions. Concurrently he served as President and
Chief Operating Officer of Trust Management, Inc. which operated Equity Inns
properties. Jeffery M. Jarvis, Senior Vice President, Chief Financial Officer,
has over 20 years of related finance and accounting experience. Mr. Jarvis is
the former Vice President, Controller of Promus Hotel Corporation and spent over
12 years with Arthur Andersen LLP. The Company's mergers and acquisitions effort
is lead by W. Michael Murphy, Senior Vice President and Chief Development
Officer. Mr. Murphy has been involved with real estate acquisition businesses
and the hospitality industry for more than 25 years. The Company's Senior Vice
President and General Counsel, John K. Lines is the former General Counsel and
Secretary of Insignia Financial Group, Inc., a fully integrated real estate
services company. The Company's marketing strategy is led by Jules S. Sowder,
Senior Vice President and Chief Marketing Officer. Ms. Sowder is the former Vice
President, Marketing for Promus Hotel Corporation, where she had overall
responsibility for marketing the Hampton Inn, Homewood Suites and Embassy Suites
hotel brands. The Company's Senior Vice President and Chief Information Officer,
Frederick L. Farmer, has more than 20 years of experience working for Fortune
500 companies. He most recently spent 12 years with Marriott International as
Senior Vice President, Internet and Desktop Services and was responsible for
positioning the company for Internet commerce.
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
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:
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Implement a National Marketing Strategy. The Company has implemented a
multi-faceted 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. This multi-faceted marketing program
targets consumers and the travel trade through high-profile advertising, direct
mail, e-mail marketing, public relations and promotional programs. In addition,
the Company markets to existing customers to capitalize on cross-selling
opportunities and increase customer loyalty offering 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. In January 1999, the Company launched resortquest.com,
one of the most comprehensive web sites in the vacation industry.
resortquest.com enables consumers to search through all of the Company's
vacation home and condominium rentals, including photographs and detailed floor
plans, and to make reservations directly on-line. In addition to facilitating
the ability to provide one-stop shopping, the Company intends to utilize further
the expertise of First Resort Software, a Founding Company, 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. Historically, most
vacationers have located 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 QuestClub, the Company's new travel benefits program for owners
of properties managed by ResortQuest. In addition, in order to capture a higher
portion of the rental business from new condominiums and homes being built in
its markets, the
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Company will focus on building and strengthening its relationships with both
local and national developers as well as real estate brokerage companies.
Pursue Opportunities for Profit Margin Expansion via Cost Savings and
Additional Revenue Sources. Through the implementation of best practices, the
Company believes there are numerous opportunities to improve the margins of the
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. For
example, the Company has achieved savings through company-wide contracts for
long distance telephone service, credit card fees and insurance.
Build National Market Presence Through Strategic Acquisitions. The vacation
rental and property management industry continues to be 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 has implemented an aggressive acquisition program to
gain a presence in additional premier destination resort locations as well as to
expand its market share in existing resorts. Since the acquisition of the
thirteen Founding Companies in May 1998, ResortQuest has acquired ten additional
vacation rental and property management companies. The Company continues to 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 offers 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 29 premier island,
beach, mountain and desert resorts in the United States and Canada. The
following table sets forth the
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resort locations at which the Company manages vacation home and condominium
properties and the number of properties managed at each resort.
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BEACH RESORTS
Gulf Shores, Alabama ......................................... 384
Bethany Beach, Delaware ...................................... 626
The Beaches of South Walton,
Captiva Island, Destin, Ft. Myers,
Okalossa Island and
Sanibel Island, Florida ..................................... 3,139
St. Simons Island, Georgia .................................. 404
Nantucket, Massachusetts .................................... 1,200
The Outer Banks, North Carolina ............................. 456
Hilton Head Island, South Carolina .......................... 343
DESERT RESORTS
Scottsdale and Phoenix, Arizona ............................. 150
Palm Desert and
Palm Springs, California ................................... 295
HAWAIIAN RESORTS
Hawaii, Kauai, Maui and Oahu, Hawaii ........................ 5,124
MOUNTAIN RESORTS
Whistler, British Columbia .................................. 465
Aspen, Breckenridge, Dillon and Telluride, Colorado ......... 1,097
Big Sky, Montana ............................................ 207
Sunriver, Oregon ............................................ 162
The Canyons, Deer Valley
and Park City, Utah ........................................ 348
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TOTAL(1)..................................................... 14,400
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(1) Includes nonexclusive management contracts in Colorado and Massachusetts of
130 and 1,200 units, respectively.
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, ResortQuest in January 1999 launched
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resortquest.com, an online, interactive web site that provides consumers with
instant access to ResortQuest's inventory of approximately 14,400 vacation
rental properties. Consumers can check availability and rental rates, view
extensive information about each property, including photographs and floor
plans, and make reservations directly online. ResortQuest also provides
vacationers with catalogs containing color photographs and descriptions of
available condominiums or homes. Reservations also are taken over ResortQuest's
24-hour toll-free reservations line by agents who are familiar with the specific
condominiums and homes.
To assure that vacationers' expectations are met by the condominium or home
selected, ResortQuest in November 1998 implemented quality standards and
accommodation categories for each of its vacation rental properties. The Company
has established a basic set of criteria based on quality, appearance and amenity
standards for each property. Each property also has been rated in one of five
levels, Quest Home, Platinum, Gold, Silver and Bronze, based on its furnishings,
soft goods, flooring, kitchen/appliances, televisions and stereos, bathrooms,
decor, and other features such as swimming pools and exercise facilities.
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 by combining local management expertise and
attention with the marketing resources of a national brand. In most markets, the
Company will assume complete responsibility for rental management of the
condominium or home, including marketing, renting and maintaining the specific
property as well as managing the common properties and homeowners' associations.
The Company currently engages in extensive marketing activities, including its
interactive web site, resortquest.com, print advertising in high-profile
nationwide publications, and e-mail marketing, as well as 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, the Company performs
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periodic inspections and makes recommendations to property owners for
maintenance, refurbishment's 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 1998, net real estate sales
commissions represented approximately 12% of pro forma 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.
Owners of condominiums and homes managed by ResortQuest also may
participate in QuestClub, a travel benefits program for the Company's homeowners
initiated in December 1998. QuestClub members receive a 70 percent savings on
vacation home and condominium rentals for stays of up to 28 days each year at
other QuestClub member properties. The availability of QuestClub privileges is
limited during extremely popular times to preserve the revenue potential for
each participating homeowner. The QuestClub annual membership fee is $129.
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. Since its initial
public offering, ResortQuest also has developed a multi-faceted, national
marketing campaign targeting consumers and the travel trade through high-profile
print advertising, direct mail, e-mail marketing, public relations and
promotional programs. The Company also 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. 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.
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ResortQuest believes that its most important marketing resource is its web
site, resortquest.com, which was launched in January 1999. For the first time,
consumers can visit resort destinations across North America, view photographs
and floor plans and make reservations directly on-line. The Company believes
that a national marketing campaign should increase the effectiveness of the
Operating 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 intends to capitalize on its extensive market presence and
further increase its use of the world wide web, travel agents and the print
media. The Company 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 Software, one of the Founding Companies, is a leading provider
of integrated management, reservations and accounting software for the vacation
rental and property management industry. Fourteen of the Operating Companies and
over 700 other vacation rental and property management companies use First
Resort Software's software programs. First Resort Software'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 Software'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 Software also offers
additional modules and interfaces, including a work order generator, activities
management system, credit card interface and on-line booking interface through
the world wide web.
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
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companies' databases. The Company intends to develop proprietary data mining
tools in order to enhance its cross-selling and direct marketing efforts.
YEAR 2000 COMPLIANCE
The vacation property management industry uses a complex suite of software.
The areas of greatest risk of software failure due to Year 2000 problems 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 Embedded control systems (HVAC, elevator controls, etc.)
ResortQuest 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 micro controllers. ResortQuest
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, ResortQuest 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 flows from operations.
The impact upon ResortQuest by Year 2000 issues is greatest in the areas of
property management systems, telecommunications, and financial
accounting/reporting. ResortQuest believes that the consequences of the Year
2000 issues with respect to adverse impact upon the Company's results of
operations will not be material.
ResortQuest will 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 the third quarter
1999.
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COMPETITION
The vacation rental and property management industry is highly competitive
and has low barriers to entry. The industry has two distinct customer groups:
vacation property renters and vacation property owners. The Company believes
that the principal competitive factors in attracting vacation property renters
are: (i) market share and visibility; (ii) quality, cost and breadth of services
and properties provided; and (iii) long-term customer relationships. The
principal competitive factors in attracting vacation property owners are: (i)
the ability to generate higher rental income and (ii) comprehensive management
services at competitive prices. The Company competes for vacationers and
property owners primarily with approximately 3,000 owner-operated companies that
typically operate in a limited geographic area. Some of the Company's
competitors are affiliated with the owners or operators of resorts in which such
competitor provides its services. Certain of these smaller competitors may have
lower overhead cost structures and may be able to provide their services at
lower rates.
The Company also competes for vacationers with large hotel and resort
companies. Many of these competitor companies have greater financial resources
than the Company enabling them to finance acquisition and development
opportunities, to pay higher prices for the same opportunities or to develop and
support their own operations. In addition, many of these companies can offer
vacationers services not provided by vacation rental and property management
companies, and they may have greater name recognition among vacationers. These
companies might be willing to sacrifice profitability to capture a greater
portion of the market for vacationers or pay higher prices than the Company for
the same acquisition opportunities. Consequently, the Company may encounter
significant competition in its efforts to achieve its internal and acquisition
growth objectives as well as its operating strategies focused on increasing the
profitability of the Operating Companies and subsequently acquired companies.
EMPLOYEES
The Company had approximately 2,800 employees as of December 31, 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.
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FACTORS THAT MAY AFFECT FUTURE RESULTS
Our disclosure and analysis in this report and in our 1998 Annual Report to
Shareholders contain some forward-looking statements. Forward-looking statements
give our current expectations or forecasts of future events. You can identify
these statements by the fact that they do not relate strictly to historical or
current facts. They use words such as "anticipate," "estimate," "expect,"
"project," "intend," "plan," "believe," and other words and terms of similar
meaning in connection with any discussion of future operating or financial
performance. In particular, these include statements relating to future actions,
future performance or results of current and anticipated services, sales
efforts, expenses, and financial results. From time to time, we also may provide
oral or written forward-looking statements in other materials we release to the
public.
Any or all of our forward-looking statements in this report, in the 1998
Annual Report and in any other public statements we make may turn out to be
wrong. They can be affected by inaccurate assumptions we might make or by known
or unknown risks and uncertainties. Many factors mentioned in the discussion
above will be important in determining future results. Consequently, no
forward-looking statement can be guaranteed. Actual future results may vary
materially.
We undertake no obligation to publicly update any forward-looking
statements, whether as a result of new information, future events or otherwise.
You are advised, however, to consult any further disclosures we make on related
subjects in our 10-Q, 8-K and 10-K reports to the SEC. Also note that we provide
the following cautionary discussion of risks, uncertainties and possibly
inaccurate assumptions relevant to our businesses. These are factors that we
think could cause our actual results to differ materially from expected and
historical results. Other factors besides those listed here could also adversely
affect the Company. This discussion is provided as permitted by the Private
Securities Litigation Reform Act of 1995.
ABSENCE OF COMBINED OPERATING HISTORY; RISKS OF INTEGRATION. ResortQuest
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. Subsequent to May 1998, we
acquired ten additional vacation rental and property management companies. Prior
to such acquisitions, the Operating Companies operated as separate independent
entities. Currently, the Company relies on the existing reporting systems of the
Operating Companies for financial reporting. The pro forma combined financial
statements of the Founding Companies and the 1998 Acquired Companies cover
periods when these companies and ResortQuest 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 continue to manage effectively the combined entity or effectively
implement our operating and growth
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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 continue to be successful.
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 whether the resort is primarily a summer or winter
destination. During 1998, we derived approximately 30.0% of our pro forma
revenues and 71.8% of our operating income in the first quarter and 24.4% of our
pro forma revenues and 25.7% 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.
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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.
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 1998, we derived approximately 24%
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
(i) increases in pro forma combined revenues and earnings of approximately 6.8%
and 40.7%, respectively, from 1996 to 1997, and (ii) increases in pro forma
combined revenue of approximately 22.2% and decreases in pro forma combined
earnings of 8.0%, from 1997 to 1998. 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.
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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 December 31, 1998 combined
pro forma revenue and percentage of total pro forma revenues derived from each
location.
<TABLE>
<CAPTION>
COMBINED % OF TOTAL
REGION REVENUES REVENUES
- ----------------------------------- ---------- -----------
<S> <C> <C>
Florida .................... $12,821 18.4%
Hawaii ..................... 21,874 31.5%
Colorado and Utah* ......... 12,619 18.2%
Other ...................... 22,133 31.9%
-------
Total ...................... $69,447
=======
----------
* excludes revenues of First Resort Software
</TABLE>
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 n umber 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
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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. We
continually review various strategic acquisition opportunities and have held
discussions with a number of such acquisition candidates. ResortQuest is a party
to two agreements to acquire vacation rental and property management companies
in Crested Batte, Colorado, and Whistler, British Columbia. These agreements,
which do not represent significant acquisitions, are subject to customary terms
and conditions to closing. ResortQuest expects the acquisitions to close prior
to the end of the first quarter of fiscal 1999 and anticipates that the
transactions will be accounted for as a pooling of interests.
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.
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.
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
majority of the managers 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.
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SUBSTANTIAL AMOUNTS OF GOODWILL. Approximately $130.2 million, or 70.4%, of
the Company's total assets as of December 31, 1998, is net 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 as
purchases. ResortQuest generally amortizes goodwill on a straight line method
over a period of 40 years, except for First Resort Software which is being
amortized over 15 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 periodically 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 1.1% of our revenues for 1998 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.
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
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lose the control or management of the front desk and related services, thereby
eliminating our competitive 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.
YEAR 2000 COMPUTER SYSTEMS COMPLIANCE. As described above, ResortQuest is
working to address "Year 2000" issues. If we should fail to identify or fix all
such issues in our own operations, or if we are affected by the inability of a
sole-source supplier or a major customer to continue operations due to such a
problem, our operations could be affected.
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.
CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS. The executive officers and
directors of ResortQuest, and entities affiliated with them, as of December 31,
1998, own shares of Common Stock representing approximately 39% of the total
voting power of the Common Stock (approximately 41% if all shares of Restricted
Common Stock (which are entitled to one-half vote per share) were converted into
Common Stock). These persons, if acting together, will likely 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.
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PORTION OF REVENUES DERIVED FROM REAL ESTATE SALES. We derived
approximately 12% of our pro forma combined revenues for 1998 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;
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.
RELATIONSHIPS WITH OPERATING COMPANY AFFILIATES; POTENTIAL CONFLICTS OF
INTERESTS. Several lease agreements, management contracts and other agreements
with stockholders of the Operating Companies and entities controlled by them
continued after the closing of the acquisitions of the Operating Companies. We
have 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
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it could obtain unrelated third parties, conflicts of interests may arise
between the Company and these related persons.
At December 31, 1998 the former principal stockholder of Aston Hotels &
Resorts owed ResortQuest, either directly or through entities controlled by him
(including properties managed by Aston Hotels & Resorts), approximately $4.2
million. $4.0 million of this amount is fully collateralized by cash or cash
equivalents and real estate or by the former principal stockholder's personal
guarantee (not to exceed $1.0 million).
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 16,891,927 shares of Common Stock outstanding as of
December 31, 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 acquisition of the Founding Companies, the
stockholders of the Founding Companies received, in the aggregate, 6,119,656
shares. Management and founders of ResortQuest own 3,134,630 shares. These
9,254,286 shares have not been registered under the Securities Act of 1933, 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 registered 3,000,000 shares of Common Stock for use as
consideration for recent and 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. ResortQuest has issued
967,641 shares of Common Stock in connection with the five acquisitions which
closed in 1998 after the initial public offering. All of these shares were
registered under the Securities Act and 205,868 of these shares are subject to
certain contractual transfer restrictions expiring between May 30, 1999 and
February 1, 2000.
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;
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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.
On February 25, 1999, the Board of Directors adopted a shareholder rights
plan that is designed to protect company stockholders in the event of takeover
action that would deny them the full value of their investment. Under this plan,
a dividend distribution of one right for each share of Common Stock was declared
to holders of record at the close of business on March 15, 1999. The rights will
become exercisable only in the event, with certain exceptions, an acquiring
party accumulates 15 percent or more of ResortQuest's voting stock, or if a
party announces an offer to acquire 15 percent or more of ResortQuest's voting
stock. The rights will expire on March 15, 2009. Each right will entitle the
holder to buy one one-hundredth of a share of a new series of preferred stock at
a price of $87.00. In addition, upon the occurrence of certain events, holders
of the rights will be entitled to purchase either ResortQuest stock or shares in
an "acquiring entity" at half of market value. ResortQuest generally will be
entitled to redeem the rights at $0.01 per right at any time until the date on
which a 15 percent position in its voting stock is acquired by any person or
group. The rights plan is designed to prevent the use of coercive and/or abusive
takeover techniques and to encourage any potential acquiror to negotiate
directly with the Board for the benefit of all stockholders. In addition, the
rights plan is intended to provide increased assurance that a potential acquiror
would pay an appropriate control premium in connection with any acquisition of
ResortQuest. Nevertheless, the rights plan could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change of
control of ResortQuest.
23
<PAGE>
ITEM 2. PROPERTIES
The Company has 95 properties located in 11 states and 27 cities in the
United States and Canada. These properties consist principally of offices and
maintenance, laundry and storage facilities. The Company owns 20 of these
facilities and leases the remaining 75 properties. The Company considers all of
its owned and leased properties to be suitable and adequate for the conduct of
its business.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various legal actions arising in the ordinary
course of its business. ResortQuest does not believe that any of these actions
will have a material adverse effect on its business, financial condition or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS OF THE COMPANY
As of March 23, 1999, the following executive officers of the Company hold
the offices indicated until their successors are chosen and qualified after the
next annual meeting of shareholders:
<TABLE>
<CAPTION>
<S> <C> <C>
David C. Sullivan ........... 59 Chairman and Chief Executive Officer
David L. Levine ............. 51 President and Chief Operating Officer
Jeffery M. Jarvis ........... 43 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 ......... 49 Senior Vice President and Chief Information Officer
</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 franchiser,
manager and owner of hotels whose brands include Hampton Inn, Homewood Suites
and Embassy Suites. From 1993 to 1995, Mr. Sullivan was the Executive Vice
President and Chief Operation Officer of the Hotel Division of the Promus
Companies Incorporated ("PCI"). He was the Senior Vice President of Development
and Operations of the Hampton Inn/Homewood Suites Hotel Division of PCI from
1991 to 1993. From 1990 to 1991, Mr. Sullivan was the Vice President of
Development of the Hampton Inn Hotel Division of PCI.
DAVID L. LEVINE became the President and Chief Operating Officer and a
director of the Company in May 1998. Mr. Levine was President and Chief
Operating Officer of Equity Inns, Inc., a real estate investment trust that
specializes in hotel acquisitions, from June 1994 to April 1998. Mr. Levine was
also President and Chief Operations Officer of Trust Management Inc.,
24
<PAGE>
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.
25
<PAGE>
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The principal market for our Common Stock is the New York Stock Exchange.
Information required by this item concerning quarterly sales price data is
incorporated by reference from the table Quarterly Results of Operations on page
40 of the 1998 Annual Report to Shareholders.
The following is certain information concerning all sales of securities by
the Company during the year ended December 31, 1998 that were not registered
under the Securities Act of 1933:
(a) ResortQuest was formed in September 1998 and issued 293.9481 shares of
Common Stock to Alpine Consolidated II, LLC and Capstone Partners, LLC
at a per share price of $.01. The offer and sale of these shares was
exempt from registration under the Securities Act in reliance on
Section 4(2) thereof because, among other things, the offers and sales
were made to a small number of sophisticated investors who had access
to information about the Company and were able to bear the economic
risk of loss of their investment. On March 9, 1998, the number of
these shares was increased by a 8,834.76-for-one stock split.
(b) In January and February of 1998, the Company issued a total of 518,369
shares of Common Stock at a price of $.01 per share to persons who
were to become members of the management of ResortQuest. The offer and
sale of these shares was exempt from registration under the Securities
Act in reliance on Section 4(2) thereof because, among other things,
the offers and sales were made to a small number of sophisticated
investors who had access to information about the company and were
able to bear the economic risk of loss of their investment.
26
<PAGE>
(c) In May 1998, the Company issued the following shares in connection
with the acquisition of the Founding Companies:
<TABLE>
<CAPTION>
SHARES OF
COMPANY COMMON STOCK
---------------------------------------------------------------- -------------
<S> <C>
Aston Hotels & Resorts ................................... 1,708,333
Brindley & Brindley Realty and Development, Inc. ......... 195,000
Coastal Resorts Realty L.L.C. ............................ 816,667
Collection of Fine Properties, Inc. ...................... 404,167
First Resort Software, Inc. .............................. 290,767
Houston and O'Leary Company .............................. 248,167
Maui Condominium and Home Realty, Inc. ................... 166,667
The Maury People, Inc. ................................... 150,000
Priscilla Murphy Realty, Inc. ............................ 1,144,036
Resort Property Management, Inc. ......................... 108,333
Telluride Resort Accommodations, Inc. .................... 125,103
Trupp-Hodnett Enterprises, Inc. .......................... 627,833
Whistler Chalets Limited ................................. 134,583
</TABLE>
The offer and sale of these shares was exempt from registration under
the Securities Act in reliance on Section 4(2) thereof because, among
other things, the offers and sales were made to a small number of
sophisticated investors who had access to information about the
Company and were able to bear the economic risk of loss of their
investment.
ITEM 6. SELECTED FINANCIAL DATA
Financial information required by this item is incorporated by reference
from the Selected Financial Data on page 40 of the 1998 Annual Report to
Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information required by this item is incorporated by reference from the
Management's Discussion and Analysis on pages 11 through 20 of the 1998 Annual
Report to Shareholders.
ITEMS 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information required by this item is incorporated by reference from the
discussion under the heading Management's Discussion and Analysis on page 20 of
the 1998 Annual Report to Shareholders.
27
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this item is incorporated by reference from the
Report of Independent Public Accountants found on page 39, from the consolidated
financial statements and supplementary data on pages 21 through 38 of the 1998
Annual Report to Shareholders, and from the audited financial statements of
Priscilla Murphy Realty, Inc., Collection of Fine Properties, Inc., Coastal
Resorts Management, Inc. and Coastal Resorts Realty L.L.C., First Resort
Software, Inc., Houston and O'Leary Company, Brindley & Brindley (including
Brindley & Brindley Realty and Development, Inc. and B&B On The Beach, Inc.),
The Maury People, Inc., Resort Property Management, Inc., Telluride Resort
Accommodations, Inc. and Trupp-Hodnett Enterprises, Inc. filed as Exhibits 99.2
through 99.11 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Information about Directors of the Company is incorporated by reference
from the discussion under Item 1 of our Proxy Statement for the 1999 Annual
Meeting of Shareholders. The balance of the response to this item is contained
in the discussion entitled Executive Officers of the Company in Part I of this
report.
ITEM 11. EXECUTIVE COMPENSATION
Information about executive compensation is incorporated by reference from
the discussion under the heading Compensation of Executive Officers in our Proxy
Statement for the 1999 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information about security ownership of certain beneficial owners and
management is incorporated by reference from the discussion under the heading
Security Ownership of Management and Principal Stockholders in our Proxy
Statement for the 1999 Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information about certain relationships and transactions with related
parties is incorporated herein by reference from the discussion under the
heading Certain Relationships and Related Transactions under Item 1 of our Proxy
Statement for the 1998 Annual Meeting of Shareholders.
28
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
14(a)(1) FINANCIAL STATEMENTS
ResortQuest International, Inc. The following consolidated financial
statements, related notes and report of independent public accountants, from the
1998 Annual Report to Shareholders, are incorporated by reference into Item 8 of
Part II of this report.
<TABLE>
<CAPTION>
PAGES(S) IN THE 1998 ANNUAL
REPORT TO SHAREHOLDERS
----------------------------
<S> <C>
Consolidated Balance Sheets ............................. 21
Consolidated Statements of Income ....................... 22
Consolidated Statements of Stockholders' Equity ......... 24
Consolidated Statements of Cash Flows ................... 25
Notes to Consolidated Financial Statements .............. 26
Report of Independent Public Accountants ................ 39
Quarterly Results of Operations ......................... 40
Selected Financial Data ................................. 40
</TABLE>
Priscilla Murphy Realty, Inc. The audited financial statements, related
notes and report of independent public accountants filed as Exhibit 99.2 of this
report are incorporated by reference into Item 8 of Part II of this report.
Collection of Fine Properties, Inc. The audited financial statements,
related notes and reports of independent public accountants filed as Exhibit
99.3 of this report are incorporated by reference into Item 8 of Part II of this
report.
Coastal Resorts Management, Inc. and Coastal Resorts Realty L.L.C. The
audited financial statements, related notes and report of independent public
accountants filed as Exhibit 99.4 of this report are incorporated by reference
into Item 8 of Part II of this report.
First Resort Software, Inc. The audited financial statements, related notes
and report of independent public accountants filed as Exhibit 99.5 of this
report are incorporated by reference into Item 8 of Part II of this report.
Houston and O'Leary Company. The audited financial statements, related
notes and report of independent public accountants filed as Exhibit 99.6 of this
report are incorporated by reference into Item 8 of Part II of this report.
29
<PAGE>
Brindley & Brindley (including Brindley & Brindley Realty and Development,
Inc. and B&B On the Beach, Inc.). The audited financial statements, related
notes and report of independent public accountants filed as Exhibit 99.7 of this
report are incorporated by reference into Item 8 of Part II of this report.
The Maury People, Inc. The audited financial statements, related notes and
report of independent public accountants filed as Exhibit 99.8 of this report
are incorporated by reference into Item 8 of Part II of this report.
Resort Property Management, Inc. The audited financial statements, related
notes and report of independent public accountants filed as Exhibit 99.9 of this
report are incorporated by reference into Item 8 of Part II of this report.
Telluride Resort Accommodations, Inc. The audited financial statements,
related notes and report of independent public accountants filed as Exhibit
99.10 of this report are incorporated by reference into Item 8 of Part II of
this report.
Trupp-Hodnett Enterprises (including Trupp-Hodnett Enterprises, Inc. and
THE Management Company). The audited financial statements, related notes and
report of independent public accountants filed as Exhibit 99.11 of this report
are incorporated by reference into Item 8 of Part II of this report.
14(a)(2) FINANCIAL STATEMENT SCHEDULES
Schedules are omitted because they are not required or the information is
given elsewhere in the financial statements. The financial statements of
unconsolidated subsidiaries are omitted because they are not applicable.
14(a)(3) EXHIBITS
These exhibits are available upon request at a charge of ten cents per
page. Requests should be directed to John K. Lines, Secretary, ResortQuest
International, Inc., 530 Oak Court Drive, Suite 360, Memphis, TN 38117
2.1 Agreement and Plan of Organization, dated as of March 11, 1998, by
and among Vacation Properties International, Inc., HCP Acquisition
Corp., and Hotel Corporation of the Pacific, Inc. and Andre' S.
Tatibouet (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).
2.2 Agreement and Plan of Organization, dated as of 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 (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).
30
<PAGE>
2.3 Agreement and Plan of Organization, dated as of March 11, 1998, by
and among Vacation Properties International, Inc., Coastal Realty
Acquisition LLC, Coastal Management Acquisition Corp. and Coastal
Resorts Realty LLC, Coastal Resorts Management, Inc., Joshua M.
Freeman, T. Michael McNally and CMF Coastal Resorts, L.L.C.
(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).
2.4 Agreement and Plan of Organization, dated as of 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 (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).
2.5 Agreement and Plan of Organization, dated as of March 11, 1998, by
and among Vacation Properties International, Inc. and Houston and
O'Leary Company and Heidi O'Leary Houston (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).
2.6 Agreement and Plan of Organization, dated as of 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 (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).
2.7 Agreement and Plan of Organization, dated as of 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 (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).
2.8 Areement and Plan of Organization, dated as of March 11, 1998, by and
among Vacation Properties International, Inc., Maury Acquisition
Corp. and The Maury People, Inc. and Sharon Benson Doucette
(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).
2.9 Agreement and Plan of Organization, dated as of 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 (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).
31
<PAGE>
2.10 Agreement and Plan of Organization, dated as of March 11, 1998, by
and among Vacation Properties International, Inc., RPM Acquisition
Corp. and Resort Property Management, Inc., Daniel L. Meehan,
Kimberlie C. Meehan and Nancy Hess (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).
2.11 Agreement and Plan of Organization, dated as of 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 Martori and Alan Mishkin
(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).
2.12 Agreement and Plan of Organization, dated as of March 11, 1998, by
and among Vacation Properties International, Inc., Trupp Acquisition
Corp., Management Acquisition Corp. and Trupp-Hodnett Enterprises,
Inc., THE Management Company, Hans F. Trupp, Roy K. Hodnett, Pat
Hodnett Cooper and Austin Trupp (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).
2.13 Agreement and Plan of Organization, dated as of March 11, 1998, by
and among Vacation Properties International, Inc., Whistler Holding
Corp. and Whistler Chalets Ltd. and J. Patrick McCurdy (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).
2.14 Agreement and Plan of Organization, dated as of March 11, 1998, by
and among Vacation Properties International, Inc., FRS Acquisition
Corp., First Resort Software, Inc., Thomas A. Leddy, Evan H. Gull and
Daniel Patrick Curry (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).
2.15 Stock Purchase Agreement dated 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, (previously filed on October 16, 1998 as an exhibit to
the Company's Registration Statement on Form S-1 (File No.
333-56703) and incorporated herein by reference).
32
<PAGE>
3.1 Certificate of Incorporation, as amended (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).
3.2 Bylaws of the Company, Amended as of February 10, 1999.
3.3 Certificate of Amendment of Certificate of Incorporation of Company,
dated April 23, 1998 (changing the name of the Company from Vacation
Properties International, Inc. to ResortQuest International, Inc.)
(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).
3.4 Certificate of Amendment of Certificate of Incorporation of the
Company, dated May 11, 1998 (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).
4.1 Specimen Common Stock Certificate (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).
4.2 Form of 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, Jeffery 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. Levine 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 (previously
filed on May 26, 1998 an exhibit to the Company's Current Report on
Form 8-K (File No. 001-14115) and incorporated herein by reference).
4.3 Rights Agreement, dated as of February 25, 1999 between ResortQuest
International, Inc. and American Stock Transfer & Trust Company, as
Rights Agent.
10.1 Form of 1998 Long-Term Incentive Plan of the Company (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).
33
<PAGE>
10.2 Form of Employment Agreement between the Company and David C.
Sullivan (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).
10.3 Form of Employment Agreement between the Company and Jeffery M.
Jarvis (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).
10.4 Form of Employment Agreement between the Company and W. Michael
Murphy (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).
10.5 Form of Employment Agreement between the Company and Jules S. Sowder
(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).
10.6 Form of Employment Agreement between the Company and David L. Levine
(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).
10.7 Form of Employment Agreement between the Company and John K. Lines
(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).
10.8 Form of Employment Agreement between the Company and Frederick L.
Farmer (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).
10.9 Form of Employment Agreement between the Company and Luis Alonso
(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).
10.10 Form of Employment Agreement between the Company and Douglas R.
Brindley (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).
34
<PAGE>
10.11 Form of Employment Agreement between the Company and Paul T. Dobson
(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).
10.12 Form of Employment Agreement between the Company and Sharon Benson
Doucette (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).
10.13 Form of Employment Agreement between the Company and Evan H. Gull
(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).
10.14 Form of Employment Agreement between the Company and Heidi O'Leary
Houston (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).
10.15 Form of Employment Agreement between the Company and Daniel L.
Meehan (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).
10.16 Form of Management Services Agreement between the Company and J.
Patrick McCurdy (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).
10.17 Form of Employment Agreement between the Company and Andre S.
Tatibouet (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).
10.18 Form of Employment Agreement between the Company and Hans F. Trupp
(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).
10.19 Form of Officer and Director Indemnification Agreement (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).
35
<PAGE>
10.20 Form of Consulting Agreement between the Company and Park Brady
(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).
10.21 Promissory Note (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).
10.22 Credit Agreement dated as of May 26, 1998, in the amount of $30
million, among ResortQuest International, Inc. as Borrower and the
Financial Institutions named thereon and NationsBank, N.A. as agent
for the Financial Institutions (previously filed on June 12, 1998 as
an exhibit to the Company's Registration Statement on Form S-1 (File
No. 333-56703) and incorporated herein by reference).
10.23 First Amendment to Credit Agreement, dated September 30, 1998
(previously filed on November 16, 1998 as exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the period ended
September 30, 1998 (File No. 001-14115) and incorporated herein by
reference).
10.24 Promissory Note, dated September 30, 1998, in the amount of $5.0
million, between ResortQuest International, Inc. and NationsBank,
N.A. (previously filed on November 16, 1998 as exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the period ended
September 30, 1998 (File No. 001-14115) and incorporated herein by
reference).
10.25 Consulting Agreement dated September 10, 1998 by and among Abbott
Realty Services, Inc. and William W. Abbott, Jr.
10.26 Form of Officer and Director Indemnification Agreement, as amended.
10.27 Second Amendment to Credit Agreement, dated December 7, 1998.
10.28 Form of Section 401(k) Profit Sharing Plan Adoption Agreement.
13 The 1998 Annual Report to Shareholders, which, except for those
portions expressly incorporated herein by reference, is furnished
solely for the information of the Commission and is not to be deemed
"filed."
21 Subsidiaries of the Company.
27 Financial Data Schedule for the Period Ended December 31, 1998.
99.2 Financial Statements of Howey Acquisition, Inc. (dba Priscilla Murphy
Realty, Inc.) as of December 31, 1997 and May 26, 1998 together with
Report of Independent Public Accountants.
36
<PAGE>
99.3 Financial Statements of Collection of Fine Properties, Inc. as of
December 31, 1997 and May 26, 1998 together with Reports of
Independent Public Accountants.
99.4 Financial Statements of Coastal Resorts Management, Inc. and Coastal
Resorts Realty L.L.C. as of December 31, 1997 and May 26, 1998
together with Report of Independent Public Accountants.
99.5 Financial Statements of First Resort Software, Inc. as of December
31, 1997 and May 26, 1998 together with Report of Independent Public
Accountants.
99.6 Financial Statements of Houston & O'Leary Company as of December 31,
1997 and May 26, 1998 together with Report of Independent Public
Accountants.
99.7 Financial Statements of Brindley & Brindley (including Brindley &
Brindley Realty and Development, Inc. and B&B On The Beach, Inc.) as
of December 31, 1997 and May 26, 1998 together with Report of
Independent Public Accountants.
99.8 Financial Statements of The Maury People, Inc. as of December 31,
1997 and May 26, 1998 together with Report of Independent Public
Accountants.
99.9 Financial Statements of Resort Property Management, Inc. as of
September 30, 1997 and May 26, 1998 together with Report of
Independent Public Accountants.
99.10 Financial Statements of Telluride Resort Accommodations, Inc. as of
December 31, 1997 and May 26, 1998 together with Report of
Independent Public Accountants.
99.11 Financial Statements of Trupp-Hodnett Enterprises (including
Trupp-Hodnett Enterprises, Inc. and THE Management Company) as of
December 31, 1997 and May 26, 1998 together with Report of
Independent Public Accountants.
14(B) REPORTS ON FORM 8-K
The Company filed a report on Form 8-K during the last quarter of 1998
dated October 16, 1998 relating to the acquisition of Abbott Resorts, Inc.
37
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
RESORTQUEST INTERNATIONAL, INC.
By: /s/ John K. Lines
-----------------------------
John K. Lines, Senior
Vice President, Secretary and
General Counsel
Date: March 29, 1999
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ ------------------------------------- --------------
<S> <C> <C>
/s/ DAVID C. SULLIVAN Chairman of the Board and March 29, 1999
- --------------------------- Chief Executive Officer,
(David C. Sullivan) (Principal Executive Officer)
/s/ DAVID L. LEVINE President, Chief Operating Officer, March 29, 1999
- --------------------------- Director
(David L. Levine)
/s/ JEFFERY M. JARVIS Senior Vice President and Chief March 29, 1999
- --------------------------- Financial Officer (Principal
(Jeffery M. Jarvis) Financial and Accounting
Officer)
/s/ WILLIAM W. ABBOTT, JR. Director March 29, 1999
- ---------------------------
(William W. Abbott, Jr.)
Director March , 1999
- ---------------------------
(Luis Alonso)
/s/ ELAN J. BLUTINGER Director March 29, 1999
- ---------------------------
(Elan J. Blutinger)
/s/ PARK BRADY Director March 29, 1999
- ---------------------------
(Park Brady)
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ ------------------------------------- --------------
<S> <C> <C>
/s/ DOUGLAS R. BRINDLEY Director March 29, 1999
- ---------------------------
(Douglas R. Brindley)
/s/ D. FRASER BULLOCK Director March 29, 1999
- ---------------------------
(D. Fraser Bullock)
/s/ PAUL T. DOBSON Director March 29, 1999
- ---------------------------
(Paul T. Dobson)
Director March , 1999
- ---------------------------
(Joshua M. Freeman)
Director March , 1999
- ---------------------------
(Evan H. Gull)
/s/ HEIDI O'LEARY HOUSTON Director March 29, 1999
- ------------------------------
(Heidi O'Leary Houston)
Director March , 1999
- ---------------------------
(Charles O. Howey)
/s/ DANIEL L. MEEHAN Director March 29, 1999
- ---------------------------
(Daniel L. Meehan)
/s/ J. PATRICK MCCURDY Director March 29, 1999
- ---------------------------
(J. Patrick McCurdy)
Director March , 1999
- ---------------------------
(Michael D. Rose)
/s/ ANDRE S. TATIBOUET Director March 29, 1999
- ---------------------------
(Andre S. Tatibouet)
/s/ HANS F. TRUPP Director March 29, 1999
- ---------------------------
(Hans F. Trupp)
/s/ JOSEPH V. VITTORIA Director March 29, 1999
- ---------------------------
(Joseph V. Vittoria)
Director March , 1999
- ---------------------------
(Theodore L. Weise)
</TABLE>
39
EXHIBIT 3.2
RESORTQUEST INTERNATIONAL, INC.
----------------------
AMENDED BYLAWS
AS OF FEBRUARY 10, 1999
---------
ARTICLE I
OFFICES
Section 1.01. Registered Office. The registered office of ResortQuest
International, Inc. (hereinafter referred to as the "Corporation") shall be in
the City of Wilmington, County of New Castle, State of Delaware.
Section 1.02. Additional Offices. The Corporation may also have offices
at such other places, both within and outside the State of Delaware, as the
Board of Directors may from time to time determine or as the business of the
Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
Section 2.01. Time and Place. All meetings of stockholders for the
election of Directors shall be held at such time and place, either within or
outside the State of Delaware, as shall be designated from time to time by the
Board of Directors and stated in the notice of the meeting or in a duly executed
waiver of notice of the meeting. Meetings of stockholders for any other purpose
may be held at such time and place either within or outside the State of
Delaware as shall be stated in the notice of the meeting or in a duly executed
waiver of notice of the meeting.
Section 2.02. Annual Meeting. Annual meetings of stockholders shall be
held for the purpose of electing a Board of Directors and transacting such other
business as may properly be brought before the meeting.
Section 2.03. Notice of Annual Meeting. Written notice of the annual
meeting, stating the place, date and time of such annual meeting, shall be given
to each stockholder entitled to vote at such meeting not less than ten (10)
(unless a longer period is required by law) nor more than sixty (60) days prior
to the meeting.
Section 2.04. Special Meeting. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by the Chairman of the Board, if
any, or, if the Chairman is not present (or, if there is none), by the President
and shall be called by the President or Secretary at the request in writing of a
majority of the Board of Directors. Such request shall state the purpose or
purposes of the
<PAGE>
proposed meeting. The person calling such meeting shall cause notice of the
meeting to be given in accordance with the provisions of Section 2.05 of this
Article II and of Article V.
This Section 2.04 may be altered, amended or repealed or a new provision
adopted by the stockholders at any regular meeting of the stockholders or at any
special meeting of the stockholders, if notice of such proposed alteration,
amendment repeal or adoption of a new provision be contained in the notice of
such special meeting, only upon the affirmative vote of the holders of sixty-six
and two-thirds percent (66 2/3%) of the voting stock of the Corporation.
Section 2.05. Notice of Special Meeting. Written notice of a special
meeting, stating the place, date and time of such special meeting and the
purpose or purposes for which the meeting is called, shall be delivered either
personally or mailed to his or her last address to each stockholder not less
than ten (10) (unless a longer period is required by law) nor more than sixty
(60) days prior to the meeting.
Section 2.06. List of Stockholders. The officer in charge of the stock
ledger of the Corporation or the transfer agent shall prepare and make, at least
ten (10) days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten (10) days prior to the meeting, at
a place within the city where the meeting is to be held. Such place, if other
than the place of the meeting, shall be specified in the notice of the meeting.
The list shall also be produced and kept at the time and place of the meeting
during the whole time of the meeting and may be inspected by any stockholder who
is present.
Section 2.07. Presiding Officer. Meetings of stockholders shall be
presided over by the Chairman of the Board, if any, or if the Chairman is not
present (or if there is none), by the President, or, if the President is not
present, by a Vice President, or, if a Vice President is not present, by such
person who may have been chosen by the Board of Directors, or, if none of such
persons is present, by a Chairman to be chosen by the stockholders owning a
majority of the shares of capital stock of the Corporation issued and
outstanding and entitled to vote at the meeting and who are present in person or
represented by proxy. The Secretary of the Corporation, or, if the Secretary is
not present, an Assistant Secretary, or, if an Assistant Secretary is not
present, such person as may be chosen by the Board of Directors, shall act as
secretary of meetings of stockholders, or, if none of such persons is present,
the stockholders owning a majority of the shares of capital stock of the
Corporation issued and outstanding and entitled to vote at the meeting and who
are present in person or represented by proxy shall choose any person present to
act as secretary of the meeting.
Section 2.08. Quorum and Adjournments. The holders of a majority of the
shares of capital stock of the Corporation issued and outstanding and entitled
to vote at stockholders meetings, present in person or represented by proxy,
shall be necessary to, and shall constitute a
2
<PAGE>
quorum for, the transaction of business at all meetings of the stockholders,
except as otherwise provided by statute or by the Certificate of Incorporation.
The stockholders present in person or represented by proxy at a duly organized
meeting may continue to do business until final adjournment of such meeting
whether on the same day or on a later day, notwithstanding the withdrawal of
enough stockholders to leave less than a quorum. If a meeting cannot be
organized because a quorum has not attended, or even if a quorum shall be
present or represented at any meeting of the stockholders, the stockholders
entitled to vote at such meeting present in person or represented by proxy may
adjourn the meeting from time to time; provided, however, that if the holders of
any class of stock of the Corporation are entitled to vote separately as a class
upon any matter at such meeting, any adjournment of the meeting in respect of
action of such class upon such matter shall be determined by the holders of a
majority of the shares of such class present in person or represented by proxy
and entitled to vote at such meeting, until a quorum shall be present or
represented. Notice of the adjourned meeting need not be given if the time and
place of the adjourned meeting are announced at the meeting at which the
adjournment is taken. At any adjourned meeting at which a quorum is present in
person or represented by proxy of any class of stock entitled to vote separately
as a class, as the case may be, any business may be transacted which might have
been transacted at the meeting as originally called. If the adjournment is for
more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at such meeting.
Section 2.09. Voting.
(a) At any meeting of stockholders, every stockholder having the right
to vote shall be entitled to vote in person or by proxy, but no such proxy shall
be voted or acted upon after three (3) years from its date, unless the proxy
provides for a longer period. Except as otherwise provided by law or the
Certificate of Incorporation, each stockholder of record shall be entitled to
one (1) vote for each share of capital stock registered in his or her name on
the books of the Corporation.
(b) At a meeting at which a quorum is present, all elections of
Directors shall be determined by a plurality vote, and, except as otherwise
provided by law or the Certificate of Incorporation, all other matters shall be
determined by a vote of a majority of the shares present in person or
represented by proxy and entitled to vote on such other matters.
Section 2.10. Inspectors. When required by law or directed by the
presiding officer or upon the demand of any stockholder entitled to vote, but
not otherwise, the polls shall be opened and closed, the proxies and ballots
shall be received and taken in charge, and all questions touching the
qualification of voters, the validity of proxies and the acceptance or rejection
of votes shall be decided at any meeting of the stockholders by two or more
inspectors who may be appointed by the Board of Directors before the meeting, or
if not so appointed, shall be appointed by the presiding officer at the meeting.
If any person so appointed fails to appear or act, the vacancy may be filled by
appointment in like manner.
3
<PAGE>
Section 2.11. Consent. Unless otherwise provided in the Certificate of
Incorporation, any action required or permitted by law or the Certificate of
Incorporation to be taken at any meeting of the stockholders may be taken
without a meeting, without prior notice to stockholders and without a vote, if a
written consent, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote on such action were present or represented by proxy
and voted.
In order that the Corporation may determine the stockholders entitled to
consent to corporate action in writing without a meeting, the Board of Directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board of Directors, and
which date shall not be more than ten (10) days after the date upon which the
resolution fixing the record date is adopted by the Board of Directors. Any
stockholder of record seeking to have the stockholders authorize or take
corporate action by written consent shall, by written notice to the Secretary,
request the Board of Directors to fix a record date. The Board of Directors
shall promptly, but in all events within ten (10) days after the date on which
such a request is received, adopt a resolution fixing the record date. If no
record date has been fixed by the Board of Directors within ten (10) days of the
date on which such a request is received, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is required by
applicable law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation by delivery to its registered office in the State of Delaware, its
principal place of business, or an officer or agent of the Corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded, to the attention of the Secretary of the Corporation. Delivery shall
be by hand or by certified or registered mail, return receipt requested. If no
record date has been fixed by the Board of Directors and prior action by the
Board of Directors is required by applicable law, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the date on which the
Board of Directors adopts the resolution taking such prior action.
4
<PAGE>
In the event of the delivery to the Corporation of a written consent or
consents purporting to authorize or take corporate action and/or related
revocations (each such written consent and any revocation thereof is referred to
in this Section 2.11 as a "Consent"), the Secretary of the Corporation shall
provide for the safekeeping of such Consents and shall as soon as practicable
thereafter conduct such reasonable investigation as he or she deems necessary or
appropriate for the purpose of ascertaining the validity of such Consents and
all matters incident thereto, including, without limitation, whether the holders
of shares having the requisite voting power to authorize or take the action
specified in the Consents have given consent; provided, however, that if the
corporate action to which the Consents relate is the removal or election of one
or more members of the board, the Secretary of the Corporation shall designate
an independent, qualified inspector with respect to such Consents and such
inspector shall discharge the functions of the Secretary of the Corporation
under this Section 2.11. If after such investigation the Secretary or the
inspector (as the case may be) shall determine that any action purportedly taken
by such Consents has been validly taken, the fact shall be certified on the
records of the Corporation kept for the purpose of recording the proceedings of
meetings of the stockholders and the Consents shall be filed with such records.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
so consented in writing.
In conducting the investigation required by this Section 2.11, the
Secretary or the inspector may, at the expense of the Corporation, retain to
assist them special legal counsel, any other necessary or appropriate
professional advisors, and such other personnel as they deem necessary or
appropriate.
This Section 2.11 may be altered, amended or repealed or a new provision
adopted by the stockholders at any regular meeting of the stockholders or at any
special meeting of the stockholders, if notice of such proposed alteration,
amendment, repeal or adoption of a new provision be contained in the notice of
such special meeting, only upon the affirmative vote of the holders of sixty-six
and two-thirds percent (66 2/3%) of the voting stock of the Corporation.
Section 2.12. Proposed Business at Annual Meetings. No business may be
transacted at an annual meeting of stockholders, other than business that is
either (a) specified in the notice of meeting (or any supplement thereto) given
by or at the direction of the Board of Directors (or any duly authorized
committee thereof), (b) otherwise properly brought before the annual meeting by
or at the direction of the Board of Directors (or any duly authorized committee
thereof) or (c) otherwise properly brought before the annual meting by any
stockholder of the Corporation (i) who is a stockholder of record on the date of
the giving of the notice provided for in this Section and on the record date for
the determination of stockholders entitled to vote at such annual meeting and
(ii) who complies with the notice procedures set forth in this Section.
In addition to any other applicable requirements, for business to be
properly brought before an annual meeting by a stockholder, such stockholder
must have given timely notice thereof in proper written form to the Secretary of
the Corporation.
5
<PAGE>
To be timely, a stockholder's notice to the Secretary must be delivered
to or mailed and received at the principal executive offices of the Corporation
not less than sixty (60) days nor more than ninety (90) days prior to the date
of the annual meeting; provided, however, that in the event that less than
seventy (70) days' notice or prior public disclosure of the date of the annual
meeting is given or made to stockholders, notice by the stockholder (in order to
be timely) must be so received not later than the close of business on the tenth
(10th) day following the day on which such notice of the date of the annual
meeting was mailed or such public disclosure of the date of the annual meeting
was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary
must set forth as to each matter such stockholder proposes to bring before the
annual meeting (i) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting, (ii) the name and record address of such stockholder, (iii) the
class or series and number of shares of capital stock of the Corporation which
are owned beneficially or of record by such stockholder, (iv) a description of
all arrangements or understandings between such stockholder and any other person
or persons (including their names) in connection with the proposal of such
business by such stockholder and any material interest of such stockholder in
such business and (v) a representation that such stockholder intends to appear
in person or by proxy at the annual meeting to bring such business before the
meeting.
No business shall be conducted at the annual meting of stockholders
except business brought before the annual meeting in accordance with the
procedures set forth in this Section; provided, however, that, once business has
been properly brought before the annual meeting in accordance with such
procedures, nothing in this Section shall be deemed to preclude discussion by
any stockholder of any such business. If the Chairman of an annual meeting
determines that business was not properly brought before the annual meeting in
accordance with the foregoing procedures, the Chairman shall declare to the
meeting that the business was not properly brought before the meeting and such
business shall not be transacted.
This Section 2.12 may be altered, amended or repealed or a new provision
adopted by the stockholders at any regular meeting of the stockholders or at any
special meeting of the stockholders, if notice of such proposed alteration,
amendment, repeal or adoption of a new provision be contained in the notice of
such special meeting, only upon the affirmative vote of the holders of sixty-six
and two-thirds percent (66 2/3%) of the voting stock of the Corporation.
ARTICLE III
DIRECTORS
---------
Section 3.01. Number and Tenure. There shall be such number of Directors,
no fewer than one (1), as shall from time to time be fixed by the Board of
Directors at the annual meeting
6
<PAGE>
or at any special meeting called for such purpose. The Directors shall be
elected at the annual meeting of the stockholders, except for initial Directors
named in the Certificate of Incorporation or elected by the incorporator, and
except as provided in Section 3.03 of this Article, and each Director elected
shall hold office until his successor is elected and shall qualify or until
their earlier resignation or removal. Directors need not be stockholders.
Section 3.02. Nomination of Directors. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
directors of the Corporation, except as may be otherwise provided in the Bylaws
with respect to the filling of vacancies on the Board of Directors. Nominations
of persons for election to the Board of Directors may be made at any annual
meeting of stockholders, (a) by or at the direction of the Board of Directors
(or any duly authorized committee thereof) or (b) by any stockholder of the
Corporation (i) who is a stockholder of record on the date of the giving of the
notice provided for in this Section and on the record date for the determination
of stockholders entitled to vote at such annual meeting and (ii) who complies
with the notice procedures set forth in this Section.
In addition to any other applicable requirements, for a nomination to be
made by a stockholder, such stockholder must have given timely notice thereof in
proper written form to the Secretary of the Corporation.
To be timely, a stockholder's notice to the Secretary must be delivered
to or mailed and received at the principal executive offices of the corporation
not less than sixty (60) days nor more than ninety (90) days prior to the date
of the annual meeting; provided, however, that in the event that less than
seventy (70) days' notice or prior public disclosure of the date of the annual
meeting is given or made to stockholders, notice by the stockholder (in order to
be timely) must be so received not later than the close of business on the tenth
(10th) day following the day on which such notice of the date of the annual
meeting was mailed or such public disclosure of the date of the annual meeting
was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary
must set forth (a) as to each person whom the stockholder proposes to nominate
for election as a director (i) the name, age, business address and residence
address of the person, (ii) the principal occupation or employment of the
person, (iii) the class or series and number of shares of capital stock of the
Corporation which are owned beneficially or of record by the person and (iv) any
other information relating to the person that would be required to be disclosed
in a proxy statement or other filing required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations promulgated thereunder; and (b) as to the stockholder giving the
notice (i) the name and record address of such stockholder, (ii) the class or
series and number of shares of capital stock of the Corporation which are owned
beneficially or of record by such stockholder, (iii) a description of all
arrangements or understandings between such stockholder and each proposed
nominee and any other person or persons (including their names) pursuant to
which the nomination(s) are to be made by such stockholder, (iv) a
7
<PAGE>
representation that such stockholder intends to appear in person or by proxy at
the annual meeting to nominate the persons named in his notice and (v) any other
information relating to such stockholder that would be required to be disclosed
in a proxy statement or other filing required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Exchange Act and the rules and regulations promulgated thereunder. Such notice
must be accompanied by a written consent of each proposed nominee to being named
as a nominee and to serve as a director if elected.
No person shall be eligible for election as a director of the Corporation
unless nominated in accordance with the procedures set forth in this Section. If
the Chairman of the annual meeting determines that a nomination was not made in
accordance with the foregoing procedures, the Chairman shall declare to the
meeting that the nomination was defective and such defective nomination shall be
disregarded.
This Section 3.02 may be altered, amended or repealed or a new provision
adopted by the stockholders at any regular meeting of the stockholders or at any
special meeting of the stockholders, if notice of such proposed alteration,
amendment, repeal or adoption of a new provision be contained in the notice of
such special meeting, only upon the affirmative vote of the holders of sixty-six
and two-thirds percent (66 2/3%) of the voting stock of the Corporation.
Section 3.03. Vacancies. If any vacancies occur on the Board of
Directors, or if any new Directorships are created, they shall be filled by a
majority of the Directors then in office, though less than a quorum, or by a
sole remaining Director. Each Director so chosen shall hold office until the
next annual election of Directors and until his or her successor is duly elected
and shall qualify. If there are no Directors in office, any officer or
stockholder may call a special meeting of stockholders in accordance with the
provisions of the Certificate of Incorporation or these Bylaws, at which meeting
such vacancies shall be filled.
Section 3.04. Resignation. Any Director may resign at any time by giving
written notice to the Chairman of the Board, the President or the Secretary of
the Corporation, or, in the absence of all of the foregoing, by notice to any
other Director or officer of the Corporation. Unless otherwise specified in such
written notice, a resignation shall take effect upon delivery to the designated
Director or officer. It shall not be necessary for a resignation to be accepted
before it becomes effective.
Section 3.05. Place of Meetings. The Board of Directors may hold
meetings, both regular and special, either within or outside the State of
Delaware.
Section 3.06. Annual Meeting. Unless otherwise agreed by the newly
elected Directors, the annual meeting of each newly elected Board of Directors
shall be held immediately following the annual meeting of stockholders, and no
notice of such meeting to either incumbent or newly elected Directors shall be
necessary.
8
<PAGE>
Section 3.07. Regular Meetings. Regular meetings of the Board of
Directors may be held without notice, at such time and place as may from time to
time be determined by the Board of Directors. A copy of every resolution fixing
or changing the time or place of regular meetings shall be mailed to every
Director at least five days before the first meeting held pursuant thereto.
Section 3.08. Special Meetings. Special Meetings of the Board of
Directors may be called by the Chairman of the Board or the President on at
least (1) day's actual notice to each Director, if such Special Meeting is to be
conducted by means of conference telephone or similar communications equipment
in accordance with Section 3.12, and otherwise, upon two (2) days' actual notice
if such notice is delivered personally or sent by telegram. Special Meetings
shall be called by the Chairman of the Board or the President in like manner and
on like notice on the written request of one-half or more of the Directors then
in office. The purpose of a Special Meeting of the Board of Directors need not
be stated in the notice of such meeting. Any and all business other than an
amendment of these Bylaws may be transacted at any special meeting, and an
amendment of these Bylaws may be acted upon if the notice of the meeting shall
have stated that the amendment of these Bylaws is one of the purposes of the
meeting. At any meeting at which every Director shall be present, even though
without any notice, any business may be transacted, including the amendment of
these Bylaws.
Section 3.09. Quorum and Adjournments. Unless otherwise provided by the
Certificate of Incorporation, at all meetings of the Board of Directors,
one-half of the total number of Directors shall constitute a quorum for the
transaction of business; provided, however, that when the Board of Directors
consists of one (1) Director, then one (1) Director shall constitute a quorum.
If a quorum is not present at any meeting of the Board of Directors, the
Directors present may adjourn the meeting, from time to time, without notice
other than announcement at the meeting, until a quorum shall be present.
Section 3.10. Presiding Officer. Meetings of the Board of Directors shall
be presided over by the Chairman of the Board of Directors, if any, or if the
Chairman is not present (or if there is none), by the President, or, if the
President is not present, by such person as the Board of Directors may appoint
for the purpose of presiding at the meeting from which the President is absent.
Section 3.11. Action by Consent. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee. Such consent shall have the same force and effect as the unanimous
vote of the Board of Directors.
Section 3.12. Telephone Meetings. Members of the Board of Directors, or
any committee designated by the Board of Directors, may participate in a meeting
of the Board of
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Directors, or any committee, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
Section 3.13. Compensation. The Board of Directors, by the affirmative
vote of a majority of the Directors then in office and irrespective of the
personal interest of any Director, shall have authority to establish reasonable
compensation for Directors for their services as such and may, in addition,
authorize reimbursement of any reasonable expenses incurred by Directors in
connection with their duties.
ARTICLE IV
COMMITTEES
----------
Section 4.01. Committees of Directors. The Board of Directors may, by
resolution passed by a majority of the whole Board of Directors, designate one
(1) or more committees, each committee to consist of one (1) or more Directors
of the Corporation. The Board of Directors may designate one (1) or more persons
who are not Directors as additional members of any committee, but such persons
shall be nonvoting members of such committee. The Board of Directors may
designate one (1) or more Directors as alternate members of any committee, who
may replace any absent or disqualified member at any meeting of the committee.
In the absence or disqualification of a member of a committee, the member or
members of the committee present at any meeting and not disqualified from
voting, whether or not such member or members constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the Corporation, may
authorize the seal of the Corporation to be affixed to all papers that may
require it, and may adopt an agreement of merger or consolidation unless
otherwise prohibited by the Delaware General Corporation Law; but no such
committee shall have power or authority to amend the Certificate of
Incorporation, recommend to the stockholders the sale, lease or exchange of all
or substantially all of the Corporation's property and assets, recommend to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
elect or remove officers or Directors, or amend these Bylaws of the Corporation;
and, unless the resolution or the Certificate of Incorporation expressly so
provides, no such committee shall have the power or authority to declare a
dividend or to authorize the issuance of stock. Such committee or committees
shall have such name or names as may be determined from time to time by
resolution adopted by the Board of Directors.
Section 4.02. Minutes of Committee Meetings. Unless otherwise provided in
the resolution of the Board of Directors establishing such committee, each
committee shall keep minutes of action taken by it and file the same with the
Secretary of the Corporation.
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Section 4.03. Quorum. A majority of the number of Directors constituting
any committee shall constitute a quorum for the transaction of business, and the
affirmative vote of such Directors present at the meeting shall be required for
any action of the committee; provided, however, that when a committee of one (1)
member is authorized under the provisions of Section 4.01 of this Article, such
one (1) member shall constitute a quorum.
Section 4.04. Vacancies, Changes and Discharge. The Board of Directors
shall have the power at any time to fill vacancies in, to change the membership
of and to discharge any committee.
Section 4.05. Compensation. The Board of Directors, by the affirmative
vote of a majority of the Directors then in office and irrespective of the
personal interest of any Director, shall have authority to establish reasonable
compensation for committee members for their services as such and may, in
addition, authorize reimbursement of any reasonable expenses incurred by
committee members in connection with their duties.
ARTICLE V
NOTICES
-------
Section 5.01. Form and Delivery.
(a) Whenever, under the provisions of law, the Certificate of
Incorporation or these Bylaws, notice is required to be given to any
stockholder, it shall not be construed to mean personal notice unless otherwise
specifically provided, but such notice may be given in writing, by mail,
telecopy, telegram or messenger addressed to such stockholder, at his or her
address as it appears on the records of the Corporation. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail, with
postage prepaid.
(b) Whenever, under the provisions of law, the Certificate of
Incorporation, or these Bylaws, notice is required to be given to any Director,
it shall not be construed to mean personal notice unless otherwise specifically
provided, but such notice may be given in writing, by mail, telecopy, telegram
or messenger addressed to such Director at the usual place of residence or
business of such Director, as in the discretion of the person giving such
notice, will be likely to be received most expeditiously by such Director. If
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail, with postage prepaid.
Section 5.02. Waiver. Whenever any notice is required to be given under
the provisions of law, the Certificate of Incorporation or these Bylaws, a
written waiver of notice, signed by the person or persons entitled to said
notice, whether before or after the time for the meeting stated in such notice,
shall be deemed equivalent to such notice.
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ARTICLE VI
OFFICERS
--------
Section 6.01. Designations. The officers of the Corporation shall be
chosen by the Board of Directors and shall be a President and a Secretary. The
Board of Directors may also choose a Chairman of the Board, one (1) or more Vice
Presidents, a Treasurer, one (1) or more Assistant Secretaries and one (1) or
more Assistant Treasurers and other officers and agents as it shall deem
necessary or appropriate. Any officer of the Corporation shall have the
authority to affix the seal of the Corporation and to attest the affixing of the
seal by his or her signature. All officers and agents of the Corporation shall
exercise such powers and perform such duties as shall from time to time be
determined by the Board of Directors.
Section 6.02. Term of Office and Removal. The Board of Directors at its
annual meeting after each annual meeting of stockholders or at a special meeting
called for that purpose shall choose officers and agents, if any, in accordance
with the provisions of Section 6.01. Each officer of the Corporation shall hold
office until his or her successor is elected and shall qualify. Any officer or
agent elected or appointed by the Board of Directors may be removed, with or
without cause, at any time by the affirmative vote of a majority of the
Directors then in office. Any vacancy occurring in any office of the Corporation
may be filled for the unexpired portion of the term by the Board of Directors.
Section 6.03. Compensation. The salaries of all officers and agents, if
any, of the Corporation shall be fixed from time to time by the Board of
Directors, and no officer or agent shall be prevented from receiving such salary
by reason of the fact that he or she is also a Director of the Corporation.
Section 6.04. Chairman of the Board and the President. The Chairman of
the Board shall be the chief executive officer of the Corporation. If there is
no Chairman of the Board, the President shall be the chief executive officer of
the Corporation. The duties of the Chairman of the Board, and of the President
at the direction of the Chairman of the Board, shall be the following:
(i) Subject to the direction of the Board of Directors, to
have general charge of the business, affairs and property of the
Corporation, general supervision over its other officers and agents and,
in general, to perform all duties incident to the office of Chairman of
the Board (or President, as the case may be) and to see that all orders
and resolutions of the Board of Directors are carried into effect.
(ii) Unless otherwise prescribed by the Board of
Directors, to have full power and authority on behalf of the Corporation
to attend, act and vote at any meeting of security holders of other
Corporations in which the Corporation may hold securities. At such
meeting the Chairman of the Board (or the President, as the case may be)
shall possess and may exercise any and all rights and powers incident to
the ownership of such
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securities that the Corporation might have possessed and exercised if it
had been present. The Board of Directors may from time to time confer
like powers upon any other person or persons.
(iii) To preside over meetings of the stockholders and of
the Board of Directors, to call special meetings of stockholders, to be
an ex-officio member of all committees of the Board of Directors, and to
have such other duties as may from time to time be prescribed by the
Board of Directors.
Section 6.05. The Vice President. The Vice President, if any (or in the
event there be more than one (1), the Vice Presidents in the order designated,
or in the absence of any designation, in the order of their election), shall, in
the absence of the President or in the event of his or her inability or refusal
to act, perform the duties and exercise the powers of the President, and shall
generally assist the President and perform such other duties and have such other
powers as may from time to time be prescribed by the Board of Directors.
Section 6.06. The Secretary. The Secretary shall attend all meetings of
the Board of Directors and all meetings of stockholders and record all votes and
the proceedings of the meetings in a book to be kept for that purpose; and shall
perform like duties for any committees of the Board of Directors, if requested
by such committee. The Secretary shall give, or cause to be given, notice of all
meetings of stockholders and special meetings of the Board of Directors, and
shall perform such other duties as may from time to time be prescribed by the
Board of Directors or the President, under whose supervision he or she shall
act. The Secretary shall have custody of the seal of the Corporation, and the
Secretary, or any Assistant Secretary, shall have authority to affix the same to
any instrument requiring it, and, when so affixed, the seal may be attested by
the signature of the Secretary or any such Assistant Secretary.
Section 6.07. The Assistant Secretary. The Assistant Secretary, if any
(or in the event there be more than one (1), the Assistant Secretaries in the
order designated, or in the absence of any designation, in the order of their
election), shall, in the absence of the Secretary or in the event of the
Secretary's inability or refusal to act, perform the duties and exercise the
powers of the Secretary and shall perform such other duties and have such other
powers as may from time to time be prescribed by the Board of Directors.
Section 6.08. The Treasurer. The Treasurer, if any, shall have the
custody of the corporate funds and other valuable effects, including securities,
and shall keep full and accurate accounts of receipts and disbursements in books
belonging to the Corporation, and shall deposit all moneys and other valuable
effects in the name and to the credit of the Corporation in such depositories as
may from time to time be designated by the Board of Directors. The Treasurer
shall disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the President and the Board of Directors, at regular meetings of the board, or
whenever they may require it, an account of all of his or her transactions as
Treasurer and of the financial condition of the Corporation.
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Section 6.09. The Assistant Treasurer. The Assistant Treasurer, if any,
(or in the event there be more than one (1), the Assistant Treasurers in the
order designated, or in the absence of any designation, in the order of their
election), shall, in the absence of the Treasurer or in the event of the
Treasurer's inability or refusal to act, perform the duties and exercise the
powers of the Treasurer and shall perform such other duties and have such other
powers as may from time to time be prescribed by the Board of Directors.
Section 6.10. Transfer of Authority. In case of the absence of any
officer or for any other reason that the Board of Directors deems sufficient,
the Board of Directors may transfer the powers or duties of that officer to any
other officer or to any Director or employee of the Corporation, provided a
majority of the full Board of Directors concurs.
Section 6.11. Giving of Bond by Officers. All officers of the
Corporation, if required to do so by the Board of Directors, shall furnish bonds
to the Corporation for the faithful performance of their duties, in such
penalties and with such conditions and security as the Board shall require.
ARTICLE VII
STOCK CERTIFICATES
------------------
Section 7.01. Form and Signatures. Every holder of stock in the
Corporation shall be entitled to have a certificate, signed by or in the name of
the Corporation, by the Chairman of the Board, the President or a Vice President
and the Treasurer, an Assistant Treasurer, the Secretary or an Assistant
Secretary of the Corporation, certifying the number and class (and series, if
any) of shares owned by him or her, and bearing the seal of the Corporation.
Such seal and any or all of the signatures on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who has signed, or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if he or she
were such officer, transfer agent or registrar at the date of issue.
Section 7.02. Registration of Transfer. Upon surrender to the Corporation
or any transfer agent of the Corporation of a certificate for shares duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, it shall be the duty of the Corporation or its transfer
agent to issue a new certificate to the person entitled thereto, to cancel the
old certificate and to record the transaction upon its books.
Section 7.03. Registered Stockholders. Except as otherwise provided by
law, the Corporation shall be entitled to recognize the exclusive right of a
person who is registered on its books as the owner of shares of its capital
stock to receive dividends or other distributions, to vote as such owner, and to
hold liable for calls and assessments a person who is registered on its
14
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books as the owner of shares of its capital stock. The Corporation shall not be
bound to recognize any equitable, legal or other claim to or interest in such
share or shares on the part of any other person whether or not it shall have
express or other notice thereof, except as otherwise provided by law.
Section 7.04. Issuance of Certificates. No certificate shall be issued
for any share until (i) consideration for such share in the form of cash,
services rendered, personal or real property, leases of real property or a
combination thereof in an amount not less than the par value or stated capital
of such share has been received by the Corporation and (ii) the Corporation has
received a binding obligation of the subscriber or purchaser to pay the balance
of the subscription or purchase price.
Section 7.05. Lost, Stolen or Destroyed Certificates. The Board of
Directors may direct a new certificate to be issued in place of any certificate
previously issued by the Corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate, the Board of Directors may, in its discretion and as
a condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed certificate, or his or her legal representative, to
advertise the same in such manner as it shall require, and to give the
Corporation a bond in such sum, or other security in such form as it may direct,
as indemnity against any claim that may be made against the Corporation on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate.
Section 7.06. Dividends. Subject to the provisions of the Certificate of
Incorporation, the Board of Directors shall have power to declare and pay
dividends upon shares of stock of the Corporation, but only out of funds
available for the payment of dividends as provided by law.
ARTICLE VIII
INDEMNIFICATION
---------------
Section 8.01. Directors, Officers, Employees or Agents.
(a) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he or she is or was a Director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a Director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or her in connection with such action, suit or proceeding if he
or she acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interests of the Corporation and, with respect to
any criminal action or
15
<PAGE>
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner that he or she reasonably believed to be in or not opposed
to the best interests of the Corporation and, with respect to any criminal
action or proceeding, had reasonable cause to believe that his or her conduct
was unlawful.
(b) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that he or she is or was a Director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a Director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him or her in
connection with the defense or settlement of such action or suit if he or she
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of the Corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
(c) To the extent that a Director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
Article VIII, or in defense of any claim, issue or matter therein, he or she
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him or her in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this Article
VIII (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
Director, officer, employee or agent is proper in the circumstances because he
or she has met the applicable standard of conduct set forth in subsections (a)
and (b) of this Article VIII. Such determination shall be made (1) by the Board
of Directors by a majority vote of a quorum consisting of Directors who were not
parties to such action, suit or proceeding, or (2) if such a quorum is not
obtainable, or, even if obtainable a quorum of disinterested Directors so
directs, by independent legal counsel in a written opinion or (3) by the
stockholders.
(e) Expenses incurred by an officer or Director in defending a civil
or criminal action, suit or proceeding may be paid by the Corporation in advance
of the final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such Director or officer to repay such amount if
it shall ultimately be determined that he or she is not entitled to be
16
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indemnified by the Corporation as authorized in this Article. Such expenses
incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the Board of Directors deems appropriate.
(f) The indemnification and advancement of expenses provided by these
Bylaws shall not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any agreement,
vote of stockholders or disinterested Directors or otherwise, both as to action
in his or her official capacity and as to action in another capacity while
holding such office.
(g) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a Director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such person.
(h) The Corporation may purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him or
her and incurred by him or her in any such capacity, or arising out of his or
her status as such, whether or not the Corporation would have the power to
indemnify him or her against such liability under this Article.
ARTICLE IX
GENERAL PROVISIONS
------------------
Section 9.01. Fiscal Year. The fiscal year of the Corporation shall be as
determined from time to time by the Board of Directors.
Section 9.02. Seal. The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its incorporation and the words "Corporate
Seal" and "Delaware." The seal or any facsimile thereof may be, but need not be,
unless required by law, impressed or affixed to any instrument executed by an
officer of the Corporation.
Section 9.03. Checks, Notes, Etc. All checks, drafts, bills of exchange,
acceptances, notes or other obligations or orders for the payment of money shall
be signed and, if so required by the Board of Directors, countersigned by such
officers of the corporation and/or other persons as the Board of Directors from
time to time shall designate.
Checks, drafts, bills of exchange, acceptance notes, obligations and
orders for the payment of money made payable to the Corporation may be endorsed
for deposit to the credit of the Corporation with a duly authorized depository
by the Treasurer and/or such other officers or
17
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persons as the Board of Directors from time to time may designate.
Section 9.04. Loans. No loans and no renewals of any loans shall be
contracted on behalf of the Corporation except as authorized by the Board of
Directors. When authorized to do so, any officer or agent of the Corporation may
effect loans and advances for the Corporation from any bank, trust company or
other institution or from any firm, corporation or individual, and for such
other evidences of indebtedness of the Corporation. When authorized so to do,
any officer or agent of the Corporation may pledge, hypothecate or transfer, as
security for the payment of any and all loans, advances, indebtedness and
liabilities of the Corporation, and any and all stocks, securities and other
personal property at any time held by the Corporation, and to that end may
endorse, assign and deliver the same. Such authority may be general or confined
to specific instances.
Section 9.05. Contracts. Except as otherwise provided in these Bylaws or
as otherwise directed by the Board of Directors, the President or any Vice
President shall be authorized to execute and deliver, in the name and on behalf
of the Corporation, all agreements, bonds, contracts, deeds, mortgages and other
instruments, either for the Corporation's own account or in a fiduciary or other
capacity, and the seal of the Corporation, if appropriate, shall be affixed
thereto by any of such officers or the Secretary or an Assistant Secretary. The
Board of Directors, the President or any Vice President designated by the Board
of Directors may authorize any other officer, employee or agent to execute and
deliver, in the name and on behalf of the Corporation, agreements, bonds,
contracts, deeds, mortgages and other instruments, either for the Corporation's
own account or in a fiduciary or other capacity and, if appropriate, to affix
the seal of the Corporation thereto. The grant of such authority by the Board or
any such officer may be general or confined to specific instances.
ARTICLE X
AMENDMENTS
----------
Section 10.01. These Bylaws may be altered, amended or repealed or new
Bylaws may be adopted by the stockholders or by the Board of Directors, to the
extent that such power is conferred upon the Board of Directors by the
Certificate of Incorporation, at any regular meeting of the stockholders or of
the Board of Directors or at any special meeting of the stockholders or of the
Board of Directors if notice of such proposed alteration, amendment, repeal or
adoption of new Bylaws be contained in the notice of such special meeting.
18
================================================================================
EXHIBIT 4.3
RIGHTS AGREEMENT
by and between
RESORTQUEST INTERNATIONAL, INC.
and
AMERICAN STOCK TRANSFER & TRUST COMPANY
as Rights Agent
Dated as of
February 25, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Section 1. Certain Definitions....................................................................................1
Section 2. Appointment of Rights Agent............................................................................6
Section 3. Issuance of Right Certificates.........................................................................7
Section 4. Form of Right Certificates.............................................................................8
Section 5. Countersignature and Registration......................................................................8
Section 6. Transfer, Split Up, Combination and Exchange of Right Certificates;
Mutilated, Destroyed, Lost or Stolen Right Certificates ...............................................9
Section 7. Exercise of Rights; Exercise Price; Expiration Date of Rights.........................................10
Section 8. Cancellation and Destruction of Right Certificates....................................................12
Section 9. Reservation and Availability of Shares of Preferred Stock.............................................12
Section 10. Preferred Stock Record Date..........................................................................13
Section 11. Adjustment of Exercise Price or Number of Shares.....................................................14
Section 12. Certification of Adjusted Exercise Price or Number of Shares.........................................17
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power.................................18
Section 14. Fractional Rights and Fractional Shares..............................................................21
Section 15. Rights of Action.....................................................................................21
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
Section 16. Agreement of Right Holders...........................................................................22
Section 17. Right Certificate Holder Not Deemed a Stockholder....................................................22
Section 18. Concerning the Rights Agent..........................................................................22
Section 19. Merger or Consolidation of, or Change in Name of, the Rights Agent...................................23
Section 20. Duties of Rights Agent...............................................................................24
Section 21. Change of Rights Agent...............................................................................25
Section 22. Issuance of New Right Certificates...................................................................26
Section 23. Redemption...........................................................................................26
Section 24. Notice of Proposed Actions...........................................................................27
Section 25. Notices..............................................................................................28
Section 26. Supplements and Amendments...........................................................................29
Section 27. Successors...........................................................................................29
Section 28. Benefits of this Rights Agreement....................................................................29
Section 29. Delaware Contract....................................................................................29
Section 30. Counterparts.........................................................................................29
Section 31. Descriptive Headings.................................................................................30
Section 32. Severability.........................................................................................30
</TABLE>
ii
<PAGE>
Exhibit A -- Summary of Rights
Exhibit B -- Form of Right Certificate
Exhibit C -- Form of Certificate of Designations
iii
<PAGE>
RIGHTS AGREEMENT
Agreement, dated as of February 25, 1999, by and between
ResortQuest International, Inc., a Delaware corporation (the "Company"), and
American Stock Transfer & Trust Company, a New York corporation (the "Rights
Agent").
W I T N E S S E T H:
WHEREAS, on February 25, 1999, the Board of Directors of the
Company authorized the issuance of, and declared a dividend payable in, one
right (a "Right") for each share of the Company's Common Stock, no par value per
share (the "Common Stock"), outstanding as of the close of business on March 15,
1999 (the "Record Date"). Each such Right represents the right to purchase one
one-hundredth of a share of Class A Junior Preferred Stock of the Company (the
"Preferred Stock"), having the rights and preferences set forth in the form of
the Certificate of Designations attached hereto as Exhibit C authorized by the
Board of Directors on February 25, 1999, upon the terms and subject to the
conditions hereinafter set forth; and
WHEREAS, the Board of Directors of the Company further
authorized the issuance of one Right (subject to adjustment) with respect to
each share of Common Stock which may be issued between the Record Date and the
earlier to occur of the Expiration Date or the Final Expiration Date (as such
terms are hereinafter defined);
NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this
Agreement, the following terms shall have the meanings indicated:
(a) "Acquiring Person" shall mean any Person (as
such term is hereinafter defined) who or which, together with
all Affiliates (as such term is hereinafter defined) and
Associates (as such term is hereinafter defined) of such
Person, shall be the Beneficial Owner (as such term is
hereinafter defined) of 15% or more of the Voting Stock (as
such term is hereinafter defined) of the Company then
outstanding; provided that, an Acquiring Person shall not
include (i) an Exempt Person (as such term is hereinafter
defined), or (ii) any Person, together with all Affiliates and
Associates of such Person, who or which would be an Acquiring
Person solely by reason of (A) being the Beneficial Owner of
shares of Voting Stock of the Company, the Beneficial
Ownership of which was acquired by such Person pursuant to any
action or transaction or series of related actions or
transactions approved by the Board of Directors before such
Person otherwise became an Acquiring Person, or (B) a
reduction in the number of issued and
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outstanding shares of Voting Stock of the Company pursuant to
a transaction or a series of related transactions approved by
the Board of Directors of the Company; provided, further, that
in the event such Person described in this clause (ii) does
not become an Acquiring Person by reason of subclause (A) or
(B) of this clause (ii), such Person nonetheless becomes an
Acquiring Person in the event such Person thereafter acquires
Beneficial Ownership of an additional 1% of the Voting Stock
of the Company, unless the acquisition of such additional
Voting Stock would not result in such Person becoming an
Acquiring Person by reason of subclause (A) or (B) of this
clause (ii). Notwithstanding the foregoing, if the Board of
Directors of the Company determines in good faith that a
Person who would otherwise be an "Acquiring Person" as defined
pursuant to the foregoing provisions of this paragraph (a) has
become such inadvertently, and such Person divests as promptly
as practicable a sufficient number of shares of Voting Stock
so that such Person would no longer be an "Acquiring Person"
as defined pursuant to the foregoing provisions of this
paragraph (a), then such Person shall not be deemed an
"Acquiring Person" for any purposes of this Rights Agreement.
(b) "Affiliate" of a Person shall have the meaning
ascribed to such term in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as
amended ("Exchange Act"), as in effect on the date of this
Rights Agreement.
(c) "Associate" of a Person shall mean (i) with
respect to a corporation, any officer or director thereof or
of any Subsidiary (as such term is hereinafter defined)
thereof, or any Beneficial Owner of 10% or more of any class
of equity security thereof, (ii) with respect to a
partnership, any general partner thereof or any limited
partner thereof who is, directly or indirectly, the Beneficial
Owner of a 10% ownership interest therein, (iii) with respect
to a business trust, any officer or trustee thereof or of any
Subsidiary thereof or any Beneficial Owner of 10% or more of
any class of beneficial interest therein, (iv) with respect to
any association other than a corporation, partnership or
business trust, any officer or director or other person
performing similar functions thereof or of any Subsidiary
thereof or any Beneficial Owner of 10% or more of the Common
Stock (as such term is hereinafter defined) of the
association, (v) with respect to a trust that is not a
business trust or an estate, any trustee, executor or similar
fiduciary or any Person who has a 10% or greater interest as a
beneficiary in the income from or principal of such trust or
estate, (vi) with respect to a natural person, any relative or
spouse of such person, or any relative of such spouse, who has
the same home as such person, and (vii) any Affiliate of such
Person.
(d) A Person shall be deemed the "Beneficial Owner"
of, or to "Beneficially Own," any securities (and correlative
terms shall have correlative meanings):
(i) which such Person or any of such Person's
Affiliates or
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Associates beneficially owns, directly or indirectly,
for purposes of Section 13(d) of the Exchange Act and
Regulations 13D and 13G thereunder (or any comparable
or successor law or regulation), in each case as in
effect on the date hereof; or
(ii) which such Person or any of such Person's
Affiliates or Associates has (A) the right to acquire
(whether such right is exercisable immediately or only
after the passage of time or the fulfillment of a
condition or both) pursuant to any agreement,
arrangement or understanding, or upon the exercise of
conversion rights, exchange rights, other rights
(other than these Rights), warrants or options, or
otherwise; provided, however, that a Person shall not
be deemed the "Beneficial Owner" of, or to
"Beneficially Own", securities tendered pursuant to a
tender or exchange offer made by such Person or any of
such Person's Affiliates or Associates until such
tendered securities are accepted for purchase or
exchange, or (B) the right to vote, alone or in
concert with others, pursuant to any agreement,
arrangement or understanding (whether or not in
writing); provided, however, that a Person shall not
be deemed the "Beneficial Owner" of, or to
"Beneficially Own," any securities if the agreement,
arrangement or understanding to vote such securities
(1) arises solely from a revocable proxy or consent
given in response to a proxy or consent solicitation
made pursuant to, and in accordance with, the
applicable rules and regulations under the Exchange
Act, and (2) is not at the time reportable by such
Person on a Schedule 13D report under the Exchange Act
(or any comparable or successor report), other than by
reference to a proxy or consent solicitation being
conducted by such Person; or
(iii) which are beneficially owned, directly or
indirectly, by any other Person with which such Person
or any of such Person's Affiliates or Associates has
any agreement, arrangement or understanding (whether
or not in writing) for the purpose of acquiring,
holding, voting (except as described in clause (B) of
subparagraph (ii) of this paragraph (d)) or disposing
of any securities of the Company; provided, however,
that for purposes of determining Beneficial Ownership
of securities under this Rights Agreement, officers
and directors of the Company solely by reason of their
status as such shall not constitute a group
(notwithstanding that they may be Associates of one
another or may be deemed to constitute a group for
purposes of Section 13(d) of the Exchange Act) and
shall not be deemed to own shares owned by another
officer or director of the Company. Notwithstanding
anything in this paragraph (d) to the contrary, a
Person shall not be deemed the "Beneficial Owner" of,
or to "Beneficially Own," any security beneficially
owned by another Person solely by reason of an
agreement, arrangement or understanding with such
other Person for the purposes of: (x) soliciting the
Company's
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shareholders for the election of director nominees or
any other shareholder resolution, the formation of and
membership on any committee for the purpose of
promoting or opposing any shareholder resolution or
for electing a slate of nominees to the Company's
Board of Directors, service on such a slate of
nominees, or agreement to a slate of director
nominees, provided, that such other Person retains the
right at any time to withdraw as a nominee or member
of any such committee, and to withhold or revoke any
vote or proxy for or against any such shareholder
resolution or for such slate of nominees; (y) entering
into revocable voting agreements or the granting or
solicitation of revocable proxies with respect to any
of the matters described in the foregoing clause (x);
or (z) the sharing of expenses and the indemnification
against expenses and liabilities by any such other
Person with respect to expenses incurred or conduct
occurring during the time such other Person is a
nominee or a member of any such committee described in
the foregoing clause (x). Further, notwithstanding
anything in this paragraph (d) to the contrary, a
Person engaged in the business of underwriting
securities shall not be deemed the "Beneficial Owner"
of, or to "Beneficially Own," any securities acquired
in good faith in a firm commitment underwriting until
the expiration of forty days after the date of such
acquisition.
(e) "Business Day" shall mean any day other than a
Saturday, Sunday, or a day on which banking institutions in
New York are authorized or obligated by law or executive order
to close.
(f) "Close of Business" on any given date shall mean
5:00 P.M., New York time, on such date; provided, however,
that if such date is not a Business Day it shall mean 5:00
P.M., New York time, on the next succeeding Business Day.
(g) "Common Stock" when used with reference to the
Company shall mean the Company's common stock, par value $0.01
per share. "Common Stock" when used with reference to any
Person other than the Company which shall be organized in
corporate form shall mean the capital stock or other equity
security with the greatest per share voting power of such
Person. "Common Stock" when used with reference to any Person
other than the Company which shall not be organized in
corporate form shall mean units of beneficial interest which
shall represent the right to participate in profits, losses,
deductions and credits of such Person and which shall be
entitled to exercise the greatest voting power per unit of
such Person.
(h) "Distribution Date" shall have the meaning set
forth in Section 3(b) hereof.
(i) "Exchange Act" shall have the meaning set forth in
Section 1(b)
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hereof.
(j) "Exempt Person" shall mean the Company, any
Subsidiary of the Company, or any employee benefit plan or
employee stock plan of the Company or any Subsidiary of the
Company, or any trust or other entity organized, appointed,
established or holding Common Stock for or pursuant to the
terms of any such plan.
(k) "Exercise Price" shall have the meaning set forth
in Sections 4 and 7(b) hereof.
(l) "Expiration Date" shall have the meaning set forth
in Section 7(a) hereof.
(m) "Fair Market Value" of any property shall mean the
fair market value of such property as determined in accordance
with Section 11(b) hereof.
(n) "Final Expiration Date" shall have the meaning set
forth in Section 7(a) hereof.
(o) "Person" shall mean any partnership, limited
liability company, business trust, other association,
government entity, estate, trust, foundation or natural
person.
(p) "Principal Party" shall have the meaning set forth
in Section 13(b) hereof.
(q) "Qualifying Tender Offer" shall mean a tender or
exchange offer for all outstanding shares of Common Stock of
the Company not beneficially owned by the Person making such
offer (or by its Affiliates or Associates) approved by a
majority of the Board of Directors prior to the time that any
Person has become an Acquiring Person and after receiving the
advice of a nationally recognized investment banking firm and,
after taking into account the potential long-term value of the
Company and all other factors that they consider relevant.
(r) "Redemption Price" shall have the meaning set
forth in Section 23(a) hereof.
(s) "Right Certificate" shall have the meaning set
forth in Section 3(d) hereof.
(t) "Stock Acquisition Date" shall mean the first date
on which there shall be a public announcement by the Company
or an Acquiring Person that an Acquiring Person has become
such (which, for purposes of this definition, shall include,
without limitation, a report filed pursuant to Section 13(d)
of the Exchange Act) or such earlier date as a majority of the
Board of Directors shall
5
<PAGE>
become aware of the existence of an Acquiring Person.
(u) "Subsidiary" of a Person shall mean any
corporation or other entity of which securities or other
ownership interests having voting power sufficient to elect a
majority of the board of directors or other persons performing
similar functions are beneficially owned, directly or
indirectly, by such Person or by any corporation or other
entity that is otherwise controlled by such Person.
(v) "Summary of Rights" shall have the meaning set
forth in Section 3(a) hereof.
(w) "Trading Day" shall have the meaning set forth in
Section 11(b) hereof.
(x) "Transfer Tax" shall mean any tax or charge,
including any documentary stamp tax, imposed or collected by
any governmental or regulatory authority in respect of any
transfer of any security, instrument or right, including
Rights, shares of Common Stock and shares of Preferred Stock.
(y) "Voting Stock" shall mean (i) the Common Stock of
the Company, and (ii) any other shares of capital stock of the
Company entitled to vote generally in the election of
directors or entitled to vote together with the Common Stock
in respect of any merger, consolidation, sale of all or
substantially all of the Company's assets, liquidation,
dissolution or winding up. For purposes of this Agreement, a
stated percentage of the Voting Stock shall mean a number of
shares of the Voting Stock as shall equal in voting power that
stated percentage of the total voting power of the then
outstanding shares of Voting Stock in the election of a
majority of the Board of Directors or in respect of any
merger, consolidation, sale of all or substantially all of the
Company's assets, liquidation, dissolution or winding up.
Any determination required to be made by the Board of
Directors of the Company for purposes of applying the definitions contained in
this Section 1 shall be made by the Board of Directors in its good faith
judgment, which determination shall be binding on the Rights Agent and the
holders of the Rights.
Section 2. Appointment of Rights Agent. The Company hereby
appoints the Rights Agent to act as agent for the Company and the holders of the
Rights in accordance with the terms and conditions hereof, and the Rights Agent
hereby accepts such appointment. The Company may from time to time appoint such
co-Rights Agents as it may deem necessary or desirable.
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<PAGE>
Section 3. Issuance of Right Certificates.
(a) On the Record Date (or as soon as practicable thereafter),
the Company or the Rights Agent shall send a copy of a Summary of Rights, in
substantially the form attached hereto as Exhibit A (the "Summary of Rights"),
by first class mail, postage prepaid, to each record holder of the Common Stock
as of the close of business on the Record Date, at the address of such holder
shown on the records of the Company.
(b) Until the close of business on the day which is the
earlier of (i) the tenth day after the Stock Acquisition Date, or (ii) the tenth
business day (or such later date as may be determined by action of the Board of
Directors prior to such time as any Person becomes an Acquiring Person) after
the date of the commencement by any Person (other than an Exempt Person) of, or
the first public announcement of the intent of any Person (other than an Exempt
Person) to commence, a tender or exchange offer upon the successful consummation
of which such Person, together with its Affiliates and Associates, would be the
Beneficial Owner of 15% or more of the then outstanding shares of Voting Stock
of the Company (irrespective of whether any shares are actually purchased
pursuant to any such offer) (the earlier of such dates being herein referred to
as the "Distribution Date"), (x) the Rights shall be evidenced by the
certificates for Common Stock registered in the name of the holders of Common
Stock and not by separate Right certificates and the record holders of such
certificates for Common Stock shall be the record holders of the Rights
represented thereby, and (y) each Right shall be transferable only
simultaneously and together with the transfer of a share of Common Stock
(subject to adjustment as hereinafter provided). Until the Distribution Date
(or, if earlier, the Expiration Date or Final Expiration Date), the surrender
for transfer of any certificate for Common Stock shall constitute the surrender
for transfer of the Right or Rights associated with the Common Stock evidenced
thereby, whether or not accompanied by a copy of the Summary of Rights.
(c) Rights shall be issued in respect of all shares of Common
Stock that become outstanding after the Record Date but prior to the earlier of
the Distribution Date, the Expiration Date or the Final Expiration Date and, in
certain circumstances provided in Section 22 hereof, may be issued in respect of
shares of Common Stock that become outstanding after the Distribution Date.
Certificates for Common Stock (including, without limitation, certificates
issued upon original issuance, disposition from the Company's treasury or
transfer or exchange of Common Stock) after the Record Date but prior to the
earliest of the Distribution Date, the Expiration Date, or the Final Expiration
Date (or, in certain circumstances as provided in Section 22 hereof, after the
Distribution Date) shall have impressed, printed, written or stamped thereon or
otherwise affixed thereto the following legend:
This certificate also evidences and entitles the holder hereof
to the same number of Rights (subject to adjustment) as the
number of shares of Common Stock represented by this
certificate, such Rights being on the terms provided under the
Rights Agreement between ResortQuest International, Inc. and
American Stock Transfer & Trust Company (the "Rights Agent"),
dated as of February 25, 1999, as it may be amended from time
to time (the
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<PAGE>
"Rights Agreement"), the terms of which are incorporated
herein by reference and a copy of which is on file at the
principal executive offices of ResortQuest International, Inc.
Under certain circumstances, as set forth in the Rights
Agreement, such Rights shall be evidenced by separate
certificates and shall no longer be evidenced by this
certificate. ResortQuest International, Inc. shall mail to the
registered holder of this certificate a copy of the Rights
Agreement without charge within five days after receipt of a
written request therefor. Under certain circumstances as
provided in Section 7(e) of the Rights Agreement, Rights
issued to or Beneficially Owned by Acquiring Persons or their
Affiliates or Associates (as such terms are defined in the
Rights Agreement) or any subsequent holder of such Rights
shall be null and void and may not be transferred to any
Person.
(d) As soon as practicable after the Distribution Date, the
Company will prepare and execute, the Rights Agent will countersign, and the
Company will send or cause to be sent (and the Rights Agent will, if requested,
send), by first class mail, postage prepaid, to each record holder of the Common
Stock as of the close of business on the Distribution Date, as shown by the
records of the Company, at the address of such holder shown on such records, a
certificate in the form provided by Section 4 hereof (a "Right Certificate"),
evidencing one Right (subject to adjustment as provided herein) for each share
of Common Stock so held. As of and after the Distribution Date, the Rights shall
be evidenced solely by Right Certificates and may be transferred by the transfer
of the Right Certificate as permitted hereby, separately and apart from any
transfer of one or more shares of Common Stock.
Section 4. Form of Right Certificates. The Right Certificates
(and the forms of election to purchase shares, certificate and assignment to be
printed on the reverse thereof), when, as and if issued, shall be substantially
in the form set forth in Exhibit B hereto and may have such marks of
identification or designation and such legends, summaries or endorsements
printed thereon as may be required to comply with any law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any stock
exchange on which the Common Stock or the Rights may from time to time be listed
or as the Company may deem appropriate to conform to usage or otherwise and as
are not inconsistent with the provisions of this Rights Agreement. Subject to
the provisions of Section 22 hereof, Right Certificates evidencing Rights
whenever issued, (i) shall be dated as of the date of issuance of the Rights
they represent, and (ii) subject to adjustment from time to time as provided
herein, on their face shall entitle the holders thereof to purchase such number
of shares (including fractional shares which are integral multiples of one
one-hundredth of a share) of Preferred Stock as shall be set forth therein at
the price payable upon exercise of a Right provided by Section 7(b) hereof as
the same may from time to time be adjusted as provided herein (the "Exercise
Price").
Section 5. Countersignature and Registration.
(a) Each Right Certificate shall be executed on behalf of the
Company by its
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Chairman of the Board, President or any Vice President, either manually or by
facsimile signature, and have affixed thereto the Company's seal or a facsimile
thereof which shall be attested by the Secretary or any Assistant Secretary of
the Company, either manually or by facsimile signature. Each Right Certificate
shall be countersigned by the Rights Agent either manually or by facsimile
signature and shall not be valid for any purpose unless so countersigned. In
case any officer of the Company who shall have signed any Right Certificate
shall cease to be such officer of the Company before countersignature by the
Rights Agent and issuance and delivery of the certificate by the Company, such
Right Certificate, nevertheless, may be countersigned by the Rights Agent and
issued and delivered with the same force and effect as though the person who
signed such Right Certificate had not ceased to be such officer of the Company.
Any Right Certificate may be signed on behalf of the Company by any person who,
on the date of the execution of such Right Certificate, shall be a proper
officer of the Company to sign such Right Certificate, although at the date of
the execution of this Rights Agreement any such person was not such an officer.
(b) Following the Distribution Date, the Rights Agent will
keep or cause to be kept, at its principal office or one or more offices
designated as the appropriate place for surrender of Right Certificates upon
exercise or transfer, and in such other locations as may be required by law,
books for registration and transfer of the Right Certificates issued hereunder.
Such books shall show the names and addresses of the respective holders of the
Right Certificates, the number of Rights evidenced on its face by each of the
Right Certificates and the date of each of the Right Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of
Right Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates.
(a) Subject to the provisions of Sections 7(e), 7(f) and 14
hereof, at any time after the Close of Business on the Distribution Date, and at
or prior to the Close of Business on the earlier of the Expiration Date or the
Final Expiration Date, any Right Certificate may be (i) transferred, or (ii)
split up, combined or exchanged for one or more other Right Certificates,
entitling the registered holder to purchase a like number of shares of Preferred
Stock as the Right Certificate or Rights Certificates surrendered then entitled
such holder to purchase. Any registered holder desiring to transfer any Right
Certificate shall surrender the Right Certificate at the office of the Rights
Agent designated for the surrender of Right Certificates with the form of
certificate and assignment on the reverse side thereof duly endorsed (or
enclosed with such Right Certificate a written instrument of transfer in form
satisfactory to the Company and the Rights Agent), duly executed by the
registered holder thereof or his or her attorney duly authorized in writing, and
with such signature duly guaranteed. Any registered holder desiring to split up,
combine or exchange any Right Certificate shall make such request in writing
delivered to the Rights Agent, and shall surrender the Right Certificate to be
split up, combined or exchanged at the office of the Rights Agent designated
therefor. Thereupon, the Rights Agent shall countersign and deliver to the
person entitled thereto a Right Certificate or Right Certificates, as the case
may be, as so requested. The Company may require payment of a sum sufficient to
cover any Transfer Tax that may be imposed in connection with any transfer,
split up, combination or exchange of any Right Certificates.
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<PAGE>
(b) Subject to the provisions of Sections 7(e), 7(f) and 14
hereof, upon receipt by the Company and the Rights Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a Right
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them and, if requested by the Company,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, or upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Company shall issue and deliver a new
Right Certificate of like tenor to the Rights Agent for delivery to the
registered owner in lieu of the Right Certificate so lost, stolen, destroyed or
mutilated.
Section 7. Exercise of Rights; Exercise Price; Expiration Date
of Rights.
(a) The Rights shall not be exercisable until, and shall
become exercisable on, the Distribution Date (unless otherwise provided herein,
including, without limitation, the restrictions on exercisability set forth in
Sections 7(e) and 23(a) hereof). Except as otherwise provided herein, the Rights
may be exercised, in whole or in part, at any time commencing with the
Distribution Date upon surrender of the Right Certificate, with the form of
election to purchase and certificate on the reverse side thereof duly executed
(with signatures duly guaranteed), to the Rights Agent at the principal office
of the Rights Agent in New York, New York, together with payment of the Exercise
Price for each Right exercised, subject to adjustment as hereinafter provided,
at or prior to the Close of Business on the earlier of (i) March 15, 2009 (the
"Final Expiration Date"), or (ii) the date on which the Rights are redeemed as
provided in Section 23 hereof (such earlier date being herein referred to as the
"Expiration Date").
(b) The Exercise Price for each one one-hundredth (1/100) of a
share of Preferred Stock issued pursuant to the exercise of a Right shall
initially be $87.00 (the "Exercise Price"). The Exercise Price and the number of
shares of Preferred Stock or other securities to be acquired upon exercise of a
Right shall be subject to adjustment from time to time as provided in Sections
11 and 13 hereof. The Exercise Price shall be payable in lawful money of the
United States of America, in accordance with paragraph (c) below.
(c) Except as otherwise provided herein, upon receipt of a
Right Certificate representing exercisable Rights with the form of election to
purchase duly executed, accompanied by payment by certified check, cashier's
check, bank draft or money order payable to the Company or the Rights Agent of
the Exercise Price for the shares to be purchased and an amount equal to any
applicable Transfer Tax required to be paid by the holder of the Right
Certificate in accordance with Section 9(e) hereof, the Rights Agent shall
thereupon promptly (i) requisition from any transfer agent of the Preferred
Stock one or more certificates representing the number of shares of Preferred
Stock to be so purchased, and the Company hereby authorizes and directs such
transfer agent to comply with all such requests, (ii) as provided in Section
14(b) hereof, at the election of the Company, cause depositary receipts to be
issued in lieu of fractional shares of Preferred Stock, (iii) if the election
provided for in the immediately preceding clause (ii) has not been made,
requisition from the Company the amount of cash to be paid in lieu of the
issuance of fractional shares in accordance with Section 14(b) hereof, (iv)
after receipt of such
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Preferred Stock certificates and, if applicable, depositary receipts, cause the
same to be delivered to or upon the order of the registered holder of such Right
Certificate, registered in such name or names as may be designated by such
holder, and (v) when appropriate, after receipt, promptly deliver such cash to
or upon the order of the registered holder of such Right Certificate; provided,
however, that in the case of a purchase of securities, other than Preferred
Stock, pursuant to Section 13 hereof, the Rights Agent shall promptly take the
appropriate actions corresponding in such case to that referred to in the
foregoing clauses (i) through (v) of this Section 7(c). Notwithstanding the
foregoing provisions of this Section 7(c), the Company may suspend the issuance
of shares of Preferred Stock upon exercise of a Right for a reasonable period,
not in excess of 90 days, during which the Company seeks to register under the
Securities Act of 1933, as amended (the "Securities Act"), and any applicable
securities law of any other jurisdiction, the shares of Preferred Stock to be
issued pursuant to the Rights; provided, however, that nothing contained in this
Section 7(c) shall relieve the Company of its obligations under Section 9(c)
hereof.
(d) In case the record holder of any Right Certificate shall
exercise less than all the Rights evidenced thereby, a new Right Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be issued
by the Rights Agent to the registered holder of such Right Certificate or his or
her assign, subject to the provisions of Section 14(b) hereof.
(e) Notwithstanding any provision of this Rights Agreement to
the contrary, from and after the time (the "invalidation time") when any Person
first becomes an Acquiring Person, other than pursuant to a Qualifying Tender
Offer, any Rights that are beneficially owned by (x) such Acquiring Person (or
any Associate or Affiliate of such Acquiring Person), (y) a transferee of such
Acquiring Person (or any such Associate or Affiliate) who becomes a transferee
after the invalidation time, or (z) a transferee of such Acquiring Person (or
any such Associate or Affiliate) who becomes a transferee prior to or
concurrently with the invalidation time pursuant to either (I) a transfer from
the Acquiring Person to holders of its equity securities or to any Person with
whom it has any continuing agreement, arrangement or understanding regarding the
transferred Rights, or (II) a transfer which is part of a plan, arrangement or
understanding which has the purpose or effect of avoiding the provisions of this
Section 7(e), and subsequent transferees of such Persons referred to in clause
(y) and (z) above, shall be void without any further action and any holder of
such Rights shall thereafter have no rights whatsoever with respect to such
Rights under any provision of this Rights Agreement. The Company shall use all
reasonable efforts to ensure that the provisions of this Section 7(e) are
complied with, but shall have no liability to any holder of Right Certificates
or any other Person as a result of its failure to make any determination with
respect to an Acquiring Person or its Affiliates, Associates or transferees
hereunder. No Right Certificate shall be issued pursuant to Section 3 hereof
that represents Rights Beneficially Owned by an Acquiring Person whose Rights
would be void pursuant to the provisions of this Section 7(e) or any Associate
or Affiliate thereof; no Right Certificate shall be issued at any time upon the
transfer of any Rights to an Acquiring Person whose Rights would be void
pursuant to the provisions of this Section 7(e) or any Associate or Affiliate
thereof or to any nominee of such Acquiring Person, Associate or Affiliate; and
any Right Certificate delivered to the Rights Agent for transfer to an Acquiring
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Person whose Rights would be void pursuant to the provisions of this Section
7(e) shall be canceled.
(f) Notwithstanding anything in this Agreement to the
contrary, neither the Rights Agent nor the Company shall be obligated to
undertake any action with respect to a record holder upon the occurrence of any
purported exercise as set forth in this Section 7 unless such record holder
shall have (i) completed and signed the certificate following the form of
election to purchase set forth on the reverse side of the Right Certificate
surrendered for such exercise, and (ii) provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Company shall reasonably request.
Section 8. Cancellation and Destruction of Right Certificates.
All Right Certificates surrendered for the purpose of exercise, transfer, split
up, combination or exchange shall, if surrendered to the Company or to any of
its agents, be delivered to the Rights Agent for cancellation or in canceled
form, or, if surrendered to the Rights Agent, shall be canceled by it, and no
Right Certificates shall be issued in lieu thereof except as expressly permitted
by any of the provisions of this Rights Agreement. The Company shall deliver to
the Rights Agent for cancellation and retirement, and the Rights Agent shall
cancel and retire, any Right Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent shall deliver all
canceled Right Certificates to the Company, or shall, at the written request of
the Company, destroy such canceled Right Certificates, and in such case shall
deliver a certificate of destruction thereof to the Company.
Section 9. Reservation and Availability of Shares of Preferred
Stock.
(a) The Company covenants and agrees that it will cause to be
reserved and kept available out of its authorized and unissued shares of
Preferred Stock, or out of authorized and issued shares of Preferred Stock held
in its treasury, such number of shares of Preferred Stock as will from time to
time be sufficient to permit the exercise in full of all outstanding Rights.
(b) The Company shall use its best efforts to cause, from and
after such time as the Rights become exercisable, all shares of Preferred Stock
issued or reserved for issuance in accordance with this Rights Agreement to be
listed, upon official notice of issuance, upon the principal national securities
exchange, if any, upon which the Common Stock is listed or, if the principal
market for the Common Stock is not on any national securities exchange, to be
eligible for quotation in The Nasdaq Stock Market or any successor thereto or
other comparable quotation system.
(c) The Company covenants and agrees that it will take all
such action as may be necessary to insure that all shares of Preferred Stock
delivered upon exercise of Rights shall, at the time of delivery of the
certificates for such shares (subject to payment of the Exercise Price in
respect thereof), be duly and validly authorized and issued and fully paid and
non-assessable shares.
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(d) The Company shall use its best efforts to (i) file, as
soon as practicable following the occurrence of the event described in Section
11(a)(ii) hereof, or as soon as is required by law following the Distribution
Date, as the case may be, a registration statement under the Securities Act,
with respect to the shares of Preferred Stock purchasable upon exercise of the
Rights on an appropriate form, (ii) cause such registration statement to become
effective as soon as practicable after such filing, and (iii) cause such
registration statement to remain effective (with a prospectus at all times
meeting the requirements of the Securities Act) until the earlier of (A) the
date as of which the Rights are no longer exercisable for Preferred Stock, and
(B) the date of the expiration of the Rights. The Company may temporarily
suspend, for a period of time not to exceed ninety days, the issuance of shares
of Preferred Stock upon exercise of a Right in order to prepare and file a
registration statement under the Securities Act and permit it to become
effective. The Company will also take such action as may be appropriate under,
or to ensure compliance with, the securities or "blue sky" laws of the various
states in connection with the exercisability of the Rights. Notwithstanding any
provision of this Agreement to the contrary, the Rights shall not be exercisable
in any jurisdiction unless the requisite qualification in such jurisdiction
shall have been obtained and until a registration statement under the Securities
Act (if required) shall have been declared effective.
(e) The Company covenants and agrees that it will pay when due
and payable any and all federal and state Transfer Taxes which may be payable in
respect of the issuance or delivery of the Right Certificates or of any shares
of Preferred Stock issued or delivered upon the exercise of Rights. The Company
shall not, however, be required to pay any Transfer Tax which may be payable in
respect of any transfer or delivery of a Right Certificate to a Person other
than, or the issuance or delivery of certificates for Preferred Stock upon
exercise of Rights in a name other than that of, the registered holder of the
Right Certificate, and the Company shall not be required to issue or deliver a
Right Certificate or certificate for Preferred Stock to a Person other than such
registered holder until any such Transfer Tax shall have been paid (any such
Transfer Tax being payable by the holder of such Right Certificate at the time
of surrender) or until it has been established to the Company's satisfaction
that no such Transfer Tax is due.
Section 10. Preferred Stock Record Date. Each Person in whose
name any certificate for shares of Preferred Stock is issued upon the exercise
of Rights shall for all purposes be deemed to have become the holder of record
of such Preferred Stock represented thereby on, and such certificate shall be
dated as of, the date upon which the Right Certificate evidencing such Rights
was duly surrendered and payment of the Exercise Price (and any applicable
Transfer Taxes) was made; provided, however, that, if the date of such surrender
and payment is a date upon which the Preferred Stock transfer books of the
Company are closed, such Person shall be deemed to have become the record holder
of such shares on, and such certificate shall be dated as of, the next
succeeding Business Day on which the relevant transfer books of the Company are
open. Prior to the exercise of the Rights evidenced thereby, the holder of a
Right Certificate, as such, shall not be entitled to any rights of a stockholder
of the Company with respect to shares for which the Rights shall be exercisable,
including, without limitation, the right to vote, to receive dividends or other
distributions or to exercise any preemptive rights, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided herein.
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Section 11. Adjustment of Exercise Price or Number of Shares.
The Exercise Price and the number of shares of Preferred Stock which may be
purchased upon exercise of a Right are subject to adjustment from time to time
as provided in this Section 11.
(a) (i) In the event the Company shall at any time after
the date of this Rights Agreement (A) declare or pay any
dividend on the Common Stock payable in shares of Common
Stock, (B) subdivide or split the outstanding shares of Common
Stock into a greater number of shares, or (C) combine or
consolidate the outstanding shares of Common Stock into a
smaller number of shares or effect a reverse split of the
outstanding shares of Common Stock, then and in each such
event the number of shares of Preferred Stock issuable upon
the exercise of a Right after the record date for such event
(if one shall have been established or, if not, after the date
of such event) shall be the number of shares of Preferred
Stock issuable immediately prior to such event multiplied by a
fraction the numerator of which is the number of rights
outstanding immediately prior to such event and the
denominator of which is the number of Rights outstanding
immediately after such event and the Exercise Price after such
event shall be the Exercise Price in effect immediately prior
to such event multiplied by such fraction. If an event occurs
which would require an adjustment under both this Section
11(a)(i) and Section 11(a)(ii) hereof, the adjustment provided
for in this Section 11(a)(i) shall be in addition to, and
shall be made prior to, any adjustment required pursuant to
Section 11(a)(ii) hereof.
(ii) In the event that any Person (other than an Exempt
Person), alone or together with its Affiliates and Associates,
shall become an Acquiring Person, except pursuant to a
Qualifying Tender Offer, then, subject to the last sentence of
Section 23(a) hereof and except as otherwise provided in this
Section 11, each holder of a Right, except as provided in
Section 7(e) hereof, shall thereafter have the right to
receive upon exercise of such Right in accordance with the
terms of this Rights Agreement and payment of the Exercise
Price, the greater of (1) the number of one one-hundredths of
a share of Preferred Stock for which such Right was
exercisable immediately prior to the first occurrence of the
event described in this Section 11(a)(ii), or (2) such number
of one one-hundredths of a share of Preferred Stock, based on
the per share Fair Market Value of such Preferred Stock
(determined pursuant to Section 11(b) hereof) on the date of
such first occurrence, having a value equal to twice the
Exercise Price; provided, however, that if the transaction
that would otherwise give rise to the foregoing adjustment is
also subject to the provisions of Section 13 hereof, then only
the provisions of Section 13 hereof shall apply and no
adjustment shall be made pursuant to this Section 11(a)(ii).
(iii) In the event that the Company does not have
available sufficient authorized but unissued Preferred Stock
to permit the adjustments required pursuant to the foregoing
subparagraph (i) or the exercise in full of the Rights in
accordance with the foregoing subparagraph (ii), the Company
shall take all such
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action as may be necessary to authorize and reserve for
issuance such number of additional shares of Preferred Stock
as may from time to time be required to be issued upon the
exercise in full of all Rights from time to time outstanding
and, if necessary, shall use its best efforts to obtain
stockholder approval thereof. In lieu of issuing shares of
Preferred Stock in accordance with the foregoing subparagraphs
(i) and (ii), the Company may, if the Board of Directors based
upon the advice of a nationally recognized investment banking
firm determines that such action is necessary or appropriate
and not contrary to the interests of holders of Rights, elect
to issue or pay, upon the exercise of such Rights, cash,
property, shares of Preferred Stock or Common Stock, or any
combination thereof, having an aggregate Fair Market Value
equal to the Fair Market Value of the shares of Preferred
Stock which otherwise would have been issuable pursuant to
Section 11(a)(ii) hereof, which Fair Market Value shall be
determined by such nationally recognized investment banking
firm. For purposes of the preceding sentence, the Fair Market
Value of the Preferred Stock shall be as determined pursuant
to Section 11(b) hereof. Subject to Section 23 hereof, any
such election by the Board of Directors of the Company must be
made and publicly announced within thirty (30) days after the
date on which the event described in Section 11(a)(ii) hereof
occurs.
(b) For the purpose of this Rights Agreement, the "Fair Market
Value" of any share of Preferred Stock, Common Stock or any other stock
or any Right or other security or any other property on any date shall
be determined as provided in this Section 11(b). In the case of a
publicly-traded stock or other security, the Fair Market Value on any
date shall be deemed to be the average of the daily closing prices per
share of such stock or per unit of such other security for the 30
consecutive Trading Days (as such term is hereinafter defined)
immediately prior to such date; provided, however, that in the event
that the Fair Market Value per share of any share of Common Stock is
determined during a period which includes any date that is within 30
Trading Days after (i) the ex-dividend date for a dividend or
distribution on such stock payable in shares of Common Stock or
securities convertible into shares of Common Stock, or (ii) the
effective date of any subdivision, split, combination, consolidation,
reverse stock split or reclassification of such stock, then, and in
each such case, the Fair Market Value shall be appropriately adjusted
to take into account ex-dividend or post-effective date trading. The
closing price for any day shall be the last sale price, regular way,
or, in case no such sale takes place on such day, the average of the
closing bid and asked prices, regular way (in either case, as reported
in the applicable transaction reporting system with respect to
securities listed or admitted to trading on the New York Stock
Exchange), or, if the securities are not listed or admitted to trading
on the New York Stock Exchange, as reported in the applicable
transaction reporting system with respect to securities listed on the
principal national securities exchange on which such security is listed
or admitted to trading; or, if not listed or admitted to trading on any
national securities exchange, the last quoted price (or, if not so
quoted, the average of the high bid and low asked prices) in the
over-the-counter market, as reported by The Nasdaq Stock Market or such
other system then in use; or, if no bids for such security are quoted
by any such organization, the average of the closing
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bid and asked prices as furnished by a professional market maker making
a market in such security. The term "Trading Day" shall mean a day on
which the principal national securities exchange on which such security
is listed or admitted to trading is open for the transaction of
business or, if such security is not listed or admitted to trading on
any national securities exchange, a Business Day. If a security is not
publicly held or not so listed or traded, "Fair Market Value" shall
mean the fair value per share of stock or per other unit of such other
security, as determined by a nationally recognized investment banking
firm experienced in the valuation of securities; provided, however,
that for purposes of making the adjustment provided for by Section
11(a)(ii) hereof, the Fair Market Value of a share of Preferred Stock
shall not be less than 100% of the product of the Fair Market Value of
a share of Common Stock, as the case may be, multiplied by the higher
of the then Dividend Multiple or Vote Multiple applicable to the
Preferred Stock (as such terms are defined in the Certificate of
Designations relating to the Preferred Stock) and shall not exceed 105%
of the product of the then Fair Market Value of a share of Common
Stock, as the case may be, multiplied by the higher of the then
Dividend Multiple or Vote Multiple applicable to the Preferred Stock.
In the case of property other than securities, the "Fair Market Value"
thereof shall be determined by a nationally recognized investment
banking firm based upon appraisals or valuation reports determined to
be appropriate in accordance with good business practices and the
interests of the holders of Rights. Any such determination of Fair
Market Value shall be described in a statement filed with the Rights
Agent and shall be binding upon the Rights Agent.
(c) All calculations under this Section 11 shall be made to
the nearest cent or to the nearest one one-hundredth of a share, as the
case may be.
(d) Irrespective of any adjustment or change in the Exercise
Price or the number of shares of Preferred Stock issuable upon the
exercise of the Rights, the Right Certificates theretofore and
thereafter issued may continue to express the Exercise Price and the
number of shares to be issued upon exercise of the Rights as in the
initial Right Certificates issued hereunder but, nevertheless, shall
represent the Rights as so adjusted.
(e) Before taking any action that would cause an adjustment
reducing the purchase price per whole share of Preferred Stock upon
exercise of the Rights below the then par value, if any, of the shares
of Preferred Stock, the Company shall use its best efforts to take any
corporate action which may, in the opinion of its counsel, be necessary
in order that the Company may validly and legally issue fully paid and
non-assessable shares of such Preferred Stock at such adjusted purchase
price per share.
(f) Anything in this Section 11 to the contrary
notwithstanding, in the event of any reclassification of stock of the
Company or any recapitalization, reorganization or partial liquidation
of the Company or similar transaction, the Company shall be entitled to
make such further adjustments in the number of shares of Preferred
Stock which may be acquired upon exercise of the Rights, and such
adjustments in the Exercise Price therefor, in addition to those
adjustments expressly required by the other paragraphs of this Section
11, as shall be necessary or appropriate in order for the holders of
such
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Rights in such event to be treated equitably and in accordance with the
purpose and intent of this Rights Agreement or in order that any such
event shall not, but for such adjustment, in the opinion of counsel to
the Company, result in the stockholders of the Company being subject to
any United States federal income tax liability by reason thereof.
(g) In the event the Company shall at any time after the
Record Date make any distribution on the shares of Common Stock of the
Company, whether by way of a dividend or a reclassification of stock, a
recapitalization, reorganization or partial liquidation of the Company
or otherwise, in cash or any debt security, debt instrument, real or
personal property or any other property (other than any shares of
Common Stock or other capital stock of the Company and other than any
right or warrant to acquire any such shares, including any debt
security convertible into or exchangeable for any such share, at less
than the Fair Market Value of such shares) and the amount of such cash
dividend or the Fair Market Value of such debt security, debt
instrument or property exceeds 150% of the aggregate amount of the cash
dividends declared or paid on the Common Stock of the Company in the
15-month period immediately preceding such distribution, then and in
each such event, unless such distribution is part of or is made in
connection with a transaction to which Section 11(a)(ii) or Section 13
hereof applies, the Exercise Price shall be reduced by an amount equal
to the cash or the Fair Market Value of such distribution, as the case
may be, per share of Common Stock. For purposes hereof, the Fair Market
Value of any property distributed to the holders of shares of Common
Stock of the Company shall be the Fair Market Value of such property as
determined by a nationally recognized investment banking firm
experienced in the valuation of securities or the other property so
distributed, as the case may be, whose determination shall be final and
binding on the Company, the Rights Agent and the holders of Rights.
Section 12. Certification of Adjusted Exercise Price or Number
of Shares. Whenever an adjustment is made as provided in Section 11, 13 or 23(c)
hereof, the Company shall (a) promptly prepare a certificate setting forth such
adjustment, and a brief statement of the facts giving rise to such adjustment,
(b) promptly file with the Rights Agent and with each transfer agent for the
Preferred Stock a copy of such certificate, and (c) mail a brief summary thereof
to each holder of a Right Certificate in accordance with Section 25 hereof.
Notwithstanding the foregoing sentence, the failure of the Company to make such
certification or give such notice shall not affect the validity of or the force
or effect of the requirement for such adjustment. Any adjustment to be made
pursuant to Section 11, 13 or 23(c) of this Rights Agreement shall be effective
as of the date of the event giving rise to such adjustment. The Rights Agent
shall be fully protected in relying on any such certificate and on any
adjustment therein contained and shall not be deemed to have knowledge of any
adjustment unless and until it shall have received such certificate.
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Section 13. Consolidation, Merger or Sale or Transfer of
Assets or Earning Power.
(a) Except for any transaction approved by the Board of
Directors prior to such time as any Person becomes an Acquiring Person, in the
event that, at any time on or after the Distribution Date, (x) the Company
shall, directly or indirectly, consolidate with, or merge with and into, any
other Person or Persons (other than an Exempt Person) and the Company shall not
be the surviving or continuing corporation of such consolidation or merger or
the Company shall divide into two or more corporations and the Company shall not
survive the division, or (y) any Person or Persons (other than an Exempt Person)
shall, directly or indirectly, consolidate with, or merge with and into, the
Company, and the Company shall be the continuing or surviving corporation of
such consolidation or merger and, in connection with such consolidation or
merger, all or part of the outstanding shares of Common Stock shall be changed
into or exchanged for stock or other securities of any other Person (other than
an Exempt Person) or of the Company or cash or any other property, or (z) the
Company or one or more of its Subsidiaries shall, directly or indirectly, sell
or otherwise transfer to any other Person or any Affiliate or Associate of such
Person, in one or more transactions, or the Company or one or more of its
Subsidiaries shall sell or otherwise transfer to any Persons in one or a series
of related transactions, assets or earning power aggregating more than 50% of
the assets or earning power of the Company and its Subsidiaries (taken as a
whole), then, on the first occurrence of any such event, proper provision shall
be made so that (i) each holder of record of a Right, except as provided in
Section 7(e) hereof, shall thereafter have the right to receive, upon the
exercise thereof and payment of the Exercise Price in accordance with the terms
of this Rights Agreement, such number of shares of validly issued, fully paid,
non-assessable and freely tradable Common Stock of the Principal Party (as
defined herein), not subject to any liens, encumbrances, rights of first refusal
or other adverse claims, as shall, based on the Fair Market Value of the Common
Stock of the Principal Party on the date of the Consummation of such
consolidation, merger, sale or transfer, equal twice the Exercise Price; (ii)
such Principal Party shall thereafter be liable for, and shall assume, by virtue
of such consolidation, merger, sale or transfer, all the obligations and duties
of the Company pursuant to this Rights Agreement; (iii) the term "Company" for
all purposes of this Rights Agreement shall thereafter be deemed to refer to
such Principal Party; (iv) such Principal Party shall take such steps
(including, but not limited to, the reservation of a sufficient number of shares
of its Common Stock in accordance with the provisions of Section 9 hereof
applicable to the reservation of Preferred Stock) in connection with such
consummation as may be necessary to assure that the provisions hereof shall
thereafter be applicable, as nearly as reasonably may be, in relation to its
shares of Common Stock thereafter deliverable upon the exercise of the Rights;
provided, however, that, upon the subsequent occurrence of any merger,
consolidation, sale of all or substantially all of the assets, recapitalization,
reclassification of shares, reorganization or other extraordinary transaction in
respect of such Principal Party, each holder of a Right shall thereupon be
entitled to receive, upon exercise of a Right and payment of the Exercise Price,
such cash, shares, rights, warrants and other property which such holder would
have been entitled to receive had it, at the time of such transaction, owned the
shares of Common Stock of the Principal Party purchasable upon the exercise of a
Right, and such Principal Party shall take such steps (including, but not
limited to,
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reservation of shares of stock) as may be necessary to permit the subsequent
exercise of the Rights in accordance with the terms hereof for such cash,
shares, rights, warrants and other property, and (v) the provisions of Section
11(a)(ii) hereof shall be of no effect following the occurrence of any event
described in clause (x), (y) or (z) above of this Section 13(a).
(b) "Principal Party" shall mean
(i) in the case of any transaction described in clause
(x) or (y) of the first sentence of Section 13(a) hereof: (A) the Person that is
the issuer of the securities into which shares of Common Stock of the Company
are changed or otherwise exchanged or converted in such merger, consolidation or
other fundamental transaction, or, if there is more than one such issuer, the
issuer of the Common Stock of which has the greatest market value or (B) if no
securities are so issued, (x) the Person that is the other party to the merger,
consolidation or other fundamental transaction and that survives such merger,
consolidation or other fundamental transaction, or, if there is more than one
such Person, the Person the Common Stock of which has the greatest market value
or (y) if the Person that is the other party to the merger, consolidation or
other fundamental transaction does not survive the merger, consolidation or
other fundamental transaction, the Person that does survive the merger,
consolidation or other fundamental transaction (including the Company if it
survives); and
(ii) in the case of any transaction described in clause
(z) of the first sentence in Section 13(a), the Person that is the party
receiving the greatest portion of the assets or earning power transferred
pursuant to such transaction or transactions, or, if each Person that is a party
to such transaction or transactions receives the same portion of the assets or
earning power so transferred or if the Person receiving the greatest portion of
the assets or earning power cannot be determined, whichever of such Persons as
is the issuer of Common Stock having the greatest market value of shares
outstanding; provided, however, that in any such case, if the Common Stock of
such Person is not at such time and has not been continuously over the preceding
12-month period registered under Section 12 of the Exchange Act, and such Person
is a direct or indirect Subsidiary of another Person the Common Stock of which
is and has been so registered, the term "Principal Party" shall refer to such
other Person, or if such Person is a Subsidiary, directly or indirectly, of more
than one Person, the Common Stocks of all of which are and have been so
registered, the term "Principal Party" shall refer to whichever of such Persons
is the issuer of the Common Stock having the greatest market value of shares
outstanding.
(c) The Company shall not consummate any consolidation,
merger, other fundamental transaction or sale or transfer of assets or earning
power referred to in Section 13(a) unless the Principal Party shall have a
sufficient number of authorized shares of its Common Stock that have not been
issued or reserved for issuance to permit exercise in full of all Rights in
accordance with this Section 13 and unless prior thereto the Company and the
Principal Party involved therein shall have executed and delivered to the Rights
Agent an agreement confirming that the Principal Party shall, upon consummation
of such consolidation, merger, other fundamental transaction or sale or transfer
of assets or earning power, assume this Rights Agreement in accordance with
Section 13(a) hereof and that all rights of first refusal or
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preemptive rights in respect of the issuance of shares of Common Stock of the
Principal Party upon exercise of outstanding Rights have been waived and that
such transaction shall not result in a default by the Principal Party under this
Rights Agreement, and further providing that, as soon as practicable after the
date of any consolidation, merger, other fundamental transaction or sale or
transfer of assets or earning power referred to in Section 13(a) hereof, the
Principal Party will:
(i) prepare and file a registration statement under the
Securities Act with respect to the Rights and the securities
purchasable upon exercise of the Rights on an appropriate
form, use its best efforts to cause such registration
statement to become effective as soon as practicable after
such filing and use its best efforts to cause such
registration statement to remain effective (with a prospectus
at all times meeting the requirements of the Securities Act)
until the date of expiration of the Rights, and similarly
comply with applicable state securities laws;
(ii) use its best efforts to list (or continue the
listing of) the Rights and the securities purchasable upon
exercise of the Rights on a national securities exchange or to
meet the eligibility requirements for quotation on The Nasdaq
Stock Market; and
(iii) deliver to holders of the Rights historical
financial statements for the Principal Party which comply in
all respects with the requirements for registration on Form 10
(or any successor form) under the Exchange Act.
In the event that any of the transactions described in Section
13(a) hereof shall occur at any time after the occurrence of a transaction
described in Section 11(a)(ii) hereof, the Rights which have not theretofore
been exercised shall, subject to the provisions of Section 7(e) hereof,
thereafter be exercisable in the manner described in Section 13(a) hereof.
(d) In case the Principal Party which is to be a party to a
transaction referred to in this Section 13 has a provision in any of its
authorized securities or in its Certificate of Incorporation or By-laws or other
instrument governing its corporate affairs, which provision would have the
effect of (i) causing such Principal Party to issue, in connection with, or as a
consequence of, the consummation of a transaction referred to in this Section
13, shares of Common Stock of such Principal Party at less than the then Fair
Market Value per share (determined pursuant to Section 11(b) hereof) or
securities exercisable for, or convertible into, Common Stock of such Principal
Party at less than such then Fair Market Value (other than to holders of Rights
pursuant to this Section 13) or (ii) providing for any special tax or similar
payment in connection with the issuance to any holder of a Right of Common Stock
of such Principal Party pursuant to the provisions of this Section 13, then, in
such event, the Company shall not consummate any such transaction unless prior
thereto the Company and such Principal Party shall have executed and delivered
to the Rights Agent a supplemental agreement providing that the provision in
question of such Principal Party shall have been canceled, waived or amended, or
that the authorized securities shall be redeemed, so that the applicable
provision will
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have no effect in connection with, or as a consequence of, the
consummation of the proposed transaction
Section 14. Fractional Rights and Fractional Shares.
(a) The Company shall not be required to issue fractions of
Rights or to distribute Right Certificates which evidence fractional Rights
(i.e., Rights to acquire less than one one-hundredth of a share of Preferred
Stock), unless such fractional Rights result from a transaction referred to in
Section 11(a)(i) hereof. If the Company shall determine not to issue such
fractional Rights, then, in lieu of such fractional Rights, there shall be paid
to the holders of record of the Right Certificates with regard to which such
fractional Rights would otherwise be issuable, an amount in cash equal to the
same fraction of the Fair Market Value of a whole Right.
(b) The Company shall not be required to issue fractions of
shares of Preferred Stock (other than fractions which are integral multiples of
one-hundredth of a share) upon exercise of the Rights or to distribute
certificates which evidence fractional shares (other than fractions which are
integral multiples of one-hundredth of a share). In lieu of issuing fractions of
shares of Preferred Stock, the Company may, at its election, issue depositary
receipts evidencing fractions of shares pursuant to an appropriate agreement
between the Company and a depositary selected by it, provided that such
agreement shall provide that the holders of such depositary receipts shall have
all of the rights, privileges and preferences to which they would be entitled as
owners of the Preferred Stock. With respect to fractional shares that are not
integral multiples of one-hundredth of a share, if the Company does not issue
such fractional shares or depositary receipts in lieu thereof, there shall be
paid to the holders of record of Right Certificates at the time such Right
Certificates are exercised as herein provided an amount in cash equal to the
same fraction of the Fair Market Value of a share of Preferred Stock.
(c) The holder of a Right by the acceptance of a Right
expressly waives his or her right to receive any fractional Right or any
fractional shares of Preferred Stock (other than fractions which are integral
multiples of one one-hundredth of a share) upon exercise of a Right.
Section 15. Rights of Action. All rights of action in respect
of this Rights Agreement, except the rights of action given to the Rights Agent
in Section 18 hereof, are vested in the respective registered holders of the
Right Certificates (and, prior to the Distribution Date, the holders of record
of the Common Stock); and any holder of record of any Right Certificate (or,
prior to the Distribution Date, of the Common Stock), without the consent of the
Rights Agent or of the holder of any other Right Certificate (or, prior to the
Distribution Date, of the Common Stock), may, in his or her own behalf and for
his or her own benefit, enforce, and may institute and maintain any suit, action
or proceeding against the Company to enforce, or otherwise act in respect of,
his or her right to exercise the Rights evidenced by such Right Certificate in
the manner provided in such Right Certificate and in this Rights Agreement.
Without limiting the foregoing or any remedies available to the holders of
Rights, it is specifically acknowledged that the holders of Rights would not
have an adequate remedy at law for any breach of this Rights Agreement and will
be entitled to specific performance of the obligations under, and injunctive
relief against actual or threatened violations of, the obligations
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of any Person subject to this Rights Agreement.
Section 16. Agreement of Right Holders. Each holder of a
Right, by accepting the same, consents and agrees with the Company and the
Rights Agent and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights shall be
evidenced by the certificates for Common Stock registered in
the name of the holders of Common Stock (together, as
applicable, with the Summary of Rights), which certificates
for Common Stock shall also constitute certificates for
Rights, and not by separate Right Certificates, and each Right
shall be transferable only simultaneously and together with
the transfer of shares of Common Stock;
(b) after the Distribution Date, the Right Certificates
are transferable only on the registry books of the Rights
Agent if surrendered at the office of the Rights Agent
designated for such purpose, duly endorsed or accompanied by a
proper instrument of transfer; and
(c) the Company and the Rights Agent may deem and treat
the person in whose name the Right Certificate (or, prior to
the Distribution Date, the associated Common Stock
certificate) is registered as the absolute owner thereof and
of the Rights evidenced thereby (notwithstanding any notations
of ownership or writing on the Right Certificates or the
associated Common Stock certificate made by anyone other than
the Company or the Rights Agent) for all purposes whatsoever,
and neither the Company nor the Rights Agent shall be affected
by any notice to the contrary.
Section 17. Right Certificate Holder Not Deemed a Stockholder.
No holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of Preferred Stock or any
other securities which may at any time be issuable on the exercise of the Rights
represented thereby, nor shall anything contained herein or in any Right
Certificate be construed to confer upon the holder of any Right Certificate, as
such, any of the rights of a stockholder of the Company or any right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in Section 24 hereof), or to receive dividends or subscription rights,
or otherwise, until the Right or Rights evidenced by such Right Certificate
shall have been exercised in accordance with the provisions hereof.
Section 18. Concerning the Rights Agent.
(a) The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from time to time,
on demand of the Rights Agent, its reasonable expenses and counsel fees and
other disbursements incurred in the administration and execution of this Rights
Agreement and the exercise and performance of its duties here-under. The Company
also agrees to indemnify the Rights Agent for, and to hold it harmless
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against, any loss, liability, or expense, incurred without negligence, bad faith
or willful mis-conduct on the part of the Rights Agent, for anything done or
omitted to be done by the Rights Agent in connection with the acceptance and
administration of this Rights Agreement, including the cost and expenses of
defending against any claim of liability relating to the Rights or this Rights
Agreement.
(b) The Rights Agent shall be protected against, and shall
incur no liability for or in respect of, any action taken, suffered or omitted
by it in connection with its administration of this Rights Agreement in reliance
upon any Right Certificate or certificate for Preferred Stock or for other
securities of the Company, instrument of assignment or transfer, power of
attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement or other paper or document believed by it to be genuine
and to be signed, executed and, where necessary, verified or acknowledged, by
the proper Person or Persons.
(c) Anything in this Agreement to the contrary notwithstanding,
in no event shall the Rights Agent be liable for special, indirect or
consequential loss or damage of any kind whatsoever (including but not limited
to lost profits), even if the Rights Agent has been advised of the likelihood of
such loss or damage and regardless of the form of the action.
Section 19. Merger or Consolidation of, or Change in Name of,
the Rights Agent.
(a) Any corporation into which the Rights Agent or any
successor Rights Agent may be merged or with which it may be consolidated, or
any corporation resulting from any merger or consolidation to which the Rights
Agent or any successor Rights Agent shall be a party, or any corporation
succeeding to the corporate trust or stock transfer business of the Rights Agent
or any successor Rights Agent, shall be the successor to the Rights Agent under
this Rights Agreement without the execution or filing of any paper or any
further act on the part of any of the parties hereto, provided that such
corporation would be eligible for appointment as a successor Rights Agent under
the provisions of Section 21 hereof. In case at the time such successor Rights
Agent shall succeed to the agency created by this Rights Agreement any of the
Rights Certificates shall have been countersigned but not delivered, any such
successor Rights Agent may adopt the countersignature of the predecessor Rights
Agent and deliver such Right Certificates so countersigned; and in case at that
time any of the Right Certificates shall not have been countersigned, any
successor Rights Agent may countersign such Right Certificates either in the
name of the predecessor Rights Agent or in the name of the successor Rights
Agent; and in all such cases such Right Certificates shall have the full force
provided in the Right Certificates and in this Rights Agreement.
(b) In case at any time the name of the Rights Agent shall be
changed and at such time any of the Right Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Right Certificates so countersigned; in case at
that time any of the Right Certificates shall not have been countersigned, the
Rights Agent may countersign such Right Certificates either in its prior name or
in its changed name; in all such cases such Right Certificates shall have the
full force provided
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in the Right Certificates and in this Rights Agreement.
Section 20. Duties of Rights Agent. The Rights Agent
undertakes the duties and obligations imposed by this Rights Agreement upon the
following terms and conditions, by all of which the Company and the holders of
Right Certificates by their acceptance thereof shall be bound:
(a) The Rights Agent may consult with legal counsel (who may
be legal counsel for the Company), and the opinion of such counsel shall be full
and complete authorization and protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this
Rights Agreement the Rights Agent shall deem it necessary or desirable that any
fact or matter be proved or established by the Company prior to taking or
suffering any action hereunder, such fact or matter (unless other evidence in
respect thereof be herein specifically prescribed) may be deemed to be
conclusively proved and established by a certificate signed by the Chairman of
the Board, the President or any Vice President and by the Treasurer, the
Secretary or any Assistant Secretary of the Company and delivered to the Rights
Agent. Any such certificate shall be full authorization to the Rights Agent for
any action taken or suffered in good faith by it under the provisions of this
Rights Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only for its
own negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of
any of the statements of fact or recitals contained in this Rights Agreement or
in the Right Certificates (except its countersignature thereof) or be required
to verify the same, but all such statements and recitals are and shall be deemed
to have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Rights Agreement or the execution and delivery
hereof (except the due execution hereof by the Rights Agent) or in respect of
the validity or execution of any Right Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Rights Agreement or in any Right
Certificate; nor shall it be responsible for any adjustment required under the
provisions of Section 11 or 13 hereof or responsible for the manner, method or
amount of any such adjustment or the ascertaining of the existence of facts that
would require any such adjustment (except with respect to the exercise of Rights
evidenced by Right Certificates after receipt of a certificate describing any
such adjustment); nor shall it by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of any shares
of Preferred Stock to be issued pursuant to this Rights Agreement or any Right
Certificate or as to whether any shares of Preferred Stock will, when issued, be
validly authorized and issued, fully paid and non-assessable.
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(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all such further and other acts, instruments and assurances as may
reasonably be required by the Rights Agent for the carrying out or performing by
the Rights Agent of the provisions of the Rights Agreement.
(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties hereunder from
the Chairman of the Board, the President or any Vice President or the Secretary
or the Treasurer of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and it shall not be liable for any
action taken or suffered to be taken by it in good faith in accordance with
instructions of any such officer.
(h) The Rights Agent and any shareholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not the Rights
Agent under this Rights Agreement. Nothing herein shall preclude the Rights
Agent from acting in any other capacity for the Company or for any other legal
entity.
(i) The Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder either itself
or by or through its attorneys or agents, and the Rights Agent shall not be
answerable or accountable for any act, default, neglect or misconduct of any
such attorneys or agents or for any loss to the Company resulting from any such
act, default, neglect or misconduct, provided reasonable care was exercised in
the selection and continued employment thereof.
Section 21. Change of Rights Agent. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under this
Rights Agreement upon 30 days' notice in writing mailed to the Company and to
each transfer agent of the Common Stock and the Preferred Stock by registered or
certified mail. The Company may remove the Rights Agent or any successor Rights
Agent (with or without cause) upon 30 days' notice in writing, mailed to the
Rights Agent or successor Rights Agent, as the case may be, and to each transfer
agent of the Common Stock and the Preferred Stock by registered or certified
mail. If the Rights Agent shall resign or be removed or shall otherwise become
incapable of acting, the Company shall appoint a successor to the Rights Agent.
Notwithstanding the foregoing provisions of this Section 21, in no event shall
the resignation or removal of a Rights Agent be effective until a successor
Rights Agent shall have been appointed and have accepted such appointment. If
the Company shall fail to make such appointment within a period of 30 days after
such removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Rights Agent or by the holder of a
Right Certificate (who shall, with such notice, submit his or her Right
Certificate for inspection by the Company), then the incumbent Rights Agent or
the holder of record of any Right Certificate may apply to any court of
competent jurisdiction for the appointment of a new Rights Agent. Any successor
Rights Agent, whether appointed by the Company or by such a court, shall be (a)
a corporation organized and doing business under the laws of the United States
or of any state thereof, in good standing, which is
25
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authorized under such laws to exercise corporate trust or stock transfer powers
and is subject to supervision or examination in the conduct of its corporate
trust or stock transfer business by federal or state authorities and which has
at the time of its appointment as Rights Agent a combined capital and surplus of
at least $5,000,000, or (b) an Affiliate controlled by a corporation described
in clause (a) of this sentence. After appointment, the successor Rights Agent
shall be vested with the same powers, rights, duties and responsibilities as if
it had been originally named as Rights Agent without further act or deed, but
the predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment, the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
the Common Stock and Preferred Stock, and mail a notice thereof in writing to
the registered holders of the Right Certificates. Failure to give any notice
provided for in this Section 21, however, or any defect therein, shall not
affect the legality or validity of the resignation or removal of the Rights
Agent or the appointment of the successor Rights Agent, as the case may be.
Notwithstanding the foregoing provisions, in the event of resignation, removal
or incapacity of the Rights Agent, the Company shall have the authority to act
as the Rights Agent until a successor Rights Agent shall have assumed the duties
of the Rights Agent hereunder.
Section 22. Issuance of New Right Certificates. Notwithstanding
any of the provisions of this Rights Agreement or of the Rights to the contrary,
the Company may, at its option, issue new Right Certificates evidencing Rights
in such form as may be approved by its Board of Directors to reflect any
adjustment or change in the Exercise Price per share and the number or kind or
class of shares of stock or other securities or property purchasable under the
Right Certificates made in accordance with the provisions of this Rights
Agreement.
Section 23. Redemption.
(a) The Company may, at its option, but only by the vote of a
majority of the Board of Directors then in office, redeem all but not less than
all of the then outstanding Rights, at any time prior to the earlier of: (i) the
date on which any Person becomes an Acquiring Person, and (ii) the Final
Expiration Date, at a redemption price of $0.01 per Right, subject to
adjustments as provided in subsection (c) below (the "Redemption Price").
Notwithstanding anything contained in this Rights Agreement to the contrary, the
Rights shall not be exercisable pursuant to Section 11(a)(ii) hereof prior to
the expiration of the Company's right of redemption hereunder.
(b) Without any further action and without any notice, the
right to exercise the Rights will terminate effective at the effective time of
the action of the Board of Directors ordering the redemption of the Rights and
the only right thereafter of the holders of Rights shall be to receive the
Redemption Price. Within 10 days after the effective time of the action of the
Board of Directors ordering the redemption of the Rights, the Company shall give
notice of such redemption to the holders of the then outstanding Rights by
mailing such notice to all such holders at their last addresses as they appear
upon the registry books of the Rights Agent or, prior to the Distribution Date,
on the registry books of the transfer agent for the Common Stock. Any
26
<PAGE>
notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each notice of redemption will
state the method by which the payment of the Redemption Price will be made. At
the option of the Board of Directors, the Redemption Price may be paid in cash
to each Rights holder or by the issuance of shares (and, at the Company's
election, cash or depositary receipts in lieu of fractions of shares other than
fractions which are integral multiples of one one-hundredth (1/100) of a share
of Preferred Stock) of Preferred Stock or Common Stock, in each case having a
Fair Market Value equal to such cash payment.
(c) In the event the Company shall at any time after the date
of this Rights Agreement (A) pay any dividend on the Common Stock in shares of
Common Stock, (B) subdivide or split the outstanding shares of Common Stock into
a greater number of shares, or (C) combine or consolidate the outstanding shares
of Common Stock into a smaller number of shares or effect a reverse split of the
outstanding shares of Common Stock, then, and in each such event, the Redemption
Price shall be adjusted so that the Redemption Price after such event shall
equal the Redemption Price immediately prior to such event multiplied by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock outstanding immediately prior to such event;
provided, however, that in each case such adjustment to the Redemption Price
shall be made only if the amount of the Redemption Price shall be reduced or
increased by at least $0.01 per Right.
Section 24. Notice of Proposed Actions.
(a) In case the Company, after the Distribution Date, shall
propose (i) to effect any of the transactions referred to in Section 11(a)(i) or
11(g) hereof, (ii) to offer to the holders of record of any class of its Common
Stock options, warrants, or other rights to subscribe for or to purchase shares
of its Common Stock (including any security convertible into or exchangeable for
Common Stock) or shares of stock of any class or any other securities, options,
warrants, convertible or exchangeable securities or other rights, (iii) to
effect any reclassification of its Preferred Stock or Common Stock or any
recapitalization or reorganization of the Company, (iv) to effect any
consolidation or merger with or into, or to effect any sale or other transfer
(or to permit one or more of its Subsidiaries to effect any sale or other
transfer), in one or more transactions, of more than 50% of the assets or
earning power of the Company and its Subsidiaries (taken as a whole) to, any
other Person or Persons, or (v) to effect the liquidation, dissolution or
winding up of the Company, then, in each such case, the Company shall give to
each holder of record of a Right Certificate, in accordance with Section 25
hereof, notice of such proposed action, which shall specify the record date for
the purposes of such transaction referred to in Section 11(a)(i) hereof or such
dividend or distribution, or the date on which such reclassification,
recapitalization, reorganization, consolidation, merger, sale or transfer of
assets, liquidation, dissolution, or winding up is to take place and the record
date for determining participation therein by the holders of record of Common
Stock or Preferred Stock, if any such date is to be fixed, and such notice shall
be so given in the case of any action covered by clause (i) or (ii) above at
least 10 days prior to the record date for determining holders of record of the
Preferred Stock for purposes of such action, and in the case of any such other
action, at least 10
27
<PAGE>
days prior to the date of the taking of such proposed action or the date of
participation therein by the holders of record of Common Stock or Preferred
Stock, whichever shall be the earlier. The failure to give notice required by
this Section 24 or any defect therein shall not affect the legality or validity
of the action taken by the Company or the vote upon any such action.
(b) In case any of the transactions referred to in Section
11(a)(i), 11(g) or 13 of this Rights Agreement are proposed, then, in any such
case, the Company shall give to each holder of Rights, in accordance with
Section 25 hereof, notice of the proposal of such transaction at least 10 days
prior to consummating such transaction, which notice shall specify the proposed
event and the consequences of the event to holders of Rights under Section
11(a)(i), 11(g) or 13 hereof, as the case may be, and, upon consummating such
transaction, shall similarly give notice thereof to each holder of Rights.
Section 25. Notices. Notices or demands authorized by this
Rights Agreement to be given or made by the Rights Agent or by the holder of
record of any Right Certificate or Right to or on the Company shall be
sufficiently given or made if sent by first class mail, postage prepaid,
addressed (until another address is filed in writing with the Rights Agent) as
follows:
ResortQuest International, Inc.
530 Oak Court Drive
Suite 360
Memphis, Tennessee 38117
Attention: General Counsel
With a copy to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1333 New Hampshire Avenue, N.W.
Suite 400
Washington, D.C. 20036
Attention: Bruce S. Mendelsohn
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Rights Agreement to be given or made by the Company or by the holder of
record of any Right Certificate or Right to or on the Rights Agent shall be
sufficiently given or made if sent by first class mail, postage prepaid,
addressed (until another address is filed in writing with the Company) as
follows:
American Stock Transfer & Trust Company
40 Wall Street
46th Floor
New York, New York 10005
Attention: Corporate Trust Department
Notices or demands authorized by this Rights Agreement to be given or made by
the Company
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or the Rights Agent to the holder of record of any Right Certificate or Right
shall be sufficiently given or made if sent by first class mail, postage
prepaid, addressed to such holder at the address of such holder as shown on the
registry books of the Company.
Section 26. Supplements and Amendments. For as long as the
Rights are then redeemable and except as provided in the last sentence of this
Section 26, the Company may in its sole and absolute discretion, and the Rights
Agent shall if the Company so directs, supplement or amend any provision of this
Agreement without the approval of any holders of the Rights. At any time when
the Rights are not then redeemable and except as provided in the last sentence
of this Section 26, the Company may, and the Rights Agent shall if the Company
so directs, supplement or amend this Rights Agreement without the approval of
any holders of Right Certificates (i) to cure any ambiguity, (ii) to correct or
supplement any provision contained herein which may be defective or inconsistent
with any other provisions herein, or (iii) to change or supplement the
provisions hereunder in any manner which the Company may deem necessary or
desirable, provided that no such supplement or amendment pursuant to this clause
(iii) shall materially adversely affect the interest of the holders of Right
Certificates. Upon the delivery of a certificate from an appropriate officer of
the Company which states that the proposed supplement or amendment is in
compliance with the terms of this Section 26, the Rights Agent shall execute
such supplement or amendment. This Agreement may be amended or supplemented at
any time with the approval of a majority of the registered holders of the Right
Certificates (and, prior to the Distribution Date, the Common Stock).
Notwithstanding anything contained in this Rights Agreement to the contrary, no
supplement or amendment shall be made which changes the Redemption Price or the
Final Expiration Date.
Section 27. Successors. All of the covenants and provisions of
this Rights Agreement by or for the benefit of the Company or the Rights Agent
shall bind and inure to the benefit of their respective successors and assigns
hereunder.
Section 28. Benefits of this Rights Agreement. Nothing in this
Rights Agreement shall be construed to give to any person or corporation other
than the Company, the Rights Agent and the registered holders of the Right
Certificates (and, prior to the Distribution Date, the holders of Common Stock
in their capacity as holders of the Rights) any legal or equitable right, remedy
or claim under this Rights Agreement; but this Rights Agreement shall be for the
sole and exclusive benefit of the Company, the Rights Agent and the holders of
record of the Right Certificates (and, prior to the Distribution Date, the
holders of Common Stock in their capacity as holders of the Rights).
Section 29. Delaware Contract. This Rights Agreement and each
Right Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of Delaware and for all purposes shall be governed by and
construed and enforced in accordance with the laws of such state applicable to
contracts to be made and performed entirely within such state.
Section 30. Counterparts. This Rights Agreement may be
executed in any number of counterparts and each of such counterparts shall for
all purposes be deemed to be an
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original, and all such counterparts shall together constitute but one and the
same instrument.
Section 31. Descriptive Headings. Descriptive headings of the
several Sections of this Rights Agreement are inserted for convenience only and
shall not control or affect the meaning or construction of any of the provisions
hereof.
Section 32. Severability. If any term, provision, covenant or
restriction of this Rights Agreement is held by a court of competent
jurisdiction or other authority to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions of this Rights
Agreement shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.
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IN WITNESS WHEREOF, the parties hereto have caused this Rights
Agreement to be duly executed, all as of the day and year first above written.
RESORTQUEST INTERNATIONAL, INC.
Attest: /s/ KELLEY M. BUECHLER By: /s/ JOHN K. LINES
------------------------------ ------------------------------------
(SEAL) Name: John K. Lines
Asst. Secretary Title: Sr. VP, General Counsel
AMERICAN STOCK TRANSFER & TRUST COMPANY
Attest: By: /s/ HERBERT J. LEMMER
------------------------------ -------------------------------------
(SEAL) Name: Herbert J. Lemmer
Title: Vice President
31
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EXHIBIT A
TO RIGHTS AGREEMENT
UNDER CERTAIN CIRCUMSTANCES AS PROVIDED IN THE
RIGHTS AGREEMENT (AS REFERRED TO BELOW), RIGHTS
ISSUED TO OR BENEFICIALLY OWNED BY ACQUIRING
PERSONS OR THEIR AFFILIATES OR ASSOCIATES (AS SUCH
TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) OR ANY
SUBSEQUENT HOLDER OF SUCH RIGHTS SHALL BE NULL AND
VOID AND MAY NOT BE TRANSFERRED TO ANY PERSON.
RESORTQUEST INTERNATIONAL, INC.
SUMMARY OF RIGHTS TO PURCHASE
CLASS A JUNIOR PREFERRED STOCK
On February 25, 1999, the Board of Directors of ResortQuest
International, Inc. (the "Company"), declared a dividend distribution of one
Preferred Stock Purchase Right (individually, a "Right" and, collectively, the
"Rights"), for each outstanding share of the Company's Common Stock, par value
$0.01 per share (the "Common Stock"). The distribution is payable as of March
15, 1999 to shareholders of record on that date. Each Right entitles the
registered holder to purchase from the Company one one-hundredth (1/100) of a
share of preferred stock of the Company, designated as Class A Junior Preferred
Stock (the "Class A Preferred Stock"), in each case at a price of $87.00 per one
one-hundredth (1/100) of a share (the "Exercise Price"). The description and
terms of the Rights are set forth in a Rights Agreement (the "Rights
Agreement"), between the Company and American Stock Transfer & Trust Company, as
Rights Agent (the "Rights Agent").
As discussed below, initially the Rights will not be
exercisable, certificates will not be sent to stockholders and the Rights will
automatically trade with the Common Stock.
The Rights, unless earlier redeemed by the Board of Directors,
become exercisable upon the close of business on the day (the "Distribution
Date"), which is the earlier of (i) the tenth day following a public
announcement that a person or group of affiliated or associated persons, with
certain exceptions set forth below, has acquired beneficial ownership of 15% or
more of the outstanding voting stock of the Company (an "Acquiring Person"), and
(ii) the tenth business day (or such later date as may be determined by the
Board of Directors prior to such time as any person or group of affiliated or
associated persons becomes an Acquiring Person) after the date of the
commencement or announcement of a person's or group's intention to commence a
tender or exchange offer the consummation of which would result in the ownership
of 15% or more of the Company's outstanding voting stock (even if no shares are
actually purchased pursuant to such offer); prior thereto, the Rights would not
be exercisable, would not be represented by a separate certificate, and would
not be transferable apart from the Company's Common Stock, but will instead be
evidenced, with respect to any of the Common Stock certificates outstanding as
of March 15, 1999, by such Common Stock certificate. An Acquiring Person does
not include (A) the
<PAGE>
Company, (B) any subsidiary of the Company, (C) any employee benefit plan or
employee stock plan of the Company or of any subsidiary of the Company, or any
trust or other entity organized, appointed, established or holding Common Stock
for or pursuant to the terms of any such plan, or (D) any person or group whose
ownership of 15% or more of the shares of voting stock of the Company then
outstanding results solely from (i) any action or transaction or transactions
approved by the Board of Directors before such person or group became an
Acquiring Person, or (ii) a reduction in the number of issued and outstanding
shares of voting stock of the Company pursuant to a transaction or transactions
approved by the Board of Directors (provided that any person or group that does
not become an Acquiring Person by reason of clause (i) or (ii) above shall
become an Acquiring Person upon acquisition of an additional 1% or more of the
Company's voting stock unless such acquisition of additional voting stock will
not result in such person or group becoming an Acquiring Person by reason of
such clause (i) or (ii)).
Until the Distribution Date (or earlier redemption or
expiration of the Rights), new Common Stock certificates issued after March 15,
1999 will contain a legend incorporating the Rights Agreement by reference.
Until the Distribution Date (or earlier redemption or expiration of the Rights),
the surrender for transfer of any of the Common Stock certificates outstanding
as of March 15, 1999, with or without a copy of this Summary of Rights attached
thereto, will also constitute the transfer of the Rights associated with the
Common Stock represented by such certificate. As soon as practicable following
the Distribution Date, separate certificates evidencing the Rights ("Right
Certificates") will be mailed to holders of record of the Common Stock as of the
close of business on the Distribution Date and such separate certificates alone
will evidence the Rights from and after the Distribution Date.
The Rights are not exercisable until the Distribution Date.
The Rights will expire at the close of business on March 15, 2009, unless
earlier redeemed by the Company as described below.
The Class A Preferred Stock is nonredeemable and, unless
otherwise provided in connection with the creation of a subsequent series of
preferred stock, subordinate to any other series of the Company's preferred
stock. The Class A Preferred Stock may not be issued except upon exercise of
Rights. Each share of Class A Preferred Stock will be entitled to receive when,
as and if declared, a quarterly dividend in an amount equal to the greater of
$1.00 per share or 100 times the cash dividends declared on the Company's Common
Stock. In addition, the Class A Preferred Stock is entitled to 100 times any
non-cash dividends (other than dividends payable in equity securities or certain
rights or warrants) declared on the Common Stock, in like kind. In the event of
the liquidation of the Company, the holders of Class A Preferred Stock will be
entitled to receive, for each share of Class A Preferred Stock, a payment in an
amount equal to the greater of $87.00 per one one-hundredth share of Class A
Preferred Stock or 100 times the payment made per share of Common Stock. Each
share of Class A Preferred Stock will have 100 votes, voting together with the
Common Stock. In the event of any merger, consolidation or other transaction in
which Common Stock is exchanged, each share of Class A Preferred Stock will be
entitled to receive 100 times the amount received per share of Common Stock. The
rights of Class A Preferred Stock as to dividends, liquidation and voting are
protected by anti-dilution provisions.
2
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The number of shares of Class A Preferred Stock issuable upon
exercise of the Rights is subject to certain adjustments from time to time in
the event of a stock dividend on, or a subdivision or combination of, the Common
Stock. The Exercise Price for the Rights is subject to adjustment in the event
of extraordinary distributions of cash or other property to holders of Common
Stock.
Unless the Rights are earlier redeemed or the transaction is
approved by the Board of Directors, if the Company at any time after the
Distribution Date were to be acquired in a merger or other business combination
(in which any shares of Common Stock are changed into or exchanged for other
securities or assets) or more than 50% of the assets or earning power of the
Company and its subsidiaries (taken as a whole) were to be sold or transferred
in one or a series of related transactions, the Rights Agreement provides that
proper provision will be made so that each holder of record of a Right will from
and after such date have the right to receive, upon payment of the Exercise
Price, that number of shares of common stock of the acquiring company having a
market value at the time of such transaction equal to two times the Exercise
Price. In addition, unless the Rights are earlier redeemed, in the event that a
person or group becomes the beneficial owner of 15% or more of the Company's
voting stock (other than pursuant to a tender or exchange offer (a "Qualifying
Tender Offer") for all outstanding shares of Common Stock that is approved by
the Board of Directors, after taking into account the long-term value of the
Company and all other factors they consider relevant in the circumstances), the
Rights Agreement provides that proper provisions will be made so that each
holder of record of a Right, other than the Acquiring Person (whose Rights will
thereupon become null and void), will thereafter have the right to receive, upon
payment of the Exercise Price, that number of shares of the Class A Preferred
Stock having a market value at the time of the transaction equal to two times
the Exercise Price (such market value to be determined with reference to the
market value of the Company's Common Stock as provided in the Rights Agreement).
Fractions of shares of Class A Preferred Stock (other than
fractions which are integral multiples of one one-hundredth of a share) may, at
the election of the Company, be evidenced by depositary receipts. The Company
may also issue cash in lieu of fractional shares which are not integral
multiples of one one-hundredth of a share.
At any time on or prior to the earlier of (i) the date on
which any person becomes an Acquiring Person and (ii) the close of business on
March 15, 2009, the Company may redeem the Rights in whole, but not in part, at
a price of $0.01 per Right, subject to adjustment (the "Redemption Price").
Immediately upon the effective time of the action of the Board of Directors of
the Company authorizing redemption of the Rights, the right to exercise the
Rights will terminate and the only right of the holders of Rights will be to
receive the Redemption Price.
For as long as the Rights are then redeemable, the Company
may, except with respect to the Redemption Price or date of expiration of the
Rights, amend the Rights in any manner, including an amendment to extend the
time period in which the Rights may be redeemed. At any time when the Rights are
not then redeemable, the Company may amend the Rights in any manner that does
not materially adversely affect the interests of holders of the Rights as such.
3
<PAGE>
Until a Right is exercised, the holder, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends.
A copy of the Rights Agreement has been filed with the
Securities and Exchange Commission as an Exhibit to a Registration Statement on
Form 8-A dated February 25, 1999. A copy of the Rights Agreement is available
free of charge from the Company. This summary description of the Rights does not
purport to be complete and is qualified in its entirety by reference to the
Rights Agreement which is incorporated in this summary description herein by
reference.
4
<PAGE>
EXHIBIT B
TO RIGHTS AGREEMENT
[Form of Right Certificate]
Certificate No. R-_________ Rights
NOT EXERCISABLE AFTER MARCH 15, 2009 OR EARLIER IF REDEEMED. THE
RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY AND
UNDER CERTAIN OTHER CIRCUMSTANCES, AT $0.01 PER RIGHT (SUBJECT TO
ADJUSTMENT), ON THE TERMS SET FORTH OR REFERRED TO IN THE RIGHTS
AGREEMENT. UNDER CERTAIN CIRCUMSTANCES AS PROVIDED IN THE RIGHTS
AGREEMENT (AS REFERRED TO BELOW), RIGHTS ISSUED TO OR BENEFICIALLY
OWNED BY ACQUIRING PERSONS OR THEIR AFFILIATES OR ASSOCIATES (AS SUCH
TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) OR ANY SUBSEQUENT HOLDER OF
SUCH RIGHTS SHALL BE NULL AND VOID AND MAY NOT BE TRANSFERRED TO ANY
PERSON.
RIGHT CERTIFICATE
RESORTQUEST INTERNATIONAL, INC.
This certifies that ______________, or registered assigns, is the
registered owner of the number of Rights set forth above, each of which entitles
the owner thereof, subject to the terms, provisions and conditions of the Rights
Agreement dated as of February 25, 1999 (the "Rights Agreement") between
ResortQuest International, Inc., a Delaware corporation (the "Company"), and
American Stock Transfer & Trust Company, a New York corporation (the "Rights
Agent"), to purchase from the Company at any time after the Distribution Date
(as such term is defined in the Rights Agreement) and prior to 5:00 P.M. (New
York time) on March 15, 2009 at the office of the Rights Agent designated in the
Rights Agreement for such purpose, or its successor as Rights Agent, in New
York, New York, one one-hundredth (1/100) of a fully paid nonassessable share of
Class A Junior Preferred Stock (the "Class A Preferred Stock") of the Company at
a purchase price of $87.00, as the same may from time to time be adjusted in
accordance with the Rights Agreement (the "Exercise Price"), upon presentation
and surrender of this Right Certificate with the Form of Election to Purchase
attached hereto duly executed.
As provided in the Rights Agreement, the Exercise Price and the number
of shares of Class A Preferred Stock which may be purchased upon the exercise of
the Rights evidenced by this Right
<PAGE>
Certificate are subject to modification and adjustment upon the happening of
certain events and, upon the happening of certain events, securities other than
shares of Class A Preferred Stock, or other property, may be acquired upon
exercise of the Rights evidenced by this Right Certificate, as provided in the
Rights Agreement.
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
incorporated herein by reference and made a part hereof and to which Rights
Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities of the Rights Agent,
the Company and the holders of record of Right Certificates. Copies of the
Rights Agreement are on file at the principal executive office of the Company.
This Right Certificate, with or without other Right Certificates, upon
surrender at the office of the Rights Agent designated in the Rights Agreement
for such purpose, may be exchanged for another Right Certificate or Right
Certificates of like tenor and date evidencing Rights entitling the holder of
record to purchase a like aggregate number of shares of Class A Preferred Stock
as the Rights evidenced by the Right Certificate or Right Certificates
surrendered shall have entitled such holder to purchase. If this Right
Certificate shall be exercised in part, the holder shall be entitled to receive
upon surrender hereof, another Right Certificate or Right Certificates for the
number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced
by this Certificate may be redeemed by the Company at its option or under
certain other circumstances at a redemption price of $0.01 per Right.
No fractional shares of Class A Preferred Stock (other than fractions
which are integral multiples of one one-hundredth (1/100) of a share) are
required to be issued upon the exercise of any Right or Rights evidenced hereby,
and in lieu thereof the Company may cause depository receipts to be issued
and/or a cash payment may be made, as provided in the Rights Agreement.
No holder of this Right Certificate, as such, shall be entitled to vote
or receive dividends or be deemed for any purpose the holder of Class A
Preferred Stock or of any other securities of the Company which may at any time
be issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at a meeting
thereof, or to give or withhold consent to any corporate action or to receive
notice of meetings or other actions affecting stockholders (except as provided
in the Rights Agreement), or to receive dividends or subscription rights, or
otherwise, until the Right or Rights evidenced by this Right Certificate shall
have been exercised as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
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<PAGE>
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal. Dated as of _____________, 1999.
ATTEST: RESORTQUEST INTERNATIONAL, INC.
_______________________________________ By:____________________________
[Secretary or Assistant Name:
Secretary] Title:
Countersigned:
AMERICAN STOCK TRANSFER & TRUST COMPANY
By:____________________________________
Name:
Title:
3
<PAGE>
[Form of Reverse Side of Right Certificate]
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Right Certificates.)
FOR VALUE RECEIVED____________________________________________
hereby sells, assigns and transfers unto________________________________________
________________________________________________________________________________
(Please print name and address of transferee)
________________________________________________________________________________
Rights evidenced by this Right Certificate, together with all right, title and
interest therein, and does hereby irrevocably constitute and appoint
___________Attorney to transfer the within Right Certificate on the books of the
within-named Company, with full power of substitution.
Dated: ________________.
_____________________________________
Signature
Signature Guaranteed:
<PAGE>
Certificate
The undersigned hereby certifies by checking the appropriate boxes that:
(1) this Right Certificate [ ] is [ ] is not being sold, assigned or
transferred by or on behalf of a Person who is or was an Acquiring Person or an
Associate or an Affiliate thereof (as such terms are defined in the Rights
Agreement); and
(2) after due inquiry and to the best knowledge of the undersigned, it
[ ] did [ ] did not acquire the Rights evidenced by this Right Certificate from
any Person who is, was or subsequently became an Acquiring Person or an
Affiliate or Associate thereof (as such terms are defined in the Rights
Agreement).
Dated: ____________ ____________________________
Signature
NOTICE
The signature to the foregoing Assignment and Certificate must
correspond to the name as written upon the face of this Right Certificate in
every particular, without alteration or enlargement or any change whatsoever.
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed if registered holder
desires to exercise the Right Certificate.)
TO RESORTQUEST INTERNATIONAL, INC.:
The undersigned hereby irrevocably elects to exercise
_________________ Rights represented by this Right Certificate to purchase the
shares of Class A Preferred Stock issuable upon the exercise of such Rights and
requests that certificates for such share(s) be issued in the following name:
Please insert social security
or other identifying number:____________________________________________________
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
If such number of Rights shall not be all the Rights evidenced by this
Right Certificate, a new Right Certificate for the balance remaining of such
Rights shall be registered in the name of and delivered to:
Please insert social security
or other identifying number:____________________________________________________
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
Dated: _____________.
______________________________
Signature
(Signature must conform in all
respects to name of holder as
specified on the fact of this
Right Certificate)
Signature Guaranteed:
<PAGE>
EXHIBIT C
TO RIGHTS AGREEMENT
FORM OF
CERTIFICATE OF DESIGNATIONS
OF
CLASS A JUNIOR PREFERRED STOCK
RESORTQUEST INTERNATIONAL, INC.
PURSUANT TO SECTION 151 OF THE DELAWARE
GENERAL CORPORATION LAW
I, David L. Levine, President of ResortQuest International,
Inc., a corporation organized and existing under the Delaware General
Corporation Law (the "Company"), in accordance with the provisions of Section
151 of such law, DO HEREBY CERTIFY that at a meeting of the Board of Directors
on February 25, 1999, at which meeting a quorum was present, that the following
resolutions were adopted:
RESOLVED, that pursuant to the authority vested in the Board
of Directors of the Company in accordance with the provisions of Article FOURTH
of the Company's Amended and Restated Certificate of Incorporation, as amended,
a series of Preferred Stock of the Company be, and hereby is, created, and the
powers, designations, preferences and relative, participating, optional or other
special rights of the shares of such series, and the qualifications, limitations
or restrictions thereof, be, and hereby are, as follows:
Section 1. Designation and Amount. The shares of such series
shall be designated as "Class A Junior Preferred Stock" (the "Class A Preferred
Stock") and the number of shares constituting such series initially shall be
750,000. Notwithstanding the foregoing, however, if more than a total of 750,000
shares of Class A Preferred Stock shall be issuable upon the exercise of Class A
Rights (the "Class A Rights") issued pursuant to the Rights Agreement, dated as
of February 25, 1999, between the Company and American Stock Transfer & Trust
Company, as Rights Agent (as such agreement may be amended from time to time,
the "Rights Agreement"), the Board of Directors of the Company shall direct by
resolution or resolutions that the total number of shares of Class A Preferred
Stock authorized to be issued be increased (to the extent that the Articles of
Incorporation, as amended, then permits) to the largest number of whole shares
(rounded up to the nearest whole number) issuable upon exercise of such Class A
Rights.
Section 2. Dividends and Distributions.
(A) Subject to the provisions for adjustment hereinafter set
forth, the holders of shares of Class A Preferred Stock shall be entitled to
receive, when, as and if declared by the Board of Directors out of funds legally
available for the purpose, (i) cash dividends in an amount per share (rounded to
the nearest cent) equal to 100 times the aggregate per share amount of all cash
dividends declared or paid on the Company's Common Stock, par value $0.01 per
share (the "Common Stock"), and (ii) a preferential cash dividend (the
"Preferential Dividends"), if any, in preference to the holders of Common Stock,
on the first day of March, June, September and December of each year (each a
"Quarterly Dividend Payment Date"), commencing on the first
<PAGE>
Quarterly Dividend Payment Date after the first issuance of a share or fraction
of a share of Class A Preferred Stock, payable in an amount (except in the case
of the first Quarterly Dividend Payment if the date of the first issuance of
Class A Preferred Stock is a date other than a Quarterly Dividend Payment Date,
in which case such payment shall be a prorated amount of such amount) equal to
$1.00 per share of Class A Preferred Stock less the per share amount of all cash
dividends declared on the Class A Preferred Stock pursuant to clause (i) of this
sentence since the immediately preceding Quarterly Dividend Payment Date or,
with respect to the first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Class A Preferred Stock. In the
event the Company shall, at any time after the issuance of any share or fraction
of a share of Class A Preferred Stock, make any distribution on the shares of
Common Stock of the Company, whether by way of a dividend or a reclassification
of stock, a recapitalization, reorganization or partial liquidation of the
Company or otherwise, which is payable in cash or any debt security, debt
instrument, real or personal property or any other property (other than cash
dividends subject to the immediately preceding sentence, a distribution of
shares of Common Stock or other capital stock of the Company or a distribution
of rights or warrants to acquire any such share, including any debt security
convertible into or exchangeable for any such share, at a price less than the
Fair Market Value (as hereinafter defined) of such share), then, and in each
such event, the Company shall simultaneously pay on each then outstanding share
of Class A Preferred Stock of the Company a distribution, in like kind, of 100
times such distribution paid on a share of Common Stock (subject to the
provisions for adjustment hereinafter set forth). The dividends and
distributions on the Class A Preferred Stock to which holders thereof are
entitled pursuant to clause (i) of the first sentence of this paragraph and
pursuant to the second sentence of this paragraph are hereinafter referred to as
"Dividends" and the multiple of such cash and non-cash dividends on the Common
Stock applicable to the determination of the Dividends, which shall be 100
initially but shall be adjusted from time to time as hereinafter provided, is
hereinafter referred to as the "Dividend Multiple." In the event the Company
shall at any time after March 15, 1999 declare or pay any dividend or make any
distribution on Common Stock payable in shares of Common Stock, or effect a
subdivision or split or a combination, consolidation or reverse split of the
outstanding shares of Common Stock into a greater or lesser number of shares of
Common Stock, then in each such case the Dividend Multiple thereafter applicable
to the determination of the amount of Dividends which holders of shares of Class
A Preferred Stock shall be entitled to receive shall be the Dividend Multiple
applicable immediately prior to such event multiplied by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(B) The Company shall declare each Dividend at the same time it
declares any cash or non-cash dividend or distribution on the Common Stock in
respect of which a Dividend is required to be paid. No cash or non-cash dividend
or distribution on the Common Stock in respect of which a Dividend is required
to be paid shall be paid or set aside for payment on the Common Stock unless a
Dividend in respect of such dividend or distribution on the Common Stock shall
be simultaneously paid, or set aside for payment, on the Class A Preferred
Stock.
(C) Preferential Dividends shall begin to accrue on outstanding shares
of Class A Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issuance of any shares of Class A Preferred Stock. Accrued
but unpaid Preferential Dividends shall cumulate
2
<PAGE>
but shall not bear interest. Preferential Dividends paid on the shares of Class
A Preferred Stock in an amount less than the total amount of such dividends at
the time accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding.
Section 3. Voting Rights. The holders of shares of Class A
Preferred Stock shall have the following voting rights:
(A) Subject to the provisions for adjustment hereinafter set
forth, each share of Class A Preferred Stock shall entitle the holder thereof to
100 votes on all matters submitted to a vote of the holders of the Common Stock.
The number of votes which a holder of Class A Preferred Stock is entitled to
cast, as the same may be adjusted from time to time as hereinafter provided, is
hereinafter referred to as the "Vote Multiple." In the event the Company shall
at any time after March 15, 1999 declare or pay any dividend on Common Stock
payable in shares of Common Stock, or effect a subdivision or split or a
combination, consolidation or reverse split of the outstanding shares of Common
Stock into a greater or lesser number of shares of Common Stock, then in each
such case the Vote Multiple thereafter applicable to the determination of the
number of votes per share to which holders of shares of Class A Preferred Stock
shall be entitled after such event shall be the Vote Multiple immediately prior
to such event multiplied by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein, in the Company's
Amended and Restated Certificate of Incorporation or Bylaws, in each case as the
same may be amended, the holders of shares of Class A Preferred Stock and the
holders of shares of Common Stock shall vote together as one class on all
matters submitted to a vote of stockholders of the Company.
(C) In the event that the Preferential Dividends accrued on
the Class A Preferred Stock for four or more quarterly dividend periods, whether
consecutive or not, shall not have been declared and paid or irrevocably set
aside for payment, the holders of record of Preferred Stock of the Company of
all series (including the Class A Preferred Stock), other than any series in
respect of which such right is expressly withheld by the authorizing resolutions
therefor, shall have the right, at the next meeting of stockholders called for
the election of directors, to elect two members to the Board of Directors, which
directors shall be in addition to the number required by the Bylaws, as amended,
prior to such event, to serve until the next Annual Meeting and until their
successors are elected and qualified or their earlier resignation, removal or
incapacity or until such earlier time as all accrued and unpaid Preferential
Dividends upon the outstanding shares of Class A Preferred Stock shall have been
paid (or irrevocably set aside for payment) in full. The holders of shares of
Class A Preferred Stock shall continue to have the right to elect directors as
provided by the immediately preceding sentence until all accrued and unpaid
Preferential Dividends upon the outstanding shares of Class A Preferred Stock
shall have been paid (or set aside for payment) in full. Such directors may be
removed and replaced by such stockholders, and vacancies in such directorships
may be filled only by such stockholders (or by the remaining director elected by
such stockholders, if there be one) in the manner permitted by law; provided,
however, that any such
3
<PAGE>
action by stockholders shall be taken at a meeting of stockholders and shall not
be taken by written consent thereto.
(D) Except as otherwise required by the Company's Amended and
Restated Certificate of Incorporation or Bylaws or set forth herein, in each
case as the same may be amended, holders of Class A Preferred Stock shall have
no other special voting rights and their consent shall not be required (except
to the extent they are entitled to vote with holders of Common Stock as set
forth herein) for the taking of any corporate action.
Section 4. Certain Restrictions.
(A) Whenever Preferential Dividends or Dividends are in
arrears or the Company shall be in default of payment thereof, thereafter and
until all accrued and unpaid Preferential Dividends and Dividends, whether or
not declared, on shares of Class A Preferred Stock outstanding shall have been
paid or set irrevocably aside for payment in full, and in addition to any and
all other rights which any holder of shares of Class A Preferred Stock may have
in such circumstances, the Company shall not
(i) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for consideration, any
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Class A Preferred Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity as to
dividends with the Class A Preferred Stock, unless dividends are paid
ratably on the Class A Preferred Stock and all such parity stock on
which dividends are payable or in arrears in proportion to the total
amounts to which the holders of all such shares are then entitled if
the full dividends accrued thereon were to be paid;
(iii) except as permitted by subparagraph (iv) of this
paragraph 4(A), redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
Class A Preferred Stock, provided that the Company may at any time
redeem, purchase or otherwise acquire shares of any such parity stock
in exchange for shares of any stock of the Company ranking junior (both
as to dividends and upon liquidation, dissolution or winding up) to the
Class A Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any
shares of Class A Preferred Stock, or any shares of stock ranking on a
parity with the Class A Preferred Stock (either as to dividends or upon
liquidation, dissolution or winding up), except in accordance with a
purchase offer made to all holders of such shares upon such terms as
the Board of Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of the
respective series or classes, shall determine in good faith will result
in fair and equitable treatment among the respective series or classes.
(B) The Company shall not permit any Subsidiary (as
hereinafter defined) of the Company to purchase or otherwise acquire for
consideration any shares of stock of the Company
4
<PAGE>
unless the Company could, under paragraph (A) of this Section 4, purchase or
otherwise acquire such shares at such time and in such manner. A "Subsidiary" of
the Company shall mean any corporation or other entity of which securities or
other ownership interests having ordinary voting power sufficient to elect a
majority of the board of directors of such corporation or other entity or other
persons performing similar functions are beneficially owned, directly or
indirectly, by the Company or by any corporation or other entity that is
otherwise controlled by the Company.
(C) The Company shall not issue any shares of Class A
Preferred Stock except upon exercise of Rights issued pursuant to the Rights
Agreement, a copy of which is on file with the Secretary of the Company at its
principal executive office and shall be made available to stockholders of record
without charge upon written request therefor addressed to said Secretary.
Notwithstanding the foregoing sentence, nothing contained in the provisions
hereof shall prohibit or restrict the Company from issuing for any purpose any
series of Preferred Stock with rights and privileges similar to, different from,
or greater than, those of the Class A Preferred Stock.
Section 5. Reacquired Shares. Any shares of Class A Preferred
Stock purchased or otherwise acquired by the Company in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All such
shares upon their retirement and cancellation shall become authorized but
unissued shares of Preferred Stock, without designation as to series, and such
shares may be reissued as part of a new series of Preferred Stock to be created
by resolution or resolutions of the Board of Directors.
Section 6. Liquidation, Dissolution or Winding Up. Upon any
voluntary or involuntary liquidation, dissolution or winding up of the Company,
no distribution shall be made (i) to the holders of shares of stock ranking
junior (either as to dividends or upon liquidation, dissolution or winding up)
to the Class A Preferred Stock unless the holders of shares of Class A Preferred
Stock shall have received for each share of Class A Preferred Stock, subject to
adjustment as hereinafter provided, (A) $87.00 per one one-hundredth of a share
plus an amount equal to accrued and unpaid dividends and distributions thereon,
whether or not declared, to the date of such payment or, (B) if greater than the
amount specified in clause (i)(A) of this sentence, an amount equal to 100 times
the aggregate amount to be distributed per share to holders of Common Stock, as
the same may be adjusted as hereinafter provided, and (ii) to the holders of
stock ranking on a parity upon liquidation, dissolution or winding up with the
Class A Preferred Stock, unless simultaneously therewith distributions are made
ratably on the Class A Preferred Stock and all other shares of such parity stock
in proportion to the total amounts to which the holders of shares of Class A
Preferred Stock are entitled under clause (i)(A) of this sentence and to which
the holders of such parity shares are entitled, in each case upon such
liquidation, dissolution or winding up. The amount to which holders of Class A
Preferred Stock may be entitled upon liquidation, dissolution or winding up of
the Company pursuant to clause (i)(B) of the foregoing sentence is hereinafter
referred to as the "Participating Liquidation Amount" and the multiple of the
amount to be distributed to holders of shares of Common Stock upon the
liquidation, dissolution or winding up of the Company applicable pursuant to
said clause to the determination of the Participating Liquidation Amount, as
said multiple may be adjusted from time to time as hereinafter provided, is
hereinafter referred to as the "Liquidation Multiple." In the event the Company
shall at any time after March 15, 1999 declare or pay any dividend on Common
Stock payable in shares of Common Stock, or effect a subdivision or split or a
combination, consolidation or reverse split of the
5
<PAGE>
outstanding shares of Common Stock into a greater or lesser number of shares of
Common Stock, then, in each such case, the Liquidation Multiple thereafter
applicable to the determination of the Participating Liquidation Amount to which
holders of Class A Preferred Stock shall be entitled after such event shall be
the Liquidation Multiple applicable immediately prior to such event multiplied
by a fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
Section 7. Certain Reclassifications and Other Events.
(A) In the event that holders of shares of Common Stock of the
Company receive after March 15, 1999, in respect of their shares of Common
Stock, any share of capital stock of the Company (other than any share of Common
Stock of the Company), whether by way of reclassification, recapitalization,
reorganization, dividend or other distribution or otherwise (a "Transaction"),
then, and in each such event, the dividend rights, voting rights and rights upon
the liquidation, dissolution or winding up of the Company of the shares of Class
A Preferred Stock shall be adjusted so that after such event the holders of
Class A Preferred Stock shall be entitled, in respect of each share of Class A
Preferred Stock held, in addition to such rights in respect thereof to which
such holder was entitled immediately prior to such adjustment, to (i) such
additional dividends as equal the Dividend Multiple in effect immediately prior
to such Transaction multiplied by the additional dividends which the holder of a
share of Common Stock shall be entitled to receive by virtue of the receipt in
the Transaction of such capital stock, (ii) such additional voting rights as
equal the Vote Multiple in effect immediately prior to such Transaction
multiplied by the additional voting rights which the holder of a share of Common
Stock shall be entitled to receive by virtue of the receipt in the Transaction
of such capital stock, and (iii) such additional distributions upon liquidation,
dissolution or winding up of the Company as equal the Liquidation Multiple in
effect immediately prior to such Transaction multiplied by the additional amount
which the holder of a share of Common Stock shall be entitled to receive upon
liquidation, dissolution or winding up of the Company by virtue of the receipt
in the Transaction of such capital stock, as the case may be, all as provided by
the terms of such capital stock.
(B) In the event that holders of shares of Common Stock of the
Company receive after March 15, 1999, in respect of their shares of Common
Stock, any right or warrant to purchase Common Stock (including as such a right,
for all purposes of this paragraph, any security convertible into or
exchangeable for Common Stock) at a purchase price per share less than the Fair
Market Value of a share of Common Stock on the date of issuance of such right or
warrant, then and in each such event the dividend rights, voting rights and
rights upon the liquidation, dissolution or winding up of the Company of the
shares of Class A Preferred Stock shall each be adjusted so that after such
event the Dividend Multiple, the Vote Multiple and the Liquidation Multiple
shall each be the product of the Dividend Multiple, the Vote Multiple and the
Liquidation Multiple, as the case may be, in effect immediately prior to such
event multiplied by a fraction the numerator of which shall be the number of
shares of Common Stock outstanding immediately before such issuance of rights or
warrants plus the maximum number of shares of Common Stock which could be
acquired upon exercise in full of all such rights or warrants and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately before such issuance of rights or warrants plus the number of shares
of Common Stock which could be purchased, at the Fair
6
<PAGE>
Market Value of the Common Stock at the time of such issuance, by the maximum
aggregate consideration payable upon exercise in full of all such rights or
warrants.
(C) In the event that holders of shares of Common Stock of the
Company receive after March 15, 1999, in respect of their shares of Common
Stock, any right or warrant to purchase capital stock of the Company (other than
shares of Common Stock), including as such a right, for all purposes of this
paragraph, any security convertible into or exchangeable for capital stock of
the Company (other than Common Stock), at a purchase price per share less than
the Fair Market Value of such shares of capital stock on the date of issuance of
such right or warrant, then and in each such event the dividend rights, voting
rights and rights upon liquidation, dissolution or winding up of the Company of
the shares of Class A Preferred Stock shall each be adjusted so that after such
event each holder of a share of Class A Preferred Stock shall be entitled, in
respect of each share of Class A Preferred Stock held, in addition to such
rights in respect thereof to which such holder was entitled immediately prior to
such event, to receive (i) such additional dividends as equal the Dividend
Multiple in effect immediately prior to such event multiplied, first, by the
additional dividends to which the holder of a share of Common Stock shall be
entitled upon exercise of such right or warrant by virtue of the capital stock
which could be acquired upon such exercise and multiplied again by the Discount
Fraction (as hereinafter defined), and (ii) such additional voting rights as
equal the Vote Multiple in effect immediately prior to such event multiplied,
first, by the additional voting rights to which the holder of a share of Common
Stock shall be entitled upon exercise of such right or warrant by virtue of the
capital stock which could be acquired upon such exercise and multiplied again by
the Discount Fraction, and (iii) such additional distributions upon liquidation,
dissolution or winding up of the Company as equal the Liquidation Multiple in
effect immediately prior to such event multiplied, first, by the additional
amount which the holder of a share of Common Stock shall be entitled to receive
upon liquidation, dissolution or winding up of the Company upon exercise of such
right or warrant by virtue of the capital stock which could be acquired upon
such exercise and multiplied again by the Discount Fraction. For purposes of
this paragraph, the "Discount Fraction" shall be a fraction the numerator of
which shall be the difference between the Fair Market Value of a share of the
capital stock subject to a right or warrant distributed to holders of shares of
Common Stock of the Company as contemplated by this paragraph immediately after
the distribution thereof and the purchase price per share for such share of
capital stock pursuant to such right or warrant and the denominator of which
shall be the Fair Market Value of a share of such capital stock immediately
after the distribution of such right or warrant.
(D) For purposes of this Certificate of Designations, the
"Fair Market Value" of a share of capital stock of the Company (including a
share of Common Stock) on any date shall be deemed to be the average of the
daily closing price per share thereof over the 30 consecutive Trading Days (as
such term is hereinafter defined) immediately prior to such date; provided,
however, that, in the event that such Fair Market Value of any such share of
capital stock is determined during a period which includes any date that is
within 30 Trading Days after (i) the ex-dividend date for a dividend or
distribution on stock payable in shares of such stock or securities convertible
into shares of such stock, or (ii) the effective date of any subdivision, split,
combination, consolidation, reverse stock split or reclassification of such
stock, then, and in each such case, the Fair Market Value shall be appropriately
adjusted by the Board of Directors of the Company to take into account
ex-dividend or post-effective date trading. The closing price for any
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day shall be the last sale price, regular way, or, in case no such sale takes
place on such day, the average of the closing bid and asked prices, regular way
(in either case, as reported in the applicable transaction reporting system with
respect to securities listed or admitted to trading on the New York Stock
Exchange), or, if the shares are not listed or admitted to trading on the New
York Stock Exchange, as reported in the applicable transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the shares are listed or admitted to trading or, if the shares are not
listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by The Nasdaq National Market
System or such other system then in use, or if on any such date the shares are
not quoted by any such organization, the average of the closing bid and asked
prices as furnished by a professional market maker making a market in the shares
selected by the Board of Directors of the Company. The term "Trading Day" shall
mean a day on which the principal national securities exchange on which the
shares are listed or admitted to trading is open for the transaction of business
or, if the shares are not listed or admitted to trading on any national
securities exchange, on which the New York Stock Exchange or such other national
securities exchange as may be selected by the Board of Directors of the Company
is open. If the shares are not publicly held or not so listed or traded on any
day within the period of 30 Trading Days applicable to the determination of Fair
Market Value thereof as aforesaid, "Fair Market Value" shall mean the fair
market value thereof per share as determined in good faith by the Board of
Directors of the Company. In either case referred to in the foregoing sentence,
the determination of Fair Market Value shall be described in a statement filed
with the Secretary of the Company.
Section 8. Consolidation, Merger, etc. In case the Company
shall enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property, then in any such case each
outstanding share of Class A Preferred Stock shall at the same time be similarly
exchanged for or changed into the aggregate amount of stock, securities, cash
and/or other property (payable in like kind), as the case may be, for which or
into which each share of Common Stock is changed or exchanged multiplied by the
highest of the Vote Multiple, the Dividend Multiple or the Liquidation Multiple
in effect immediately prior to such event.
Section 9. Effective Time of Adjustments.
(A) Adjustments to the Class A Preferred Stock required by the
provisions hereof shall be effective as of the time at which the event requiring
such adjustments occurs.
(B) The Company shall give prompt written notice to each
holder of a share of Class A Preferred Stock of the effect of any adjustment to
the voting rights, dividend rights or rights upon liquidation, dissolution or
winding up of the Company of such shares required by the provisions hereof.
Notwithstanding the foregoing sentence, the failure of the Company to give such
notice shall not affect the validity of or the force or effect of or the
requirement for such adjustment.
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Section 10. No Redemption. The shares of Class A Preferred
Stock shall not be redeemable at the option of the Company or any holder
thereof. Notwithstanding the foregoing sentence of this Section, the Company may
acquire shares of Class A Preferred Stock in any other manner permitted by law,
and the provisions hereof and the Amended and Restated Certificate of
Incorporation of the Company, in each case as the same may be amended.
Section 11. Ranking. Unless otherwise provided in a
Certificate of Designations relating to a subsequent series of preferred stock
of the Company, the Class A Preferred Stock shall rank junior to all other
series of the Company's preferred stock as to the payment of dividends and the
distribution of assets on liquidation, dissolution or winding up and senior to
the Common Stock.
Section 12. Amendment. The provisions hereof and the Amended
and Restated Certificate of Incorporation, as amended, of the Company shall not
be amended in any manner which would adversely affect the rights, privileges or
powers of the Class A Preferred Stock without, in addition to any other vote of
stockholders required by law, the affirmative vote of the holders of two-thirds
or more of the outstanding shares of Class A Preferred Stock, voting together as
a single class.
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IN WITNESS WHEREOF, I have executed and subscribed this Certificate of
Designations and do affirm the foregoing as true under the penalties of perjury
this ____ day of _____, 1999.
By:_______________________________
Name:
Title:
ATTEST:
By:_________________________________
Name:
Title:
10
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.
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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
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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.
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(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.
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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.
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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
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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.
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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.
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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
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the "Agreement") dated as of July __,
1998 is by and between ResortQuest International, Inc., a Delaware corporation
(the "Company"), and ______________ ("Indemnitee").
RECITALS
A. Indemnitee is a member of the Board of Directors of the Company and
in such capacity is performing a valuable service to the Company.
B. The Company's Bylaws (the "Bylaws") provide for the indemnification
of directors, officers, employees and agents of the Company.
C. The Amended and Restated Certificate of Incorporation of the Company
(the "Certificate") provides that the Company shall, to the fullest extent
permitted by Section 145 of the General Corporation Law of the State of
Delaware, as amended from time to time (the "Corporation Law") indemnify the
directors, officers, employees and agents of the Company.
D. The Corporation Law specifically provides that indemnification and
advancement of expenses provided in such statute shall not be exclusive of any
other rights under any agreement, and thereby contemplates that agreements may
be entered into between the Company and members of the Board of Directors or
officers of the Company with respect to the indemnification of such directors or
officers.
E. In accordance with the authorization provided in the Corporation
Law, the Company has purchased and presently maintains a policy or policies of
directors' and officers' liabilities insurance (the "Insurance") covering
certain liabilities which may be incurred by the Company's directors and
officers in the performance of their services to the Company.
F. The general availability of directors' and officers' liability
insurance covering certain liabilities which may be incurred by the Company's
directors and officers in the performance of their services to the Company and
the applicability, amendment and enforcement of statutory and bylaw provisions
have raised questions concerning the adequacy and reliability of the protection
afforded to directors and officers.
G. In order to induce Indemnitee to serve as a member of the Board of
Directors of the Company for the current term and for any subsequent term to
which he is elected or nominated, the Company has deemed it to be in its best
interest to enter into this Agreement with Indemnitee.
<PAGE>
NOW, THEREFORE, in consideration of Indemnitee's agreement to serve as
a member of the Board of Directors of the Company after the date hereof, the
parties hereto agree as follows:
1. Definitions.
As used in this Agreement, the following terms shall have the following
meanings:
(a) Change in Control. A "Change in Control" shall be deemed to
have occurred if any of the following shall have occurred unless the
transaction or event shall have been approved by at least two-thirds
(2/3) of the Board of Directors of RQI:
(i) any person or entity, other than RQI or an employee benefit
plan of RQI, acquires directly or indirectly the Beneficial
Ownership (as defined in Section 13(d) of the Securities Exchange
Act of 1934, as amended) of any voting security of RQI and
immediately after such acquisition such person or entity is,
directly or indirectly, the Beneficial Owner of voting securities
representing 50% or more of the total voting power of all of the
then-outstanding voting securities of RQI;
(ii) the following individuals no longer constitute a majority
of the members of the Board of Directors of RQI: (A) the
individuals who, as of the closing date of RQI's initial public
offering, constitute the Board of Directors of RQI (the "Original
Directors"); (B) the individuals who thereafter are elected to the
Board of Directors of RQI and whose election, or nomination for
election, to the Board of Directors of RQI was approved by a vote
of at least two-thirds (2/3) of the Original Directors then still
in office (such directors becoming "Additional Original Directors"
immediately following their election); and (C) the individuals who
are elected to the Board of Directors of RQI and whose election, or
nomination for election, to the Board of Directors of RQI was
approved by a vote of at least two-thirds (2/3) of the Original
Directors and Additional Original Directors then still in office
(such directors also becoming "Additional Original Directors"
immediately following their election);
(iii) the stockholders of RQI shall approve a merger,
consolidation, recapitalization or reorganization of RQI, a reverse
stock split of outstanding voting securities, or consummation of
any such transaction if stockholder approval is not obtained, other
than any such transaction which would result in at least 75% of the
total voting power represented by the voting securities of the
surviving entity outstanding immediately after such transaction
being Beneficially Owned by at least 75% of the holders of
outstanding voting securities of RQI immediately prior to the
transaction, with the voting power of each such continuing holder
relative to other such continuing holders not substantially altered
in the transaction; or
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(iv) the stockholders of RQI shall approve a plan of complete
liquidation of RQI or an agreement for the sale or disposition by
RQI of all or a substantial portion of RQI's assets (i.e., 50% or
more of the total assets of RQI).
(b) Reviewing Party. A "Reviewing Party" means (i) the Board of
Directors or a committee of directors of the Company, who are not
officers, appointed by the Board of Directors, provided that a majority
of such directors are not parties to the claim, or (ii) special,
independent counsel selected and appointed by the Board of Directors or
by a committee of directors of the Company who are not officers.
2. Indemnification of Indemnitee.
The Company hereby agrees that it shall hold harmless and indemnify
Indemnitee to the fullest extent authorized and permitted by the provisions of
the Certificate and Bylaws and the provisions of the Corporation Law, or by any
amendment thereof, but in the case of any such amendment, only to the extent
that such amendment permits the Company to provide broader indemnification
rights than the Certificate, Bylaws or Corporation Law permitted the Company to
provide prior to such amendment, or other statutory provisions authorizing or
permitting such indemnification which is adopted after the date hereof.
3. Insurance.
3.1 Insurance Policies. So long as Indemnitee may be subject to any
possible claim or threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that Indemnitee is or was a director or officer, to the extent that the Company
maintains one or more insurance policy or policies providing directors' and
officers' liability insurance, Indemnitee shall be covered by such policy or
policies in accordance with its or their terms, to the maximum extent of the
coverage applicable to any director or officer then serving the Company.
3.2 Maintenance of Insurance. The Company shall not be required to
maintain the Insurance or any policy or policies of comparable insurance, as the
case may be, if such insurance is not reasonably available or if, in the
reasonable business judgment of the Board of Directors of the Company which
shall be conclusively established by such determination by the Board of
Directors, or any appropriate committee thereof, either (i) the premium cost for
such insurance is substantially disproportionate to the amount of coverage
thereunder, or (ii) the coverage provided by such insurance is so limited by
exclusions that there is insufficient benefit from such insurance.
3.3 Self-Insurance. To the extent Indemnitee is not indemnified under
other Sections of this Agreement and is not fully, by reason of deductible or
otherwise, covered by directors' and officers' liability insurance, the Company
shall maintain self-insurance for, and thereby indemnify and hold harmless,
Indemnitee from and against any and all expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by Indemnitee in connection with any possible claim or threatened, pending or
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completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, in which Indemnitee was or is made party or was or is involved by
reason of the fact that Indemnitee is or was a director or officer of the
Company. Notwithstanding the foregoing, payments of self-insurance under this
Section to Indemnitee by the Company shall be limited in accordance with Section
5 hereof. An "event" as used in the preceding sentence in reference to a
limitation on self-insurance shall include the same acts or omissions by
Indemnitee and interrelated, repeated or continuous acts or omissions.
4. Additional Indemnification.
Subject only to the exclusions set forth in Section 5 hereof, the
Company hereby agrees that it shall hold harmless and indemnify Indemnitee:
(a) against any and all expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement actually and reasonably
incurred by Indemnitee in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, including an action by or on behalf of
stockholders of the Company or by or in the right of the Company, to
which Indemnitee is, was or at any time becomes a party, or is
threatened to be made a party, by reason of the fact that Indemnitee
is, was or at any time becomes a director, advisory director, officer,
employee or agent of the Company, or is or was serving or at any time
serves at the request of the Company as a director, advisory director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise; and
(b) otherwise to the fullest extent as may be provided to
Indemnitee by the Company under the non-exclusivity provisions of the
Corporation Law.
5. Limitations on Additional Indemnification.
No indemnification pursuant to this Agreement shall be paid by the
Company:
(a) in respect to any transaction if it shall be determined by the
Reviewing Party, or by final judgment or other final adjudication, that
Indemnitee derived an improper personal benefit;
(b) on account of Indemnitee's conduct which is determined by the
Reviewing Party, or by final judgment or other final adjudication, to
have involved acts or omissions not in good faith, intentional
misconduct or a knowing violation of law; or
(c) if the Reviewing Party or a court having jurisdiction in the
matter shall determine that such indemnification is in violation of the
Certificate, the Bylaws or the law.
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6. Advancement of Expenses.
In the event of any threatened or pending action, suit or proceeding in
which Indemnitee is a party or is involved and which may give rise to a right of
indemnification under this Agreement, following written request to the Company
by Indemnitee the Company shall promptly pay to Indemnitee amounts to cover
expenses incurred by Indemnitee in such proceeding in advance of its final
disposition upon the receipt by the Company of (i) a written undertaking
executed by or on behalf of Indemnitee to repay the advance if it shall
ultimately be determined that Indemnitee is not entitled to be indemnified by
the Company as provided in this Agreement, and (ii) satisfactory evidence as to
the amount of such expenses.
7. Repayment of Expenses.
Indemnitee agrees that Indemnitee shall reimburse the Company for all
reasonable expenses paid by the Company in defending any civil, criminal,
administrative or investigative action, suit or proceeding against Indemnitee in
the event and only to the extent that it shall be determined by final judgment
or other final adjudication that Indemnitee is not entitled to be indemnified by
the Company for such expenses under the provisions of the Corporation Law or any
applicable law.
8. Determination of Indemnification; Burden of Proof.
With respect to all matters concerning the rights of Indemnitee to
indemnification and payment of expenses under this Agreement or under the
provisions of the Certificate and Bylaws now or hereafter in effect, the Company
shall appoint a Reviewing Party and any determination by the Reviewing Party
shall be conclusive and binding on the Company and Indemnitee. If under
applicable law, the entitlement of Indemnitee to be indemnified under this
Agreement depends on whether a standard of conduct has been met, the burden of
proof of establishing that Indemnitee did not act in accordance with such
standard of conduct shall rest with the Company. Indemnitee shall be presumed to
have acted in accordance with such standard and entitled to indemnification or
advancement of expenses hereunder, as the case may be, unless, based upon a
preponderance of the evidence, it shall be determined by the Reviewing Party
that Indemnitee did not meet such standard. For purposes of this Agreement,
unless otherwise expressly stated herein, the termination of any action, suit or
proceeding by judgment, order, settlement, whether with or without court
approval, or conviction, or upon a plea of nolo contendere or its equivalent
shall not create a presumption that Indemnitee did not meet any particular
standard of conduct or have any particular belief or that a court has determined
that indemnification is not permitted by applicable law.
9. Effect of Chance in Control.
If there has not been a Change in Control after the date of this
Agreement, the determination of (i) the rights of Indemnitee to indemnification
and payment of expenses under this Agreement or under the provisions of the
Certificate and the Bylaws, (ii) standard of conduct, and (iii) evaluation of
the reasonableness of amounts claimed by Indemnitee shall be
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made by the Reviewing Party or such other body or persons as may be permitted by
the Corporation Law. If there has been a Change in Control after the date of
this Agreement, such determination and evaluation shall be made by a special,
independent counsel who is selected by Indemnitee and approved by the Company,
which approval shall not be unreasonably withheld, and who has not otherwise
performed services for Indemnitee or the Company.
10. Continuation of Indemnification.
All agreements and obligations of the Company contained herein shall
continue during the period that Indemnitee is a director, advisory director,
officer, employee or agent of the Company, or is or was serving at the request
of the Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, and shall continue
thereafter so long as Indemnitee shall be subject to any possible claim or
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that Indemnitee
was a director, advisory director or officer of the Company or serving in any
other capacity referred to herein.
11. Notification and Defense of Claim.
Promptly after receipt by Indemnitee of notice of the commencement of
any action, suit or proceeding, Indemnitee shall, if a claim in respect hereof
is to be made against the Company under this Agreement, notify the Company of
the commencement thereof; provided, however, that delay in so notifying the
Company shall not constitute a waiver or release by Indemnitee of rights
hereunder and that omission by Indemnitee to so notify the Company shall not
relieve the Company from any liability which it may have to Indemnitee otherwise
than under this Agreement. With respect to any such action, suit or proceeding
as to which Indemnitee notifies the Company of the commencement thereof:
(a) The Company shall be entitled to participate therein at its own
expense; and
(b) Except as otherwise provided below, to the extent that it may
wish, the Company, jointly with any other indemnifying party similarly
notified, shall be entitled to assume the defense thereof and to
employ counsel reasonably satisfactory to Indemnitee. After notice
from the Company to Indemnitee of its election to so assume the
defense thereof, the Company shall not be liable to Indemnitee under
this Agreement for any legal or other expenses subsequently incurred
by Indemnitee in connection with the defense thereof other than
reasonable costs of investigation or as otherwise provided below.
Indemnitee shall have the right to employ counsel of his own choosing
in such action, suit or proceeding but the fees and expenses of such
counsel incurred after notice from the Company of assumption by the
Company of the defense thereof shall be at the expense of Indemnitee
unless: (i) the employment of counsel by Indemnitee has been
specifically authorized by the Company, such authorization to be
conclusively established by action by disinterested members of the
Board of Directors though less than a quorum; (ii) representation by
the same counsel of both Indemnitee and the Company would, in the
reasonable judgment of Indemnitee
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<PAGE>
and the Company, be inappropriate due to an actual or potential
conflict of interest between the Company and Indemnitee in the conduct
of the defense of such action, such conflict of interest to be
conclusively established by an opinion of counsel to the Company to
such effect; (iii) the counsel employed by the Company and reasonably
satisfactory to Indemnitee has advised Indemnitee in writing that such
counsel's representation of Indemnitee would likely involve such
counsel in representing differing interests which could adversely
affect the judgment or loyalty of such counsel to Indemnitee, whether
it be a conflicting, inconsistent, diverse or other interest; or (iv)
the Company shall not in fact have employed counsel to assume the
defense of such action, in each of which cases the fees and expenses
of counsel shall be paid by the Company. The Company shall not be
entitled to assume the defense of any action, suit or proceeding
brought by or on behalf of the Company or as to which a conflict of
interest has been established as provided in (ii) hereof.
Notwithstanding the foregoing, if an insurance company has supplied
directors' and officers' liability insurance covering an action, suit
or proceeding, then such insurance company shall employ counsel to
conduct the defense of such action, suit or proceeding unless
Indemnitee and the Company reasonably concur in writing that such
counsel is unacceptable.
(c) The Company shall not be liable to indemnify Indemnitee under this
Agreement for any amounts paid in settlement of any action or claim
effected without its written consent. The Company shall not settle any
action or claim in any manner which would impose any liability or
penalty on Indemnitee without Indemnitee's written consent. Neither the
Company nor Indemnitee shall unreasonably withhold consent to any
proposed settlement.
12. Enforcement.
(a) The Company expressly confirms and agrees that it has entered into
this Agreement and assumed the obligations imposed on the Company hereby in
order to induce Indemnitee to serve as a director, advisory director or officer
of the Company and acknowledges that Indemnitee is relying upon this Agreement
in continuing in such capacity.
(b) If a claim for indemnification or advancement of expenses is not
paid in full by the Company within thirty (30) days after a written claim by
Indemnitee has been received by the Company, Indemnitee may at any time assert
the claim and bring suit against the Company to recover the unpaid amount of the
claim. In the event Indemnitee is required to bring any action to enforce rights
or to collect moneys due under this Agreement and is successful in such action,
the Company shall reimburse Indemnitee for all of Indemnitee's reasonable
attorneys' fees and expenses in bringing and pursuing such action.
13. Proceedings by Indemnitee.
The Company shall not be liable to make any payment under this
Agreement in connection with any action, suit or proceeding, or any part
thereof, initiated by Indemnitee unless such action, suit or proceeding, or part
thereof, (i) was authorized by the Company,
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such authorization to be conclusively established by action by disinterested
members of the Board of Directors though less than a quorum, or (ii) was brought
by Indemnitee pursuant to Section 12(b) hereof.
14. Effectiveness.
This Agreement is effective for, and shall apply to, (i) any claim
which is asserted or threatened before, on or after the date of this Agreement
but for which no action, suit or proceeding has been brought prior to the date
hereof, and (ii) any action, suit or proceeding which is threatened before, on
or after the date of this Agreement but which is not pending prior to the date
hereof. This Agreement shall not apply to any action, suit or proceeding which
was brought before the date of this Agreement. So long as the foregoing is
satisfied, this Agreement shall be effective for, and be applicable to, acts or
omissions occurring prior to, on or after the date hereof.
15. Non-exclusivity.
The rights of Indemnitee under this Agreement shall not be deemed
exclusive, or in limitation of, any rights to which Indemnitee may be entitled
under any applicable common or statutory law, or pursuant to the Certificate,
the Bylaws, a vote of the stockholders or otherwise.
16. Other Payments.
The Company shall not be liable to make any payment under this
Agreement in connection with any action, suit or proceeding against Indemnitee
to the extent Indemnitee has otherwise received payment of the amounts otherwise
payable by the Company hereunder.
17. Subrogation.
In the event the Company makes any payment under this Agreement, the
Company shall be subrogated, to the extent of such payment, to all rights of
recovery of Indemnitee with respect thereto, and Indemnitee shall execute all
agreements, instruments, certificates or other documents and do or cause to be
done all things necessary or appropriate to secure such recovery rights to the
Company including, without limitation, executing such documents as shall enable
the Company to bring an action or suit to enforce such recovery rights.
18. Survival; Continuation.
The rights of Indemnitee under this Agreement shall inure to the
benefit of Indemnitee, his heirs, executors, administrators, personal
representatives and assigns, and this Agreement shall be binding upon the
Company, its successors and assigns. The rights of Indemnitee under this
Agreement shall continue so long as Indemnitee may be subject to any action,
suit or proceeding because of the fact that Indemnitee is or was a director,
advisory director, officer, employee or agent of the Company or is or was
serving at the request of the Company as a
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director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise. If the Company, in a single transaction or
series of related transactions, sells, leases, exchanges, or otherwise disposes
of all or substantially all of its property and assets, the Company shall, as a
condition precedent to any such transaction, cause effective provision to be
made so that the persons or entities acquiring such property and assets shall
become bound by and replace the Company under this Agreement.
19. Amendment and Termination.
No amendment, modification, termination or cancellation of this
Agreement shall be effective unless made in writing signed by both parties
hereto.
20. Headings.
Section headings of the sections and paragraphs of this Agreement have
been inserted for convenience of reference only and do not constitute a part of
this Agreement.
21. Notices.
All notices and other communications hereunder shall be in writing and
shall be deemed to have been duly given if delivered personally, mailed by
certified mail (return receipt requested) or sent by overnight delivery service,
cable, telegram, facsimile transmission or telex to the parties at the following
addresses or at such other addresses as shall be specified by the parties by
like notice:
(a) if to the Company:
ResortQuest International, Inc.
1355-B Lynnfield Road
Suite 245
Memphis, TN 38119
Attn: Secretary
with a copy to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1333 New Hampshire Avenue, N.W.
Suite 400
Washington, D.C. 20036
Attn: Bruce S. Mendelsohn, Esq.
(b) if to the Indemnitee
-----------------------------------
-----------------------------------
-----------------------------------
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Notice so given shall, in the case of notice so given by mail, be deemed to be
given and received on the fourth calendar day after posting, in the case of
notice so given by overnight delivery service, on the date of actual delivery
and, in the case of notice so given by cable, telegram, facsimile transmission,
telex or personal delivery, on the date of actual transmission or, as the case
may be, personal delivery.
22. Severability.
If any provision of this Agreement shall be held to be illegal, invalid
or unenforceable under any applicable law, then such contravention or invalidity
shall not invalidate the entire Agreement. Such provision shall be deemed to be
modified to the extent necessary to render it legal, valid and enforceable, and
if no such modification shall render it legal, valid and enforceable, then this
Agreement shall be construed as if not containing the provision held to be
invalid, and the rights and obligations of the parties shall be construed and
enforced accordingly.
23. Complete Agreement.
This Agreement, those documents expressly referred to herein and other
documents of even date herewith embody the complete agreement and understanding
among the parties and supersede and preempt any prior understandings, agreements
or representations by or among the parties, written or oral, which may have
related to the subject matter hereof in any way.
24. Counterparts.
This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, with the same effect as if
all parties had signed the same document. All such counterparts shall be deemed
an original, shall be construed together and shall constitute one and the same
instrument.
25. Choice of Law.
This agreement will be governed by the internal law, and not the law of
conflicts, of the State of Delaware.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
ResortQuest International, Inc.
By:
----------------------------------
John K. Lines
Senior Vice President
By:
----------------------------------
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Indemnitee
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EXHIBIT 10.27
SECOND AMENDMENT
THIS SECOND AMENDMENT (this "Amendment"), dated as of December 7, 1998
is by and among RESORTQUEST INTERNATIONAL, INC., a Delaware corporation (the
"Borrower"), those Subsidiaries of the Borrower as may from time to time become
a party thereto (collectively the "Guarantors"), THE PERSONS IDENTIFIED AS
"EXISTING LENDERS" ON THE SIGNATURE PAGES HERETO (the "Existing Lenders"), THE
PERSONS IDENTIFIED AS "NEW LENDERS" ON THE SIGNATURE PAGES HERETO (the "New
Lenders" and, together with the Existing Lender, the "Lenders"), SOCIETE
GENERALE, as Co-Agent and NATIONSBANK, N.A., a national banking association as
Agent for the Lenders (the "Agent").
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement dated as of May 26, 1998 (as
amended by a letter agreement (the "First Amendment") dated as of September 30,
1998, the "Existing Credit Agreement"), among the Borrower, the Guarantors, the
Existing Lenders and the Agent, the Existing Lenders have extended commitments
to make certain credit facilities available to the Borrower; and
WHEREAS, the parties hereto have agreed to amend the Existing Credit
Agreement as set forth herein;
NOW, THEREFORE, in consideration of the agreements herein contained,
the parties hereby agree as follows:
PART I
DEFINITIONS
SUBPART 1.1. Certain Definitions. Unless otherwise defined herein
or the context otherwise requires, the following terms used in this
Amendment, including its preamble and recitals, have the following
meanings:
"Amended Credit Agreement" means the Existing Credit Agreement
as amended by the Second Amendment.
"Amendment Effective Date" is defined in Subpart 3.1.
SUBPART 1.2. Other Definitions. Unless otherwise defined herein or
the context otherwise requires, terms used in this Amendment, including
its preamble and recitals, have the meanings provided in the Amended
Credit Agreement.
<PAGE>
PART II
AMENDMENTS TO EXISTING CREDIT AGREEMENT
Effective on (and subject to the occurrence of) the Amendment Effective
Date, the Existing Credit Agreement is hereby amended in accordance with this
Part II. Except as so amended, the Existing Credit Agreement shall continue in
full force and effect.
SUBPART 2.1. Amendment to First WHEREAS Paragraph. The first
WHEREAS paragraph on page 1 is amended by deleting the reference to
"$30,000,000" contained therein with a reference to "$55,000,000".
SUBPART 2.2. Amendment to Section 1. The definition of "Lender"
contained in Section 1.1 is amended in its entirety so that such
definition now reads as follows:
"Lender" means any of the Persons identified as a "Lender" on
the signature pages hereto or any of the Persons identified as a
"New Lender" on the signature pages of the Second Amendment, and
any Person which may become a Lender by way of assignment in
accordance with the terms hereof, together with their successors
and permitted assigns.
SUBPART 2.3. Additional Amendment to Section 1.1. Subsections
(iv), (v) and (vi) of the definition of "Permitted Acquisition" in
Section 1.1 are amended in their entirety so that such subsections now
read as follows:
(iv) the Borrower shall have delivered to the Agent a Pro
Forma Compliance Certificate demonstrating that, upon giving
effect to the Acquisition on a Pro Forma Basis, the Credit Parties
will be in compliance with all of the covenants set forth in
Section 7.11, and the Borrower shall have delivered to the Lender
a certificate that, upon giving effect to the Acquisition, the
Borrower shall have liquidity (i.e. unused availability of Loans
plus cash and Cash Equivalents) of at least $5,000,000, (v) the
aggregate consideration (including cash and non-cash
consideration) and any assumption of liabilities for (A) all such
Acquisitions occurring during any calendar year shall not exceed
$75,000,000 (computed on a non-cumulative basis except that unused
amounts during any such calendar year up to $25,000,000 may be
carried forward to the next calendar year), and (B) any single
Acquisition occurring after the Closing Date shall not exceed 20%
of Consolidated Net Worth and (vi) the aggregate cash
consideration for (A) all such Acquisitions occurring during any
calendar year shall not exceed $40,000,000 (computed on a
non-cumulative basis except that unused amounts during any such
calendar year up to $10,000,000 may be carried forward to the next
calendar year) and (B) for any single Acquisition occurring after
the Closing Date shall not exceed 10% of Consolidated Net Worth.
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SUBPART 2.4. Additional Amendment to Section 1.1. Section 1.1 is
amended by adding the following definition of "Second Amendment" in the
appropriate alphabetical order:
"Second Amendment" means that certain Second Amendment, dated
as of December 7, 1998, amending the Existing Credit Agreement.
SUBPART 2.5. Additional Amendment to Section 1.1. The definition
of "Revolving Committed Amount" is amended in its entirety so that such
definition now reads as follows:
"Revolving Committed Amount" means FIFTY-FIVE MILLION DOLLARS
($55,000,000) or such lesser amount as the Revolving Committed
Amount may be reduced pursuant to Section 3.4.
SUBPART 2.6. Additional Amendment to Section 1.1. The definition
of "Swingline Loan" is amended in its entirety so that such definition
now reads as follows:
"Swingline Loan" shall have the meaning assigned to such term
in Section 2.3(a).
SUBPART 2.7. Amendment to Section 7.11(c). Section 7.11(c) is
amended in its entirety so that such Section now reads as follows:
(c) Consolidated Net Worth. At all times the Consolidated Net
Worth of the Consolidated Parties shall be greater than or equal
to the sum of $90,000,000, increased on a cumulative basis as of
the end of each fiscal quarter of the Consolidated Parties,
commencing with the fiscal quarter ending December 31, 1998 by an
amount equal to 75% of Consolidated Net Income (to the extent
positive) for the fiscal quarter then ended plus 100% of the Net
Cash Proceeds from any Equity Issuance occurring after the Closing
Date.
SUBPART 2.8. Amendment to Section 8.1. Section 8.1 is amended by
adding the following subsection (f) and making the appropriate
grammatical changes:
(f) any Indebtedness (the "Replacement Indebtedness") that
refinances or replaces the Indebtedness of Abbott Realty Services,
Inc. set forth on Schedule 8.1 (the "Abbott Indebtedness") and any
Guaranty Obligations of the Borrower in connection with the
Replacement Indebtedness; provided, however, (i) the Replacement
Indebtedness must be on terms no less favorable to Abbott Realty
Services, Inc. as the terms of the Abbott Indebtedness, (ii) the
principal amount of the Replacement Indebtedness shall not exceed
the aggregate principal amount of the Abbott Indebtedness and
(iii) the collateral securing the Replacement
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Indebtedness shall be the same collateral (unless any such
collateral is released) that secures the Abbott Indebtedness.
SUBPART 2.9. Amendment to Section 10.7. Section 10.7 is amended by
adding the following paragraph at the end of such Section:
Societe Generale, in its capacity as Co-Agent, shall have no
duties or obligations whatsoever under this Credit Agreement or
any of the other Credit Documents.
SUBPART 2.10. Amendment to Section 11.3(b). The last paragraph of
Section 11.3(b) is amended in its entirety so that such paragraph now
reads as follows:
Upon execution, delivery, and acceptance of such Assignment and
Acceptance, the assignee thereunder shall be a party hereto and,
to the extent of such assignment, have the obligations, rights,
and benefits of a Lender hereunder and the assigning Lender shall,
to the extent of such assignment, relinquish its rights (except
for any indemnification rights which by the terms hereof expressly
survive the repayment of the Loans, LOC Obligations and other
obligations under the Credit Documents and the termination of the
Commitments hereunder) and be released from its obligations under
this Credit Agreement. Upon the consummation of any assignment
pursuant to this Section 11.3(b), the assignor, the Agent and the
Borrower shall make appropriate arrangements so that, if required,
new Revolving Notes are issued to the assignor and the assignee.
If the assignee is not incorporated under the laws of the United
States of America or a state thereof, it shall deliver to the
Borrower and the Agent certification as to exemption from
deduction or withholding of Taxes in accordance with Section 3.11.
SUBPART 2.11. Amendment to Section 11.6(d). Section 11.6(d) is
amended in its entirety so that such Section now reads as follows:
(d) without the consent of the Swingline Lender, no provision
of Section 2.3 may be amended; and
SUBPART 2.12. Additional Amendment to Section 11.6. Section 11.6
is amended by adding the following paragraph at the end of such
Section:
Notwithstanding the foregoing provisions of this Section 11.6,
this Credit Agreement and the Credit Documents may be amended to
increase the Revolving Committed Amount from $55,000,000 to
$100,000,000 with the consent of the Agent, the Borrower and the
Lender or Lenders (including any new Lenders) providing such
increased amount; provided, however, under no circumstances shall
the Commitment of any Lender be increased without the consent of
such Lender.
-4-
<PAGE>
SUBPART 2.13. Amendment to Schedule 2.1(a). Schedule 2.1(a) of the
Existing Credit Agreement is hereby deleted in its entirety and a new
schedule in the form of Schedule 2.1(a) attached hereto is substituted
therefor. Upon the Amendment Effective Date, the Persons identified as
"New Lenders" on the signature pages to the Second Amendment shall
become parties to the Amended Credit Agreement and shall have the
rights and obligations of the Lenders thereunder and under the other
Credit Documents.
SUBPART 2.14. Amendments to Schedules 6.12, 6.16, 6.19(a), 7.6 and
8.1. Schedule 6.12, Schedule 6.16, Schedule 6.19(a), Schedule 7.6 and
Schedule 8.1 of the Existing Credit Agreement are hereby deleted in
their entirety and new schedules in the form of Schedule 6.12, Schedule
6.16, Schedule 6.19(a), Schedule 7.6 and Schedule 8.1 attached hereto
are substituted therefor.
PART III
CONDITIONS TO EFFECTIVENESS
SUBPART 3.1. Amendment Effective Date. This Amendment shall be and
become effective as of the date hereof (the "Amendment Effective Date")
when all of the conditions set forth in this Part III shall have been
satisfied, and thereafter this Amendment shall be known, and may be
referred to, as the "Second Amendment."
SUBPART 3.2. Execution of Counterparts of Amendment. The Agent
shall have received counterparts (or other evidence of execution,
including telephonic message, satisfactory to the Agent) of this
Amendment, which collectively shall have been duly executed on behalf
of each of the Borrower, the Guarantors, the Agent, the Co-Agent and
the Lenders.
SUBPART 3.3. Execution and Delivery of New Notes. Each Lender
shall have received a new Note or Notes, as the case may be, each in
the principal amount of its respective Commitments and duly executed on
behalf of the Borrower.
SUBPART 3.4. Authority. The Agent shall have received copies of
resolutions of the Board of Directors of the Borrower approving and
adopting this Amendment, the transactions contemplated herein and
authorizing execution and delivery hereof, certified by a secretary or
assistant secretary of the Borrower to be true and correct and in force
and effect as of the date hereof.
-5-
<PAGE>
PART IV
MISCELLANEOUS
SUBPART 4.1. Cross-References. References in this Amendment to any
Part or Subpart are, unless otherwise specified, to such Part or
Subpart of this Amendment.
SUBPART 4.2. Instrument Pursuant to Existing Credit Agreement.
This Amendment is a Credit Document executed pursuant to the Existing
Credit Agreement and shall (unless otherwise expressly indicated
therein) be construed, administered and applied in accordance with the
terms and provisions of the Existing Credit Agreement.
SUBPART 4.3. References in Other Credit Documents. At such time as
this Amendment shall become effective pursuant to the terms of Subpart
3.1, all references in the Existing Credit Agreement to the "Agreement"
and all references in the other Credit Documents to the "Credit
Agreement" shall be deemed to refer to the Existing Credit Agreement as
amended by this Amendment.
SUBPART 4.4. Representations and Warranties of the Borrower. The
Borrower hereby represents and warrants that (a) the conditions
precedent to the initial Loans were satisfied as of the Closing Date
(assuming satisfaction or waiver, if applicable, of all requirements in
such conditions that an item be in form and/or substance reasonably
satisfactory to the Agent or any Lenders or that any event or action
have been completed or performed to the reasonable satisfaction of the
Agent or any Lenders), (b) the representations and warranties contained
in Section 6 of the Existing Credit Agreement (as amended by the First
Amendment and by this Amendment) are correct in all material respects
on and as of the date hereof (except for those which expressly relate
to an earlier date) as though made on and as of such date and after
giving effect to the amendments contained herein and (c) no Default or
Event of Default exists under the Existing Credit Agreement on and as
of the date hereof and after giving effect to the amendments contained
herein.
SUBPART 4.5. Counterparts. This Amendment may be executed by the
parties hereto in several counterparts, each of which shall be deemed
to be an original and all of which shall constitute together but one
and the same agreement.
SUBPART 4.6. Governing Law. THIS AMENDMENT SHALL BE DEEMED TO BE A
CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF
NORTH CAROLINA WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES
THEREOF.
-6-
<PAGE>
SUBPART 4.7. Successors and Assigns. This Amendment shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns.
[The remainder of this page has been left blank intentionally]
-7-
<PAGE>
Each of the parties hereto has caused a counterpart of this Amendment
to be duly executed and delivered as of the date first above written.
BORROWER: RESORTQUEST INTERNATIONAL, INC.
a Delaware corporation
By: /s/ John K. Lines
-----------------------------------------
Name: John K. Lines
---------------------------------------
Title: Sr. VP & Secretary & General Counsel
--------------------------------------
GUARANTORS: FIRST RESORT SOFTWARE, INC.,
a Colorado corporation
By: /s/ John K. Lines
-----------------------------------------
Name: John K. Lines
---------------------------------------
Title: Sr. VP & Secretary
--------------------------------------
B&B ON THE BEACH, INC.,
a North Carolina corporation
By: /s/ John K. Lines
-----------------------------------------
Name: John K. Lines
---------------------------------------
Title: Sr. VP & Secretary
--------------------------------------
BRINDLEY & BRINDLEY REALTY &
DEVELOPMENT, INC., a North Carolina
corporation
By: /s/ John K. Lines
-----------------------------------------
Name: John K. Lines
---------------------------------------
Title: Sr. VP & Secretary
--------------------------------------
<PAGE>
COASTAL RESORTS REALTY L.L.C.,
a Delaware limited liability company
By: /s/ John K. Lines
--------------------------------
Name: John K. Lines
------------------------------
Title: Sr. VP & Secretary
-----------------------------
COASTAL RESORTS MANAGEMENT, INC.,
a Delaware corporation
By: /s/ John K. Lines
--------------------------------
Name: John K. Lines
------------------------------
Title: Sr. VP & Secretary
-----------------------------
COLLECTION OF FINE PROPERTIES, INC.,
a Colorado corporation
By: /s/ John K. Lines
--------------------------------
Name: John K. Lines
------------------------------
Title: Sr. VP & Secretary
-----------------------------
TEN MILE HOLDINGS, LTD.,
a Colorado corporation
By: /s/ John K. Lines
--------------------------------
Name: John K. Lines
------------------------------
Title: Sr. VP & Secretary
-----------------------------
HOTEL CORPORATION OF THE PACIFIC, INC.,
a Hawaii corporation
By: /s/ John K. Lines
--------------------------------
Name: John K. Lines
------------------------------
Title: Sr. VP & Secretary
-----------------------------
<PAGE>
HOUSTON AND O'LEARY COMPANY,
a Colorado corporation
By: /s/ John K. Lines
--------------------------------
Name: John K. Lines
------------------------------
Title: Sr. VP & Secretary
-----------------------------
MAUI CONDOMINIUM & HOME REALTY, INC.,
a Hawaii corporation
By: /s/ John K. Lines
--------------------------------
Name: John K. Lines
------------------------------
Title: Sr. VP & Secretary
-----------------------------
THE MAURY PEOPLE, INC.,
a Massachusetts corporation
By: /s/ John K. Lines
--------------------------------
Name: John K. Lines
------------------------------
Title: Sr. VP & Secretary
-----------------------------
HOWEY ACQUISITION, INC.,
a Florida corporation
By: /s/ John K. Lines
--------------------------------
Name: John K. Lines
------------------------------
Title: Sr. VP & Secretary
-----------------------------
REALTY CONSULTANTS, INC.,
a Florida corporation
By: /s/ John K. Lines
--------------------------------
Name: John K. Lines
------------------------------
Title: Sr. VP & Secretary
-----------------------------
<PAGE>
RESORT PROPERTY MANAGEMENT, INC.,
a Utah corporation
By: /s/ John K. Lines
--------------------------------
Name: John K. Lines
------------------------------
Title: Sr. VP & Secretary
-----------------------------
TELLURIDE RESORT ACCOMMODATIONS, INC.,
a Colorado corporation
By: /s/ John K. Lines
--------------------------------
Name: John K. Lines
------------------------------
Title: Sr. VP & Secretary
-----------------------------
TRUPP-HODNETT ENTERPRISES, INC.,
a Georgia corporation
By: /s/ John K. Lines
--------------------------------
Name: John K. Lines
------------------------------
Title: Sr. VP & Secretary
-----------------------------
THE MANAGEMENT COMPANY,
a Georgia corporation
By: /s/ John K. Lines
--------------------------------
Name: John K. Lines
------------------------------
Title: Sr. VP & Secretary
-----------------------------
WHISTLER CHALETS LIMITED,
a British Columbia corporation
By: /s/ John K. Lines
--------------------------------
Name: John K. Lines
------------------------------
Title: Sr. VP & Secretary
-----------------------------
<PAGE>
ABBOTT & ANDREWS REALTY, INC.,
a Florida corporation
By: /s/ John K. Lines
--------------------------------
Name: John K. Lines
------------------------------
Title: Sr. VP & Secretary
-----------------------------
ABBOTT REALTY SERVICES, INC.,
a Florida corporation
By: /s/ John K. Lines
--------------------------------
Name: John K. Lines
------------------------------
Title: Sr. VP & Secretary
-----------------------------
ABBOTT RESORTS, INC.,
a Florida corporation
By: /s/ John K. Lines
--------------------------------
Name: John K. Lines
------------------------------
Title: Sr. VP & Secretary
-----------------------------
PLANTATION RESORT MANAGEMENT, INC.,
a Florida corporation
By: /s/ John K. Lines
--------------------------------
Name: John K. Lines
------------------------------
Title: Sr. VP & Secretary
-----------------------------
TOPS'L SALES GROUP, INC.,
a Florida corporation
By: /s/ John K. Lines
--------------------------------
Name: John K. Lines
------------------------------
Title: Sr. VP & Secretary
-----------------------------
<PAGE>
EXISTING LENDERS: NATIONSBANK, N. A.,
individually in its capacity as a
Lender and in its capacity as Agent
By: /s/ Richard G. Parkhurst, Jr.
------------------------------
Name: Richard G. Parkhurst, Jr.
----------------------------
Title: Senior Vice President
---------------------------
FIRST TENNESSEE BANK NATIONAL
ASSOCIATION
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
NEW LENDERS: SOCIETE GENERALE,
individually in its capacity as a
Lender and in its capacity as Co-Agent
By: /s/ Maureen E. Kelly
-----------------------------
Name: Maureen E. Kelly
---------------------------
Title: Director
--------------------------
UNION PLANTERS BANK, N.A.
By: /s/ Victoria E. [illegible]
-----------------------------
Name: Victoria E. [illegible]
---------------------------
Title: Vice President
--------------------------
<PAGE>
SCHEDULE 2.1(a)
- --------------------------------------------------------------------------------
Lender Revolving Commitment
- --------------------------------------------------------------------------------
NationsBank, N.A. $25,000,000
Independence Center, 15th Floor
NC1-001-15-04
101 North Tryon Street
Charlotte, North Carolina 28255
Attn: Agency Services
- --------------------------------------------------------------------------------
Societe Generale $20,000,000
One Montgomery St., Suite 3220
San Francisco, CA 94104
Attn: Mary Brickley (Credit Contact)
Societe Generale
2029 Century Park East, Suite 2900
Los Angeles, CA 90067
Attn: Doris Yun (Operations Contact)
- --------------------------------------------------------------------------------
First Tennessee Bank National Association $5,000,000
National Department
165 Madison Avenue
Memphis, TN 38103
Attn: Jim Moore
- --------------------------------------------------------------------------------
Union Planters Bank, N.A. $5,000,000
6200 Poplar Avenue
4th Floor
Memphis, TN 38119
- --------------------------------------------------------------------------------
Totals: $55,000,000
- --------------------------------------------------------------------------------
EXHIBIT 10.28
FORM OF
ADOPTION AGREEMENT #005
NONSTANDARDIZED CODE SECTION.401(K) PROFIT SHARING PLAN
The undersigned, ResortQuest International, Inc. ("Employer"), by
executing this Adoption Agreement, elects to become a participating Employer in
the Milliman & Robertson, Inc. Defined Contribution Prototype Plan (basic plan
document # 01) by adopting the accompanying Plan and Trust in full as if the
Employer were a signatory to that Agreement. The Employer makes the following
elections granted under the provisions of the Prototype Plan.
ARTICLE I
DEFINITIONS
1.02 TRUSTEE. The Trustee executing this Adoption Agreement is: (Choose
(a) or (b))
[ X ] (a) A discretionary Trustee. See Section 10.03[A] of the Plan.
[ ] (b) A nondiscretionary Trustee. See Section 10.03[B] of the Plan. [Note:
The Employer may not elect Option (b) if a Custodian executes the
Adoption Agreement.]
1.03 PLAN. The name of the Plan as adopted by the Employer is ResortQuest
Savings & Retirement Plan.
1.07 EMPLOYEE. The following Employees are not eligible to participate in
the Plan: (Choose (a) or at least one of (b) through (g))
[ ] (a) No exclusions.
[ X ] (b) Collective bargaining employees (as defined in Section 1.07 of the
Plan). [Note: If the Employer excludes union employees from the Plan, the
Employer must be able to provide evidence that retirement benefits were
the subject of good faith bargaining.]
[ X ] (c) Nonresident aliens who do not receive any earned income (as defined
in Code Section.911(d)(2)) from the Employer which constitutes United
States source income (as defined in Code Section.861(a)(3)).
[ ] (d) Commission Salesmen.
[ ] (e) Any Employee compensated on a salaried basis.
[ ] (f) Any Employee compensated on an hourly basis.
[ ] (g) (Specify)____________________________________________________________
______________________________________________.
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<PAGE>
LEASED EMPLOYEES. Any Leased Employee treated as an Employee under Section 1.31
of the Plan, is: (Choose (h) or (i))
[ X ] (h) Not eligible to participate in the Plan.
[ ] (i) Eligible to participate in the Plan, unless excluded by reason of an
exclusion classification elected under this Adoption Agreement Section
1.07.
RELATED EMPLOYERS. If any member of the Employer's related group (as defined in
Section 1.30 of the Plan) executes a Participation Agreement to this Adoption
Agreement, such member's Employees are eligible to participate in this Plan,
unless excluded by reason of an exclusion classification elected under this
Adoption Agreement Section 1.07. In addition: (Choose (j) or (k))
[ X ] (j) No other related group member's Employees are eligible to participate
in the Plan.
[ ] (k) The following nonparticipating related group member's Employees are
eligible to participate in the Plan unless excluded by reason of an
exclusion classification elected under this Adoption Agreement Section
1.07:____________________________________________________________________
_________________________________.
1.12 COMPENSATION.
TREATMENT OF ELECTIVE CONTRIBUTIONS. (Choose (a) or (b))
[ X ] (a) "Compensation" includes elective contributions made by the Employer
on the Employee's behalf.
[ ] (b) "Compensation" does not include elective contributions.
MODIFICATIONS TO COMPENSATION DEFINITION. (Choose (c) or at least one of (d)
through (j))
[ ] (c) No modifications other than as elected under Options (a) or (b).
[ ] (d) The Plan excludes Compensation in excess of $__________________.
[ X ] (e) In lieu of the definition in Section 1.12 of the Plan, Compensation
means any earnings reportable as W-2 wages for Federal income tax
withholding purposes, subject to any other election under this Adoption
Agreement Section 1.12.
[ X ] (f) The Plan excludes bonuses.
[ ] (g) The Plan excludes overtime.
[ ] (h) The Plan excludes Commissions.
[ ] (i) Compensation will not include Compensation from a related employer
(as defined in Section 1.30 of the Plan) that has not executed a
Participation Agreement in this Plan unless, pursuant to Adoption
Agreement Section 1.07, the Employees of that related employer are
eligible to participate in this Plan.
2
<PAGE>
[ ] (j) (Specify)____________________________________________________________
______________________________________________________.
If, for any Plan Year, the Plan uses permitted disparity in the contribution or
allocation formula elected under Article III, any election of Options (f), (g),
(h) or (j) is ineffective for such Plan Year with respect to any Nonhighly
Compensated Employee.
SPECIAL DEFINITION FOR MATCHING CONTRIBUTIONS. "Compensation" for purposes of
any matching contribution formula under Article III means: (Choose (k) or (l)
only if applicable)
[ X ] (k) Compensation as defined in this Adoption Agreement Section 1.12.
[ ] (l) (Specify)____________________________________________________________
______________________________________________________.
SPECIAL DEFINITION FOR SALARY REDUCTION CONTRIBUTIONS. An Employee's salary
reduction agreement applies to his Compensation determined prior to the
reduction authorized by that salary reduction agreement, with the following
exceptions: (Choose (m) or at least one of (n) or (o), if applicable)
[ X ] (m) No exceptions.
[ ] (n) If the Employee makes elective contributions to another plan
maintained by the Employer, the Advisory Committee will determine the
amount of the Employee's salary reduction contribution for the
withholding period: (Choose (1) or (2))
[ ] (1) After the reduction for such period of elective
contributions to the other plan(s).
[ ] (2) Prior to the reduction for such period of elective
contributions to the other plan(s).
[ ] (o) (Specify)____________________________________________________________
_______________________________________________.
1.17 PLAN YEAR/LIMITATION YEAR.
PLAN YEAR. Plan Year means: (Choose (a) or (b))
[ X ] (a) The 12 consecutive month period ending every December 31 .
--------------
[ ] (b) (Specify)____________________________________________________________
_______________________________________________.
LIMITATION YEAR. The Limitation Year is: (Choose (c) or (d))
[ X ] (c) The Plan Year.
[ ] (d) The 12 consecutive month period ending every_________________.
3
<PAGE>
1.18 EFFECTIVE DATE.
NEW PLAN. The "Effective Date" of the Plan is April 1, 1999
RESTATED PLAN. The restated Effective Date is______________________.
This Plan is a substitution and amendment of an existing retirement plan(s)
originally established__________________________________________________________
_______. [Note: See the Effective Date Addendum.]
1.27 HOUR OF SERVICE. The crediting method for Hours of Service is:
(Choose (a) or (b))
[ X ] (a) The actual method.
[ ] (b) The ___________________________________________ equivalency method,
except:
[ ] (1) No exceptions.
[ ] (2) The actual method applies for purposes of: (Choose at
least one)
[ ] (i) Participation under Article II.
[ ] (ii) Vesting under Article V.
[ ] (iii) Accrual of benefits under Section 3.06.
[Note: On the blank line, insert "daily," "weekly," "semi-monthly payroll
periods" or "monthly."]
1.29 SERVICE FOR PREDECESSOR EMPLOYER. In addition to the predecessor
service the Plan must credit by reason of Section 1.29 of the Plan, the Plan
credits Service with the following predecessor employer(s): N/A . Service with
the designated predecessor employer(s) applies: (Choose at least one of (a) or
(b); (c) is available only in addition to (a) or (b))
[ ] (a) For purposes of participation under Article II.
[ ] (b) For purposes of vesting under Article V.
[ ] (c) Except the following Services:____________________.
[Note: If the Plan does not credit any predecessor service under this provision,
insert "N/A" in the first blank line. The Employer may attach a schedule to this
Adoption Agreement, in the same format as this Section 1.29, designating
additional predecessor employers and the applicable service crediting
elections.]
N/A 1.31 LEASED EMPLOYEES. If a Leased Employee is a Participant in the Plan
and also participates in a plan maintained by the leasing organization: (Choose
(a) or (b))
[ ] (a) The Advisory Committee will determine the Leased Employee's
allocation of
4
<PAGE>
Employer contributions under Article III without taking into account the
Leased Employee's allocation, if any, under the leasing organization's
plan.
[ ] (b) The Advisory Committee will reduce a Leased Employee's allocation of
Employer nonelective contributions (other than designated qualified
nonelective contributions) under this Plan by the Leased Employee's
allocation under the leasing organization's plan, but only to the extent
that allocation is attributable to the Leased Employee's service provided
to the Employer. The leasing organization's plan:
[ ] (1) Must be a money purchase plan which would satisfy the
definition under Section 1.31 of a safe harbor plan,
irrespective of whether the safe harbor exception applies.
[ ] (2) Must satisfy the features and, if a defined benefit plan,
the method of reduction described in an addendum to this
Adoption Agreement, numbered 1.31.
ARTICLE II
EMPLOYEE PARTICIPANTS
2.01 ELIGIBILITY.
ELIGIBILITY CONDITIONS. To become a Participant in the Plan, an Employee must
satisfy the following eligibility conditions: (Choose (a) or (b) or both; (c) is
optional as an additional election)
[ X ] (a) Attainment of age 21 (specify age, not exceeding 21).
[ X ] (b) Service requirement. (Choose one of (1) through (3))
[ X ] (1) One Year of Service.
[ ] (2) _________________ months (not exceeding 12) following
the Employee's Employment Commencement Date.
[ ] (3) One Hour of Service.
[ ] (c) Special requirements for non-401(k) portion of plan. (Make
elections under (1) and under (2))
(1) The requirements of this Option (c) apply to participation in:
(Choose at least one of (i) through (iii))
[ ] (i) The allocation of Employer nonelective
contributions and Participant forfeitures.
[ ] (ii) The allocation of Employer matching
contributions (including forfeitures allocated as
matching contributions).
[ ] (iii) The allocation of Employer qualified
nonelective contributions.
5
<PAGE>
(2) For participation in the allocations described in (1), the
eligibility conditions are: (Choose at least one of (i) through
(iv))
[ ] (i) ______ (one or two) Year(s) of Service, without
an intervening Break in Service (as described in
Section 2.03(A) of the Plan) if the requirement is
two Years of Service.
[ ] (ii) ______ months (not exceeding 24) following the
Employee's Employment Commencement Date.
[ ] (iii) One Hour of Service.
[ ] (iv) Attainment of age ______ (Specify age, not
exceeding 21).
PLAN ENTRY DATE. "Plan Entry Date" means the Effective Date and: (Choose (d),
(e) or (f))
[ X ] (d) Semi-annual Entry Dates. The first day of the Plan Year and
the first day of the seventh month of the Plan Year.
[ ] (e) The first day of the Plan Year.
[ ] (f) (Specify entry dates)_________________________________________
____________________________________________________.
TIME OF PARTICIPATION. An Employee will become a Participant (and, if
applicable, will participate in the allocations described in Option (c)(1)),
unless excluded under Adoption Agreement Section 1.07, on the Plan Entry Date
(if employed on that date): (Choose (g), (h) or (i))
[ X ] (g) immediately following
[ ] (h) immediately preceding
[ ] (i) nearest
the date the Employee completes the eligibility conditions described in Options
(a) and (b) (or in Option (c)(2) if applicable) of this Adoption Agreement
Section 2.01. [Note: The Employer must coordinate the selection of (g), (h) or
(i) with the "Plan Entry Date" selection in (d), (e) or (f). Unless otherwise
excluded under Section 1.07, the Employee must become a Participant by the
earlier of: (1) the first day of the Plan Year beginning after the date the
Employee completes the age and service requirements of Code Section 410(a); or
(2) 6 months after the date the Employee completes those requirements.]
DUAL ELIGIBILITY. The eligibility conditions of this Section 2.01 apply to:
(Choose (j) or (k))
[ ] (j) All Employees of the Employer, except: (Choose (1) or (2))
[ ] (1) No exceptions.
6
<PAGE>
[ ] (2) Employees who are Participants in the Plan as of the
Effective Date.
[ X ] (k) Solely to an Employee employed by the Employer after January 1,
1999 . If the Employee was employed by the Employer on or before the
specified date, the Employee will become a Participant: (Choose (1),
(2) or (3))
[ ] (1) On the latest of the Effective Date, his Employment
Commencement Date or the date he attains age ______ (not
to exceed 21).
[ ] (2) Under the eligibility conditions in effect under the
Plan prior to the restated Effective Date. If the
restated Plan required more than one Year of Service to
participate, the eligibility condition under this Option
(2) for participation in the Code Section 401(k)
arrangement under this Plan is one Year of Service for
Plan Years beginning after December 31, 1988. [For
restated plans only]
[ X ] (3) (Specify):
o If employed by an Employer that maintained, at any
time during the twelve month period preceding the
effective date of this plan, a 401(k) plan and the
Employee has met the eligibility requirements of that
plan, the Employee will become a Participant on April
1, 1999.
o If employed by an Employer that maintained, at any
time during the twelve month period preceding the
effective date of this plan, a 401(k) plan and the
Employee has not met the eligibility requirements of
that plan, the Employee will be become a Participant
in accordance with Sections 2.01(a), (b), and (f)
above.
o If employed by an Employer that did not maintain, at
any time during the twelve month period preceding the
effective date of this plan, a 401(k) plan, the
Employee will become a Participant on April 1, 1999.
2.02 YEAR OF SERVICE - PARTICIPATION.
HOURS OF SERVICE. An Employee must complete: (Choose (a) or (b))
[ X ] (a) 1,000 Hours of Service
[ ] (b) _______________ Hours of Service
during an eligibility computation period to receive credit for a Year of
Service. [Note: The Hours of Service requirement may not exceed 1,000.]
7
<PAGE>
ELIGIBILITY COMPUTATION PERIOD. After the initial eligibility computation period
described in Section 2.02 of the Plan, the Plan measures the eligibility
computation period as: (Choose (c) or (d))
[ ] (c) The 12 consecutive month period beginning with each anniversary of
an Employee's Employment Commencement Date.
[ X] (d) The Plan Year, beginning with the Plan Year which includes the
first anniversary of the Employee's Employment Commencement Date.
2.03 BREAK IN SERVICE - PARTICIPATION. The Break in Service rule
described in Section 2.03(B) of the Plan: (Choose (a) or (b))
[ X ] (a) Does not apply to the Employer's Plan.
[ ] (b) Applies to the Employer's Plan.
2.06 ELECTION NOT TO PARTICIPATE. The Plan: (Choose (a) or (b))
[ X ] (a) Does not permit an eligible Employee or a Participant to elect not
to participate.
[ ] (b) Does permit an eligible Employee or a Participant to elect not to
participate in accordance with Section 2.06 and with the following rules:
(Complete (1), (2), (3) and (4))
(1) An election is effective for a Plan Year if filed no later
than_____________________________________________________________.
(2) An election not to participate must be effective for at
least_________ Plan Year(s).
(3) Following a re-election to participate, the Employee or
Participant:
[ ] (i) May not again elect not to participate for any
subsequent Plan Year.
[ ] (ii) May again elect not to participate, but not
earlier than the _____________ Plan Year following the Plan
Year in which the re-election first was effective.
(4) (Specify)__________________________________________________
__________________________________ [Insert "N/A" if no other rules
apply].
8
<PAGE>
ARTICLE III
EMPLOYER CONTRIBUTIONS AND FORFEITURES
3.01 AMOUNT.
PART I. [OPTIONS (a) THROUGH (g)] AMOUNT OF EMPLOYER'S CONTRIBUTION. The
Employer's annual contribution to the Trust will equal the total amount of
deferral contributions, matching contributions, qualified nonelective
contributions and nonelective contributions, as determined under this Section
3.01. (Choose any combination of (a), (b), (c) and (d), or choose (e))
[ X ] (a) DEFERRAL CONTRIBUTIONS (CODE SECTION 401(K) ARRANGEMENT). (Choose
(1) or (2) or both)
[X] (1) Salary reduction arrangement. The Employer must contribute
the amount by which the Participants have reduced their
Compensation for the Plan Year, pursuant to their salary
reduction agreements on file with the Advisory Committee. A
reference in the Plan to salary reduction contributions is a
reference to these amounts.
[ ] (2) Cash or deferred arrangement. The Employer will contribute
on behalf of each Participant the portion of the Participant's
proportionate share of the cash or deferred contribution which
he has not elected to receive in cash. See Section 14.02 of
the Plan. The Employer's cash or deferred contribution is the
amount the Employer may from time to time deem advisable which
the Employer designates as a cash or deferred contribution
prior to making that contribution to the Trust.
[ X ] (b) MATCHING CONTRIBUTIONS. The Employer will make matching
contributions in accordance with the formula(s) elected in Part II of
this Adoption Agreement Section 3.01.
[ ] (c) DESIGNATED QUALIFIED NONELECTIVE CONTRIBUTIONS. The Employer, in
its sole discretion, may contribute an amount which it designates as a
qualified nonelective contribution.
[ ] (d) NONELECTIVE CONTRIBUTIONS. (Choose any combination of (1) through
(4))
[ ] (1) Discretionary contribution. The amount (or
additional amount) the Employer may from time to time deem
advisable.
[ ] (2) The amount (or additional amount) the Employer
may from time to time deem advisable, separately determined
for each of the following classifications of Participants:
(Choose (i) or (ii))
[ ] (i) Nonhighly Compensated Employees and Highly
Compensated Employees.
[ ] (ii) (Specify classifications)___________________
_______________________________________.
9
<PAGE>
Under this Option (2), the Advisory Committee will allocate
the amount contributed for each Participant classification
in accordance with Part II of Adoption Agreement Section
3.04, as if the Participants in that classification were
the only Participants in the Plan.
[ ] (3) ___________ % of the Compensation of all Participants
under the Plan, determined for the Employer's taxable year
for which it makes the contribution. [Note: The percentage
selected may not exceed 15%.]
[ ] (4) ___________ % of Net Profits but not more than
$_______________.
[ ] (e) FROZEN PLAN. This Plan is a frozen Plan effective________________.
The Employer will not contribute to the Plan with respect to any period
following the stated date.
NET PROFITS. The Employer: (Choose (f) or (g))
[ X ] (f) Need not have Net Profits to make its annual contribution under
this Plan.
[ ] (g) Must have current or accumulated Net Profits exceeding $________
to make the following contributions: (Choose at least one)
[ ] (1) Cash or deferred contributions described in Option
(a)(2).
[ ] (2) Matching contributions described in Option (b),
except:________________________________________.
[ ] (3) Qualified nonelective contributions described in
Option (c).
[ ] (4) Nonelective contributions described in Option (d).
The term "Net Profits" means the Employer's net income or profits for any
taxable year determined by the Employer upon the basis of its books of account
in accordance with generally accepted accounting practices consistently applied
without any deductions for Federal and state taxes upon income or for
contributions made by the Employer under this Plan or under any other employee
benefit plan the Employer maintains. The term "Net Profits" specifically
excludes N/A .[Note: Enter "N/A" if no exclusions apply.]
If the Employer requires Net Profits for matching contributions and the Employer
does not have sufficient Net Profits under Option (g), it will reduce the
matching contribution under a fixed formula on a prorata basis for all
Participants. A Participant's share of the reduced contribution will bear the
same ratio as the matching contribution the Participant would have received if
Net Profits were sufficient bears to the total matching contribution all
Participants would have received if Net Profits were sufficient. If more than
one member of a related group (as defined in Section 1.30) execute this Adoption
Agreement, each participating member will determine Net Profits separately but
will not apply this reduction unless, after combining the separately determined
Net Profits, the aggregate Net Profits are insufficient to satisfy the matching
contribution liability. "Net Profits" includes both current and accumulated Net
Profits.
10
<PAGE>
PART II. [OPTIONS (h) THROUGH (j)] MATCHING CONTRIBUTION FORMULA. [Note: If the
Employer elected Option (b), complete Options (h), (i) and (j).]
[ X ] (h) AMOUNT OF MATCHING CONTRIBUTIONS. For each Plan Year, the Employer's
matching contribution is: (Choose any combination of (1), (2), (3), (4)
and (5))
[ ] (1) An amount equal to ______ % of each Participant's eligible
contributions for the Plan Year.
[ ] (2) An amount equal to____________ % of each Participant's first
tier of eligible contributions for the Plan Year, plus the following
matching percentage(s) for the following subsequent tiers of
eligible contributions for the Plan Year:___________________________
____________________________________________________________________
___________________________________.
[X] (3) Discretionary formula.
[X] (i) An amount (or additional amount) equal to a matching
percentage the Employer from time to time may deem advisable of
the Participant's eligible contributions for the Plan Year.
[ ] (ii) An amount (or additional amount) equal to a matching
percentage the Employer from time to time may deem advisable of
each tier of the Participant's eligible contributions for the
Plan Year.
[ ] (4) An amount equal to the following percentage of each
Participant's eligible contributions for the Plan Year, based on the
Participant's Years of Service:
Number of Years of Service Matching Percentage
-------------------------- -------------------
_________ ________
_________ ________
_________ ________
_________ ________
The Advisory Committee will apply this formula by determining Years
of Service as follows:______________________________________________
_________________________.
[ ] (5) A Participant's matching contributions may not: (Choose (i) or
(ii))
[ ] (i) Exceed____________________________________________
_______________________________________________________
_________________________.
[ ] (ii) Be less than______________________________________
_______________________________________________________
___________ .
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<PAGE>
RELATED EMPLOYERS. If two or more related employers (as defined in Section 1.30)
contribute to this Plan, the related employers may elect different matching
contribution formulas by attaching to the Adoption Agreement a separately
completed copy of this Part II. Note: Separate matching contribution formulas
create separate current benefit structures that must satisfy the minimum
participation test of Code Section 401(a)(26).]
[ X ] (i) DEFINITION OF ELIGIBLE CONTRIBUTIONS. Subject to the requirements
of Option (j), the term "eligible contributions" means: (Choose any
combination of (1) through (3))
[ X ] (1) Salary reduction contributions.
[ ] (2) Cash or deferred contributions (including any part of the
Participant's proportionate share of the cash or deferred
contribution which the Employer defers without the Participant's
election).
[ ] (3) Participant mandatory contributions, as designated in Adoption
Agreement Section 4.01. See Section 14.04 of the Plan.
[ X ] (j) AMOUNT OF ELIGIBLE CONTRIBUTIONS TAKEN INTO ACCOUNT. When
determining a Participant's eligible contributions taken into account
under the matching contributions formula(s), the following rules apply:
(Choose any combination of (1) through (4))
[ ] (1) The Advisory Committee will take into account all eligible
contributions credited for the Plan Year.
[ X ] (2) The Advisory Committee will disregard eligible contributions
exceeding 6% of the Participant's Compensation.
[ ] (3) The Advisory Committee will treat as the first tier of
eligible contributions, an amount not exceeding:___________________
_________________________________________________________.
The subsequent tiers of eligible contributions are:________________
___________________________________________________________________
___________________________.
[ ] (4) (Specify)_____________________________________________________
___________________________________________________________________
________________________.
PART III. [OPTIONS (k) AND (l)]. SPECIAL RULES FOR CODE SECTION 401(K)
ARRANGEMENT. (Choose (k) or (l), or both, as applicable)
[ X ] (k) SALARY REDUCTION AGREEMENTS. The following rules and restrictions
apply to an Employee's salary reduction agreement: (Make a selection
under (1), (2), (3) and (4))
(1) Limitation on amount. The Employee's salary reduction
contributions: (Choose (i) or at least one of (ii) or (iii))
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<PAGE>
[ ] (i) No maximum limitation other than as provided in
the Plan.
[X ] (ii) May not exceed 20% of Compensation for the
Plan Year, subject to the annual additions limitation
described in Part 2 of Article III and the 402(g)
limitation described in Section 14.07 of the Plan.
[ ] (iii) Based on percentages of Compensation must equal
at least______________________________________________.
(2) An Employee may revoke, on a prospective basis, a salary
reduction agreement: (Choose (i), (ii), (iii) or (iv))
[ ] (i) Once during any Plan Year but not later than ___
of the Plan Year.
[ ] (ii) As of any Plan Entry Date.
[ ] (iii) As of the first day of any month.
[X ] (iv) (Specify, but must be at least once per Plan
Year) Anytime.
(3) An Employee who revokes his salary reduction agreement may
file a new salary reduction agreement with an effective date:
(Choose (i), (ii), (iii) or (iv))
[ ] (i) No earlier than the first day of the next Plan
Year.
[ ] (ii) As of any subsequent Plan Entry Date.
[X ] (iii) As of the first day of any month subsequent to
the month in which he revoked an Agreement.
[ ] (iv) (Specify, but must be at least once per Plan Year
following the Plan Year of revocation)_________________
___________________________________________________.
(4) A Participant may increase or may decrease, on a prospective
basis, his salary reduction percentage or dollar amount:
(Choose (i), (ii), (iii) or (iv))
[ ] (i) As of the beginning of each payroll period.
[X ] (ii) As of the first day of each month.
[ ] (iii) As of any Plan Entry Date.
[ ] (iv) (Specify, but must permit an increase or a decrease
at least once per Plan Year)____________________________
_______________________________________.
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<PAGE>
[ ] (l) CASH OR DEFERRED CONTRIBUTIONS. For each Plan Year for which the
Employer makes a designated cash or deferred contribution, a Participant
may elect to receive directly in cash not more than the following portion
(or, if less, the 402(g) limitation described in Section 14.07 of the
Plan) of his proportionate share of that cash or deferred contribution:
(Choose (1) or (2))
[ ] (1) All or any portion.
[ ] (2) _________________________________%.
3.04 CONTRIBUTION ALLOCATION. The Advisory Committee will allocate
deferral contributions, matching contributions, qualified nonelective
contributions and nonelective contributions in accordance with Section 14.06 and
the elections under this Adoption Agreement Section 3.04.
PART I. [OPTIONS (a) THROUGH (d)]. SPECIAL ACCOUNTING ELECTIONS. (Choose
whichever elections are applicable to the Employer's Plan)
[ X ] (a) MATCHING CONTRIBUTIONS ACCOUNT. The Advisory Committee will
allocate matching contributions to a Participant's: (Choose (1) or (2);
(3) is available only in addition to (1))
[ X ] (1) Regular Matching Contributions Account.
[ ] (2) Qualified Matching Contributions Account.
[ ] (3) Except, matching contributions under Option(s)___
___________________ of Adoption Agreement Section 3.01 are
allocable to the Qualified Matching Contributions Account.
[ X ] (b) SPECIAL ALLOCATION DATES FOR SALARY REDUCTION CONTRIBUTIONS.
The Advisory Committee will allocate salary reduction contributions as of
the Accounting Date and as of the following additional allocation dates:
when deposited.
[ X ] (c) SPECIAL ALLOCATION DATES FOR MATCHING CONTRIBUTIONS. The Advisory
Committee will allocate matching contributions as of the Accounting Date
and as of the following additional allocation dates: when deposited.
[ ] (d) DESIGNATED QUALIFIED NONELECTIVE CONTRIBUTIONS - DEFINITION OF
PARTICIPANT. For purposes of allocating the designated qualified
nonelective contribution, "Participant" means: (Choose (1), (2) or (3))
[ ] (1) All Participants.
[ ] (2) Participants who are Nonhighly Compensated Employees
for the Plan Year.
[ ] (3) (Specify)_________________________.
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<PAGE>
PART II. METHOD OF ALLOCATION - NONELECTIVE CONTRIBUTION. Subject to any
restoration allocation required under Section 5.04, the Advisory Committee will
allocate and credit each annual nonelective contribution (and Participant
forfeitures treated as nonelective contributions) to the Employer Contributions
Account of each Participant who satisfies the conditions of Section 3.06, in
accordance with the allocation method selected under this Section 3.04. If the
Employer elects Option (e)(2), Option (g)(2) or Option (h), for the first 3% of
Compensation allocated to all Participants, "Compensation" does not include any
exclusions elected under Adoption Agreement Section 1.12 (other than the
exclusion of elective contributions), and the Advisory Committee must take into
account the Participant's Compensation for the entire Plan Year. (Choose an
allocation method under (e), (f), (g) or (h); (i) is mandatory if the Employer
elects (f), (g) or (h); (j) is optional in addition to any other election.)
[ ] (e) NONINTEGRATED ALLOCATION FORMULA. (Choose (1) or (2))
[ ] (1) The Advisory Committee will allocate the annual
nonelective contributions in the same ratio that each
Participant's Compensation for the Plan Year bears to the
total Compensation of all Participants for the Plan Year.
[ ] (2) The Advisory Committee will allocate the annual
nonelective contributions in the same ratio that each
Participant's Compensation for the Plan Year bears to the
total Compensation of all Participants for the Plan Year. For
purposes of this Option (2), "Participant" means, in addition
to a Participant who satisfies the requirements of Section
3.06 for the Plan Year, any other Participant entitled to a
top heavy minimum allocation under Section 3.04(B), but such
Participant's allocation will not exceed 3% of his
Compensation for the Plan Year.
[ ] (f) TWO-TIERED INTEGRATED ALLOCATION FORMULA - MAXIMUM DISPARITY.
First, the Advisory Committee will allocate the annual Employer
nonelective contributions in the same ratio that each Participant's
Compensation plus Excess Compensation for the Plan Year bears to the
total Compensation plus Excess Compensation of all Participants for the
Plan Year. The allocation under this paragraph, as a percentage of each
Participant's Compensation plus Excess Compensation, must not exceed the
applicable percentage (5.7%, 5.4% or 4.3%) listed under the Maximum
Disparity Table following Option (i).
The Advisory Committee then will allocate any remaining nonelective
contributions in the same ratio that each Participant's Compensation for
the Plan Year bears to the total Compensation of all Participants for the
Plan Year.
[ ] (g) THREE-TIERED INTEGRATED ALLOCATION FORMULA. First, the Advisory
Committee will allocate the annual Employer nonelective contributions in
the same ratio that each Participant's Compensation for the Plan Year
bears to the total Compensation of all Participants for the Plan Year.
The allocation under this paragraph, as a percentage of each
Participant's Compensation may not exceed the applicable percentage
(5.7%, 5.4% or 4.3%) listed under the Maximum Disparity Table following
Option (i). Solely for purposes of the allocation in this first
paragraph, "Participant" means, in addition to a Participant who
satisfies the requirements of Section 3.06 for the Plan Year: (Choose (1)
or (2))
15
<PAGE>
[ ] (1) No other Participant.
[ ] (2) Any other Participant entitled to a top heavy
minimum allocation under Section 3.04(B), but such
Participant's allocation under this Option (g) will
not exceed 3% of his Compensation for the Plan Year.
As a second tier allocation, the Advisory Committee will allocate the
nonelective contributions in the same ratio that each Participant's
Excess Compensation for the Plan Year bears to the total Excess
Compensation of all Participants for the Plan Year. The allocation
under this paragraph, as a percentage of each Participant's Excess
Compensation, may not exceed the allocation percentage in the first
paragraph.
Finally, the Advisory Committee will allocate any remaining nonelective
contributions in the same ratio that each Participant's Compensation
for the Plan Year bears to the total Compensation of all Participants
for the Plan Year.
[ ] (h) FOUR-TIERED INTEGRATED ALLOCATION FORMULA. First, the Advisory
Committee will allocate the annual Employer nonelective contributions
in the same ratio that each Participant's Compensation for the Plan
Year bears to the total Compensation of all Participants for the Plan
Year, but not exceeding 3% of each Participant's Compensation. Solely
for purposes of this first tier allocation, a "Participant" means, in
addition to any Participant who satisfies the requirements of Section
3.06 for the Plan Year, any other Participant entitled to a top heavy
minimum allocation under Section 3.04(B) of the Plan.
As a second tier allocation, the Advisory Committee will allocate the
nonelective contributions in the same ratio that each Participant's
Excess Compensation for the Plan Year bears to the total Excess
Compensation of all Participants for the Plan Year, but not exceeding
3% of each Participant's Excess Compensation.
As a third tier allocation, the Advisory Committee will allocate the
annual Employer contributions in the same ratio that each Participant's
Compensation plus Excess Compensation for the Plan Year bears to the
total Compensation plus Excess Compensation of all Participants for the
Plan Year. The allocation under this paragraph, as a percentage of each
Participant's Compensation plus Excess Compensation, must not exceed
the applicable percentage (2.7%, 2.4% or 1.3%) listed under the Maximum
Disparity Table following Option (i).
The Advisory Committee then will allocate any remaining nonelective
contributions in the same ratio that each Participant's Compensation
for the Plan Year bears to the total Compensation of all Participants
for the Plan Year.
[ ] (i) EXCESS COMPENSATION. For purposes of Option (f), (g) or (h),
"Excess Compensation" means Compensation in excess of the following
Integration Level: (Choose (1) or (2))
[ ] (1) _________% (not exceeding 100%) of the taxable
wage base, as determined under Section 230 of the
Social Security Act, in effect on the first day of the
Plan Year: (Choose any combination of (i) and (ii) or
choose (iii))
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<PAGE>
[ ] (i) Rounded to______________________________________
______(but not exceeding the taxable wage base).
[ ] (ii) But not greater than $_____________________.
[ ] (iii) Without any further adjustment or limitation.
[ ] (2) $___________________________________[Note: Not exceeding
the taxable wage base for the Plan Year in which this Adoption Agreement
first is effective.]
MAXIMUM DISPARITY TABLE. For purposes of Options (f), (g) and (h), the
applicable percentage is:
<TABLE>
<CAPTION>
Integration Level (as Applicable Percentages for Applicable Percentages
percentage of taxable wage base) Option (f) or Option (g) for Option (h)
- -------------------------------- ------------------------ --------------
<S> <C> <C>
100% 5.7% 2.7%
More than 80% but less than 100% 5.4% 2.4%
More than 20% (but not less than $10,001)
and not more than 80% 4.3% 1.3%
20% (or $10,000, if greater) or less 5.7% 2.7%
</TABLE>
[ ] (j) ALLOCATION OFFSET. The Advisory Committee will reduce a
Participant's allocation otherwise made under Part II of this Section
3.04 by the Participant's allocation under the following qualified
plan(s) maintained by the Employer:______________________________________
_________________________________________________________________________
_____________________________________.
The Advisory Committee will determine this allocation reduction: (Choose
(1) or (2))
[ ] (1) By treating the term "nonelective contribution" as including
all amounts paid or accrued by the Employer during the Plan Year
to the qualified plan(s) referenced under this Option (j). If a
Participant under this Plan also participates in that other plan,
the Advisory Committee will treat the amount the Employer
contributes for or during a Plan Year on behalf of a particular
Participant under such other plan as an amount allocated under
this Plan to that Participant's Account for that Plan Year. The
Advisory Committee will make the computation of allocation
required under the immediately preceding sentence before making
any allocation of nonelective contributions under this Section
3.04.
[ ] (2) In accordance with the formula provided in an addendum to this
Adoption Agreement, numbered 3.04(j).
17
<PAGE>
TOP HEAVY MINIMUM ALLOCATION - METHOD OF COMPLIANCE. If a Participant's
allocation under this Section 3.04 is less than the top heavy minimum allocation
to which he is entitled under Section 3.04(B): (Choose (k) or (l))
[X ] (k) The Employer will make any necessary additional contribution to the
Participant's Account, as described in Section 3.04(B)(7)(a) of the Plan.
[ ] (l) The Employer will satisfy the top heavy minimum allocation under the
following plan(s) it maintains:_________________________________________.
However, the Employer will make any necessary additional contribution to
satisfy the top heavy minimum allocation for an Employee covered only
under this Plan and not under the other plan(s) designated in this Option
(l). See Section 3.04(B)(7)(b) of the Plan.
If the Employer maintains another plan, the Employer may provide in an addendum
to this Adoption Agreement, numbered Section 3.04, any modifications to the Plan
necessary to satisfy the top heavy requirements under Code Section 416.
RELATED EMPLOYERS. If two or more related employers (as defined in Section 1.30)
contribute to this Plan, the Advisory Committee must allocate all Employer
nonelective contributions (and forfeitures treated as nonelective contributions)
to each Participant in the Plan, in accordance with the elections in this
Adoption Agreement Section 3.04: (Choose (m) or (n))
[ ] (m) Without regard to which contributing related group member employs the
Participant.
[ ] (n) Only to the Participants directly employed by the contributing
Employer. If a Participant receives Compensation from more than one
contributing Employer, the Advisory Committee will determine the
allocations under this Adoption Agreement Section 3.04 by prorating among
the participating Employers the Participant's Compensation and, if
applicable, the Participant's Integration Level under Option (i).
3.05 FORFEITURE ALLOCATION. Subject to any restoration allocation required
under Sections 5.04 or 9.14, the Advisory Committee will allocate a Participant
forfeiture in accordance with Section 3.04: (Choose (a) or (b); (c) and (d) are
optional in addition to (a) or (b))
[ ] (a) As an Employer nonelective contribution for the Plan Year in which
the forfeiture occurs, as if the Participant forfeiture were an
additional nonelective contribution for that Plan Year.
[ X ] (b) To reduce the Employer matching contributions and nonelective
contributions for the Plan Year: (Choose (1) or (2))
[ X ] (1) in which the forfeiture occurs.
[ ] (2) immediately following the Plan Year in which the forfeiture
occurs.
[ X ] (c) To the extent attributable to matching contributions: (Choose (1),
(2) or (3))
[ X ] (1) In the manner elected under Options (a) or (b).
18
<PAGE>
[ ] (2) First to reduce Employer matching contributions for the Plan
Year: (Choose (i) or (ii))
[ ] (i) in which the forfeiture occurs,
[ ] (ii) immediately following the Plan Year in which the
forfeiture occurs, then as elected in Options (a) or (b).
[ ] (3) As a discretionary matching contribution for the Plan Year
in which the forfeiture occurs, in lieu of the manner elected
under Options (a) or (b).
[ ] (d) First to reduce the Plan's ordinary and necessary administrative
expenses for the Plan Year and then will allocate any remaining
forfeitures in the manner described in Options (a), (b) or (c),
whichever applies. If the Employer elects Option (c), the forfeitures
used to reduce Plan expenses: (Choose (1) or (2))
[ ] (1) relate proportionately to forfeitures described in Option
(c) and to forfeitures described in Options (a) or (b).
[ ] (2) relate first to forfeitures described in Option _________.
ALLOCATION OF FORFEITED EXCESS AGGREGATE CONTRIBUTIONS. The Advisory Committee
will allocate any forfeited excess aggregate contributions (as described in
Section 14.09): (Choose (e), (f) or (g))
[ X ] (e) To reduce Employer matching contributions for the Plan Year:
(Choose (1) or (2))
[ X ] (1) in which the forfeiture occurs.
[ ] (2) immediately following the Plan Year in which the forfeiture
occurs.
[ ] (f) As Employer discretionary matching contributions for the Plan Year
in which forfeited, except the Advisory Committee will not allocate
these forfeitures to the Highly Compensated Employees who incurred
the forfeitures.
[ ] (g) In accordance with Options (a) through (d), whichever applies,
except the Advisory Committee will not allocate these forfeitures under
Option (a) or under Option (c)(3) to the Highly Compensated Employees
who incurred the forfeitures.
3.06 ACCRUAL OF BENEFIT.
COMPENSATION TAKEN INTO ACCOUNT. For the Plan Year in which the Employee first
becomes a Participant, the Advisory Committee will determine the allocation of
any cash or deferred contribution, designated qualified nonelective contribution
or nonelective contribution by taking into account: (Choose (a) or (b))
[ ] (a) The Employee's Compensation for the entire Plan Year.
[ X ] (b) The Employee's Compensation for the portion of the Plan Year in
which the Employee actually is a Participant in the Plan.
19
<PAGE>
ACCRUAL REQUIREMENTS. Subject to the suspension of accrual requirements of
Section 3.06(E) of the Plan, to receive an allocation of cash or deferred
contributions, matching contributions, designated qualified nonelective
contributions, nonelective contributions and Participant forfeitures, if any,
for the Plan Year, a Participant must satisfy the conditions described in the
following elections: (Choose (c) or at least one of (d) through (f))
[ ] (c) SAFE HARBOR RULE. If the Participant is employed by the Employer
on the last day of the Plan Year, the Participant must complete at least
one Hour of Service for that Plan Year. If the Participant is not
employed by the Employer on the last day of the Plan Year, the
Participant must complete at least 501 Hours of Service during the Plan
Year.
[ X ] (d) HOURS OF SERVICE CONDITION. The Participant must complete the
following minimum number of Hours of Service during the Plan Year:
(Choose at least one of (1) through (5))
[ ] (1) 1,000 Hours of Service.
[ ] (2) (Specify, but the number of Hours of Service may not exceed
1,000)__________________________________________________________.
[ ] (3) No Hour of Service requirement if the Participant
terminates employment during the Plan Year on account of:
(Choose (i), (ii) or (iii))
[ ] (i) Death.
[ ] (ii) Disability.
[ ] (iii) Attainment of Normal Retirement Age in the current
Plan Year or in a prior Plan Year.
[ ] (4) ______ Hours of Service (not exceeding 1,000) if the
Participant terminates employment with the Employer during the
Plan Year, subject to any election in Option (3).
[ X ] (5) No Hour of Service requirement for an allocation of the
following contributions: Matching Contributions.
[ X ] (e) EMPLOYMENT CONDITION. The Participant must be employed by the
Employer on the last day of the Plan Year, irrespective of whether he
satisfies any Hours of Service condition under Option (d), with the
following exceptions: (Choose (1) or at least one of (2) through (5))
[ ] (1) No exceptions.
[ ] (2) Termination of employment because of death.
[ ] (3) Termination of employment because of disability.
[ ] (4) Termination of employment following attainment of Normal
Retirement Age.
20
<PAGE>
[X] (5) No employment condition for the following contributions:
Matching Contributions.
[ ] (f) (Specify other conditions, if applicable):_________________________
_____________________________________________.
.
SUSPENSION OF ACCRUAL REQUIREMENTS. The suspension of accrual requirements of
Section 3.06(E) of the Plan: (Choose (g), (h) or (i))
[ ] (g) Applies to the Employer's Plan.
[ X ] (h) Does not apply to the Employer's Plan.
[ ] (i) Applies in modified form to the Employer's Plan, as described in
an addendum to this Adoption Agreement, numbered Section 3.06(E).
SPECIAL ACCRUAL REQUIREMENTS FOR MATCHING CONTRIBUTIONS. If the Plan allocates
matching contributions on two or more allocation dates for a Plan Year, the
Advisory Committee, unless otherwise specified in Option (l), will apply any
Hours of Service condition by dividing the required Hours of Service on a
prorata basis to the allocation periods included in that Plan Year. Furthermore,
a Participant who satisfies the conditions described in this Adoption Agreement
Section 3.06 will receive an allocation of matching contributions (and
forfeitures treated as matching contributions) only if the Participant satisfies
the following additional condition(s):(Choose (j) or at least one of (k) or (l))
[ X ] (j) No additional conditions.
[ ] (k) The Participant is not a Highly Compensated Employee for the Plan
Year. This Option (k) applies to: (Choose (1) or (2))
[ ] (1) All matching contributions.
[ ] (2) Matching contributions described in Option(s) ___________ of
Adoption Agreement Section 3.01.
[ ] (l) (Specify)________________________________________________________
__________________________________________.
N/A 3.15 MORE THAN ONE PLAN LIMITATION. If the provisions of Section
3.15 apply, the Excess Amount attributed to this Plan equals: (Choose (a), (b)
or (c))
[ ] (a) The product of:
(i) the total Excess Amount allocated as of such date (including any
amount which the Advisory Committee would have allocated but for the
limitations of Code Section 415), times
(ii) the ratio of (1) the amount allocated to the Participant as of such
date under this Plan divided by (2) the total amount allocated as of
such date under all qualified defined contribution plans (determined
without regard to the limitations of Code Section 415).
21
<PAGE>
[ ] (b) The total Excess Amount.
[ ] (c) None of the Excess Amount.
3.18 DEFINED BENEFIT PLAN LIMITATION.
APPLICATION OF LIMITATION. The limitation under Section 3.18 of the Plan:(Choose
(a) or (b))
[ X ] (a) Does not apply to the Employer's Plan because the Employer does
not maintain and never has maintained a defined benefit plan covering
any Participant in this Plan.
[ ] (b) Applies to the Employer's Plan. To the extent necessary to
satisfy the limitation under Section 3.18, the Employer will reduce:
(Choose (1) or (2))
[ ] (1) The Participant's projected annual benefit under the defined
benefit plan under which the Participant participates.
[ ] (2) Its contribution or allocation on behalf of the Participant
to the defined contribution plan under which the Participant
participates and then, if necessary, the Participant's projected
annual benefit under the defined benefit plan under which the
Participant participates.
[Note: If the Employer selects (a), the remaining options in this Section 3.18
do not apply to the Employer's Plan.]
COORDINATION WITH TOP HEAVY MINIMUM ALLOCATION. The Advisory Committee will
apply the top heavy minimum allocation provisions of Section 3.04(B) of the Plan
with the following modifications: (Choose (c) or at least one of (d) or (e))
[ ] (c) No modifications.
[ ] (d) For Non-Key Employees participating only in this Plan, the top heavy
minimum allocation is the minimum allocation described in Section
3.04(B) determined by substituting _________% (not less than 4%) for
"3%," except: (Choose (i) or (ii))
[ ] (i) No exceptions.
[ ] (ii) Plan Years in which the top heavy ratio exceeds 90%.
[ ] (e) For Non-Key Employees also participating in the defined benefit
plan, the top heavy minimum is: (Choose (1) or (2))
[ ] (1) 5% of Compensation (as determined under Section 3.04(B) or
the Plan) irrespective of the contribution rate of any Key
Employee, except: (Choose (i) or (ii))
[ ] (i) No exceptions.
[ ] (ii) Substituting "7 1/2%" for "5%" if the top heavy ratio
does not exceed 90%.
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[ ] (2) 0%. [Note: The Employer may not select this Option (2) unless
the defined benefit plan satisfies the top heavy minimum benefit
requirements of Code Section 416 for these Non-Key Employees.]
ACTUARIAL ASSUMPTIONS FOR TOP HEAVY CALCULATION. To determine the top heavy
ratio, the Advisory Committee will use the following interest rate and mortality
assumptions to value accrued benefits under a defined benefit plan:_____________
_____________________________________________________________________.
If the elections under this Section 3.18 are not appropriate to satisfy the
limitations of Section 3.18, or the top heavy requirements under Code Section
416, the Employer must provide the appropriate provisions in an addendum to this
Adoption Agreement.
ARTICLE IV
PARTICIPANT CONTRIBUTIONS
4.01 PARTICIPANT NONDEDUCTIBLE CONTRIBUTIONS. The Plan: (Choose (a) or (b);
(c) is available only with (b))
[ X ] (a) Does not permit Participant nondeductible contributions.
[ ] (b) Permits Participant nondeductible contributions, pursuant to
Section 14.04 of the Plan.
[ ] (c) The following portion of the Participant's nondeductible
contributions for the Plan Year are mandatory contributions under Option
(i)(3) of Adoption Agreement Section 3.01: (Choose (1) or (2))
[ ] (1) The amount which is not less than:___________________________
_______________________________.
[ ] (2) The amount which is not greater than:________________________
_______________________________.
ALLOCATION DATES. The Advisory Committee will allocate nondeductible
contributions for each Plan Year as of the Accounting Date and the following
additional allocation dates: (Choose (d) or (e))
[ ] (d) No other allocation dates.
[ ] (e) (Specify)________________________________________________________
_____________________________________.
As of an allocation date, the Advisory Committee will credit all nondeductible
contributions made for the relevant allocation period. Unless otherwise
specified in (e), a nondeductible contribution relates to an allocation period
only if actually made to the Trust no later than 30 days after that allocation
period ends.
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4.05 PARTICIPANT CONTRIBUTION - WITHDRAWAL/DISTRIBUTION. Subject to the
restrictions of Article VI, the following distribution options apply to a
Participant's Mandatory Contributions Account, if any, prior to his Separation
from Service: (Choose (a) or at least one of (b) through (d))
[ ] (a) No distribution options prior to Separation from Service.
[ ] (b) The same distribution options applicable to the Deferral
Contributions Account prior to the Participant's Separation from
Service, as elected in Adoption Agreement Section 6.03.
[ ] (c) Until he retires, the Participant has a continuing election to
receive all or any portion of his Mandatory Contributions Account if:
(Choose (1) or at least one of (2) through (4))
[ ] (1) No conditions.
[ ] (2) The mandatory contributions have accumulated for at least
______ Plan Years since the Plan Year for which contributed.
[ ] (3) The Participant suspends making nondeductible contributions
for a period of ________________ months.
[ ] (4) (Specify)___________________________________________________
______________________________________.
[ ] (d) (Specify)________________________________________________________
_______________________________________.
ARTICLE V
TERMINATION OF SERVICE - PARTICIPANT VESTING
5.01 NORMAL RETIREMENT. Normal Retirement Age under the Plan is: (Choose (a)
or (b))
[ X ] (a) 59 1/2 [State age, but may not exceed age 65].
----------
[ ] (b) The later of the date the Participant attains ______ (____) years
of age or the ______ (_____) anniversary of the first day of the Plan
Year in which the Participant commenced participation in the Plan. [The
age selected may not exceed age 65 and the anniversary selected may not
exceed the 5th.]
5.02 PARTICIPANT DEATH OR DISABILITY. The 100% vesting rule under Section
5.02 of the Plan: (Choose (a) or choose one or both of (b) and (c))
[ ] (a) Does not apply.
[ X ] (b) Applies to death.
[ X ] (c) Applies to disability.
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<PAGE>
5.03 VESTING SCHEDULE.
----------------
DEFERRAL CONTRIBUTIONS ACCOUNT/QUALIFIED MATCHING CONTRIBUTIONS
ACCOUNT/QUALIFIED NONELECTIVE CONTRIBUTIONS ACCOUNT/MANDATORY CONTRIBUTIONS
ACCOUNT. A Participant has a 100% Nonforfeitable interest at all times in his
Deferral Contributions Account, his Qualified Matching Contributions Account,
his Qualified Nonelective Contributions Account and in his Mandatory
Contributions Account.
REGULAR MATCHING CONTRIBUTIONS ACCOUNT/EMPLOYER CONTRIBUTIONS ACCOUNT. With
respect to a Participant's Regular Matching Contributions Account and Employer
Contributions Account, the Employer elects the following vesting schedule:
(Choose (a) or (b); (c) and (d) are available only as additional options)
[ ] (a) Immediate vesting. 100% Nonforfeitable at all times. [Note: The
Employer must elect Option (a) if the eligibility conditions under
Adoption Agreement Section 2.01(c) require 2 years of service or more
than 12 months of employment.]
[ X ] (b) Graduated Vesting Schedules.
NON TOP HEAVY SCHEDULE
TOP HEAVY SCHEDULE (OPTIONAL)
(MANDATORY) Years of Nonforfeitable
Years of Nonforfeitable Service Percentage
Service Percentage ------- ----------
------- ---------- Less than 1
Less than 1 0 -----
---- 1
1 0 -----
---- 2
2 50 -----
---- 3
3 100 -----
---- 4
4 100 -----
---- 5
5 100 -----
---- 6
6 or more 100% -----
7 or more 100%
[ ] (c) Special vesting election for Regular Matching Contributions Account.
In lieu of the election under Options (a) or (b), the Employer elects
the following vesting schedule for a Participant's Regular Matching
Contributions Account: (Choose (1) or (2))
[ ] (1) 100% Nonforfeitable at all times.
[ ] (2) In accordance with the vesting schedule described in the addendum
to this Adoption Agreement, numbered 5.03(c). [Note: If the Employer
elects this Option (c)(2), the addendum must designate the applicable
vesting schedule(s) using the same format as used in Option (b).]
[Note: Under Options (b) and (c)(2), the Employer must complete a Top Heavy
Schedule which satisfies Code Section 416. The Employer, at its option, may
complete a Non Top Heavy Schedule. The Non Top Heavy Schedule must satisfy Code
Section 411(a)(2). Also see Section 7.05 of the Plan.]
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<PAGE>
[ ] (d) The Top Heavy Schedule under Option (b) (and, if applicable, under
Option (c)(2)) applies: (Choose (1) or (2))
[ ] (1) Only in a Plan Year for which the Plan is top heavy.
[ ] (2) In the Plan Year for which the Plan first is top heavy and then
in all subsequent Plan Years. [Note: The Employer may not elect Option
(d) unless it has completed a Non Top Heavy Schedule.]
MINIMUM VESTING. (Choose (e) or (f))
[ X ] (e) The Plan does not apply a minimum vesting rule.
[ ] (f) A Participant's Nonforfeitable Accrued Benefit will never be less
than the lesser of $______ or his entire Accrued Benefit, even if the
application of a graduated vesting schedule under Options (b) or (c)
would result in a smaller Nonforfeitable Accrued Benefit.
LIFE INSURANCE INVESTMENTS. The Participant's Accrued Benefit attributable to
insurance contracts purchased on his behalf under Article XI is: (Choose (g) or
(h))
[ X ] (g) Subject to the vesting election under Options (a), (b) or (c).
[ ] (h) 100% Nonforfeitable at all times, irrespective of the vesting
election under Options (b) or (c)(2).
5.04 CASH-OUT DISTRIBUTIONS TO PARTIALLY-VESTED PARTICIPANTS/ RESTORATION
OF FORFEITED ACCRUED BENEFIT. The deemed cash-out rule described in Section 5.04
(C) of the Plan: (Choose (a) or (b))
[ ] (a) Does not apply.
[ X ] (b) Will apply to determine the timing of forfeitures for 0% vested
Participants. A Participant is not a 0% vested Participant if he has a
Deferral Contributions Account.
5.06 YEAR OF SERVICE - VESTING.
VESTING COMPUTATION PERIOD. The Plan measures a Year of Service on the basis of
the following 12 consecutive month periods: (Choose (a) or (b))
[ X ] (a) Plan Years.
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<PAGE>
[ ] (b) Employment Years. An Employment Year is the 12 consecutive month
period measured from the Employee's Employment Commencement Date and
each successive 12 consecutive month period measured from each
anniversary of that Employment Commencement Date.
HOURS OF SERVICE. The minimum number of Hours of Service an Employee must
complete during a vesting computation period to receive credit for a Year of
Service is: (Choose (c) or (d))
[ X ] (c) 1,000 Hours of Service.
[ ] (d) __________________ Hours of Service. [Note: The Hours of Service
requirement may not exceed 1,000.]
5.08 INCLUDED YEARS OF SERVICE - VESTING. The Employer specifically excludes
the following Years of Service: (Choose (a) or at least one of (b) through (e))
[ X ] (a) None other than as specified in Section 5.08(a) of the Plan.
[ ] (b) Any Year of Service before the Participant attained the age of
______ (_____). [Note: The age selected may not exceed age 18.]
[ ] (c) Any Year of Service during the period the Employer did not
maintain this Plan or a predecessor plan.
[ ] (d) Any Year of Service before a Break in Service if the number of
consecutive Breaks in Service equals or exceeds the greater of 5 or the
aggregate number of the Years of Service prior to the Break. This
exception applies only if the Participant is 0% vested in his Accrued
Benefit derived from Employer contributions at the time he has a Break
in Service. Furthermore, the aggregate number of Years of Service before
a Break in Service do not include any Years of Service not required to
be taken into account under this exception by reason of any prior Break
in Service.
[ ] (e) Any Year of Service earned prior to the effective date of ERISA
if the Plan would have disregarded that Year of Service on account of an
Employee's Separation from Service under a Plan provision in effect and
adopted before January 1, 1974.
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<PAGE>
ARTICLE VI
TIME AND METHOD OF PAYMENTS OF BENEFITS
CODE SECTION 411(d)(6) PROTECTED BENEFITS. The elections under this Article VI
may not eliminate Code Section 411(d)(6) protected benefits. To the extent the
elections would eliminate a Code Section 411(d)(6) protected benefit, see
Section 13.02 of the Plan. Furthermore, if the elections liberalize the optional
forms of benefit under the Plan, the more liberal options apply on the later of
the adoption date or the Effective Date of this Adoption Agreement.
6.01 TIME OF PAYMENT OF ACCRUED BENEFIT.
DISTRIBUTION DATE. A distribution date under the Plan means any day. [Note: The
Employer must specify the appropriate date(s). The specified distribution dates
primarily establish annuity starting dates and the notice and consent periods
prescribed by the Plan. The Plan allows the Trustee an administratively
practicable period of time to make the actual distribution relating to a
particular distribution date.]
NONFORFEITABLE ACCRUED BENEFIT NOT EXCEEDING $3,500. Subject to the limitations
of Section 6.01(A)(1), the distribution date for distribution of a
Nonforfeitable Accrued Benefit not exceeding $3,500 is: (Choose (a), (b), (c),
(d) or (e))
[ ] (a) ______________________________ of the__________________ Plan Year
beginning after the Participant's Separation from Service.
[ X ] (b) The first administratively practicable distribution date
following the Participant's Separation from Service.
[ ] (c) ____________________________ of the Plan Year after the
Participant incurs __________________ Break(s) in Service (as defined in
Article V).
[ ] (d) _____________________________________ following the Participant's
attainment of Normal Retirement Age, but not earlier
than________________________ days following his Separation from Service.
[ ] (e) (Specify)________________________________________________________
_______________________________________.
NONFORFEITABLE ACCRUED BENEFIT EXCEEDS $3,500. See the elections under Section
6.03.
DISABILITY. The distribution date, subject to Section 6.01(A)(3), is: (Choose
(f), (g) or (h))
[ ] (f) _______________________________________________________ after the
Participant terminates employment because of disability.
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<PAGE>
[ X ] (g) The same as if the Participant had terminated employment without
disability.
[ ] (h) (Specify)________________________________________________________
_____________________________________________________________________.
HARDSHIP. (Choose (i) or (j))
[ X ] (i) The Plan does not permit a hardship distribution to a Participant
who has separated from Service.
[ ] (j) The Plan permits a hardship distribution to a Participant who has
separated from Service in accordance with the hardship distribution
policy stated in: (Choose (1), (2) or (3))
[ ] (1) Section 6.01(A)(4) of the Plan.
[ ] (2) Section 14.11 of the Plan.
[ ] (3) The addendum to this Adoption Agreement, numbered Section 6.01.
DEFAULT ON A LOAN. If a Participant or Beneficiary defaults on a loan made
pursuant to a loan policy adopted by the Advisory Committee pursuant to Section
9.04, the Plan: (Choose (k), (l) or (m))
[ X ] (k) Treats the default as a distributable event. The Trustee, at the
time of the default, will reduce the Participant's Nonforfeitable
Accrued Benefit by the lesser of the amount in default (plus accrued
interest) or the Plan's security interest in that Nonforfeitable Accrued
Benefit. To the extent the loan is attributable to the Participant's
Deferral Contributions Account, Qualified Matching Contributions Account
or Qualified Nonelective Contributions Account, the Trustee will not
reduce the Participant's Nonforfeitable Accrued Benefit unless the
Participant has separated from Service or unless the Participant has
attained age 59 1/2.
[ ] (l) Does not treat the default as a distributable event. When an
otherwise distributable event first occurs pursuant to Section 6.01 or
Section 6.03 of the Plan, the Trustee will reduce the Participant's
Nonforfeitable Accrued Benefit by the lesser of the amount in default
(plus accrued interest) or the Plan's security interest in that
Nonforfeitable Accrued Benefit.
[ ] (m) (Specify)________________________________________________________
_____________________________________________.
6.02 METHOD OF PAYMENT OF ACCRUED BENEFIT. The Advisory Committee will
apply Section 6.02 of the Plan with the following modifications: (Choose (a) or
at least one of (b), (c), (d) and (e))
[ X ] (a) No modifications.
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<PAGE>
[ ] (b) Except as required under Section 6.01 of the Plan, a lump sum
distribution is not available:__________________________________________
_________________________________________________.
[ ] (c) An installment distribution: (Choose (1) or at least one of (2)
or (3))
[ ] (1) Is not available under the Plan.
[ ] (2) May not exceed the lesser of______________ years or the maximum
period permitted under Section 6.02.
[ ] (3) (Specify)________________________________________________________
__________________________________________________.
[ ] (d) The Plan permits the following annuity options:__________________
________________________________________________________________________
________________________________.
Any Participant who elects a life annuity option is subject to the
requirements of Sections 6.04(A), (B), (C) and (D) of the Plan. See
Section 6.04(E). [Note: The Employer may specify additional annuity
options in an addendum to this Adoption Agreement, numbered 6.02(d).]
[ ] (e) If the Plan invests in qualifying Employer securities, as
described in Section 10.03(F), a Participant eligible to elect
distribution under Section 6.03 may elect to receive that distribution
in Employer securities only in accordance with the provisions of the
addendum to this Adoption Agreement, numbered 6.02(e).
6.03 BENEFIT PAYMENT ELECTIONS.
PARTICIPANT ELECTIONS AFTER SEPARATION FROM SERVICE. A Participant who is
eligible to make distribution elections under Section 6.03 of the Plan may elect
to commence distribution of his Nonforfeitable Accrued Benefit: (Choose at least
one of (a) through (c))
[ ] (a) As of any distribution date, but not earlier than_____________ of
the __________________________ Plan Year beginning after the
Participant's Separation from Service.
[ X ] (b) As of the following date(s): (Choose at least one of Options (1)
through (6))
[ ] (1) Any distribution date after the close of the Plan Year in which
the Participant attains Normal Retirement Age.
[ X ] (2) Any distribution date following his Separation from Service with
the Employer.
[ ] (3) Any distribution date in the___________ Plan Year(s) beginning
after his Separation from Service.
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<PAGE>
[ ] (4) Any distribution date in the Plan Year after the Participant
incurs ____________________ Break(s) in Service (as defined in Article
V).
[ ] (5) Any distribution date following attainment of age___________ and
completion of at least _______________ Years of Service (as defined in
Article V).
[ ] (6) (Specify)________________________________________________________
____________________________________________.
[ ] (c) (Specify)________________________________________________________
____________________________________________.
The distribution events described in the election(s) made under Options (a), (b)
or (c) apply equally to all Accounts maintained for the Participant unless
otherwise specified in Option (c).
PARTICIPANT ELECTIONS PRIOR TO SEPARATION FROM SERVICE - REGULAR MATCHING
CONTRIBUTIONS ACCOUNT AND EMPLOYER CONTRIBUTIONS ACCOUNT. Subject to the
restrictions of Article VI, the following distribution options apply to a
Participant's Regular Matching Contributions Account and Employer Contributions
Account prior to his Separation from Service: (Choose (d) or at least one of (e)
through (h))
[ ] (d) No distribution options prior to Separation from Service.
[ X ] (e) Attainment of Specified Age. Until he retires, the Participant
has a continuing election to receive all or any portion of his
Nonforfeitable interest in these Accounts after he attains: (Choose (1)
or (2))
[ X ] (1) Normal Retirement Age.
[ ] (2) ____________________ years of age and is at least __________%
vested in these Accounts. [Note: If the percentage is less than 100%,
see the special vesting formula in Section 5.03.]
[ ] (f) After a Participant has participated in the Plan for a period of
not less than ______ years and he is 100% vested in these Accounts,
until he retires, the Participant has a continuing election to receive
all or any portion of the Accounts. [Note: The number in the blank space
may not be less than 5.]
[ ] (g) Hardship. A Participant may elect a hardship distribution prior
to his Separation from Service in accordance with the hardship
distribution policy: (Choose (1), (2) or (3); (4) is available only as
an additional option)
[ ] (1) Under Section 6.01(A)(4) of the Plan.
[ ] (2) Under Section 14.11 of the Plan.
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<PAGE>
[ ] (3) Provided in the addendum to this Adoption Agreement, numbered
Section 6.03.
[ ] (4) In no event may a Participant receive a hardship distribution
before he is at least _________% vested in these Accounts. [Note: If the
percentage in the blank is less than 100%, see the special vesting
formula in Section 5.03.]
[ ] (h) (Specify)________________________________________________________
___________________________________________________.
[Note: The Employer may use an addendum, numbered 6.03, to provide additional
language authorized by Options (b)(6), (c), (g)(3) or (h) of this Adoption
Agreement Section 6.03.]
PARTICIPANT ELECTIONS PRIOR TO SEPARATION FROM SERVICE - DEFERRAL CONTRIBUTIONS
ACCOUNT, QUALIFIED MATCHING CONTRIBUTIONS ACCOUNT AND QUALIFIED NONELECTIVE
CONTRIBUTIONS ACCOUNT. Subject to the restrictions of Article VI, the following
distribution options apply to a Participant's Deferral Contributions Account,
Qualified Matching Contributions Account and Qualified Nonelective Contributions
Account prior to his Separation from Service:
(Choose (i) or at least one of (j) through (l))
[ ] (i) No distribution options prior to Separation from Service.
[ X ] (j) Until he retires, the Participant has a continuing election to
receive all or any portion of these Accounts after he attains: (Choose
(1) or (2))
[ ] (1) The later of Normal Retirement Age or age 59 1/2.
[ X ] (2) Age 59 1/2 (at least 59 1/2).
[ X ] (k) Hardship. A Participant, prior to this Separation from Service,
may elect a hardship distribution from his Deferral Contributions
Account in accordance with the hardship distribution policy under
Section 14.11 of the Plan.
[ ] (l) (Specify)________________________________________________________
_________________________. [Note: Option (l) may not permit in service
distributions prior to age 59 1/2 (other than hardship) and may not
modify the hardship policy described in Section 14.11.]
SALE OF TRADE OR BUSINESS/SUBSIDIARY. If the Employer sells substantially all of
the assets (within the meaning of Code Section 409(d)(2)) used in a trade or
business or sells a subsidiary (within the meaning of Code Section 409(d)(3)), a
Participant who continues employment with the acquiring corporation is eligible
for distribution from his Deferral Contributions Account, Qualified Matching
Contributions Account and Qualified Nonelective Contributions Account: (Choose
(m) or (n))
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<PAGE>
[ ] (m) Only as described in this Adoption Agreement Section 6.03 for
distributions prior to Separation from Service.
[ X ] (n) As if he has a Separation from Service. After March 31, 1988, a
distribution authorized solely by reason of this Option (n) must
constitute a lump sum distribution, determined in a manner consistent
with Code Section 401(k)(10) and the applicable Treasury regulations.
6.04 ANNUITY DISTRIBUTIONS TO PARTICIPANTS AND SURVIVING SPOUSES. The annuity
distribution requirements of Section 6.04: (Choose (a) or (b))
[ ] (a) Apply only to a Participant described in Section 6.04(E) of the
Plan (relating to the profit sharing exception to the joint and survivor
requirements).
[ X ] (b) Apply to all Participants.
ARTICLE IX
ADVISORY COMMITTEE - DUTIES WITH RESPECT TO PARTICIPANTS' ACCOUNTS
9.10 VALUE OF PARTICIPANT'S ACCRUED BENEFIT. If a distribution (other than a
distribution from a segregated Account and other than a corrective distribution
described in Sections 14.07, 14.08, 14.09 or 14.10 of the Plan) occurs more than
90 days after the most recent valuation date, the distribution will include
interest at: (Choose (a), (b) or (c))
[ X ] (a) 0% per annum. [Note: The percentage may equal 0%.]
[ ] (b) The 90 day Treasury bill rate in effect at the beginning of the
current valuation period.
[ ] (c) (Specify)___________________________________________.
9.11 ALLOCATION AND DISTRIBUTION OF NET INCOME GAIN OR LOSS. Pursuant to
Section 14.12, to determine the allocation of net income, gain or loss:
(Complete only those items, if any, which are applicable to the Employer's Plan)
[ X ] (a) For salary reduction contributions, the Advisory Committee will:
(Choose (1), (2), (3), (4) or (5))
[ X ] (1) Apply Section 9.11 without modification.
[ ] (2) Use the segregated account approach described in Section 14.12.
[ ] (3) Use the weighted average method described in Section 14.12, based
on a _______________________weighting period.
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<PAGE>
[ ] (4) Treat as part of the relevant Account at the beginning of the
valuation period __________% of the salary reduction contributions:
(Choose (i) or (ii))
[ ] (i) made during that valuation period.
[ ] (ii) made by the following specified time:____________________
_________________________.
[ ] (5) Apply the allocation method described in the addendum to this
Adoption Agreement numbered 9.11(a).
[ X ] (b) For matching contributions, the Advisory Committee will: (Choose
(1), (2), (3) or (4))
[ X ] (1) Apply Section 9.11 without modification.
[ ] (2) Use the weighted average method described in Section 14.12, based
on a ________________________________________ weighting period.
[ ] (3) Treat as part of the relevant Account at the beginning of the
valuation period __________% of the matching contributions allocated
during the valuation period.
[ ] (4) Apply the allocation method described in the addendum to this
Adoption Agreement numbered 9.11(b).
[ ] (c) For Participant nondeductible contributions, the Advisory
Committee will: (Choose (1), (2), (3), (4) or (5))
[ ] (1) Apply Section 9.11 without modification.
[ ] (2) Use the segregated account approach described in Section 14.12.
[ ] (3) Use the weighted average method described in Section 14.12, based
on a _____________________________ weighting period.
[ ] (4) Treat as part of the relevant Account at the beginning of the
valuation period __________% of the Participant nondeductible
contributions: (Choose (i) or (ii))
[ ] (i) made during that valuation period.
[ ] (ii) made by the following specified time:____________________
_________.
[ ] (5) Apply the allocation method described in the addendum to this
Adoption Agreement numbered 9.11(c).
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<PAGE>
ARTICLE X
TRUSTEE AND CUSTODIAN, POWERS AND DUTIES
10.03 INVESTMENT POWERS. Pursuant to Section 10.03[F] of the Plan, the
aggregate investments in qualifying Employer securities and in qualifying
Employer real property: (Choose (a) or (b))
[ ] (a) May not exceed 10% of Plan assets.
[ X ] (b) May not exceed __100_____% of Plan assets. [Note: The percentage
may not exceed 100%.]
10.14 VALUATION OF TRUST. In addition to each Accounting Date, the Trustee
must value the Trust Fund on the following valuation date(s): (Choose (a)or (b))
[ ] (a) No other mandatory valuation dates.
[ X ] (b) (Specify) Any day that the New York Stock Exchange is open for
business.
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<PAGE>
EFFECTIVE DATE ADDENDUM
(RESTATED PLANS ONLY)
The Employer must complete this addendum only if the restated Effective Date
specified in Adoption Agreement Section 1.18 is different than the restated
effective date for at least one of the provisions listed in this addendum. In
lieu of the restated Effective Date in Adoption Agreement Section 1.18, the
following special effective dates apply: (Choose whichever elections apply)
[ ] (a) COMPENSATION DEFINITION. The Compensation definition of Section
1.12 (other than the $200,000 limitation) is effective for Plan Years
beginning after__________ . [Note: May not be effective later than the
first day of the first Plan Year beginning after the Employer executes
this Adoption Agreement to restate the Plan for the Tax Reform Act of
1986, if applicable.]
[ ] (b) ELIGIBILITY CONDITIONS. The eligibility conditions specified in
Adoption Agreement Section 2.01 are effective for Plan Years beginning
after______________________ .
[ ] (c) SUSPENSION OF YEARS OF SERVICE. The suspension of Years of
Service rule elected under Adoption Agreement Section 2.03 is effective
for Plan Years beginning after____________ .
[ ] (d) CONTRIBUTION/ALLOCATION FORMULA. The contribution formula elected
under Adoption Agreement Section 3.01 and the method of allocation
elected under Adoption Agreement Section 3.04 is effective for Plan
Years beginning after_______________ .
[ ] (e) ACCRUAL REQUIREMENTS. The accrual requirements of Section 3.06
are effective for Plan Years beginning after__________________ .
[ ] (f) EMPLOYMENT CONDITION. The employment condition of Section 3.06 is
effective for Plan Years beginning after_______________________ .
[ ] (g) ELIMINATION OF NET PROFITS. The requirement for the Employer not
to have net profits to contribute to this Plan is effective for Plan
Years beginning after________________ . [Note: The date specified may
not be earlier than December 31, 1985.]
[ ] (h) VESTING SCHEDULE. The vesting schedule elected under Adoption
Agreement Section 5.03 is effective for Plan Years beginning after
____________________.
[ ] (i) ALLOCATION OF EARNINGS. The special allocation provisions elected
under Adoption Agreement Section 9.11 are effective for Plan Years
beginning after______________________.
[ ] (j) (Specify)_______________________________________________________.
For Plan Years prior to the special Effective Date, the terms of the Plan
prior to its restatement under this Adoption Agreement will control for purposes
of the designated provisions. A special Effective Date may not result in the
delay of a Plan provision beyond the permissible Effective Date under any
applicable law requirements.
36
<PAGE>
EXECUTION PAGE
The Trustee (and Custodian, if applicable), by executing this Adoption
Agreement, accepts its position and agrees to all of the obligations,
responsibilities and duties imposed upon the Trustee (or Custodian) under the
Prototype Plan and Trust. The Employer hereby agrees to the provisions of this
Plan and Trust, and in witness of its agreement, the Employer by its duly
authorized officers, has executed this Adoption Agreement, and the Trustee (and
Custodian, if applicable) signified its acceptance, on this_______ day of,
___________, 1999.
Name and EIN of Employer: ResortQuest International, Inc.
-------------------------------------------------------
62-1750352
- --------------------------------------------------------------------------------
Signed:
------------------------------------------------------------------
Name(s) of Trustee: Union Planters Bank, N.A.
-------------------------------------------------------------
Signed:
------------------------------------------------------------------
Name of Custodian: N/A
---------------------------------------------------------------
Signed:
------------------------------------------------------------------
[Note: A Trustee is mandatory, but a Custodian is optional. See Section 10.03 of
the Plan.]
PLAN NUMBER. The 3-digit plan number the Employer assigns to this Plan for ERISA
reporting purposes (Form 5500 Series) is: 001.
USE OF ADOPTION AGREEMENT. Failure to complete properly the elections in this
Adoption Agreement may result in disqualification of the Employer's Plan. The
3-digit number assigned to this Adoption Agreement (see page 1) is solely for
the Regional Prototype Plan Sponsor's recordkeeping purposes and does not
necessarily correspond to the plan number the Employer designated in the prior
paragraph.
RELIANCE ON NOTIFICATION LETTER. The Employer may not rely on the Regional
Prototype Plan Sponsor's notification letter covering this Adoption Agreement.
For reliance on the Plan's qualification, the Employer must obtain a
determination letter from the applicable IRS Key District office.
37
<PAGE>
PARTICIPATION AGREEMENT
FOR PARTICIPATION BY RELATED GROUP MEMBERS (PLAN SECTION 1.30)
The undersigned Employer, by executing this Participation Agreement, elects
to become a Participating Employer in the Plan identified in Section 1.03 of the
accompanying Adoption Agreement, as if the Participating Employer were a
signatory to that Agreement. The Participating Employer accepts, and agrees to
be bound by, all of the elections granted under the provisions of the Prototype
Plan as made by__________________________________________________________ , the
Signatory Employer to the Execution Page of the Adoption Agreement.
1. The Effective Date of the undersigned Employer's participation in the
designated Plan is:____ .
2. The undersigned Employer's adoption of this Plan constitutes:
[ ] (a) The adoption of a new plan by the Participating Employer.
[ ] (b) The adoption of an amendment and restatement of a plan currently
maintained by the Employer, identified as_____________________________
______________________, and having an original effective date of _______
_______.
Dated this _____ day of ______________________ , 19___.
Name of Participating Employer:__________________
____________________________________________
Signed:_____________________________________
Participating Employer's EIN:_______________
ACCEPTANCE BY THE SIGNATORY EMPLOYER TO THE EXECUTION PAGE OF THE ADOPTION
AGREEMENT AND BY THE TRUSTEE.
Name of Signatory Employer:_______________________
_______________________________________________
Accepted:__________________
[Date] Signed:______________________________________
Name(s) of Trustee:__________________________
_________________________________________
Accepted:___________________
[Date]
Signed:______________________________________
[Note: Each Participating Employer must execute a separate Participation
Agreement. See the Execution Page of the Adoption Agreement for important
Prototype Plan information.]
38
EXHIBIT 13
RESORTQUEST
INTERNATIONAL
CORPORATE PROFILE
ResortQuest International is the leading provider of privately owned vacation
home and condominium rentals in premier resort locations across North America.
Headquartered in Memphis, Tennessee, the company is the first to offer vacation
home and condominium rental, sales and property management services under a
single brand name. Through its web site, resortquest.com, the company offers the
most comprehensive online reservations service in the vacation rental industry.
PROPERTIES
The ResortQuest portfolio currently offers vacationers a choice of more than
14,000 privately owned vacation rental units in North America, including:
[GRAPHIC OMITTED]
FINANCIAL HIGHLIGHTS
(actuals)
1998
- --------------------------------------------------
REVENUES $49,524,000
- --------------------------------------------------
NET INCOME $3,069,000
- --------------------------------------------------
EARNINGS PER SHARE $0.29
- --------------------------------------------------
UNITS 13,243
[GRAPHIC OMITTED]
<PAGE>
RESORTQUEST.COM: PORTAL TO THE FUTURE
[GRAPHIC OMITTED]
Launched in January 1999, resortquest.com is one of the most comprehensive web
sites in the vacation industry based on its breadth of locations, property
information and functionality. The interactive web site provides consumers with
instant access to ResortQuest's 14,000 vacation rental properties located in
premier beach, mountain, golf and tennis resorts across North America.
RESORTQUEST.COM enables consumers worldwide to search through the brand's
impressive inventory of vacation home and condominium rentals to find vacation
accommodations that meet their needs--and then to make reservations directly
online. The web site allows travelers to check availability and rental rates,
and provides extensive information about each property, along with photographs
and floor plans, so travelers will know exactly what to expect when they arrive.
In addition, resortquest.com features a "Special Offers" section that is
updated regularly and includes special vacation packages, seasonal offers, and
last minute deals exclusively available at ResortQuest properties.
For individuals who may be interested in buying or selling a vacation home,
resortquest.com provides a multiple-location real estate listing service,
accessible to anyone worldwide, for its beach, mountain, golf and tennis resort
markets that offer real estate brokerage services.
ResortQuest is aggressively marketing the web site with a multi-faceted
campaign that includes print advertising in high-profile publications, including
USA Today, Conde Nast Traveler, Travel & Leisure, and leading travel trade
journals. The brand also is promoting its web site through Internet banner
advertising and targeted links, e-mail marketing campaigns and direct mail
programs.
Internet sales are expected to account for more than one-third of
ResortQuest's revenues over the next few years. The company is committed to
offering the most complete online booking portal in the industry and utilizing
the power of the Internet to serve the vacation needs of travelers today and in
the future.
1
<PAGE>
CHAIRMAN'S LETTER
"ResortQuest is changing the landscape of the vacation rental industry."
David C. Sullivan
Chairman and Chief Executive Officer
1998 was a remarkable year for ResortQuest, a year in which we launched the
world's first brand in vacation property rentals. Since our inception in May, we
laid the foundation for a concept that will forever change the vacation rental
industry.
To lead the new company, we assembled a senior management team that
averages more than 23 years of lodging experience and has a proven track record
of building successful brands that sustain long-term brand loyalty. With the
team in place, we began to build a strong and lasting infrastructure to support
the ResortQuest brand.
Next, we assembled an impressive and varied inventory of quality vacation
homes and condominiums in premier resort destinations. With our initial public
offering in May, ResortQuest acquired 12 leading vacation property management
companies with 8,900 units in eight states and Canada, as well as the industry's
leading software provider. Currently, our vacation rental portfolio has grown to
20 property management companies with more than 14,000 privately owned vacation
residences in 29 of the most desirable, geographically and seasonally
diversified resort locations in North America.
In 1999, the plan is to continue expanding our distribution and the number
of vacation rental accommodations under management contract. Our acquisition
pipeline remains quite active, and we continue to aggressively seek strategic
acquisitions in new resort locations and to add depth in existing ones. Longer
term, we intend to expand globally.
While our acquisition strategy is a critical success factor, effectively
2
<PAGE>
managing customer expectations and delivering consistent quality will enable the
ResortQuest brand to endure over time. To build credibility and consistency, we
developed detailed product and service standards for the brand, and we created
and implemented the industry's first company-wide rating system that categorizes
vacation rental accommodations according to quality, condition and amenities.
Delivering a consistent, high-quality product will drive repeat business to both
new and existing ResortQuest destinations.
To build brand awareness and drive revenue, we developed a multi-faceted
marketing approach targeting consumers and travel trade that includes
high-profile print advertising, direct mail, e-mail marketing, public relations
and promotional programs. To target vacation homeowners, we introduced
QuestClub, a unique, value-added benefits program that allows owners who
contract with a local ResortQuest company to enjoy extraordinary vacation
privileges and significant value at other ResortQuest locations.
- --------------------------------------------------------------------------------
MISSION STATEMENT
Our mission is to be the provider of choice for vacation home and
condominium rental, sales and property management services. We will accomplish
this by empowering our employees, consistently delivering quality and value, and
establishing strong, trusting relationships with our customers so we may serve
them for a lifetime.
- --------------------------------------------------------------------------------
Our most important marketing initiative, however, was the strategic
investment we made developing the ResortQuest web site. In January, we launched
resortquest.com, an online, interactive vacation rental resource for year-round
vacation planning (see page one of this report). For the first time, vacationers
can visit
3
<PAGE>
resort destinations across North America, view photographs and floor plans, and
make reservations with a simple click of the mouse. In addition, resortquest.com
features real estate listings for ResortQuest locations that offer brokerage
services. The Internet is the ideal marketing and sales vehicle for ResortQuest,
and we are taking steps to ensure that we remain on the cutting edge of this
technology.
[GRAPHIC OMITTED]
Internally, the vacation rental industry has traditionally grown by
increasing rental rates and units under management. Through branding, we have
been able to put in place a number of additional measures to enhance internal
growth. By leveraging purchasing strength, capitalizing on centralized marketing
initiatives, utilizing state-of-the-art technology and implementing "best
practices" programs, we are creating significant operational and cost-saving
synergies.
All in all, 1998 was a remarkable year, one in which we accomplished
exactly what we said we would: we
4
<PAGE>
created a brand, developed product and service standards, formulated brand
marketing strategies, rolled out a property rating system, and launched
resortquest.com. With this formidable infrastructure in place, ResortQuest is
well-positioned to accelerate growth and set the industry standard for years to
come.
I would like to thank all of our employees at every ResortQuest location
for their hard work, and our property owners and guests for their positive
response and confidence. We have a growing portfolio of exceptional resort
properties, a strong management team, and a well-defined plan for future growth.
Our goal for 1999 and beyond is to execute our internal and external growth
strategies and remain open to new opportunities.
[GRAPHIC OMITTED]
David C. Sullivan
Chairman and Chief Executive Officer
5
<PAGE>
[GRAPHIC OMITTED]
A BETTER WAY TO VACATION
During the past few years, the vacation rental industry has experienced dramatic
growth, with vacationers in record numbers discovering the benefits of renting a
private residence instead of a standard hotel room or suite. These guests enjoy
more space, greater privacy, increased flexibility, better value--literally all
the comforts of home.
Traditionally, the companies that rented and managed these properties were
small, local businesses that offered no guarantees about the properties they
represented. The vacationer could only hope that the rental experience would be
a good one.
- --------------------------------------------------------------------------------
ResortQuest's concept of branding represents the next evolutionary step in the
vacation rental industry.
- --------------------------------------------------------------------------------
That changed in May 1998 with ResortQuest International, the world's first
brand in the vacation rental industry.
The debut of this new concept was widely supported by a number of very
positive social, demographic and economic trends: leisure travel expenditures in
the U.S. have been increasing every year since 1986, a period that included two
recessions and the Gulf War; 76 million aging baby boomers are entering their
peak spending and leisure-time years with increasing amounts of discretionary
income and more free time to travel; and the travel industry has witnessed a
growing trend of people looking for more experience-oriented vacations,
including alternatives to hotel rooms.
ResortQuest's concept of branding represents the next evolutionary step in
the vacation rental industry. By providing a one-stop resource for quality
vacation rentals in prime resort destinations, making the reservations
6
<PAGE>
process simple and hassle-free, and implementing standards to ensure product
quality, ResortQuest is building a new level of awareness, credibility and
momentum for the industry.
ResortQuest, with its extensive collection of quality vacation homes and
condominiums, is changing the landscape of the vacation rental industry. The
brand is taking the highly fragmented vacation rental industry to new heights by
implementing product standards that enhance customer trust and loyalty, and by
providing the industry's first one-stop resource for renting vacation properties
in North America's most sought-after resort locations.
ResortQuest is dedicated to providing a quality vacation experience to
every guest, every time and has implemented stringent product and service
requirements at each of its locations. In addition, ResortQuest introduced the
industry's first accommodations rating system so guests will always know what to
expect from one vacation destination to the next (see adjacent box).
- --------------------------------------------------------------------------------
ResortQuest has developed a five-level rating system that categorizes
accommodations according to specific criteria so guests will always know what to
expect at every ResortQuest location.
ACCOMMODATION CATEGORIES
Quest Home
An exclusive group of extraordinary accommodations which are so luxurious and
unique that they are in a class of their own.
Platinum
Exceptional accommodations marked by unique design that offers superior quality
furnishings, luxury features, designer appointments, and top-of-the-line
kitchens, baths, and amenities.
Gold
Upscale, well-appointed accommodations with a designer touch that includes
excellent furnishings, special features, and top-quality kitchens, baths, and
amenities.
Silver
Inviting, pleasing accommodations that are taste-fully decorated and feature
quality furnishings and contemporary kitchens and baths.
Bronze
Comfortable, pleasant accommodations that provide many of the comforts and
conveniences of home.
- --------------------------------------------------------------------------------
In addition to effectively managing customer expectations, ResortQuest
saves travelers time and effort by providing easy access to its 14,000 vacation
home and condominium rentals through resortquest.com.
Vacationers can use the web site to quickly and efficiently research their
destination from a wide range of resort locations, check availability and
pricing, and view floor plans and photos of their desired accommodations. They
can book their vacation directly online or by calling ResortQuest's toll-free
number, 877-588-5800.
7
<PAGE>
[GRAPHIC OMITTED]
WIN-WIN CONCEPT
ResortQuest brings a new level of awareness and strength to the industry. While
travelers benefit from the convenience and reliability that ResortQuest
provides, vacation homeowners, property management companies, and employees also
reap rewards.
For vacation homeowners... ResortQuest provides the best of both worlds:
local management expertise and attention, along with the marketing power and
resources of a leading brand. Each local management team brings to the table an
in-depth knowledge of the vacation rental business and the market area, as well
as practical property management experience, both of which work to enhance a
property's value and marketability.
Through its broad-based marketing, ResortQuest reaches potential renters
from key resort feeder markets around the globe, which in turn increases the
potential for higher rental income. And should an owner decide to sell, most
ResortQuest locations have a complete real estate referral and sales program to
help obtain top dollar for a property.
By contracting with a ResortQuest company, homeowners also receive the
opportunity to participate in
8
<PAGE>
QuestClub, an exclusive owner benefits program that provides travel privileges
and substantial savings at other ResortQuest properties.
For property management companies... ResortQuest provides the opportunity
to dramatically expand their businesses, and better serve customers and
homeowners. Local companies retain their name, management and employee base, and
company owners convert their equity into more liquid assets to give them greater
financial freedom. Local companies also achieve operating and pricing synergies
by being part of a large brand.
For employees... ResortQuest provides all the advantages of working for a
major corporation, from greater job advancement opportunities to enhanced
benefits.
- --------------------------------------------------------------------------------
ResortQuest is building a new level of awareness, credibility and momentum for
the industry.
- --------------------------------------------------------------------------------
From vacationer to homeowner to local property management company and
employee - ResortQuest is a win-win proposition. With its seasoned management
team, operational expertise, technological advantages, and marketing breadth,
ResortQuest has established significant barriers to new competition. The brand
intends to continue to lead the industry by pioneering innovative solutions for
the vacation rental industry and keeping its promise to provide a lifetime of
service to its customers.
9
<PAGE>
[GRAPHIC OMITTED]
RESORTQUEST MILESTONES
MAY 1998
Completed initial public offering; purchased 12 property management companies
aggregating 9,000 rental units and the vacation rental industry's leading
software company
JULY 1998
Completed first acquisition in Breckenridge, Colo., increasing ResortQuest's
share in one of the nation's most popular ski resorts
AUGUST 1998
Entered popular Gulf Shores, Ala. market with second acquisition
SEPTEMBER 1998
Broadened Canadian inventory in Whistler, British Columbia
SEPTEMBER 1998
Acquired Abbott Resorts, the largest resort property management company in
Florida, increasing ResortQuest's portfolio to more than 11,000 vacation
properties
SEPTEMBER 1998
Increased ResortQuest credit facility to $55 million to help fund future
acquisitions
OCTOBER 1998
Introduced the QuestClub homeowner benefits program, offering homeowners
substantial savings on vacation home and condominium rentals at other
ResortQuest locations
OCTOBER 1998
Developed product and service standards for the ResortQuest brand to be
implemented system-wide
OCTOBER 1998
Launched the industry's first company-wide rating system that categorizes
ResortQuest vacation rental accommodations according to quality, condition and
amenities
DECEMBER 1998
Acquired fourth property management company in Colorado (Dillon), increasing
company's depth in this important U.S. ski area
JANUARY 1999
Announced RESORTQUEST.COM, the first branded online booking resource in the
vacation rental industry to offer "up-to-the-minute" reservation capabilities,
along with descriptions, photos and floor plans of rental properties
JANUARY 1999
Acquired property management company in Oregon (Sunriver), expanding
ResortQuest's presence in Western U.S.
JANUARY 1999
Purchased first property management company in Big Sky, Mont., increasing the
range of vacation experiences offered by ResortQuest
JANUARY 1999
Entered important Southern California market with acquisition of Palm
Desert/Palm Springs property management company
FEBRUARY 1999
Penetrated Hilton Head Island, S.C. market with acquisition of one of the area's
leading property management companies
FEBRUARY 1999
Entered Scottsdale, Ariz. market with 10th acquisition since initial public
offering, increasing ResortQuest's rental portfolio to 14,000 vacation homes and
condominiums across North America
10
<PAGE>
INDEX OF FINANCIALS
MANAGEMENT'S DISCUSSION AND ANALYSIS 11
CONSOLIDATED BALANCE SHEETS 21
CONSOLIDATED STATEMENTS OF INCOME 22
CONSOLIDATED STATEMENTS OF PRO FORMA INCOME 23
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 24
CONSOLIDATED STATEMENTS OF CASH FLOWS 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 26
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 39
MANAGEMENT'S REPORT ON CONSOLIDATED FINANCIAL STATEMENTS 39
QUARTERLY RESULTS OF OPERATIONS 40
SELECTED FINANCIAL DATA 40
DIRECTORS AND OFFICERS 41
INVESTOR INFORMATION 41
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ResortQuest International, Inc. ("ResortQuest" or "Company") is a leading
provider of vacation condominium and home rentals in premier destination resorts
throughout the United States and Canada. Through the consolidation of leading
vacation rental and property management companies, the development of a national
brand and best practices management systems, ResortQuest offers vacationers a
network of high quality, fully furnished, privately-owned condominium and home
rentals. ResortQuest has developed quality standards and segmented most of our
13,243 condominiums and homes into five categories (Quest Home, Platinum, Gold,
Silver and Bronze), developed a single source access through a web site with
on-line booking capabilities (resortquest.com) and a toll-free central
reservation center, and has implemented a multi-faceted nation-wide marketing
program. ResortQuest offers property owners superior management services
designed to enhance their rental income and profits. The condominium and home
rental properties are owned by non-related third parties.
On May 26, 1998, ResortQuest consummated its initial public offering ("IPO"
or "Offering") and the acquisition of 12 vacation rental and property management
companies and one leading vacation rental and property management software
company (the "Founding Companies") ("Combinations"). ResortQuest has executed
five additional vacation rental and property management acquisitions through the
end of 1998 (together with the Founding Companies, the "Operating Companies").
At December 31, 1998, ResortQuest manages approximately 13,243 condominiums and
homes 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, Dillon 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.
POST-IPO ACQUISITIONS
Subsequent to the IPO, ResortQuest executed five acquisitions through the end of
1998: Goldpoint, located in Breckenridge, Colorado, effective July 1998;
Plantation Resort Management, Inc. ("Plantation Resort") located in Gulf Shores,
Alabama, effective August 31, 1998; Whistler Exclusive Properties, Ltd.
("Whistler Exclusive") located in Whistler, British Columbia, Canada, effective
September 3, 1998; Abbott Realty Services, Inc. ("Abbott Resorts") located in
Destin, Florida, effective September 30, 1998; and Columbine Management Company,
Inc. ("Columbine") located in Dillon, Colorado, effective December 1, 1998
(collectively, the "Post-IPO Acquisitions"). The Post-IPO Acquisitions had 2,956
vacation rental condominiums and homes under management, and are located in two
new markets and three existing markets ("tuck-in"). The Post-IPO Acquisitions
cost $45.0 million and were financed through a combination of stock and cash.
In January and February 1999, ResortQuest executed five additional
acquisitions, which included 1,172 vacation rental condominiums and homes under
management, located in five new markets. The new markets include Sunriver,
Oregon; Big Sky, Montana; Palm Desert, California; Hilton Head, South Carolina;
and Scottsdale, Arizona. These acquisitions cost $20.5 million and were financed
through a combination of stock and cash.
RESULTS OF OPERATIONS
ResortQuest'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.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Continued)
ResortQuest receives property rental fees when the properties are rented, which
are generally a percentage of the rental price of the vacation property. Rental
fees range from approximately 3% to over 40% based upon the type of services
provided by ResortQuest to the property owner and the type of rental units
managed. Revenues are recognized by ResortQuest based on its proportionate share
of the total rental price of the vacation condominium or home, and are
recognized ratably over the rental period. On a pro forma basis for the year
ended December 31, 1998, ResortQuest recognized $35.3 million of property rental
fees, representing 50.9% of ResortQuest's total 1998 revenues. Additional
services provided to vacationers, such as reservations, housekeeping,
long-distance telephone, lift tickets, beach equipment and pool cleaning are
charged separately and recorded as service fees revenue by ResortQuest. During
1998, ResortQuest recognized $16.2 million of service fees, representing 23.4%
of ResortQuest's total 1998 pro forma revenues. ResortQuest's remaining $17.9
million of 1998 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 food & beverage sales.
Direct operating expenses include direct compensation, telecommunication
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 facilities. Telecommunication costs result
primarily from the cost of toll-free numbers, as well as the cost of telephone
service provided by ResortQuest to property owners in certain markets. General
and administrative expenses consist primarily of salary, wages, bonus and
benefits for general managers as well as other non-operational personnel, fees
for professional services, rent and other general office expenses.
Before the IPO, the Operating Companies operated 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 Operating Companies' owners and key employees agreed
to certain, and in some cases substantial, reductions in their salary, bonus and
benefits in connection with being acquired by ResortQuest.
ResortQuest has begun to realize certain savings as a result of the
consolidation of long-distance telephone, insurance, employee benefits and other
general and administrative expenses of the Operating Companies. ResortQuest
cannot quantify these savings accurately at this time. Consequently, ResortQuest
is unable to determine whether these savings will be material or not. Any such
savings will be offset by the costs of being a publicly traded company and the
incremental costs related to ResortQuest's new management team. Neither the
anticipated savings nor the anticipated costs have been included in the pro
forma combined financial information of ResortQuest.
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 combining companies must be
designated as the accounting acquiror. Aston Hotels & Resorts ("Aston") was
identified as the accounting acquiror for financial statement presentation
purposes (e.g., Aston's financial statements were carried over at historical
basis). For the remaining Founding Companies, $72.7 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 ResortQuest'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 ResortQuest. Additionally, ResortQuest recorded additional
goodwill of $33.8 million in conjunction with the Post-IPO Acquisitions.
Goodwill is being amortized as a non-cash charge to the income statement over a
40-year period other than the goodwill associated with the acquisition of First
Resort, which is being amortized over a 15-year period. ResortQuest recognized
$1.8 million of goodwill amortization in 1998. In addition, the $29.5 million
paid to the owners
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Continued)
of Aston in conjunction with the Combinations has been reflected as excess
distributions in the Consolidated Statements of Changes in Stockholders' Equity.
RESULTS OF CONTINUING OPERATIONS--ACTUAL
Effective with the closing of ResortQuest's Offering on May 26, 1998,
ResortQuest 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 was identified as the
accounting acquiror and the remaining Founding Companies (including ResortQuest)
were accounted for under the purchase method of accounting. Accordingly, the
ResortQuest historical consolidated financial information for periods prior to
the Offering include only the operating results of Aston. Since May 26, 1998,
the historical consolidated financial information includes the combined balances
and transactions of ResortQuest, the Founding Companies, plus the Post-IPO
Acquisitions from their respective date of acquisition. Comparability of
historical results of operations for the periods presented may be misleading and
are not necessarily indicative of future results of the combined operations.
The following table sets forth the ResortQuest actual consolidated results
of operations for the twelve months ended December 31, 1996, 1997 and 1998.
<TABLE>
<CAPTION>
(in thousands) 1996 1997 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $19,460 100.0% $19,554 100.0% $49,524 100.0%
Direct operating expenses 10,401 53.4 8,908 45.6 27,330 55.2
General and administrative expenses 5,248 27.0 5,081 26.0 14,171 28.6
Depreciation and amortization 326 1.7 394 2.0 3,089 6.2
- --------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations $ 3,485 17.9% $ 5,171 26.4% $ 4,934 10.0%
</TABLE>
Twelve Months Ended December 31, 1998 Compared to
Twelve Months Ended December 31, 1997 - Actual
REVENUES
Revenues increased $30.0 million, or 153.3%, from $19.6 million in 1997 to $49.5
million in 1998, due to the revenue impact of the companies acquired in the
Combinations and Post-IPO Acquisitions. Aston revenues for 1998 were relatively
flat as compared to prior year despite the continued pressures from the troubled
Asian inbound market. Revenues from the 1998 acquisitions for the Hawaii,
Mountain, Beach and Other segments were $800,000, $5.4 million, $21.8 million
and $2.0 million, respectively.
DIRECT OPERATING EXPENSES
Direct operating expenses increased $18.4 million, or 206.8%, from $8.9 million
in 1997 to $27.3 million in 1998, due to the expense impact of the companies
acquired in the Combinations and Post-IPO Acquisitions. Aston's direct operating
expenses increased $793,000, as compared to prior year, primarily due to a
$513,000 increase in payments made under certain guarantee contracts. The
timing, size and location of acquisitions have a significant impact on operating
margins. Direct operating expense margins increased 9.6 percentage points, from
45.6% in 1997 to 55.2% in 1998. The Mountain segment and southern Florida peak
season is the first quarter and Beach segment peak season is the third quarter.
Direct operating expenses from the 1998 acquisitions for the Hawaii, Mountain,
Beach and Other segments were $200,000, $4.6 million, $11.8 million and $1.1
million, respectively.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Continued)
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased $9.1 million, or 178.9%, from $5.1
million in 1997 to $14.2 million in 1998, due to the expense impact of the
companies acquired in the Combinations, Post-IPO Acquisitions and incremental
public-company expenses. Aston general and administrative expenses for 1998 were
relatively flat as compared to prior year. Depreciation and amortization expense
increased due to the goodwill impact of acquisitions recorded using the purchase
method of accounting. General and administrative expenses, including goodwill
amortization, from the 1998 acquisitions for the Hawaii, Mountain, Beach and
Other segments were $500,000, $2.3 million, $5.9 million and $3.1 million,
respectively.
Twelve Months Ended December 31, 1997 Compared to
Twelve Months Ended December 31, 1996 - Actual
REVENUES
Revenues were relatively flat as compared to prior year.
DIRECT OPERATING EXPENSES
Direct 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,
direct 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 decreased $167,000, or 3.2%, from $5.2
million in 1996 to $5.1 million in 1997. As a percentage of revenues, operating
income increased from 17.9% in 1996 to 26.4% in 1997, due primarily to lower
direct operating expenses in 1997.
OTHER
The following table sets forth other historical items affecting consolidated net
income for the three years ended December 31, 1996, 1997 and 1998.
<TABLE>
<CAPTION>
(in thousands) 1996 1997 1998
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Interest and other income (expense) $(342) $ (86) $ (403)
Income (loss) from discontinued operations 455 (1,494) 1,347
Effective tax rate n/a n/a 32.3%
</TABLE>
Aston's operations were primarily financed through working capital and
long-term debt resulting in higher levels of interest expense prior to the
Combinations. Concurrent with the Combinations, ResortQuest did not assume any
of Aston's previous debt. However, ResortQuest did assume approximately $5.7
million of debt from certain of the Founding Companies, which was subsequently
paid off by the Company after the IPO. The cash portion of the Post-IPO
Acquisitions resulted in increased borrowings under the Credit Facility, which
caused interest expense to increase during the fourth quarter 1998.
ResortQuest has decided that it will no longer continue or enter into
leasing arrangements for lodging facilities. Accordingly, for all periods
presented, the results of operations for the leased operations are reflected as
discontinued operations. Concurrent with the Combinations, Aston assigned such
leases to a corporation owned by Aston's principal stockholder. On May 27, 1998,
ResortQuest entered into a contract with this corporation to manage these
facilities for a fee.
ResortQuest's effective tax rate for the year ended December 31, 1998, is
impacted by: (i) Aston's earnings prior to May 26, 1998 which will not be
included in ResortQuest's consolidated income tax returns; (ii) amortization of
goodwill which is principally not deductible for income tax purposes; and (iii)
the recording of a one-time cumulative deferred income tax entry for Aston,
which was previously taxed under S Corporation status. The effective tax rate
for the years ended December 31, 1997 and 1996, are not applicable since Aston
qualified and filed as a S Corporation.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Continued)
RESULTS OF OPERATIONS--
PRO FORMA
To provide better comparability, the combined pro forma results of operations
for the twelve months ended December 31, 1998 and 1997 include the results of
ResortQuest and the Founding Companies as if the Combinations had occurred on
January 1, 1997 and Post-IPO Acquisitions since date of acquisition. The
combined pro forma results of operations include the effects of: (i) the
Combinations; (ii) the proceeds from the issuance of 6,670,000 shares of
ResortQuest Common Stock, which was used to pay the cash portion of the purchase
price for the Founding Companies, to repay debt assumed in the Combinations, and
to pay IPO transaction costs; (iii) certain adjustments to salaries, bonuses,
and benefits to former owners and key management of the Founding Companies
effective with the IPO; (iv) reversal of compensation expense in the three
months ended March 31, 1998, relating to the non-recurring, non-cash
compensation charge of $5.1 million related to Common Stock issued to
management; (v) provision for income taxes as if pro forma income was subject to
federal, state or provincial income taxes and that goodwill was not deductible
for income tax purposes during the periods presented; (vi) amortization of
goodwill resulting from the Combinations and (vii) excludes income (loss) from
discontinued operations.
HAWAIIAN ISLANDS
The following table sets forth the Hawaiian island resorts' combined pro forma
results of operations for the twelve months ended December 31, 1998 and 1997.
<TABLE>
<CAPTION>
(in thousands) 1997 1998
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $21,960 100.0% $21,874 100.0%
Operating expenses 14,322 65.2 15,194 69.5
- --------------------------------------------------------------------
Operating income $ 7,638 34.8% $ 6,680 30.5%
- --------------------------------------------------------------------
</TABLE>
Twelve Months Ended December 31, 1998 Compared to
Twelve Months Ended December 31, 1997 - Hawaii
REVENUES
Revenues in 1997 include a $677,000 gain from the sale of the Company's interest
in a Hawaiian hotel. Excluding this gain, revenues increased $591,000, or 2.8%,
from $21.3 million in 1997 to $21.9 million in 1998, primarily due to a slight
increase in average daily rate that helped maintain revenue per available unit.
Hawaii overall was impacted in 1998 by the Northwest Airlines strike during
third quarter 1998 and the continued pressures from the troubled Asian inbound
market. Northwest Airlines accounts for approximately 15% of the lift into the
Hawaiian islands. Occupancy rates in the third quarter were off compared to
prior year. However, Aston was not as negatively impacted by the Asian crisis as
compared to the overall market. Inbound traffic from Asia accounts for about
one-third of Hawaii's visitors who seem to prefer Waikiki Beach, which is on the
Hawaiian island of Oahu. For several years, Aston shifted most of its business
to the United States mainland wholesalers and increased its inventory of
management contracts on the neighbor islands away from Waikiki Beach.
OPERATING EXPENSES
Operating expenses increased $872,000, or 6.1%, from $14.3 million in 1997 to
$15.2 million in 1998. As a percentage of revenues, operating expenses increased
from 65.2% in 1997 to 69.5% in 1998, primarily due to the Northwest Airlines
strike in the third quarter of 1998.
MOUNTAIN
The following table sets forth the mountain resorts combined pro forma results
of operations for the twelve months ended December 31, 1998 and 1997. The pro
forma mountain results of operations only include the Founding Companies located
in: Aspen, Breckenridge, Telluride, Colorado; Park City, Utah; and Whistler,
British Columbia. Since the IPO, ResortQuest acquired three other
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Continued)
mountain resorts (Goldpoint in July 1998, Whistler Exclusive in September 1998,
and Columbine in December 1998) which are included in the pro forma results of
operations for the period from their acquisition dates through December 31,
1998.
<TABLE>
<CAPTION>
(in thousands) 1997 1998
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $14,379 100.0% $14,744 100.0%
Operating expenses 12,584 87.6 12,643 85.8
- ---------------------------------------------------------------------
Operating income $ 1,795 12.4% $ 2,101 14.2%
- ---------------------------------------------------------------------
</TABLE>
Twelve Months Ended December 31, 1998 Compared to
Twelve Months Ended December 31, 1997 - Mountain
REVENUES
Revenues increased $365,000, or 2.5%, from $14.4 million in 1997 to $14.7
million in 1998, primarily due to an increase in property rental fees, resulting
from a 6.2% increase in rental units under management contract.
OPERATING EXPENSES
Operating expenses were relatively flat as compared to prior year. However, as a
percentage of revenues, operating expenses decreased from 87.6% in 1997 to 85.8%
in 1998, primarily due to a slight reduction in direct operating costs.
BEACH
The following table sets forth the beach resorts (excluding Hawaii) combined pro
forma results of operations for twelve months ended December 31, 1997 and 1998.
The pro forma beach results of operations only include the Founding Companies
located in: Bethany Beach, Delaware; Nantucket, Massachusetts; Outer Banks,
North Carolina; Sanibel and Captiva Islands, Florida; and St. Simons Island,
Georgia. Since the IPO, ResortQuest acquired two other beach resorts (Plantation
Resort in August 1998 and Abbott Resorts in September 1998) which are included
in the pro forma results of operations for the period from their acquisition
date through December 31, 1998.
<TABLE>
<CAPTION>
(in thousands) 1997 1998
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $17,616 100.0% $29,524 100.0%
Operating expenses 13,942 79.1 23,355 79.1
- ----------------------------------------------------------------
Operating income $ 3,674 20.9% $ 6,169 20.9%
- ----------------------------------------------------------------
</TABLE>
Twelve Months Ended December 31, 1998 Compared to
Twelve Months Ended December 31, 1997 - Beach
REVENUES
Revenues increased $11.9 million, or 67.6%, from $17.6 million in 1997 to $29.5
million in 1998, due to an 18.3% increase in lodging revenues (caused by an
11.1% increase in average daily rate and a 7.8% increase in number of units
under management contract), and $7.3 million in revenues for Plantation Resort
from July 1 and Abbott Resorts from October 1 through the end of 1998.
OPERATING EXPENSES
Operating expenses increased $9.4 million, or 67.5%, from $13.9 million in 1997
to $23.4 million in 1998, due primarily to the expense impact of the Post-IPO
Acquisitions and increased salaries and wages to service the increased units
under management contract.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Continued)
OTHER OPERATIONS
The following table sets forth the other combined pro forma results of
operations for the twelve months ended December 31, 1998 and 1997, which
includes: First Resort and corporate.
<TABLE>
<CAPTION>
(in thousands) 1997 1998
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 2,864 100.0% $ 3,305 100.0%
Operating expenses 3,136 109.5 6,100 184.6
- -----------------------------------------------------------
Operating loss $ (272) (9.5)% $(2,795) (84.6)%
- -----------------------------------------------------------
</TABLE>
Twelve Months Ended December 31, 1998 Compared to
Twelve Months Ended December 31, 1997 - Other
REVENUES
Revenues increased $441,000, or 15.4%, from $2.9 million in 1997 to $3.3 million
in 1998, due primarily from increased sales of software and software service
fees.
OPERATING EXPENSES
Operating expenses increased by $3.0 million, or 94.5%, from $3.1 million in
1997 to $6.1 million in 1998. This increase primarily results from expenses
associated with being a public company, which did not exist prior to the IPO,
and the expense recognition of certain nonrecurring acquisition costs incurred
in connection with the Plantation Resort acquisition, which totaled
approximately $134,000.
LIQUIDITY AND CAPITAL RESOURCES
ResortQuest is a holding company that conducts all of its operations through its
Operating Companies. Accordingly, the primary internal source of ResortQuest's
liquidity is through the cash flows realized from its subsidiaries, the
Company's amended $55 million Credit Facility ("Credit Facility") and
ResortQuest Common Stock.
ResortQuest generated cash flows from operating activities of $12.7 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 $39.5 million in 1998, due primarily to the cash
portions of the Combinations and Post-IPO Acquisitions. During 1998,
ResortQuest's 1998 cash provided by financing activities totaled $48.5 million,
which included $60.0 million net proceeds from the IPO and $32.0 million in
borrowings under the Credit Facility, partially offset by $29.5 million in
distributions to Aston's stockholders in conjunction with the IPO.
At December 31, 1998, ResortQuest had approximately $23.3 million in cash
and cash equivalents, of which $13.7 million represents cash held in escrow. The
cash held in escrow is released at varying times in accordance with state
regulations, generally based upon the guest stay, or for real estate sale
deposits when the property is sold. 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. At December 31, 1998,
ResortQuest had a working capital deficit of $2.1 million, $38.0 million of
outstanding long-term debt and $23.0 million available under its Credit
Facility.
At December 31, 1998, the former principal stockholder of Aston was
indebted to ResortQuest in the aggregate amount of $4.0 million. This debt is
fully collateralized with real estate and cash and cash equivalents pledged to
ResortQuest.
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 December 31, 1998, the net proceeds
have
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Continued)
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.
ResortQuest 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 in
conjunction with the Credit Facility. On September 30, 1998, the Credit Facility
was amended to allow for the ResortQuest acquisition of Abbott Resorts. On
December 7, 1998, the Credit Facility was amended for a second time to increase
the facility to $55 million and added two additional lenders, Societe Generale
and Union Planters Bank, N.A. 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 ResortQuest to comply
with various loan covenants, which include maintenance of certain financial
ratios, restrictions on additional indebtedness and restrictions on liens,
guarantees, advances, capital expenditures, sale of assets and dividends.
Interest on outstanding balances of the Credit Facility is computed at
ResortQuest'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 range from 0.25% to 0.50% per annum depending on
certain financial ratios are payable on the unused portion of the Credit
Facility. At December 31, 1998, borrowings under the Credit Facility totaled
$32.0 million, resulting primarily from the Abbott Resorts acquisition, and
ResortQuest is paying a margin of 1.75% and availability fees of 0.375%. The
weighted average interest rate during 1998, based on outstanding ResortQuest
Credit Facility borrowings, including the applicable LIBOR spread, was 7.3%. The
Credit Facility has a three-year term and is secured by substantially all the
assets of ResortQuest and its subsidiaries, including the stock in the Founding
Companies and any future material subsidiaries, as defined. ResortQuest, each
Founding Company and all other current and future material subsidiaries are
required to guarantee repayment of all amounts due under the Credit Facility. At
December 31, 1998, ResortQuest was in compliance with applicable loan covenants.
On September 30, 1998, ResortQuest 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 were the same as those provided for in the
Credit Facility. The Note Agreement was secured on the same terms as the Credit
Facility. The Note Agreement was terminated effective December 7, 1998, when
ResortQuest secured additional availability under 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.
ResortQuest anticipates that its cash flow from operations will provide
cash in excess of the Company's normal working capital levels, debt service
requirements and planned capital expenditures for the foreseeable future. Total
capital expenditures for 1999 are anticipated to be between $3.5 million and
$4.0 million, of which approximately $600,000 will be for software development,
with the balance going to furniture, fixtures and equipment.
ResortQuest intends to pursue attractive acquisition opportunities. There
can be no assurance that the Company will be able to identify, acquire or
profitably manage additional businesses or successfully integrate acquired
businesses into ResortQuest without substantial costs, delays or other
operational or financial problems. Increased competition for acquisition
candidates may develop, in which event there may be fewer acquisition
opportunities available to ResortQuest, 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 ResortQuest's business,
financial condition and results of operations.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Continued)
YEAR 2000 COMPLIANCE
The vacation property management industry uses a complex suite of software. The
areas of greatest risk of software failure due to Year 2000 problems 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.)
ResortQuest 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 micro controllers. ResortQuest
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, ResortQuest 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 flows from operations.
The impact upon ResortQuest by Year 2000 issues is greatest in the areas of
property management systems, telecommunications, and financial
accounting/reporting. ResortQuest believes that the consequences of Year 2000
issues with respect to the adverse impact upon the Company's results of
operations will not be material.
ResortQuest will 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 third quarter
1999.
NEWLY ISSUED ACCOUNTING
PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for derivatives, including
certain derivative instruments embedded in other contracts (collectively
referred to as derivatives), and for hedging activities. It requires that an
entity to recognize all derivatives either as assets or liabilities in the
statement of financial position and measure those instruments at fair value.
This statement is effective for all fiscal quarters of fiscal years
beginning after September 15, 1999. The adoption of SFAS No. 133 is not
anticipated to have a material impact on the financial position or results of
operations of ResortQuest.
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 1998, ResortQuest
derived approximately 30% of its pro forma revenues and 71.8% of its operating
income in the first quarter and 24.4% of its pro forma revenues and 25.7% of its
operating income in the third quarter. Although the seasonality of ResortQuest'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 ResortQuest's revenues and
earnings.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Continued)
ResortQuest's quarterly results of operations may also be subject to
fluctuations as a result of the timing and cost of acquisitions, the timing of
real estate sales, changes in relationships with travel providers, extreme
weather conditions or other factors affecting leisure travel and the vacation
rental and property management industry. Unexpected variations in quarterly
results could also adversely affect the price of the Common Stock, which in turn
could adversely affect ResortQuest's proposed acquisition strategy.
MARKET RISK
ResortQuest is exposed to market risk, which is defined as a 10% change in
prices, through changes in interest rates related to borrowings under the Credit
Facility.
INFLATION
Inflation did not have a significant effect on the results of operations of the
Operating Companies for 1996, 1997 or 1998.
RISKS ASSOCIATED WITH FORWARD LOOKING
STATEMENTS
This filing contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934, as amended, which are intended to be covered by the safe harbors
created thereby. Investors are cautioned that all forward-looking statements
involve risks and uncertainties, including but not limited to the risks
associated with successful integration of the Founding Companies and additional
acquired companies, factors affecting internal growth and management of growth,
ResortQuest's acquisition strategy and availability of financing, the tour and
travel industry, seasonality, quarterly fluctuations and general economic
conditions, dependence on technology and travel providers, and other factors
discussed in the Registration Statement. Although ResortQuest believes that the
assumptions underlying the forward-looking statements contained herein are
reasonable, any of the assumptions could be inaccurate, and, therefore, there
can be no assurance that the forward-looking statements included in this filing
will prove to be accurate. In light of the significant uncertainties inherent in
the forward-looking statements included herein, the inclusion of such
information should not be regarded as a representation by ResortQuest or any
other person that the objectives and plans of ResortQuest will be achieved.
PERFORMANCE STATISTICS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1998 INC/DEC
- ------------------------------------------------------------------
<S> <C> <C> <C>
HAWAII
Lodging revenues (1) $142,637 $139,814 (2.0)%
- ------------------------------------------------------------------
Occupancy 72.5% 72.1% (0.4)pts
- ------------------------------------------------------------------
Average daily rate $104.47 $104.97 0.5%
- ------------------------------------------------------------------
RevPAU $75.78 $75.66 (0.2)%
- ------------------------------------------------------------------
Total units 5,145 5,124 (0.4)%
- ------------------------------------------------------------------
MOUNTAIN
Lodging revenues (1) $ 28,093 $28,818 2.6%
- ------------------------------------------------------------------
Occupancy 35.1% 35.5% 0.4 pts
- ------------------------------------------------------------------
Average daily rate $163.89 $161.61 (1.4)%
- ------------------------------------------------------------------
RevPAU $57.46 $57.34 (0.2)%
- ------------------------------------------------------------------
Total units 1,544 1,639 6.2%
- ------------------------------------------------------------------
BEACH
- ------------------------------------------------------------------
Lodging revenues (1) $ 39,622 $46,877 18.3%
- ------------------------------------------------------------------
Occupancy 55.7% 55.8% 0.1 pts
- ------------------------------------------------------------------
Average daily rate $126.73 $140.72 11.0%
- ------------------------------------------------------------------
RevPAU $70.62 $78.52 11.2%
- ------------------------------------------------------------------
Total units 2,165 2,334 7.8%
- ------------------------------------------------------------------
TOTAL
Lodging revenues (1) $210,352 $215,509 2.5%
- ------------------------------------------------------------------
Occupancy 63.1% 62.5% (0.6)pts
- ------------------------------------------------------------------
Average daily rate $113.74 $116.91 2.8%
- ------------------------------------------------------------------
RevPAU $71.74 $73.11 1.9%
- ------------------------------------------------------------------
Total units 8,854 9,097 2.7%
- ------------------------------------------------------------------
</TABLE>
(1) Lodging revenues are in thousands and represent the total rental charged to
property rental customers. ResortQuest's revenue represents from 3% to over
40% of the lodging revenues based on the services provided by the Company.
(2) The above statistics exclude Houston & O'Leary, The Maury People,
Plantation Resort, Abbott Resorts and Columbine units of approximately 130,
1,200, 384, 2,291, and 141 respectively. Also excluded from these
statistics are owner use nights and renovation nights which were
approximately 12.1% of gross available nights in the twelve months ended
December 31, 1998 and 10.2% of gross available nights in the twelve months
ended December 31, 1997. For the three months ended December 31, 1998 and
1997, owner use nights and renovation nights were 13.4% and 11.6%,
respectively.
20
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
(in thousands, except share amounts) 1997 1998
- -------------------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets
<S> <C> <C>
Cash and cash equivalents $ 1,632 $ 23,309
Trade and other receivables, net of allowance 1,195 3,767
Receivables from stockholders - 5,209
Deferred income taxes - 1,297
Other current assets 129 2,241
- -------------------------------------------------------------------------------------------------------------------------------
Total current assets 2,956 35,823
Goodwill, net - 130,214
Property and equipment, net 1,776 16,485
Deferred income taxes - 211
Advances to stockholder 7,235 -
Advances to affiliates, net 1,799 -
Other assets 796 2,187
- -------------------------------------------------------------------------------------------------------------------------------
Total assets $14,562 $184,920
===============================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 421 $ 1,209
Customer deposits, deferred revenues and payable to property owners - 23,208
Accounts payable and accrued liabilities 6,538 12,420
Payable to stockholders - 813
Other current liabilities 585 269
- -------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 7,544 37,919
Long-term debt, net of current maturities 4,129 37,953
Other long-term obligations 1,881 1,881
Net liabilities of discontinued operations 1,403 -
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities 14,957 77,753
- -------------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Stockholders' equity (deficit)
Common stock, $0.01 par value, 50,000,000 shares authorized, 1,708,333 and
16,891,927 shares outstanding, respectively 17 169
Additional paid-in capital 88 135,905
Excess distributions - (29,500)
Retained earnings (accumulated deficit) (500) 593
- -------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity (deficit) (395) 107,167
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $14,562 $184,920
===============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
21
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(in thousands, except share amounts) 1996 1997 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Property management fees $ 7,540 $ 8,079 $22,882
Service fees 8,442 8,338 13,982
Other 3,478 3,137 12,660
- ----------------------------------------------------------------------------------------------------------------------------
Total revenues 19,460 19,554 49,524
- ----------------------------------------------------------------------------------------------------------------------------
Operating expenses
Direct operating 10,401 8,908 27,330
General and administrative 5,248 5,081 14,171
Depreciation and amortization 326 394 3,089
- ----------------------------------------------------------------------------------------------------------------------------
Total operating expenses 15,975 14,383 44,590
- ----------------------------------------------------------------------------------------------------------------------------
Operating income 3,485 5,171 4,934
Other income (expense)
Interest expense, net (736) (763) (403)
Other 394 677 -
- ----------------------------------------------------------------------------------------------------------------------------
Income before income taxes 3,143 5,085 4,531
Provision for income taxes - - 1,462
- ----------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 3,143 5,085 3,069
Income (loss) from discontinued operations 455 (1,494) 1,347
- ----------------------------------------------------------------------------------------------------------------------------
Net income $ 3,598 $ 3,591 $ 4,416
============================================================================================================================
Earnings per share
Basic
Continuing operations $ 1.84 $ 2.98 $ 0.29
Discontinued operations 0.27 (0.88) 0.13
- ----------------------------------------------------------------------------------------------------------------------------
Net income $ 2.11 $ 2.10 $ 0.42
============================================================================================================================
Diluted
Continuing operations $ 1.84 $ 2.98 $ 0.29
Discontinued operations 0.27 (0.88) 0.12
- ----------------------------------------------------------------------------------------------------------------------------
Net income $ 2.11 $ 2.10 $ 0.41
============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
22
<PAGE>
CONSOLIDATED STATEMENTS OF PRO FORMA INCOME
(unaudited)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(in thousands, except share amounts) 1997 1998
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues
Property management fees $30,990 $35,341
Service fees 11,322 16,236
Other 14,507 17,870
- ------------------------------------------------------------------------------------------------------------------------------
Total revenues 56,819 69,447
- ------------------------------------------------------------------------------------------------------------------------------
Operating expenses
Direct operating 27,680 35,627
General and administrative 12,383 17,084
Depreciation and amortization 3,921 4,581
- ------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 43,984 57,292
- ------------------------------------------------------------------------------------------------------------------------------
Operating income 12,835 12,155
Other income (expense)
Interest expense, net 276 (78)
- ------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 13,111 12,077
Provision for income taxes 6,203 5,724
- ------------------------------------------------------------------------------------------------------------------------------
Net income $ 6,908 $ 6,353
==============================================================================================================================
Earnings per share
Basic $ 0.43 $ 0.39
==============================================================================================================================
Diluted $ 0.43 $ 0.39
==============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
23
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
RETAINED
ADDITIONAL EARNINGS
COMMON STOCK PAID-IN EXCESS (ACCUMULATED
(in thousands, except share amounts) SHARES AMOUNT CAPITAL DISTRIBUTIONS DEFICIT) TOTAL
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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 - - - - 4,416 4,416
Initial public offering 6,670,000 67 59,954 - - 60,021
Distributions to stockholders - - - (29,500) (3,198) (32,698)
Stock issued in connection with
Combinations 7,545,953 75 68,620 - - 68,695
Post-IPO acquisitions 967,641 10 7,243 - (125) 7,128
- ------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 16,891,927 $169 $135,905 $(29,500) $ 593 $107,167
==============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
24
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(in thousands) 1996 1997 1998
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 3,598 $ 3,591 $ 4,416
(Income) loss from discontinued operations (455) 1,494 (1,347)
- ------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 3,143 5,085 3,069
Adjustments to reconcile income from continuing operations
to net cash provided by operating activities
Depreciation and amortization 326 394 3,089
Changes in operating assets and liabilities
Trade and other receivables (236) 253 1,598
Accounts payable and accrued liabilities 258 918 (2,542)
Customer deposits, deferred revenue and payable to property owners - - 9,325
Deferred income taxes - - 503
Other (557) (710) (2,280)
- ------------------------------------------------------------------------------------------------------------------------------
Cash provided by continuing operations 2,934 5,940 12,762
Cash flows used in discontinued operations (253) (17) (56)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 2,681 5,923 12,706
- ------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Cash portion of acquisitions, net - - (35,518)
Purchases of property and equipment - (56) (4,002)
Other 304 402 -
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 304 346 (39,520)
- ------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Net proceeds from public stock issuance - - 60,021
Distributions to stockholders (3,098) (3,591) (32,698)
Net credit facility borrowings - - 32,000
Payment of other long-term obligations (1,160) (563) (9,592)
Other 2,326 (2,601) (1,240)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (1,932) (6,755) 48,491
- ------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 1,053 (486) 21,677
Cash and cash equivalents, beginning of period 1,065 2,118 1,632
- ------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 2,118 $ 1,632 $23,309
==============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
25
<PAGE>
NOTES TO CONSOLIDATE FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 - BASIS OF PRESENTATION
FORMATION
ResortQuest International, Inc. (a Delaware Corporation, "ResortQuest" or the
"Company"), formerly known as Vacation Properties International, Inc., was
formed to create the first national branded provider of vacation condominium and
home rentals and management in premier destination resorts. Effective with the
closing of ResortQuest's initial public offering on May 26, 1998 (the "IPO"),
the Company acquired 12 vacation rental and property management companies (Hotel
Corporation of the Pacific, Inc. ("Aston"), Brindley & Brindley Realty, Inc. and
B&B on the Beach, Inc., Coastal Resorts Management, Inc., and Coastal Resorts
Realty, L.L.C., Collection of Fine Properties, Inc., Houston and O'Leary
Company, Maui Condo & Home Realty, Inc., 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 Whistler Chalets Limited) and one leading vacation
rental and property management software company (First Resort Software, Inc.
("First Resort")) (collectively, the "Founding Companies") (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 consolidated financial statements 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 all actual periods
presented may be misleading and are not necessarily indicative of the results of
the combined operations.
PRO FORMA FINANCIAL INFORMATION
To provide better comparability, the consolidated statements of pro forma income
include the financial results of ResortQuest and the Founding Companies as if
the Combinations had occurred on January 1, 1997. The consolidated statements of
pro forma income include the effects of: (i) the Combinations; (ii) the proceeds
from the issuance of 6,670,000 shares of ResortQuest Common Stock, a portion of
which was used to pay the cash portion of the purchase price for the Founding
Companies, to pay IPO transaction costs, and to repay debt assumed in the
Combinations; (iii) certain adjustments to salaries, bonuses, and benefits to
former owners and key management of the Founding Companies effective with the
IPO; (iv) reversal of compensation expense in the three months ended March 31,
1998, relating to the non-recurring, non-cash compensation charge of $5.6
million related to Common Stock issued to management; (v) provision for income
taxes as if pro forma income was subject to federal, state or provincial income
taxes and that goodwill was not deductible for income tax purposes during the
periods presented; (vi) amortization of goodwill resulting from the
Combinations; and (vii) excludes income (loss) from discontinued operations.
POST-IPO ACQUISITIONS
Since the IPO, ResortQuest has completed five acquisitions: Goldpoint, located
in Breckenridge, Colorado, effective July 31, 1998; Plantation Resort
Management, Inc. ("Plantation Resort") located in Gulf Shores, Alabama,
effective August 31, 1998; Whistler Exclusive Properties, Ltd. ("Whistler
Exclusive") located in Whistler, British Columbia, Canada, effective September
3, 1998; Abbott Realty Services, Inc. ("Abbott Resorts") located in Destin,
Florida, effective September 30, 1998; and Columbine Management & Real Estate
("Columbine") located in Dillon, Colorado, effective December 1, 1998
(collectively "Post-IPO Acquisitions").
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Goldpoint, Whistler Exclusive, Abbott Resorts and Columbine were accounted for
under the purchase method of accounting, accordingly the results of operations
have been included since the respective date of acquisition. The acquisition of
Plantation Resort was accounted for as a pooling of interests; however, due to
the fact that the impact of the acquisition of Plantation Resort is not deemed
material to the financial statements of ResortQuest taken as a whole, the
historical financial statements of ResortQuest have not been restated to include
the effect of Plantation Resort.
Nonrecurring acquisition costs incurred in connection with the Plantation
Resort transaction totaled approximately $134,000 and, in accordance with
Accounting Principles Bulletin Opinion No. 16, have been included as an expense
in the statement of income for 1998.
The acquisition of Abbott Resorts is considered significant to ResortQuest
for financial reporting purposes. ResortQuest paid $40.0 million in total
consideration to the prior stockholders of Abbott Resorts ($26.5 million in
cash, $6.6 million in Common Stock, and $6.8 million in assumed debt). The
purchase price was allocated to tangible assets and liabilities with the
remaining $32.2 million to goodwill. The consolidated results of operations on a
pro forma basis as though Abbott Resorts had been acquired on January 1, 1997,
including the pro forma impacts of the Founding Companies and the IPO, are
presented below. The pro forma information presented below includes reductions
in salaries that owners of Abbott Resorts agreed to in conjunction with the
acquisitions discussed above. The remaining Post-IPO Acquisitions are not
considered significant to ResortQuest for financial reporting purposes and,
therefore, have not been included in the following pro forma presentation. The
unaudited pro forma results of operations for the years ended December 31, 1997
and 1998 are not necessarily indicative of the results to be expected for the
full year.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(in thousands, except share amounts) 1997 1998
- ----------------------------------------------------------------------------
<S> <C> <C>
Revenue $83,167 $94,946
============================================================================
Net income $ 6,957 $ 7,955
============================================================================
Earnings per share
Basic $ 0.42 $ 0.48
============================================================================
Diluted $ 0.42 $ 0.47
============================================================================
</TABLE>
NOTE 2 - SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
REVENUE RECOGNITION
Property Management Fees
At December 31, 1998, ResortQuest has entered into 11,913 exclusive and 1,330
non-exclusive rental and management agreements with owners of condominium and
homes in 21 resort locations throughout North America. The exclusive agreements
entitle ResortQuest to receive a fee for renting and maintaining these
properties. ResortQuest requires certain minimum deposits, as reservations are
booked. These deposits are non-refundable and recorded as a component of
customer deposits, deferred revenue and payable to owners, along with remaining
rental prepayments. ResortQuest recognizes revenue from property rental and
management fees ratably over the term of guest stays. ResortQuest records
revenue for cancellations upon occurrence.
SERVICE FEES
ResortQuest internally provides or arranges through third parties other services
for property owners or guests. Other services include reservation, housekeeping,
long-distance telephone, ski rentals, lift tickets, beach equipment and pool
cleaning. Internally provided services are recognized as service fee revenue
when the service is provided. Services provided by third parties are generally
billed directly to property owners and are not included in the accompanying
consolidated financial statements.
27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Other
ResortQuest recognizes other revenues related to real estate broker commission,
food & beverage sales and First Resort software and maintenance sales.
ResortQuest has real estate broker sales operations in the following locations:
Aspen, Colorado; Bethany Beach, Delaware; Islands of Captiva and Sanibel, Fort
Myers, Fort Walton Beaches and Destin, Florida; the Outer Banks, North Carolina;
St. Simons, Georgia; Gulf Shores, Alabama; and the Island of Nantucket,
Massachusetts. ResortQuest recognizes revenues on real estate sales when such
transactions are complete and such revenue is recorded net of the related agent
commission amount. ResortQuest also manages food & beverage outlets in
connection with the management of larger condominium complexes, primarily in
Hawaii and Florida. First Resort sells a fully integrated software package
specifically designed for the property rental business, along with ongoing
service contracts. First Resort recognizes software and maintenance revenues
when the systems are installed and ratably over the service period,
respectively. Other revenues were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(in thousands) 1996 1997 1998
- ------------------------------------------------------------
<S> <C> <C> <C>
Real estate brokerage
commissions, net $ - $ - $ 4,858
Food & beverage 2,185 2,271 2,265
Software sales and service - - 1,954
Other 1,293 866 3,583
- ------------------------------------------------------------
$3,478 $3,137 $12,660
============================================================
</TABLE>
DIRECT OPERATING EXPENSES
Direct operating expenses include expenses related to housekeeping, maintenance,
reservations, marketing and advertising, and other costs associated with rental
and management. Direct operating expenses also include food & beverage cost of
sales and operating expenses as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(in thousands) 1996 1997 1998
- -------------------------------------------------------------
<S> <C> <C> <C>
Rental and management $ 8,289 $6,956 $25,096
Food & beverage 2,112 1,952 2,234
- -------------------------------------------------------------
$10,401 $8,908 $27,330
=============================================================
</TABLE>
GOODWILL
Goodwill is the excess of the purchase price over fair value of identified net
assets acquired in business combinations accounted for as purchases. Goodwill is
being amortized on a straight-line basis over 40 years, other than that
associated with the acquisition of First Resort, which is amortized over 15
years, representing the approximate remaining useful life of acquired intangible
assets. ResortQuest recognized $1.8 million of goodwill amortization in 1998. In
accordance with Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," subsequent to an acquisition, ResortQuest 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' undiscounted cash flows,
in measuring whether such long-lived assets are recoverable.
INCOME TAXES
Prior to the IPO, Aston had elected S Corporation status as defined by the
Internal Revenue Code and state tax statutes. Under S Corporation status, the
former stockholders report their share of ResortQuest's taxable earnings or
losses in their personal tax returns for the periods prior to the Combinations.
28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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 ResortQuest to recognize the tax consequences of
operations in its statements of income. The unaudited statements of pro forma
income reflect the estimated impact of recognizing income tax expenses as if
ResortQuest had been a C Corporation for tax reporting purposes for the years
ended December 31, 1997 and 1998.
Under the asset and liability method of accounting for income taxes,
deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets, including net operating loss carryforwards,
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for the year in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period when the new rate is enacted.
CASH AND CASH EQUIVALENTS
For the purposes of the balance sheets and statements of cash flows, ResortQuest
considers all investments with original maturities of three months or less to be
cash equivalents. At December 31, 1998, cash and cash equivalents include $13.7
million of cash held in escrow for prepaid rentals and pending real estate sales
transactions.
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 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
income.
FINANCIAL INSTRUMENTS
The carrying values of all financial instruments approximate their estimated
fair value.
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 amount 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
Prior to the Combinations, ResortQuest's operations were exclusively located in
the state of Hawaii and were subject to negative events that affect travel
patterns of visitors. After considering the pro forma impact of the Combinations
and Abbott Resorts, Hawaii only accounts for 23% of total revenues and 40% of
operating income of ResortQuest.
NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for derivatives, including
certain derivative instruments embedded in other contracts (collectively
referred to as derivatives), and for hedging activities. It requires that an
entity recognize all derivatives either as assets or liabilities in the
statement of financial position and measure those instruments at fair value.
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
This statement is effective for all fiscal quarters of fiscal years
beginning after September 15, 1999. The adoption of SFAS No. 133 is not
anticipated to have a material impact on the financial position or results of
operations of ResortQuest.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the 1998
presentation.
NOTE 3 - NOTE RECEIVABLE FROM STOCKHOLDER
In connection with the Combinations, Aston formalized its receivable resulting
from cash advances to its primary stockholder with a $4.0 million promissory
note (the "Note"). The Note bears interest at one-half of one percent below
prime rate of interest, but not less than six percent and not more than 10
percent. Payments under the Note are interest only, due and payable every
January and July 1st. The Note is due on demand with 180 days notice at any time
through May 26, 1999. If payment is not requested within the notice period, the
Note becomes due and payable on May 25, 2008.
Prior to the Combinations, advances were made to Aston affiliated companies
and principal stockholder. Advances to affiliates represent advances to
companies controlled by Aston's principal stockholder. The advances had no
scheduled repayment, and Aston suspended the accrual of interest. In 1996, one
affiliate made a $2.0 million 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. Advances to Aston's
principal stockholder were primarily utilized relative to the stockholder's
investment in two hotels managed by the Company. The advances are not
collateralized, are non-interest bearing and have no scheduled repayments. The
stockholder made payments of approximately $1.5 million on these advances prior
to the Combinations.
NOTE 4 - DISCONTINUED OPERATIONS
ResortQuest has decided that they will no longer continue to enter into leasing
arrangements for lodging facilities. Accordingly, for all periods presented in
the accompanying financial statements, the financial position, results of
operations and cash flows of the leased assets are reflected as discontinued
operations. Concurrent with the Combinations, Aston assigned such leases to AST
Holdings, Inc., a corporation owned by Aston's principal stockholder. On May 27,
1998, ResortQuest entered into a contract with AST Holdings to manage these
facilities for a fee.
Net assets (liabilities) of discontinued operations were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
(in thousands) 1997
- ------------------------------------------------------------
<S> <C>
Current assets $ 2,955
Advances to affiliates 1
Other assets 193
Property and equipment 197
- ------------------------------------------------------------
Total assets 3,346
Current liabilities (4,119)
Capital lease obligations (53)
Other long-term obligations (577)
- ------------------------------------------------------------
Net liabilities of discontinued operations $(1,403)
============================================================
</TABLE>
Income (loss) from discontinued operations are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(in thousands) 1996 1997 1998
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $29,945 $30,848 $14,304
Operating expenses 22,833 24,826 10,120
General and administrative expense 6,631 7,317 2,839
- ---------------------------------------------------------------------
Operating income (loss) 481 (1,295) 1,345
Other (expense) income (26) (33) 2
- ---------------------------------------------------------------------
Net income (loss) from
discontinued operations $ 455 $(1,328) $ 1,347
=====================================================================
</TABLE>
In addition to the loss from discontinued operations, ResortQuest's
operating results for the year ended December 31, 1997 include a charge of
$166,000 for an expected loss resulting from the disposal of discontinued
operations.
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 5 - SUPPLEMENTAL FINANCIAL INFORMATION
Trade and other receivables consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
(in thousands) 1997 1998
- ---------------------------------------------------------------
<S> <C> <C>
Receivable from managed properties $ 610 $1,073
Other 660 2,750
- ---------------------------------------------------------------
Total 1,270 3,823
Less - Allowance for doubtful accounts (75) (56)
- ---------------------------------------------------------------
$1,195 $3,767
===============================================================
</TABLE>
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE DECEMBER 31,
(in thousands) IN YEARS 1997 1998
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Land and improvements $ - $ 3,448
Building and improvements 15-30 - 4,929
Furniture, fixtures and
equipment 3-10 938 8,351
Leased property 3-7 2,396 2,347
- --------------------------------------------------------------------------
3,334 19,075
Less - accumulated depreciation
and amortization (1,558) (2,590)
- --------------------------------------------------------------------------
$1,776 $16,485
==========================================================================
</TABLE>
Accounts payable and accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
(in thousands) 1997 1998
- --------------------------------------------------------------------------
<S> <C> <C>
Accounts payable $3,311 $ 7,090
Accrued payroll 1,214 986
Other accrued liabilities 2,013 4,344
- --------------------------------------------------------------------------
$6,538 $12,420
==========================================================================
</TABLE>
Supplemental cash flow information is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(in thousands) 1996 1997 1998
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental disclosure of cash flow
information
Cash paid for interest $556 $628 $ 641
- ---------------------------------------------------------------------------
Cash paid for income taxes $ - $ - $ 721
- ---------------------------------------------------------------------------
Supplemental disclosure of non-cash flow
information
Capital lease obligations $912 $928 $ 83
- ---------------------------------------------------------------------------
Common stock portion of
Combinations $ - $ - $ 68,695
- ---------------------------------------------------------------------------
Common stock portion of
Post-IPO Acquisitions $ - $ - $ 7,251
- ---------------------------------------------------------------------------
</TABLE>
NOTE 6 - LONG-TERM DEBT
ResortQuest 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 in conjunction with the
Credit Facility. On September 30, 1998, the Credit Facility was amended to allow
for the ResortQuest acquisition of Abbott Resorts. On December 7, 1998, the
Credit Facility was amended for a second time to increase the facility to $55
million and added two additional lenders, Societe Generale and Union Planters
Bank, N.A. 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 ResortQuest to comply with various loan
covenants, which include maintenance of certain financial ratios, restrictions
on additional indebtedness and restrictions on liens, guarantees, advances,
capital expenditures, sale of assets and dividends. Interest on outstanding
balances of the Credit Facility is computed at ResortQuest'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 range
from 0.25% to 0.50% per annum depending
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
on certain financial ratios are payable on the unused portion of the Credit
Facility. At December 31, 1998, borrowings under the Credit Facility totaled
$32.0 million, resulting primarily from the Abbott Resorts acquisition.
ResortQuest is paying a margin of 1.75% and availability fees of 0.375%, which
resulted in interest expense of approximately $517,000 in 1998. The weighted
average interest rate during 1998, based on outstanding ResortQuest Credit
Facility borrowings, including the applicable LIBOR spread, was 7.3%. The Credit
Facility has a three-year term and is secured by substantially all the assets of
ResortQuest and its subsidiaries, including the stock in the Founding Companies
and any future material subsidiaries, as defined. ResortQuest, each Founding
Company and all other current and future material subsidiaries are required to
guarantee repayment of all amounts due under the Credit Facility. At December
31, 1998, ResortQuest was in compliance with applicable loan covenants.
On September 30, 1998, ResortQuest 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 were the same as those provided for in the
Credit Facility. The Note Agreement was secured on the same terms as the Credit
Facility. The Note Agreement was terminated effective December 7, 1998, when
ResortQuest secured additional availability under 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.
At December 31, 1997 and 1998, long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
(in thousands) 1997 1998
- ------------------------------------------------------------------------------
<S> <C> <C>
Credit facility $ - $32,000
Various notes with banks, secured by certain
assets, at interest rates ranging from
7.125% to 9%, due between
May 1999 through January 2013 - 5,246
Other notes 2,816 191
Long-term capital lease obligations 1,734 1,725
- ------------------------------------------------------------------------------
Total 4,550 39,162
Less - current maturities (421) (1,209)
- ------------------------------------------------------------------------------
Total non-current portion $4,129 $37,953
==============================================================================
</TABLE>
Annual maturities of long-term debt are: 1999, $1.2 million; 2000, $1.8
million; 2001, $33.7 million; 2002, $1.6 million; 2003, $402,000; and $407,000
thereafter.
NOTE 7 - OPERATING LEASES
ResortQuest has entered into non-cancelable operating leases for equipment,
operating space, office space, hotel properties and individual condominium units
within its managed properties. At December 31, 1998, future minimum lease
commitments under all non-cancelable operating leases are as follows:
<TABLE>
<CAPTION>
(in thousands) DECEMBER 31,
- -------------------------------------------------------------
<S> <C>
1999 $1,187
2000 929
2001 857
2002 820
2003 652
Thereafter 1,480
- -------------------------------------------------------------
$5,925
============================================================-
</TABLE>
32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMEMENTS
(Continued)
Under terms of the leases, ResortQuest is generally required to pay all
taxes, insurance and maintenance. Rent expense for the years ended December 31,
1996, 1997, and 1998, aggregated approximately $4.8 million, $5.3 million and
$2.4 million, respectively.
In conjunction with the Combinations and Post-IPO Acquisitions, ResortQuest
entered into several lease agreements with certain former owners for the use of
office space and facilities. Lease payments made to former owners, who are also
stockholders and directors, during 1996, 1997 and 1998 were approximated
$114,000, $110,000 and $548,000, 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. ResortQuest
remains contingently liable under the leases until completion of the lease
terms. Because ResortQuest 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.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
GUARANTEES
Prior to the Combinations, Aston had guaranteed or co-signed debts of its former
principal stockholder, which primarily relates to mortgage loans on two hotels
managed by Aston. These guarantees were fully collateralized with real estate,
cash or cash equivalents, including shares of Common Stock, pledged either to
the lenders of such debt or Aston to secure such debt. As of December 31, 1998,
the former principal stockholder of Aston has removed all guarantees.
Certain of Aston's management agreements contain provisions for guaranteed
levels of returns to owners. These agreements also contain force majeure clauses
to protect the Company from forces or occurrences beyond the control of
management. During 1996, 1997 and 1998, ResortQuest made payments in excess of
the management fees earned on these guaranteed agreements of $116,000, $327,000
and $840,000, 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 1933 Act, the 1934 Act or
other federal or state law or regulation arising out of or based upon any untrue
statement of a material fact relating solely to the Founding Company or the
stockholders and (iv) certain other identified claims or litigation. In
addition, pursuant to each Agreement and subject to certain limitations,
ResortQuest agreed to indemnify the stockholders against losses, claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses incurred by the stockholders as a result of or arising from (i) any
breach by ResortQuest or of its representations and warranties in the Agreement
and its schedules and certificates, (ii) any breach of any agreement on the part
of ResortQuest under this Agreement, (iii) any liability under the 1933 Act, the
1934 Act or other federal or state law or regulation, at common law or
otherwise, arising out of or based upon any untrue statement or alleged untrue
statement of a material fact relating to ResortQuest or any of the other
Founding Companies contained in certain filings with the Securities and Exchange
Commission, or (v) the matters described in the schedules to the Agreement
relating to guarantees.
ResortQuest is not aware of any events that have or could have caused any
party to such indemnification under any of the Agreements during the periods
presented in the accompanying consolidated financial statements.
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
LITIGATION
ResortQuest and its subsidiaries 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 materially adverse effect on the Company's
consolidated financial position or results of operations.
INSURANCE
ResortQuest 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
As of December 31, 1998, ResortQuest had ten 401(k) profit sharing plans, which
existed prior to the IPO and the acquisition of the Founding Companies or the
Post-IPO Acquisitions. Under the plans currently in place, employees may defer
from 1% to 18% of eligible earnings, company matching contributions range from
0% to 50% of the first 4% to 6% of employee contributions, and employee vesting
in Company matching contributions varies from immediate vesting in some plans to
seven or more years in other plans. Currently, in the aggregate of all plans,
there are approximately 1,800 eligible employees covered under the plans and
1,200 active participants. ResortQuest matching contributions to the plans were
$107,000, $184,000 and $231,000 in 1996, 1997 and 1998, respectively.
ResortQuest is currently in the process of establishing a new 401(k) profit
sharing plan, which will cover all domestic employees. The new 401(k) plan is
expected to be in place in second quarter 1999. Once this plan is in place, all
existing plans will be merged into the new 401(k) plan during 1999.
EMPLOYMENT AGREEMENTS
Effective with the Combinations and the Post-IPO Acquisitions, ResortQuest
entered into employment agreements with all senior corporate officers and
several key employees of the Operating Companies. Among other things, these
agreements allow for severance payments and some include acceleration of stock
option awards upon a change in control of ResortQuest, as defined under the
agreements. The maximum amount of compensation that would be payable under all
agreements if a change in control occurred without prior written notice as of
December 31, 1998, would be approximately $21.4 million.
NOTE 9 - STOCKHOLDERS' EQUITY
COMMON STOCK
On May 26, 1998, ResortQuest issued an aggregate of 9,254,286 shares of Common
Stock in connection with the Combinations (1,708,333 shares to Aston
stockholders and 7,545,953 shares to the remaining stockholders involved with
the Combinations) and 6,670,000 shares of Common Stock in connection with the
IPO. 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. Subsequent to the IPO, ResortQuest issued 967,641 shares of
Common Stock in connection with the Post-IPO Acquisitions (191,939 shares to
Plantation Resort stockholders, 757,040 shares to Abbott Resorts stockholders
and 18,662 shares to Columbine stockholders). As of December 31, 1998,
ResortQuest had 16,891,927 shares of Common Stock issued and outstanding
(13,757,297 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 ("SEC") pursuant to a shelf
registration statement ("Shelf").
34
<PAGE>
Common Stock registered under the Shelf is to be used primarily for future
acquisitions. Subsequently, the Shelf was re-filed with the SEC to include the
pro forma impact of the Abbott acquisition, which was again deemed effective on
November 6, 1998. At December 31, 1998, 967,641 shares covered by the Shelf have
been issued in connection with the Post-IPO Acquisitions.
PREFERRED STOCK
ResortQuest's authorized capital includes 10.0 million shares of undesignated
preferred stock with a $0.01 par value.
NOTE 10 - STOCK OPTIONS
In March 1998, ResortQuest's Board of Directors and stockholders approved the
Company's 1998 Long-Term Incentive Plan ("Incentive Plan"). The options vest
annually and ratably over a four-year period from the date of grant and expire
ten years after the grant date. ResortQuest has reserved 2,027,031 shares of
Common Stock for use in connection with the 1998 Long-Term Incentive Plan. In
connection with the IPO, 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. Subsequent to the
IPO, 179,351 non-qualified stock options have been granted to new employees at
the then ResortQuest Common Stock market value (ranging from $8.94 to $16.81).
The Incentive Plan also provides for the issuance of stock appreciation rights,
restricted or deferred stock, dividend equivalents, bonus shares and awards in
lieu of Company obligations to pay cash compensation, non-employee directors'
deferred shares, or other awards. The value of the options is based in whole or
in part upon the value of the Common Stock.
ResortQuest applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations in accounting for
its stock option plan. Accordingly, no compensation cost has been recognized in
the consolidated statements of income for the Incentive Plan. In accordance with
SFAS No. 123, "Accounting for Stock-Based Compensation," ResortQuest has
estimated the fair value of each option grant using the Black-Scholes
option-pricing model. Had compensation cost for awards under the Plan been
determined based on the fair value at the grant dates, ResortQuest's net income
and earnings per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
(in thousands, except per share amounts) 1996 1997 1998
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income
As reported $3,598 $3,591 $4,416
Pro forma 3,598 3,591 3,740
Basic earnings per share
As reported $ 2.11 $ 2.10 $ 0.42
Pro forma 2.11 2.10 0.36
Diluted earnings per share
As reported $ 2.11 $ 2.10 $ 0.41
Pro forma 2.11 2.10 0.35
</TABLE>
A summary of ResortQuest's stock option transactions, from May 26, 1998 through
December 31, 1998, is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
- --------------------------------------------------------------------------------
Weighted Common
average stock
exercise available
price Number for grant
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
IPO - May 26, 1998 n/a - 1,910,914
Increased availability common
stock issued during the year n/a - 116,117
Options granted $10.90 1,874,351 (1,874,351)
- --------------------------------------------------------------------------------
Balance-- December 31, 1998 $10.90 1,874,351 152,680
================================================================================
</TABLE>
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The $4.13 weighted average fair value of options granted by ResortQuest during
1998 was based on the Black-Scholes option-pricing model. Assumptions included
an average risk-free interest rate of 5.5%; an average expected life of 2.6
years; a volatility factor of 54.6%; and no dividends. At December 31, 1998,
there were 1,874,351 options outstanding with an exercise price that ranges from
$8.94 to $16.81 and an average weighted exercise price of $10.90 and a weighted
average remaining contractual life of 9.5 years.
NOTE 11 - INCOME TAXES
Income tax expense attributable to income from continuing operations for the
year ended December 31, 1998 consisted of the following:
<TABLE>
<CAPTION>
(in thousands) 1998
- -----------------------------------------------------------
<S> <C>
Current
Federal $ 853
State 106
Deferred
Federal 448
State 55
- -----------------------------------------------------------
Total $1,462
===========================================================
</TABLE>
The difference between the statutory federal income tax rate and the
effective income tax rate expressed as a percentage of income from continuing
operations before income taxes for the year ended December 31, 1998 is as
follows:
<TABLE>
<CAPTION>
1998
- -----------------------------------------------------------
<S> <C>
Federal statutory rate 34.0%
State income taxes, net of federal benefit 4.2
Goodwill and other permanent items 44.9
Pre-IPO earnings not taxable (50.8)
- -----------------------------------------------------------
Effective income tax rate 32.3%
- -----------------------------------------------------------
</TABLE>
As a result of the Combinations and the Post-IPO Acquisitions, the
allocation of the purchase price to the assets and liabilities for financial
reporting purposes significantly exceeds the tax basis carried over from the
predecessor entities. Accordingly, the acquisitions created significant
nondeductible goodwill and other temporary differences. The tax effects of
temporary differences that give rise to significant portions of the deferred tax
assets and liabilities as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
(in thousands) 1998
- -----------------------------------------------------------
<S> <C>
Deferred tax assets
Claims and other reserves $ 977
Section 481 adjustment: Cash to accrual 671
State net operating losses 310
Other 45
- -----------------------------------------------------------
Total deferred tax assets 2,003
- -----------------------------------------------------------
Deferred tax liabilities
Basis difference on fixed assets (342)
Other (153)
- -----------------------------------------------------------
Total deferred tax liabilities (495)
- -----------------------------------------------------------
$1,508
===========================================================
</TABLE>
NOTE 12 - EARNINGS PER SHARE
ACTUAL RESULTS
Earnings per share included in the consolidated statements of income includes
Aston's results of operations under its historical capital and income tax
structure for all periods prior to the Combinations, and the combined balances
and transactions of ResortQuest and the Founding Companies since May 26, 1998.
The shares outstanding for Aston through May 25, 1998, and the shares
outstanding for ResortQuest from May 26, 1998 through December 31, 1998, were
used to calculate the 1998 weighted
36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
average shares outstanding. The following table reflects ResortQuest's weighted
average common shares outstanding and the impact of its primary common share
equivalents.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1996 1997 1998
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic weighted average
common shares outstanding 1,708,333 1,708,333 10,529,189
Effect of dilutive securities -
stock options - - 139,421
- --------------------------------------------------------------------------------
Diluted weighted average
common shares outstanding 1,708,333 1,708,333 10,668,610
================================================================================
</TABLE>
PRO FORMA RESULTS
Pro forma earnings per share included in the consolidated statements of pro
forma income is based on pro forma net income after considering the adjustments
described in Note 1 - Pro Forma Financial Information. The pro forma weighted
average common shares for all periods reflect the issuance of Common Stock in
connection with the Combinations, the IPO and to ResortQuest shareholders and
management as though such shares were outstanding for the entire periods. In
addition, the 1998 periods include the impact of Common Stock issued in
connection with the Post-IPO Acquisitions only from their respective acquisition
dates. However, the 1998 calculations also include the dilutive impact of
options outstanding from May 27, 1998 through December 31, 1998. The following
table reflects ResortQuest's pro forma weighted average common shares
outstanding and the impact of its primary common share equivalents.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Basic weighted average
common shares outstanding 15,924,286 16,166,168
Effect of dilutive securities -
stock options - 74,182
- --------------------------------------------------------------------------------
Diluted weighted average
common shares outstanding 15,924,286 16,240,350
- --------------------------------------------------------------------------------
</TABLE>
NOTE 13 - SEGMENT REPORTING
On January 1, 1998, ResortQuest adopted the provisions of SFAS No. 131
"Disclosures about Segments of an Enterprise and Related Information." Under
SFAS No. 131, ResortQuest has one operating segment, property management, which
is managed as one business unit. The accounting policies of this segment are the
same as those described in the summary of significant accounting policies. The
all other segment includes First Resort and corporate. Approximately 79% of the
all other segment assets represents goodwill recorded for First Resort and
corporate. The following table presents the revenues, operating income and
assets of ResortQuest's reportable segment.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(in thousands) 1996 1997 1998
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Property management $19,460 $19,554 $ 47,570
All other - - 1,954
- --------------------------------------------------------------------------------
$19,460 $19,554 $ 49,524
================================================================================
Operating income
Property management $ 3,485 $ 5,171 $ 7,226
All other - - (2,292)
- --------------------------------------------------------------------------------
$ 3,485 $ 5,171 $ 4,934
================================================================================
Assets
Property management $14,562 $146,584
All other - 38,336
- --------------------------------------------------------------------------------
$14,562 $184,920
================================================================================
</TABLE>
NOTE 14 - RELATED-PARTY TRANSACTIONS
ResortQuest has unwritten and written consulting and management agreements with
certain stockholders and directors of the Founding Companies and Post-IPO
Acquisitions. Consulting services include assistance in operations, identifying
acquisitions, and involvement in local and governmental affairs. During 1996,
1997 and 1998, the Company incurred $221,000, $232,000 and $287,000,
respectively, relative to these consulting arrangements.
ResortQuest receives sales commissions for selling properties developed by
certain companies and partnerships owned or
37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
co-owned by former owners of the Founding Companies and Post-IPO Acquisitions.
These net commissions approximated $1.9 million during 1998 and the Company had
approximately $414,000 in receivables at December 31, 1998 from these
affiliates.
ResortQuest entered into numerous transactions with the former owner of
Aston ("Former Owner") who is now a director and stockholder of the Company.
ResortQuest provides management and centralized services (cooperative sales and
marketing, reservations, accounting services and other reimbursements) for four
hotels, of which two are owned by the Former Owner and two are managed for an
affiliate of the Former Owner. The management fees charged to these hotels
approximated $501,000, $506,000 and $1.5 million in 1996, 1997 and 1998,
respectively. ResortQuest also paid HCP, Inc., a company that is wholly owned by
the Former Owner, $481,000, $476,000 and $158,000 in 1996, 1997 and 1998,
respectively, for sales representation and related accounting services.
Beginning in 1997, ResortQuest provides administrative services to AST
International LLC, which is controlled by the Former Owner. Related to these
services, the Company recognized $272,000 during 1998 and had receivables of
$420,000 and $208,000 as of December 31, 1997 and 1998, respectively.
ResortQuest also provides certain management and clerical personnel for a
development company owned by the Former Owner. During 1996, 1997 and 1998,
ResortQuest incurred $125,000, $126,000 and $4,000, respectively, in salaries
and benefits costs relative to this development company. In return, ResortQuest
receives certain consulting and support services.
ResortQuest provides various management and consulting services for certain
companies and partnerships owned or co-owned by former owners of the Founding
Companies and Post-IPO Acquisitions. During 1998, ResortQuest received
approximately $275,000 for these services.
ResortQuest also manages vacation properties pursuant to its standard
management agreement that are owned or co-owned by certain directors and
employees of the Company.
38
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of ResortQuest International, Inc.:
We have audited the accompanying consolidated balance sheets of ResortQuest
International, Inc., (a Delaware corporation) and subsidiaries (the "Company"),
as of December 31, 1998 and 1997, and the related consolidated statements of
income, changes in stockholders' equity and cash flows for each of the three
years ended December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
ResortQuest International, Inc. and subsidiaries, as of December 31, 1998 and
1997, and the results of their operations and their cash flows for each of the
three years ended December 31, 1998, in conformity with generally accepted
accounting principles.
/s/ Arthur Anderson LLP
Memphis, Tennessee,
February 25, 1999.
MANAGEMENT'S REPORT ON CONSOLIDATED
FINANCIAL STATEMENTS
ResortQuest International, Inc. ("ResortQuest") is responsible for preparing the
consolidated financial statements and related information appearing in this
report. Management believes that the consolidated financial statements present
fairly their consolidated financial position, results of operations and cash
flows in conformity with generally accepted accounting principles. In preparing
its consolidated financial statements, ResortQuest is required to include
amounts based on estimates and judgements which it believes are reasonable under
the circumstances.
ResortQuest maintains accounting and other control systems designed to
provide reasonable assurance that financial records are reliable for purposes of
preparing consolidated financial statements and that assets are properly
accounted for and safeguarded. Limitations exist in any internal control system,
recognizing that the system's cost should not exceed the benefits derived.
The Board of Directors pursues its responsibility for ResortQuest's
consolidated financial statements through its Audit Committee, which is composed
solely of directors who are not officers or employees of ResortQuest. The Audit
Committee meets from time to time with the independent public accountants and
management.
/s/ David C. Sullivan
David C. Sullivan
Chairman of the Board & Chief Executive Officer
/s/ Jeffery M. Jarvis
Jeffery M. Jarvis
Senior Vice President & Chief Financial Officer
39
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
(in thousands, except share amounts) QUARTER QUARTER QUARTER QUARTER
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998 ACTUAL
Revenues $6,078 $7,858 $16,949 $18,639
Operating income (loss) 1,882 726 3,125 (799)
Net income (loss) (a) 1,697 577 1,715 (920)
Basic earnings (loss) per share (b) 0.99 0.08 0.11 (0.05)
Basic weighted average shares outstanding 1,708 7,176 15,993 16,880
Diluted earnings (loss) per share (b) 0.99 0.08 0.11 (0.05)
Diluted weighted average shares outstanding 1,708 7,290 16,181 16,889
1997 ACTUAL
Revenues $5,581 $4,497 $5,170 $ 4,306
Operating income 2,055 337 1,846 933
Net income (a) 1,887 172 1,644 1,382
Basic earnings per share (b) 1.10 0.10 0.96 0.81
Basic weighted average shares outstanding 1,708 1,708 1,708 1,708
Diluted earnings per share (b) 1.10 0.10 0.96 0.81
Diluted weighted average shares outstanding 1,708 1,708 1,708 1,708
</TABLE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(in thousands) 1994 1995 1996 1997 1998
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA
Revenues $20,421 $19,048 $19,460 $19,554 $ 49,524
Operating expenses 12,406 10,550 10,401 8,908 27,330
General and administrative
expenses, including depreciation
and amortization 5,444 5,434 5,574 5,475 17,260
- ------------------------------------------------------------------------------------
Income from operations 2,571 3,064 3,485 5,171 4,934
Interest and other expense, net 246 771 342 86 403
Provision for income taxes - - - - 1,462
- ------------------------------------------------------------------------------------
Income from continuing operations $ 2,325 $ 2,293 $ 3,143 $ 5,085 $ 3,069
===================================================================================-
BALANCE SHEET DATA
Total assets $ 9,373 $13,904 $12,970 $14,562 $184,920
Long-Term Debt 2,396 2,133 2,816 4,129 37,953
Stockholders' Equity (deficit) (395) (395) (395) (395) 107,167
</TABLE>
(a) Net income is representative of income from continuing operations and does
not include the effects of certain discontinued operations.
(b) The sum of the quarterly amounts may not equal the annual amount reported,
as per share amounts are computed independently for each quarter while the
full year is based on the annual weighted average shares outstanding.
40
<PAGE>
CORPORATE INFORMATION
EXECUTIVE OFFICERS
David C. Sullivan
Chairman of the Board and Chief Executive Officer
David L. Levine
President and Chief Operating Officer
Frederick L. Farmer
Senior Vice President and Chief Information Officer
Jeffery M. Jarvis
Senior Vice President and Chief Financial Officer
John K. Lines
Senior Vice President, General Counsel and Secretary
W. Michael Murphy
Senior Vice President and Chief Development Officer
Jules S. Sowder
Senior Vice President and Chief Marketing Officer
CORPORATE OFFICERS
S. Mark Aldy
Vice President, Controller
Park Brady
Regional Vice President
Douglas R. Brindley
Regional Vice President
Gary Keirce
Vice President, Human Resources
Paul Manteris
Vice President, Operations
James S. Olin
Regional Vice President
David K. Selberg
Vice President, Finance
BOARD OF DIRECTORS
David C. Sullivan Chairman of the Board and Chief Executive Officer
David L. Levine President and Chief Operating Officer
William W. Abbott, Jr. Former Vice Chairman, Abbott Realty Services, Inc.
Luis Alonso President, Collection of Fine Properties, Inc.
Elan J. Blutinger Managing Director, Alpine Consolidated II, LLC
Park Brady Former President, Telluride Resort Accommodations and Regional Vice
President of ResortQuest
Douglas R. Brindley President, Brindley & Brindley Realty & Development, Inc.
and Regional Vice President of ResortQuest
D. Fraser Bullock Managing Director, Alpine Consolidated II, LLC
Paul T. Dobson President, Maui Condominium and Home Realty, Inc.
Sharon Benson Doucette President, The Maury People, Inc.
Joshua M. Freeman Former President and Managing Member, Coastal Resorts Realty,
LLC
Evan H. Gull Vice President of Development, First Resort Software, Inc.
Heidi O'Leary Houston President, Houston & O'Leary Company, Inc.
Charles O. Howey Former President, Howey Acquisition, Inc. and Priscilla Murphy
Realty, Inc.
J. Patrick McCurdy President, Whistler Chalets, Ltd.
Daniel E. Meehan Former President, Resort Property Management, Inc.
Leonard A. Potter* Managing Director, Alpine Consolidated II, LLC
Michael D. Rose Chairman, Promus Hotel Corporation
Andre S. Tatibouet President, Hotel Corporation of the Pacific, Inc., aka Aston
Hotels and Resorts
Hans F. Trupp Chairman, Trupp-Hodnett Enterprises, Inc.
Joseph V. Vittoria Chairman and Chief Executive Officer, Travel Services
International, Inc.
Theodore L. Weise President and Chief Executive Officer, Federal Express
Corporation
*Advisory Director
EXECUTIVE OFFICES
530 Oak Court Drive, Suite 360
Memphis, Tenn. 38117
Tel: (901) 762-0600
Fax: (901) 762-0678
REGISTRAR AND STOCK TRANSFER AGENT
American Stock Transfer
& Trust Company
40 Wall Street
New York, New York 10005
INDEPENDENT AUDITORS
Arthur Andersen LLP
100 Peabody Place, Suite 1100
Memphis, Tenn. 38103
STOCKHOLDER INQUIRIES
For information about ResortQuest and its subsidiaries, including copies of its
annual report on Form 10-K and quarter reports on Form 10-Q, please submit a
written request to: Jeffery Jarvis, ResortQuest International, Inc., 530 Oak
Court Drive, Suite 360, Memphis,Tenn. 38117.
ANNUAL MEETING DATE
ResortQuest will hold its annual meeting of stockholders on May 13, 1999 at the
Embassy Suites, 1022 S. Shady Grove, Memphis, Tenn.
INTERNET
RESORTQUEST.COM is the first nationally branded online booking resource in the
vacation rental industry. At RESORTQUEST.COM, investors can obtain an overview
of the company's financial condition and operating philosophy.
STOCK LISTING
The company's stock began trading on the New York Stock Exchange on May 20, 1998
under the symbol RZT.
Stock Price
1998 HIGH LOW
- --------------------------------------------
FOURTH QUARTER 14 3/4 6 9/16
THIRD QUARTER 17 1/8 8 13/16
SECOND QUARTER 17 3/4 14
First Quarter n/a n/a
FORWARD-LOOKING STATEMENTS
Certain statements in this annual report include "forward-looking statements"
within the meaning of the safe harbor provisions of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934
and are qualified by cautionary statements contained herein and in ResortQuest
International, Inc. filings with the Securities and Exchange Commission.
41
EXHIBIT 21
RESORTQUEST INTERNATIONAL, INC.
(A DELAWARE CORPORATION)
SUBSIDIARIES
(AS OF MARCH 10, 1999)
<TABLE>
<CAPTION>
STATE/COUNTRY
ENTITY OF FORMATION
<S> <C>
570667 British Columbia, Ltd. British Columbia, Canada
Abbott & Andrews Realty, Inc. Florida
Abbott Realty Services, Inc. Florida
Abbott Resorts, Inc. Florida
B & B on the Beach, Inc. Delaware
Brindley & Brindley Realty & Development, Inc. North Carolina
Coastal Resorts Management, Inc. Delaware
Coastal Resorts Realty, L.L.C. North Carolina
Collection of Fine Properties, Inc. Colorado
Columbine Management Company, Inc. Colorado
Cove Management Services, Inc. California
First Resort Software, Inc. Colorado
Hotel Corporation of the Pacific, Inc. Hawaii
Houston & O'Leary Company Colorado
Howey Acquisition, Inc. Florida
Maui Condominium & Home Realty, Inc. Hawaii
Plantation Resort Management, Inc. Delaware
Priscilla Murphy Realty, Inc. Florida
REP Holdings, Inc. Hawaii
Realty Consultants, Inc. Florida
Resort Property Management, Inc. Utah
Ridgepine, Inc. Oregon
Ryan's Golden Eagle Management, Inc. Montana
S.I.I.K., Inc. Florida
Scottsdale Resort Accommodations, Inc. Delaware
Telluride Resort Accommodations, Inc. Colorado
Ten Mile Holdings, Ltd. Colorado
THE Management Company, Inc. Georgia
The Maury People, Inc. Massachusetts
Tops'l Club of NW Florida, Inc. Florida
The Tops'l Group, Inc. Florida
The Tops'l Sales Group, Inc. Florida
Trupp-Hodnett Enterprises, Inc. Georgia
Whistler Chalet Holding Corp Whistler, British Columbia, Canada
Whistler Chalets Ltd. Whistler, British Columbia, Canada
Worthy Owner Rental Group, Inc. South Carolina
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001057507
<NAME> RESORTQUEST INTERNATIONAL, INC.
<MULTIPLIER> 1000
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1.000
<CASH> 23,309
<SECURITIES> 0
<RECEIVABLES> 3,823
<ALLOWANCES> 56
<INVENTORY> 0
<CURRENT-ASSETS> 35,823
<PP&E> 16,485
<DEPRECIATION> 1,283
<TOTAL-ASSETS> 184,920
<CURRENT-LIABILITIES> 37,919
<BONDS> 0
0
0
<COMMON> 169
<OTHER-SE> 106,998
<TOTAL-LIABILITY-AND-EQUITY> 184,920
<SALES> 0
<TOTAL-REVENUES> 49,524
<CGS> 0
<TOTAL-COSTS> 27,330
<OTHER-EXPENSES> 14,171
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 403
<INCOME-PRETAX> 4,531
<INCOME-TAX> 1,462
<INCOME-CONTINUING> 3,069
<DISCONTINUED> 1,347
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,416
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0.41
</TABLE>
EXHIBIT 99.2
HOWEY ACQUISITION, INC.
(DBA PRICILLA MURPHY REALTY, INC.)
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997 AND MAY 26, 1998
TOGETHER WITH REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Howey Acquisition, Inc.:
We have audited the accompanying consolidated balance sheets of Howey
Acquisition, Inc., (a Florida corporation) as of December 31, 1997 and May 26,
1998, 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 and the period from January 1, 1998
through May 26, 1998. 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 May 26, 1998, and the results of
their operations and their cash flows for the period from January 3, 1997
(inception) through December 31, 1997 and the period from January 1, 1998
through May 26, 1998, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Houston, Texas
July 17, 1998
<PAGE>
HOWEY ACQUISITION, INC. DBA PRISCILLA MURPHY REALTY, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31, May 26,
ASSETS 1997 1998
------ -------------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 904 $ 130
Cash held in trust 4,036 2,734
Advances to property owners 39 26
Prepaid expenses and other current assets 60 9
-------- -------
Total current assets 5,039 2,899
PROPERTY AND EQUIPMENT, net 102 100
GOODWILL, net 5,436 5,379
OTHER ASSETS, net 187 183
-------- -------
Total assets $10,764 $8,561
====== =====
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 803 $ 803
Customer deposits and deferred revenue 4,036 2,734
Accounts payable and accrued liabilities 305 314
Payable to stockholders - 78
-------- -------
Total current liabilities 5,144 3,929
LONG-TERM DEBT, net of current maturities (including
note payable to an affiliate of $0 and $2,000, respectively) 3,862 3,862
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Class A Common stock, $.50 par value 40,000 shares
authorized and outstanding 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 1,508 520
-------- -------
Total stockholders' equity 1,758 770
-------- -------
Total liabilities and stockholders' equity $10,764 $8,561
====== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
HOWEY ACQUISITION, INC. DBA PRISCILLA MURPHY REALTY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
January 3,
1997 January 1,
Through Through
December 31, May 26,
1997 1998
------------ ----------
<S> <C> <C>
REVENUES:
Property rental fees $2,514 $1,815
Real estate commissions, net 1,473 836
Service fees 753 497
----- -----
Total revenues 4,740 3,148
OPERATING EXPENSES 1,184 482
GENERAL AND ADMINISTRATIVE EXPENSES 1,866 949
----- -----
Income from operations 1,690 1,717
INTEREST EXPENSE, net (182) (17)
----- -----
NET INCOME $1,508 $1,700
</TABLE>
The accompanying notes are an integral part of these financial statements.
<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>
BALANCE, January 3, 1997 - $ - - $ - $ - $ - $ -
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 - - - - - 1,700 1,700
Distributions - - - - - (2,688) (2,688)
------ -- ------- -- --- ------ -----
BALANCE, May 26, 1998 40,000 $20 160,000 $ 80 $150 $ 520 $ 770
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
HOWEY ACQUISITION, INC. DBA PRISCILLA MURPHY REALTY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
January 3, 1997 January 1,
Through Through
December 31, May 26,
1997 1998
---------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,508 $ 1,700
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation and amortization 203 75
Changes in operating assets and liabilities-
Cash held in trust (300) 1,302
Advances to property owners (39) 13
Prepaid expenses and other assets (60) 55
Customer deposits and deferred revenue 300 (1,302)
Accounts payable and accrued liabilities 305 9
------- -------
Net cash provided by operating activities 1,917 1,852
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net assets acquired (excluding cash) (225) -
Purchase of property and equipment - (16)
Excess of purchase price over net assets acquired (5,575) -
------- -------
Net cash used in investing activities (5,800) (16)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 5,750 -
Payments on long-term debt (1,213) -
Distributions to stockholders - (2,610)
Net proceeds from stock issuance 250 -
------- -------
Net cash provided by (used in) financing activities 4,787 (2,610)
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 904 (774)
CASH AND CASH EQUIVALENTS, beginning of period - 904
------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 904 $ 130
======= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 211 $ 60
======= =========
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING
ACTIVITES:
Accrued distribution to stockholders $ - $ 78
======= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<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
approximately $250,000 and $0 for 1997 and the period from January 1, 1998
through May 26, 1998, respectively. In addition, the purchase price for the
Company was adjusted for certain working capital adjustments of approximately
$78,000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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.
<PAGE>
The consolidated statements of operations of the Company for the period from
January 1, 1997 to January 3, 1997 (inception), has not been presented due to
the nominal level of operations.
Revenue Recognition
The Company records property rental fees on the accrual basis of accounting,
ratably over the term of guest stays, as earned. The Company requires a deposit
equal to 100% of the rental fee 45 days prior to the expected arrival date.
These deposits are non-refundable and are recorded as customer deposits and
deferred revenue in the accompanying financial statements until the guest stay
commences. The Company records revenue for cancellations as they occur.
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
approximately $5,440,000 and $3,090,000 for period ending December 31, 1997 and
the period from January 1, 1998 through May 26, 1998, respectively, and
commission expense of approximately $3,967,000 and $2,254,000 for the period
ending December 31, 1997 and the period from January 1, 1998 through May 26,
1998, 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.
-2-
<PAGE>
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.
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 consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, May 26,
1997 1998
-------------- ---------
<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 $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 2,013
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. 155 155
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
December 31, May 26,
1997 1998
-------------- ---------
<S> <C> <C>
Note payable, monthly payments of $3 through maturity
in January 2002; interest imputed at 7.50% unsecured $ 160 $ 147
------ ------
4,665 4,665
Less current maturities (803) (803)
------ ------
$3,862 $3,862
====== ======
</TABLE>
In conjunction with the Combination, all outstanding debt was retired.
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 for the year ended December 31, 1997 and $4,000 for the period from
January 1, 1998 through May 26, 1998.
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. During 1998, the Company entered a
fourth lease for an additional $12,000 per year.
-4-
EXHIBIT 99.3
COLLECTION OF FINE PROPERTIES
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997 AND MAY 26, 1998
TOGETHER WITH REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To Collection of Fine Properties, Inc.:
We have audited the accompanying consolidated balance sheet of Collection of
Fine Properties, Inc. as of December 31, 1997 and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for the
year ended 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 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 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 financial position of Collection of Fine
Properties, Inc. 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.
MORRISON, BROWN, ARGIZ AND COMPANY
Denver, Colorado
January 23, 1998
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To Collection of Fine Properties, Inc.:
We have audited the accompanying consolidated balance sheet of Collection of
Fine Properties, Inc. as of May 26, 1998, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for the
period from January 1, 1998 through May 26, 1998. 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 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 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 financial position of Collection of Fine
Properties, Inc. as of May 26, 1998, and the results of their operations and
their cash flows for the period from January 1, 1998 through May 26, 1998, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
July 15, 1998
<PAGE>
COLLECTION OF FINE PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
<TABLE>
<CAPTION>
December 31, May 26,
ASSETS 1997 1998
------------ ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $2,713 $ 275
Accounts receivable 67 21
Receivables from affiliates and stockholders 634 431
Prepaid expenses and other current assets 434 221
------ -------
Total current assets 3,848 948
PROPERTY AND EQUIPMENT, net 1,964 487
OTHER ASSETS 54 52
------- ------
Total assets $5,866 $1,487
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ 97 $ -
Current portion of long-term debt 28 51
Current portion of capital lease obligations 55 56
Customer deposits and deferred revenue 3,336 447
Payable to affiliates 28 430
Accounts payable and accrued liabilities 1,175 262
------- ------
Total current liabilities 4,719 1,246
LONG-TERM DEBT, net of current maturities 299 194
CAPITAL LEASE OBLIGATIONS, net of current maturities 15 5
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, no par value, 10,000 shares
authorized, issued and outstanding 788 788
Retained earnings (deficit) 45 (746)
------- ------
Total stockholders' equity 833 42
------- ------
Total liabilities and stockholders' equity $5,866 $1,487
======= ======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
COLLECTION OF FINE PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
January 1
Year Ended Through
December 31, May 26,
1997 1998
------------ -----------
<S> <C> <C>
REVENUES:
Property rental fees $3,513 $2,427
Service fee 243 84
Other 547 418
------ ------
Total revenues 4,303 2,929
OPERATING EXPENSES 2,830 1,397
GENERAL AND ADMINISTRATIVE
EXPENSES 893 331
------ ------
Income from operations 580 1,201
OTHER INCOME:
Interest income, net 58 32
Other 75 26
------ ------
NET INCOME $ 713 $1,259
====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<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, 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 - - 1,259 1,259
Distributions, net - - (2,050) (2,050)
------ ---- ------- -----
BALANCE, May 26, 1998 10,000 $788 $ (746) $ 42
====== ==== ====== ======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
COLLECTION OF FINE PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year January 1
Ended Through
December 31, May 26,
1997 1998
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 713 $ 1,259
Adjustments to reconcile net income to net cash provided
by operating activities-
Depreciation and amortization 307 114
Changes in operating assets and liabilities-
Accounts receivable 33 46
Prepaid expenses and other assets (122) 213
Customer deposits and deferred revenue 49 (2,889)
Payables to affiliates (13) 402
Accounts payable and accrued expenses 237 (913)
-------- --------
Net cash provided by (used in) operating activities 1,204 (1,768)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (284) (31)
Proceeds from sale of property and equipment 8 -
Other assets 37 2
Sales of marketable securities 103 -
-------- --------
Net cash used in investing activities (136) (29)
-------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
COLLECTION OF FINE PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
(In thousands)
<TABLE>
<CAPTION>
Period
Year January 1
Ended Through
December 31, May 26
1997 1998
------------ ---------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances on line of credit $ 752 $ -
Repayments on line of credit (655) (97)
Proceeds from long-term debt - 269
Payments on long-term debt (344) (97)
Receivables from affiliates and stockholders, net (421) 366
Payments on capital leases (51) (9)
Distributions to stockholders (300) (1,073)
------- --------
Net cash used in financing activities (1,019) (641)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 49 (2,438)
CASH AND CASH EQUIVALENTS, beginning of period 2,664 2,713
------- --------
CASH AND CASH EQUIVALENTS, end of period $ 2,713 $ 275
====== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 79 $ 15
======= ========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Net assets retained by stockholders $ - $ 1,394
========= ======
Debt assumed by stockholders $ - $ 254
========= =======
Accrued contributions from stockholders $ - $ 163
========= =======
Acquisition of assets under capitalized leases $ 86 $ -
======= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<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 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 $94,000 and $0 for the year ended December 31, 1997 and the period
from January 1, 1998 through May 26, 1998, respectively. 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 of approximately $163,000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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.
<PAGE>
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.
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.
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 method. Inventories are
included in prepaid expenses and other current assets on the balance sheets.
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.
-2-
<PAGE>
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 the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods. The
actual outcome of these estimates could differ from the estimates made in the
preparation of the financial statements.
Concentration of Credit Risk
At December 31, 1997 and May 26, 1998, the Company had cash deposits in a
financial institution of approximately $2,341,000 and $95,000, 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.
Reclassification
Certain items in the 1997 financial statements have been reclassified to conform
with the 1998 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 at December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
December 31,
1997
-----------------
<S> <C>
Merchandise $ 35
Parts and supplies 31
Uniforms 13
Ski lift tickets 78
-----
$157
</TABLE>
No inventory existed at May 26, 1998.
-3-
<PAGE>
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
Estimated
Useful
Lives in December 31, May 26,
Years 1997 1998
----------- ------------ -------
<S> <C> <C> <C>
Buildings 31 - 39 $ 1,230 $ -
Property held for investment 31 - 39 332 -
Furniture and equipment 3 - 7 806 818
Transportation equipment 5 203 203
Equipment under capital leases lease term 242 242
Leasehold improvements 39 59 77
Linens 4 259 260
-------- ------
3,131 1,600
Less accumulated depreciation and amortization (1,167) (1,113)
-------- ------
Property and equipment, net $ 1,964 $ 487
</TABLE>
Accounts payable and accrued liabilities consisted of the following (in
thousands):
<TABLE>
<CAPTION>
December 31, May 26,
1997 1998
------------ --------
<S> <C> <C>
Trade payable $ 915 $188
Payroll and payroll taxes 111 71
Sales tax 149 3
------ ----
Total accounts payable and accrued liabilities $1,175 $262
===== ===
</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 five years. Amortization on equipment
under capital leases for the year ended December 31, 1997 and the period from
January 1, 1998 through May 26, 1998 was approximately $49,000 and $9,000,
respectively.
-4-
<PAGE>
5. RELATED PARTIES:
The related party balances consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31, May 26,
1997 1998
-------------- -------
<S> <C> <C>
Receivable from affiliates $583 $230
Receivable from stockholders 51 201
---- ----
$634 $431
=== ===
Payable to affiliates
$ 28 $162
==== ===
</TABLE>
Related party receivables are unsecured, non-interest bearing and are expected
to be collected in the subsequent year. During the year ended December 31, 1997,
the Company received expense reimbursements from a related party of
approximately $75,000.
The Company has a mortgage note payable with an affiliate (Note 7).
6. LINE OF CREDIT:
The Company has a $750,000 line of credit from a bank. During the year ended
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% at December 31, 1997 and May 26, 1998, respectively.
These interest rates approximate the weighted average rates during the
respective years.
-5-
<PAGE>
7. LONG-TERM DEBT:
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31, May 26,
1997 1998
------------ --------
<S> <C> <C>
Mortgage note, payable in monthly principal installments of $.5 plus
interest at the prime rate (8.5% at December 31, 1997 and May 26,
1998). 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. $125 $ -
Mortgage note, payable in monthly installments of $.6 including
interest at the prime rate (8.5% at December 31, 1997
and May 26, 1998). The note is secured by property and
matures January, 2003, at which time a balloon payment is due. 71 -
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. 62 -
Mortgage note, payable in monthly installment including
interest at the prime rate (8.5% at May 26, 1998). The note is secured
by property and matures March, 2001. - 184
Loan payable for purchase of vehicles, payments of $2.1, including
principal and interest 69 61
--- ---
$327 $ 245
==== =====
</TABLE>
The aggregate maturities of long-term debt are as follows (in thousands):
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
1998 $ 28
1999 30
2000 140
2001 5
2002 3
Thereafter 121
-----
327
Less current maturities (28)
-----
$299
====
</TABLE>
Subsequent to May 26, 1998 all outstanding debt was retired.
-6-
<PAGE>
8. BENEFIT PLAN:
The Company instituted a 401(k) Profit Sharing Plan during September, 1996.
Employer contributions to the plan for the year ended December 31, 1997, and the
period January 1, 1998 through May 26, 1998, were approximately $20,000 and
$9,000, respectively.
-7-
EXHIBIT 99.4
COASTAL RESORTS MANAGEMENT, INC. AND
COASTAL RESORTS REALTY L.L.C.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997 AND MAY 26, 1998
TOGETHER WITH REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
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, 1997 and May 26, 1998, and the related combined statements of operations,
changes in stockholders' and members' equity and cash flows for the year ended
December 31, 1997 and for the period from January 1, 1998 through May 26, 1998.
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,
1997 and May 26, 1998, and the results of their combined operations and cash
flows for the year ended December 31, 1997 and for the period from January 1,
1998 through May 26, 1998, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Houston, Texas
July 15, 1998
<PAGE>
COASTAL RESORTS MANAGEMENT, INC. AND
COASTAL RESORTS REALTY L.L.C.
COMBINED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31, May 26,
1997 1998
-------------- ----------
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 203 $ 711
Cash held in escrow 442 638
Accounts receivable 117 535
Receivables from related parties 1,130 40
------- -------
Total current assets 1,892 1,924
PROPERTY AND EQUIPMENT, net 278 317
GOODWILL AND OTHER INTANGIBLE ASSETS, net 718 699
------- -------
Total assets $2,888 $2,940
===== =====
LIABILITIES AND STOCKHOLDERS' AND MEMBERS' EQUITY
-------------------------------------------------
CURRENT LIABILITIES:
Customer deposits and deferred revenue $ 212 $1,000
Payable to property owners 258 330
Accounts payable and accrued liabilities 395 6
Accounts payable and accrued liabilities-related parties 47 474
Accrued shareholder distribution - 113
------- -------
Total current liabilities 912 1,923
------- -------
NOTE PAYABLE TO RELATED PARTY 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
Members' equity 100 100
Retained earnings 1,136 892
------- -------
Total stockholders' and members' equity 1,261 1,017
------- -------
Total liabilities and stockholders' and members' equity $2,888 $2,940
===== =====
</TABLE>
The accompanying notes are an integral part of these
financial statements.
<PAGE>
COASTAL RESORTS MANAGEMENT, INC. AND
COASTAL RESORTS REALTY L.L.C.
COMBINED STATEMENTS OF OPERATIONS
(In thousands, except share data)
<TABLE>
<CAPTION>
January 1,
1998
Year Ended through
December 31, May 26,
1997 1998
------------- -----------
<S> <C> <C>
REVENUES:
Property rental fees $1,415 $ 380
Real estate commissions, net including related party
commissions of $1,244 and $375, respectively 1,268 763
Water plant 462 -
Service fees 470 106
------ ------
Total revenues 3,615 1,249
OPERATING EXPENSES 1,788 742
GENERAL AND ADMINISTRATIVE
EXPENSES 644 278
------ ------
Income from operations 1,183 229
INTEREST INCOME (EXPENSE) (47) 8
------ ------
NET INCOME $1,136 $ 237
====== ======
</TABLE>
The accompanying notes are an integral part of these
financial statements.
<PAGE>
COASTAL RESORTS MANAGEMENT, INC. AND
COASTAL RESORTS REALTY L.L.C.
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>
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 - - - - 237 237
Contributions - - - - 762 762
Distributions - - - - (1,243) (1,243)
------ ------ --- --- ----- -----
BALANCE, May 26, 1998 25,000 $ - $25 $100 $ 892 $ 1,017
====== ====== === === ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
COASTAL RESORTS MANAGEMENT, INC. AND
COASTAL RESORTS REALTY L.L.C.
COMBINED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
January 1
Year Ended Through
December 31, May 26,
1997 1998
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,136 $ 237
Adjustments to reconcile net income to
net cash provided by operating activities-
Depreciation and amortization 85 38
Gain on sale of assets (8) -
Changes in operating assets and liabilities-
Escrow accounts (244) (196)
Accounts receivable 26 (418)
Customer deposits and deferred revenue 49 788
Payable to property owners 95 72
Accounts payable and accrued liabilities 199 (389)
------ ------
Net cash provided by operating activities 1,338 132
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (261) (58)
Proceeds from sale of assets 115 -
------ ------
Net cash used in investing activities (146) (58)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Receivables from related parties (1,082) 1,090
Accounts payable and accrued liabilities-related parties 47 427
Proceeds from note payable to related party 200 -
Payments on note payable to related party (160) (715)
Capital contributions (distributions), net - (368)
------ ------
Net cash provided by (used in) financing activities (995) 434
------ ------
NET INCREASE IN CASH AND CASH EQUIVALENTS 197 508
CASH AND CASH EQUIVALENTS, beginning of period 6 203
------ ------
CASH AND CASH EQUIVALENTS, end of period $ 203 $ 711
====== ======
SUPPLEMENTAL DISCLOSURE OF NON-CASH
FINANCING INFORMATION:
Accrued distribution to stockholders $ - $ 113
====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
COASTAL RESORTS MANAGEMENT, INC. AND
COASTAL RESORTS REALTY L.L.C.
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.
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 of approximately $113,000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Combination and Financial Statement Presentation
The accompanying financial statements of CRM and CRR have been prepared on a
combined basis as the Companies are under common control and will be the subject
of a consolidation with and into ResortQuest.
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
<PAGE>
deposits and deferred revenue in the accompanying combined financial statements.
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 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
approximately $2,176,000 and $1,275,000 for the year ended December 31, 1997 and
the period from January 1, 1998 through May 26, 1998, respectively, and
commission expense of approximately $908,000 and $512,000 for the year ended
December 31, 1997 and for the period from January 1, 1998 through May 26, 1998,
respectively.
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 three
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.
Intangible Assets
On December 30, 1996, CRR entered into an agreement to purchase the assets and
assume certain liabilities of Interstate Realty Co., Inc. (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.
-2-
<PAGE>
The goodwill is being amortized over a period of 40 years.
The intangible assets are being amortized over a period of 10-15 years.
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.
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.
For the year ended December 31, 1997 and the period from January 1, 1998 to May
26, 1998, approximately 26 percent, respectively, of gross revenues were
attributable to commissions on new homes sales which were built by Sea Colony
Development Corporation, Inc., a related party.
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
Estimated
Useful
Lives December 31, May 26,
In Years 1997 1998
-------- ------------ ----------
<S> <C> <C> <C>
Computer equipment 5 $ 88 $100
Furniture and fixtures 7 241 288
----- -----
Total 329 388
----- -----
Less -- Accumulated depreciation (51) (71)
----- -----
Property and equipment, net $278 $317
=== ===
</TABLE>
-3-
<PAGE>
4. 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 $111,000 for the year ended
December 31, 1997 and $41,000 for the period from January 1, 1998 through May
26, 1998. Rental expense related to leases with related parties was
approximately $77,000 and $50,000 for the year ended December 31, 1997 and the
period from January 1, 1998 through May 26, 1998.
Minimum future lease payments under these noncancelable operating leases are as
follows (in thousands):
<TABLE>
<CAPTION>
Year Amount
----------------- -------
<S> <C>
Remainder of 1998 $ 70
1999 125
2000 129
2001 76
2002 38
----
Total $438
====
</TABLE>
-4-
<PAGE>
5. RELATED PARTIES:
Related Party Agreements
Effective June 1, 1996, an agreement with CMF Fitness, Inc., a related party
appointed the Company 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 approximately $70,000 and $29,000
for the year ended December 31, 1997 and for the period from January 1, 1998
through May 26, 1998, respectively, under this agreement.
CRM receives a management fee of approximately $6,000 per month for its
services. CRM earned approximately $70,000 and $29,000 for the year ended
December 31, 1997 and for the period from January 1, 1998 through May 26, 1998,
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 and
$206,000 in revenue from the operation of the water plant for the year ended
December 31, 1997 and for the period from January 1, 1998 through May 26, 1998,
respectively. Operating expenses plus the additional costs described above
incurred by CRM related to the water plant were approximately $319,000 and
$137,000 for the year ended December 31, 1997 and for the period from January 1,
1998 through May 26, 1998.
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 and $715,000 for the year ended December 31, 1997 and for the period
from January 1, 1998 through May 26, 1998, respectively, in new home sales
commissions under this agreement. 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.
At May 26, 1998, in connection with this agreement the Company has a net
receivable of approximately $448,000 from SCDC consisting of a receivable of
approximately $404,000 for commissions on new home sales during the period from
January 1, 1998 through May 26, 1988 and a related payable of approximately
$44,000 for commissions, marketing and advertising expenses paid by SCDC on
behalf of CRR.
-5-
<PAGE>
Effective January 1, 1997, the Companies entered into an agreement with CMF
Paymaster, Inc., a related party, to receive administrative services relating to
payroll and other employee matters. The agreement is effective from January 1,
1997 through December 31, 1999, and requires the Companies to pay $2.00 per pay
period per employee of the Companies.
The trademark purchased on December 30, 1996 for $115,000 was sold to SCDC
pursuant to an agreement effective December 31, 1997. As of December 31, 1997,
the Company has recorded a receivable from SCDC for $115,000 related to this
sale. A gain of $4,000 was recognized on the sale and is included in other
revenues.
Note Payable to Related Party
In connection with the purchase of two subsidiaries of the Companies, 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 $77,000 and $50,000 for the
year ended December 31, 1997 and the period from January 1, 1998 through May 26,
1998, 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.
-6-
EXHIBIT 99.5
FIRST RESORT SOFTWARE, INC.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997 AND MAY 26, 1998
TOGETHER WITH REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To First Resort Software, Inc.:
We have audited the accompanying balance sheets of First Resort Software, Inc.
(a Colorado corporation) as of December 31, 1997 and May 26, 1998, and the
related statements of operations, changes in stockholders' equity and cash flows
for the year ended December 31, 1997 and the period from January 1, 1998 through
May 26, 1998. 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 audits 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 First Resort Software, Inc., as
of December 31, 1997 and May 26, 1998, and the results of its operations and its
cash flows for the year ended December 31, 1997 and the period from January 1,
1998 through May 26, 1998, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Houston, Texas
July 17, 1998
<PAGE>
FIRST RESORT SOFTWARE, INC.
BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
<S> <C> <C>
December 31, May 26,
1997 1998
------------ ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 126 $ 108
Accounts receivable 274 381
Notes receivable 152 235
Prepaid expenses and other current assets 45 25
----- ------
Total current assets 597 749
PROPERTY AND EQUIPMENT, net 275 270
OTHER ASSETS - 8
----- ------
Total assets $ 872 $1,027
==== =====
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Deferred revenue $ 506 $ 579
Accounts payable and accrued liabilities 130 170
----- ------
Total current liabilities 636 749
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 95 137
----- ------
Total stockholders' equity 111 153
----- ------
Total liabilities and stockholders' equity $ 872 $1,027
==== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
FIRST RESORT SOFTWARE, INC.
STATEMENTS OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
Period from
Year Ended January 1
December 31, Through May 26,
1997 1998
-------------- ---------------
<S> <C> <C>
REVENUES:
Software sales $1,318 $ 626
Service contracts 1,390 685
Other 156 90
------- -------
Total revenues 2,864 1,401
OPERATING EXPENSES 1,704 679
GENERAL AND ADMINISTRATIVE EXPENSES 417 322
------- -------
Income from operations 743 400
OTHER INCOME:
Interest income 25 12
------- -------
NET INCOME $ 768 $ 412
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
FIRST RESORT SOFTWARE, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands, except share data)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Common Stock Additional Retained
--------------------- Paid in Earnings
Shares Amount Capital (Deficit) Total
------ ------ ------- --------- -----
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 412 412
Distributions (370) (370)
----- -- --- ----- -----
BALANCE, May 26, 1998 3,000 $3 $13 $ 137 $ 153
===== == == ===== ====
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
FIRST RESORT SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended January 1
December 31, Through May 26,
1997 1998
------------ ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 768 $ 412
Adjustments to reconcile net income to net cash
provided by operating activities--
Depreciation 45 66
Changes in operating assets and liabilities--
Accounts receivable (44) (107)
Notes receivable (25) (83)
Prepaid expenses and other assets 29 12
Deferred revenue 49 73
Accounts payable and accrued liabilities (17) 25
------ ------
Net cash provided by operating activities 805 398
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (183) (61)
------ ------
Net cash used in investing activities (183) (61)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on line of credit (39) -
Distributions to stockholders (567) (355)
------ ------
Net cash used in financing activities (606) (355)
------ ------
NET INCREASE IN CASH AND CASH EQUIVALENTS 16 (18)
CASH AND CASH EQUIVALENTS, beginning of period 110 126
------ ------
CASH AND CASH EQUIVALENTS, end of period $ 126 $ 108
==== ====
SUPPLEMENTAL SCHEDULE OF NON-CASH
OPERATING AND FINANCING ACTIVITIES:
Accrued distribution to stockholders $ - $ 15
======= =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
<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 approximately $42,000 and $6,000 for the year ended December 31,
1997 and for the period from January 1, 1998 through May 26, 1998, 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 of approximately $15,000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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.
<PAGE>
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.
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 which satisfy the
above criteria of approximately $149,000 and $61,000 for the year ended December
31, 1997 and for the period January 1, 1998 through May 26, 1998, 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.
-2-
<PAGE>
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, May 26,
Lives in Years 1997 1998
------------------ --------------- ---------
<S> <C> <C> <C>
Furniture, fixtures and equipment 5 $ 255 $ 255
Leasehold improvements 5 9 9
Computer software 5 149 210
------ ------
413 474
Less - Accumulated depreciation (138) (204)
------ ------
Property and equipment, net $ 275 $ 270
==== ====
</TABLE>
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 matured March 25, 1998.
The LOC has subsequently been renewed with interest at prime plus 1%, maturing
in March 1999. At December 31, 1997 and May 26, 1998, 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.
-3-
<PAGE>
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 were approximately $18,000 and $9,000 for the year ended December 31, 1997
and for the period January 1, 1998 through May 26, 1998.
EXHIBIT 99.6
HOUSTON & O'LEARY COMPANY
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997 AND MAY 26, 1998
TOGETHER WITH REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Houston and O'Leary Company:
We have audited the accompanying balance sheets of Houston and O'Leary Company
(a Colorado corporation) as of December 31, 1997 and May 26, 1998, and the
related statements of operations, changes in stockholders' equity (deficit) and
cash flows for the year ended December 31, 1997 and the period from January 1,
1998 through May 26, 1998. 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 audits 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 Houston and O'Leary Company, as
of December 31, 1997 and May 26, 1998, and the results of its operations and its
cash flows for the year ended December 31, 1997 and the period from January 1,
1998 through May 26, 1998, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Houston, Texas
July 17, 1998
<PAGE>
HOUSTON AND O'LEARY COMPANY
BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31, May 26,
ASSETS 1997 1998
------ ------------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $259 $244
Accounts receivable 5 60
Receivables from stockholders 274 -
Prepaid expenses and other current assets 45 37
----- -----
Total current assets 583 341
PROPERTY AND EQUIPMENT, net 157 87
----- -----
Total assets $740 $428
=== ===
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
CURRENT LIABILITIES:
Short-term debt $164 $ 90
Customer deposits and deferred revenue 255 159
Capital lease obligations 50 12
Accounts payable and accrued liabilities 86 170
----- -----
Total current liabilities 555 431
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1 par; 10,000 shares authorized;
200 shares outstanding - -
Retained earnings (deficit) 185 (3)
----- -----
Total stockholders' equity (deficit) 185 (3)
----- -----
Total liabilities and stockholders' equity (deficit) $740 $428
=== ===
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
HOUSTON AND O'LEARY COMPANY
STATEMENT OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
January 1
Year Ended Through
December 31, May 26,
1997 1998
------------ ----------
<S> <C> <C>
REVENUES:
Real estate commissions $1,170 $557
Property rental fees 298 90
Other 128 2
------- -----
Total revenues 1,596 649
OPERATING EXPENSES 494 224
GENERAL AND ADMINISTRATIVE EXPENSES 322 119
------- -----
Income from operations 780 306
OTHER INCOME (EXPENSE):
Interest expense, net (15) (4)
------- -----
NET INCOME $ 765 $302
===== ===
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
HOUSTON AND O'LEARY COMPANY
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 $ - $ 49 $ 49
Net income - - 765 765
Distributions - - (629) (629)
----- ----- ------ ------
BALANCE, December 31, 1997 200 - 185 185
Net income - - 302 302
Distributions - - (490) (490)
----- ----- ------ ------
BALANCE, May 26, 1998 200 $ - $ (3) $ (3)
=== ===== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Page 1 of 2
HOUSTON AND O'LEARY COMPANY
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
January 1
Year Ended Through
December 31, May 26,
1997 1998
------------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 765 $ 302
Adjustments to reconcile net income to net cash provided by
operating activities-
Depreciation 48 7
Changes in operating assets and liabilities-
Accounts receivable - (55)
Receivable from stockholders 23 274
Prepaid expenses and other current assets - 8
Customer deposits and deferred revenue 21 (96)
Accounts payable and accrued liabilities (46) 81
----- -----
Net cash provided by operating activities 811 521
----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (57) (3)
----- -----
Net cash provided by (used in) investing activities (57) (3)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on short-term debt and capital lease obligations (43) (47)
Distributions to stockholders (629) (486)
----- -----
Net cash used in financing activities (672) (533)
----- -----
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 82 (15)
CASH AND CASH EQUIVALENTS, beginning of period 177 259
----- -----
CASH AND CASH EQUIVALENTS, end of period $ 259 $ 244
==== ====
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Page 2 of 2
HOUSTON AND O'LEARY COMPANY
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
January 1
Year Ended Through
December 31, May 26,
1997 1998
------------- -----------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid for interest $ 15 $ 6
------- ----
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING ACTIVITIES:
Distribution of property and equipment to stockholder $ - $ 66
======= ====
SUPPLEMENTAL DISCLOSURE OF NON-CASH
FINANCING ACTIVITIES:
Accrued distribution to stockholder $ - $ 3
======= ====
Assumption of debt by stockholder $ - $ 65
======= ====
</TABLE>
The accompanying notes are an integral part of these financial statements.
<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, the stockholders and key management agreed to reductions in salary
and benefits which would have reduced general and administrative expenses by
$58,000 and $0 for the year ended December 31, 1997 and for the period from
January 1, 1998 through May 26, 1998, 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 of
approximately $3,000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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.
<PAGE>
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 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.
-2-
<PAGE>
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
Estimated
Useful Lives December 31, May 26,
In Years 1997 1998
------------ ------------ --------
<S> <C> <C> <C>
Furniture, fixtures and equipment 5 $ 89 $ 92
Artwork - 20 20
Airplane 5 159 -
--- ---
268 112
Less - Accumulated depreciation (111) (25)
---- ---
Property and equipment, net $157 $ 87
==== ===
</TABLE>
4. SHORT-TERM DEBT:
Short-term debt consisted of the following:
<TABLE>
<CAPTION>
December 31, May 26,
1997 1998
------------- -----------
<S> <C> <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 90
----- ---
$164 $90
=== ==
</TABLE>
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 and May 26, 1998, the Company had $99,000 and $90,000,
respectively, outstanding on the line of credit. Interest is payable monthly
based upon the prime rate (9.50% at December 31, 1997 and May 26, 1998). The
note is collateralized by the assets of the Company.
Subsequent to December 31, 1997, the term note payable to a bank was assigned
and assumed by one of the stockholders.
-3-
<PAGE>
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.
EXHIBIT 99.7
BRINDLEY & BRINDLEY
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND MAY 26, 1998
TOGETHER WITH REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
<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 May
26, 1998, and the related combined statements of operations, changes in
stockholders' equity (deficit) and cash flows for the year ended December 31,
1997 and for the period from January 1, 1998 through May 26, 1998. 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 Brindley &
Brindley, as of December 31, 1997 and May 26, 1998, and the results of their
operations and their cash flows for the year ended December 31, 1997 and for the
period from January 1, 1998 through May 26, 1998, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
July 24, 1998
<PAGE>
BRINDLEY & BRINDLEY
COMBINED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31, May 26,
ASSETS 1997 1998
------ ------------- --------
<S> <C> <C>
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 (DEFICIT)
----------------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt $ 19 $ 19
Customer deposits and deferred revenue 3,895 3,909
Accounts payable and accrued liabilities 108 129
Distribution payable to stockholders - 453
------- -------
Total current liabilities 4,022 4,510
LONG-TERM DEBT, net of current maturities 22 22
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $1 par; 200,000 shares authorized;
200 shares outstanding - -
Retained earnings (deficit) 99 (1,636)
------- -------
Total stockholders' equity (deficit) 99 (1,636)
------- -------
Total liabilities and stockholders' equity (deficit) $4,143 $ 2,896
===== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
BRINDLEY & BRINDLEY
COMBINED STATEMENTS OF OPERATIONS
(In thousands)
January 1
Year Ended Through
December 31, May 26,
1997 1998
---------------- -----------
REVENUES:
Property rental fees $2,642 $ 261
Service fees 978 238
Real estate commissions, net 401 136
------- ------
Total revenues 4,021 635
OPERATING EXPENSES 3,028 1,327
GENERAL AND ADMINISTRATIVE EXPENSES 482 262
------- ------
Income from operations 511 (954)
------- ------
OTHER INCOME:
Interest income, net 42 27
------- ------
NET INCOME (LOSS) $ 553 $ (927)
====== =====
The accompanying notes are an integral part of these financial statements.
<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 - - (927) (927)
Distributions - - (808) (808)
--- ---- ------ -----
BALANCE, May 26, 1998 200 $ - $(1,636) $(1,636)
=== == ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
BRINDLEY & BRINDLEY
COMBINED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year January
Ended Through
December 31, May 26,
1997 1998
-------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 553 $ (927)
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation 87 25
Changes in operating assets and liabilities-
Accounts receivable (33) 14
Cash held in escrow - 2,015
Prepaid expenses and other current assets (30) (98)
Accounts payable and accrued liabilities 4 21
Customer deposits and deferred revenue - 14
----- -----
Net cash provided by operating activities 581 1,064
----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (83) (48)
----- -----
Net cash used in investing activities (83) (48)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from long-term debt 19 -
Distributions to stockholders (527) (355)
----- -----
Net cash used in financing activities (508) (355)
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (10) 661
CASH AND CASH EQUIVALENTS, beginning of period 34 24
----- -----
CASH AND CASH EQUIVALENTS, end of period $ 24 $ 685
===== =====
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 3 $ 7
===== =====
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING
INFORMATION:
Accrued distribution to stockholders $ - $ 453
===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
<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 & 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 and $34,000 for the year ended
December 31, 1997 and the period from January 1, 1998 through May 26, 1998,
respectively. 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 of approximately $453,000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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.
<PAGE>
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 $374,000, and commission expense of $788,000 and $238,000 for the
year ended December 31, 1997 and the period from January 1, 1998 through May 26,
1998, respectively.
Operating Expenses
Operating expenses include rental agent commissions, employees salaries,
marketing and advertising expense, and other costs associated with property
sales, rental and management.
Cash and Cash Equivalents
For the purposes of the balance sheets and statements of cash flows, the Company
considers all investments with original maturities of three months or less to be
cash equivalents.
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.
-2-
<PAGE>
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
Estimated
Useful
Lives December 31, May 26,
In Years 1997 1998
---------- ------------- --------
<S> <C> <C> <C>
Buildings and improvements 5-40 $ 7 $ 7
Office equipment and vehicles 3-7 338 386
--- ---
345 393
Less - Accumulated depreciation (220) (245)
---- ---
Property and equipment, net $ 125 $148
===== ====
</TABLE>
Accounts payable and accrued liabilities consisted of the following (in
thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
December 31, May 26,
1997 1998
------------ ----------
Accrued compensation and benefits $ 28 $ 54
Accounts payable and other accrued liabilities 80 75
---- ---
Total accounts payable and accrued liabilities $108 $129
==== ====
</TABLE>
At May 26,1998, maturities of long-term debt were as follows (in thousands):
Remainder of 1998 $19
1999 8
2000 9
2001 5
---
$41
===
In conjunction with the Combination, all outstanding debt was extinguished.
-3-
<PAGE>
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 for the year ended December 31, 1997 and
$5,000 for the period from January 1, 1998 through May 26, 1998.
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 $134,000. For the period from January 1, 1998 through May 26,
1998, the Company paid approximately $57,000 under these agreements.
The Company received real estate sales commissions of $70,000 and $2,000 from
Outer Banks Ventures, Inc., an affiliate for the year ended December 31, 1997
and for the period from January 1, 1998 through May 26, 1998, respectively.
-4-
THE MAURY PEOPLE, INC.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997 AND MAY 26, 1998
TOGETHER WITH REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Maury People, Inc.:
We have audited the accompanying balance sheets of The Maury People, Inc. (a
Massachusetts corporation) as of December 31, 1997 and May 26, 1998, and the
related statements of operations, changes in stockholders' equity and cash flows
for the year ended December 31, 1997 and the period from January 1, 1998 through
May 26, 1998. 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 May 26, 1998, and the results of its operations and its
cash flows for the year ended December 31, 1997 and the period from January 1,
1998 through May 26, 1998, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Houston, Texas
July 24, 1998
<PAGE>
THE MAURY PEOPLE, INC.
BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31, May 26,
1997 1998
------------ -------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $297 $535
Cash held in escrow 553 76
Accounts receivable -- 50
Prepaid expenses and other current assets 19 --
---- ----
Total current assets 869 661
PROPERTY AND EQUIPMENT, net 99 87
---- ----
Total assets $968 $748
==== ====
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Escrow deposits on real estate sales $553 $ 73
Payable to property owners 103 257
Accounts payable and accrued liabilities 224 282
---- ----
Total current liabilities 880 612
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common Stock, no par; 1,000 shares authorized; 200 shares issued
and outstanding 1 1
Retained earnings 87 135
---- ----
Total stockholders' equity 88 136
---- ----
Total liabilities and stockholders' equity $968 $748
==== ====
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
THE MAURY PEOPLE, INC.
STATEMENTS OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
January 1
Year ended Through
December 31, May 26,
1997 1998
------------ ---------
<S> <C> <C>
REVENUES:
Real estate commissions, net $ 829 $ 259
Property rental fees, net 354 180
------ ------
Total revenues 1,183 439
OPERATING EXPENSES 211 89
GENERAL AND
ADMINISTRATIVE EXPENSES 682 251
------ ------
Income from operations 290 99
OTHER INCOME:
Interest income, net 28 5
------ ------
NET INCOME $ 318 $ 104
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
THE MAURY PEOPLE, INC.
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 $ 1 $ (84) $ (83)
Net income -- -- 318 318
Distributions -- -- (147) (147)
----- ----- ----- -----
BALANCE, December 31, 1997 200 1 87 88
Net income -- -- 104 104
Contributions -- -- 136 136
Distributions -- -- (192) (192)
----- ----- ----- -----
BALANCE May 26, 1998 $ 200 $ 1 $ 135 $ 136
===== ===== ===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
THE MAURY PEOPLE, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
January 1
Year ended Through
December 31, May 26,
1997 1998
------------ ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 318 $ 104
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation 28 12
Changes in operating assets and liabilities-
Cash held in escrow (184) 477
Accounts receivable -- (50)
Escrow deposits on real estate sales 184 (480)
Prepaid expenses and other current assets (6) 19
Payable to property owners 32 154
Accounts payable and accrued liabilities 1 54
----- -----
Net cash provided by operating activities 373 290
----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (77) --
----- -----
Net cash used in investing activities (77) --
----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable 50 --
Payments on note payable (50) --
Distributions to stockholders (147) (188)
Contributions -- 136
----- -----
Net cash used in financing activities (147) (52)
----- -----
NET INCREASE IN CASH AND CASH EQUIVALENTS 149 238
CASH AND CASH EQUIVALENTS, beginning of period 148 297
----- -----
CASH AND CASH EQUIVALENTS, end of period $ 297 $ 535
===== =====
SUPPLEMENTAL DISCLOSURE OF NON-CASH
FINANCING ACTIVITIES:
Accrued distribution to stockholder $ -- $ 4
===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
<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 and $0 for the year ended December 31, 1997 and the
period January 1, 1998 through May 26, 1998. 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 of approximately $4,000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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 $752,000 and commission expense
of $1,120,000 and $493,000 to affiliated brokers for the year ended December 31,
1997 and the period January 1, 1998 through May 26, 1998.
Operating Expenses
Operating expenses include agent commissions, salaries, communications,
advertising, and other costs associated with managing and selling properties.
<PAGE>
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 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.
2
<PAGE>
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
Estimated
Useful Lives December 31, May 26,
In Years 1997 1998
------------ ------------ -------
<S> <C> <C> <C>
Leasehold improvements 10 $ 56 $ 56
Office equipment 5 152 152
------ -----
208 208
Less - Accumulated depreciation (109) (121)
------ -----
Property and equipment, net $ 99 $ 87
====== ======
</TABLE>
Accounts payable and accrued liabilities consisted of the following (in
thousands):
<TABLE>
<CAPTION>
December 31, May 26,
1997 1998
------------ -------
<S> <C> <C>
Accrued rental commissions $ 66 $ 13
Accrued sales commissions 51 --
Security deposits -- 166
Accounts payable and other accrued liabilities 107 99
---- ----
Total accounts payable and accrued liabilities $224 $278
==== ====
</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 was approximately
$166,000 and $70,000 for the year ended December 31, 1997 and the period January
1, 1998 through May 26, 1998, respectively.
3
<PAGE>
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):
Remainder of 1998 $ 96
1999 204
2000 197
2001 195
2002 188
Thereafter 232
------
$1,112
======
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.
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.
4
<PAGE>
7. 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, based upon the latest actuarial valuation
available, for the year ended December 31, 1997 are presented below:
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
========
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:
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
=========
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligations was 7.0%. The expected long-term rate
of return on assets was 5.0%.
In connection with the Combination, the Plan's sponsorship was transferred to
the stockholder.
Therefore, subsequent to the date of these financial statements, the Company is
no longer responsible for the sponsorship of the Plan or any related liability.
The net periodic pension expense for the period from January 1, 1998 through May
26, 1998 was immaterial.
5
EXHIBIT 99.9
RESORT PROPERTY MANAGEMENT, INC.
FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1997 AND MAY 26, 1998
TOGETHER WITH REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
<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 May 26, 1998, and the
related statements of operations, changes in stockholders' equity (deficit) and
cash flows for the year ended September 30, 1997 and for the period from October
1, 1997 through May 26, 1998. 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 audits 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 Resort Property Management,
Inc., as of September 30, 1997 and May 26, 1998, and the results of its
operations and its cash flows for the year ended September 30, 1997 and for the
period from October 1, 1997 through May 26, 1998, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
July 15, 1998
<PAGE>
RESORT PROPERTY MANAGEMENT, INC.
BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
<S> <C> <C>
September 30, May 26,
1997 1998
--------- ----------
ASSETS
-------
CURRENT ASSETS:
Cash and cash equivalents $ 186 $ 9
Accounts receivable - 11
Due from property owners 60 44
Receivable from stockholders 10 102
Prepaid expenses and other current assets 22 6
------ -----
Total current assets 278 172
NOTE RECEIVABLE 54 -
PROPERTY AND EQUIPMENT, net 203 287
------ -----
Total assets $ 535 $459
====== =====
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt $171 $ 33
Customers deposits and deferred revenue 233 66
Payable to property owners 36 -
Accounts payable and accrued liabilities 32 190
----- ------
Total current liabilities 472 289
DEFERRED TAXES 3 -
LONG-TERM DEBT, net of current portion 310 116
----- ------
Total liabilities 785 405
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, no par; 100,000 shares
authorized; 51,000 shares outstanding 26 26
Retained earnings (deficit) (276) 28
------ ------
Total stockholders' equity (deficit) (250) 54
------ ------
Total liabilities and stockholders'
equity (deficit) $ 535 $459
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
RESORT PROPERTY MANAGEMENT, INC.
STATEMENTS OF OPERATIONS
(In thousands)
October 1,
1997
Through
September 30, May 26,
1997 1998
------------- ----------
REVENUES:
Property rental fees $1,930 $1,728
Service fees 365 325
------- ------
Total revenues 2,295 2,053
OPERATING EXPENSES 1,560 1,227
GENERAL AND ADMINISTRATIVE EXPENSES 627 494
------- ------
Income from operations 108 332
OTHER INCOME:
Interest income, net 7 18
Gain on sale of land 210 -
-------- -------
Income before taxes 325 350
PROVISION FOR INCOME TAX 75 57
--------- --------
NET INCOME $ 250 $ 293
===== =====
The accompanying notes are an integral part of these financial statements.
<PAGE>
RESORT PROPERTY MANAGEMENT, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands, except share data)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Common Stock Retained
----------------- Earnings
Shares Amount (Deficit) Total
------ ------ --------- -----
BALANCE, September 30, 1996 51 $26 $(526) $(500)
Net income - - 250 250
---- ---- ------ ------
BALANCE, September 30, 1997 51 26 (276) (250)
Net income - - 293 293
Contribution - - 11 11
---- ---- ------ ------
BALANCE, May 26, 1998 51 $26 $ 28 $ 54
==== ==== ====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
RESORT PROPERTY MANAGEMENT, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
October 1,
1997
Through
September 30, May 26,
1997 1998
------------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 250 $ 293
Adjustments to reconcile net income
to net cash provided by operating
activities-
Depreciation 36 29
Gain on sale of land (210) -
Changes in operating assets and
liabilities-
Accounts receivable - (11)
Due from property owners, net (8) (20)
Prepaid expenses and other
current assets (3) 16
Customer deposits and deferred revenue (50) (167)
Deferred tax liability 3 (3)
Accounts payable and accrued liabilities 28 158
------ ------
Net cash provided by operating activities 46 295
------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Note receivable (54) 54
Purchase of property and equipment (179) (113)
Proceeds from sale of office equipment,
vehicles and land 335 -
------ ------
Net cash provided by (used in) investing
activities 102 (59)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 493 -
Payments on long-term debt (451) (332)
Proceeds/payment on receivables from stockholders (10) (81)
------ ------
Net cash provided by (used in) financing
activities 32 (413)
------ ------
NET INCREASE IN CASH AND CASH EQUIVALENTS 180 (177)
CASH AND CASH
EQUIVALENT, beginning of period 6 186
------ ------
CASH AND CASH EQUIVALENTS, end of period 186 9
------ ------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW:
Cash paid for interest $ 25 $ 2
====== ======
SUPPLEMENTAL DISCLOSURE OF NON-CASH
FINANCING ACTIVITIES:
Accrued contributions from stockholders $ - $ 11
====== ======
The accompanying notes are an integral part of these financial statements.
<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.
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 and $42,000 for the period from October 1, 1997 through May 26, 1998.
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 of approximately $11,000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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.
<PAGE>
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 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.
-2-
<PAGE>
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Property and equipment consisted of the following (in thousands):
Estimated
Useful Lives September 30, May 26,
In Years 1997 1998
------------ ------------ --------
Leasehold improvements 12 $ 21 $ 23
Office equipment and other 5 236 251
Vehicles 5 128 224
----- -----
385 498
Less - Accumulated depreciation (182) (211)
------- -----
Property and equipment, net $ 203 $ 287
======== ======
Maturities of long-term debt were as follows (in thousands):
September 30, May 26,
1997 1998
------------ --------
1998 $171 $ 33
1999 17 17
2000 19 19
2001 21 21
Thereafter 253 59
----- -----
$481 $149
==== ====
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. As of May 26, 1998, the line of credit had a zero balance.
In connection with the combination, all outstanding debt of the Company was
retired.
-3-
<PAGE>
4. INCOME TAXES:
The provision for income taxes consists of the following (in thousands):
Period From
Year Ended October 1, 1997
September 30, 1997 Through May 26, 1998
------------------ --------------------
Current $ 6 $57
Deferred 69 -
---- ----
$ 75 $57
===== ===
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>
<S> <C> <C>
Period From
Year Ended October 1, 1997
September 30, 1997 Through May 26, 1998
------------------ --------------------
U.S. corporate income tax provision
at statutory rate $111 $115
Tax effect of temporary differences - (65)
State tax expense - 7
Utilization of NOL carryforwards (36) -
------ -----
$ 75 $ 57
==== ====
</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 and a
general umbrella policy. The
-4-
<PAGE>
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:
The Company paid rental payments to the owners and related parties in exchange
for use of the housekeeping facility in the amount of approximately $18,000 and
$32,000 for the year ended September 30, 1997, and the period from October 1,
1997 through May 26, 1998, respectively.
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 the 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 and May 26, 1998:
September 30, May 26,
1997 1998
------------- ------------
1998 $61,793 $17,668
1999 21,408 14,255
2000 14,517 4,200
2001 15,246 -
---------- ---------
$112,964 $36,123
======= ======
-5-
EXHIBIT 99.10
TELLURIDE RESORT ACCOMMODATIONS, INC.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997 AND MAY 26, 1998
TOGETHER WITH REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
<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 May
26, 1998, and the related statements of operations, changes in stockholders'
deficit and cash flows for the year ended December 31, 1997 and the period from
January 1, 1998 to May 26, 1998. 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 May 26, 1998, and the results
of its operations and its cash flows for the year ended December 31, 1997 and
the period from January 1, 1998 to May 26, 1998, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
July 15, 1998
<PAGE>
TELLURIDE RESORT ACCOMMODATIONS, INC.
BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31, May 26,
ASSETS 1997 1998
------ ------------- -----------
<S> <C> <C>
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 34
------- -----
Total current assets 2,659 867
PROPERTY AND EQUIPMENT, net 62 109
------- -----
Total assets $2,721 $ 976
===== ====
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt $ - $ 14
Line of credit 194 -
Customer deposits and deferred revenue 2,096 500
Payable to property owners 640 -
Payable to stockholders - 22
Accounts payable and accrued liabilities 209 297
------- -----
Total current liabilities 3,139 833
LONG-TERM DEBT - 34
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, no par; 1,000,000 shares authorized;
15,000 shares outstanding 216 216
Retained deficit (634) (107)
------- -----
Total stockholders' equity (deficit) (418) 109
------- -----
Total liabilities and stockholders' equity (deficit) $2,721 $ 976
===== ====
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
TELLURIDE RESORT ACCOMMODATIONS, INC.
STATEMENTS OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
January 1
Year Ended through
December 31, May 26,
1997 1998
------------- -------------
<S> <C> C>
REVENUES:
Property rental fees $ 3,204 $2,101
Service fees 1,109 648
------- -------
Total revenues 4,313 2,749
OPERATING EXPENSES 3,037 1,575
GENERAL AND ADMINISTRATIVE EXPENSES 1,030 458
------- -------
Income from operations 246 716
INTEREST INCOME, net 31 35
------- -------
NET INCOME $ 277 $ 751
====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<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 - - 751 751
Distributions - - (224) (224)
-------- ---- ------ ----
BALANCE, May 26, 1998 15,000 $216 $(107) $ 109
====== === ==== ====
</TABLE>
The accompanying notes are an integral part of these financial statement.
<PAGE>
TELLURIDE RESORT ACCOMMODATIONS, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
January 1
Year Ended through
December 31, May 26,
1997 1998
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 277 $ 751
Adjustments to reconcile net income to net cash provided
by operating activities-
Depreciation 48 20
Changes in operating assets and liabilities-
Accounts receivable 35 (83)
Prepaid expenses and other current assets 15 (22)
Payable to property owners, net 19 (488)
Customer deposits and deferred revenue 28 (1,596)
Accounts payable and accrued liabilities 299 88
------- -------
Net cash provided by (used in) operating activities 721 (1,330)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (25) (67)
------- -------
Net cash used in investing activities (25) (67)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payments on) line of credit 93 (194)
Proceeds from note payable - 54
Payments on note payable - (6)
Distributions to stockholders (300) (202)
------- -------
Net cash used in financing activities (207) (348)
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 489 (1,745)
CASH AND CASH EQUIVALENTS, beginning of period 1,614 2,103
------- -------
CASH AND CASH EQUIVALENTS, end of period $ 2,103 $ 358
====== =======
SUPPLEMENTAL DISCLOSURE OF NON-CASH
FINANCING ACTIVITIES:
Accrued distribution to stockholders $ - $ 22
====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<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.
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 of
approximately $22,000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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.
<PAGE>
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.
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. PROPERTY PLANT AND EQUIPMENT:
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Estimated Useful Lives December 31, May 26,
In Years 1997 1998
---------------------- ------------ -----------
Furniture, fixtures and equipment 5 $ 580 $ 581
Leasehold improvement 5 79 131
Vehicles and other 5 65 79
----- ----
724 791
Less - Accumulated depreciation (662) (682)
----- ----
Property and equipment, net $ 62 $ 109
===== ====
</TABLE>
-2-
<PAGE>
4. DEBT:
The Company has a note payable to a bank with interest at 9% per annum, through
June 30, 2001. The note is secured by vehicles of the Company. Maturities of the
note are as follows:
Year Ended December 31,
1998 $ 8,000
1999 15,000
2000 16,000
2001 9,000
--------
48,000
Less current maturities 14,000
--------
$34,000
========
5. 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 and May 26, 1998, the Company had
$194,000 and $0, respectively, 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 and May 26, 1998.
6. 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.
-3-
<PAGE>
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
for the year ended December 31, 1997 or for the period from January 1, 1998
through May 26, 1998.
7. RELATED PARTIES:
The Company paid certain stockholders $32,000 and $0 in consulting fees for the
year ended December 31, 1997 and for the period from January 1 through May 26,
1998, respectively. In addition, the Company rented office space from
stockholders of approximately $36,000 and $20,000 for the year ended December
31, 1997 and for the period from January 1 through May 26, 1998, respectively.
-4-
EXHIBIT 99.11
TRUPP HODNETT ENTERPRISES, INC.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997 AND MAY 26, 1998
TOGETHER WITH REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
<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, 1997 and May 26, 1998, and the related combined
statements of operations, changes in stockholders' equity and cash flows for the
year ended December 31, 1997 and the period from January 1, 1998 through May 26,
1998. 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, 1997 and May 26, 1998, and the results of
their combined operations and their cash flows for the year ended December 31,
1997 and the period from January 1, 1998 through May 26, 1998 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
July 17, 1998
<PAGE>
TRUPP HODNETT COMPANY
COMBINED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
<S> <C> <C>
December 31, May 26,
ASSETS 1997 1998
------ ---- ----
CURRENT ASSETS:
Cash and cash equivalents $ 293 $ 406
Cash held in trust 347 642
Accounts receivable 100 69
Receivables from stockholders and employees 32 15
Prepaid expenses and other current assets 31 72
-------- --------
Total current assets 803 1,204
PROPERTY AND EQUIPMENT, net 259 282
-------- --------
Total assets $1,062 $1,486
======== =====
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Short-term debt $ - $ -
Customer deposits and deferred revenue 331 641
Payable to property owners 16 1
Accounts payable and accrued liabilities 191 341
Payable to stockholders - 221
-------- --------
Total current liabilities 538 1,204
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par; 2,000 shares
authorized; 200 shares outstanding 17 17
Retained earnings 507 265
-------- --------
Total stockholders' equity 524 282
-------- --------
Total liabilities and stockholders' equity $1,062 $1,486
========= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
TRUPP HODNETT COMPANY
COMBINED STATEMENTS OF OPERATIONS
(In thousands)
January 1
Year Ended Through
December 31, May 26,
1997 1998
---- ----
REVENUES:
Property rental fees $2,809 $1,169
Real estate commissions, net 892 698
Service fees 360 102
-------- --------
Total revenues 4,061 1,969
OPERATING EXPENSES 1,838 901
GENERAL AND ADMINISTRATIVE EXPENSES 2,024 1,071
-------- --------
Income from operations 199 (3)
OTHER INCOME (EXPENSE):
Interest expense, net (5) 1
Gain on sale of assets 52 -
-------- --------
Income (loss) before income taxes 246 (2)
PROVISION FOR INCOME TAXES 60 -
-------- --------
NET INCOME (LOSS) $ 186 $ (2)
====== ========
The accompanying notes are an integral part of these financial statements.
<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, 1996 200 $17 $ 399 $416
Net income - - 186 186
Distributions - - (78) (78)
----- ---- ------ ------
BALANCE, December 31, 1997 200 17 507 524
Net loss - - (2) (2)
Distributions - - (240) (240)
----- ---- ------ ------
BALANCE, May 26, 1998 200 $17 $ 265 $282
===== ==== ===== ====
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Page 1 of 2
TRUPP HODNETT COMPANY
COMBINED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
January 1,
Year Ended Through
December 31, May 26,
1997 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 186 $ (2)
Adjustments to reconcile net income to net
cash provided by operating activities--
Depreciation 85 29
Gain on sale of assets (52) -
Changes in operating assets and liabilities--
Cash held in trust (26) (295)
Accounts receivable (31) 31
Receivables from stockholder and employees 79 17
Prepaid expenses and other current assets (14) (41)
Customer deposits and deferred revenue 41 310
Payable to property owners (15) (15)
Accounts payable and accrued liabilities 61 150
----- -------
Net cash provided by operating
Activities 314 184
----- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (99) (52)
Purchase of other assets (80) -
Proceeds from sale of other assets 105 -
----- -------
Net cash used in investing
Activities (74) (52)
----- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term debt 84 -
Payments on short-term debt (97) -
Distributions to stockholders (78) (19)
----- -------
Net cash used in financing activities (91) (19)
----- -------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 149 113
CASH AND CASH EQUIVALENTS, beginning of
period 144 293
----- -------
CASH AND CASH EQUIVALENTS, end of period $293 $ 406
====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Page 2 of 2
TRUPP HODNETT COMPANY
COMBINED STATEMENTS OF CASH FLOWS
(In thousands)
January 1,
Year Ended Through
December 31, May 26,
1997 1998
--------------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid for interest $ 18 $ 2
===== ======
Cash paid for income taxes $ 1 $ -
====== =======
SUPPLEMENTAL DISCLOSURE OF NON-CASH
FINANCING ACTIVITIES:
Accrued distribution to stockholders $ - $ 221
====== ====
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES:
In 1997, the Company sold certain fixed assets of the
Company to a third party as follows:
Net book value of assets $ 385
Debt assumed (332)
------
Net assets sold $ 53
=====
The accompanying notes are an integral part of these financial statements.
<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 $1.1 million for the year ended December 31, 1997, and $317,000
for the period from January 1, 1998 through May 26, 1998. 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 of
approximately $221,000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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.
<PAGE>
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
$1,621,000 and $1,208,000 for the year ended December 31, 1997 and the period
from January 1, 1998 through May 26, 1998, respectively, and commission expense
of $729,000 and $510,000 for the year ended December 31, 1997 and the period
from January 1, 1998 through May 26, 1998.
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.
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
2
<PAGE>
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.
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Estimated
Useful Lives December 31, May 26,
In Years 1997 1998
-------- ---- ----
Leasehold improvements 31 $ 40 $ 40
Office equipment and vehicles 3 - 7 635 595
------ ------
675 635
Less - Accumulated depreciation (416) (353)
------ -----
Property and equipment, net $ 259 $282
==== ===
</TABLE>
Accounts payable and accrued liabilities consisted of the following (in
thousands):
December 31, May 26,
1997 1998
---- ----
Accrued compensation and benefits $ 36 $ 45
Accounts payable and other accrued liabilities 155 296
----- -----
Total accounts payable and accrued liabilities $191 $341
=== ===
3
<PAGE>
4. SHORT-TERM DEBT:
As of December 31, 1997 and May 26, 1998, 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>
<S> <C> <C>
January 1,
December 31, Through
1997 May 26, 1998
---- ------------
Current $60 $ -
== =====
</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 (in
thousands):
January 1,
December 31, Through
1997 May 26, 1998
---- ------------
U.S. corporate income tax provision
(benefit) at statutory rate $ 84 $ (1)
State income taxes 9 1
S Corporation income (33) -
---- ---
$ 60 $ -
===== =====
4
<PAGE>
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 for the year ended December 31, 1997 and approximately
$5,000 for the period from January 1, 1998 through May 26, 1998.
8. RELATED PARTIES:
The Company's revenues include approximately $187,000 for the year ended
December 31, 1997 and $75,000 for the period from January 1, 1998 through May
26, 1998, 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.
The Company has agreements to lease office space from the stockholders and the
minimum lease payments are as follows (in thousands):
December 31, May 26,
1997 1998
---- ----
1998 $ 112 $ 66
1999 117 117
2000 122 122
2001 126 126
2002 131 131
Thereafter 967 967
------- -------
$1,575 $1,529
======= ========
5
<PAGE>
During the year ended December 31, 1997 and the period from January 1, 1998
through May 26, 1998, the Company recorded rental expense of $110,000 and
$47,000, respectively, relating to the above leases.
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