AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 13, 1999
REGISTRATION NO. 333-56703
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 2
TO
REGISTRATION STATEMENT ON FORM S-1
UNDER THE SECURITIES ACT OF 1933
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RESORTQUEST INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 7011 62-1750352
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
530 Oak Court Drive
Suite 360
Memphis, TN 38117
(901) 762-0600
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
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DAVID C. SULLIVAN
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
RESORTQUEST INTERNATIONAL, INC.
530 Oak Court Drive
Suite 360
Memphis, TN 38117
(901) 762-0600
(Name and address, including zip code, and telephone
number, including area code, of agent for service)
Copies to:
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<S> <C>
John K. Lines Bruce S. Mendelsohn, Esq.
Senior Vice President and General Counsel Paul A. Belvin, Esq.
ResortQuest International, Inc. Akin, Gump, Strauss, Hauer & Feld, L.L.P.
530 Oak Court Drive 1333 New Hampshire Avenue, N.W.
Suite 360 Suite 400
Memphis, TN 38117 Washington, D.C. 20036
(901) 762-0600 (202) 887-4000
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
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If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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<PAGE>
SUBJECT TO COMPLETION, DATED APRIL 13, 1999
P R O S P E C T U S
3,000,000 SHARES
[GRAPHIC OMITTED]
[RESORTQUEST INTERNATIONAL LOGO]
COMMON STOCK
ResortQuest International, Inc. is a leading provider of vacation
condominium and home rentals in premier destination resorts throughout the
United States. We manage approximately 15,000 condominiums, homes and hotel
rooms in fourteen states and Canada.
This prospectus covers 3,000,000 shares of our Common Stock which we may
issue from time to time in connection with our acquisition of other businesses
or assets, and which we may issue upon the exercise of options or other similar
instruments we may issue in connection with any such acquisition. ResortQuest
and the owners or controlling persons of the businesses or assets we may seek to
acquire will negotiate the terms of such acquisition. We expect that the value
of the Common Stock issued in any such acquisition will be reasonably related to
the market value of the Common Stock either at the time we enter into an
agreement on the terms of an acquisition or at the time of delivery of the
Common Stock.
Persons who receive shares of Common Stock in connection with an
acquisition by us also may use this prospectus to offer and sell such shares.
ResortQuest will not receive any of the proceeds from such sales.
We have previously issued 1,465,359 shares of Common Stock pursuant to this
registration statement. The company's shares are listed on the New York Stock
Exchange under the symbol "RZT."
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SEE "RISK FACTORS" BEGINNING ON PAGE 12 OF THIS PROSPECTUS FOR A
DISCUSSION OF CERTAIN FACTORS THAT YOU SHOULD CONSIDER BEFORE YOU INVEST IN THE
COMMON STOCK.
------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
April , 1999
The information in this prospectus is not complete and may be changed without
notice. ResortQuest may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and ResortQuest is not
soliciting offers to buy these securities to anyone where the offer or sale of
these securities is not permitted.
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[INSERT PICTURES]
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Reference in this prospectus to: "ResortQuest" means ResortQuest International,
Inc. and its operating subsidiaries; the "Operating Companies" means the 12
vacation rental and property management companies and one software company
ResortQuest acquired simultaneously on May 26, 1998 (consisting of Aston Hotels
& Resorts; Brindley & Brindley Realty and Development, Inc.; Coastal Resorts
Realty, L.L.C; Collection of Fine Properties, Inc.; First Resort Software, Inc.;
Houston and O'Leary Company; Maui Condominium and Home Realty, Inc.; The Maury
People, Inc.; Priscilla Murphy Realty, Inc.; Resort Property Management, Inc.;
Telluride Resort Accommodations, Inc.; Trupp-Hodnett Enterprises, Inc.; and
Whistler Chalets Limited, each a "Founding Company" and collectively, the
"Founding Companies") and the 12 additional vacation rental and property
management acquisitions since May 26, 1998, five in 1998 (consisting of Abbott
Realty Services, Inc.; Columbine Management Company, Inc.; certain management
contracts of Goldpoint Lodging & Realty, Inc.; Plantation Resort Management,
Inc.; and Whistler Exclusive Properties Ltd., collectively, the "1998
Acquisitions") and seven in 1999 (consisting of Cove Management Services, Inc.;
High Country Resort Services, Ltd.; Mountain High Management, Inc.; Ridgepine,
Inc.; Ryan's Golden Eagle Management, Inc.; Scottsdale Resort Accommodations,
LLC; and Worthy Rentals, Inc.); the "Combinations" means the acquisitions of the
Founding Companies; the "1998 Operating Companies" means the Founding Companies
and the 1998 Acquisitions; and the "IPO" means ResortQuest's initial public
offering completed on May 26, 1998. Except as indicated otherwise, all
references to Common Stock include Restricted Common Stock as described in the
section captioned "Description of Capital Stock."
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and may not contain all the information you should
consider before investing in the common stock. You should read the entire
prospectus carefully. Unless otherwise indicated, we have adjusted all share,
per share and financial information in this prospectus to give effect to (i) the
Combinations and (ii) an 8,834.76-for-one stock split effected on March 9, 1998.
The pro forma disclosures herein include the financial statement impact of the
IPO and the Combinations only. The pro forma disclosures do not reflect the
financial statement impact of any other ResortQuest acquisitions, as such
acquisitions are immaterial to ResortQuest for presentation purposes.
RESORTQUEST INTERNATIONAL
ResortQuest International, Inc. is a leading provider of vacation
condominium and home rentals in premier destination resorts throughout the
United States and in Canada. 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, ResortQuest
offers vacationers 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, ResortQuest in
November 1998, established quality standards and segmented most of its 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 check availability and make reservations directly on-line.
ResortQuest 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. Since that time, ResortQuest has completed 12 additional vacation
rental and property management acquisitions, five in 1998 and seven in 1999.
ResortQuest currently manages approximately 15,000 condominiums and homes at 30
premier destination resorts nationwide and in Canada. These resort locations
include Gulf Shores, Alabama; Scottsdale/Phoenix, Arizona; Palm Desert,
California; Aspen, Breckenridge, Crested Butte, Dillon and Telluride, Colorado;
Bethany Beach, Delaware; Captiva Island, Destin, Ft. Walton Beach, Okaloosa
Island and Sanibel Island, Florida; St. Simons Island, Georgia; Hawaii, Maui,
Oahu, and Kauai, Hawaii; Nantucket, Massachusetts; Big Sky, Montana; the Outer
Banks of North Carolina; Sunriver, Oregon; Hilton Head Island, South Carolina;
Park City, Utah; and Whistler, British Columbia.
ResortQuest provides a wide range of services to both vacationers and
property owners. Because of the variety of its resort locations throughout the
United States and Canada and the diversity of rental prices throughout its
rental pool, ResortQuest is able to target a broad range of vacationers,
including families, couples and individuals. For vacationers, ResortQuest offers
the convenience and accommodations of a condominium or home, while providing
many of the amenities and services of a hotel. Vacation condominium and home
rentals generally offer greater space and convenience than resort hotel rooms,
including separate living, sleeping and eating quarters. As a result,
vacationers generally have more privacy and greater flexibility in a
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vacation condominium or home. ResortQuest typically offers such services as
convenient check-in and check-out, frequent housekeeping and cleaning and
emergency maintenance assistance. In addition, in most of its markets,
ResortQuest provides specialized concierge-type services such as arranging golf
tee times, purchasing ski lift tickets and making restaurant reservations. For
property owners, ResortQuest 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 ResortQuest also may participate in QuestClub,
an exclusive travel benefits program for homeowners initiated in December 1998.
ResortQuest'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
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, ResortQuest provides traditional real estate
brokerage services for property owners seeking to sell their condominiums and
homes. ResortQuest 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.
OUR STRATEGY
BUSINESS STRATEGY
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. ResortQuest 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.
ResortQuest's objective is to enhance its position as a leading provider of
premier destination resort condominium and home rentals by pursuing the
following business strategy:
o NATIONAL BRAND. Continuing to market and reinforce the ResortQuest brand
which is based on ResortQuest's extensive network of high quality
condominiums and homes in premier destination resorts throughout the United
States and in Canada and provides greater confidence and ease to
vacationers in making their rental arrangements;
o SUPERIOR CUSTOMER SERVICE. Maintaining superior levels of customer
service for vacationers by combining the convenience and accommodations of
a condominium or home with many of the amenities and services of a hotel;
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o INCREASED RENTAL INCOME. Enhancing value for vacation condominium and home
owners through effective national marketing, a recognized brand and
implementation of strategies designed to increase rental income through
increased occupancy and rental rates;
o MANAGEMENT'S EXPERIENCE. Relying on the industry experience of David C.
Sullivan, Chairman and Chief Executive Officer, who was the Chief Operating
Officer of Promus Hotel Corporation, David L. Levine, President and Chief
Operating Officer, who was the President and Chief Operating Officer of
Equity Inns, Inc., and the other members of ResortQuest's senior
management, each of whom have extensive experience in the hotel and resort
industries; and
o LOCAL EXPERTISE. Maintaining the local relationships and expertise of the
management teams of the Operating Companies, all of which have extensive
experience in their respective resort areas.
GROWTH STRATEGY
ResortQuest believes it can achieve significant growth both internally and
through an active acquisition program.
INTERNAL GROWTH. The primary elements of the ResortQuest's internal growth
strategy include:
o NATIONAL MARKETING STRATEGY. Continuing a multi-faceted national marketing
strategy (i) to cross-sell to existing customers, (ii) to attract new
customers and (iii) to increase 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;
o CAPITALIZE ON TECHNOLOGY. Capitalizing on technology (i) by promoting
ResortQuest's comprehensive web site, resortquest.com, which enables
consumers to search through all of ResortQuest's vacation home and
condominium rentals and to make reservations directly on-line, and (ii) by
utilizing 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;
o GROWTH WITHIN EXISTING MARKETS. Expanding its market share of condominium,
home and hotel room rentals in existing markets; and
o PROFIT MARGIN EXPANSION. Pursuing opportunities for profit margin expansion
via cost synergies and additional revenue sources, including the
implementation of best practices developed by tapping the industry
experience of the management teams in each of the Operating Companies.
ACQUISITIONS. ResortQuest 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. While ResortQuest seeks to
acquire the leading companies in each new market, ResortQuest 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. ResortQuest
believes that many vacation rental and property management companies will find
the opportunity to join with ResortQuest to be attractive. ResortQuest offers
acquisition candidates:
o affiliation with a national brand;
o the ability to cross-sell to customers of other vacation rental and
property management companies;
o the ability to increase liquidity as a result of our financial strength
as a public company; and
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o the ability to increase profitability as a result of the centralization of
certain administrative functions and other economies of scale.
RECENT RESORTQUEST DEVELOPMENTS
Since the completion of its initial public offering and the acquisition of
the Founding Companies on May 26, 1998, ResortQuest has completed 12 additional
vacation rental and property management acquisitions. By the end of 1998,
ResortQuest had completed five additional acquisitions: Goldpoint Lodging,
located in Breckenridge, Colorado; Plantation Resort, located in Gulf Shores,
Alabama; Whistler Exclusive, located in Whistler, British Columbia; Abbott
Realty, located in Destin, Florida; and Columbine Management, located in Dillon,
Colorado. Collectively, these companies have 2,956 vacation rental condominiums
and homes under management and are located in two new markets and three existing
markets.
In the first quarter of 1999, ResortQuest completed seven additional
acquisitions, collectively managing 1,577 vacation rental condominiums and
homes, located in six new markets including Sunriver, Oregon; Big Sky, Montana;
Palm Desert, California; Hilton Head, South Carolina; Scottsdale, Arizona; and
Crested Butte, Colorado.
ResortQuest's executive offices are located at 530 Oak Court Drive, Suite
360, Memphis, TN 38117, and its telephone number is (901) 762-0600.
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SECURITIES COVERED BY THE PROSPECTUS
This prospectus covers shares of Common Stock that are available for use in
future acquisitions of businesses, properties or securities of entities or
persons engaged in the vacation rental and property management business and
other related businesses. The consideration ResortQuest will offer in such
acquisitions, in addition to the Common Stock, may include cash, debt or other
ResortQuest securities, or assumption by ResortQuest of liabilities of the
business being acquired, or a combination thereof. ResortQuest and the
management or owners of the assets it may acquire, or the owners of the
securities (including newly issued securities) ResortQuest may acquire, will
negotiate the terms of each acquisition. In those negotiations, ResortQuest will
consider the quality of the management, the past and potential earning power and
growth of the assets or securities to be acquired, and other relevant factors.
ResortQuest also expect that the value placed on the Common Stock issued in any
such acquisition will be reasonably related to the market value of the Common
Stock either at the time ResortQuest enter into an agreement on the terms of the
acquisition or at the time of delivery of the shares.
Persons who receive shares of Common Stock in connection with an
acquisition by ResortQuest also may use this prospectus to offer and sell such
shares. ResortQuest will not receive any of the proceeds from any such sale.
ResortQuest has previously issued 1,465,359 shares of Common Stock pursuant
to this registration statement.
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SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
On May 26, 1998, ResortQuest consummated the initial public offering and
the acquisitions of the Founding Companies. For financial statement presentation
purposes Aston Hotels & Resorts, one of the Founding Companies, was designated
as the "accounting acquiror." ResortQuest completed five additional acquisitions
in 1998 after the initial public offering. The following summary pro forma
combined financial data present certain data for ResortQuest as adjusted for (i)
the effects of the Combinations on a historical basis; and (ii) the effects of
certain pro forma adjustments related to the historical financial statements of
the Combinations; and (iii) the effects of the 1998 Acquisitions since their
respective date of acquisition. See the Consolidated Financial Statements and
the notes thereto included elsewhere in this prospectus.
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YEAR ENDED
DECEMBER 31,
1998
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UNAUDITED PRO FORMA STATEMENT OF OPERATIONS DATA:(1)
Revenues:
Property management fees (2) ..................................... $ 35,341
Service fees ..................................................... 16,236
Other ............................................................ 17,870
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69,447
Operating expenses (2) ............................................ 35,627
General and administrative expenses (2) ........................... 17,084
Depreciation and amortization (2)(3) .............................. 4,581
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Operating income .................................................. 12,155
Interest and other income, net (2) ................................ (78)
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Income before income taxes ........................................ 12,077
Provision for income taxes (4) .................................... 5,724
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Net income ....................................................... $ 6,353
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Basic net income per share ........................................ $ 0.39
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Shares used in computing basic net income per share (5) ........... 16,166,168
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Diluted net income per share ...................................... $ 0.39
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Shares used in computing diluted net income per share (5) ......... 16,240,350
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<CAPTION>
DECEMBER 31,
1998
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BALANCE SHEET DATA:
Working capital deficit ........................... $ (2,096)
Total assets ...................................... 184,920
Long-term debt, net of current maturities ......... 37,953
Stockholders' equity .............................. 107,167
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(1) The pro forma statement of operations data assume that the Combinations
occurred on January 1, 1998 and are not necessarily indicative of the
results ResortQuest would have realized had such acquisitions actually then
occurred or of ResortQuest's future results. During the period presented
above, the Founding Companies were not under common control or management
and, therefore, the data presented may not be comparable to or indicative of
post-combination results to be achieved by ResortQuest. The pro forma
statement of operations data are based on preliminary estimates, available
information and certain assumptions that management deems appropriate and
should be read in conjunction with the consolidated financial statements and
notes thereto included elsewhere in this prospectus.
(2) The pro forma statement of operations data include pro forma (i) additional
revenue that ResortQuest would have realized related to certain property
management contracts with affiliates of the Founding Companies (at
contractual rates that were not reflective of market conditions), (ii)
reductions in salary, bonuses and benefits derived from contractual
agreements which establish the compensation of the owners and certain key
employees of the Founding Companies and (iii) effects of the exclusion of
certain non-operating assets and the assumption of or retirement of certain
liabilities (including interest expense) that were retained by certain
stockholders of the Founding Companies. See notes to the Consolidated
Financial Statements.
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(3) Reflects amortization of goodwill (which is principally not deductible for
income tax purposes) recorded as a result of the Combinations and the 1998
Acquisitions over a 40-year period, except for the goodwill related to First
Resort (defined herein), which is being amortized over a 15-year period, and
computed on the basis described in the notes to the Consolidated Financial
Statements.
(4) Includes the provision for federal and state income taxes relating to
converting certain operations to C Corporation status and including the tax
impact of pro forma adjustments.
(5) Includes (i) 6,119,656 shares issued to owners of the Founding Companies;
(ii) 3,134,630 shares issued to the management and founders of ResortQuest;
(iii) 6,670,000 shares representing the number of shares sold in the initial
public offering necessary to pay the cash portion of the consideration for
the Combinations, to repay debt assumed in the Combinations, to pay the
underwriting discount and other expenses of the initial public offering and
to provide additional working capital, and (iv) weighted average shares
(967,641 shares) used to pay for a portion of the purchase price related to
the acquisition of the 1998 Acquisitions. Diluted net income per share
includes the dilutive effect of options outstanding from May 27, 1998
through December 31, 1998.
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RISK FACTORS
An investment in the shares of Common Stock offered by this prospectus
involves a high degree of risk. You should carefully consider the following
factors and other information in this prospectus before deciding to invest in
shares of Common Stock.
ABSENCE OF COMBINED OPERATING HISTORY; RISKS OF INTEGRATION
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,
ResortQuest completed 12 additional vacation rental and property management
acquisitions. Prior to such acquisitions, the Operating Companies operated as
separate independent entities. Currently, ResortQuest relies on the existing
reporting systems of the Operating Companies for financial reporting. The pro
forma financial statements of the Founding Companies and the 1998 Acquisitions
cover periods when these companies and ResortQuest were not under common control
or management. Consequently, they may not be indicative of its future financial
or operating results.
ResortQuest's senior management group was assembled in connection with the
initial public offering. ResortQuest cannot assure you that the management group
will be able to continue to manage effectively the combined entity or
effectively implement its operating and growth strategies. If ResortQuest is
unable to integrate successfully the Operating Companies and future
acquisitions, it would have a material adverse effect on its business and
financial results. It also would make it unlikely that its acquisition program
will continue to be successful. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business -- Business
Strategy" and "-- Growth Strategy."
The Operating Companies offer a variety of different services to property
owners and vacationers, use different sales and marketing techniques to attract
new customers, utilize different fee structures and target different customer
segments. In addition, almost all of the Operating Companies operate in
different geographic markets with varying levels of competition, development
plans and local market dynamics. These differences increase the risk inherent in
successfully completing the integration of the Operating Companies.
RISKS ASSOCIATED WITH THE VACATION RENTAL AND PROPERTY MANAGEMENT INDUSTRY;
GENERAL ECONOMIC CONDITIONS
ResortQuest's 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 ResortQuest's
business and financial results:
o 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
ResortQuest's 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
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depend upon whether the resort is primarily a summer or winter destination.
During 1998, ResortQuest derived approximately 30.0% 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 its financial results may be partially mitigated by the
geographic diversity of the Operating Companies and any future acquisitions,
ResortQuest expects a significant seasonal factor with respect to its financial
results to continue.
ResortQuest's 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 ResortQuest's
quarterly financial results could adversely affect the price of the Common Stock
which in turn could adversely affect ResortQuest's proposed acquisition
strategy. See "Management's Discussion of Financial Condition and Results of
Operations."
RISKS OF DEPENDENCE ON THIRD PARTIES
ResortQuest manages properties that are generally located in destination
resorts which depend upon third parties for the development of resort
facilities, such as new homes and condominiums, as well as resort amenities such
as golf courses and chair lifts. Failure of such third parties to continue to
develop or to invest in resort facilities and amenities, could have a material
adverse effect on the rental value of ResortQuest's properties and,
consequently, on ResortQuest's business and financial results.
ResortQuest also depends on travel agents, package tour providers and
wholesalers for a significant portion of its revenues. During 1998, ResortQuest
derived approximately 24.0% of its combined revenues from sales made through or
to travel agents, package tour providers and wholesalers. Failure of travel
agents, package tour providers and wholesalers to continue to recommend or
package ResortQuest's vacation properties could result in a material adverse
effect on ResortQuest's 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. ResortQuest cannot assure you that ResortQuest or the total market for
vacation property rentals will continue to experience growth. Factors affecting
ResortQuest's ability to continue to experience internal growth include, the
ability to maintain existing relationships with property owners, expand the
number of properties under management and cross-sell among the Operating
Companies, as well as continued demand for such rentals. See "-- Risks
Associated with the Vacation Rental and Property Management Industry; General
Economic Conditions" and "Business -- Business Strategy" and "-- Growth
Strategy."
RISKS OF GEOGRAPHIC CONCENTRATION OF OPERATIONS
ResortQuest manages properties that are significantly concentrated in beach
and island resorts located in Florida and the Hawaiian Islands and mountain
resorts located in Colorado and Utah. The following table sets forth the
December 31, 1998 combined pro forma revenue and percentage of total pro forma
revenues derived from each location.
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<TABLE>
<CAPTION>
COMBINED % OF TOTAL
REGION REVENUES REVENUES
- - -------------------------- -------------- ------------
<S> <C> <C>
Florida $12,821,000 18.4%
Hawaii 21,874,000 31.5%
Colorado and Utah 12,619,000 18.2%
Other* 22,133,000 31.9%
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Total $69,447,000 100.0%
=========== =====
</TABLE>
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* includes revenues of First Resort Software
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
ResortQuest's operations, than if its 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. ResortQuest cannot assure you
that it will be able to identify, acquire or profitably manage additional
businesses or successfully integrate acquired businesses into its existing
operations without substantial costs, delays or other operational or financial
problems. It is possible that competition may increase for companies ResortQuest
might seek to acquire. In such event, there may be fewer acquisition
opportunities available to ResortQuest, as well as higher acquisition prices.
Acquisitions also involve a number of special risks which could have a
material adverse effect on ResortQuest's business and financial results. These
risks include the following:
o the failure of acquired companies to achieve expected financial results;
o diversion of management's attention;
o failure to retain key personnel;
o amortization of acquired intangible assets; and
o increased potential for customer dissatisfaction or performance problems
at a single acquired company to affect adversely its reputation and brand
name.
ResortQuest may also seek international acquisitions that may be subject to
additional risks associated with doing business in such countries. ResortQuest
continually reviews various strategic acquisition opportunities and has held
discussions with a number of such acquisition candidates. ResortQuest is not a
party to any binding agreements to acquire vacation rental and property
management companies at this time. See "Business -- Growth Strategy."
ResortQuest intends to use shares of Common Stock to finance a portion of
the consideration for future acquisitions. If the Common Stock does not maintain
a sufficient market value, or the owners of businesses ResortQuest may seek to
acquire are otherwise unwilling to accept shares of Common Stock as part of the
consideration for the sale of their businesses, ResortQuest may be required to
utilize more of its cash resources, if available, in order to implement its
acquisition strategy. If ResortQuest has insufficient cash resources, its growth
could be limited unless ResortQuest is able to obtain additional funds through
debt or equity financings. ResortQuest cannot assure you that its cash resources
will be sufficient, or that other financing will be available on terms
ResortQuest finds acceptable. If ResortQuest is unable to obtain financing
sufficient for all of its desired acquisitions, ResortQuest may be unable to
implement fully its acquisition strategy. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
14
<PAGE>
MANAGEMENT OF GROWTH
ResortQuest plans to continue to grow internally and through acquisitions.
ResortQuest will expend significant time and effort in expanding the Operating
Companies and in identifying, completing and integrating acquisitions.
ResortQuest cannot assure you that its systems, procedures and controls will be
adequate to support its 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. ResortQuest cannot assure you that it will be able to identify and
retain such additional management. If ResortQuest is unable to manage its growth
efficiently and effectively, or ResortQuest is unable to attract and retain
additional qualified management, it could have a material adverse effect on its
business and financial results. See "Business -- Business Strategy" and
"Management."
RELIANCE ON KEY PERSONNEL
ResortQuest's business substantially depends on the efforts and
relationships of David C. Sullivan, Chairman and Chief Executive Officer, the
other executive officers of ResortQuest and the senior management of the
Operating Companies. Furthermore, ResortQuest 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 ResortQuest is
unable to attract and retain other qualified employees, it could have a material
adverse effect on ResortQuest's business and financial results. Although
ResortQuest has entered into employment agreements with each of its executive
officers and the majority of the managers of the Operating Companies,
ResortQuest cannot assure you that any of these individuals will continue in his
or her present capacity for any particular period of time. See "Management."
SUBSTANTIAL AMOUNTS OF GOODWILL
Approximately $130.2 million, or 70.4%, of ResortQuest's total assets at
December 31, 1998, is net goodwill, which represents the excess of consideration
ResortQuest paid over the estimated fair market value of net assets 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 ResortQuest's 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, ResortQuest
periodically evaluates 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, ResortQuest would be required to write down the carrying value of the
goodwill and incur a related charge to its income. A reduction in net income
resulting from a write down of goodwill would currently affect its 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
ResortQuest provides 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 ResortQuest is unable to
attract additional property owners, it would have a material adverse effect on
ResortQuest's business and financial results. In addition, although most of its
contracts are exclusive, industry standards in certain geographic markets
dictate that rental services be provided on a non-exclusive basis. Approximately
1.1% of ResortQuest's revenues for 1998 on a pro forma combined basis were
derived from rental services provided on a non-exclusive basis. ResortQuest is
unable to determine the percentage of the national rental services market that
is provided on a non-exclusive basis. See "Business -- Services Offered to
Condominium and Home Owners."
15
<PAGE>
RISKS ASSOCIATED WITH HOMEOWNERS' ASSOCIATION MANAGEMENT CONTRACTS
ResortQuest currently provides homeowners' association management services
at numerous condominium developments pursuant to contracts with the homeowners'
association present at such developments. ResortQuest frequently provides 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 ResortQuest manage and control
the front desk operations, laundry facilities and other related services of the
condominium developments. Controlling these services often gives ResortQuest a
competitive advantage over other vacation rental and property management
companies in retaining the condominiums ResortQuest currently manages and in
attracting new property owners.
ResortQuest cannot assure you that a homeowners' association will not
terminate its management agreement with ResortQuest. If a homeowners'
association terminates a management agreement, ResortQuest could lose the
control or management of the front desk and related services, thereby
eliminating its competitive advantage. If ResortQuest loses its competitive
advantage, a reduction in the number of properties ResortQuest manages and an
increase in the expenses required to retain and maintain the condominiums
ResortQuest manages at that site may result. Any such termination could have a
material adverse effect on ResortQuest's business and financial results.
YEAR 2000 COMPUTER SYSTEMS COMPLIANCE
The vacation property management industry uses a complex suite of software.
ResortQuest is in the process of evaluating the various components of its
operating environment and embedded technology. ResortQuest expects to complete
the analysis and implement any corrective measures by mid-1999.
The impact upon ResortQuest of 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 ResortQuest results of
operations will not be material. ResortQuest will have contingency plans in
place designed to mitigate the impact of Year 2000 issues. All contingency plans
are expected to be developed, tested and implemented by the end of the third
quarter 1999.
If ResortQuest should fail to identify or fix all such issues in its own
operations, or if ResortQuest is affected by the inability of a sole-source
supplier or a major customer to continue operations due to such a problem,
ResortQuest's operations could be affected. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Year 2000
Compliance."
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. ResortQuest competes for
vacationers and property owners primarily with local vacation rental and
property management companies located in its markets. Some of these competitors
are affiliated with the owners or operators of resorts in which such competitors
provide their services. Certain of these competitors may have lower cost
structures and may be able to provide their services at lower rates.
ResortQuest also competes 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
16
<PAGE>
ResortQuest's business. Such competition could cause ResortQuest to lose
management contracts, increase expenses or reduce management fees which could
have a material adverse effect on ResortQuest's business and financial results.
See "Business -- Competition."
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 ResortQuest's
affairs, to elect all of the directors and to control the disposition of any
matter submitted to a vote of stockholders. See "Principal Stockholders" and
"Description of Capital Stock -- Common Stock and Restricted Common Stock."
PORTION OF REVENUES DERIVED FROM REAL ESTATE SALES
ResortQuest derived approximately 12% of its 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 ResortQuest's
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 ResortQuest's 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.
ResortQuest believes that it is in material compliance with all federal,
state, local and foreign laws and regulations to which it is currently subject.
However, ResortQuest cannot assure you that the cost of qualifying under
applicable regulations in all jurisdictions in which ResortQuest desires to
conduct business will not be significant or that ResortQuest is 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 ResortQuest to make material expenditures or otherwise
have a material adverse effect on ResortQuest's business and financial results.
See "Business -- Governmental Regulation."
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.
ResortQuest has also entered into certain similar agreements that became
effective upon such acquisitions. In addition, ResortQuest may enter into
similar agreements in the future. Although ResortQuest believes that the
existing agreements it has entered into with related persons, other than a loan
agreement with the former principal stockholder of Aston Hotels & Resorts, are,
and that all future agreements will be, on terms no less favorable to
ResortQuest than it could obtain from unrelated third parties, conflicts of
interests may arise between ResortQuest and these related persons.
17
<PAGE>
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. Of this amount, $4.0 million 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). For a description of this agreement see
"Certain Transactions -- Other Transactions."
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON STOCK
The market price of the Common Stock could drop as a result of the sale of
substantial amounts of Common Stock in the public market, or the perception that
such sales could occur.
ResortQuest has 17,389,645 shares of Common Stock outstanding as of March
31, 1999. The 6,670,000 shares of Common Stock sold in the initial public
offering are freely tradable unless held by affiliates of ResortQuest.
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.
This prospectus registers 3,000,000 shares of Common Stock for use as
consideration for use by ResortQuest for future acquisitions. These shares will
generally be freely tradable after issuance, unless the resale thereof is
contractually restricted or unless the holders thereof are subject to the
restrictions on resale provided in Rule 145 under the Securities Act.
ResortQuest has issued 1,465,359 shares of Common Stock in connection with the
12 acquisitions which closed since the initial public offering. All of these
shares were registered under the Securities Act and 348,003 of these shares are
subject to certain contractual transfer restrictions expiring between May 30,
1999 and February 1, 2000. See "Shares Eligible for Future Sale" and
"Underwriting."
POSSIBLE VOLATILITY OF STOCK PRICE
There was no public market for the Common Stock prior to the initial public
offering. Although a public market for the common stock has developed,
ResortQuest 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 ResortQuest's annual or quarterly financial results or the
financial results of its competitors;
o changes by financial research analysts in their estimates of
ResortQuest's earnings;
o ResortQuest's failure to meet financial research analysts' estimates of
its 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 its 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 AND SHAREHOLDER
RIGHTS PLAN
Certain provisions of ResortQuest's 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.
ResortQuest's by-laws contain other provisions that may have an anti-takeover
effect.
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<PAGE>
The shareholder rights plan that was adopted on February 25, 1999, by the
Board of Directors 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. See "Management -- Directors and Executive Officers" and
"Description of Capital Stock."
FORWARD-LOOKING STATEMENTS
There are a number of statements in this prospectus that address
activities, events or developments which ResortQuest expects or anticipates will
or may occur in the future, including such matters as its strategy for internal
growth and improved profitability, additional capital expenditures (including
the amount and nature thereof), acquisitions of assets and businesses, industry
trends and other such matters. These statements are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are based on certain assumptions and analyses ResortQuest has made in
light of its perception of historical trends, current business and economic
conditions and expected future development as well as other factors ResortQuest
believes are reasonable or appropriate. However, whether actual results and
developments will conform with ResortQuest's expectations and predictions is
subject to a number of risks and uncertainties, including the risk factors
discussed in this prospectus; general economic, market or business conditions;
the business opportunities (or lack thereof) that may be presented to and
pursued by ResortQuest; and changes in laws or regulations and other factors,
most of which are beyond ResortQuest's control. Consequently, ResortQuest cannot
assure you that the actual results or developments it anticipates will be
realized or, even if substantially realized, that they will have the expected
consequences to or effects on ResortQuest.
PRICE RANGE OF COMMON STOCK
ResortQuest's Common Stock trades on the NYSE under the symbol "RZT."
ResortQuest completed its initial public offering in May 1998 at a price of
$11.00 per share. The following table sets forth the high and low sales prices
for the Common Stock for the second, third and fourth quarters of the fiscal
year ended December 31, 1998, and for the first quarter of the fiscal year
ending December 31, 1999.
<TABLE>
<CAPTION>
HIGH LOW
------------- -------------
<S> <C> <C>
Fiscal Year Ended December 31, 1998
Second Quarter (from May 20, 1998) ............. $ 17.7500 $ 14.0000
Third Quarter .................................. 17.1250 8.8125
Fourth Quarter ................................. 14.7500 6.5625
Fiscal Year Ending December 31, 1999
First Quarter .................................. 22.9375 13.9375
Second Quarter (through April 9, 1999) ......... 16.2500 14.8125
</TABLE>
19
<PAGE>
On April 9, 1999, the last reported sales price of the Common Stock on the
NYSE was $15.1875 per share. On March 31, 1999, there were 233 holders of record
of the Common Stock, although ResortQuest believes the number of beneficial
holders is substantially greater.
DIVIDEND POLICY
ResortQuest intends to retain all of its earnings, if any, to finance the
expansion of its business and for general corporate purposes, including future
acquisitions, and does not anticipate paying any cash dividends on its Common
Stock for the foreseeable future. In addition, the Credit Facility (as defined
herein) includes restrictions on the ability of ResortQuest to pay dividends
without the consent of the lenders.
CORPORATE INFORMATION
ResortQuest's executive offices are located at 530 Oak Court Drive, Suite
360, Memphis, Tennessee 38117, and its telephone number is (901) 762-0600.
ResortQuest's website is resortquest.com. Information contained in ResortQuest's
website is not part of this prospectus. ResortQuest has filed applications to
register each of the following servicemarks in each of the United States, Canada
and European Union: ResortQuest, ResortQuest International, QuestClub and
ResortQuest International's star logo. Other persons own other trademarks and
trade names mentioned in this prospectus, including Aston(Reg. TM) and Aston
Hotels & Resorts(Reg. TM), which are registered tradenames and trademarks of AST
Brands, LLC.
20
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
On May 26, 1998, ResortQuest consummated the IPO and the acquisitions of
the Founding Companies. For financial statement presentation purposes, Aston
Hotels & Resorts, one of the Founding Companies, was designated as the
"accounting acquiror." Additionally, ResortQuest completed five additional
acquisitions in 1998 after the IPO. The historical consolidated financial
statement data include the financial results of Aston Hotels and Resorts prior
to the Combinations and the IPO, and include the combined balances and
transactions of ResortQuest and the Founding Companies only since May 26, 1998.
Additionally, the 1998 Acquisitions have been reflected since their respective
date of acquisition. The following summary pro forma financial data present
certain data for ResortQuest as adjusted for (i) the effects of the Combinations
on a historical basis; and (ii) the effects of certain pro forma adjustments
related to the historical financial statements of the Combinations; and (iii)
the effects of the 1998 Acquisitions since their respective date of acquisition.
See the Consolidated Financial Statements and the notes thereto included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
RESORTQUEST
STATEMENTS OF OPERATIONS 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
------- ------- ------- ------- -------
Operating income ............................. 2,571 3,064 3,485 5,171 4,934
Interest 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
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1998
------------------------
<S> <C>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS DATA (1):
Revenues:
Property management fees (2) .......................................... $ 35,341
Service fees .......................................................... 16,236
Other ................................................................. 17,870
-----------
69,447
Operating Expenses (2) .................................................. 35,627
General and administrative expenses (2) ................................. 17,084
Depreciation and amortization (2)(3) .................................... 4,581
-----------
Operating income ........................................................ 12,155
Interest and other income, net (2) ...................................... (78)
-----------
Income before income taxes .............................................. 12,077
Provision for income taxes (4) .......................................... 5,724
-----------
Net income .............................................................. $ 6,353
===========
Basic net income per share .............................................. $ 0.39
===========
Shares used in computing basic pro forma income per share (5) ........... 16,166,168
===========
Diluted net income per share ............................................ $ 0.39
===========
Shares used in computing diluted pro forma income per share (5) ......... 16,240,350
===========
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------------
1994 1995 1996 1997 1998
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
RESORTQUEST
BALANCE SHEET DATA:
Working capital deficit ........................... $ (3,919) $ (3,581) $ (1,933) $ (4,588) $ (2,096)
Total assets ...................................... 9,373 13,904 12,970 14,562 184,920
Long-term debt, net of current maturities ......... 2,396 2,133 2,816 2,804 37,953
Stockholders' equity (deficit) .................... (395) (395) (395) (395) 107,167
</TABLE>
- - ----------
(1) The pro forma statement of operations data assume that the Combinations
occurred on January 1, 1998 and are not necessarily indicative of the
results ResortQuest would have realized had such acquisitions actually then
occurred or of ResortQuest's future results. During the period presented
above, the Founding Companies were not under common control or management
and, therefore, the data presented may not be comparable to or indicative of
post-combination results to be achieved by ResortQuest. The pro forma
combined statements of operations data are based on preliminary estimates,
available information and certain assumptions that management deems
appropriate and should be read in conjunction with the consolidated
financial statements and notes thereto included elsewhere in this
prospectus.
(2) The pro forma statement of operations data include pro forma (i) additional
revenue that ResortQuest would have realized related to certain property
management contracts with affiliates of the Founding Companies (at
contractual rates that were not reflective of market conditions), (ii) the
reductions in salary, bonuses and benefits derived from contractual
agreements which establish the compensation of the owners and certain key
employees of the Founding Companies, and (iii) effects of the exclusion of
certain non-operating assets and the assumption of or retirement of certain
liabilities (including interest expense) that were retained by certain
stockholders of the Founding Companies. See notes to the Consolidated
Financial Statements.
(3) Reflects amortization of goodwill (which is principally not deductible for
income tax purposes) recorded as a result of the Combinations and the 1998
Acquisitions over a 40-year period, except for the goodwill related to First
Resort (defined herein), which is being amortized over a 15-year period, and
computed on the basis described in the notes to the Consolidated Financial
Statements.
(4) Includes the provision for federal and state income taxes relating to
converting certain operations to C Corporation status and including the tax
impact of pro forma adjustments.
(5) Includes (i) 6,119,656 shares issued to owners of the Founding Companies;
(ii) 3,134,630 shares issued to the management and founders of ResortQuest;
(iii) 6,670,000 shares representing the number of shares sold in the initial
public offering necessary to pay the cash portion of the consideration for
the Combinations, to repay debt assumed in the Combinations, to pay the
underwriting discount and other expenses of the initial public offering and
to provide additional working capital; and (iv) weighted average shares
(967,641 shares) used to pay for a portion of the purchase price related to
the acquisition of the 1998 Acquisitions. Diluted net income per share
includes the dilutive effect of options outstanding from May 27, 1998
through December 31, 1998.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read with "Selected Financial Data" and
the Consolidated Financial Statements and related Notes thereto appearing
elsewhere in this prospectus.
ResortQuest International is a leading provider of vacation condominium and
home rentals in premier destination resorts throughout the United States and in
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 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 and
the acquisition of the Founding Companies.
Subsequent to the IPO, ResortQuest completed five additional vacation
rental and property management acquisitions through the end of 1998: Goldpoint,
located in Breckenridge, Colorado, effective July 1998; Plantation Resort
Management, Inc. located in Gulf Shores, Alabama, effective August 31, 1998;
Whistler Exclusive Properties, Ltd. located in Whistler, British Columbia,
Canada, effective September 3, 1998; Abbott Realty Services, Inc. located in
Destin, Florida, effective September 30, 1998; and Columbine Management Company,
Inc. located in Dillon, Colorado, effective December 1, 1998. These 1998
Acquisitions had 2,956 vacation rental condominiums and homes under management,
and were located in two new markets and three existing markets. The 1998
Acquisitions cost $45.0 million and were financed through a combination of stock
and cash.
In the first quarter of 1999, ResortQuest completed seven additional
acquisitions, which included 1,577 vacation rental condominiums and homes under
management, located in six new markets. The new markets include Sunriver,
Oregon; Big Sky, Montana; Palm Desert, California; Hilton Head, South Carolina;
Scottsdale, Arizona; and Crested Butte, Colorado. These acquisitions cost $24.2
million and were financed through a combination of stock and cash.
ResortQuest manages approximately 15,000 condominiums and homes nationwide
and in Canada. These rental properties are located in beach and island resorts
such as the Hawaiian Islands; Bethany Beach, Delaware; Gulf Shores, Alabama;
Nantucket, Massachusetts; the Outer Banks, North Carolina; Destin, Fort Walton
Beach and South Walton, Florida; Sanibel and Captiva Islands, Florida; and St.
Simons Island, Georgia; and mountain resorts such as Aspen, Breckenridge, Dillon
and Telluride, Colorado; Park City, Utah; and Whistler, British Columbia. Eight
of the Operating Companies also offer real estate brokerage services. First
Resort Software, one of the Founding Companies, is a leading provider of
integrated management services and reservations and accounting software for the
vacation rental and property management industry.
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. 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,
consisting of the 1998 Operating Companies, recognized $35.3 million of property
rental fees,
23
<PAGE>
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 ResortQuest acquired the 1998 Operating Companies, they 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 1998 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.
In July 1996, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 97 relating to business combinations immediately prior
to an initial public offering. Staff Accounting Bulletin No. 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 was identified as
the accounting acquiror for financial statement presentation purposes (i.e.,
Aston Hotels & Resorts, 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 1998 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
Software, 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 of Aston Hotels & Resorts in conjunction with the
Combinations has been reflected as excess distributions in the Consolidated
Statements of Changes in Stockholders' Equity. See "Certain Transactions --
Organization of the Company."
RESULTS OF CONTINUING OPERATIONS -- ACTUAL
Effective with the closing of ResortQuest's initial public offering on May
26, 1998, ResortQuest acquired the Founding Companies. However, for financial
accounting reporting purposes, Aston Hotels & Resorts 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 initial public offering include only the operating results of Aston Hotels &
Resorts. Since May 26, 1998, the historical consolidated financial information
includes the combined balances and transactions of ResortQuest and the 1998
Operating Companies 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.
24
<PAGE>
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>
1996 1997 1998
(in thousands) ------------------------ ------------------------ ------------------------
<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 the 1998 Acquisitions. Aston Hotels & Resorts' 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 the 1998 Acquisitions. Aston Hotels &
Resorts' 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.
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, the 1998 Acquisitions, and incremental
public-company expenses. Aston Hotels & Resorts' 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.
25
<PAGE>
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 Hotels & Resorts' 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 Hotels & Resorts' previous debt. However, ResortQuest did
assume approximately $5.7 million of debt from certain of the Founding
Companies, which was subsequently paid off by ResortQuest after the IPO. The
cash portion of the purchase price for the 1998 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 Hotels &
Resorts assigned such leases to a corporation owned by Aston Hotels & Resorts'
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 Hotels & Resorts' 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 Hotels & Resorts, 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 Hotels & Resorts qualified and filed as a S
Corporation.
RESULTS OF OPERATIONS -- PRO FORMA
To provide better comparability, the combined pro forma results of
operations for the 12 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 of the 1998 Acquisitions since their respective
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,
26
<PAGE>
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>
1997 1998
(in thousands) ------------------------ ------------------------
<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 ResortQuest'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 declined compared to the
prior year. However, Aston Hotels & Resorts 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 Hotels
& Resorts 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. Between the IPO and the end of 1998, ResortQuest
completed three additional acquisitions located in 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>
1997 1998
(in thousands) ------------------------ ------------------------
<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>
27
<PAGE>
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. Between the IPO and the end of 1998,
ResortQuest completed two additional acquisitions located in 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>
1997 1998
(in thousands) ------------------------ ------------------------
<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 1998
Acquisitions and increased salaries and wages to service the increased units
under management contract.
28
<PAGE>
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>
1997 1998
(in thousands) ------------------------ --------------------------
<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, ResortQuest's $55 million 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 the 1998 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 Hotels & Resorts' 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 Hotels &
Resorts 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
Hotels & Resorts' 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 initial public offering. Shares issued in the
initial public
29
<PAGE>
offering were sold at a price to the public of $11.00 per share. The net
proceeds to ResortQuest from its initial public 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 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 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 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
Promissory Note were the same as those provided for in the Credit Facility. The
Promissory Note was secured on the same terms as the Credit Facility. The
Promissory Note 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 ResortQuest'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 ResortQuest 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.
30
<PAGE>
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, by
mid-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 ResortQuest'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 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 30.0% 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.
31
<PAGE>
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.
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.
PERFORMANCE STATISTICS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
INCREASE/
1997 1998 DECREASE
------------- ------------- -----------------
<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 (2)
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 ResortQuest.
(2) These 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.
32
<PAGE>
BUSINESS
GENERAL
ResortQuest is a leading provider of vacation condominium and home rentals
in premier destination resorts throughout the United States and in Canada.
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, ResortQuest offers vacationers through 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, ResortQuest in
November 1998, established quality standards and segmented most of its 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.
ResortQuest 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. Since that time, ResortQuest has completed 12 additional vacation
rental and property management acquisitions, five in 1998 and seven in 1999.
ResortQuest currently manages approximately 15,000 condominiums and homes at 30
premier destination resorts nationwide and in Canada. These resort locations
include Gulf Shores, Alabama; Scottsdale/Phoenix, Arizona; Palm Desert,
California; Aspen, Breckenridge, Crested Butte, Dillon and Telluride, Colorado;
Bethany Beach, Delaware; Captiva Island, Destin, Ft. Walton Beach, Okaloosa
Island and Sanibel Island, Florida; St. Simons Island, Georgia; Hawaii, Maui,
Oahu, and Kauai, Hawaii; Nantucket, Massachusetts; Big Sky, Montana; the Outer
Banks of North Carolina; Sunriver, Oregon; Hilton Head Island, South Carolina;
Park City, Utah; and Whistler, British Columbia.
ResortQuest provides a wide range of services to both vacationers and
property owners. Because of the variety of ResortQuest's resort locations
throughout the United States and Canada and the diversity of rental prices
throughout its rental pool, ResortQuest is able to target a broad range of
vacationers, including families, couples and individuals. For vacationers,
ResortQuest offers the convenience and accommodations of a condominium or home,
while providing many of the amenities and services of a hotel. Vacation
condominium and home rentals generally offer greater space and convenience than
resort hotel rooms, including separate living, sleeping and eating quarters. As
a result, vacationers generally have more privacy and greater flexibility in a
vacation condominium or home. ResortQuest typically offers such services as
convenient check-in and check-out, frequent housekeeping and cleaning and
emergency maintenance assistance.
In addition, in most of its markets, ResortQuest provides specialized
concierge-type services such as arranging golf tee times, purchasing ski lift
tickets and making restaurant reservations. For property owners, ResortQuest
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 ResortQuest also may participate in QuestClub, an exclusive travel benefits
program for homeowners initiated in December 1998.
ResortQuest'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
33
<PAGE>
forma basis for the year ended December 31, 1998, the Founding Companies and the
1998 Acquisitions 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, ResortQuest provides traditional
real estate brokerage services for property owners seeking to sell their
condominiums and homes. ResortQuest 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, timeshare 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. Interests in timeshare resorts 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.
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 ResortQuest believes that this growth
has been, and will continue to be, driven by two primary factors: the overall
growth in the leisure travel and tourism industry, which reflected a 16.1%
increase in revenues from 1995 to 1997, and the increasing number of vacationers
seeking to rent vacation condominiums and homes.
For many vacationers, particularly those with families, a lengthy stay at a
quality commercial lodging establishment can be expensive. Vacation condominium
and home rentals generally offer families greater space and convenience than a
resort hotel room, including separate living, sleeping and eating quarters. As a
result, families generally have more privacy and greater flexibility in a
vacation condominium or home. Furthermore, with full kitchens available in most
properties, vacationers can also save on dining costs in a vacation condominium
or home rental. In addition, vacation condominium and home rentals frequently
include access to private yards, swimming pools, tennis courts and other
recreational facilities, and generally offer a greater variety of locations,
accommodations and price ranges within a market to meet a vacationer's desires.
Vacation property rentals are also a less expensive and more flexible
alternative to timeshare interests. Unlike vacation property rentals, timeshare
interests require the purchase of an ownership interest in a vacation residence
and continuing annual maintenance payments. A timeshare owner has the right to
use the same vacation residence for the same length of time each year. Subject
to availability and the payment of a membership fee and a variable exchange fee
to join a timeshare exchange program, a timeshare owner may request that his
timeshare interval be exchanged for a timeshare interval at another
participating resort. Owners are generally limited to timeshare intervals at
participating resorts and to those units which have been assigned an equal or
lower rating by the exchange program based on the location, size and quality of
the unit, the quality of the resort and the time of year requested.
Most vacation condominiums and homes are second homes owned by individuals
who reside in different locations and are unable to manage the rental process
easily. 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
34
<PAGE>
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. ResortQuest believes
the vacation rental and property management industry is highly inefficient and
presents a significant market opportunity for a well-capitalized company
offering a national network of high quality vacation condominiums and homes with
superior levels of customer service.
BUSINESS STRATEGY
ResortQuest's objective is to enhance its position as a leading provider of
premier destination resort condominium and home rentals by pursuing the
following business strategies:
DEVELOP A NATIONAL BRAND IN PREMIER DESTINATION RESORT CONDOMINIUM AND HOME
RENTALS. Prior to ResortQuest, there had 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, ResortQuest
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, ResortQuest 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, ResortQuest 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.
ResortQuest 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, ResortQuest
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, ResortQuest plans to enhance the rental
income for vacation condominium and home owners. Since substantially all of the
condominiums and homes managed by ResortQuest are second homes with absentee
owners, ResortQuest 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, ResortQuest 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, ResortQuest provides owners with concise,
timely and accurate monthly statements and payments for the rental and
management of their condominiums and homes. ResortQuest believes that its
reputation for high quality, comprehensive management services will be a key
competitive advantage in increasing the number of condominiums and homes under
its management within its existing markets.
CAPITALIZE ON THE EXPERIENCE OF SENIOR MANAGEMENT. ResortQuest's senior
management team has a proven track record of building and operating successful
brands, and the breadth of experience necessary to execute ResortQuest's
business plan effectively. David C. Sullivan, Chairman and Chief
35
<PAGE>
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. ResortQuest'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. ResortQuest'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.
ResortQuest'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.
ResortQuest'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
ResortQuest 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 their local communities.
ResortQuest 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 ResortQuest to provide additional
concierge-type services to its vacationers. Accordingly, ResortQuest 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
ResortQuest 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:
NATIONAL MARKETING STRATEGY. ResortQuest 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, ResortQuest markets to existing
customers to capitalize on cross-selling opportunities and increase customer
loyalty by offering customers similar properties and services in its other
resorts. ResortQuest believes the integrated marketing efforts of the Operating
Companies will increase customer awareness of ResortQuest's condominiums and
homes, lead to an increased demand for ResortQuest's rentals and result in
higher occupancy and rental rates for its condominium and home owners.
ResortQuest 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, ResortQuest launched resortquest.com,
one of the most comprehensive web sites in the vacation industry.
resortquest.com enables consumers to search through all of ResortQuest's
vacation home and condominium rentals, including photographs and detailed floor
plans, and to make reservations
36
<PAGE>
directly on-line. In addition to facilitating the ability to provide one-stop
shopping, ResortQuest utilizes 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.
INCREASE 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. ResortQuest
believes there are significant opportunities to expand the use of additional
marketing channels. ResortQuest capitalizes 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 ResortQuest's size and presence in premier destination resorts,
ResortQuest 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, ResortQuest 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 ResortQuest'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. ResortQuest 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, ResortQuest'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, ResortQuest 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,
ResortQuest believes there are numerous opportunities to improve the margins of
the Operating Companies. First, ResortQuest will strive to improve the
efficiency of certain basic services such as reservations, housekeeping and
laundry. ResortQuest 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. ResortQuest believes that enhanced efficiency and economies of scale
will reduce overall operating costs and allow ResortQuest to achieve increased
margins by spreading operating and corporate overhead costs over a larger
revenue base. For example, ResortQuest has begun to achieve 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. ResortQuest
believes that such fragmentation provides significant opportunities for
consolidation. ResortQuest 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 13
Founding Companies in May 1998, ResortQuest has completed 12 additional vacation
rental and property management acquisitions. ResortQuest continues to seek
companies with strong reputations and a commitment to high quality condominiums
and homes and customer service.
While ResortQuest will seek to acquire the leading companies in each new
market, ResortQuest 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 ResortQuest believes will enhance its ability to integrate such companies
upon acquisition.
37
<PAGE>
ResortQuest 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 ResortQuest's financial strength as a public company; and (iv) the
ability to increase profitability as a result of ResortQuest's centralization of
certain administrative functions and other economies of scale.
MARKETS
ResortQuest currently manages condominiums and homes in 30 premier island,
beach, mountain and desert resorts in the United States and Canada. The table
below sets forth the resort locations at which ResortQuest manages vacation home
and condominium properties and the aggregate number of properties managed in
each of the following states as of March 31, 1999.
<TABLE>
<S> <C>
BEACH RESORTS
Gulf Shores, Alabama ............................................... 384
Bethany Beach, Delaware ............................................ 626
The Beaches of South Walton,
Captiva Island, Destin, Ft. Myers,
Okaloosa 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 ......................................... 740
Aspen, Breckenridge, Crested Butte, Dillon and Telluride, Colorado . 1,227
Big Sky, Montana ................................................... 207
Sunriver, Oregon ................................................... 162
The Canyons, Deer Valley and Park City, Utah ....................... 348
------
TOTAL ............................................................ 14,805
======
</TABLE>
SERVICES OFFERED
SERVICES OFFERED TO VACATIONERS. ResortQuest 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 resortquest.com, an
on-line, interactive web site that provides consumers with instant access to
ResortQuest's inventory of approximately 15,000 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 on-line. 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. ResortQuest
has established a basic set of criteria based on quality, appearance and amenity
standards for each property. Each property also has been rated in
38
<PAGE>
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, ResortQuest offers conveniently located
check-in and check-out locations, many of which are located on-site at the front
desk of ResortQuest'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, ResortQuest 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,
ResortQuest 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. ResortQuest typically receives a fee for the
provision of such services.
SERVICES OFFERED TO CONDOMINIUM AND HOME OWNERS. ResortQuest 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,
ResortQuest 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.
ResortQuest 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. ResortQuest 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 ResortQuest 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, ResortQuest performs periodic inspections and makes
recommendations to property owners for maintenance, refurbishments and
renovations necessary to maintain the quality of their condominiums and homes.
In several of its destination resort markets, ResortQuest provides professional
interior design and refurbishment services to property owners to assist with the
upkeep and appearance of their condominiums and homes. ResortQuest 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, ResortQuest 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 ResortQuest primarily offers free-standing
homes, rather than condominiums, such as Aspen and Nantucket. ResortQuest
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 ResortQuest'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.
39
<PAGE>
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. ResortQuest 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 ResortQuest's vacation condominiums
and homes and a car rental. Tour packages are distributed almost exclusively
through travel agents.
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. ResortQuest 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 ResortQuest
operates.
ResortQuest intends to capitalize on its extensive market presence and
further increase its use of the world wide web, travel agents and the print
media. ResortQuest 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, ResortQuest 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. Sixteen 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 access 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.
ResortQuest intends to rely extensively on the products and management
expertise of First Resort to implement its technology strategy. Management
believes that investment in technology is 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.
ResortQuest 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 ResortQuest's
40
<PAGE>
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 ResortQuest to quickly link the Operating
Companies' and future acquired companies' databases. ResortQuest intends to
develop proprietary data mining tools in order to enhance its cross-selling and
direct marketing efforts.
COMPETITION
The vacation rental and property management industry is highly competitive
and has low barriers to entry. The industry has two distinct customer groups:
vacation property renters and vacation property owners. ResortQuest believes
that the principal competitive factors in attracting vacation property renters
are: market share and visibility; quality, cost and breadth of services and
properties provided; and long-term customer relationships. The principal
competitive factors in attracting vacation property owners are: the ability to
generate higher rental income and comprehensive management services at
competitive prices. ResortQuest competes for vacationers and property owners
primarily with approximately 3,000 owner-operated companies that typically
operate in a limited geographic area. Some of ResortQuest's competitors are
affiliated with the owners or operators of resorts in which such competitors
provide their services. Certain of these smaller competitors may have lower
overhead cost structures and may be able to provide their services at lower
rates.
ResortQuest also competes for vacationers with large hotel and resort
companies. Many of these competitor companies have greater financial resources
than ResortQuest 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 ResortQuest for
the same acquisition opportunities. Consequently, ResortQuest 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 subsequent acquisitions.
EMPLOYEES
ResortQuest had approximately 3,000 employees as of March 31, 1999.
ResortQuest relies significantly on temporary employees to meet peak season
demands. In the course of performing service and maintenance work, ResortQuest
also utilizes the services of independent contractors. ResortQuest believes its
relationships with its employees and independent contractors are good.
LEGAL PROCEEDINGS
ResortQuest is involved in various legal actions arising in the ordinary
course of business. ResortQuest believes that none of these actions will have a
material adverse effect on its business, financial condition or results of
operations.
FACILITIES
As of March 31, 1999, ResortQuest had 119 properties located in 14 states
and 28 cities in the United States and Canada. These properties consist
principally of offices and maintenance, laundry and storage facilities.
ResortQuest owns 20 of these facilities and leases the remaining 99 properties.
ResortQuest considers all of its owned and leased properties to be suitable and
adequate for the conduct of its business. See "Certain Transactions -- Leasees
of Facilities."
41
<PAGE>
GOVERNMENTAL REGULATION
ResortQuest's operations are subject to various federal, state and local
laws and regulations, including (i) licensing requirements applicable to real
estate operations and (ii) laws and regulations relating to consumer protection.
On a federal level, the Federal Trade Commission has taken the most active
regulatory role through the Federal Trade Commission Act, which prohibits unfair
or deceptive acts or competition in interstate commerce. Other federal
legislation to which ResortQuest is or may be subject includes the Real Estate
Settlement Procedures Act, the Fair Debt Collection Practices Act, the
Interstate Land Sales Full Disclosure Act, Telephone Consumer Protection Act,
Telemarketing and Consumer Fraud and Abuse Prevention Act, Fair Housing Act,
Americans With Disabilities Act and the Civil Rights Acts of 1964 and 1968. Many
state and local regulations governing real estate services require permits and
licenses to be held by individuals. In some cases, a required permit or license
held by a single individual may be sufficient to authorize specified activities
for all ResortQuest employees who work in the state or county that issued the
permit or license. In addition, certain international laws and regulations may
also be applicable to ResortQuest's international operations. ResortQuest
believes that it is in material compliance with all federal, state, local and
foreign laws and regulations to which it is currently subject.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information concerning ResortQuest's
directors, executive officers and certain key employees.
<TABLE>
<CAPTION>
NAME AGE POSITION
- - --------------------------------- ----- ----------------------------------------------------
<S> <C> <C>
David C. Sullivan ............... 59 Chairman and Chief Executive Officer, Director
David L. Levine ................. 51 President and Chief Operating Officer, Director
Jeffery M. Jarvis ............... 43 Senior Vice President and Chief Financial Officer
W. Michael Murphy ............... 53 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
William W. Abbott, Jr. .......... 53 Director
Luis Alonso ..................... 35 CEO-Collection of Fine Properties; Director
Elan J. Blutinger ............... 43 Director
Park Brady ...................... 51 Director
Douglas R. Brindley ............. 41 President-Brindley & Brindley; Director
D. Fraser Bullock ............... 44 Director
Paul T. Dobson .................. 44 Vice President-Maui Condominium and Home;
Director
Joshua M. Freeman ............... 34 Director
Evan H. Gull .................... 52 Vice President-First Resort; Director
Heidi O'Leary Houston ........... 46 President-Houston and O'Leary; Director
Charles O. Howey ................ 71 Director
J. Patrick McCurdy .............. 51 President-Whistler Chalets; Director
Daniel L. Meehan ................ 49 President-Resort Property Management; Director
Leonard A. Potter ............... 37 Advisory Director
Michael D. Rose ................. 57 Director
Andre S. Tatibouet .............. 58 CEO-Aston Hotels & Resorts; Director
Hans F. Trupp ................... 59 Chairman-Trupp-Hodnett Enterprises; Director
Joseph V. Vittoria .............. 64 Director
Theodore L. Weise ............... 55 Director
</TABLE>
DAVID C. SULLIVAN became the Chairman and Chief Executive Officer and a
director of ResortQuest 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 Operating Officer of the Hotel Division of the Promus
Companies Incorporated. He was the Senior Vice President of Development and
Operations of the Hampton Inn/Homewood Suites Hotel Division of The Promus
Companies from 1991 to 1993. From 1990 to 1991, Mr. Sullivan was the Vice
President of Development of the Hampton Inn Hotel Division of The Promus
Companies. Mr. Sullivan is also a director of Winston Hotels, Inc.
DAVID L. LEVINE became the President and Chief Operating Officer and a
director of ResortQuest 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.
43
<PAGE>
Levine was also President and Chief Operations Officer of Trust Management Inc.,
which operated Equity Inns properties, from June 1994 until November 1996. Prior
to that, he was President of North American Hospitality, Inc., a hotel
management and consulting company, which he formed in 1985.
JEFFERY M. JARVIS became Senior Vice President and Chief Financial Officer
of ResortQuest 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
ResortQuest 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
ResortQuest 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 ResortQuest 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 ResortQuest in May 1998. Mr. Farmer was Senior Vice President for
Internet and Desktop Services of Marriott International from November 1996 to
April 1998. He also served as Vice President of Data Resources & Services for
Marriott International from March 1992 to November 1996.
WILLIAM W. ABBOTT, JR. became a director of ResortQuest in November 1998
and is a consultant to ResortQuest. He previously served as Vice Chairman of
Abbott Resorts, Inc. from March 1997 to November 1998. He served as President
and Chairman of the Board of Abbott Resorts from 1976 to March 1997.
LUIS ALONSO became a director of ResortQuest in May 1998. Mr. Alonso has
served as the Chief Executive Officer and President of Collection of Fine
Properties since January 1995, when Tyra Management Company and two other
management companies merged into the newly formed Collection of Fine
Properties. Mr. Alonso was the President of Tyra Management Company from 1985
until the merger. Mr. Alonso is a member of the Breckenridge Town Council and
is Vice Chairman of the Breckenridge Central Reservation Board.
ELAN J. BLUTINGER has been a director of ResortQuest since its formation in
September 1997. He is a co-founder and a Managing Director of Alpine
Consolidated II, LLC and a partner in Alpine Consolidated III, LLC, each a
merchant bank specializing in the consolidation of fragmented industries. He is
a director and co-founder of Travel Services International, Inc. and is Chairman
of its Compensation Committee. From 1987 until 1995, he was the Chief Executive
Officer of Shoppers
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<PAGE>
Express, which became "OnCart" in 1997, an electronic retailing service, which
he founded. From 1983 until its acquisition in 1986 by Independent Distribution
Incorporated, Mr. Blutinger was Chief Executive Officer of DSI, a wholesale
software distributor.
PARK BRADY became a director of ResortQuest in May 1998. Mr. Brady is a
founder of Telluride Resort Accommodations, and has served as the President and
a director of the company since June 1997. He has served as Director of Sales
and Marketing for Telluride Resort Accommodations from 1989 to 1994, and as
General Manager from 1987 to 1989. From 1994 to 1997, Mr. Brady developed real
estate projects in the Telluride area. Mr. Brady is a former member of the
Telluride Town Council and is also former Chairman of the Telluride Chamber
Resort Association.
DOUGLAS R. BRINDLEY became a director of ResortQuest in May 1998. Mr.
Brindley and his wife, Betty Shotton Brindley, are co-founders of both B&B On
The Beach, Inc. and Brindley & Brindley Realty & Development, Inc. Mr. Brindley
is a director and President of both companies.
D. FRASER BULLOCK has been a director of ResortQuest since its formation in
September 1997. He is a Managing Director of Alpine Consolidated II, LLC and
Alpine Consolidated III, LLC. He is a director and co-founder of Travel Services
International, Inc. and is currently Chairman of its Audit Committee. From its
inception in 1994 to 1996, he was the President and Chief Operating Officer of
VISA Interactive, a wholly-owned subsidiary of VISA International. In 1993, Mr.
Bullock became the President and Chief Operating Officer of U.S. Order, Inc., a
provider of remote electronic transaction processing, until it was acquired by
VISA International in 1994. From 1991 to 1992, Mr. Bullock was the Senior Vice
President of U.S. Order, Inc. From 1986 to 1991, he was the Chief Financial
Officer and Executive Vice President of World Corp., Inc., a holding company
with various operating subsidiaries including World Airways, Inc. Mr. Bullock
was a founding partner of Bain Capital, a Manager of Bain and Company, and a
founder of MediVision, Inc., a consolidation of eye surgery centers.
PAUL T. DOBSON became a director of ResortQuest in May 1998. Mr. Dobson is
a co-founder of Maui Condominium and Home and has served as ResortQuest's
President since 1998. He served as ResortQuest's Vice President from 1991 to
1998. Mr. Dobson is the current President of the Vacation Rental Managers
Association, a trade organization representing over 300 vacation rental and
property management companies in North America.
JOSHUA M. FREEMAN became a director of ResortQuest in May 1998. He has
served since 1998 as Chairman, and from 1992 to 1998 served as the President and
Chief Operating Officer, of Carl M. Freeman Associates, Inc., a real estate
development and management company, since 1992. From 1996 to 1998 he also served
as President and managing member of Coastal Resorts Realty, L.L.C. and as
President and a director of Coastal Resorts Management, Inc.
EVAN H. GULL became a director of ResortQuest in May 1998. Mr. Gull is a
co-founder of First Resort and is currently a director and the Vice President
of Software Development, a position he has held since April 1995. Mr. Gull was
the Chief Operating Officer of the company from 1993 to 1995. He also served as
the Department Manager for Sales and Administration during that same time
period. He is the principal developer of First Resort's software products.
HEIDI O'LEARY HOUSTON beame a director of ResortQuest in May 1998. She
formed Houston and O'Leary Company in 1986 and has served as President and
principal broker since that time. She formed her own real estate brokerage and
development company in 1976. From 1976 to 1986 she consulted on redevelopment
projects in Denver and developed residential and commercial real estate in
Denver and Aspen.
CHARLES O. HOWEY became a director of ResortQuest in May 1998. Mr. Howey
has served as Chairman of Priscilla Murphy Realty since January 1997. Mr. Howey
has also been President of C.O. Management Services, a regional property
management company, since the 1950's. He is the founder and past president of
Howey & Associates, Inc., an independent insurance agency.
J. PATRICK MCCURDY became a director of ResortQuest in May 1998. Mr.
McCurdy has served as the President and Secretary of Whistler Chalets, since he
founded the company in 1986. Mr. McCurdy is a director and a former
Vice-President of the Vacation Rental Managers Association.
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<PAGE>
DANIEL L. MEEHAN became a director of ResortQuest in May 1998. Mr. Meehan
is the co-founder and has served as President of Resort Property Management
since 1982. Mr. Meehan has over 23 years of experience in the property
management industry, the last 19 of them in Park City.
LEONARD A. POTTER served as a director of ResortQuest from its formation in
September 1997 until May 26, 1998. After the consummation of the initial public
offering, he became an Advisory Director to the Board. Mr. Potter is a
co-founder and Managing Director of Capstone Partners, LLC, a venture firm
specializing in consolidation transactions. He was a co-founder of Travel
Services International, Inc. and is currently an advisory director to its board
of directors. Capstone Partners, LLC was a co-sponsor of Staffmark, Inc., a
consolidation of six staffing service companies in September 1996 with a
simultaneous initial public offering. Prior to forming Capstone Partners, LLC in
April 1996, Mr. Potter was an attorney at Morgan, Lewis & Bockius LLP for more
than five years practicing in the areas of mergers and acquisitions and
securities law. While at Morgan, Lewis & Bockius he represented a number of
public companies in connection with their creation and subsequent implementation
of consolidation strategies similar to ResortQuest's, including U.S. Office
Products, F.Y.I., Inc. and Cotelligent Group.
MICHAEL D. ROSE became a director of ResortQuest in May 1998. He served as
Chairman of the Board of Promus Hotel Corporation from April 1995 to December
1997. From June 1995 to December 1996, he was Chairman of the Board of Harrah's
Entertainment, Inc. Prior to that, Mr. Rose served as Chairman of the Board from
1989 to 1995 and Chief Executive Officer and President from 1989 to 1991 of the
Promus Companies, Inc. From 1984 to 1990 he was the Chairman of the Board and
from 1988 to 1990 he was the President and Chief Executive Officer of Holiday
Corporation. Mr. Rose is also a director of Ashland, Inc., Darden Restaurants,
Inc., FelCor Lodging Trust, Inc., First Tennessee National Corporation, General
Mills, Inc. and Stein Mart, Inc.
ANDRE S. TATIBOUET became a director of ResortQuest in May 1998. He has
been President of Aston Hotels & Resorts since October 1998. He served as
Chairman and Chief Executive Officer of Aston Hotels & Resorts from 1967 to
1998. Mr. Tatibouet is a director of the Hawaii Hotel Association, a director
and former president of the Hawaii Visitors Bureau, and a director of the
American Hotel & Motel Association.
HANS F. TRUPP became a director of ResortQuest in May 1998. Mr. Trupp has
served as the Chairman of Trupp-Hodnett Enterprises since 1987. He was also
Chairman of Trupp-McGinty Realty, Inc. from 1984 to 1987 and Trupp McGinty
Realtors/Insurers, which was formed in 1978.
JOSPEH V. VITTORIA became a director of ResortQuest in May 1998. He has
been the Chairman and Chief Executive Officer of Travel Services International,
Inc., a leading single source distributor of specialized leisure travel
services, since July 1997. From September 1987 to February 1997, Mr. Vittoria
was the Chairman and Chief Executive Officer of Avis, Inc., a multinational
auto rental company. Mr. Vittoria serves on the Board of Directors of Carey
International, Inc., CD Radio, Inc., Transmedia Europe and Transmedia Asia.
THEODORE L. WEISE became a director of ResortQuest in May 1998. Since
February 1998, Mr. Weise has been the President and Chief Executive Officer of
Federal Express Corporation, the world's largest transportation company. He was
previously Executive Vice President and Chief Operating Officer of Federal
Express Corporation from February 1996 to January 1998. From August 1991 to
February 1996 he served as Senior Vice President of Air Operations.
The Compensation Committee of the Board, which considers nominees for
election to the Board, has recommended that the size of the Board of Directors
be reduced from 21 members to 11 members. The Board of Directors believes that
a smaller Board will facilitate better communication among the directors and
increase the efficiency of the Board. Accordingly, eleven directors will be
elected at ResortQuest's 1999 annual meeting of shareholders. The following
nine current members of the Board are not nominees for reelection at the annual
meeting: Luis Alonso, Park Brady, Douglas R. Brindley, Paul T. Dobson, Evan H.
Gull, Charles O. Howey, Daniel L. Meehan, J. Patrick McCurdy and Hans F. Trupp.
Sharon Benson Doucette resigned from the Board of Directors for personal
reasons in February 1999.
46
<PAGE>
BOARD OF DIRECTORS
BOARD COMMITTEES. The Board of Directors has established an Executive
Committee, an Audit Committee, a Compensation Committee and a Capital Approval
Committee. During fiscal 1998, the Board also had an Operations Committee.
The Executive Committee consists of Messrs. Sullivan (Chairman), Alonso,
Blutinger, Freeman, Howey, Rose, Tatibouet, Trupp and Weise. The Executive
Committee may exercise all of the powers and authority of the Board of Directors
in the management of the business and affairs of ResortQuest other than the
power (i) to approve or adopt, or to recommend to the stockholders, any action
expressly required by Delaware law to be submitted to the stockholders for
approval, including, the amendment of ResortQuest's Certificate of
Incorporation, the merger or consolidation of ResortQuest, the sale, lease or
exchange of substantially all the assets of ResortQuest, the dissolution of
ResortQuest or the revocation of ResortQuest's voluntary dissolution, and (ii)
to adopt, amend or repeal any provision of the By-Laws of ResortQuest.
The Audit Committee consists of Messrs. Bullock (Chairman), Freeman and
Rose. The Audit Committee makes recommendations concerning the engagement of
independent public accountants, reviews with the independent public accountants
the plans and the results of the audit engagement, approves professional
services provided by the independent public accountants and reviews
recommendations regarding ResortQuest's accounting methods and the adequacy of
its systems of internal accounting controls.
The Compensation Committee consists of Messrs. Blutinger (Chairman), Rose
and Weise. The Compensation Committee determines compensation for ResortQuest's
management and key employees, administers ResortQuest's Plan, makes
recommendations to the Board of Directors with respect to ResortQuest's
compensation policies and considers as nominees for director qualified person
recommended by directors, management and shareholders.
The Capital Approval Committee consists of Messrs. Sullivan (Chairman) and
Levine and two advisory members from senior management who are not members of
the Board and who have no voting rights on any matters brought before the
Committee. The Capital Approval Committee reviews, evaluates, approves and
adopts acquisitions and other capital expenditures requiring $5 million or less
and provides recommendations to the Executive Committee or the Board with
respect to acquisitions and other capital expenditures requiring in excess of $5
million.
DIRECTOR COMPENSATION. Directors who are also employees of ResortQuest or
one of its subsidiaries do not receive additional compensation for serving as
directors. Each director who is not an employee of ResortQuest or one of its
subsidiaries receives $2,000 for attendance at each Board of Directors meeting
and $1,000 for each committee meeting (unless held on the same day as a Board of
Directors meeting). In addition, under ResortQuest's 1998 Long-Term Incentive
Plan, each non-employee director automatically receives an option to acquire
10,000 shares of Common Stock upon such person's initial election as a director
and, subject to a certain exception, an annual option to acquire 5,000 shares at
each annual meeting of ResortQuest's stockholders thereafter at which such
director is re-elected or remains a director. See "-- 1998 Long-Term Incentive
Plan." Directors also are reimbursed for out-of-pocket expenses incurred in
attending meetings of the Board of Directors or committees thereof, in their
capacity as directors.
The Advisory Director attends meetings of the Board of Directors, consults
with officers and directors of ResortQuest and provides guidance, but not
direction, concerning management and operation of ResortQuest's business. The
Advisory Director is not a director of ResortQuest and, accordingly, will not
have a right to vote as a director.
All officers serve at the discretion of the Board of Directors.
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<PAGE>
EXECUTIVE COMPENSATION
SUMMARY OF COMPENSATION. The following table shows cash and other
compensation paid or accrued during the 1998 fiscal year to ResortQuest's Chief
Executive Officer and each of the four other most highly compensated executive
officers (the "Named Executive Officers").
<TABLE>
<CAPTION>
SECURITIES
OTHER UNDERLYING ALL
NAME AND PRINCIPAL FISCAL ANNUAL OPTIONS LTIP OTHER
POSITION YEAR(1) SALARY(2) BONUS COMPENSATION GRANTED PAYOUTS COMPENSATION
- - ----------------------------------- --------- ----------- ---------------- -------------- ------------ --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
David C. Sullivan
Chairman and Chief
Executive Officer ............... 1998 $122,820 $ 122,820 $ - 100,000 $ - $ -
David L. Levine
President and Chief
Operations Officer ............. 1998 $ 99,792 $ 99,792 $ - 75,000 $ - $ -
Jeffery M. Jarvis
Senior Vice President
and Chief Financial Officer..... 1998 $ 92,115 $ 81,058(3) $ - 50,000 $ - $ -
W. Michael Murphy
Senior Vice President
and Chief Development
Officer ........................ 1998 $ 92,115 $ 76,058(3) $ - 50,000 $ - $ -
Jules S. Sowder
Senior Vice President
and Chief Marketing Officer. 1998 $ 76,763 $ 63,382(3) $ - 25,000 $ - $ -
</TABLE>
- - ----------
(1) Each of the Named Executive Officers commenced employment with ResortQuest
upon consummation of the initial public offering (May 26, 1998).
(2) Annual salaries are as follows: $200,000 for Mr. Sullivan; $162,500 for Mr.
Levine; $150,000 for each of Mr. Jarvis and Mr. Murphy; and $125,000 for
Ms. Sowder.
(3) Includes payments for consulting services rendered prior to ResortQuest's
initial public offering as follows: $35,000 for Mr. Jarvis; $30,000 for
Mr. Murphy and $25,000 for Ms. Sowder.
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<PAGE>
OPTION GRANTS IN FISCAL 1998 AND FISCAL YEAR-END OPTION VALUES. The table
below presents additional information concerning option awards for each of the
Named Executive Officers shown in the Summary Compensation table. These options
to purchase Common Stock were granted under ResortQuest's 1998 Long-Term
Incentive Plan on May 26, 1998. None of the Named Executive Officers exercised
any stock options in 1998. All of the options shown in the table become
exercisable at the rate of 25% per year.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------------
PERCENT OF
TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE OR
OPTIONS IN FISCAL BASE PRICE
NAME GRANTED 1988 PER SHARE EXPIRATION DATE
- - ---------------------------- ------------ ----------- ---------------- ----------------
<S> <C> <C> <C> <C>
David C. Sullivan ......... 100,000 5.3 $ 11.00 5/26/08
David L. Levine ........... 75,000 4.0 $ 11.00 5/26/08
Jeffery M. Jarvis ......... 50,000 2.7 $ 11.00 5/26/08
W. Michael Murphy ......... 50,000 2.7 $ 11.00 5/26/08
Jules S. Sowder ........... 25,000 1.3 $ 11.00 5/26/08
All shareholders (2) ...... n/a n/a n/a n/a
All optionees ............. 1,874,351 100.0% $ 10.90 (3) Various
All optionees gain as a
percentage of all
shareholders gain ......... n/a n/a n/a n/a
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION FOR
OPTION TERM (1)
----------------------------------------------
0% 5% 10%
-------- ----------------- -------------------
STOCK STOCK STOCK
PRICE PRICE PRICE
NAME $11.00 $17.92 $28.53
- - ---------------------------- -------- ----------------- -------------------
<S> <C> <C> <C>
David C. Sullivan ......... $ - $ 691,784 $ 1,753,117
David L. Levine ........... $ - $ 518,838 $ 1,314,838
Jeffery M. Jarvis ......... $ - $ 345,892 $ 876,558
W. Michael Murphy ......... $ - $ 345,892 $ 876,558
Jules S. Sowder ........... $ - $ 172,946 $ 438,279
All shareholders (2) ...... $ - $ 116,855,663 $296,135,194
All optionees ............. $ - $ 12,848,585 $ 32,560,837
All optionees gain as a
percentage of all
shareholders gain ......... 11.0% 11.0%
</TABLE>
- - ----------
(1) The dollar amounts under these columns are the result of calculations at
zero percent, five percent and ten percent rates set by the Securities and
Exchange Commission and therefore are not intended to forecast possible
future appreciation, if any, of our stock price. In the above table, we did
not use an alternative formula for a grant valuation, as we are not aware of
any formula which will determine with reasonable accuracy a present value
based on future unknown or volatile factors.
(2) These amounts represent the appreciated value which holders of Common Stock
would receive at the hypothetical zero, five and ten percent rates based on
the market value of Common Stock outstanding at or near the option grant
dates.
(3) Represents the weighted average price of options granted to all optionees.
EMPLOYMENT AGREEMENTS AND COVENANTS NOT TO COMPETE. Messrs. Sullivan,
Levine, Jarvis, Murphy and Ms. Sowder have entered into employment agreements
with ResortQuest providing for annual base salaries of $200,000, $162,500,
$150,000, $150,000 and $125,000, respectively. Each of these agreements are for
a term of three years (the "Initial Term"). In addition, certain executive
officers of the Operating Companies, including Ms. Houston and Mr. Tatibouet,
have entered into employment agreements for an Initial Term of three years.
Unless terminated or not renewed by ResortQuest or the employee, the term will
continue after the Initial Term on a year-to-year basis on the same terms and
conditions existing at the time of renewal. The base salaries for Ms. Houston
and Mr. Tatibouet are $150,000 and $120,000, respectively.
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Each employment agreement contains a covenant not to compete with
ResortQuest for a period of two years immediately following termination of
employment or, in the case of a termination by ResortQuest without cause in the
absence of a change in control, for a period of one year following termination
of employment. Under the covenant not to compete, the employee generally is
prohibited from: (i) engaging in any hotel management or non-commercial property
management, rental or sales business in direct competition with ResortQuest
within defined geographic areas in which ResortQuest or any of its subsidiaries
does business; (ii) enticing a managerial employee of ResortQuest away from
ResortQuest; (iii) calling upon any person or entity which is, or has been,
within one year prior to the date of termination, a customer of ResortQuest; or
(iv) calling upon a prospective acquisition candidate which the employee knew
was approached or analyzed by ResortQuest, for the purpose of acquiring the
entity.
The covenant not to compete may be enforced by injunctions or restraining
orders and shall be construed in accordance with the changing location of
ResortQuest.
Each of these employment agreements provides that, in the event of a
termination of employment by ResortQuest without cause during the Initial Term
the employee will be entitled to receive from ResortQuest an amount equal to his
or her then current salary for the remainder of the Initial Term or for one
year, whichever is greater. In the event of a termination of employment without
cause after the Initial Term of the employment agreement, the employee will be
entitled to receive an amount equal to his or her then current salary for one
year.
In the event of a change in control of ResortQuest (as defined in the
agreement) during the Initial Term, if the employee is not given at least five
days' notice of such change in control and the successor's intent to be bound by
such employment agreement, the employee may elect to terminate his or her
employment and receive in one lump sum three times the amount he or she would
receive pursuant to a termination without cause during the Initial Term.
The employment agreements also state that in the event of a termination
without cause by ResortQuest or a change in control, the employee may elect to
waive the right to receive severance compensation and, in such event, the
noncompetition provisions of the employment agreement will not apply. In the
event the employee is given at least five days' notice of such change in
control, the employee may elect to terminate his or her employment agreement and
receive in one lump sum two times the amount he or she would receive pursuant to
a termination without cause during the Initial Term. In such an event, the
noncompetition provisions of the employment agreement would apply for two years
from the effective date of termination.
Each agreement to acquire an Operating Company also contains a covenant
prohibiting the former owners of the Operating Companies from competing with
ResortQuest for a period of three years from the date of the acquisition. These
noncompetition provisions will not apply with respect to a former owner of an
Operating Company who has entered into an employment agreement with ResortQuest
in the event the former owner is terminated without cause and elects to waive
the right to receive severance compensation.
1998 LONG-TERM INCENTIVE PLAN
No stock options were granted to, or exercised by or held by any executive
officer in 1997. In March 1998, the Board of Directors and ResortQuest's
stockholders approved ResortQuest's 1998 Long-Term Incentive Plan (the "Plan").
The purpose of the Plan is to provide a means by which ResortQuest can attract
and retain executive officers, employee directors, other key employees,
non-employee and advisory directors and consultants of and other service
providers to ResortQuest and its subsidiaries and to compensate such persons in
a way that provides additional incentives and enables such persons to acquire or
increase a proprietary interest in ResortQuest. Individual awards under the Plan
may take the form of one or more of: (i) either incentive stock options ("ISOs")
or non-qualified stock options ("NQSOs"); (ii) stock appreciation rights
("SARs"); (iii) restricted or deferred stock; (iv) dividend equivalents; (v)
bonus shares and awards in lieu of ResortQuest obligations to pay cash
compensation; (vi) non-employee directors' deferred shares; and (vii) other
awards the value of which is based in whole or in part upon the value of the
Common Stock.
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The Plan is administered by a committee (the "Committee"), which currently
is the Compensation Committee of the Board of Directors, except that the Board
of Directors will itself perform the Committee's functions under the Plan for
purposes of grants of awards to non-employee directors, and may perform any
other function of the Committee as well. The Committee generally is empowered to
select the individuals who will receive awards and the terms and conditions of
those awards, including exercise prices for options and other exercisable
awards, vesting and forfeiture conditions (if any), performance conditions, the
extent to which awards may be transferable and periods during which awards will
remain outstanding. Awards may be settled in cash, shares, other awards or other
property, as determined by the Committee.
ResortQuest has reserved 2,027,031 shares of Common Stock for use in
connection with the Plan. The maximum number of shares of Common Stock that may
be subject to outstanding awards under the Plan will not exceed 12% of the
aggregate number of shares of Common Stock outstanding, minus the number of
shares previously issued pursuant to awards granted under the Plan. Shares of
Common Stock which are attributable to awards which have expired, terminated or
been canceled or forfeited are available for issuance or use in connection with
future awards.
The Plan provides for: (i) the automatic grant to each non-employee
director and advisory director (a "Non-Employee Director") serving at the
commencement of the initial public offering of an option to purchase 10,000
shares; and thereafter (ii) the automatic grant to each Non-Employee Director of
an option to purchase 10,000 shares upon such person's initial election as a
director or appointment as an advisory director. In addition, the Plan provides
for an automatic annual grant to each Non-Employee Director of an option to
purchase 5,000 shares at each annual meeting of stockholders following the
initial public offering; provided, however, that if the first annual meeting of
stockholders following a person's initial election as a non-employee director or
appointment by the Board as an advisory director is within three months of the
date of such election or appointment, such person will not be granted an option
to purchase 5,000 shares of Common Stock at such annual meeting. These options
will have an exercise price per share equal to the fair market value of a share
at the date of grant. Options granted under the Plan will expire at the earlier
of 10 years from the date of grant or one year after termination of service as a
director or advisory director, and options will be immediately exercisable. In
addition, the Plan permits Non-Employee Directors to elect to receive, in lieu
of cash directors' fees, shares, or credits representing "deferred shares" that
may be settled at future dates, as elected by the Non-Employee Directors. The
number of shares or deferred shares received will be equal to the number of
shares which, at the date the fees would otherwise be payable, will have an
aggregate fair market value equal to the amount of such fees. At the
commencement of the initial public offering, the Non-Employee Directors were
Messrs. Blutinger, Brady, Bullock, Freeman, Howey, Potter, Rose, Vittoria and
Weise.
The Plan will remain in effect until terminated by the Board of Directors.
The Plan may be amended by the Board of Directors without the consent of the
stockholders of ResortQuest, except that any amendment, although effective when
made, will be subject to stockholder approval if required by any federal or
state law or regulation or by the rules of any stock exchange or automated
quotation system on which the Common Stock may then be listed or quoted. The
number of shares reserved or deliverable under the Plan, the annual
per-participant limits, the number of shares subject to options automatically
granted to non-employee directors and the number of shares subject to
outstanding awards are subject to adjustment in the event of stock splits, stock
dividends and other extraordinary corporate events.
In connection with the initial public offering, options in the form of
NQSOs to purchase a total of 435,000 shares of Common Stock of ResortQuest were
granted to management of ResortQuest, including 100,000 shares to Mr. Sullivan,
75,000 shares to Mr. Levine, 50,000 shares to Mr. Jarvis, 50,000 shares to Mr.
Murphy, 75,000 shares to Mr. Farmer, 25,000 shares to Ms. Sowder, 25,000 shares
to Mr. Lines, an aggregate of 250,000 shares to Alpine Consolidated II, LLC and
Capstone Partners, LLC and an aggregate of 920,000 shares to the employees of
ResortQuest and the Founding Companies. Each of the foregoing option grants has
an exercise price equal to the initial public offering price per share, and
vests as to 25% each on the date that is 12 months, 24 months, 36
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<PAGE>
months and 48 months after the closing of the initial public offering. Unvested
options generally will be forfeited upon a termination of employment that is
voluntary by the participant. Upon a change of control of ResortQuest (as
defined in the Plan), vesting will be accelerated. The options generally will
expire on the earlier of 10 years after the date of grant or three months after
termination of employment (immediately in the event of a termination for cause),
unless otherwise determined by the Committee.
On February 25, 1999, the Committee authorized an increase in the total
number of shares that may be subject to awards to 15% of the aggregate number of
shares of Common Stock outstanding. The Committee believes that such increase is
necessary to have sufficient shares available for awards to attract, retain and
incent management and other employees as ResortQuest continues to grow through
acquisitions and internally. As of March 31, 1999, 2,608,447 shares were
available for awards under the Plan, of which awards for 1,891,851 shares had
been granted. Common Stock which are attributable to awards which have expired,
terminated or been canceled or forfeited are available for issuance or use in
connection with future awards.
At the same time, the Committee further authorized the following
amendments: (i) increasing the maximum annual per-participant limitation under
the Plan for awards that may be settled by delivery of shares, from a maximum of
100,000 shares of Common Stock to a maximum of 250,000 shares of Common Stock,
and (ii) including share price appreciation as a criterion which the Committee
can use to establish performance objectives for performance-based awards under
the Plan.
There have been no other modifications to the Plan. All of these
amendments, including the increase in the number of shares available for awards
under the Plan, are subject to stockholder approval at ResortQuest's 1999 annual
meeting of shareholders.
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CERTAIN TRANSACTIONS
ORGANIZATION OF RESORTQUEST
ResortQuest was formed in September 1997. ResortQuest was initially
capitalized by Alpine Consolidated II, LLC, of which Elan J. Blutinger and D.
Fraser Bullock, each a Director of ResortQuest, are Managing Directors, and
Capstone Partners, LLC. As a result of an 8,834.76-for-one stock split effected
in the form of a stock dividend on March 9, 1998, the 293.9481 shares of Common
Stock initially issued by ResortQuest to its founders, including Alpine
Consolidated II, LLC and Capstone Partners, LLC, aggregated 2,596,961 shares on
the closing of the initial public offering. In connection with the initial
public offering, Alpine Consolidated II, LLC and Capstone Partners, LLC also
received non-qualified stock options to purchase an aggregate of 250,000 shares
of Common Stock.
In January and February of 1998, ResortQuest issued a total of 518,369
shares of Common Stock (post-split) at $.01 (pre-split) per share to the
following directors and members of management: Mr. Sullivan - 289,202 shares,
Mr. Levine - 40,000 shares, Mr. Jarvis - 40,000 shares, Mr. Murphy - 40,000
shares, Ms. Sowder - 25,000 shares, Mr. Dobson - 2,000 shares and Mr. Brindley -
1,167 shares.
Prior to the consummation of the initial public offering, VPI Funding, LLC,
a Delaware limited liability company, extended loans to ResortQuest from time to
time in an amount equal to the legal, accounting and other transactional costs,
expenses and disbursements incurred by ResortQuest in connection with the
acquisitions of the Founding Companies and the initial public offering. The
member managers of VPI Funding included Alpine Consolidated II, LLC and Capstone
Partners, LLC. VPI Funding was repaid, without interest, from the gross proceeds
of the initial public offering. Such loans aggregated $1.2 million.
The aggregate consideration paid by ResortQuest in the acquisitions of the
Founding Companies consisted of (i) approximately $54.9 million in cash and (ii)
6,119,656 shares of Common Stock. ResortQuest also assumed an aggregate of
approximately $5.7 million of indebtedness of the Founding Companies in
connection with the Combinations. The consideration paid for each of the
Founding Companies was determined through arm's-length negotiations between
ResortQuest and representatives of each Founding Company. The factors considered
by ResortQuest in determining the consideration to be paid included, among
others, the historical operating results, the net worth, the amount and type of
indebtedness and the future prospects of the Founding Companies. Each Founding
Company was represented by independent counsel in the negotiation of the terms
and conditions of the Combinations.
The aggregate total consideration paid by ResortQuest for each of the
Founding Companies is as follows:
<TABLE>
<CAPTION>
SHARES OF DEBT
COMPANY CASH COMMON STOCK ASSUMED
- - ----------------------------------------- -------------- -------------- ------------
<S> <C> <C> <C>
Aston Hotels & Resorts .................. $29,500,000 1,708,333 $ 30,000
Brindley & Brindley ..................... 2,000,000 195,000 44,000
Coastal Resorts ......................... -- 816,667 --
Collection of Fine Properties ........... 4,526,000 404,167 520,000
First Resort ............................ 2,854,800 290,767 --
Houston and O'Leary ..................... 2,470,000 248,167 --
Maui Condominium and Home ............... 1,620,086 166,667 --
The Maury People ........................ 2,000,000 150,000 --
Priscilla Murphy Realty ................. -- 1,144,036 4,892,000
Resort Property Management .............. 1,116,351 108,333 153,000
Telluride Resort Accommodations ......... 3,013,762 125,103 --
Trupp-Hodnett Enterprises ............... 5,000,000 627,833 --
Whistler Chalets ........................ 800,000 134,583 11,000
----------- --------- ----------
$54,900,999 6,119,656 $5,650,000
=========== ========= ==========
</TABLE>
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Net assets of approximately $5.1 million, including certain real estate
which is currently leased or managed by ResortQuest, certain non-operating
assets and the assumption or retirement of certain liabilities, were excluded
from the Combinations and retained by certain former stockholders of the
Founding Companies. See "Certain Transactions -- Lease of Facilities" and "--
Management Agreements."
Pursuant to the agreements entered into to acquire the Founding Companies,
substantially all of the stockholders of the Founding Companies agreed not to
compete with ResortQuest for three years, commencing on the date of closing of
the initial public offering (until May 26, 2001).
In connection with the acquisitions of the Founding Companies, and as
consideration for their ownership interests in the Founding Companies, certain
executive officers, directors and holders of more than 5% of the outstanding
shares of Common Stock, together with their spouses and trusts for the benefit
of their immediate families, received, directly or indirectly, cash and shares
of Common Stock as follows:
<TABLE>
<CAPTION>
SHARES OF
CASH COMMON STOCK
-------------------- -------------
<S> <C> <C>
Luis Alonso .................... $ 1,423,124 121,250
Park Brady ..................... 304,763 31,041
Douglas R. Brindley ............ 2,000,000 195,000
Paul T. Dobson ................. 810,043 83,334
Sharon Benson Doucette ......... 2,000,000 150,000
Joshua M. Freeman .............. -- 803,519
Evan H. Gull ................... 1,057,333 88,111
Charles O. Howey ............... 1,907,880 (1) 446,174
Heidi Rose Houston ............. 2,470,000 248,167
Daniel L. Meehan ............... 1,200,000 98,333
J. Patrick McCurdy ............. 800,000 134,583
Andre S. Tatibouet ............. 20,930,000 1,708,333
Hans F. Trupp .................. 1,000,000 386,692
</TABLE>
- - ----------
(1) Represents estimated amount of the pro rata portion of indebtedness of
Priscilla Murphy Realty to be retired at the time of the Combinations.
On September 30, 1998, ResortQuest completed the acquisition of all of the
outstanding stock of Abbott Resorts. The aggregate consideration of $33.7
million paid for Abbott Resorts consisted of $26.7 million in cash, 757,040
shares of Common Stock of ResortQuest (valued at approximately $6.6 million
based on the average of the closing prices of ResortQuest's Common Stock for the
ten trading days prior to the effective date of the Stock Purchase Agreement)
and $6.9 million in debt assumed. Mr. Abbott received $6.1 million in cash and
115,308 shares of Common Stock in exchange for his interests in Abbott Resorts.
LEASES OF FACILITIES
ABBOTT RESORTS. Abbott Resorts leases 9,350 square feet of office space in
Destin, Florida for the main office for its property management and real estate
brokerage activities from SAVA Properties, a Florida general partnership which
is 25.5% owned by William Abbott, Jr. The lease expires September 29, 2018. The
aggregate annual rent paid by Abbott Resorts is $112,200. Abbott Resorts has
signed a lease commitment for approximately 3,706 square feet of indoor and
outdoor space in Santa Rosa, Florida for its rental property management and real
estate sales activities in the Santa Rosa and Grayton Beach, Florida areas. This
facility is currently under construction. Upon completion, this space will be
leased pursuant to a 20-year lease with multiple options to renew from VAGAS
Properties, a Florida general partnership which is 20% owned by Mr. Abbott. The
aggregate annual rent payment will be approximately $50,000.
Abbott Resorts leases 1,665 square feet of office space in Fort Walton
Beach, Florida for real estate sales activities. This property is leased from
A&A Partnership, a general partnership which is 50% owned by Mr. Abbott,
pursuant to the terms of a lease agreement which expires January 31,
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2001. The aggregate annual rent paid by Abbott Resorts is $19,980. As part of
such lease, Abbott Resorts also leases a two-bedroom apartment at such site,
which is subleased to unaffiliated third parties. Abbott Resorts also leases
2,000 square feet of office space in Destin, Florida from A&A Partnership for
use as its personnel office. The lease agreement expires August 31, 2001 and
provides for aggregate annual rent of $22,596.
ASTON HOTELS & RESORTS. Approximately 980 square feet of office space,
which is part of a space leased by Aston Hotels & Resorts, is used by a former
stockholder and the corporate secretary of Aston Hotels & Resorts. Mr. Tatibouet
has agreed to assume responsibility for the approximately $33,000 annual rent
allocable for this space to the extent and for the period it is used for
non-business purposes.
BRINDLEY & BRINDLEY. During 1996 and 1997, Brindley & Brindley leased
office space and facilities for its property management and real estate
brokerage activities from Douglas R. Brindley and his wife, Betty Shotton
Brindley, pursuant to two oral agreements, each on a month-to-month basis. The
aggregate annual rent paid by Brindley & Brindley to the Brindleys was $70,800
and $103,500 in 1996 and 1997, respectively. Brindley & Brindley entered into
two written lease agreements with the Brindleys for these facilities that
commenced on January 1, 1998. The terms of these leases expire December 31,
2002, with options to extend for two 5-year periods at the end of the lease
periods and provide for aggregate annual rental payments of approximately
$135,500.
COASTAL RESORTS. Coastal Resorts leases office space and facilities under
three separate lease agreements from Carl M. Freeman Associates, Inc. Joshua M.
Freeman is the Chairman of Carl M. Freeman Associates. The aggregate annual
rent paid by Coastal Resorts to Carl M. Freeman Associates under these leases
was approximately $69,000, $77,000 and $120,308 in 1996, 1997 and 1998,
respectively. One lease terminated on December 31, 1998. The remaining leases
terminate on December 31, 1999 and May 21, 2002.
COLLECTION OF FINE PROPERTIES. Certain commercial space owned by Collection
of Fine Properties was distributed to an entity or entities controlled by the
stockholders thereof, including Luis Alonso, prior to the Combinations and then
leased to ResortQuest. The leases for such property provide for aggregate annual
rentals of approximately $73,000.
PRISCILLA MURPHY REALTY. Priscilla Murphy Realty has leased office space
and facilities since August 25, 1997, from trusts affiliated with Charles O.
Howey, under three separate lease agreements. Two of the leases terminate on
June 30, 2001 and the remaining lease terminates on December 31, 2002. Priscilla
Murphy Realty entered into a fourth lease with the same trusts on January 28,
1998, to rent an additional office property for an annual rent payment of
$12,000. This lease also terminates on December 31, 2002. The aggregate rent
paid in 1997 and 1998 by Priscilla Murphy Realty to Mr. Howey's affiliated
trusts under these lease agreements was approximately $45,000 and $143,000,
respectively.
RESORT PROPERTY MANAGEMENT. Resort Property Management, since June 1998,
has leased office space that is owned by Daniel L. Meehan and his wife,
Kimberlie Meehan. The lease expires in June 2008 with two options to extend the
lease for five years each. The annual rent for the new facilities is
approximately $100,000, with annual increases equal to the increase in the
Consumer Price Index.
TRUPP-HODNETT ENTERPRISES. Trupp-Hodnett Enterprises leases office space
and facilities that are co-owned by Hans F. Trupp for its management and real
estate brokerage activities, under four separate lease agreements. Trupp-Hodnett
Enterprises made aggregate annual rent payments of $92,713, $109,513 and
$117,000 for these properties in 1996, 1997 and 1998, respectively. Two of the
leases terminate on December 31, 2009, one terminates on December 31, 2008 and
the fourth terminates on April 30, 2007.
During 1998, Mr. Trupp, in the normal course of business, paid
Trupp-Hodnett Enterprises $57,000 as a buyers broker commission on the purchase
of his personal residence and $94,000 as a consulting fee concerning the
purchase of residential building lots.
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<PAGE>
WHISTLER CHALETS. Office space owned by Whistler Chalets was distributed
to an entity controlled by J. Patrick McCurdy prior to the Combinations and
then leased to ResortQuest. The lease for such property has a term of 5 years,
with 3 renewal options of 5 years each, and provides for annual rentals of
approximately $21,000.
MANAGEMENT AGREEMENTS
ASTON HOTELS & RESORTS. Aston Hotels & Resorts manages two hotels owned by
Andre S. Tatibouet. The aggregate management fees received by Aston Hotels &
Resorts for the management of these properties were $501,000, $506,000 and
$620,000 in 1996, 1997 and 1998, respectively. The management agreements for
these hotels terminate on December 31, 2003. In addition, prior to the
Combinations, Aston Hotels & Resorts was a party to two lease and management
agreements for two hotels dated February 1, 1996 and February 21, 1991,
respectively. Aston Hotels & Resorts transfered these lease and management
agreements to AST Holdings, Inc. and simultaneously entered into management
agreements with AST Holdings, Inc. to manage these properties. AST Holdings,
Inc. is owned by Mr. Tatibouet. The aggregate management and other fees
received by Aston Hotels & Resorts during 1998 for the management of these
properties was $902,000.
COLLECTION OF FINE PROPERTIES. Prior to the Combinations, Collection of
Fine Properties distributed to Luis Alonso and another stockholder eight
condominiums that were owned and managed by Collection of Fine Properties.
Collection of Fine Properties now manages these properties, pursuant to its
standard management agreement.
TRUPP-HODNETT ENTERPRISES. Pursuant to an agreement dated January 1, 1994,
Trupp-Hodnett Enterprises provides management services for a 74-room hotel that
is co-owned by Hans F. Trupp, for $42,000 a year. The management agreement
terminates on December 31, 1999. Trupp-Hodnett Enterprises also manages several
vacation condominiums owned or co-owned by Mr. Trupp pursuant to its standard
management agreement. Trupp-Hodnett Enterprises has received aggregate property
management fees related to Mr. Trupp's ownership of these properties of $48,290,
$44,233 and $41,000 for 1996, 1997 and 1998, respectively.
WHISTLER CHALETS. Prior to the Combinations, Whistler Chalets distributed
to J. Patrick McCurdy six vacation condominiums that were owned and managed by
Whistler Chalets. Whistler Chalets now manages these properties, together with
one additional vacation condominium owned by Mr. McCurdy, pursuant to its
standard management agreement. Additionally, Whistler Chalets paid management
fees to Whistler Blackcomb Central Reservations, Inc. for the management
services of Mr. McCurdy in the amount of $376,023, $20,720 and $180,822 for
1996, 1997 and 1998, respectively. Mr. McCurdy is the President and owner of
Whistler Blackcomb.
OTHER TRANSACTIONS
ABBOTT RESORTS. ResortQuest and Mr. Abbott entered into an agreement with
respect to the handling of commissions on certain properties which were listed
for sale or whose sale was pending as of the date of ResortQuest's acquisition
of Abbott Resorts. Pursuant to such agreement, ResortQuest has agreed to pay
upon closing of the applicable transaction to which the applicable listing
and/or selling fee relates in the aggregate, up to $1,403,827 in listing and/or
selling commissions on such properties. In 1998, Mr. Abbott received $596,870 in
commissions under such agreement.
In connection with the acquisition of Abbott Resorts by ResortQuest, Mr.
Abbott entered into a three-year consulting agreement with ResortQuest. For all
services rendered by Mr. Abbott pursuant to the consulting agreement,
ResortQuest has agreed to compensate Mr. Abbott as follows: (1) to pay a
consulting fee of $125,000 per year; (2) to pay premiums for coverage for Mr.
Abbott and his immediate family under such health, hospitalization, disability,
dental, life and other insurance plans that ResortQuest may have in effect from
time to time; (3) by reimbursing Mr. Abbott for all business travel and other
out-of-pocket expenses reasonably incurred by him in the performance of his
duties; and (4) to pay for a full membership in the Tops'l Beach and Racquet
Club (the current cost for which is $1,200 per year). The consulting agreement
is terminable by ResortQuest or Mr. Abbott, with cause on ten days written
notice and or without cause thirty days written notice.
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<PAGE>
ASTON HOTELS & RESORTS. Since July 22, 1997, Aston Hotels & Resorts has
provided administrative services to AST International, LLC, an entity controlled
by Andre S. Tatibouet. AST International was billed approximately $553,000 and
$272,000 by Aston Hotels & Resorts for its services for 1997 and 1998,
respectively.
Prior to May 26, 1998, Aston Hotels & Resorts received sales representation
and accounting services from HCP, Inc., a company owned by Mr. Tatibouet. Aston
Hotels & Resorts paid HCP $481,000, $476,000 and $158,240 in 1996, 1997 and
1998, respectively, for these services. Employees of HCP providing these
services were transferred to Rep Holdings, Ltd., a new subsidiary of Aston
Hotels & Resorts, immediately after the Combinations.
Under the terms of an oral agreement, Aston Hotels & Resorts provides
management and clerical personnel for AST Development, Inc. in return for
consulting and support services. AST Development is owned by Mr. Tatibouet. The
costs incurred by Aston Hotels & Resorts relative to AST Development were
$125,000, $126,000 and $4,000 for 1996, 1997 and 1998, respectively.
Prior to May 26, 1998, Aston Hotels & Resorts had oral consulting
agreements with Mr. Tatibouet's wife and Mr. Tatibouet's mother, who received
annual aggregate compensation from Aston Hotels & Resorts of $221,000, $232,000
and $75,000 in 1996, 1997 and 1998, respectively. These agreements have been
terminated. Additionally, Aston Hotels & Resorts executed three promissory
notes, each payable to Mr. Tatibouet's wife, in the aggregate amount of
$285,000. These notes are each dated January 31, 1997 and each comes due on
February 28, 1999. These notes were assumed by Mr. Tatibouet prior to the
Combinations.
At December 31, 1998, Mr. Tatibouet owed Aston Hotels & Resorts, either
directly or through entities controlled by him (including properties managed by
Aston Hotels & Resorts), an aggregate amount of $4.2 million. Of this amount,
$4.0 million bears interest at the prime rate less 0.5%, with a minimum of 6%
and maximum of 10%, to be paid within ten years. This loan is fully
collateralized by Mr. Tatibouet with real estate, cash or cash equivalents,
including shares of Common Stock of ResortQuest pledged to ResortQuest or by Mr.
Tatibouet's personal guarantee (not to exceed $1.0 million). The remaining
$208,000 owed at December 31, 1998 is unsecured and related primarily to fees
and reimbursements arising from the management by Aston Hotels & Resorts of
properties owned or controlled by Mr. Tatibouet. Although such fees and
reimbursements are determined as of December 31, 1998, they are not, in the
normal course, payable until the following month.
Prior to 1998, Aston Hotels & Resorts leased storage space in a shopping
center complex from a limited partnership, Waikiki International Plaza, in which
Mr. Tatibouet and Aston Hotels & Resorts are each general partners with
respective 45% and 5% partnership interests. The shopping center, including the
leased storage space, was sold to an unrelated third party in December 1997. The
aggregate annual rent paid by Aston Hotels & Resorts to Waikiki International
Plaza was $114,000 and $110,000 in 1996 and 1997, respectively.
Aston Hotels & Resorts has entered into a 20-year royalty free license
agreement with AST Brands, LLC, an entity wholly-owned by Mr. Tatibouet, for use
of the name Aston Hotels & Resorts as well as other service marks, tradenames,
trademarks and logos.
BRINDLEY & BRINDLEY. Brindley & Brindley receives real estate sales
commissions from Outer Banks Ventures, Inc. pursuant to an exclusive listing
agreement giving Brindley & Brindley the right to sell all land developed by
Outer Banks Ventures. Douglas R. Brindley is the Vice President of Outer Banks
Ventures and his father is the owner and President of Outer Banks Ventures.
Brindley & Brindley received commissions from Outer Banks Ventures in the amount
of $23,800, $69,800 and $8,000 in 1996, 1997 and 1998, respectively.
COASTAL RESORTS. Coastal Resorts purchased all the assets of Interstate
Realty Co., Inc. from CMF Properties, Inc. on December 30, 1996 for $700,000.
Coastal Resorts purchased all the outstanding stock of Sea Colony Management,
Inc., a wholly owned subsidiary of CMF Properties on December 30, 1996 for
$100,000. CMF Properties was a majority owned subsidiary of CMFA. These
acquisitions were financed by loans from CMFA to Coastal Resorts in the
aggregate amount of $675,000. These loans, together with additional advances
aggregating $200,000, were paid in full on January 13, 1998.
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On December 31, 1997, Coastal Resorts sold the service mark "Sea Colony" to
Sea Colony Development Corporation, Inc. for $115,000 and a ten year license to
use the service mark at no charge under the terms of a license agreement. Sea
Colony Development is owned by Joshua M. Freeman.
Pursuant to an exclusive listing agreement with Sea Colony Development
dated January 1, 1997, Coastal Resorts receives a real estate sales commission
of 6.5% of the purchase price of each new home sold at the Sea Colony
condominium community in Bethany Beach, Delaware. Under the agreement, Coastal
Resorts is also required to develop a marketing plan, at its own expense, to
promote home sales in the Sea Colony community. Coastal Resorts earned
commissions of $1,244,000 and $1,878,295 for 1997 and 1998, respectively. As of
December 31, 1998, Coastal Resorts had a net receivable from Sea Colony
Development of $414,196 for home sales commissions. This agreement terminates on
December 31, 1999. Mr. Freeman is the President and sole stockholder of Sea
Colony Development.
Pursuant to an agreement dated January 1, 1997, Coastal Resorts receives
sales commissions of 6% for selling properties developed by Cove Resort Limited
Partnership. CMFA is the general partner and a 70% owner of Cove Resort. Under
the agreement, Coastal Resorts is also required to develop a marketing plan, at
its own expense, to promote home sales in The Cove community. Coastal Resorts
was paid $18,750 and $313,178 under this agreement in 1997 and 1998,
respectively. The agreement terminates on December 31, 1999.
Coastal Resorts has a management agreement with CMF Fitness, Inc. dated
June 1, 1996, to manage the Sea Colony Fitness Center for $5,834 a month. CMF
Fitness is a wholly owned subsidiary of CMFA. CMF Fitness paid Coastal Resorts
$40,838, $70,000 and $70,000 in 1996, 1997 and 1998, respectively, under the
agreement. The agreement terminates on the earlier of (i) December 31 of the
year in which the last new home in the Sea Colony development is sold or (ii)
December 31, 2005.
Pursuant to an agreement with Sea Colony Water Company, L.L.C. dated
January 1, 1997, Coastal Resorts was appointed exclusive agent for and manager
of the Sea Colony Water Plant. Sea Colony Water is a wholly owned subsidiary of
CMFA. Under the terms of the agreement, Coastal Resorts is entitled to retain
all revenue collected by the water plant, less costs and expenses and certain
payments to Sea Colony Water. Coastal Resorts received net revenues of $143,488
and $147,648 in 1997 and 1998, respectively, from its management of the water
plant. This agreement terminates on December 31, 2001 or upon the sale of the
water plant. Coastal Resorts has also entered into an agreement with Sea Colony
Water dated January 1, 1997 to provide construction supervision services for an
upgrade to the water plant for two years. Coastal Resorts' fee for the services
is the direct costs it incurs plus 5%. Coastal Resorts did not receive any
payments under this agreement in 1997 and received $22,000 for services under
this agreement in 1998.
Pursuant to an agreement with CMF Paymaster, Inc. dated January 1, 1997,
CMF Paymaster provides administrative services relating to payroll and employee
benefit matters to Coastal Resorts, at a cost of $2 per pay period per employee.
CMF Paymaster is indirectly owned by Mr. Freeman. Coastal Resorts did not make
any payments to CMF Paymaster under this agreement in 1997 and paid $4,074 to
CMF Paymaster under this agreement in 1998. This agreement terminates on
December 31, 1999.
CMFA has appointed Coastal Resorts as its exclusive agent for the
management of certain commercial properties located in Bethany Beach, Delaware
pursuant to two management agreements. Both agreements run for three years from
January 1, 1997. Both agreements also provide for payment to Coastal Resorts of
a management fee equal to 5% of the gross receipts of the respective properties.
CMFA paid Coastal Resorts a total of $23,640 under these agreements in 1998.
Pursuant to an agreement dated January 1, 19998, CMFA has appointed Coastal
Resorts as its exclusive agent for the management of a private thoroughfare
running through the Sea Colony West condominium complex. The agreement runs
until the earlier of December 31, 2000 or the sale by CMFA of the property.
Payments to Coastal Resorts will equal 20% of total budget expenditures for
management of the road under a budget prepared by Coastal Resorts and approved
by CMFA. CMFA paid Coastal Resorts $12,000 under the agreement in 1998.
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COLLECTION OF FINE PROPERTIES. Pursuant to an oral agreement, Collection of
Fine Properties performs accounting and bookkeeping services for L&D Development
Company. Luis Alonso owns 30% of L&D Development. The annual amounts paid to
Collection of Fine Properties from L&D Development were $57,000, $75,000 and
$35,500 in 1996, 1997 and 1998, respectively.
FIRST RESORT. First Resort purchased the rights to software designed by
Evan H. Gull under the terms of a purchase agreement dated January 1, 1987. The
agreement gave Mr. Gull the right to receive royalty payments through 1997. The
royalties paid by First Resort to Mr. Gull were $57,040 and $24,307 in 1996 and
1997, respectively.
HOUSTON AND O'LEARY. Effective January 1, 1998 a stockholder of Houston and
O'Leary redeemed his stock and took on certain liabilities of Houston and
O'Leary in return for receiving certain assets of Houston and O'Leary, including
several notes receivable to Houston and O'Leary from the stockholder and Heidi
Rose Houston, in the aggregate amount of $297,000.
PRISCILLA MURPHY REALTY. At December 31, 1997, Priscilla Murphy Realty
owed $155,000 to Charles O. Howey and $2,000,000 to C.O. Condominium
Corporation, an entity controlled by Mr. Howey. Both of these amounts were paid
in June 1998.
RESORTQUEST. ResortQuest paid approximately $478,000 to Thompson & Company
in 1998 for advertising services, including reimbursement of approximately
$239,000 for purchased advertising, production and printing costs. Mr.
Sullivan's son is a Vice President of Thompson & Company.
TELLURIDE RESORT ACCOMMODATIONS. Park Brady entered into a consulting
agreement with ResortQuest, effective May 26, 1998. The term of the agreement is
one year, during which time Mr. Brady will provide up to ten hours of consulting
services per week for a nominal consideration.
TRUPP-HODNETT ENTERPRISES. In 1997, Trupp-Hodnett Enterprises sold a
building, the related land (with a total book value of $135,000) and the related
$124,000 mortgage note payable to the stockholders of Trupp-Hodnett Enterprises,
including Hans F. Trupp, for $11,000 in cash.
WHISTLER CHALETS. As of December 31, 1997, Res-Resort Services Inc. was
indebted to Whistler Chalets in the amount of $58,547 for various expenses paid
by Whistler Chalets on behalf of Res-Resort Services. Res-Resort Services is
owned by J. Patrick McCurdy. Mr. McCurdy was indebted to Whistler Chalets in
the amount of $101,098 for advances against his management fees and expenses.
Both of these debts were paid prior to the Combinations.
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PRINCIPAL STOCKHOLDERS
The following table sets forth as of March 31, 1999 the number of shares of
Common Stock beneficially owned by each person known to ResortQuest to
beneficially own more than 5% of the Common Stock, by the directors and the
named executive officers and by the directors and executive officers of
ResortQuest as a group. Unless otherwise indicated, the persons listed have an
address care of ResortQuest's executive offices and have sole voting and
investment power with respect to their shares.
<TABLE>
<CAPTION>
PERCENTAGE OWNED
SHARES OF COMMON ----------------------
NAME AND ADDRESS STOCK BENEFICIALLY BEFORE AFTER
OF BENEFICIAL OWNER OWNED OFFERING OFFERING
- - ------------------------------------------------- ------------------- ---------- ---------
<S> <C> <C> <C>
Baron Capital Group, Inc. (1)
BAMCO, Inc.
Baron Small Cap Fund
Ronald Baron ................................. 1,352,000 7.8 7.1
David C. Sullivan ............................. 247,202 1.4 1.3
David L. Levine (2) ........................... 50,000 *
Jeffery M. Jarvis ............................. 40,000 *
W. Michael Murphy (3) ......................... 40,200 *
Jules S. Sowder ............................... 25,000 *
William W. Abbott, Jr. (4) .................... 145,091 *
Luis Alonso (5) ............................... 124,500 *
Elan J. Blutinger (4) ......................... 608,538 3.5 3.2
Park Brady (4) ................................ 41,041 *
Douglas R. Brindley (6) ....................... 196,167 1.1 1.0
D. Fraser Bullock (4)(13) ..................... 629,568 3.6 3.3
Paul T. Dobson ................................ 85,334 *
Joshua M. Freeman (4)(12) ..................... 1,060,457 6.1 5.6
Evan H. Gull .................................. 88,111 *
Heidi O'Leary Houston (7) ..................... 250,667 1.4 1.3
Charles O. Howey (4) (8) ...................... 456,176 2.6 2.4
Daniel L. Meehan (9) .......................... 98,930 *
J. Patrick McCurdy (10) ....................... 135,152 *
Michael D. Rose (4) ........................... 55,455 *
Andre' S. Tatibouet ........................... 1,708,333 9.8 9.0
Hans F. Trupp (11) ............................ 651,142 3.7 3.4
Joseph V. Vittoria (4) ........................ 50,000 *
Theodore L. Weise (4) ......................... 10,500 *
All directors and executive officers as a group
(25 persons including those listed above)..... 6,847,564 39.4 36.2
</TABLE>
- - ----------
* Less than 1.0%
(1) The address for the group is 767 Fifth Avenue, New York, NY 10153. Both
voting and dispositive powers are shared.
(2) Includes 15,000 shares held in trust for the benefit of his minor children.
(3) Includes 200 shares owned by his spouse.
(4) Includes 10,000 shares which may be acquired upon the exercise of options.
(5) Includes 3,000 shares held by his spouse as custodian for his minor
children.
(6) Includes 97,500 shares owned by Betty Shotton Brindley, his spouse.
(7) Includes 2,500 shares held in trust for the benefit of her minor children.
(8) Includes 102,963 shares owned by Dolores Howey, his spouse.
(9) Includes 300 shares owned by his minor children.
(10) Includes 569 shares held in trust for his minor children.
(11) Includes 264,450 for which Mr. Trupp has sole voting power pursuant to a
revocable proxy.
(12) Includes 477,750 shares owned by CMF Coastal Resorts L.L.C. ("CMF
Coastal"), in which Mr. Freeman has a 98% membership interest, 33,000
shares held by the Carl M. Freeman Foundation, Inc. (the "Freeman
Foundation"), of which Mr. Freeman is a trustee, and 193,383 shares owned
by CMF RQI Holdings L.L.C. ("Holdings"). Mr. Freeman is the managing member
of Holdings and has sole voting and dispositive power for 118,633 shares
and no voting and sole dispositive power for an additional 74,750 shares
held by Holdings. Mr. Freeman disclaims beneficial ownership of 9,555
shares held by CMF Coastal, 33,000 shares held by the Freeman Foundation
and 74,750 shares held by Holdings.
(13) Includes 5,000 shares held by Mr. Bullock as custodian of his minor
children.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
ResortQuest's authorized capital stock consists of 50,000,000 shares of
Common Stock, par value $.01 per share of which 3,134,630 shares are designated
restricted stock (the "Restricted Common Stock"), and 10,000,000 shares of
undesignated preferred stock, par value $.01 per share (the "Preferred Stock").
On March 31, 1999, there were 17,389,645 shares of Common Stock outstanding (of
which 3,134,630 are shares of Restricted Common Stock) and no shares of
Preferred Stock. See "Shares Eligible for Future Sale."
The following statements are brief summaries of certain provisions with
respect to ResortQuest's capital stock contained in its Certificate of
Incorporation and By-Laws, copies of which have been filed as exhibits to the
Registration Statement of which this prospectus is a part. The following is
qualified in its entirety by reference thereto.
COMMON STOCK AND RESTRICTED COMMON STOCK
All of the rights, privileges and obligations of the Common Stock and
Restricted Common Stock are the same, except for voting rights. The holders of
Common Stock are entitled to one vote for each share on all matters voted upon
by stockholders, including the election of directors. The holders of Restricted
Common Stock are entitled to one half of one vote for each share held on all
matters. Subject to the rights of any then outstanding shares of Preferred
Stock, the holders of Common Stock are entitled to such dividends as may be
declared in the discretion of the Board of Directors out of funds legally
available therefor. See "Dividend Policy." Holders of Common Stock are entitled
to share ratably in the net assets of ResortQuest upon liquidation after payment
or provision for all liabilities and any preferential liquidation rights of any
Preferred Stock then outstanding. The holders of Common Stock have no preemptive
rights to purchase shares of stock of ResortQuest. Shares of Common Stock are
not subject to any redemption provisions and are not convertible into any other
securities of ResortQuest, except as provided in the following paragraph. All
outstanding shares of Common Stock are fully paid and non-assessable.
Each share of Restricted Common Stock will automatically convert to Common
Stock on a share for share basis: (1) in the event of a disposition of such
share of Restricted Common Stock by the holder thereof (other than a disposition
which is a distribution by a holder to its partners or beneficial owners or a
transfer to a related party of such holder (as defined in Sections 267, 707, 318
and/or 4946 of the Code) or a transfer to Alpine Consolidated II, LLC or
Capstone Partners, LLC, or any partner, affiliate or related party of such
entities); (2) in the event any person acquires beneficial ownership of 15% or
more of the outstanding shares of Common Stock of ResortQuest; or (3) in the
event any person makes a bona fide offer to acquire 15% or more of the
outstanding shares of Common Stock of ResortQuest. At December 31, 2000,
ResortQuest may elect to convert any outstanding shares of Restricted Common
Stock into shares of Common Stock in the event 80% or more of the outstanding
shares of Restricted Common Stock have been converted into shares of Common
Stock.
The Common Stock is listed on the New York Stock Exchange under the symbol
"RZT."
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors in one or more series. Subject to the provisions of ResortQuest's
Certificate of Incorporation and limitations prescribed by law, the Board of
Directors is expressly authorized to adopt resolutions to issue the shares, to
fix the number of shares and to change the number of shares constituting any
series and to provide for or change the voting powers, designations, preferences
and relative, participating, optional or other special rights, qualifications,
limitations or restrictions thereof, including dividend rights (including
whether dividends are cumulative), dividend rates, terms of redemption
(including sinking
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fund provisions), redemption prices, conversion rights and liquidation
preferences of the shares constituting any series of the Preferred Stock, in
each case without any further action or vote by the stockholders. ResortQuest
has no current plans to issue any shares of Preferred Stock.
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of ResortQuest by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of ResortQuest's management.
The issuance of shares of the Preferred Stock pursuant to the Board of
Directors' authority described above may adversely affect the rights of the
holders of Common Stock. For example, Preferred Stock issued by ResortQuest may
rank prior to the Common Stock as to dividend rights, liquidation preference or
both, may have full or limited voting rights and may be convertible into shares
of Common Stock. Accordingly, the issuance of shares of Preferred Stock may
discourage bids for the Common Stock or may otherwise adversely affect the
market price of the Common Stock.
SHAREHOLDER RIGHTS PLAN
On February 25, 1999, the Board of Directors adopted a shareholder rights
plan that is designed to protect ResortQuest 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.
LIMITATION ON DIRECTORS' LIABILITIES
LIMITATION ON LIABILITY. Pursuant to ResortQuest's Certificate of
Incorporation and as permitted by Section 102(b)(7) of the Delaware General
Corporation Law, directors of ResortQuest are not liable to ResortQuest or its
stockholders for monetary damages for breach of fiduciary duty, except for
liability in connection with a breach of duty of loyalty, for acts or omissions
not in good faith or that involve intentional misconduct or a knowing violation
of law, for dividend payments or stock repurchases that are illegal under
Delaware law or for any transaction in which a director has derived an improper
personal benefit.
INDEMNIFICATION. To the maximum extent permitted by law, the Certificate of
Incorporation provides for mandatory indemnification of directors and officers
of ResortQuest against any expense, liability and loss to which they become
subject, or which they may incur as a result of having been a director or
officer of ResortQuest. In addition, ResortQuest must advance or reimburse
directors and officers for expenses incurred by them in connection with certain
claims.
ADVANCE NOTICE REQUIREMENTS FOR DIRECTOR NOMINEES
ResortQuest's by-laws provide that nomination for election to the Board of
Directors may be made at any annual meeting of stockholders, by or at the
direction of the Board of Directors or any duly authorized committee thereof or
by any stockholder, subject to certain conditions. A nominating
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stockholder must comply with the advance notice procedure set forth in the
by-laws and must be a stockholder of record both on the date such notice is
provided and on the record date. The advance notice procedure provides that a
notice relating to the nomination of directors must be timely given in writing
to the Secretary of ResortQuest prior to the meeting. To be timely, notice
relating to the nomination of directors must be delivered not less than 60 days
nor more than 90 days prior to the date of the annual meeting, subject to
limited exceptions.
Any notice to ResortQuest from a stockholder who proposes to nominate a
person for election as a director must be accompanied by each proposed nominee's
written consent and contain the name, address, age, total number of shares of
ResortQuest capital stock owned beneficially or of record and the principal
occupation of each proposed nominee. Such notice must also contain the name,
address and total number of shares ResortQuest capital stock owned beneficially
or of record of the nominating stockholder as well as a description of all
arrangements or understandings between such stockholder and each proposed
nominee. In addition, the notice must contain a representation that such
stockholder intends to appear in person or by proxy at the annual meeting to
nominate the persons named in his notice.
ResortQuest's by-laws (i) may have the effect of precluding a nomination
for the election of directors or precluding the conduct of business at a
particular meeting if the proper procedures are not followed or (ii) may
discourage or deter a third party from conducting a solicitation of proxies to
elect its own slate of directors or otherwise attempting to obtain control of
ResortQuest, even if the conduct of such solicitation or such attempt might be
beneficial to ResortQuest and its stockholders.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer & Trust Company.
STATUTORY BUSINESS COMBINATION PROVISION
ResortQuest is subject to the provisions of Section 203 of the Delaware
General Corporation Law. Section 203 provides, with certain exceptions, that a
Delaware corporation may not engage in any of a broad range of business
combinations with a person or an affiliate or associate of such person, who is
an "interested stockholder" for a period of three years from the date that such
person became an interested stockholder unless: (i) the transaction resulting in
a person becoming an interested stockholder, or the business combination, is
approved by the Board of Directors of the corporation before the person becomes
an interested stockholder; (ii) the interested stockholder acquired 85% or more
of the outstanding voting stock of the corporation in the same transaction that
makes such person an interested stockholder (excluding shares owned by persons
who are both officers and directors of the corporation, and shares held by
certain employee stock ownership plans); or (iii) on or after the date the
person becomes an interested stockholder, the business combination is approved
by the corporation's board of directors and by the holders of at least 66% of
the corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder. Under Section 203, an
"interested stockholder" is defined as any person who is (i) the owner of 15% or
more of the outstanding voting stock of the corporation or (ii) an affiliate or
associate of the corporation and who was the owner of 15% or more of the
outstanding voting stock of the corporation at any time within the three-year
period immediately prior to the date on which it is sought to be determined
whether such person is an interested stockholder.
ResortQuest's stockholders, by adopting an amendment to the Certificate of
Incorporation, may elect not to be governed by Section 203, which election would
be effective 12 months after such adoption. The provisions of Section 203 could
delay or frustrate a change in control of ResortQuest, deny stockholders the
receipt of a premium on their Common Stock and have an adverse effect on the
Common Stock. The provisions also could discourage, impede or prevent a merger
or tender offer, even if such event would be favorable to the interests of
stockholders.
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SHARES ELIGIBLE FOR FUTURE SALE
At March 31, 1999, ResortQuest had outstanding 17,389,645 shares of Common
Stock. The 6,670,000 shares sold in the initial public offering are freely
tradable without restriction unless acquired by affiliates of ResortQuest. The
stockholders of the Founding Companies received in the aggregate 6,119,656
shares in connection with the Combinations, and management and founders of
ResortQuest own an aggregate of 3,134,630 shares. These 9,254,286 shares have
not been registered under the Securities Act and, therefore, may not be sold
unless registered under the Securities Act or sold pursuant to an exemption from
registration, such as the exemption provided by Rule 144. Furthermore, these
stockholders have separately agreed with 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). These stockholders also have
certain demand registration rights beginning two years after the initial public
offering and certain piggyback registration rights with respect to these shares.
In general, under Rule 144 as currently in effect, if one year has elapsed
since the later of the date of the acquisition of the restricted shares of
Common Stock from either ResortQuest or any affiliate of ResortQuest, the
acquiror or subsequent holder thereof may sell, within any three-month period
commencing 90 days after the date of the prospectus relating to the initial
public offering, a number of shares that does not exceed the greater of one
percent of the then outstanding shares of the Common Stock, or the average
weekly trading volume of the Common Stock on the New York Stock Exchange during
the four calendar weeks preceding the date on which notice of the proposed sale
is sent to the Commission. Sales under Rule 144 are also subject to certain
manner of sale provisions, notice requirements and the availability of current
public information about ResortQuest. If two years have elapsed since the later
of the date of the acquisition of restricted shares of Common Stock from
ResortQuest or any affiliate of ResortQuest, a person who is not deemed to have
been an affiliate of ResortQuest at any time for 90 days preceding a sale would
be entitled to sell such shares under Rule 144 without regard to the volume
limitations, manner of sale provisions or notice requirements.
The holders of all shares outstanding prior to the initial public offering,
the stockholders of the Founding Companies who received shares of Common Stock
in exchange for their stock in the Founding Companies and certain non-employee
directors have agreed not to offer, sell, contract to sell or otherwise dispose
of any shares of Common Stock, or any securities convertible into or exercisable
or exchangeable for Common Stock for a period of one year from the date of the
closing of the initial public offering without the prior written consent of
Smith Barney Inc. on behalf of the Underwriters. The foregoing restrictions will
not apply to shares of Common Stock disposed of as bona fide gifts, subject in
each case to any remaining portion of the one year. In evaluating any request
for a waiver of the one year period, Smith Barney Inc. will consider, in
accordance with its customary practice, all relevant facts and circumstances at
the time of the request, including, without limitation, the recent trading
market for the Common Stock, the size of the request and, with respect to a
request by ResortQuest to issue additional equity securities, the purpose of
such an issuance.
The 3,000,000 shares of Common Stock registered by ResortQuest pursuant to
this shelf registration statement and prospectus for use as consideration in
future acquisitions will be, upon issuance thereof, freely tradable unless
contractually restricted or acquired by parties to the acquisition or affiliates
of such parties, other than the issuer, in which case they may be sold pursuant
to Rule 145 under the Securities Act. Rule 145 permits such persons to resell
immediately securities acquired in transactions covered under the Rule, provided
such securities are resold in accordance with the public information, volume
limitations and manner of sale requirements of Rule 144. If a period of one year
has elapsed since the date such securities were acquired in such transaction and
if the issuer meets the public information requirements of Rule 144, Rule 145
permits a person who is not an affiliate of the issuer to freely resell such
securities.
ResortQuest intends to seek contractual restrictions on the resale of these
shares in connection with future acquisitions that are as restrictive as those
described in the preceding paragraph, however, such restrictions may not be
available in certain cases, such as in transactions accounted for using the
pooling of interests method of accounting.
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ResortQuest has issued 1,465,359 shares of Common Stock in connection with
the 12 acquisitions which have closed since the initial public offering. All of
these shares were registered under the Securities Act and 348,003 of these
shares are subject to certain contractual transfer restrictions expiring between
May 30, 1999 and February 1, 2000.
Sales, or the availability for sale of, substantial amounts of the Common
Stock in the public market could adversely affect prevailing market prices and
the ability of ResortQuest to raise equity capital in the future.
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PLAN OF DISTRIBUTION
RESORTQUEST
The shares of Common Stock covered by the prospectus are available for use
in future acquisitions of businesses, properties or securities of entities or
persons engaged in the vacation rental and property management industry and
other related businesses. The consideration offered by ResortQuest in such
acquisitions, in addition to the Common Stock offered by the prospectus, may
include cash, debt or other ResortQuest securities, or assumption by ResortQuest
of liabilities of the businesses being acquired, or a combination thereof. It is
contemplated that the terms of each acquisition will be determined by
negotiations between ResortQuest and the management or the owners of the assets
to be acquired or the owners of the securities (including newly issued
securities) to be acquired, with ResortQuest taking into account the quality of
the management, the past and potential earning power and growth of the assets or
securities to be acquired, and other relevant factors. It is anticipated that
the Common Stock issued in acquisitions hereunder will be valued at a price
reasonably related to the market value of the Common Stock either at the time
the terms of the acquisition are tentatively agreed upon or at or about the time
or times of delivery of the shares.
SELLING STOCKHOLDERS
Selling stockholders or permitted transferees may from time to time sell
the shares offered by them hereunder in transactions in which they and any
broker-dealer through whom such shares are sold may be deemed to be underwriters
within the meaning of the Securities Act. ResortQuest will receive none of the
proceeds from any such sales. There presently are no arrangements or
understandings, formal or informal, pertaining to the distribution of the shares
of Common Stock described herein. Upon ResortQuest being notified by a selling
stockholder that any material arrangement has been entered into with a
broker-dealer for the sale of shares of Common Stock bought through a block
trade, special offering, exchange distribution or secondary distribution, a
supplemented prospectus will be filed, pursuant to Rule 424(b) under the
Securities Act, setting forth (i) the name of each selling stockholder and the
participating broker-dealer(s), (ii) the number of shares involved, (iii) the
price at which the shares were sold, (iv) the commissions paid or the discounts
allowed to such broker-dealer(s), where applicable, (v) that such
broker-dealer(s) did not conduct any investigation to verify the information set
out in this prospectus and (vi) other facts material to the transaction.
Selling stockholders may sell the shares being offered hereby from time to
time in transactions (which may involve crosses and block transactions) on the
NYSE, in negotiated transactions or otherwise, at market prices prevailing at
the time of the sale or at negotiated prices. Selling stockholders may sell some
or all of the shares in transactions involving broker-dealers, who may act
solely as agent and/or may acquire shares as principal. Broker-dealers
participating in such transactions as agent may receive commissions from selling
stockholders (and, if they act as agent for the purchaser of such shares, from
such purchaser), such commissions computed in appropriate cases in accordance
with the applicable rules of the NYSE, which commissions may be at negotiated
rates where permissible under such rules. Participating broker-dealers may agree
with selling stockholders to sell a specified number of shares at a stipulated
price per share and, to the extent such broker-dealer is unable to do so acting
as an agent for the selling stockholder, to purchase as principal any unsold
shares at the price required to fulfill the broker-dealer's commitment to
selling stockholders. In addition or alternatively, shares may be sold by
selling stockholders and/or by or through other broker-dealers in special
offerings, exchange distributions or secondary distributions pursuant to and in
compliance with the governing rules of the NYSE, and in connection therewith
commissions in excess of the customary commission prescribed by such governing
rules may be paid to participating broker-dealers, or, in the case of certain
secondary distributions, a discount or concession from the offering price may be
allowed to participating broker-dealers in excess of the customary commission.
Broker-dealers who acquire shares as principal may thereafter resell such shares
from time to time in transactions (which may involve crosses and block
transactions and which may involve sales to or through other broker-dealers,
including transactions of the nature described in
66
<PAGE>
the preceding two sentences) on the NYSE, in negotiated transactions or
otherwise, at market prices prevailing at the time of the sale or at negotiated
prices, and in connection with such resales may pay to or receive commissions
from the purchaser of such shares.
In connection with the distribution of the Common Stock, the selling
stockholders may enter into hedging transactions with broker-dealers. In
connection with such transactions, broker-dealers may engage in short sales of
the Common Stock registered hereunder in the course of hedging the positions
they assume with the Selling Stockholders. The selling stockholders may also
sell shares short and redeliver the Common Stock to close out such short
positions. The selling stockholders may also enter into option or other
transactions with broker-dealers which require the delivery to the broker-dealer
of the Common Stock registered hereunder, which the broker-dealer may resell or
otherwise transfer pursuant to this prospectus. The selling stockholders may
also loan or pledge the Common Stock registered hereunder to a broker-dealer and
the broker-dealer may sell the Common Stock so loaned or upon a default the
broker-dealer may effect sales of the pledged Common Stock pursuant to this
prospectus.
ResortQuest may agree to indemnify each selling stockholder as an
Underwriter under the Securities Act against certain liabilities, including
liabilities arising under the Securities Act. Each selling stockholder may
indemnify any broker-dealer that participates in transactions involving sales of
the shares against certain liabilities, including arising under the Securities
Act.
The selling stockholders may resell the shares offered hereby only if such
securities are qualified for sale under applicable state securities or "blue
sky" laws or exemptions from such registration and qualified requirements are
available.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered by this
prospectus will be passed upon for ResortQuest by Akin, Gump, Strauss, Hauer &
Feld, L.L.P., Washington, D.C.
EXPERTS
The audited financial statements of ResortQuest International, Inc.,
included elsewhere in this prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said report.
AVAILABLE INFORMATION
ResortQuest is subject to the information requirements of the Exchange Act,
and in accordance therewith files reports, proxy statements and other
information that may be inspected and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza Building, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549 and its regional offices located at 7
World Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of
such materials can be obtained from the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains an Internet web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. The address of such Internet web site is
http://www.sec.gov.
ResortQuest has filed with the Securities and Exchange Commission,
Washington, D.C., a registration statement on Form S-1 with respect to the
shares of Common Stock offered hereby. This prospectus does not contain all the
information set forth in the registration statement and the exhibits and
schedules thereto. For further information pertaining to ResortQuest and the
shares of Common Stock offered hereby, reference is made to such registration
statement, including the exhibits, financial statements and schedules filed
therewith. Statements contained in this prospectus as to the
67
<PAGE>
contents of any contract or any other document are not necessarily complete,
and, in each instance, reference is made to the copy of such contract or
document filed as an exhibit to the registration statement, each such statement
being qualified in all respects by such reference. The registration statement,
including the exhibits and schedules thereto, may be inspected and copied at the
Commission's offices listed in the preceding paragraph. A copy of the
registration statement may be obtained from the Commission's principal office in
Washington, D.C. upon payment of the fees prescribed by the Commission or
through the Commission's Internet web site.
68
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
RESORTQUEST INTERNATIONAL, INC.:
Report of Independent Public Accountants ........................... F-2
Consolidated Balance Sheets ........................................ F-3
Consolidated Statements of Income .................................. F-4
Consolidated Statements of Pro Forma Income ........................ F-5
Consolidated Statements of Changes in Stockholders' Equity ......... F-6
Consolidated Statements of Cash Flow ............................... F-7
Notes to Consolidated Financial Statements ......................... F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To 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.
ARTHUR ANDERSEN LLP
Memphis, Tennessee
February 25, 1999
F-2
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1998
---------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
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.
F-3
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
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.
F-4
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF PRO FORMA INCOME
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1997 1998
------------ ----------
(UNAUDITED)
<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.
F-5
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK ADDITIONAL EARNINGS
--------------------- PAID-IN EXCESS (ACCUMULATED
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.
F-6
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
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.
F-7
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
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").
F-8
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
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 consolidated 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,
---------------------------
1997 1998
------------ ------------
<S> <C> <C>
(in thousands, except share amounts)
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>
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
F-9
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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.
Other
ResortQuest recognizes other revenues related to real estate broker
commissions, 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,
--------------------------------
1996 1997 1998
-------- -------- ----------
<S> <C> <C> <C>
(in thousands)
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,
-----------------------------------
1996 1997 1998
---------- --------- ----------
<S> <C> <C> <C>
(in thousands)
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
F-10
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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.
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 consolidated statements of income. The unaudited consolidated
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.
F-11
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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.
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.
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.
F-12
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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,
1997
-------------
<S> <C>
(in thousands)
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>
YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1997 1998
---------- ------------ ----------
<S> <C> <C> <C>
(in thousands)
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.
5. SUPPLEMENTAL FINANCIAL INFORMATION
Trade and other receivables consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1998
---------- ---------
<S> <C> <C>
(in thousands)
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>
F-13
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE
IN YEARS DECEMBER 31,
------------ ------------------------
1997 1998
----------- ----------
<S> <C> <C> <C>
(in thousands)
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,
----------------------
1997 1998
--------- ----------
<S> <C> <C>
(in thousands)
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,
-----------------------------
1996 1997 1998
------ ------ -----------
<S> <C> <C> <C>
(in thousands)
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>
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 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
F-14
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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,
-----------------------
1997 1998
---------- ----------
<S> <C> <C>
(in thousands)
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 and 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.
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>
DECEMBER 31,
-------------
<S> <C>
(in thousands)
1999 ................. $1,187
2000 ................. 929
2001 ................. 857
2002 ................. 820
2003 ................. 652
Thereafter ........... 1,480
------
$5,925
======
</TABLE>
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
F-15
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
payments made to former owners, who are also stockholders and directors, during
1996, 1997 and 1998 were approximately $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.
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.
F-16
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
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.
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
F-17
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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"). 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.
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.
F-18
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
(in thousands, except per share amounts)
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>
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.
F-19
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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>
1998
--------
<S> <C>
(in thousands)
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>
1998
----------
<S> <C>
(in thousands)
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>
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
F-20
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 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>
F-21
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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,
-------------------------------------
1996 1997 1998
---------- ---------- -----------
<S> <C> <C> <C>
(in thousands)
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>
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 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.
F-22
<PAGE>
RESORTQUEST INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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.
15. SUBSEQUENT EVENTS (UNAUDITED)
Subsequent to December 31, 1998, ResortQuest acquired two entities which
will be accounted for under the pooling of interests method. The two companies
are Mountain High Management, Inc. and High Country Resort Services, Ltd. and
were acquired by ResortQuest in March, 1999. The combining effects of pooling of
interests acquisitions based on the historical results were as follows for the
year ended:
<TABLE>
<CAPTION>
December 31,
1998
------------
<S> <C>
(in thousands, except share amounts)
Revenues ................................. $ 55,359
===========
Income from continuing operations ........ $ 3,465
Income from discontinued operations....... 1,347
-----------
Net Income ............................... $ 4,812
===========
Earnings per share
Basic
Continuing operations ................. $ 0.32
Discontinued operations ............... 0.12
-----------
Net Income ............................ $ 0.44
===========
Diluted
Continuing operations ................. $ 0.32
Discontinued operations ............... 0.12
-----------
Net income ............................ $ 0.44
===========
Shares used to compute earnings per share
Basic ................................... 10,826,000
===========
Diluted ................................. 10,965,421
===========
</TABLE>
F-23
<PAGE>
<TABLE>
<S> <C>
================================================================================
PROSPECTIVE INVESTORS SHOULD RELY
ONLY ON THE INFORMATION CONTAINED IN
THIS PROSPECTUS. RESORTQUEST HAS NOT
AUTHORIZED ANYONE TO PROVIDE
PROSPECTIVE INVESTORS WITH INFORMATION 3,000,000 SHARES
DIFFERENT FROM THAT CONTAINED IN THIS
PROSPECTUS. THIS PROSPECTUS IS NOT AN
OFFER TO SELL NOR IS IT SEEKING AN
OFFER TO BUY THESE SECURITIES IN ANY RESORTQUEST
JURISDICTION WHERE THE OFFER OR SALE IS INTERNATIONAL, INC.
NOT PERMITTED. THE INFORMATION
CONTAINED IN THIS PROSPECTUS,
REGARDLESS OF THE TIME OF THE DELIVERY
OF THIS PROSPECTUS OR ANY SALE OF THESE
SECURITIES.
--------------
TABLE OF CONTENTS COMMON STOCK
Page
Prospectus Summary ............... 5
Risk Factors ..................... 12 [GRAPHIC OMITTED]
Forward-Looking Statements ....... 19
Price Range of Common Stock ...... 19
Dividend Policy .................. 20
Corporate Information ............ 20
Selected Financial Data .......... 21
Management's Discussion and Analysis
of Financial Condition and Results ----------
of Operations ................... 23
Business ......................... 33 PROSPECTUS
Management ....................... 43 APRIL , 1999
Certain Transactions ............. 53 -----------
Principal Stockholders ........... 60
Description of Capital Stock ..... 61
Shares Eligible for Future Sale... 64
Plan of Distribution ............. 66
Legal Matters .................... 67
Experts .......................... 67
Available Information ............ 67
Index to Financial Statements .... F-1
================================================================================
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses in connection with the
offering. All of such amounts (except the SEC Registration Fee) are estimated.
<TABLE>
<S> <C>
SEC Registration Fee .................... $ 12,500.63
New York Stock Exchange Listing Fee ..... 22,150.00
Accounting Fees and Expenses ............ 40,000.00
Printing Costs .......................... 12,000.00
Legal Fees and Expenses ................. 30,000.00
Miscellaneous ........................... 3,349.37
------------
Total .......................................... $120,000.00
============
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Subsection (a) of Section 145 of the General Corporation Law of the State
of Delaware empowers a corporation to indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation ) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending, or completed action, or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, except that no indemnification may be made in
respect of any claim, issue or matter as to which such person shall have been
made to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnify for such expenses which the Court of Chancery or such
other court shall deem proper.
Section 145 further provides that to the extent a director or officer of a
corporation has been successful on the merits or otherwise in the defense of any
action, suit or proceeding referred to in subsections (a) and (b) of Section 145
in the defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith; that indemnification provided for by Section 145
shall not be deemed exclusive of any other rights to which the indemnified party
may be entitled; that indemnification provided for by Section 145 shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of such person's heirs, executors and administrators; and empowers the
corporation to purchase and maintain insurance on behalf of a director or
officer of the corporation against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such
whether or not the corporation would have the power to indemnify him against
such liabilities under Section 145.
II-1
<PAGE>
Section 102(b)(7) provides that a certificate of incorporation may contain
a provision eliminating or limiting the personal liability of a director to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director provided that such provision shall not eliminate or limit the
liability of a director: (i) for any breach of the director's duty of loyalty to
the corporation or its stockholders; (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law;
(iii) under Section 174; or (iv) for any transaction from which the director
derived an improper personal benefit.
Articles Seventh and Eighth of ResortQuest's Certificate of Incorporation,
as amended, provides that no director of ResortQuest shall be liable to
ResortQuest or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability: (1) for any breach of the director's
duty of loyalty to ResortQuest or its stockholders; (2) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of the law; (3) under Section 174; or (4) for any transaction from which the
director derived an improper personal benefit,
ResortQuest shall, to the fullest extent permitted by Section 145, as
amended from time to time, indemnify all persons whom it may indemnify pursuant
thereto.
In addition, Article II of ResortQuest's Bylaws further provides that
ResortQuest shall indemnify its officers, directors and employees to the fullest
extent permitted by law.
ResortQuest has entered into indemnification agreements with each of its
executive officers and directors which indemnifies such person to the fullest
extent permitted by its Amended and Restated Certificate of Incorporation, its
Bylaws and Delaware Law. ResortQuest also has obtained directors and officers
liability insurance.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following information relates to all securities of ResortQuest issued
or sold by ResortQuest within the past three years which were not registered
under the Securities Act.
(a) ResortQuest was organized in September 1997 and issued 97.9827 and
195.9654 shares of its Common Stock to its founders, Capstone Partners, LLC
and Alpine Consolidated II, LLC, respectively, at a per share price of $.01.
On March 9, 1998, the number of these shares were increased by a
8,834.76-for-one stock split.
(b) In November and December of 1997 and the first quarter of 1998,
ResortQuest issued 60.8584 shares of its Common Stock to 18 individuals,
including persons who were to become officers, directors or key employees of
ResortQuest at a per share price of $.01. On March 9, 1998, the number of
these shares were increased by a 8,834.76-for-one stock split.
(c) See "Certain Transactions" for a discussion of the issuance of shares
of Common Stock and options to purchase shares of Common Stock in connection
with the Combinations.
The offers and sales of these shares was exempt from registration under the
Securities Act of 1933 in reliance on Section 4(2) thereof because, among other
things, the offers and sales were made to sophisticated investors, or officers
and directors of ResortQuest, who had access to information about ResortQuest
and were able to bear the risk of loss of their investment.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- - --------
<S> <C> <C>
2.1(1) -- Agreement and Plan of Organization, dated 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.
2.2(1) -- 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.
2.3(1) -- 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.
2.4(1) -- 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.
2.5(1) -- 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.
2.6(1) -- 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.
2.7(1) -- 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.
2.8(1) -- Agreement 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.
2.9(1) -- 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.
2.10(1) -- 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.
2.11(1) -- 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.
2.12(1) -- 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.
2.13(1) -- 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.
2.14(1) -- 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.
2.15(6) -- 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.
3.1(1) -- Certificate of Incorporation, as amended.
3.2(1) -- Bylaws of ResortQuest, Amended as of February 10, 1999.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- - ----------
<S> <C> <C>
3.3(2) -- Certificate of Amendment of Certificate of Incorporation of ResortQuest, dated April 23, 1998
(changing the name of ResortQuest from Vacation Properties International, Inc. to ResortQuest
International, Inc.).
3.4(3) -- Certificate of Amendment of Certificate of Incorporation of ResortQuest, dated May 11, 1998.
4.1(2) -- Specimen Common Stock Certificate.
4.2(4) -- Form of Restriction and Registration Rights Agreements between ResortQuest and each of
Alpine Consolidated II, LLC, Capstone Partners, LLC, John Przywara, David Marshall, Douglas
W. Comfort, Robert G. Falcone, Wayne Heller, Dwain Wall, Stephen J. Garchik, John Shaw,
David Sullivan, Jeffrey M. Jarvis, Frederick L. Farmer, W. Michael Murphy, Jules S. Sowder, John
K. Lines, Brian S. Sullivan, John D. Sullivan, the Sullivan Grandchildren's Trust, the David L.
Levin Irrevocable Children's Trust Under Agreement dated April 27, 1998 f/b/o Whitney Monica
Levine, the David L. Levine Irrevocable Children's Trust Under Agreement dated April 27, 1998
f/b/o Ross Michael Levine, the David L. Levine Irrevocable Children's Trust Under Agreement
dated April 27, 1998 f/b/o Keith Phillip Levine and the David L. Levine Revocable Trust Under
Agreement dated April 27, 1998.
4.3(7) -- Rights Agreement, dated as of February 25, 1999 between ResortQuest International,
Inc. and American Stock Transfer & Trust Company, as Rights Agent.
5.1(5) -- Opinion of Akin, Gump Strauss, Hauer & Feld, L.L.P. as to the legality of the securities being
registered.
10.1(1) -- Form of 1998 Long-Term Incentive Plan of ResortQuest.
10.2(2) -- Form of Employment Agreement between ResortQuest and David M. Sullivan.
10.3(2) -- Form of Employment Agreement between ResortQuest and Jeffery M. Jarvis.
10.4(2) -- Form of Employment Agreement between ResortQuest and W. Michael Murphy.
10.5(2) -- Form of Employment Agreement between ResortQuest and Jules S. Sowder.
10.6(2) -- Form of Employment Agreement between ResortQuest and David L. Levine.
10.7(2) -- Form of Employment Agreement between ResortQuest and John K. Lines.
10.8(2) -- Form of Employment Agreement between ResortQuest and Frederick L. Farmer.
10.9(2) -- Form of Employment Agreement between ResortQuest and Luis Alonso.
10.10(1) -- Form of Employment Agreement between ResortQuest and Douglas R. Brindley.
10.11(1) -- Form of Employment Agreement between ResortQuest and Paul T. Dobson.
10.12(1) -- Form of Employment Agreement between ResortQuest and Sharon Benson Doucette.
10.13(1) -- Form of Employment Agreement between ResortQuest and Evan H. Gull.
10.14(1) -- Form of Employment Agreement between ResortQuest and Heidi O'Leary Houston.
10.15(1) -- Form of Employment Agreement between ResortQuest and Daniel L. Meehan.
10.16(1) -- Form of Management Services Agreement between ResortQuest and J. Patrick McCurdy.
10.17(1) -- Form of Employment Agreement between ResortQuest and Andre S. Tatibouet.
10.18(1) -- Form of Employment Agreement between ResortQuest and Hans F. Trupp.
10.19(2) -- Form of Officer and Director Indemnification Agreement.
10.20(2) -- Form of Consulting Agreement between ResortQuest and Park Brady.
10.21(1) -- Promissory Note.
10.22(5) -- Credit Agreement dated as of May 26, 1998, in the amount of $30 million, among ResortQuest
International, Inc. as Borrower and the Financial Institutions named therein and NationsBank,
N.A. as agent for the Financial Institutions.
10.23 -- First Amendment to Credit Agreement, dated September 30, 1998 (Previously filed on November
16, 1998 as exhibit 10.1 to ResortQuest's Quarterly Report on Form 10-Q for the period ended
September 30, 1998 (File No. 00-14115) 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 ResortQuest's Quarterly Report on Form 10-Q for the period ended September 30, 1998
(File No. 0001-14115) and incorporated herein by reference).
10.25(7) -- Consulting Agreement dated September 10, 1998 by and among Abbott Realty Services, Inc. and
William W. Abbott, Jr.
10.26(7) -- Form of Officer and Director Indemnification Agreement, as amended.
10.27(7) -- Second Amendment to Credit Agreement, dated December 7, 1998.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- - -----------
<S> <C> <C>
10.28(7) -- Form of Section 401(k) Profit Sharing Plan Adoption Agreement.
21(7) -- Subsidiaries of ResortQuest.
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of Arthur Andersen LLP.
23.3 -- Consent of Morrison, Brown, Argiz and Company.
23.4 -- Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
24(5) -- Power of Attorney.
27(7) -- 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.
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.
</TABLE>
- - ----------
(1) Previously filed on March 12, 1998 as an exhibit to ResortQuest's
Registration Statement on Form S-1 (File No. 333-47867) and incorporated
herein by reference.
(2) Previously filed on April 27, 1998 as an exhibit to Amendment No. 1 to
ResortQuest's Registration Statement on Form S-1 (File No. 333-47867) and
incorporated herein by reference.
(3) Previously filed on May 12, 1998 as an exhibit to Amendment No. 3 to
ResortQuest's Registration Statement on Form S-1 (File No. 333-47867) and
incorporated herein by reference.
(4) Previously filed on May 26, 1998 as an exhibit to ResortQuest's Current
Report on Form 8-K (File No. 001-14115) and incorporated herein by
reference.
(5) Previously filed on June 12, 1998 as an exhibit to ResortQuest's
Registration Statement on Form S-1 (File No. 333-56703) and incorporated
herein by reference.
(6) Previously filed on October 16, 1998 as an exhibit to ResortQuest's
Registration Statement on Form S-1 (File No. 333-56703) and incorporated
herein by reference.
(7) Previously filed on March 30, 1999 as an exhibit to ResortQuest's Annual
Report on Form 10-K for the period ended December 31, 1998 (File No.
001-14115) and incorporated herein by reference.
II-5
<PAGE>
(b) Financial Statement Schedules
None
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes as follows:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance on Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement at the time it is declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be the initial bona fide
offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Memphis, Tennessee, on the 12th day
of April, 1999.
RESORTQUEST INTERNATIONAL, INC.
By: /s/ Jeffery M. Jarvis
----------------------------------------
Jeffery M. Jarvis
Chief Financial Officer
RESORTQUEST INTERNATIONAL, INC.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - -------------------------------- ----------------------------------- --------------
<S> <C> <C>
David C. Sullivan* Chief Executive Officer, Director April 12, 1999
- - ---------------------------
David C. Sullivan
(Principal Executive Officer)
/s/ Jeffery M. Jarvis Senior Vice President and Chief April 12, 1999
- - --------------------------- Financial Officer
Jeffery M. Jarvis
(Principal Financial and
Accounting Officer)
David L. Levine* President and Chief Operating April 12, 1999
- - --------------------------- Officer, Director
David L. Levine
Luis Alonso* Director April 12, 1999
- - ---------------------------
Luis Alonso
Douglas R. Brindley* Director April 12, 1999
- - ---------------------------
Douglas R. Brindley
Paul T. Dobson* Director April 12, 1999
- - ---------------------------
Paul T. Dobson
Evan H. Gull* Director April 12, 1999
- - ---------------------------
Evan H. Gull
Heidi O'Leary Houston* Director April 12, 1999
- - ---------------------------
Heidi O'Leary Houston
Director April 12, 1999
- - ---------------------------
Daniel L. Meehan
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - ----------------------------- ---------- --------------
<S> <C> <C>
J. Patrick McCurdy* Director April 12, 1999
- - ---------------------------
J. Patrick McCurdy
Andre S. Tatibouet* Director April 12, 1999
- - ---------------------------
Andre S. Tatibouet
Hans F. Trupp* Director April 12, 1999
- - ---------------------------
Hans F. Trupp
Director April 12, 1999
- - ---------------------------
Park Brady
Joshua M. Freeman* Director April 12, 1999
- - ---------------------------
Joshua M. Freeman
Charles O. Howey* Director April 12, 1999
- - ---------------------------
Charles O. Howey
Michael D. Rose* Director April 12, 1999
- - ---------------------------
Michael D. Rose
Joseph V. Vittoria* Director April 12, 1999
- - ---------------------------
Joseph V. Vittoria
Theodore L. Weise* Director April 12, 1999
- - ---------------------------
Theodore L. Weise
Elan J. Blutinger* Director April 12, 1999
- - ---------------------------
Elan J. Blutinger
D. Fraser Bullock* Director April 12, 1999
- - ---------------------------
D. Fraser Bullock
</TABLE>
*By: /s/ Jeffery M. Jarvis
-----------------------
Jeffery M. Jarvis
Attorney-In-Fact
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- - --------
<S> <C> <C>
2.1(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.
2.2(1) -- 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.
2.3(1) -- 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.
2.4(1) -- 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.
2.5(1) -- 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.
2.6(1) -- 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.
2.7(1) -- 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.
2.8(1) -- Agreement 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.
2.9(1) -- 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.
2.10(1) -- 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.
2.11(1) -- 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.
2.12(1) -- 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.
2.13(1) -- 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.
2.14(1) -- 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.
2.15(6) -- 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.
3.1(1) -- Certificate of Incorporation, as amended.
3.2(1) -- Bylaws of ResortQuest, Amended as of February 10, 1999.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- - ----------
<S> <C> <C>
3.3(2) -- Certificate of Amendment of Certificate of Incorporation of ResortQuest, dated April 23, 1998
(changing the name of ResortQuest from Vacation Properties International, Inc. to ResortQuest
International, Inc.).
3.4(3) -- Certificate of Amendment of Certificate of Incorporation of ResortQuest, dated May 11, 1998.
4.1(2) -- Specimen Common Stock Certificate.
4.2(4) -- Form of Restriction and Registration Rights Agreements between ResortQuest and each of
Alpine Consolidated II, LLC, Capstone Partners, LLC, John Przywara, David Marshall, Douglas
W. Comfort, Robert G. Falcone, Wayne Heller, Dwain Wall, Stephen J. Garchik, John Shaw,
David Sullivan, Jeffrey M. Jarvis, Frederick L. Farmer, W. Michael Murphy, Jules S. Sowder, John
K. Lines, Brian S. Sullivan, John D. Sullivan, the Sullivan Grandchildren's Trust, the David L.
Levin Irrevocable Children's Trust Under Agreement dated April 27, 1998 f/b/o Whitney Monica
Levine, the David L. Levine Irrevocable Children's Trust Under Agreement dated April 27, 1998
f/b/o Ross Michael Levine, the David L. Levine Irrevocable Children's Trust Under Agreement
dated April 27, 1998 f/b/o Keith Phillip Levine and the David L. Levine Revocable Trust Under
Agreement dated April 27, 1998.
4.3(7) -- Rights Agreement, dated as of February 25, 1999 between ResortQuest International,
Inc. and American Stock Transfer & Trust Company, as Rights Agent.
5.1(5) -- Opinion of Akin, Gump Strauss, Hauer & Feld, L.L.P. as to the legality of the securities being
registered.
10.1(1) -- Form of 1998 Long-Term Incentive Plan of ResortQuest.
10.2(2) -- Form of Employment Agreement between ResortQuest and David M. Sullivan.
10.3(2) -- Form of Employment Agreement between ResortQuest and Jeffery M. Jarvis.
10.4(2) -- Form of Employment Agreement between ResortQuest and W. Michael Murphy.
10.5(2) -- Form of Employment Agreement between ResortQuest and Jules S. Sowder.
10.6(2) -- Form of Employment Agreement between ResortQuest and David L. Levine.
10.7(2) -- Form of Employment Agreement between ResortQuest and John K. Lines.
10.8(2) -- Form of Employment Agreement between ResortQuest and Frederick L. Farmer.
10.9(2) -- Form of Employment Agreement between ResortQuest and Luis Alonso.
10.10(1) -- Form of Employment Agreement between ResortQuest and Douglas R. Brindley.
10.11(1) -- Form of Employment Agreement between ResortQuest and Paul T. Dobson.
10.12(1) -- Form of Employment Agreement between ResortQuest and Sharon Benson Doucette.
10.13(1) -- Form of Employment Agreement between ResortQuest and Evan H. Gull.
10.14(1) -- Form of Employment Agreement between ResortQuest and Heidi O'Leary Houston.
10.15(1) -- Form of Employment Agreement between ResortQuest and Daniel L. Meehan.
10.16(1) -- Form of Management Services Agreement between ResortQuest and J. Patrick McCurdy.
10.17(1) -- Form of Employment Agreement between ResortQuest and Andre S. Tatibouet.
10.18(1) -- Form of Employment Agreement between ResortQuest and Hans F. Trupp.
10.19(2) -- Form of Officer and Director Indemnification Agreement.
10.20(2) -- Form of Consulting Agreement between ResortQuest and Park Brady.
10.21(1) -- Promissory Note.
10.22(5) -- Credit Agreement dated as of May 26, 1998, in the amount of $30 million, among ResortQuest
International, Inc. as Borrower and the Financial Institutions named therein and NationsBank,
N.A. as agent for the Financial Institutions.
10.23 -- First Amendment to Credit Agreement, dated September 30, 1998 (Previously filed on November
16, 1998 as exhibit 10.1 to ResortQuest's Quarterly Report on Form 10-Q for the period ended
September 30, 1998 (File No. 00-14115) 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 ResortQuest's Quarterly Report on Form 10-Q for the period ended September 30, 1998
(File No. 0001-14115) and incorporated herein by reference).
10.25(7) -- Consulting Agreement dated September 10, 1998 by and among Abbott Realty Services, Inc. and
William W. Abbott, Jr.
10.26(7) -- Form of Officer and Director Indemnification Agreement, as amended.
10.27(7) -- Second Amendment to Credit Agreement, dated December 7, 1998.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- - -----------
<S> <C> <C>
10.28(7) -- Form of Section 401(k) Profit Sharing Plan Adoption Agreement.
21(7) -- Subsidiaries of ResortQuest.
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of Arthur Andersen LLP.
23.3 -- Consent of Morrison, Brown, Argiz and Company.
23.4 -- Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
24(5) -- Power of Attorney.
27(7) -- 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.
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.
</TABLE>
- - ----------
(1) Previously filed on March 12, 1998 as an exhibit to ResortQuest's
Registration Statement on Form S-1 (File No. 333-47867) and incorporated
herein by reference.
(2) Previously filed on April 27, 1998 as an exhibit to Amendment No. 1 to
ResortQuest's Registration Statement on Form S-1 (File No. 333-47867) and
incorporated herein by reference.
(3) Previously filed on May 12, 1998 as an exhibit to Amendment No. 3 to
ResortQuest's Registration Statement on Form S-1 (File No. 333-47867) and
incorporated herein by reference.
(4) Previously filed on May 26, 1998 as an exhibit to ResortQuest's Current
Report on Form 8-K (File No. 001-14115) and incorporated herein by
reference.
(5) Previously filed on June 12, 1998 as an exhibit to ResortQuest's
Registration Statement on Form S-1 (File No. 333-56703) and incorporated
herein by reference.
(6) Previously filed on October 16, 1998 as an exhibit to ResortQuest's
Registration Statement on Form S-1 (File No. 333-56703) and incorporated
herein by reference.
(7) Previously filed on March 30, 1999 as an exhibit to ResortQuest's Annual
Report on Form 10-K for the period ended December 31, 1998 (File No.
001-14115) and incorporated herein by reference.
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report on the consolidated financial statements of ResortQuest International,
Inc. and subsidiaries, dated February 25, 1999 and to all references to our Firm
included in or made a part of this registration statement.
ARTHUR ANDERSEN LLP
Memphis, Tennessee
April 12, 1999
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports for Brindley & Brindley Realty and Development, Inc. and B&B On The
Beach, Inc., dated July 24, 1998; Coastal Resorts Management, Inc. and Coastal
Resorts Realty L.L.C., dated July 15, 1998; Collection of Fine Properties, Inc.,
dated July 15, 1998; First Resort Software, Inc., dated July 17, 1998; Houston
and O'Leary Company dated July 17, 1998; The Maury People, Inc., dated July 24,
1998; Howey Acquisition, Inc., dated July 17, 1998; Resort Property Management,
Inc., dated July 15, 1998; Telluride Resort Accommodations, Inc., dated July 15,
1998; and Trupp-Hodnett Enterprises, Inc. and THE Management Company, dated July
17, 1998, and to all references to our Firm included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Houston, Texas
April 12, 1999
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
As independent auditors, we hereby consent to the use of our report for
Collection of Fine Properties, Inc., dated January 23, 1998, and to all
references to our Firm included in or made part of this Registration Statement.
MORRISON, BROWN, ARGIZ AND COMPANY
Denver, Colorado
April 12, 1999
EXHIBIT 23.4
CONSENT OF AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
As counsel to ResortQuest International, Inc., we consent to the use of our
name under the caption "Experts" in this registration statement. In giving this
consent, we do not admit that we are acting within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended.
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
Washington, DC
April 12, 1999
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.
6