UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________.
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Commission File Number: 000-24331
Raintree Resorts International, Inc.
CR Resorts Capital S. de R.L. de C.V. *
(Exact name of Registrant as Specified in its Charter)
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Nevada 76-0549149
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
10000 Memorial Drive, Suite 480
Houston, Texas 77024
(Address of principal executive offices, including zip code)
(713) 613-2800
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of March 31, 2000, the Registrant had 10,766,300 shares of Common Stock
outstanding and Warrants to purchase 2,369,962 shares of Common Stock.
*CR Resorts Capital, S. de R.L. de C.V., a subsidiary of Raintree Resorts
International, Inc., is a co-registrant, formed under the laws of the United
Mexican States (Mexican tax identification number CRC 970811E5A).
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RAINTREE RESORTS INTERNATIONAL, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of
December 31, 1999 and March 31, 2000 (Unaudited) ............................................... 3
Consolidated Statements of Operations and Comprehensive Loss
for the Three Months ended March 31, 1999 and 2000 (Unaudited) ................................. 4
Consolidated Statements of Cash Flows
for the Three Months ended March 31, 1999 and 2000 (Unaudited).................................. 5
Notes to Consolidated Financial Statements (Unaudited) .............................................. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS........................................................ 12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....................................... 16
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS................................................................................ 17
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS........................................................ 17
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.................................................................. 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............................................. 17
ITEM 5. OTHER INFORMATION ............................................................................... 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................................................. 17
SIGNATURES.................................................................................................... 18
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PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
RAINTREE RESORTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands except share and per share data)
(Unaudited)
December 31, March 31,
1999 2000
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Assets
Cash and cash equivalents ............................................... $ 8,311 $ 8,698
Vacation Interval receivables and other trade receivables, net........... 61,232 70,346
Inventories ............................................................. 896 763
Refundable Mexican taxes ................................................ 4,521 3,063
Facilities and office furniture and equipment, net ...................... 5,255 5,014
Land held for vacation ownership development ............................ 24,119 24,338
Equity investments....................................................... 3,532 3,482
Cost of unsold vacation ownership intervals and related club memberships. 23,605 22,721
Retained interest in hotel cash flows ................................... 4,000 4,000
Deferred loan costs, net ................................................ 7,342 6,987
Prepaid and other assets ............................................... 3,058 3,333
----------- -----------
Total assets ................................................................ $ 145,871 $ 152,745
=========== ===========
Liabilities and Shareholders' Investment
Liabilities
Accounts payable and accrued liabilities ............................... $ 14,098 $ 19,558
Notes payable .......................................................... 44,787 43,221
Senior Notes, due 2004, net of unamortized original issue discount of
$6,574 and $6,240 at December 31, 1999 and March 31, 2000, respectively 93,426 93,760
Taxes payable .......................................................... 1,101 752
Unearned services fees .................................................. 2,028 6,201
------------ ------------
Total liabilities .......................................................... 155,440 163,492
Commitments and Contingencies
Redeemable Preferred Stock
Par value $.001; 5,000,000 shares authorized, 52,250 shares issued and
outstanding at March 31, 2000; aggregate liquidation preference:
$5,225,000 at March 31, 2000 ......................................... 5,143 5,148
Shareholders' Deficit
Preferred stock; par value $.001; 5,000,000 shares authorized and none issued -- --
Convertible preferred stock; $100 per share liquidation value; 5,775 shares
issued and outstanding at December 31, 1999 .......................... 578 --
Common stock; par value $.001; 45,000,000 shares authorized, 10,766,300 shares
issued and outstanding at December 31, 1999 and March 31, 2000........ 11 11
Additional paid-in capital .............................................. 3,621 3,621
Warrants to purchase, 2,369,962 shares of common stock at December 31, 1999
and March 31, 2000 ................................................... 9,331 9,331
Accumulated deficit ..................................................... (28,383) (28,971)
Cumulative translation adjustment ....................................... 130 113
------------ ------------
Total shareholders' deficit .................................................. (14,712) (15,895)
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Total liabilities and shareholders' deficit ................................. $ 145,871 $ 152,745
============ ============
The accompanying notes are an integral part of these financial statements.
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RAINTREE RESORTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands except per share data)
(Unaudited)
Three Months Ended
March 31,
------------------------------------
1999 2000
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Statement of Operations
Revenues
Vacation Interval sales ..................................................... $ 17,042 $ 18,010
Rental and service fee income ............................................... 2,293 2,479
Interest income on Vacation Interval receivables............................. 2,077 2,263
Other income ................................................................ 869 680
--------- ---------
Total revenues ............................................................ 22,281 23,432
Costs and operating expenses
Cost of Vacation Interval sales.............................................. 4,337 4,218
Provision for doubtful accounts ............................................. 1,177 1,420
Advertising, sales and marketing ............................................ 7,525 7,604
Maintenance and energy ...................................................... 2,107 2,824
General and administrative .................................................. 2,780 2,681
Depreciation ................................................................ 224 343
Amortization of goodwill .................................................... 1,096 --
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Total costs and operating expenses ........................................ 19,246 19,090
--------- ---------
Operating income ............................................................... 3,035 4,342
Interest expense, net ....................................................... 4,376 5,357
Equity in losses on equity investments....................................... 96 76
Foreign currency exchange (gains)/losses, net................................ (529) (778)
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Net loss before taxes .......................................................... (908) (313)
Foreign income and asset taxes............................................... 256 40
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Net loss before preferred dividends ............................................ (1,164) (353)
Preferred stock dividends ................................................... 207 120
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Net loss available to common shareholders ...................................... $ (1,371) $ (473)
========= =========
Net loss per share (Basic and Diluted) $ (.13) $ (.04)
Weighted average number of common shares (Basic and Diluted) 10,766 10,766
Comprehensive loss
Net loss before preferred stock dividends ...................................... $ (1,164) $ (353)
Other comprehensive income, net of tax:
Foreign currency translation adjustment ..................................... 65 (17)
--------- ---------
Comprehensive loss ............................................................. $ (1,099) $ (370)
========= =========
The accompanying notes are an integral part of these financial statements.
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RAINTREE RESORTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Three Months Ended
March 31,
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1999 2000
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Operating activities
Net loss ........................................................................ $ (1,164) $ (353)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization .............................................. 1,979 1,055
Provision for doubtful accounts ............................................ 1,177 1,420
Equity in losses on equity investments ..................................... 96 76
Changes in other operating assets and liabilities:
Vacation Interval receivables and other trade receivables ................ (8,702) (10,429)
Cost of unsold vacation ownership intervals and related club memberships . 2,953 890
Prepaid and other assets ................................................. (392) (301)
Accounts payable and accrued liabilities ................................. 5,538 5,469
Taxes payable/refundable ................................................. (694) 1,112
Unearned services fees.................................................... 3,454 4,174
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Net cash provided by operating activities ....................................... 4,245 3,113
Investing activities
Purchase of land and other assets held for vacation ownership development ...... (885) (246)
Additions to facilities and office furniture and equipment ..................... (265) (105)
---------- ----------
Net cash used in investing activities ............................................. (1,150) (351)
Financing activities
Additional bank and other loans ............................................... 2,027 2,672
Repayment of bank loans ....................................................... (2,333) (4,229)
Dividend payments of and redemption of preferred stock........................ -- (808)
---------- ----------
Net cash used in financing activities ............................................. (306) (2,365)
Increase in cash and cash equivalents ............................................. 2,789 397
Effect of exchange rate changes on cash ........................................... 30 (10)
Cash and cash equivalents, at beginning of the period ............................. 2,960 8,311
---------- ----------
Cash and cash equivalents, at end of the period ................................... $ 5,779 $ 8,698
========== ==========
Supplemental disclosures of cash flow information
Cash paid during the period for interest ...................................... $ 366 $ 1,008
Cash paid (received) during the period for income and asset taxes ............. 628 (955)
The accompanying notes are an integral part of these financial statements.
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RAINTREE RESORTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2000
NOTE 1. GENERAL INFORMATION
General
The financial statements include the accounts of Raintree Resorts
International, Inc., a Nevada corporation, (the "Ultimate Parent") and all of
its wholly owned subsidiaries (collectively, the "Company"). The Company
develops, markets, and operates vacation ownership resorts in North America with
resorts in Mexico, Canada and the United States. The Company's headquarters are
located in Houston, Texas with administrative offices in Mexico City, Mexico and
Whistler, British Columbia, Canada.
Liquidity
On August 18, 1997, Raintree Resorts International, Inc. (formerly Club
Regina Resorts, Inc.) purchased all of the stock of Desarrollos Turisticos
Regina S. de R.L. de C.V. and its subsidiaries (the "Purchase Transaction")
representing net vacation ownership assets of approximately $86.8 million. Prior
to August 18, 1997 the Company did not have significant operations or revenues.
In connection with the Purchase Transactions, the Company borrowed
approximately $83 million and replaced such borrowing with its Senior Notes. At
March 31, 2000, the Company is, and will continue to be, highly leveraged, with
substantial debt service requirements. A significant portion of the Company's
assets are pledged against existing borrowings. The Company has a deficit in
shareholder's equity, has incurred losses since its inception and expects to
incur a net loss for fiscal 2000. To achieve profitable operations, the Company
is dependent on a number of factors, including its ability to reduce its debt
service requirements, to increase its Vacation Interval inventory through
development projects and through the acquisition of existing resort properties,
and its ability to continually sell Vacation Intervals on an economical basis,
taking into account the cost of such intervals and related marketing and selling
expenses. The Company expects that its existing credit capacity combined with
additional credit capacity which must be negotiated during 2000 will be
sufficient to enable the Company to meet its debt service obligations, including
interest payments on its Senior Notes through the first quarter of 2001. The
Company also expects to be able to fund capital requirements from its future
operations and from anticipated capital project financings which have not yet
been negotiated. However, should the Company not achieve the anticipated level
of operating results during 2000 or be able to successfully negotiate additional
credit capacity, there is no assurance that the Company would be able to meet
all of its debt service obligations.
Basis of Presentation
The information contained in the following notes to the accompanying
consolidated financial statements is condensed from that which would appear in
the annual audited financial statements. Accordingly, the consolidated financial
statements included herein should be reviewed in conjunction with the
consolidated financial statements and related notes thereto contained in the
Form 10-K Annual Report for the year ended December 31, 1999, filed by the
Company with the Securities and Exchange Commission.
The condensed consolidated financial statements included herein have been
prepared by the Company, pursuant to the rules and regulations of the Securities
and Exchange Commission (the "SEC"). Pursuant to such regulations, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States have been condensed or omitted. The Company believes the
presentation and disclosures herein are adequate to make the information not
misleading. The financial statements reflect all elimination entries and normal
adjustments that are necessary for a fair presentation of the results for the
three month periods ended March 31, 1999 and 2000.
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Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Certain items in the March 31, 1999 financial statements have been
reclassified to conform to the March 31, 2000 presentation.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Foreign Currency Fluctuations
The Company maintains its Mexican accounting records and prepares its
financial statements for its Mexican subsidiaries in Mexican pesos. The Mexican
pesos are translated to U.S. dollars for financial reporting purposes using the
U.S. dollar as the functional currency, and exchange gains and losses are
reported in income and expense. The net gains and losses are primarily related
to the increases or declines in the value of the peso to the U.S. dollar during
such periods. As a result, the Company had a net exchange gain for the three
months ended March 31, 1999, of $529,000, and a net exchange gain for the
corresponding three months in 2000 of $778,000.
Exchange rates Pesos US Dollar
December 31, 1998..................... 9.865 = $1.00
March 31, 1999........................ 9.516 = $1.00
June 30, 1999......................... 9.488 = $1.00
September 30, 1999.................... 9.358 = $1.00
December 31, 1999..................... 9.522 = $1.00
March 31, 2000........................ 9.233 = $1.00
The future valuation of the Mexican peso related to the U.S. dollar cannot
be determined, estimated or projected.
Cash and Cash Equivalents
The Company considers demand accounts and short-term investments with
maturities of three months or less when purchased to be cash equivalents. Cash
and cash equivalents include $1.1 million in restricted funds at March 31, 2000.
Land Held for Vacation Ownership Development
The Company owns a parcel of undeveloped beachfront property located in
Cozumel, Mexico and a parcel of land adjacent to its Regina Resort located in
Cabo San Lucas, Mexico. The Company plans to construct additional vacation
ownership facilities on these parcels of land. Although preliminary
architectural and engineering planning has commenced, no commitments have been
made regarding these planned expansion projects. Further work on the Cozumel
property will not occur prior to 2001 or later.
Land held for vacation ownership development includes the cost of land, and
additionally, development costs and capitalized interest. Interest related to
these developmental properties of $ 0.1 million and $0.2 million was capitalized
during the three months ended March 31, 1999 and 2000, respectively.
Loss Per Share
Basic per share results are computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding for the
period. Since the Company has a net losses for all periods reported, no
conversion is assumed as conversion of the Company's warrants and stock options
would be anti-dilutive.
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Goodwill
On July 24, 1998, the Company acquired the assets and assumed certain
liabilities of Whiski Jack Resorts Ltd. ("Whiski Jack") for approximately $6.6
million. The acquisition was accounted for as a purchase and, accordingly, the
results of operations are included in the financial statements only for the
periods subsequent to the date of acquisition. The purchase price has been
allocated to the assets and liabilities assumed based upon the fair values at
the date of acquisition. The excess purchase price over the fair values of the
net assets acquired has been recorded as goodwill, totaling approximately $4.5
million, to be amortized pro rata as the individual weeks acquired in the
acquisition are sold. Amortization expense was $1.1 million for the quarter
ended March 31, 1999 and was fully amortized by the end of 1999.
NOTE 3. VACATION INTERVAL RECEIVABLES AND OTHER TRADE RECEIVABLES
Vacation Interval receivables and other trade receivables were as follows
(in thousands):
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December 31, March 31,
1999 2000
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Vacation Interval receivables ................................ $ 63,875 $ 68,249
Other trade receivables ...................................... 5,424 10,658
Less - allowances for uncollectible accounts ................. (8,067) (8,561)
--------- ---------
Total ................................................ $ 61,232 $ 70,346
========= =========
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Allowances for uncollectible accounts increased by $1.4 million for
additional estimated reserves, and decreased by $0.9 million for cancellation of
contracts and receivable write-offs during the first three months of 2000.
The Company estimates that at December 31, 1999 and at March 31, 2000,
approximately 53% and 52%, respectively, of all of the Vacation Interval
receivables were U.S. dollar denominated, 31% and 33%, respectively, of Vacation
Interval receivables were denominated in UDIs, an obligation denominated in
pesos which is adjusted for Mexican inflation ("UDI"), 9% during both periods of
Vacation Interval receivables were denominated in Mexican pesos, and 7% and 6%,
respectively, of Vacation Interval receivables were denominated in Canadian
dollars.
NOTE 4. NOTES PAYABLE
Summary of Notes Payable (in thousands) -
December 31, March 31,
1999 2000
------------------ -----------------
Notes Payable to a Bank.......... $ 278 $ 562
Cabos West Notes Payable ........ 2,350 2,350
Credit Agreement Notes and Loans.. 38,772 36,129
Mortgages Payable ................ 3,387 4,180
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$ 44,787 $ 43,221
================== =================
Notes Payable to a Bank - The notes payable to a bank at December 31, 1999 and
March 31, 2000 had interest payable at 8.50%. The notes are due in full
throughout 2000.
Cabos West Notes Payable - On September 17, 1998, in connection with the Cabos
West land purchase, the Company entered into notes payable secured by the land.
The notes bear interest at approximately 10% and are due on demand.
Credit Agreement Notes - The November 1998, amended credit agreement with FINOVA
Capital Corporation, includes a receivables based credit facility of $20 million
and a $16.5 million inventory based credit facility. The aggregate borrowing
limit under the credit agreement is $34 million. FINOVA will lend 90% on pledged
notes receivable denominated in United States dollars and held by United States
or Canadian residents. These notes are assigned to the lender and as payments
are received, they are applied to this loan. The outstanding receivables loan
8
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balance bears interest at a fluctuating base rate plus 175 basis points, which
was 10.25% and 10.5% per annum at December 31, 1999 and March 31, 2000,
respectively. The outstanding inventory loan balance bears interest at a
fluctuating base rate plus 225 basis points, which was 10.75% and 11.0% per
annum at December 31, 1999 and March 31, 2000, respectively. Interest under the
notes is due monthly. The fluctuating base rate is the "Corporate Base" rate of
Citibank, N.A., New York, which the bank publicly announces from time to time,
and is a rate charged by the bank to it's most creditworthy commercial
borrowers. Also, the agreement requires the Company to maintain certain minimum
financial ratios including a minimum capital requirement. The receivables line
of credit matures 84 months from the date of the last advance made against it,
and the inventory based credit facility matures on June 30, 2001. As of December
31, 1999 and March 31, 2000, the outstanding balance of the receivables line of
credit was $9,760,000 and $9,787,000, respectively and of the inventory based
credit facility was $15,159,000 and $14,004,000, respectively.
The November 1999, $10 million receivables loan facility with Textron
Financial Corporation ("Textron") is collateralized by the Company's notes
receivable, with a limit of up to 30% of those notes denominated in Mexican
pesos of which Textron will lend 80% on pledged notes, and the remainder in U.S.
dollars on which Textron will lend 85% on pledged notes. The entire outstanding
loan balance is to be paid in full on or before December 1, 2004. The loan bears
a variable interest rate of the Chase Manhattan Bank prime rate plus 200 basis
points that is adjusted on the first day of each month, with an interest rate of
10.5% and 10.75% as of December 31, 1999 and March 31, 2000, respectively. As of
December 31, 1999 and March 31, 2000, the outstanding balance of the loan
facility was $7,103,000 and $5,902,000, respectively.
The November 1999, $7 million loan agreement with Bancomer, is
collateralized by all of the Company's UDI denominated notes receivable. The
loan agreement extends credit to the Company for a fixed 30-month term from
November 29, 1999 to May 29, 2000. Furthermore, the agreement requires the
Company to pay back the principal in UDI's in 30 equal monthly installments plus
accrued interest in the U.S. dollar equivalent amount of approximately $233,000
beginning on December 29, 1999. Also, the loan bears simple interest at a rate
of 12% per annum, and as of December 31, 1999 and March 31, 2000, the
outstanding balance was $6,750,000 and $6,437,000, respectively.
Mortgages Payable - Mortgages payable consist of the assignment of specific
Whiski Jack Vacation Interval receivables to related and third party buyers and
are payable in monthly installments including interest over periods ranging from
twelve months to ten years. The average interest rates were 10.7% and 11.0% at
December 31, 1999 and March 31, 2000, respectively.
NOTE 5. OPERATIONS BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA
The Company has only one line of business, which develops, markets and
operates luxury vacation ownership resorts in three geographic areas; Mexico,
Canada and the United States. The United States operations are carried out
through a joint venture accounted for on the equity method of accounting. The
Company's reportable segments are based on geographic area. The reportable
segments are managed separately due to their geographic location with managers
focused on improving and expanding each segment's operations. However resource
allocation is not based on individual country results, but based on the best
location for future resorts in order to enhance the Company's overall ability to
sell timeshare under a club concept. Revenues are attributed to countries based
on the location of the vacation ownership resorts.
The following table presents segment information (in thousands):
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Corporate
Mexico Canada and Other Total
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As of and for the three months ended March 31,
2000:
Revenues from external customers ................ $ 20,687 $ 2,678 $ 67 $ 23,432
Depreciation and amortization.................... 938 38 79 1,055
Operating income (loss) ......................... 4,832 143 (633) 4,342
Income tax expense............................... 20 20 -- 40
Total assets .................................... 133,246 12,542 6,957 152,745
Capital expenditures ............................ 286 32 33 351
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Corporate
Mexico Canada and Other Total
------------- ------------- -------------- ------------
As of and for the three months ended March 31,
1999:
Revenues from external customers ................ $ 19,067 $ 3,210 $ 4 $ 22,281
Depreciation and amortization.................... 78 1,122 779 1,979
Operating income (loss) ......................... 4,627 (723) (869) 3,035
Income tax expense............................... 100 156 -- 256
Total assets .................................... 123,729 10,392 3,593 137,714
Capital expenditures ............................ 385 65 700 1,150
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Corporate and Other
The amounts shown as an operating loss under the column heading "Corporate
and Other" consist primarily of general and administrative costs that are not
allocated to the segments. Also, the U. S. joint venture is included in
corporate operations and had equity losses of $0.1 million for the three months
ended March 31, 1999 and 2000.
NOTE 6. SHAREHOLDERS' INVESTMENT
Preferred Stock
On July 1, 1999, all 37,500 shares of the Class A Preferred Stock of the
Company were exchanged for 50,000 shares of a new class of Pay-in-Kind
Redeemable Preferred Stock (Redeemable Preferred Stock) plus 500,000 five-year
Warrants to purchase the Company's common stock at $5.00 per share.
Additionally, as of July 1, 1999, the Class A Preferred Stock had cumulative
unpaid dividends totaling approximately $1.2 million that were deemed
paid-in-kind as part of the Exchange. The Redeemable Preferred Stock requires
that annual dividends be paid either in cash equalling 9% of the Redeemable
Preferred Stocks' $100 per share Liquidation Preference, or in an equivalent
number of shares of Redeemable Preferred Stock valued at the Liquidation
Preference. Furthermore, the Redeemable Preferred Stock is redeemable at any
time before December 1, 2004, at which time redemption is mandatory. As of March
31, 2000 the cummulative unpaid dividends on the Redeemable Preferred Stock were
$117,600.
Convertible Preferred Stock
In connection with the purchase of Whiski Jack, the Company issued 20,775
shares of redeemable convertible preferred stock (Convertible Preferred Stock)
through its wholly owned subsidiary, Raintree Resorts International Canada, Ltd.
(Raintree Canada). As of March 31, 2000, all shares had been redeemed. The
shares accrued dividends at the rate of 10% per annum and dividends totaled $0.2
million were paid during 2000.
NOTE 7. CONTINGENCIES AND COMMITMENTS
General
The Company is subject to various claims arising in the ordinary course of
business, and is a party to various legal proceedings, which constitute ordinary
routine litigation incidental to the Company's business. In the opinion of
management, all such matters are either adequately covered by insurance or are
not expected to have a material adverse effect on the Company.
Canadian Condominium Acquisitions
The Company has committed to purchase 9 condominium units in Whistler,
British Columbia at an aggregate purchase price of $1.5 million. Deposits of
$0.2 million have been paid as of March 31, 2000, with the balance to be paid
during 2000, or thereafter, based on completion of construction and transfer of
ownership.
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NOTE 8. DEVELOPMENT AND CONSTRUCTION
The Teton Club, LLC ("Teton Club"), a joint venture between the Company and
JHSC Properties, Inc., has financing between FINOVA and the Teton Club
consisting of $33.3 million for construction financing, $7.5 million for
pre-sale working capital requirements and $20 million for receivables financing.
The receivable financing is a hypothecation line-of-credit and will be used to
repay the construction and pre-sale loans and to fund operating expenses. Also,
the agreement requires the Teton Club to maintain certain minimum financial and
operating ratio requirements. As part of the financing arrangement, the Company
is directly obligated for $8.3 million of the construction loan, $1.9 million of
the pre-sale working capital loan and $5 million of the receivables loan.
Additionally, the Company is responsible for any working capital deficits at the
Teton Club. As of March 31, 2000, $13 million had been drawn on the construction
portion of the financing, and $3 million had been drawn on the working capital
portion of the financing.
NOTE 9. SUBSEQUENT EVENT
On May 3, 2000, a newly formed subsidiary of the Company entered into a
Project Development, Management and Sales Agreement whereby the Company assumes
full operating control and management of Cimarron Resorts in Palm Springs,
California from the owners, Royale Mirage Partners, L.P. ("RMP"). Cimarron
Resorts consists of approximately 37 acres of land adjacent to two 18-hole golf
courses developed and managed by OB Sports of Seattle, Washington and when fully
developed will consist of 242 two-bedroom condominium units or 12,342 weekly
intervals. Forty of such units are under development and expected to be
completed in June 2000. Pre-sales of the vacation ownership intervals for the
Cimarron Resorts commenced in February 2000. A commitment for a development loan
by Textron has been received by the project owner for the development of the
second 40 two-bedroom units and this construction is expected to begin during
the third quarter of 2000. The Company has the option to extend its agreement
for the next construction stage consisting of 36 units no later than December
31, 2002 and it may thereafter exercise its option in succeeding stages of 42,
44 and 40 units on or before March 31, 2004, June 30, 2005 and September 30,
2006, respectively. Under the agreement, the Company purchases vacation
ownership intervals from RMP as they are sold to timeshare purchasers. The
Company is entitled to all revenues from Cimarron Resorts and is responsible for
all sales and marketing as well management and customer services. The Company
will place Cimarron Resorts into its planned Raintree Vacation Club for exchange
purposes and expects a portion of the resort to be sold as Club Regina
two-bedroom inventory in Mexico.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This report contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended, which represent
the Company's expectations and beliefs concerning future events that involve
risks and uncertainties, including those associated with the effects of (i)
international, national and regional economic conditions and conditions in the
international tourism and vacation ownership markets, (ii) the Company's
capacity to integrate acquisitions that it has made, and (iii) the availability
of capital resources necessary for the Company to execute its business strategy.
Investors are cautioned that all forward-looking statements involve risks and
uncertainty. Discussions containing such forward-looking statements may be found
in the material set forth under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" as well as elsewhere herein.
Actual results may differ materially from those projected in the forward-looking
statements. Although the Company believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the
assumptions could be inaccurate, and therefore, there can be no assurance that
the forward-looking statements included in this report will prove to be
accurate. Important factors that could cause actual results to differ materially
from the Company's expectations are disclosed in this report. Considering the
significant uncertainties inherent in the forward-looking statements included
herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives and plans
of the Company will be achieved. The following discussion should be read in
conjunction with the financial statements of Raintree Resorts International,
Inc. and related notes thereto, the management's discussion and analysis related
thereto, all of which are included in the Form 10-K Annual Report for the year
ended December 31, 1999, filed by the Company with the Securities and Exchange
Commission and the financial statements and notes thereto contained herein.
COMPARISONS OF THE THREE MONTHS ENDED MARCH 31, 1999 TO THE THREE MONTHS ENDED
MARCH 31, 2000.
Segment Results
General. The Company has only one line of business, which develops, markets
and operates luxury vacation ownership resorts in three geographic areas;
Mexico, Canada and the United States. The United States operations are carried
out through a joint venture accounted for on the equity method of accounting.
The Company's reportable segments are based on geographic area. The reportable
segments are managed separately due to their geographic location with managers
focused on improving and expanding each segment's operations. However resource
allocation is not based on individual country results, but based on the best
location for future resorts in order to enhance the Company's overall ability to
sell timeshare under a club concept. Revenues are attributed to countries based
on the location of the vacation ownership resorts. The following presents
segment data in thousands:
<TABLE>
<CAPTION>
For the Three Months ended March 31,
------------------------------------------------------------------------------------------
Operating
Net Income Capital
Sales % (Loss) % Expenditures %
----------- --------- ------------ ----------- -------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
2000 -
Mexico $ 20,687 88.3% $ 4,832 111.3% $ 286 81.5%
Canada 2,678 11.4% 143 3.3% 32 9.1%
Corporate and other 67 0.3% (633) (14.6)% 33 9.4%
-------- --------- ---------- ------------ -------------- --------
Total $ 23,432 100.0% $ 4,342 100.0% $ 351 100.0%
======== ========= ========== ============ ============== ========
1999 -
Mexico $ 19,067 85.6% $ 4,627 152.5% $ 385 33.5%
Canada 3,210 14.4% (723) (23.8)% 65 5.7%
Corporate and other 4 0.0% (869) (28.7)% 700 60.8%
-------- --------- ---------- ------------ -------------- --------
Total $ 22,281 100.0% $ 3,035 100.0% $ 1,150 100.0%
======== ========= ========== ============ ============== ========
</TABLE>
12
<PAGE>
Mexico's Segment Results - Comparison of the three months ended March 31,
2000 to the three months ended March 31, 1999. Net sales increased 1.6 million,
or 8.5%, and operating income increased $0.2 million or 4.4% during the first
quarter 2000. The increases in net sales and operating income result from an
overall increase in Vacation Interval sales prices and the number of weeks sold.
The average price per week sold increased by $1,060, or 8.1%, and the number of
weeks sold increased 29, or 2.6%. The average price per week sold increased in
response to a price increase beginning the third week of December 1999.
Canada's Segment Results - Comparison of the three months ended March 31,
2000 to the three months ended March 31, 1999. Net sales decreased $0.5 million
primarily as the number of weeks sold decreased 22.7%. The decrease in weeks
sold is reflective of the 22% decrease in tour flow primarily at its on-site
sales office and owner referrals. However, operating income increased by $0.9
million because of the elimination of goodwill in the first quarter of 2000 as
goodwill was fully amortized by the end of 1999.
Corporate and other - Comparison of the three months ended March 31, 2000
to the three months ended March 31, 1999. The operating loss consist primarily
of general and administrative costs that are not allocated to the segments.
Also, the U.S. joint venture, the Teton Club, is included in the corporate
operations and had equity losses of $0.1 million for the three months ended
March 31, 1999 and 2000. The Teton Club is developing a 37-unit timeshare
property, which will be completed in the second half of 2000, at which time the
recording of sales by the Teton Club will commence.
Consolidated Results
Comparison of the three months ended March 31, 2000 to the three months
ended March 31, 1999.
The Company believes that the following analysis is helpful to understand
the changes in the activity levels between 1999 and 2000 (in thousands):
<TABLE>
<CAPTION>
Percentage
Increase Increase
Three Months Ended March 31, 1999 2000 (Decrease) (Decrease)
-------------- ------------- -------------- -----------------
<S> <C> <C> <C> <C>
Revenues:
Vacation Interval sales ............ $ 17,042 $ 18,010 $ 968 5.7 %
Interest Income on Vacation Interval
Receivables, rental and service fee
Income, and other income ....... 5,239 5,422 183 3.5%
--------- --------- ---------
Total ......................... 22,281 23,432 1,151 5.2 %
========= ========= =========
Costs and operating expenses:
Cost of Vacation Interval sales .... 4,337 4,218 (119) (2.7)%
Provision for doubtful accounts..... 1,177 1,420 243 20.6%
Advertising, sales and marketing.... 7,525 7,604 79 1.0%
Maintenance and energy ............. 2,107 2,824 717 34.0%
Depreciation and amortization....... 224 343 119 53.1%
General and administrative.......... 2,780 2,681 (99) (3.6)%
Amortization of goodwill............ 1,096 -- (1,096) (100.0)%
--------- --------- ---------
Total ......................... $ 19,246 $ 19,090 $ (156) (0.8)%
========= ========= =========
</TABLE>
Vacation Interval sales increased by approximately $1.0 million, or 5.7%,
from approximately $17.0 million for the three months ended March 31, 1999 to
approximately $18.0 million for the three months ended March 31, 2000. Vacation
Interval sales increased as the average price per interval sold increased $905
per interval, or 6.9%, from $13,100 for the three months ended March 31, 1999,
to $14,005 for the three months ended March 31, 2000. This increase was in
response to an approximate 9% net price increase in Mexico beginning in the
third week of December 1999.
Cost of Vacation Interval sales decreased by approximately $0.1 million, or
2.7%, from approximately $4.3 million for the three months ended March 31, 1999,
to approximately $4.2 million for the three months ended March 31, 2000. The
decrease in cost of sales results from the addition of lower average cost
inventory, the Villa Vera, in
13
<PAGE>
Mexico. This addition was the primary factor reducing cost of sales as a percent
of revenue from 25% in the first quarter of 1999 to 23% in the comparable 2000
period.
Provision for doubtful accounts increased by approximately $0.2 million, or
20.6%, from approximately $1.2 million for the three months ended March 31,
1999, to approximately $1.4 million for the three months ended March 31, 2000.
This increase is in response to an increase in customer financing in the first
quarter of 2000 compared to the prior year first quarter. The Company computes a
provision for doubtful accounts to achieve a balance sheet reserve of around 12%
of Vacation Interval receivables. The Company believes that this reserve
provides adequate coverage of default risk under current market conditions.
Advertising, sales and marketing expense increased approximately $0.1
million, or 1.0%, from approximately $7.5 million for the three months ended
March 31, 1999, to approximately $7.6 million for three months ended March 31,
2000. The Company held costs at levels comparable to the prior year level during
a period when upward pressure was being realized from inflation in Mexico and
the strengthening of the Mexican peso to the U.S. dollar. See "Mexico's
Inflation and Currency Changes" discussed below.
Maintenance and energy expenses increased approximately $0.7 million, or
34.0%, from approximately $2.1 million for the three months ended March 31,
1999, to approximately $2.8 million for the three months ended March 31, 2000.
The increase in expenses was caused by the impact of inflation and change in the
value of the peso on the peso based operating expenses of the timeshare
properties in Mexico and an overall increase in the number of club members.
General and administrative expenses decreased approximately $0.1 million,
or 3.6%, from approximately $2.8 million for the three months ended March 31,
1999, to approximately $2.7 million for the three months ended March 31, 2000.
The Company held costs at levels comparable to the prior year level during a
period when upward pressure was being realized from inflation in Mexico and the
strengthening of the Mexican peso to the U.S. dollar. See "Mexico's Inflation
and Currency Changes" discussed below.
The first three months of 1999 amortization of goodwill relates to the
goodwill resulting from the acquisition of Whiski Jack, which was fully
amortized during 1999.
Interest expense was approximately $1.0 million more in the first three
months of 2000 as compared to the first three months of 1999 due primarily to
interest cost associated with a higher level of debt outstanding between the
periods, which average debt outstanding increased $29.5 million between periods.
Foreign currency exchange gain totaled approximately $0.8 million during
the first three months of 2000 compared to a gain of approximately $0.5 million
during the first three months of 1999. The increase in the gain between periods
occurred due to a stronger peso against the U.S. dollar during the three months
of 2000 compared to the comparable prior year period.
MEXICO'S INFLATION AND CURRENCY CHANGES
Management believes that in interpreting the comparisons of operational
results discussed above, two factors are of importance: currency exchange rates
and inflation. Changes in costs between prior year and current year periods
could be the result of increases or decreases in the peso exchange rate or
inflation in Mexico. In particular, the average monthly peso exchange rate for
the three months ended March 31, 2000 strengthened when compared to the average
monthly peso exchange rate for the three months ended March 31, 1999. The
Company estimates that current period costs settled in Mexican pesos increased
by approximately 5% because of fluctuations in the average peso exchange rate
between periods. In addition, the Company estimates that inflation in Mexico was
approximately 11% since March 1999. Expenditures in Mexico for advertising,
sales and marketing, maintenance and energy, and for general and administrative
expenses are primarily settled in pesos, and were negatively impacted by the
combined effects of inflation and peso changes.
COMPARISONS OF MARCH 31, 2000 BALANCE SHEET AMOUNTS TO DECEMBER 31, 1999 BALANCE
SHEET AMOUNTS
Vacation Interval receivables and other trade receivables increased
approximately $9.1 million from approximately $61.2 million as of December 31,
1999 to approximately $70.3 million as of March 31, 2000. The
14
<PAGE>
increase was attributable to the annual service fee billing issued during the
first quarter of 2000 and the increase in the level of sales financing with
approximately 400 additional loans.
Cost of unsold vacation ownership intervals and related club memberships
(unit inventory) decreased approximately $0.8 million from approximately $23.6
million as of December 31, 1999 to approximately $22.7 million as of March 31,
2000. The sale of units reduced unit inventory by approximately $4.2 million,
which was offset by purchases by Whiski Jack in Canada of approximately $2.7
million and the remainder primarily for reinstatement of inventory from
defaulting owners in Mexico.
Accounts payable and accrued liabilities increased approximately $5.5
million from approximately $14.1 million as of December 31, 1999 to
approximately $19.6 million as of March 31, 2000. The variance is caused by an
increase in accrued interest payable of $3.6 million, and an overall increase in
accrued liabilities.
Unearned service fees increased approximately $4.2 million from
approximately $2.0 million as of December 31, 1999 to approximately $6.2 million
as of March 31, 2000. This balance was higher at the end of March 2000 as
compared to December 1999 because a majority of the related fees are typically
invoiced at the beginning of each year and then earned during the remainder of
that year.
LIQUIDITY AND CAPITAL RESOURCES
The Company generates cash for operations primarily from the sale of
Vacation Intervals, receipt of payments on the Vacation Interval receivables,
and the receipt of service fees charged to members. With respect to the sale of
Vacation Intervals, the Company generates cash from all-cash purchases and from
receipt of down payments on financed Vacation Intervals. The Company also
generates cash from financing Vacation Interval sales and receiving principal
and interest payments. Additionally, the Company uses Vacation Interval
receivables as collateral in order to obtain loans.
The Company generates cash from financing Vacation Interval sales based on
principal payments and the interest charged on Vacation Interval receivables.
Additionally, the Company uses Vacation Interval receivables as collateral in
order to obtain loans. At March 31, 2000, the Company had $67.6 million of
Vacation Interval receivables of which approximately (i) 58% of all of the
Vacation Interval receivables were U.S. or Canadian dollar denominated (ii) 33%
of all Vacation Interval receivables were denominated in UDI's, an obligation
denominated in pesos which is adjusted for Mexican inflation, and (iii) 9% of
all Vacation Interval receivables were denominated in pesos.
As of March 31, 2000 and December 31, 1999, the Company had outstanding
$100 million of 13% Senior Notes due 2004. Under the FINOVA credit line
("FINOVA"), $23.8 million and $24.9 million was outstanding with approximate
interest rates of 10.8% and 10.6% at March 31, 2000 and December 31, 1999,
respectively. The Textron credit line had an outstanding balance of $5.9 million
and $7.1 million with interest rates of 10.75% and 10.5% at March 31, 2000 and
December 31, 1999, respectively. The Bancomer loan which bears an interest rate
of 12%, had an outstanding balance of $6.4 million and $6.8 million at March 31,
2000 and December 31, 1999, respectively. Bank debt and other debt which bore an
average interest rate of 9.7% had an outstanding balance of $2.9 million and
$2.6 million at March 31, 2000 and December 31, 1999, respectively. Mortgages
payable had an outstanding balance of $4.2 million and $3.4 million, with
interest rates of 11.0% and 10.7% for March 31, 2000 and December 31, 1999,
respectively.
The Company's borrowing capacity under the FINOVA credit facility currently
includes a $20 million accounts receivable based credit facility and a $16.5
million inventory based non-revolving line of credit; the combined credit
facility provides an aggregate borrowing limit of $34 million. The Company's
borrowing capacity under the Textron credit facility is $10 million. The Company
estimates that based on Vacation Interval receivables not currently pledged,
approximately $8.2 million at March 31, 2000 was available for borrowing under
the credit facilities.
Additionally, as part of the Teton Club financing arrangement with FINOVA,
the Company is directly obligated for $8.3 million of the construction loan,
$1.9 million of the pre-sale working capital loan and $5.0 million of the
receivables loan, and is also responsible for any working capital deficits at
the Teton Club.
The Company intends to pursue a growth-oriented strategy. From time to
time, the Company may acquire, among other things, additional vacation ownership
properties, resorts and completed vacation ownership units, land upon which
additional vacation ownership resorts may be built (which may require capital
expenditures by the Company) and/or other operations in the vacation ownership
industry. The Company is evaluating certain resort
15
<PAGE>
asset acquisition or development opportunities, but it currently has no
contracts or capital commitments relating to any potential acquisitions or
developments other than those discussed below. However, the Company is actively
pursuing financing for development of the Los Cabos land. In addition, the
Company is evaluating several strategic partnership opportunities, but it
likewise has no firm agreements relating to any such potential strategic
partnership opportunities.
To finance its growth strategy, in addition to accessing its lines of
credit, the Company may from time to time consider issuing debt, equity or other
securities, entering into traditional construction financing or credit
agreements, entering into joint venture or development agreements with respect
to its undeveloped property, or factoring additional Vacation Interval
receivables. The Company is highly leveraged and, under the Indenture, there are
limitations on the Company's ability to borrow funds and make certain equity
investments. Additionally, the Company is required under the credit agreements
to maintain certain financial covenants, including minimum equity levels.
Accordingly, there can be no assurance that the Company will be able to use debt
to finance any expansion plans beyond its plans to finance its current
commitments.
At March 31, 2000, the Company had an inventory of vacation interval weeks
of 4,271 in Mexico and 1,083 in Canada. Accordingly, the Company believes its
existing inventory will provide it with slightly more than one year of product
available for sale under existing or planned marketing programs. The Company
plans to increase its Vacation Interval inventory through development of
additional properties and making acquisitions in the short term, including
acquiring condominiums in Whistler, British Columbia, which includes the
commitment to purchase 9 condominiums at an aggregate purchase price of
approximately $1.5 million in the second quarter 2000, developing the Teton Club
joint venture, acquiring intervals under the Cimarron project development,
management and sales agreement, developing its land in Los Cabos, developing its
land in Cozumel, and making acquisitions in Mexico, the United States and
Canada.
The Company believes that its current financial position plus borrowings
available under the credit agreements and anticipated results from operations
will satisfy its currently planned 2000 capital expenditures of approximately
$10.9 million. The 2000 planned expenditures include the development activities
in Los Cabos and the purchase of Vacation Interval inventory in Whistler,
British Columbia. The Los Cabos development will require additional project
financing and the Company is negotiating for such financing with Mexican
financial institutions.
At March 31, 2000, the Company is, and will continue to be, highly
leveraged, with substantial debt service requirements. A significant portion of
the Company's assets are pledged against existing borrowings. The Company has a
shareholder's deficit, has incurred losses since its inception and expects to
incur a net loss for fiscal 2000. To achieve profitable operations, the Company
is dependent on a number of factors, including its ability to reduce its debt
service requirements, to increase its Vacation Interval inventory through
development projects and through the acquisition of existing resort properties,
and its ability to continually sell Vacation Intervals on an economical basis,
taking into account the cost of such intervals and related marketing and selling
expenses. The Company expects that its existing credit capacity combined with
additional credit capacity which must be negotiated during 2000 will be
sufficient to enable the Company to meet its debt service obligations, including
interest payments on its Senior Notes through the first quarter of 2001. The
Company also expects to be able to fund capital requirements from its future
operations and from anticipated capital project financings which have not yet
been negotiated. However, should the Company not achieve the anticipated level
of operating results during 2000 or be able to successfully negotiate additional
credit capacity, there is no assurance that the Company would be able to meet
all of its debt service obligations.
The Company is working to increase liquidity through hypothecation of its
receivables. This will include expanding capacity under its current facilities
and, if necessary, obtaining credit lines from new sources. Emphasis will be
placed on the level of hypothecation of loans from Mexican buyers of Club Regina
Vacation Intervals. These receivables, denominated in US dollars, Mexican pesos
and Mexican UDI's, are good quality and have favorable credit characteristics
comparable to our American source receivables.
Additionally, the Company is working to reduce its high leverage position.
The Company believes that there are several opportunities that may facilitate a
capital restructuring. While the Company intends to continue to pursue such
opportunities, there can be no assurance that a capital restructuring will occur
during the next year.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
16
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following is a list of exhibits filed as part of this quarterly report.
Exhibit No. Description
10.1 -- Letter Agreement to First Amended and Restated Loan
and Security Agreement dated April 23, 1999.
27.1 -- Financial Data Schedule
(b) Reports on Form 8-K.
None
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the
Registrants, Raintree Resorts International, Inc. and CR Resorts Capital S. de
R.L. de C.V., have duly caused this report to be signed on their behalf by the
undersigned, thereunto duly authorized.
RAINTREE RESORTS INTERNATIONAL, INC.
CR RESORTS CAPITAL S. DE R.L. DE C.V.
Date: May 12, 2000 By: /s/ George E. Aldrich
--------------------------------------------
George E. Aldrich
Senior Vice President - Finance and Accounting
(Principal Accounting Officer)
18
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
----------- -----------------------
10.1 -- Letter Agreement to First Amended and Restated Loan
and Security Agreement dated April 23, 1999.
27.1 -- Financial Data Schedule
19
<PAGE>
The FINOVA Group
4800 North Scottsdale Road
Scottsdale, AZ 85251-8623
Tel 480 636 4800
www.finova.com
May 11, 2000
Raintree Resorts International, Inc.
CR Resorts Cancun, S. de R.L. de C.V.
CR Resorts Los Cabos, S. de R.L. de C.V.
CR Resorts Puerto Vallarta, S. de R.L. de C.V.
Corporacion Mexitur, S. de R.L. de C.V.
CR Resorts Cancun Timeshare Trust, S. de R.L. de C.V.
CR Resorts Cabos Timeshare Trust, S. de R.L. de C.V.
CR Resorts Puerto Vallarta Timeshare Trust, S. de R.L. de C.V.
Promotora Villa Vera, S. de R.L. de C.V.
Villa Vera Resort, S. de R.L. de C.V.
c/o Raintree Resorts International, Inc.
10000 Memorial Drive, Suite 480
Houston, Texas 77024
Attention: Mr. Douglas Y. Bech
Re: First Amended and Restated Loan and Security Agreement dated April 23, 1999.
Dear Mr. Bech:
Reference is made to that certain First Amended and Restated Loan and
Security Agreement dated as of April 23, 1999, as amended by that certain
Amendment No. 1 to First Amended and Restated Loan and Security Agreement dated
as of November 30, 1999 (collectively the "Loan Agreement"), by and among FINOVA
Capital Corporation ("Lender") and CR Resorts Cancun, S. de R.L. de C.V., CR
Resorts Los Cabos, S. de R.L. de C.V., CR Resorts Puerto Vallarta, S. de R.L. de
C.V., Corporacion Mexitur, S. de R.L. de C.V., CR Resorts Cancun Timeshare
Trust, S. de R.L. de C.V., CR Resorts Cabos Timeshare Trust, S. de R.L. de C.V.,
CR Resorts Puerto Vallarta Timeshare Trust, S. de R.L. de C.V., Promotora Villa
Vera, S. de R.L. de C.V. and Villa Vera Resort, S. de R.L. de C.V. (collectively
the "Borrower"), evidencing certain loan facilities from Lender to the Borrower.
In connection with the Loan Agreement, Raintree Resorts International, Inc.
("Raintree") executed and delivered to Lender a Corporate Guarantee and
Subordination Agreement dated as of November 23, 1998 (the "Original
Guarantee"), as amended by that certain Consent of Guarantor and Amendment No. 1
to Corporate Guarantee and Subordination Agreement dated as of April 23, 1999
and as further amended by that certain Consent of Guarantor and Amendment No. 2
to Corporate Guarantee and Subordination Agreement (collectively the "Guarantee
Agreement"). Further in connection with the Loan Agreement, the Borrower
executed and delivered to the Lender a First Amended and Restated
<PAGE>
Raintree Resorts International, Inc.
May 11, 2000
Page 2
Inventory Promissory Note in original principal amount of $16,500,000.00 dated
as of November 30, 1999 (the "Inventory Note").
Unless otherwise defined herein, all capitalized terms used herein shall
have the same meaning as set forth in the Loan Agreement.
This Side Letter will set forth certain agreements that have been reached
among the Borrower, the Raintree and the Lender.
1. The chart appearing immediately below the last grammatical paragraph
appearing on page three of the Inventory Note shall be amended to read as
follows:
Measuring Date Threshold Amount
May 25, 2000 $11,650,000
September 30, 2000 $8,175,000
March 30, 2001 $2,300,000
2. Paragraph 4.1(k) of the Original Guarantee, in the form set forth in the
Original Guarantee, shall govern all matters pertaining to the subject matter of
that paragraph through the period ending December 31, 1999. For the period
commencing January 1, 2000 and thereafter, paragraph 4.1(k) of the Original
Guarantee shall be amended and restated in its entirety to read as follows:
"(k) The sum of (i) the total of Guarantor's consolidated costs and
expenses for commissions and selling relating to the retail sales of
time-share interests, use rights, memberships and fraction ownership
interests and (ii) the total of Guarantor's consolidated general and
administrative expenses, (the costs and expenses described in clauses (i)
and (ii) hereinafter the "SGA Expenses") shall not exceed the amount set
forth below of the gross proceeds of Guarantor's consolidated processed
sales of retail time-share interests, use rights, memberships and
fractional ownership interests for the same period (each net of
cancellations of such sales) ("Net Sales"). The foregoing covenant shall be
tested quarterly on a trailing twelve (12) month basis; provided, however,
that through the period ending December 31, 2000, the foregoing covenant
shall be tested from January 1, 2000 through the end of the relevant
quarter.
Test Date Covenant
3/31/99 through 12/31/00 65%
3/31/01 and thereafter 60%
<PAGE>
Raintree Resorts International, Inc.
May 11, 2000
Page 3
3. (i) Borrower and Raintree hereby reaffirms, as if made as of the date
hereof, all of their respective representations and warranties contained in the
Loan Documents. Borrower and Raintree furthermore reaffirm the validity,
enforceability and legality of the Loan Documents, and all provisions of the
Loan Documents, as modified, are hereby confirmed and ratified. Without limiting
the generality of the foregoing, Borrower hereby reaffirms the validity and
enforceability of the security interests granted to Lender in the Collateral.
Borrower confirms that such security interests will continue to secure the
timely and faithful performance of all Obligations, including, without
limitation, the obligations under this letter. In the event of a conflict or
inconsistency between the provisions of the Loan Documents as amended up to the
date immediately prior to the date of this letter and the provisions of this
letter, the provisions of this letter will prevail. All terms, conditions and
provisions of the Loan Documents (including, without limitation the Guarantee
Agreement and the Inventory Note), as amended, are continued in full force and
effect and will remain unaffected and unchanged except as specifically amended
or modified hereby.
(ii) Borrower and Raintree acknowledge that Lender has performed, and
is not in default of, its obligations under the Loan Documents; that there
are no offsets, defenses or counterclaims with respect to any of
Borrower's, Raintree's or any other party's obligations under the Loan
Documents; and that Lender has not directed Borrower to pay or not pay any
of Borrower's payables. Neither Borrower nor Raintree presently has any
existing claims, defenses (personal or otherwise) or rights of setoff
whatsoever with respect to the Obligations. Borrower and Raintree
furthermore agree that they have no defense, counterclaim, offset,
cross-complaint, claim or demand of any nature whatsoever which can be
asserted as a basis to seek affirmative relief or damages from Lender.
(iii) Borrower acknowledges that the indebtedness evidenced by the
Loan Documents is just and owing and agrees to pay such indebtedness in
accordance with the terms of the Loan Documents. Borrower further
acknowledges and represents that no event has occurred and no condition
presently exists that would constitute a default or event of default by
Lender under the Loan Agreement or any of the other Loan Documents, with or
without notice or lapse of time. Borrower hereby ratifies, reaffirms,
acknowledges and agrees that the Loan Agreement and the other Loan
Documents represent valid, enforceable and collectable obligations of
Borrower.
4. Borrower and Raintree represent and warrant that they have the full
power and authority to execute and deliver this letter. All action necessary and
required by Borrower's and Raintree's Articles of Organization and all other
Legal Requirements for Borrower and Raintree to execute and deliver the this
letter have been duly and effectively taken. This letter does not violate or
constitute a default or result in the imposition of a lien under the terms or
provisions
<PAGE>
Raintree Resorts International, Inc.
May 11, 2000
Page 4
of any agreement to which Borrower or Raintree is a party. No consent of any
governmental agency or any other person not a party to this letter is or will be
required as a condition to the execution, delivery or enforceability of this
letter.
5. Raintree acknowledges and agrees that the obligations of the Borrower
under this letter constitute additional obligations of the Borrower, the
performance of which are guaranteed under the Guarantee Agreement.
6. This letter may be executed in counterparts, each of which when taken
together shall constitute one and the same instrument, notwithstanding the fact
that all parties have not signed the same counterpart. In addition, this Side
Letter may be executed by facsimile and such facsimile signatures shall be
deemed original signatures for all purposes.
7. This letter shall be deemed a Loan Document and the obligations of the
Borrower hereunder shall be deemed an Obligation.
8. Reference is also made to that certain Loan and Security Agreement among
The Teton Club, LLC ("Teton"), Raintree and Lender dated as of June 29, 1999
(the "Teton Loan Agreement"). Lender agrees to enter into an appropriate
amendment with each of Raintree and Teton, thereby amending the Teton Loan
Agreement so that (i) the covenant governing the ratio of "Raintree SGA
Expenses" to "Raintree Net Sales" (as the foregoing two (2) terms are defined in
the Teton Loan Agreement), is consistent with the covenant contained in
paragraph 2 of this letter and (ii) the "Adjusted Net Worth" covenant of
Raintree, contained in the Teton Loan Agreement, is consistent with the same
covenant contained in the Loan Agreement.
[Signature Pages Follow]
<PAGE>
Raintree Resorts International, Inc.
May 11, 2000
Page 5
In the event the foregoing represents an accurate statement of the
agreements that have been reached, please sign and return a copy of this letter
to the undersigned.
FINOVA CAPITAL CORPORATION
By: /s/ Susan Babbitt
------------------------------
Name: Susan Babbitt
Title: Vice President
ACCEPTED this 11th day of May, 2000:
"BORROWER"
CR RESORTS CANCUN, S. de R.L. de C.V., a Mexican limited
responsibility corporation with variable capital
By:/s/ Doug Bech
---------------------
Type/Print Name: Doug Bech
Title: Attorney-in-Fact
CR RESORTS LOS CABOS, S. de R.L. de C.V., a Mexican limited
responsibility corporation with variable capital
By:/s/ Doug Bech
---------------------
Type/Print Name: Doug Bech
Title: Attorney-in-Fact
<PAGE>
Raintree Resorts International, Inc.
May 11, 2000
Page 6
CR RESORTS PUERTO VALLARTA, S. de R.L. de C.V., a Mexican limited
responsibility corporation with variable capital
By:/s/ Doug Bech
---------------------
Type/Print Name: Doug Bech
Title: Attorney-in-Fact
CORPORACION MEXITUR, S de R.L. de C.V., a Mexican limited
responsibility corporation with variable capital
By:/s/ Doug Bech
---------------------
Type/Print Name: Doug Bech
Title: Attorney-in-Fact
CR RESORTS CANCUN TIMESHARE TRUST, S. de R.L. de C.V., a Mexican
limited responsibility corporation with variable capital
By:/s/ Doug Bech
---------------------
Type/Print Name: Doug Bech
Title: Attorney-in-Fact
CR RESORTS CABOS TIMESHARE TRUST, S. de R.L. de C.V., a Mexican
limited responsibility corporation with variable capital
By:/s/ Doug Bech
---------------------
Type/Print Name: Doug Bech
Title: Attorney-in-Fact
<PAGE>
Raintree Resorts International, Inc.
May 11, 2000
Page 7
CR RESORTS PUERTO VALLARTA TIMESHARE TRUST, S. de R.L. de C.V., a
Mexican limited responsibility corporation with variable capital
By:/s/ Doug Bech
---------------------
Type/Print Name: Doug Bech
Title: Attorney-in-Fact
PROMOTORA VILLA VERA, S. de R.L. de C.V., a Mexican limited
responsibility corporation with variable capital
By:/s/ Doug Bech
---------------------
Type/Print Name: Doug Bech
Title: Attorney-in-Fact
VILLA VERA RESORT, S. de R.L. de C.V., a Mexican limited
responsibility corporation with variable capital.
By:/s/ Doug Bech
---------------------
Type/Print Name: Doug Bech
Title: Attorney-in-Fact
RAINTREE RESORTS INTERNATIONAL, INC., a Nevada corporation
By:/s/ Doug Bech
---------------------
Type/Print Name: Doug Bech
Title: Attorney-in-Fact
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
RAINTREE RESORTS INTERNATIONAL, INC. CONSOLIDATED FINANCIAL STATEMENTS FOR THE
PERIOD ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH (B) FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 2000.
</LEGEND>
<CIK> 0001058736
<NAME> RAINTREE RESORTS INTERNATIONAL, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1.000
<CASH> 5,111
<SECURITIES> 3,587
<RECEIVABLES> 78,906
<ALLOWANCES> (8,560)
<INVENTORY> 763
<CURRENT-ASSETS> 108,924
<PP&E> 7,040
<DEPRECIATION> (2,026)
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<CURRENT-LIABILITIES> 44,377
<BONDS> 93,760
5,148
2,078
<COMMON> 11
<OTHER-SE> (15,906)
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<SALES> 18,010
<TOTAL-REVENUES> 23,432
<CGS> 4,218
<TOTAL-COSTS> 19,090
<OTHER-EXPENSES> 4,579
<LOSS-PROVISION> 1,420
<INTEREST-EXPENSE> 5,357
<INCOME-PRETAX> (313)
<INCOME-TAX> 40
<INCOME-CONTINUING> (353)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (353)
<EPS-BASIC> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
