<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
-----------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
----------- --------------
COMMISSION FILE NUMBER: No 1934 act file number assigned
(1933 act file no. 2-65481)
SADDLEBROOK RESORTS, INC.
-------------------------
(Exact name of registrant as specified in its charter)
Florida 59-1917822
------- ----------
(State of incorporation) (IRS employer identification no.)
5700 Saddlebrook Way, Wesley Chapel, Florida 33543-4499
-------------------------------------------------------
(Address of principal executive offices)
813-973-1111
------------
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None*
-----
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None*
-----
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
----- -----
State the aggregate value of the voting stock held by nonaffiliates of the
registrant: None*
-----
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date:
Not Applicable*
---------------
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Portions of the registrant's Form S-1 Registration Statement (No. 2-65481) as
declared effective December 28, 1979 are incorporated by reference into Part
IV.
* Registrant has no common stock subject to this annual report.
Exhibit Index on Page 32
Page 1 of 39
<PAGE> 2
PART I
Item 1. Business
Saddlebrook Resorts, Inc., (the "Registrant") was incorporated in the State of
Florida on June 20, 1979 as a wholly-owned subsidiary of Pittway Real Estate,
Inc. ("PREI"). PREI was a wholly-owned subsidiary of Penton Publishing, Inc.
which, in turn, was a wholly-owned subsidiary of Pittway Corporation of
Northbrook, Illinois. The Registrant was formed to acquire an existing golf
course and tennis club and develop it into a condominium resort and residential
homes project.
Thomas L. Dempsey ("Dempsey") effectively purchased one hundred percent (100%)
of the authorized and issued stock of the Registrant from PREI on November 14,
1988 for approximately $24,116,000. Dempsey is the former Chairman of the Board
of Penton Publishing, Inc. and a former Director and Vice President of Pittway
Corporation. Dempsey subsequently gifted 13,000 shares of the Registrant's
non-voting stock to family trusts (see Item 12. Security Ownership of Certain
Beneficial Owners and Management of this Form 10-K, which is incorporated
herein by reference).
Prior to November 14, 1988, the Registrant operated and reported the results of
its operations in two industry segments: (1) the real estate segment was
engaged in the development, construction and sales of resort and residential
condominium units, homes and residential lots and (2) the resort segment was
engaged in the ownership and operation of the resort including its facilities
for hotel, convention, food and beverage, golf, tennis and other recreational
activities.
In connection with and immediately prior to the sale of the stock of the
Registrant to Dempsey, the Registrant deeded the property which comprised its
real estate segment to PREI as a dividend from a subsidiary to its parent. The
property that was conveyed to PREI was not used as part of the resort or by its
rental guests or condominium owners.
The operations of the Registrant are not considered to be dependent upon the
availability of raw materials, nor the effect of the duration of patents,
licenses, franchises or concessions held.
The Registrant's resort operations are seasonal with a higher volume of sales
during the winter and spring seasons.
The Registrant's competition includes major golf and tennis resorts nationwide,
which provide luxury accommodations and facilities for conventions and
recreational activities.
At December 31, 1995, there were approximately 720 persons employed by the
Registrant.
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<PAGE> 3
Item 2. Properties
Saddlebrook Resort is located in south Pasco County, near Tampa, Florida. The
property originally consisted of approximately 330 acres which the Registrant
purchased in July 1979. In addition, approximately 170 and 11 adjoining acres
were purchased and added to the Saddlebrook project in 1984 and 1985,
respectively.
A portion of the Registrant's property that was being developed as residential
single family and cluster homes and improved residential lots known as Fairway
Village, was deeded to PREI in November 1988 (see Item 1. Business of this
Form 10-K, which is incorporated herein by reference).
Property improvements for the resort consist of 720 condominiums which were
sold or are for sale to outside parties of which there were 544 condominiums
participating in a rental pooling program at December 31, 1995 (see Exhibit 28
- - Interest Being Registered of this Form 10-K, which is incorporated herein by
reference). As of December 31, 1995, there were 24 condominiums owned by the
Registrant.
In addition, the resort facilities include two 18-hole golf courses, 45 tennis
courts, three swimming pools, three restaurants, a 117,000 square foot
convention facility with approximately 60,000 square feet of meeting space, a
health spa, shops and other facilities necessary for the operation of a luxury
resort.
Item 3. Legal Proceedings
On May 12, 1989, the Circuit Court of the Sixth Judicial Circuit in and for
Pasco County, Florida, in the lawsuit, James H. Porter and Martha Porter,
Trustees, et al v. Saddlebrook Resorts, Inc. and the County of Pasco, Florida,
Case No. 83-1860, entered a judgment against the Registrant in the amount of
$8,082,000 relating to damages to adjacent property for surface water effects.
In addition, an injunction was entered to remediate damages relating thereto.
On October 14, 1989, the Registrant and Pittway Corporation entered into an
agreement and on July 16, 1993 an amended agreement, to split equally the costs
of the defense of the litigation, the ultimate judgment and the mandated
remedial work. The agreements provide for Pittway Corporation to make
subordinated loans to the Registrant, if required, to enable the Registrant to
pay for its half of these costs (see Item 1. Business of this Form 10-K, which
is incorporated herein by reference).
On March 18, 1992, the Florida Second District Court of Appeal issued an
opinion reversing and vacating the jury verdict and judgment against the
Registrant and ordering a new trial. On December 22, 1993, the Registrant filed
a motion for summary judgment in the trial court on grounds that the findings
in its favor by an administrative law judge in a related proceeding bar further
litigation of this matter. An order granting the summary judgment and
dismissing the action was entered on January 7, 1995. The Plaintiff filed an
appeal of said order in the Florida Second District Court of Appeal. Oral
argument on said appeal was heard on February 21, 1996. It is currently not
known when the appellate court will render a decision. Management currently
believes that the Registrant's position in further litigation would be
meritorious.
The Registrant is involved in other litigation in the ordinary course of
business. In the opinion of management, these matters are adequately covered by
insurance or indemnification from other third parties. The effect, if any, of
these claims is, in management's opinion, immaterial to the Registrant's
financial condition and results of operations.
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<PAGE> 4
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The Registrant's stock is privately held and there is no established market for
the stock (see Item 12. Security Ownership of Certain Beneficial Owners and
Management of this Form 10-K, which is incorporated herein by reference).
Condominium units that were developed and sold by the Registrant are deemed to
be securities due to the rental pool feature (see Exhibit 28 - Interest Being
Registered of this Form 10-K, which is incorporated herein by reference).
However, there is no market for such securities other than the normal real
estate market. Since the security is real estate, no dividends have been paid
or will be paid.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating revenues $35,625,000 $33,550,000 $30,391,000 $28,208,000 $30,037,000
Net income before taxes 1,797,000 2,079,000 703,000 616,000 594,000
Total assets 29,157,000 27,557,000 25,057,000 26,688,000 27,726,000
Notes payable 18,764,000 17,444,000 17,098,000 20,600,000 21,700,000
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
Construction of the resort facilities was substantially complete as of December
31, 1982. During the fiscal period ended December 31, 1995, the Registrant
completed several capital projects for an aggregate cost of approximately
$2,277,000. However, no individual project had a cost in excess of $1,000,000.
During the fiscal period ended December 31, 1994, the Registrant renovated and
expanded its hotel lobby, lobby terrace and Polo Lounge at a cost of
approximately $1,226,000. There were no other major capital additions or
improvements during the fiscal years ended December 31, 1995, 1994 and 1993.
Significant capital expenditures are not anticipated in the next year. Future
operating costs and planned expenditures for minor capital additions and
improvements will be funded by the resort operations of the Registrant or by
additional financing within the terms of the Registrant's debt agreement (See
Note 8 - Notes Payable of the Notes to the Financial Statements in Item 8 of
this Form 10-K, which is incorporated herein by reference).
Management is not aware of any environmental matters other than the issue in
Item 3. Legal Proceedings of this Form 10-K, which is incorporated herein by
reference.
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<PAGE> 5
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
The Registrant's operations are not considered to be dependent on any
individual or small group of customers, the loss of whom would have a material
adverse effect.
There are no adverse purchase or other commitments outstanding as of December
31, 1995.
Results of Operations
Revenues for the fiscal years ended December 31, 1995, 1994 and 1993 were
comprised of the following areas of operation:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Hotel revenues 50% 50% 50%
Merchandise sales 36 36 36
Club fees 13 14 14
Other income 1 0 0
---- ---- ----
100% 100% 100%
==== ==== ====
</TABLE>
Total revenues increased 6% for the fiscal year ended December 31, 1995 when
compared with the previous year. This improvement was a result of an increase
in the average daily rate which was offset slightly by decreases in occupied
unit nights and number of guests who stayed at the resort during 1995 when
compared to the prior fiscal period. Total revenues increased 10% for the
fiscal year ended December 31, 1994, when compared with the previous year. This
improvement was a result of increases in occupied unit nights and number of
guests who stayed at the resort during 1994 when compared to the prior fiscal
period. These increases are attributed to the recent remodeling and upgrading
of the resort property that is discussed above. Projections for occupied unit
nights in 1996 and subsequent fiscal periods are expected to remain at the
resort's current volume of business.
Net income decreased 14% for the fiscal year ended December 31, 1995 when
compared with the previous year. This was a result of increased depreciation
and interest expense related to the recent capital improvements along with
increased general costs of operation. Net income increased 196% for the fiscal
year ended December 31, 1994 when compared with the previous year. This
improvement is a result of the increased revenues and a reduction in interest
expense due to a lower interest rate and reduction in principal from a July
1993 refinancing of the Registrant's prior debt. 1994 net income also benefited
from the expiration of capital asset depreciation and intangible asset
amortization which were related to the Registrant's acquisition in November
1988 (see Item 1. Business of this Form 10-K, which is incorporated herein by
reference).
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<PAGE> 6
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
The Registrant elected S Corporation status effective February 1, 1990.
Accordingly, the Registrant has subsequently had no income tax expense as the
tax is assessed at the shareholder level (See Note 9 - Income Taxes of the
Notes to the Financial Statements in Item 8 of this Form 10-K, which is
incorporated herein by reference).
In management's estimation, the effects of inflation and changing prices on the
Registrant's results of operations were negligible in 1995, 1994 and 1993.
Saddlebrook Rental Pool Operation
The Saddlebrook Rental Pool Operation (the "Rental Pool") is described in Note
2 - Significant Accounting Policies of the Notes to the Financial Statements of
Saddlebrook Resorts, Inc. and in Note 1 - Rental Pool Operations and Rental
Pool Agreement of the Notes to Financial Statements of Saddlebrook Rental Pool
Operation in Item 8 of this Form 10-K, which are incorporated herein by
reference.
The average occupancy for fiscal 1995, 1994 and 1993 was 49%, 50% and 47%,
respectively. The average distribution of Net Rental Income per participating
condominium unit for fiscal 1995, 1994 and 1993 was $9,733 $9,248 and $8,333,
respectively.
Item 8. Financial Statements and Supplementary Data
The financial statements, including the Reports of Independent Certified Public
Accountants for Saddlebrook Resorts, Inc. are included on pages 11 to 23, and
for Saddlebrook Rental Pool Operation on pages 24 to 29. An index to the
financial statements is on page 10.
The following financial statement schedule should be read in conjunction with
the aforementioned financial statements. Financial statement schedules not
included in this Form 10-K have been omitted because they are not applicable or
the required information is shown in the financial statements or notes thereto.
Schedule II Valuation and Qualifying Accounts and Reserves Page 31
Item 9. Changes in and Disagreements on Accounting and Financial Disclosure
Not applicable
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<PAGE> 7
PART III
Item 10. Directors and Executive Officers of the Registrant
The Directors and Executive Officers of the Registrant are as follows:
<TABLE>
<CAPTION>
Name Position Background
---- -------- ----------
<S> <C> <C>
Thomas L. Dempsey Chairman of the Board Chairman of the Board, Penton
Age: 69 President, and Chief Publishing, Inc., Cleveland, OH,
5327 Cobblestone Ct. Executive Officer Vice President and Director,
Wesley Chapel, FL Pittway Corp., Northbrook, IL
Eleanor Dempsey Director Wife of Thomas Dempsey,
5327 Cobblestone Ct. Merchandizing Manager,
Wesley Chapel, FL Saddlebrook Resorts, Inc.
Richard Boehning Director, Executive Vice General Manager, Doral Hotel
Age: 61 President and General and Country Club, Miami, FL
5017 Pinelake Road Manager
Wesley Chapel, FL
Gregory R. Riehle Director, Vice President Son-in-law of Thomas Dempsey,
Age: 39 and Secretary Attorney, Shumaker, Loop &
30155 Fairway Drive Kendrick, Tampa, FL
Wesley Chapel, FL
Maureen Dempsey Director, Vice President Daughter of Thomas Dempsey,
Age: 37 and Assistant Secretary President, Saddlebrook
4947 Mill Pond Road International Tennis, Inc.
Wesley Chapel, FL
Diane L. Riehle Director, Vice President Daughter of Thomas Dempsey,
Age: 35 and Assistant Secretary Regional Sales Manager,
30155 Fairway Drive Saddlebrook Resorts, Inc.
Wesley Chapel, FL
Donald L. Allen Vice President and Controller, Kiawah Island,
Age: 56 Treasurer Charleston, SC
1314 Foxwood Drive
Lutz, FL
Robert A. Shaw Assistant Treasurer and Controller, Gulf Shores Plantation,
Age: 39 Controller Gulf Shores, AL, CPA, Price
5404 Saddlebrook Way Waterhouse, Indianapolis, IN
Wesley Chapel, FL
</TABLE>
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<PAGE> 8
Item 11. Executive Compensation
The directors and executive officers of the Registrant as of December 31, 1995
are listed in Item 10 of this Form 10-K, which is incorporated herein by
reference. The aggregate remuneration from the Registrant for all directors and
executive officers for the fiscal year ended December 31, 1995 was $804,455. Of
this amount, Thomas Dempsey received $110,134 and Richard Boehning received
$229,242. No other director or executive officer received compensation in
excess of $100,000.
Directors and executive staff are allowed to use the Registrant's resort
facilities and are provided various discounts on related purchases in
accordance with hospitality industry standards. The Registrant has no other
compensation plans for directors and executive officers.
Item 12. Security Ownership of Certain Beneficial Owners and Management
<TABLE>
<CAPTION>
Title of Name of beneficial Amount and nature of Percent
class owner beneficial ownership of class
-------- ---------------------- --------------------- --------
<S> <C> <C> <C>
Common Thomas L. Dempsey 100.0% 87.0%
Common Maureen Dempsey Trust 6.5% 6.5%
Common Diane Lynn Riehle Trust 6.5% 6.5%
</TABLE>
In December 1994, the Registrant's Articles of Incorporation were amended to
increase the number of shares of authorized common stock from 25,000 to 100,000
shares. Each of the 500 shares of stock that was previously outstanding was
then exchanged for 100 shares of voting stock and 100 shares of nonvoting
stock. The par value of each share remains unchanged at $1. On October 1, 1995,
6,500 shares of nonvoting stock was gifted by Dempsey to each of two family
trusts.
Item 13. Certain Relationships and Related Transactions
As of December 31, 1995, present and past executive officers and/or directors
of the Registrant have personally accounted for real estate sales totalling
$2,748,000 since inception of the project. Other relationships and related
transactions are described in Note 6 - Related Party Transactions of the Notes
to the Financial Statements in Item 8 of this Form 10-K, which is incorporated
herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Financial statements and schedules required to be filed are listed in
Item 8 of this Form 10-K, which is incorporated herein by reference.
Exhibits required to be attached by Item 601 of Regulation S-K are listed
in the Index to Exhibits attached to this Form 10-K, which is
incorporated herein by reference.
(b) The Registrant was not required to file a Form 8-K during the year ended
December 31, 1995.
- 8 -
<PAGE> 9
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SADDLEBROOK RESORTS, INC.
(Registrant)
Date: March 25, 1996
--------------- /s/ Donald L. Allen
-------------------------------
Donald L. Allen
Vice President and Treasurer
(Principal Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 25, 1996.
/s/ Thomas L. Dempsey /s/ Richard Boehning
---------------------------- -----------------------------
Thomas L. Dempsey Richard Boehning
President and Chairman Director and Executive
of the Board Vice President
(Principal Executive Officer)
/s/ Gregory R. Riehle /s/ Robert A. Shaw
---------------------------- -----------------------------
Gregory R. Riehle Robert A. Shaw
Director Assistant Treasurer
and Controller
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<PAGE> 10
Saddlebrook Resorts, Inc.
INDEX TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Financial Statements PAGE
- --------------------
<S> <C>
SADDLEBROOK RESORTS, INC.
Report of Independent Certified Public Accountants 11
Balance Sheets at December 31, 1995 and 1994 12
Statements of Income for each of the three years in
the period ended December 31, 1995 13
Statement of Changes in Shareholders' Equity for each of
the three years in the period ended December 31, 1995 14
Statements of Cash Flows for each of the three years in the
period ended December 31, 1995 15
Notes to Financial Statements 16-23
SADDLEBROOK RENTAL POOL OPERATION
Report of Independent Certified Public Accountants 24
Balance Sheets at December 31, 1995 and 1994 25
Statements of Operations for each of the three years
in the period ended December 31, 1995 26
Statements of Changes in Participants' Fund Balance
for each of the three years in the period ended
December 31, 1995 27
Notes to Financial Statements 28-29
Financial Statement Schedules
- -----------------------------
Report of Independent Certified Public Accountants on
Financial Statement Schedules 30
Schedule II - Valuation and Qualifying Accounts and Reserves 31
</TABLE>
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<PAGE> 11
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
March 13, 1996
To the Board of Directors and Shareholders of
Saddlebrook Resorts, Inc.
In our opinion, the accompanying balance sheets and the related statements of
income and changes in shareholders' equity and of cash flows present fairly, in
all material respects, the financial position of Saddlebrook Resorts, Inc. (the
"Company") at December 31, 1995 and 1994, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Tampa, Florida
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<PAGE> 12
Saddlebrook Resorts, Inc.
BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 40,702 $ 595,502
Escrowed cash 106,096 120,010
Short-term escrowed investments 399,635 382,648
Trade accounts receivable, net of allowances for
doubtful accounts of $122,976 and $99,691 3,349,779 2,314,631
Due from related parties 114,004 117,827
Resort inventory and supplies 1,472,689 1,327,484
Prepaid expenses and other assets 526,424 445,800
---------------- -----------------
Total current assets 6,009,329 5,303,902
Long-term escrowed investments 299,500 399,407
Property, buildings and equipment, net 22,580,998 21,549,219
Intangible assets and deferred charges, net of
accumulated amortization of $1,254,047 and $1,161,516 266,702 304,075
----------------- -----------------
$ 29,156,529 $ 27,556,603
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of notes payable $ 1,486,722 $ 1,231,547
Accounts payable 1,325,265 997,904
Accrued rental distribution 1,037,865 1,265,856
Accrued payroll and related expenses 743,077 678,330
Accrued interest 141,491 120,686
Accrued taxes 43,178 36,519
Guest deposits 798,444 724,761
Escrowed deposits 805,231 902,065
Accrued expenses and other liabilities 676,566 1,256,145
Due to related parties 1,923,461 1,324,099
----------------- -----------------
Total current liabilities 8,981,300 8,537,912
Notes payable due after one year 17,276,920 16,212,522
----------------- -----------------
Total liabilities 26,258,220 24,750,434
----------------- -----------------
Commitments and contingencies (Note 10)
Shareholders' equity:
Common stock, $1.00 par value, 100,000 shares
authorized and outstanding 100,000 100,000
Additional paid-in capital 1,013,127 1,013,127
Accumulated earnings 1,785,182 1,693,042
----------------- -----------------
Total shareholders' equity 2,898,309 2,806,169
----------------- -----------------
$ 29,156,529 $ 27,556,603
================= =================
</TABLE>
The accompanying Notes to Financial Statements are
an integral part of these financial statements
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<PAGE> 13
Saddlebrook Resorts, Inc.
STATEMENTS OF INCOME
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995 1994 1993
<S> <C> <C> <C>
Resort revenues $ 35,625,389 $ 33,549,984 $ 30,391,280
Costs and expenses: -------------- -------------- --------------
Operating costs of resort 24,342,402 22,811,961 20,969,905
Sales and marketing 3,089,655 2,898,398 2,447,709
General and administrative 3,593,224 3,430,035 3,142,125
Depreciation and amortization 1,326,441 1,109,849 1,534,170
Interest 1,476,569 1,221,190 1,594,139
-------------- -------------- --------------
Total costs and expenses 33,828,291 31,471,433 29,688,048
-------------- -------------- --------------
Net income $ 1,797,098 $ 2,078,551 $ 703,232
============== ============== ==============
</TABLE>
The accompanying Notes to Financial Statements are
an integral part of these financial statements.
- 13 -
<PAGE> 14
Saddlebrook Resorts, Inc.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACCUMULATED TOTAL
COMMON ADDITIONAL EARNINGS SHAREHOLDERS'
STOCK PAID-IN CAPITAL (DEFICIT) EQUITY
<S> <C> <C> <C> <C>
Balance at December 31, 1992 $ 500 $ 1,112,627 $ 443,660 $ 1,556,787
Net income for the year 703,232 703,232
Distribution to shareholder (363,703) (363,703)
-------------- -------------- -------------- --------------
Balance at December 31, 1993 500 1,112,627 783,189 1,896,316
Net income for the year 2,078,551 2,078,551
Distribution to shareholder (1,168,698) (1,168,698)
Common stock
recapitalization (Note 1) 99,500 (99,500)
-------------- -------------- -------------- --------------
Balance at December 31, 1994 100,000 1,013,127 1,693,042 2,806,169
Net income for the year 1,797,098 1,797,098
Distribution to shareholder (1,704,958) (1,704,958)
-------------- -------------- -------------- --------------
Balance at December 31, 1995 $ 100,000 $ 1,013,127 $ 1,785,182 $ 2,898,309
============== ============== ============== ==============
</TABLE>
The accompanying Notes to Financial Statements are
an integral part of these financial statements.
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<PAGE> 15
Saddlebrook Resorts, Inc.
STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995 1994 1993
<S> <C>
Net income $ 1,797,098 $ 2,078,551 $ 703,232
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,326,441 1,109,849 1,534,170
Loss (gain) on disposal of property, buildings and
equipment 7,596 (600) -
Provision for doubtful accounts 33,000 21,700 16,200
Change in assets and liabilities:
(Increase) decrease in:
Escrowed cash 13,914 150,057 (42,947)
Escrowed investments 82,920 (192,094) (99,426)
Trade accounts receivable (1,068,148) (246,195) (285,682)
Due from related parties 3,823 73,375 (50,150)
Resort inventory and supplies (145,205) (7,046) 36,946
Prepaid expenses and other assets (80,624) (79,332) (32,797)
Increase (decrease) in:
Accounts payable 327,361 562,567 (176,480)
Accrued rental distribution (227,991) 161,429 165,982
Guest deposits 73,683 88,938 (187,381)
Escrowed deposits (96,834) 42,037 142,373
Accrued expenses and other liabilities (487,368) 82,875 607,107
Due to related parties 599,362 305,659 980,022
-------------- -------------- --------------
Net cash provided by operating
activities 2,159,028 4,151,770 3,311,169
Cash flows from investing activities: -------------- -------------- --------------
Proceeds from sale of equipment 4,042 8,327 2,514
Capital expenditures (2,277,326) (3,011,737) (1,350,395)
-------------- -------------- --------------
Net cash used in investing activities (2,273,284) (3,003,410) (1,347,881)
-------------- -------------- --------------
Cash flows from financing activities:
Proceeds from notes payable 2,926,284 1,415,676 17,507,010
Payments on notes payable (1,606,711) (1,069,165) (21,009,452)
Distribution to shareholder (1,704,959) (1,168,698) (363,703)
Finance costs (55,158) (33,543) (390,471)
-------------- -------------- --------------
Net cash used in financing activities (440,544) (855,730) (4,256,616)
-------------- -------------- --------------
Net (decrease) increase in cash and cash equivalents (554,800) 292,630 (2,293,328)
Cash and cash equivalents, beginning of year 595,502 302,872 2,596,200
-------------- -------------- --------------
Cash and cash equivalents, end of year $ 40,702 $ 595,502 $ 302,872
============== ============== ==============
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest $ 1,455,764 $ 1,196,447 $ 1,631,722
============== ============== ==============
</TABLE>
The accompanying Notes to Financial Statements are
an integral part of these financial statements.
- 15 -
<PAGE> 16
Saddlebrook Resorts, Inc.
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
1. THE COMPANY:
Saddlebrook Resorts, Inc. (the "Company") was incorporated in the State of
Florida in June 1979 at which time it purchased a golf course and tennis
complex, as well as certain undeveloped land, located in Pasco County,
Florida which was developed as a resort-condominium and residential homes
project. In 1980, the Company commenced development of the
resort-condominium project. The majority of the condominium units sold
are provided as hotel accommodations by their owners under a Rental Pool
and Agency Appointment Agreement. The Company was purchased by its
current majority shareholder in 1988.
In December 1994, the Company's sole shareholder approved an amendment to
the Company's Articles of Incorporation increasing the amount of
authorized shares of Common Stock to 50,000 voting and 50,000 nonvoting
shares from 25,000 shares. Each share of voting stock outstanding was
exchanged for 100 shares of voting and 100 shares of nonvoting stock. Par
value of the stock remained unchanged at $1 per share.
Effective October 1, 1995, the Company's sole shareholder gifted 6,500
non-voting shares to each of two family trusts. The ownership percentages
are 87%, 6.5% and 6.5% for the controlling shareholder and the two trusts,
respectively.
2. SIGNIFICANT ACCOUNTING POLICIES:
A summary of the Company's significant accounting policies follows:
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Cash equivalents
All highly liquid debt instruments purchased with an original maturity of
3 months or less are considered to be cash equivalents.
Resort inventories and supplies
Inventories include operating materials and supplies and are accounted for
at the lower of first-in, first-out cost or market.
Investments
Investments of the Company, which are held to maturity, are recorded at
amortized cost, which approximates fair market value.
- 16 -
<PAGE> 17
Saddlebrook Resorts, Inc.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Property, buildings and equipment
Property, buildings and equipment are stated at cost. Depreciation is
provided over the estimated useful lives of the assets on a straight-line
basis. Expenditures for renewals and improvements that significantly add
to or extend the useful life of an asset are capitalized.
Expenditures for repairs and maintenance are charged to expense as
incurred. With the retirement or other disposition of property, buildings
and equipment, the cost of the assets and related accumulated depreciation
amounts are removed from the accounts and any resulting gains or losses
are reflected in operations.
Intangible assets and deferred charges
A non-compete agreement was negotiated in connection with the purchase of
the Company on November 14, 1988. The asset amounting to $1,000,000, was
amortized over the life of the agreement, 5 years, on a straight-line
basis.
In connection with the Company's refinancing of its debt during 1993 and
further consolidation of debt in 1994 and 1995, costs in the amount of
$479,172 have been incurred and capitalized. These debt issuance costs
are being amortized using a method that approximates the interest method
over 5 years, the life of the related debt outstanding.
Amortization expense for all intangible assets and deferred charges for
the years ended December 31, 1995, 1994 and 1993 was $92,531, $80,891 and
$221,305, respectively.
Rental pool operations
Resort revenues include rental revenues for condominium units owned by
third parties participating in the rental pool. If these rental units
were owned by the Company, normal costs associated with ownership such as
depreciation, real estate taxes, maintenance, and other costs would have
been incurred. Instead, resort operating expenses for the years ended
December 31, 1995, 1994 and 1993 include rental pool distributions
approximating $5,285,000, $4,985,000 and $4,475,000, respectively.
Reclassifications
Certain reclassifications have been made to the prior year financial
statements to conform with 1995 presentation.
- 17 -
<PAGE> 18
Saddlebrook Resorts, Inc.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
3. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The estimated fair value of financial instruments has been determined by
the Company using available market information and appropriate valuation
methodologies. However, considerable judgment is required in interpreting
data to develop the estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts that the
Company could realize in a current market exchange. The fair value
estimates presented herein are based on pertinent information available to
management as of December 31, 1995. Although management is not aware of
any factors that would significantly affect the estimated fair value
amounts, such amounts have not been comprehensively revalued for purposes
of these financial statements since that date and current estimates of
fair value may differ significantly from the amounts presented herein.
The fair values of the Company's financial instruments are estimated based
on current market rates and instruments with the same risk and maturities.
The fair values of cash and cash equivalents, escrowed cash, accounts
receivable, receivables from related parties, escrowed investments,
accounts payable, notes payable and payables to related parties
approximate the carrying values of these financial instruments.
4. ESCROWED CASH:
Escrowed cash, restricted as to use at December 31 is comprised of the
following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Rental pool unit owner deposits for maintenance
reserve fund held in bank accounts which bear an
interest rate of 2.18% (5.25% in 1994) $ 76,314 $ 101,335
Security deposits held on long term rentals 29,782 18,675
----------------- -----------------
$ 106,096 $ 120,010
================= =================
</TABLE>
5. ESCROWED INVESTMENTS:
Escrowed investments at December 31 are comprised of the following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Certificates of deposit $ 100,000 $ 100,000
U.S. Treasury Securities 599,135 682,055
----------------- -----------------
699,135 782,055
Less current portion (399,635) (382,648)
----------------- -----------------
$ 299,500 $ 399,407
================= =================
</TABLE>
- 18 -
<PAGE> 19
Saddlebrook Resorts, Inc.
NOTES TO FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
Escrowed investments relate to rental pool unit owner deposits for the
maintenance reserve fund which bear interest at rates ranging from 4.38%
to 7.13%. Long term portions of these investments mature in 1997 through
2000.
6. RELATED PARTY TRANSACTIONS:
Saddlebrook Investments, Inc. ("SII"), solely owned by the Company's
majority shareholder, is a broker/dealer for the sales of Saddlebrook
condominium units. The Company provided certain accounting, management
and other services to SII which amounted to $13,920 for each of the three
years ended December 31, 1995. At December 31, 1995 and 1994, a net
payable of $92,405 and $5,447, respectively, was due SII for brokerage
services provided to the Company.
The Company performs certain accounting and property management activities
on behalf of Saddlebrook Resort Condominium Association ("Association")
and is reimbursed for expenses paid on behalf of the Association. These
amounted to $935,686 in 1995, $943,648 in 1994 and $937,526 in 1993. The
Association also charges the Company certain fees for condominium
assessments. At December 31, 1995, a net receivable of $15,060 was due
from the Association for accounting, management and other services
rendered. At December 31, 1994, a net payable of $2,529 was due the
Association for assessments owed by the Company.
Saddlebrook International Tennis, Inc. ("SIT") is solely owned by the
Company's majority shareholder. SIT is a tennis academy operating at the
resort. The Company is reimbursed for expenses paid on behalf of SIT. In
addition, certain operating expenses are allocated to SIT. These amounted
to $1,556,579 in 1995, $1,381,876 in 1994 and $1,011,401 in 1993. As of
December 31, 1995 and 1994, a payable amounting to $1,481,059 and
$966,123, respectively, was due SIT relating to amounts borrowed by SIT
held by the Company ($729,000 and $779,000, respectively) and for other
transactions (Note 10). These amounts are included in the due to related
parties caption in the accompanying balance sheets.
Dividends declared to the Company's shareholder during 1994 in the amount
of $350,000 were unpaid as of December 31, 1995. This distribution
payable is reflected as a distribution in the Statements of Changes in
Shareholders' Equity and as a payable due to related parties in the
Balance Sheets.
Due from related parties consist of miscellaneous receivables owed the
Company of $98,944 and $117,827 at December 31, 1995 and 1994,
respectively.
- 19 -
<PAGE> 20
Saddlebrook Resorts, Inc.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
7. PROPERTY, BUILDINGS AND EQUIPMENT:
Property, buildings and equipment at December 31 consist of the following:
<TABLE>
<CAPTION>
Estimated
Useful
1995 1994 Lives
<S> <C> <C> <C>
Land and land improvements $ 4,478,982 $ 4,478,982
Buildings and recreational
facilities 18,862,973 17,129,142 10-40
Machinery and equipment 7,587,232 5,614,055 2-15
Construction in progress 300,308 1,766,654
--------------- ----------------
31,229,495 28,988,833
Less accumulated depreciation (8,648,497) (7,439,614)
--------------- ----------------
$ 22,580,998 $ 21,549,219
=============== ================
</TABLE>
Substantially all property, buildings and equipment are mortgaged, pledged
or otherwise subject to lien under loan agreements of the Company and
certain related parties (Notes 8 and 10).
Depreciation expense amounted to $1,233,911, $1,028,958 and $1,312,865 for
the years ended December 31, 1995, 1994 and 1993, respectively.
The Company leases certain equipment under operating leases. Some of the
leases contain annual renewal options after the initial lease term. Lease
expense amounted to $297,545, $371,441 and $379,130 for the years ended
December 31, 1995, 1994 and 1993, respectively. Future minimum lease
payments for noncancelable operating leases with initial lease terms in
excess of one year approximate:
<TABLE>
<S> <C>
1996 $ 185,455
1997 77,720
1998 -
1999 -
2000 -
-----------
$ 263,175
===========
</TABLE>
- 20 -
<PAGE> 21
Saddlebrook Resorts, Inc.
NOTES TO FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
8. NOTES PAYABLE:
Notes payable at December 31 consist of the following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Note payable to bank secured by all real and personal
property and subsequently acquired real and personal
property, guaranteed by Saddlebrook International Tennis,
Inc. and majority shareholder, at 8.75% (8.125% in 1994),
principal due in annual installments of $950,000 from
1996 through 1997, balance due in 1998 $ 18,226,920 $ 15,651,000
Advance guidance facility payable to bank, secured by all
real and personal property and subsequently acquired real
and personal property, guaranteed by Saddlebrook International
Tennis, Inc. and majority shareholder, at 6.825%, balance
consolidated during 1995 into note payable above - 323,800
Advance guidance facility payable to bank, secured by
all real and personal property and subsequently acquired
real and personal property, guaranteed by Saddlebrook
International Tennis, Inc. and majority shareholder,
at prime + 1% (9.5% at December 31, 1994), balance
consolidated during 1995 into note payable above - 1,383,008
Line of credit payable to bank, secured by all real and
personal property and subsequently acquired real and
personal property, guaranteed by Saddlebrook International
Tennis, Inc. and majority shareholder, at prime + 1%
(9.5% at December 31, 1995), principal due in 1996 500,000 -
Notes payable under various capital leases 36,722 86,261
-------------- --------------
18,763,642 17,444,069
Less current portion (1,486,722) (1,231,547)
-------------- --------------
$ 17,276,920 $ 16,212,522
============== ==============
</TABLE>
The $18,226,920 note payable agreement requires, among other things, that
the Company and its affiliates, on a consolidated basis maintain tangible
net worth, as defined, of $1,500,000 as of December 31, 1995 as well as a
debt service coverage ratio of 125% during the entire term of the loans.
The agreement also contains restrictive covenants regarding lease
agreements, assignment of contracts, capital expenditures, and other
indebtedness.
The Company has an available advance guidance facility ("AGF") that allows
for up to $3.5 million to be drawn annually through 1996 for the purchase
of equipment, the expansion and/or renovation of exiting facilities, and
the addition of new buildings. The
- 21 -
<PAGE> 22
Saddlebrook Resorts, Inc.
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
1996 AGF agreement expires December 31, 1996. As of December 31, 1995,
the available but committed portion of the 1995 AGF was $1.8 million.
The Company also has an available operating line of credit from a bank in
the amount of $1,500,000 with similar terms to its currently outstanding
debt. As of December 31, 1995, there was $500,000 drawn on this line of
credit.
Principal maturities of notes payable are due as follows: 1996 -
$1,486,722; 1997 - $950,000; 1998 - $16,326,920; 1999 - $0; 2000 and
thereafter - $0.
Accrued interest outstanding on the Company's notes payable was $141,491
and $120,686 at December 31, 1995 and 1994, respectively.
9. INCOME TAXES:
Effective February 1, 1990, the Company elected S Corp. status for federal
and state tax purposes. As of December 31, 1995, the Company has
approximately $502,000 and $470,000 in book and tax net operating loss
carryforwards, respectively, which expire in 2005 available only to offset
future C Corp. taxable income.
10. COMMITMENTS AND CONTINGENCIES:
Litigation
On May 12, 1989, a judgment was entered against the Company in the amount
of $8,082,000 relating to damages to adjacent property owners for surface
water effects as a result of past development. In addition, an injunction
was entered to remediate damages relating thereto.
On March 18, 1992, the Florida Second District Court of Appeal issued an
opinion reversing and vacating the jury verdict and judgment against the
Company and ordered a new trial. On December 7, 1994, the trial court
heard oral argument on the merits of Company's motion for summary
judgment based on collateral estoppel, and ruled in the Company's favor.
On December 23, 1994, the plaintiffs filed a motion seeking clarification
of the court's December 7, 1994 ruling. Thereafter, on January 5, 1995
the Company filed its response in opposition to that motion. On January
7, 1995 the court entered an order granting summary judgment in favor of
the Company and dismissing the action. Oral agreement on said appeal was
heard on February 21, 1996. It is currently not known when the appellate
court will render a decision on this appeal. Management currently
believes that the Company's position in further litigation would be
meritorious.
The Company is involved in other litigation in the ordinary course of
business. In the opinion of management, these matters are adequately
covered by insurance or indemnification from other third parties and/or
the effect, if any, of these claims is not material to the reported
financial condition or results of operations of the Company as of December
31, 1995.
- 22 -
<PAGE> 23
Saddlebrook Resorts, Inc.
NOTES TO FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
Loan guarantees
The Company is contingently liable for the notes payable to a bank in the
amount of $729,000 maturing in 1998 recorded by SIT, a related party, and
$470,000 maturing in 1998 received by the majority shareholder of the
Company.
Insurance pool
The Company has pooled its risks with other resorts by forming an
insurance purchasing group in which they retain an equity interest and to
which they pay insurance premiums. The Company's ownership is less than
8% and all amounts contributed as capital ($122,950 as of December 31,
1995) are reflected as prepaid expenses and other assets in the
accompanying balance sheets. The Company's investment approximates the
proportionate net book value of the insurance company as of December 31,
1995. The Company may withdraw from the risk pool at any renewal date
(annually).
- 23 -
<PAGE> 24
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
March 13, 1996
To the Board of Directors of Saddlebrook
Resorts, Inc., as Operators under the Saddlebrook
Rental Pool and Agency Appointment Agreement
In our opinion, the accompanying balance sheets and the related
statements of operations and of changes in participants' fund balance
present fairly, in all material respects, the financial position of
the Saddlebrook Rental Pool Operation (funds created for participants
who have entered into a rental pool agreement as explained in Note 1)
at December 31, 1995 and 1994, and the results of its operations and
the changes in participants' fund balance for each of the three years
in the period ended December 31, 1995, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the rental pool's operators; our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed
above.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Tampa, Florida
- 24 -
<PAGE> 25
Saddlebrook Rental Pool Operation
BALANCE SHEETS
- ------------------------------------------------------------------------------
DISTRIBUTION FUND
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
<S> <C> <C>
ASSETS
Receivable from Saddlebrook Resorts, Inc. $1,017,332 $1,267,078
========== ==========
LIABILITIES AND PARTICIPANTS' FUND BALANCE
Due to participants for rental pool
distribution $ 832,926 $1,042,311
Due to maintenance escrow fund 184,406 224,767
Participants' fund balance - -
---------- ----------
$1,017,332 $1,267,078
========== ==========
MAINTENANCE ESCROW FUND
DECEMBER 31,
1995 1994
ASSETS
Cash in bank $ 76,314 $ 101,335
Investments 699,135 782,055
Receivables:
Distribution fund 184,406 224,767
Interest 8,633 9,106
Prepaid maintenance 146,932 69,317
---------- ----------
$1,115,420 $1,186,580
========== ==========
LIABILITIES AND PARTICIPANTS' FUND BALANCE
Accounts Payable $ 97,651 $ 187,224
Participants' fund balance 1,017,769 999,356
---------- ----------
$1,115,420 $1,186,580
========== ==========
</TABLE>
The accompanying Notes to Financial Statements are
an integral part of these financial statements.
- 25 -
<PAGE> 26
Saddlebrook Rental Pool Operation
DISTRIBUTION FUND
STATEMENTS OF OPERATIONS
---------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995 1994 1993
<S> <C> <C> <C>
Rental pool revenue $13,126,672 $12,145,192 $10,934,400
----------- ----------- -----------
Deductions:
Marketing fee 984,500 910,890 820,080
Management fee 1,640,834 1,518,149 1,366,801
Travel agent commissions 710,063 457,200 440,125
Credit card expense 123,672 125,878 104,201
Provision for doubtful accounts - - 8,000
----------- ----------- -----------
3,459,069 3,012,117 2,739,207
----------- ----------- -----------
Net rental income 9,667,603 9,133,075 8,195,193
Operator share of net rental income (4,350,421) (4,109,884) (3,687,837)
Other revenues (expenses):
Complimentary room revenues 104,623 92,283 87,259
Minor repairs and replacements (136,749) (130,793) (120,006)
----------- ----------- -----------
Amounts available for distribution to
participants and maintenance
escrow fund $ 5,285,056 $ 4,984,681 $ 4,474,609
=========== =========== ===========
</TABLE>
The accompanying Notes to Financial Statements are
an integral part of these financial statements.
- 26 -
<PAGE> 27
Saddlebrook Rental Pool Operation
STATEMENTS OF CHANGES IN PARTICIPANTS' FUND BALANCE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DISTRIBUTION FUND
YEAR ENDED
DECEMBER 31,
1995 1994 1993
<S> <C> <C> <C>
Balance, beginning of period $ - $ - $ -
Additions:
Amounts available for distribution 5,285,056 4,984,681 4,474,609
Reductions:
Amounts withheld for maintenance
escrow fund (934,635) (874,797) (786,772)
Amounts accrued or paid to (4,350,421) (4,109,884) (3,687,837)
participants
----------- ----------- -----------
Balance, end of period $ - $ - $ -
=========== =========== ===========
MAINTENANCE ESCROW FUND
YEAR ENDED
DECEMBER 31,
1995 1994 1993
Balance, beginning of period $ 999,356 $ 1,048,576 $ 961,868
Additions:
Amount withheld from distribution
fund 934,635 874,797 786,772
Unit upgrade payments 93,302 119,647 216,260
Interest earned 48,724 29,856 22,291
Reductions:
Unit renovations (51,577) (360,523) (387,830)
Refunds of excess amounts in escrow
accounts (418,770) (448,844) (321,517)
Maintenance charges (499,359) (160,721) (158,623)
Linen replacement charges
amortization (88,542) (103,432) (70,645)
----------- ----------- -----------
Balance, end of period $ 1,017,769 $ 999,356 $ 1,048,576
=========== =========== ===========
</TABLE>
The accompanying Notes to Financial Statments are an integral part of these
financial statements.
- 27 -
<PAGE> 28
Saddlebrook Rental Pool Operation
NOTES TO FINANCIAL STATEMENTS
-----------------------------------------------------------------------------
1. RENTAL POOL OPERATIONS AND RENTAL POOL AGREEMENT:
Condominium units are provided as rental (hotel) accommodations by their
owners under the Rental Pool and Agency Appointment Agreement (the
"Agreement") with Saddlebrook Resorts, Inc. (collectively, the "Rental
Pool"). Saddlebrook Resorts, Inc. ("Saddlebrook") acts as operator of
the Rental Pool, which provides for the distribution of a percentage of
net rental income, as defined, to the owners.
The Saddlebrook Rental Pool Operation consists of two funds, the Rental
Pool Income Distribution Fund ("Distribution Fund") and the Maintenance
and Furniture Replacement Escrow Fund ("Maintenance Escrow Fund"). The
operations of the Distribution Fund reflect the earnings of the Rental
Pool. The Distribution Fund balance sheets reflect amounts due from
Saddlebrook for the rental pool distribution payable to participants and
amounts due to the Maintenance Escrow Fund. The amounts due from
Saddlebrook are required to be distributed no later than forty-five days
following the end of each calendar quarter. The Maintenance Escrow Fund
reflects the accounting for certain escrowed assets to be used to
maintain unit interiors and replace furniture as it becomes necessary.
Rental pool participants and Saddlebrook share rental revenues according
to the provisions of the Agreement. Net Rental Income shared consists
of rentals received less a marketing surcharge of 7 1/2%, a 12 1/2%
management fee, travel agent commissions, credit card expense, and a
reserve for bad debts. Saddlebrook receives 45% of Net Rental Income as
operator of the Rental Pool. The remaining 55% of Net Rental Income
after adjustments for complimentary room revenues (ten percent of the
normal unit rental price paid by Saddlebrook for promotional use of the
unit) and certain minor repair and replacement charges is available for
distribution to the participants and maintenance escrow fund based upon
each participants' respective participation factor (computed using the
purchase price of a furnished unit and the number of days it was
available to the pool). Quarterly, 45% of Net Rental Income is
distributed to participants, and 10%, as adjusted for complimentary room
revenues and minor interior maintenance and replacement charges, is
deposited in an escrow account until a maximum of 20% of the existing
value of the individual owner's furniture package has been accumulated.
Excess escrow balances are refunded to participants.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Accounting
The accounting records of the funds are maintained on the accrual basis
of accounting.
Investments
Investments consist of certificates of deposits and U.S. Treasury
Securities which bear interest at rates ranging from 4.38% to 7.13%. At
December 31, 1995 and 1994, $399,635 and $382,648, respectively, mature
in one year or less.
- 28 -
<PAGE> 29
Saddlebrook Rental Pool Operation
NOTES TO FINANCIAL STATEMENTS
-----------------------------------------------------------------------------
Income Taxes
No federal or state taxes have been reflected in the accompanying
financial statements as the tax effect of fund activities accrues to the
rental pool participants and operator.
- 29 -
<PAGE> 30
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors of
Saddlebrook Resorts, Inc.
Our audits of the financial statements referred to in our report dated March
13, 1996 appearing on page 11 also included an audit of the Financial
Statement Schedules listed in Item 8 on page 6 of this Form 10-K. In our
opinion, these Financial Statement Schedules present fairly, in all material
respects, the information set forth therein when read in conjunction with
the related financial statements.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Tampa, Florida
March 13, 1996
- 30 -
<PAGE> 31
Saddlebrook Resorts, Inc.
Schedule II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED BALANCE
BEGINNING TO COSTS AND AT END
OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Amortization of Noncompete
Agreement and Debt Issue
Costs $1,161,516 $ 92,531 $ - $ 1,254,047
YEAR ENDED DECEMBER 31, 1994
Amortization of Noncompete
Agreement and Debt Issue
Costs $1,080,625 $ 80,891 $ - $ 1,161,516
YEAR ENDED DECEMBER 31, 1993
Amortization of Noncompete
Agreement and Debt Issue
Costs $ 859,320 $ 221,305 $ - $ 1,080,625
</TABLE>
- 31 -
<PAGE> 32
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequential
Number and Description of Exhibit Page Number
--------------------------------- -----------
<S> <C>
3.1 Articles of Incorporation of Saddlebrook Resorts, Inc., a Florida
corporation (incorporated by reference to Exhibit A*).
3.2 Corporate By-laws of Saddlebrook Resorts, Inc. (incorporated by
reference to Exhibit B*).
4. Declaration of Condominium, together with the following:
(1) Articles of Incorporation of the Saddlebrook Association of
Condominium Owners, Inc. a Florida non-profit corporation;
(2) By-laws of the Saddlebrook Association of Condominium
Owners, Inc., and (3) Rules and Regulations of the Saddlebrook
Association of Condominium Owner, Inc. (incorporated by
reference to Exhibit C*).
10.1 Management Contract between Saddlebrook Resorts, Inc. and the
Saddlebrook Association of Condominium Owners, Inc. (incorporated
by reference to Exhibit C*).
10.2 Saddlebrook Rental Pool and Agency Appointment Agreement 33
10.3 Saddlebrook Rental Management Agency Employment (incorporated
by reference to Exhibit E*).
10.4 Form of Purchase Agreement (incorporated by reference to Exhibit H*).
10.5 Form of Deed (incorporated by reference to Exhibit I*).
10.6 Form of Bill of Sale (incorporated by reference to Exhibit J*).
27. Financial Data Schedule (for SEC use only)
28. Interest Being Registered. Pages 21 and 22 of the Post-Effective
Amendment No. 9 to Registration Statement on Form S-1 No. 2-65481
filed by the Registrant on March 25, 1986. 38
</TABLE>
* Identification of exhibit incorporated by reference from the
Registration Statement No. 2-65481 previously filed by Registrant,
effective December 28, 1979.
- 32 -
<PAGE> 1
EXHIBIT 10.2
Page 1 of 4
Saddlebrook
The Golf and Tennis Resort
P.O. Box 7046
Wesley Chapel, Florida 34249 - (813) 973-1111
DEDICATION OF CONDOMINIUM APARTMENT TO
RENTAL POOL AND AGENCY APPOINTMENT AGREEMENT
THIS AGREEMENT, made this day of , 198 , by and between
SADDLEBROOK RESORTS, INC., Wesley Chapel, Florida, hereinafter call "Agent," and
whose address is
hereinafter called "Owner":
WHEREAS, the undersigned is the owner of a condominium apartment which is a
part of SADDLEBROOK RESORTS, the identification of which is hereinafter set
forth; and
WHEREAS, in connection with the sales of the condominium apartments in
SADDLEBROOK RESORTS, a majority of the apartment purchasers have indicated a
desire to dedicate their apartments to a rental pool during such periods as the
Owners thereof shall not occupy the same whereby income from such operation may
be shared equitably after payments to the Agent of a percentage of the income
to cover the expenses of the operation and services of Agent; and
WHEREAS, day-to-day management is required, and the Agent is prepared to
assume such responsibilities according to the terms and conditions hereinafter
set forth.
NOW, THEREFORE, in consideration of the covenants and agreements hereinafter
set forth, and the mutual benefits to the respective parties, and the joining
by the one or more Owners of condominium apartment units in SADDLEBROOK
RESORTS, it is hereby agreed as follows:
(1) DEDICATION OF APARTMENT TO RENTAL POOL. The Owner dedicates to the
rental pool his condominium apartment No. , Bldg. , which apartment is a
type apartment unit, in accordance with the terms hereof.
(2) EXCLUSIVE AGENCY EMPLOYMENT: Owner hereby employs Agent to manage the
rental of his unit number for a period commencing on , 198 , and
ending on the 31st day of December, 198 , with the understanding that the
Agency will be automatically renewed on an annual basis unless either party has
given written notification of termination prior to October 15th of any given
year. If such notice is given, this agreement will terminate on December 31st
of the year in which such notice is received.
(3) RESERVATION OF OWNER'S OCCUPANCY. Owner agrees and hereby dedicates his
apartment to the rental pool for rental occupancy for the total period of this
Agreement except for the period of time hereinafter set forth which the Owner
specifically reserves for his personal use, subject to the limitations set
forth in paragraph (4) of this Agreement.
(a) Owner reserves his apartment for
(see attached exhibit)
(b) Except when reserved by Owner for his personal use, Owner's apartment
shall be subject to rental to such tenants as may be provided by Agent for
terms of one or more days by oral or written lease or rental arrangement.
(c) Subject to the limitations set forth in paragraph 4 of this Agreement,
Owner may at any time, by written notice to Agent during the term of this
Agreement, withhold his unit from such renting, for his personal use, for not
more than the said limitations on Owner occupancy for the succeeding calendar
year. Owner must notify Agent as to the dates to be set aside for his personal
use prior to October 15th of each year. Owner understands that his failure to
provide timely notification to Agent could result in the inavailability of his
unit on desired dates. If Owner provides no notification to Agent it will be
assumed that the Owner desires to reserve the same days for his personal use as
were reserved in the previous year. Agent agrees to provide Owner with a
reminder notice regarding renewal options and reservation days by mail on or
before September 1st of each calendar year.
(d) Notwithstanding any other provision set forth in this Agreement, in
the event an Owner desires his own apartment other than at periods reserved by
the Owner pursuant to Paragraphs 2 (a) and (c) hereof, and if said apartment is
not occupied, or in the sole opinion of the Agent likely to be occupied, for
all or any part of the period for which Owner desires such occupancy, the Owner
may take the apartment out of the pool for such period and utilize the said
apartment himself. In such event, the Owner shall give Agent a minimum of
twenty-four (24) hours' written notice of such temporary removal of the
apartment from the pool. In the event the apartment is occupied, or in the sole
opinion, of the Agent is likely to be occupied, for all or any part of the
period the Owner desires such additional occupancy, then the Owner shall have
no right to remove said unit from the rental pool.
(e) In the event that the Owner desires to occupy his own apartment, other
than at a time reserved for Owner occupancy, during any period when it is
dedicated to the rental pool and does not wish to remove said apartment from
the rental pool, he may do so as a rental tenant and, as such, shall have
preference to occupy his condominium apartment unit if the same has not been
previously reserved by a tenant. Owner shall pay the prevailing rental charges
as established by the Agent for said apartment.
(4) LIMITATIONS ON OWNER OCCUPANCY. The parties acknowledge that in order
to have a successful rental pool operation, there must be a limitation on Owner
occupancy of the units so dedicated to the rental pool. It is mutually agreed
that participating Owners in this rental pool are guaranteed the use of their
units for forty-five (45) days per calendar, with not more than twenty-one (21)
of such days to fall in the period beginning December 15th and ending April
15th. Nothing herein contained shall be construed as prohibiting a
participating Owner from occupying his dedicated unit in excess of the above
limitations if his unit is available in the sole judgement of the Agent. The
above provision concerning occupancy is a contractual agreement between Agent
and Owner. The Tax Reform Act of 1976 contains special provisions concerning
the deductibility of expenses for vacation homes related to the Owner's personal
occupancy. You should consult your tax advisor regarding this matter.
(5) TERMINATION OF AGREEMENT. The parties to this Agreement, both the Owner
and the Agent, may terminate this Agreement by giving not less than six (6)
months' notice to the other party of his intentions to so terminate the
Agreement.
- 33 -
<PAGE> 2
EXHIBIT 10.2 Page 2 of 4
(6) OWNER'S RESPONSIBILITY. Owner recognizes and agrees that his right to
participate in the rental pool depends upon his maintaining the interior of his
condominium apartment in a first-class occupancy condition, and Owner agrees,
so long as he is a party to this Agreement, that he will so maintain the
interior of his apartment. Agent, in its sole discretion shall have the right
to take such steps as necessary to bring the interior of the apartment to such
condition, including but not limited to redecoration of walls and ceilings and
replacement or repairs of draperies, carpeting, furniture and equipment. Costs
for such expenditures shall be charged against the Escrow Account more fully
described hereafter in paragraph 19, and if said account is insufficient, the
balance of such costs may be deducted from any amounts owning to Owner from his
share of the rental pool, provided, however, that in the event the proposed
expenditure would both exceed the amount in the Escrow Account and is over One
Hundred ($100.00) Dollars, Agent agrees to get Owner's permission prior to
making such expenditures, provided further that should Owner refuse to
authorize such expenditures, Agent may forthwith terminate this Agreement. In
the event Agent shall exercise its right to bring a rental unit into
first-class occupancy condition as provided in this paragraph 6, subject to the
Owner's right of approval, if applicable, and such expenditures exceed both the
amounts in the Escrow Account and owing to Owner from his share in the rental
pool, Owner agrees to promptly fully recompense Agent for the balance of said
expenditures. In the event Owner fails to so recompense Agent, Agent may
forthwith terminate this Agreement as to such apartment unit, and upon due
notification to SADDLEBROOK RESORT CONDOMINIUM ASSOCIATION, INC., the said
Association will recompense Agent and exercise such remedies against Owner
and/or his apartment unit as are set forth in the Articles of Incorporation and
By-Laws of such Association pertaining to assessments. Owner further agrees
that the Agent shall have the right to reasonable inspection of the interior
of the Owner's apartment in order to satisfy itself that the unit is being so
maintained, and Agent shall at all times have a passkey to Owner's apartment.
No apartment Owner shall alter any lock or install any new lock on any doors
leading into his apaprtment without the consent of the Agent, and if such
consent be given, the Agent shall be provided with a key.
(7) DEFINITION AND ALLOCATION OF NET RENTAL INCOME. The parties agree that
net rental income for purposes of this Agreement is defined as follows:
Apartment and room rentals received, less marketing surcharge of a maximum of
7 1/2% of rentals received in each calendar year, a twelve and one-half percent
(12 1/2%) management fee to Agent, travel agents' commissions, reserve for bad
debt and credit card expenses. The proceeds of the marketing surcharge will be
made available for promoting and advertising the Saddlebrook resort operations.
The remaining amount of net rental income, as defined, shall be distributed as
follows:
(a) Rental Pool Income; 45% to the rental pool, to be allocated among
the Owners in accordance with the formula for calculating shares of interest as
hereinafter set forth.
(b) Occupancy Fee; 10% of Net Rental Income to the Owner of a rented
apartment unit; prior to determination of the 10% occupancy fee a deduction
will be made for all minor repair and replacement charges of $25 or less.
Items in this category shall include but not be limited to common repair and
replacement charges applicable to all units such as replacing light bulbs, air
conditioner filter, and smoke detector batteries. A participant's occupancy
fee is subject to the provisions of paragraphs 6 and 19.
(c) 45% to Agent for its services as manager of the rental pool and the
hotel operation.
(8) CALCULATION OF SHARES IN RENTAL POOL. The Owner's share in the monies
allocated to the rental pool shall be determined as follows:
(a) Unit Factor:
A point allocation, attributable to the purchase price (furnished)
of each dedicated apartment unit, will be calculated quarterly so as to
determine the Owner's unit factor. The computation of this factor will be
based upon the purchase price (furnished) of each apartment unit as of January
1 of each year for each type of apartment. the unit factor will be the sum
total of the purchase price (furnished), as herein defined of all apartment
units dedicated during the quarter, divided into the purchase price (furnished)
as herein defined of the particular dedicated apartment unit. The resulting
fraction shall be expressed as a decimal.
(b) Availability Factor:
The summation of the number of days that all apartments are
dedicated to the rental pool in the quarter shall be the denominator. The
number of days that the particular dedicated apartment is in the rental pool in
the quarter shall be the numerator. The resulting fraction, expressed as a
decimal, shall be the availability factor for an apartment unit for that
calendar quarter.
(c) Participation Factor:
The unit factor shall be multiplied by the availability factor, and
the resulting figure shall be the Owner's rental pool participation factor for
such quarter.
(d) Rental Pool Income:
The total of the participation factors for each apartment unit in
the rental pool for the calendar quarter shall be divided into the total rental
pool income (45% of net rental income), as herein defined, available to the
rental pool participants, and the resulting figure times each Owner's
participation factor shall equal his income from the rental pool for the
calendar quarter.
(9) COMPLIMENTARY ROOMS. Owner acknowledges that in connection with rental
promotion activities, Agent will find it necessary and desirable to furnish
complimentary rooms from time to time. Owner agrees that Agent may so furnish
complimentary rooms when Agent, in its sole discretion, deems it necessary or
desirable to do so and that in such event, Agent shall pay an amount
representative of ten percent (10%) of the normal unit rental for each
apartment unit or units which are used as complimentary rooms, and said ten
percent (10%) amount shall be paid pursuant to the terms of this Agreement to
the Owner of the respective apartment unit or units whose apartments have been
so utilized for complimentary occupancy.
(10) AGENT OBLIGATION FOR RENTAL EXPENSES. Owner shall have no expenses for
rental operation as a deduction from net rentals except as provided in
paragraph 7, so long as SADDLEBROOK RESORTS, INC. is the Agent under the
Agreement, except the utilities and property taxes for his apartment, his
obligations for the common element expenses under the Declaration of
Condominium and the maintenance of his regular membership in SADDLEBROOK GOLF
AND TENNIS CLUB in good standing.
(11) PAYMENT OF RENTAL SHARES. Payment of rental pool shares shall be made
on a quarterly basis within forty-five (45) days of the close of each calendar
quarter. The Agent shall distribute to the participating Owners their
respective rental and occupancy fees as heretofore provided, based on their
respective participating factors for that calendar quarter accompanying such
distribution with adequate accounting data in support thereof, such payments to
be subject to all provisions of this Agreement.
(12) OWNER'S OBLIGATIONS. In addition to and not in limitation of the
obligations at law of Owner as a lessor, Owner covenants as follows:
(a) Punctually and fully to perform Owner's obligation as a
condominium owner in SADDLEBROOK RESORTS, including payment of the periodic
charges and assessments attributable to condominium ownership.
34
<PAGE> 3
EXHIBIT 10.2 Page 3 of 4
(b) To keep Owner's apartment furnished to the extent and in the manner
reasonably required by Agent as necessary for rental purposes hereunder. In
order to maintain the quality of the Owner's apartment comparable with other
rental units in SADDLEBROOK RESORTS, Agent is authorized to establish required
minimum quantity and style of furnishings and equipment for purposes of
efficient rental pool operations.
(c) Subject to Owner's rights of privacy during periods of Owner occupany
of Owner's apartment, to permit Agent and tenants access to Owner's apartment
consistent with rental occupancy hereunder.
(d) Not to leave upon the premises valuable personal effects or matters of
a nature unsuitable for rental occupancy.
(e) To maintain during the term of the Agreement a regular membership in
SADDLEBROOK GOLF AND TENNIS CLUB for each non-connecting unit in the rental
pool and to authorize SADDLEBROOK to issue a guest card to tenants of Owner's
apartment authorizing the tenant during his tenancy to use the facilities of
SADDLEBROOK upon payment by the tenant of such costs and charges which the Club
may make for any and all services and facilities and upon tenant's complying
with all rules and regulations of the Club. The Owner shall not be liable for
any charges or expenses of tenant in connection with his use of the Club
facilities and services, and if any credit is extended by SADDLEBROOK GOLF AND
TENNIS CLUB to tenant, the Club shall be responsible for the collection of the
indedtedness.
(f) To authorize the Agent to utilize seasonal rates, to grant discounts in
room rates to individuals and/or groups and to utilize package plans. All
package plan discounts will be allocated on a pro-rata basis to all cost
centers affected.
(13) EXTENSION OF RENTAL POOL. It is recognized that Agent plans to expand
the present condominium development of the property it owns or acquires in
Pasco County, Florida, if there is good public acceptance of same. In such
event, it is recognized that it may be economically desirable to extend the
rental pool hereunder on a common basis with other condominium projects and
with common agency management. Agent therefore is specifically permitted to
undertake the duties as Agent under similar rental pool arrangements to this
one for other condominium apartments which are a part of SADDLEBROOK RESORTS
and, to the extent that such rental pool is on a common basis with the terms
hereof, to apply common administration to the rental pool so created on a
basis of equitable participation by condominium apartment units subjected to
the terms hereof or of similar agreements to this one.
(14) ACCOUNTING AND RECORDS. Agent shall cause appropriate books and
records to be maintained for the rental pool, which books and records shall be
subject to examination by or on behalf of participating Owners at any and
all reasonable times. In addition to quarterly distribution of accounting data
in connection with distribution of rental shares as per paragraph 11 hereof,
Agent will cause an annual summary to be distributed to each Owner in such form
as is useful for Owner's income, expense, tax, and depreciation records.
(15) TERMINATION. Agent may terminate its designation hereunder upon giving
of six (6) months' written notice. Such termination will not of itself
terminate the rental pool, and the Owners participating therein may designate a
replacement manager for the performance of Agent's duties hereunder effective
with such termination. Terms of successor agent's appointment shall be as
agreed between Owners and such successor and, to the extent that such successor
agent does not thereby assume the Agent's duties hereunder, the same shall be
the obligation and expense of the participating Owners. Upon expiration of the
term hereof, or as the same may be renewed or upon termination hereof by Agent
under the provisions of this paragraph, Agent will offer for sale to the
management of the rental pool Owner's participating in the rental pool at the
then mortized cost thereof, the innkeeper's supplies then in use by Agent in
the management of the rental pool hereunder, and if the same be purchased by
participants for continuing rental pool, the expense of such acquisition shall
require the Agent to acquire charge against the Owners electing to participate
therein, provided, however, that nothing herein shall require the Agent to
acquire innkeeper's supplies should Agent engage the services of an independent
operating firm as hereinafter provided. Participating Owners may individually
withdraw from the rental pool upon six (6) months' written notice to Agent as
heretofore provided. Such withdrawl by an individual Owner shall not terminate
the rental pool as between Agent and other participating Owners. In the
event of transfer by Owner of his condominium apartment in the SADDLEBROOK
project to a new owner, any such sale shall be subject to the current rental
reservations for a period of six months after closing, however, the successor
owner shall not otherwise be a participating member of the rental pool except
by joining as a party thereto by execution and delivery of a similar agreement
to this Agreement.
(16) INSURANCE. Owner recognizes that the maintenance of fire and extended
coverage insurance upon the common property of the condominium project is an
ordinary and assessable cost of the condominium, exclusive of the agency
arrangements hereunder. Additionally, Owner recognizes the maintenance of fire
and extended coverage insurance upon Owner's property located at Owner's
apartment unit in the condominium project is the Owner's own responsibility.
Recognizing that the conduct of the rental pool hereunder is for the common
benefit of the participants, Owner covenants that he will maintain such
additional insurance as he deems necessary with the subrogation waiver clause
provisions, and Owner hereby waives subrogation as to damage or destruction
of his property to the extent that the same may occur during or arise in
connection with rental occupancy thereof or the conduct of the rental pool
hereunder. Agent will procure, as a rental pool expense chargeable to Agent's
share of the rental income, liability insurance protecting the rental pool, the
participants therein and the Agent as to liability for property damage, bodily
injury or death occuring or claimed to occur by reason of or connected with the
rental pool operations hereunder or the conditions of the rented property or
common property therewith. Agent is further authorized, but only as Agent may
determine economically feasible, in the name of itself and the rental pool, to
procure burglary and theft insurance, use and occupancy insurance and fidelity
bond coverages.
(17) MAINTENANCE OF OWNER'S APARTMENT UNIT. The Agent is not responsible
for repair, restoration, redecorating or other expenses arising by reason of
ordinary wear, tear, obsolescence and depreciation. Owner recognizes such
expenditures as within Owner's responsibility and, to the extent connected with
rental pool participation, adequately compensated by the occupancy fee provided
for in paragraph 7(b) hereof.
(18) AGENT'S DELEGATION OF DUTIES TO AN INDEPENDENT OPERATOR. The parties
agree that Agent has the right to delegate many of Agent's duties to an
independent operating corporation at Agent's discretion. Such delegation may
include, but is not limited to, arranging for all advertising and promotion,
employing a general manager and other necessary personnel, maintaining the
books and records of the rental pool, staffing and operating a rental
reservation system and any and all other operations and employment of personnel
which are consistent with the operation and maintenance of a recreational
resort facility. Owner shall have no liability for any charges made to Agent
for the services of such independent operator, and any and all cost for such
services shall be paid by Agent out of its portion of the gross rentals.
(19) ESCROW ACCOUNT. Agent will establish an Escrow Account in which shall
be deposited quarterly Owner's ten percent (10%) occupancy (which equals 10% of
the net rental income) for use of its individual apartment in the rental pool,
such ten percent (10%) occupancy fee being heretofore more fully described in
paragraph 7(b). The Escrow Account is established for the purpose of enabling
Agent to have funds on hand from which Agent, at its sole discretion, may
maintain in the interior of each apartment, including maintenance,
redecoration, repair and/or replacement of walls, ceilings, floors, carpeting,
furniture, fixtures and equipment, such redecoration, repairs and replacement
being necessitated by normal wear and use. The parties acknowledge that
establishment of such account and the repair, replacement and redecoration is
necessary to keep all participating apartments in the rental pool up to
standards established for SADDLEBROOK. Subject to limitations set forth in
paragraph 6, Agent, in its sole discretion, shall have the
- 35 -
<PAGE> 4
EXHIBIT 10.2 Page 4 of 4
right to expend from said Escrow Account such funds as are therein set aside
for such redecoration, repairs and replacement. Agent agrees that each
apartment in the rental pool shall be maintained in a condition with the
standards established for SADDLEBROOK as a resort hotel, and Owner agrees that
he will provide such additional funds as are necessary for this maintenance and
upkeep upon request of management. Thereafter, Agent shall deposit the Owner's
occupancy fee into the Escrow Account until such time as the Owner shall have on
deposit in said Escrow Account twenty percent (20%) of the then existing value
of the standard furniture package for condominium apartment unit comparable to
Owner's unit. Additional funds will be deposited from Owner's occupancy fees
from time to time in order to maintain Owner's interest in the Escrow Account
at the level as heretofore described. The Escrow Account shall be an
interest-bearing account to the extent practicable, and interest shall be
credited to the respected apartment Owner's share of the funds in said account.
Agent shall annually report to the apartment Owner on all expenditures made from
said Escrow Account on his apartment and as to the balance remaining in
said Escrow Account together with any interest accrued thereon. If an Owner's
Escrow Account, including interest, shall exceed the twenty percent (20%)
maximum, the excess will be refunded on an annual basis. In the event the
Owner should sell his unit, the Escrow balance shall be returned to him within
forty-five (45) days from the transfer of ownership and the new owner shall be
required to deposit $500.00 into the Reserve Account if he elects to
participate in the SADDLEBROOK rental pool.
(20) NOTICES, ASSIGNMENT AND ENFORCEMENT. Notices required or appropriate
hereunder may be given in writing, addressed to the recipient at the address
set forth above as to Agent, or set forth below as to Owner and deposited in
the United States mails, postage prepaid, and in such case shall be deemed
received on the fifth business day following such dispatch. Either party, by
written notice, may provide a different address for the receipt of notice
hereunder. Because of the necessity of dependable performance by the parties
hereto of their respective undertakings, neither party may assign its rights or
obligations hereunder to any other person or party except with written consent
of the other party hereto, other than as provided in paragraph 18 hereof. This
Agreement is binding upon and for the benefit of the respective parties, their
heirs, representatives, successors and to the extent permitted hereby, their
respective assigns. In the event an action is brought to enforce the terms
hereof, the prevailing party shall be entitled to recover the expenses of such
action, including reasonable attorney's fees therefor.
(21) CONDITIONS OF OCCUPANCY. Agent may enter Owner's apartment, and Agent
may remove such personal effects as Agent determines appropriate to be moved,
storing the same for reinstallation at the end of the rental period, provided,
however, that nothing herein shall obligate Agent to so remove such personal
effects or create any liability against Agent for the failure to remove such
personal effects. Agent will cause the apartment to be cleaned and prepared
for rental occupancy and so maintained during rental occupancy. At the
termination of rental occupancy, Agent will remove linens and supplies utilized
for such occupancy and will replace linens and any personal effects of Owner,
leaving the premises for re-occupancy by Owner.
(22) MISCELLANEOUS MATTERS.
(a) This Agreement contains all the terms and conditions agreed to
between the parties, and any amendments or modifications shall be in writing
and executed with the same formality at this Agreement.
(b) Whenever used, the singular number shall include the plural, the
plural the singular, and the use of any gender shall include all genders.
(c) The parties agree that this Agreement shall be interpreted under the
laws of the State of Florida and that the invalidity of one or more parts of
the Agreement shall not affect the remaining parts of the Agreement.
<TABLE>
<S> <C>
Signed sealed and delivered in the presence of SADDLEBROOK RESORTS, INC.
By
- --------------------------------- ----------------------------------
Witness Agent
- ---------------------------------
As to Agent Witness
X
- --------------------------------- ----------------------------------
Witness Owner
X
- --------------------------------- ----------------------------------
Witness Owner
----------------------------------
Address
----------------------------------
Social Security Number of Owner
</TABLE>
- 36 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SADDLEBROOK RESORTS, INC. FOR THE YEAR ENDED
DECEMBER 31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 40,702
<SECURITIES> 699,135
<RECEIVABLES> 3,586,759
<ALLOWANCES> 122,976
<INVENTORY> 1,472,689
<CURRENT-ASSETS> 6,009,329
<PP&E> 31,229,495
<DEPRECIATION> 8,648,497
<TOTAL-ASSETS> 29,156,529
<CURRENT-LIABILITIES> 8,981,300
<BONDS> 0
0
0
<COMMON> 100,000
<OTHER-SE> 1,013,127
<TOTAL-LIABILITY-AND-EQUITY> 29,156,529
<SALES> 35,625,389
<TOTAL-REVENUES> 35,625,389
<CGS> 0
<TOTAL-COSTS> 32,351,722
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,476,569
<INCOME-PRETAX> 1,797,098
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,797,098
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,797,098
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
EXHIBIT 28
Page 1 of 2
assumed that the owner would withdraw his unit from the rental pool
approximately 45 days per year (15 days in-season and 30 days
off-season) and therefore would not be entitled to share in any rental
income for that period. Except for the difference in the number of days
of personal occupancy, rental income was computed under the same
assumptions shown in Chart II, page 19. See Sect. 10 for possible
consequences.
(2) Assumes a purchase price (unfurnished) of $123,400, down payment of 20%
($24,680) and a mortgage of $98,720, payable over 30 years at an
interest rate of 9 1/2%. Interest expense shown is for the first year.
(3) Ad Valorem taxes based on 1985 millage rate of approximately 14.020
assessed on 85% of fair market value of the unfurnished unit and tangible
personal property taxes based on 1985 millage rate of approximately
14.020 assessed on value of furniture package.
(4) Assumes maintenance assessment of $230 per month which is subject to
increase as of January 1, 1987. Interior maintenance is the owner's
responsibility unless he or she is a rental pool participant and allows
the operator to maintain the unit, which will be charged against his or
her share of the escrow account credited from the unit's Net Rental
Income (if any). Maid service for interiors is not included in the unit
owners maintenance assessment. (See page 59.)
(5) Estimated by the registrant from information provided by utility company
which serves the project.
(6) Assumes acquisition at the beginning of the year with depreciation
calculated using the Accelerated Cost Recovery System with a 19-year
useful life (8.8%) as an activity entered into for profit and a
nondepreciable land value of $1,000. See Sect. 10 for a discussion of
"an activity entered into for profit". Depreciation expense shown is
for the first year. It should also be noted that since accelerated
depreciation was used in this example, upon disposition all gain
attributable to depreciation is recaptured and taxed as ordinary income.
Should straight line depreciation be used, there is no recapture upon
disposition. Under Section 183 of the Internal Revenue Code,
depreciation attributable to property held in an activity not engaged
in for profit is deductible only if, and to the extent that, there is
income from the activity in excess of the out of pocket expenses
attributable to it.
(7) Assumes a 5-year useful life with first year depreciation under the
Accelerated Cost Recovery System (15%) with a half-year convention and
a basis adjustment equal to one-half of the investment tax credit.
(8) Purchasers are required to join Saddlebrook Golf and Tennis Club only
if they wish to participate in the rental pool arrangement or the
non-pooling arrangement.
(9) The investment tax credit relates solely to income tax liability and
is only allowable with respect to depreciable, tangible personal property
placed in service during the taxable year. Moreover it is not available
with respect to buildings and its structural components. It is only
available in the first year of ownership.
(10) Under Section 183 and 280A of the Internal Revenue Code out of pocket
expenses (other than interest and certain taxes) attributable to an
activity not engaged in for profit are deductible, only if, and to the
extent that, there is income from the activity in excess of the interest
and tax expenses attributable to it. The deductions shown have
therefore been curtailed in accordance with Section 183 and 280A, where
applicable.
(11) See page 40 for illustration of furniture escrow deduction.
(12) Under Section 280A of the Internal Revenue Code, mortgage interest and
taxes allocated to personal use of the unit may be claimed as an itemized
deduction. Therefore, the total expense was shown as relating to rental
of the unit since the tax benefit would net the same result as these
levels of occupancy.
If the Saddlebrook rental pool produces losses to participants
indefinitely, or the participant uses his condominium in excess of 14 days
during the year for personal use, it is not unlikely that the Internal Revenue
Service may challenge the participant's activity as an activity engaged in for
a profit. See Sect. 10 for possible consequences.
4. INTERESTS BEING REGISTERED
The registrant is advised by Hill, Hill & Dickenson, P.A., registrant's
legal counsel, that the mere sale of a condominium unit formed under the laws
of the state of Florida is not, of itself, the offer or sale of a security
or investment contract, as those terms are used in the regulation of securities
in Florida. However, in view of
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<PAGE> 2
EXHIBIT 28
Page 2 of 2
the fact that the purchasers are offered the optional opportunity to
participate in a rental pool, the combination is treated as an offering of an
investment contract under the Federal and various state securities laws and
interpretations thereof. If a purchaser of a condominium unit at Saddlebrook
elects to participate in the rental pool, he thereby has an opportunity to
receive rental income as from an investment. The registrant emphasizes that
there is not contractual or guaranteed rate of return of rental income to
purchasers who elect to participate in the rental pool or the non-pooling
rental arrangement. The condominium unit owners electing to participate in the
rental pool does not thereby receive any incidence of control or voting rights
in the operation of the rental pool. Condominium unit owners electing to
participate in the rental pool furthermore receive no interest, directly or
indirectly, in the affairs of registrant nor any parent or affiliate thereof.
5. USE OF PROCEEDS
The registrant is to be the recipient of all net proceeds of the sale of
the two hundred seventeen (217) condominium units covered by this prospectus.
Registrant may receive additional fees or compensation other than from the sale
of units in connection with the Saddlebrook project which additional fees and
compensation are described on page 14. Anticipated application of the proceeds
is summarized below, based upon the registrant's estimates of current and
projected expenses; however, the registrant makes no representations that all
of the two hundred seventeen (217) condominium units offered for sale will be
built or sold. The amounts set forth herein are subject to revision to the
extent of variations in sales price, proceeds, and expenses incurred.
Registrant does not contemplate applying any portion of the proceeds of the
Saddlebrook project for facilities which will be used for other projects.
<TABLE>
<S> <C>
(a) Construction of condominium units, including paving, parking,
landscaping, and interest on construction loans*. . . . . . . . . . . . . . . . . . . . . . . $ 18,289,000
(b) Clearing; paving; storm sewers; bridges; sanitary sewers; water,
including source purification, storage and fire protection
requirements** . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245,000
(c) Expenses of sales closing, including Florida documentary stamp tax
and Florida surtax, and related legal fees . . . . . . . . . . . . . . . . . . . . . . . . . 434,000
(d) Engineering and Architectural Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146,000
(e) Real estate commissions and other sales and promotion expenses . . . . . . . . . . . . . . . 1,606,438
(f) Current expenses of registration and distribution with SEC and related states . . . . . . . . . 40,000
(g) Repayment of loan from Pittway Corporation of Northbrook, Illinois
for funding of project to date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,601,462
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TOTAL PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 28,361,900
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</TABLE>
Registrant will retain title to the amenities and improvements thereto
described in subsection (c) above and, therefore, this item could also be
considered a return to Registrant.
* This amount may be financed through construction loans, in part.
** Additional water and sewer charges are included in the monthly maintenance
fees (page 60).
The proceeds from the sale of the two hundred seventeen (217) condominium
units covered by this prospectus will first be applied to satisfy the designated
sales commission. The balance of the proceeds from the sale of the two hundred
seventeen (217) condominium units will then be applied to expenses as generally
outlined hereinabove, including payments for principal and interest on any
portions of loans related to recreational facilities and general project
development other than construction of condominium units. The balance of the
proceeds, if any, will be applied to future operations, future land acquisition,
administrative costs and profits.
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