<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(E) OF THE SECURITIES EXCHANGE ACT OF 1934)
HOMEFREE VILLAGE RESORTS, INC.
HOMEFREE INVESTORS L.P.
(NAMES OF THE ISSUERS)
HOMEFREE VILLAGE RESORTS, INC.
HOMEFREE INVESTORS L.P.
CRAIG M. BOLLMAN, JR.
(NAMES OF THE PERSONS FILING STATEMENT)
COMMON STOCK, $.001 PAR VALUE
ASSIGNEE LIMITED PARTNERSHIP INTERESTS
--------------------------------------
(TITLES OF CLASSES OF SECURITIES)
437 393 101 (COMMON STOCK)
437 393 200 (ASSIGNEE LIMITED PARTNERSHIP INTERESTS)
----------------------------------------------------
(CUSIP NUMBERS OF CLASSES OF SECURITIES)
CRAIG M. BOLLMAN, JR., C/O HOMEFREE VILLAGE RESORTS, INC.
1400 S. COLORADO BOULEVARD, SUITE 410, DENVER, COLORADO 80222; (303) 757-3002
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(NAME, ADDRESS, AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES
AND COMMUNICATIONS ON BEHALF OF PERSONS FILING STATEMENT
This statement is filed in connection with (check appropriate box):
a. [X] The filing of solicitation materials or an information statement
subject to Regulation 14A, Regulation 14C, or Rule 13e-3 under the Securities
Exchange Act of 1934.
b. [_] The filing of a registration statement under the Securities Act of
1933.
c. [_] A tender offer.
d. [_] None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies. [X]
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CROSS-REFERENCES
The information required to be contained in this Schedule 13e-3 is
incorporated herein by reference from the attached Information Statement. The
following cross-references indicate where the information called for by each
Item of this Schedule 13e-3 is contained in the enclosed Information Statement.
ITEM SECTION TITLE(S) IN INFORMATION STATEMENT PAGE(S)
- ---- ----------------------------------------- -------
ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO
THE TRANSACTION.
(a) Cover page of the Information Statement. 1
(b) The Company--Organization. 4, 12
(c) There is no established trading market for 6, 22
the Company's stock and there has been limited
trading in such stock.
See also. Fairness of the Reverse Stock
Split--Factors Considered in Fairness Determination
--Current and Historical Market Prices for the
Common Stock.
(d) No dividends paid within the past two years.
(e) Not applicable.
(f) Not applicable.
ITEM 2. IDENTITY AND BACKGROUND.
(a) Homefree Village Resorts, Inc.
Homefree Investors, L.P.
Craig M. Bollman, Jr.
Bollman Associates, Inc.
(b) Business Address for All
1400 S. Colorado Boulevard, Suite 410
Denver, Colorado 80222
(c) Craig M. Bollman, Jr. is Chairman of the Board of
Directors and President of Homefree Village Resorts, Inc.
(d) Craig M. Bollman, Jr. has been employed as President
of Homefree Village Resorts, Inc. since 1974.
(e) With respect to all the persons named in paragraph (a)
above, the answer is negative.
(f) With respect to all the persons named in paragraph (a)
above, the answer is negative.
(g) Craig M. Bollman is a citizen of the United States.
Homefree Village Resorts, Inc. and Bollman Associates,
Inc. are Delaware corporations. Homefree Investors L.P. is
a Delaware limited partnership. For a description of their
principal business, see The Company. 4, 5
ITEM 3. PAST CONTACTS, TRANSACTIONS, OR NEGOTIATIONS.
(a) Not applicable.
(b) Not applicable.
ITEM SECTION TITLE(S) IN INFORMATION STATEMENT PAGE(S)
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ITEM 4. TERMS OF THE TRANSACTION.
(a) The Reverse Stock Split 5, 18
(b) Not applicable.
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
(a)-(e) Not applicable.
(f)-(g) Reasons for the Reverse Stock Split 5, 19
Termination of Reporting Company Status
ITEM 6. SOURCE AND AMOUNT OF FUNDS OR OTHER
CONSIDERATION.
(a) Financing of the Reverse Stock Split. 10, 30
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(b) Financing of the Reverse Stock Split. 10, 30
(c) Not applicable.
(d) Not applicable.
ITEM 7. PURPOSES, ALTERNATIVES, REASONS AND EFFECTS.
(a) Reasons for the Reverse Stock Split. 5, 19
(b) Reasons for the Reverse Stock Split--Form 21
of Transaction.
(c) Reasons for the Reverse Stock Split. 5, 19
(d) Reasons for the Reverse Stock Split; Conduct 5, 19
of the Company's Business after the Reverse
Stock Split; Exchange of Stock Certificates; Cash
Payments in Lieu of Shares; Certain Federal Income
Tax Consequences.
ITEM 8. FAIRNESS OF THE TRANSACTION.
(a) Fairness of the Reverse Stock Split. 6, 22
(b) Fairness of the Reverse Stock Split. 6, 22
(c) Further Stockholder Approval Not Required. 29
(d) Fairness of the Reverse Stock Split--Absence 24
of Independent Third-Party Valuation or
Arms'-Length Negotiation.
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(e) Fairness of the Reverse Stock Split--Conflicts 10, 26
of Interest.
(f) Not applicable.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
(a) Fairness of the Reverse Stock Split--Absence 24
of Independent Third-Party Valuation or
Arms'-Length Negotiation.
(b) Not applicable.
ITEM SECTION TITLE(S) IN INFORMATION STATEMENT PAGE(S)
- ---- ----------------------------------------- -------
(c) Not applicable.
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
(a) Security Ownership of Certain Beneficial Owners 23
and Management.
(b) Not applicable.
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS
WITH RESPECT TO THE ISSUER'S SECURITIES.
Not applicable.
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF
CERTAIN PERSONS WITH RESPECT TO THE
TRANSACTION.
(a) Fairness of the Reverse Stock Split--Conflicts 10, 26
of Interest.
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(b) Fairness of the Reverse Stock Split. 6, 22
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION.
(a) Lack of Appraisal Rights. 29
(b) Not applicable.
(c) Not applicable.
ITEM 14. FINANCIAL INFORMATION.
(a) Independent Auditor's Report, and Combined 33
Financial Statements and Consolidated Financial and
Exhibit A Statements of the Company and the
Partnership.
(b) Pro Forma Data - Not Material
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED.
(a) Financing of the Reverse Stock Split. 10, 30
(b) Not applicable.
ITEM 16. ADDITIONAL INFORMATION.
Not applicable.
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d) Notice of the Information Statement, the Information, Statement,
Exhibits and Letter of Transmittal to be sent to stockholders of the
Issuer (enclosed herewith).
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(e) Not applicable.
(f) Not applicable.
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
Dated _________, 1996
HOMEFREE VILLAGE RESORTS, INC.
By______________________________
Craig M. Bollman, Jr.
Chairman and President
HOMEFREE INVESTORS, L.P.
By: Homefree General Partners, General
Partner
By: Homefree Village Resorts, Inc.
By
Craig M. Bollman, Jr.
Chairman and President
Craig M. Bollman, Jr.
<PAGE>
HOMEFREE VILLAGE RESORTS, INC.
HOMEFREE INVESTORS, L.P.
1400 S. COLORADO BOULEVARD, SUITE 410
DENVER, COLORADO 80222
NOTICE REGARDING PROPOSED ONE-FOR-100,000
REVERSE STOCK SPLIT AND
RELATED TRANSACTIONS
To all Stockholders:
NOTICE IS HEREBY GIVEN that on March 12, 1996, the Company's Board of
Directors approved a proposal authorizing:
(1) An amendment to the Company's Certificate of Incorporation
effecting a one-for-100,000 reverse stock split of the Company's existing
Common Stock, $0.001 value per share ("Old Common Stock"), reducing the
authorized number of shares of common stock from 15,000,000 shares to
10,000 shares ("New Common Stock"); and
(2) The payment of cash in the amount of $0.05 per share of Old Common
Stock in lieu of the issuance of fractional shares of New Common Stock to
persons who would hold less than one full share of New Common Stock after
consummation of the proposed reverse stock split (together with the
amendment described in the preceding paragraph, the "Reverse Stock
Split").
The proposed Reverse Stock Split has been approved by the written consent
of Craig M. Bollman, Jr., the Company's majority stockholder. Such consent is
sufficient to approve the Reverse Stock Split under the Delaware General
Corporation Law, and no other vote or consent of stockholders is required or
will be sought in connection with the proposed Reverse Stock Split.
ACCORDINGLY, THE COMPANY IS NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT
TO SEND THE COMPANY A PROXY.
If the proposed Reverse Stock Split is effected, it is anticipated that the
Company will have fewer than 300 stockholders, and accordingly, will cease to
file certain reports with the Securities and Exchange Commission, as more fully
described in the accompanying Information Statement.
You are urged to read carefully the accompanying Information Statement and
other disclosure documents in their entirety for important information with
respect to the proposed Reverse Stock Split.
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The Company's Board of Directors may postpone or abandon the proposed
Reverse Stock Split at any time prior to its consummation, for any reason,
including without limitation if in the Directors' sole judgment, consummation of
the Reverse Stock Split would unduly deplete the Company's working capital.
HOMEFREE VILLAGE RESORTS, INC.
Dated ____________, 1996 By authority of the Board of Directors
By:
Craig M. Bollman, Jr.
Chairman and President
HOMEFREE INVESTORS L.P.
Dated ____________, 1996 By Homefree General Partners, its General
Partner
By Homefree Village Resorts, Inc., a
General Partner
By:
Craig M. Bollman, Jr.
President
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION OR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<PAGE>
STOCKHOLDERS SHOULD CAREFULLY READ THIS INFORMATION STATEMENT
AND THE ACCOMPANYING MATERIALS IN THEIR ENTIRETY
BEFORE MAKING ANY INVESTMENT DECISION.
INFORMATION STATEMENT
REGARDING THE PROPOSED
ONE-FOR-100,000 REVERSE STOCK SPLIT
AND RELATED TRANSACTIONS
BY
HOMEFREE VILLAGE RESORTS, INC.,
HOMEFREE INVESTORS L.P.
AND
CRAIG M. BOLLMAN, JR.
This Information Statement and the accompanying materials are being
provided by Homefree Village Resorts, Inc. (the "Company") to its stockholders
in connection with a proposed one-for-100,000 reverse stock split (the "Reverse
Stock Split") approved by the Company's Board of Directors on March 12, 1996 and
confirmed on September 7, 1996. This Information Statement and such
accompanying materials were first sent to stockholders on or about _______ 1,
199____.
The Company will bear all of the costs of the preparation and dissemination
of this Information Statement and the accompanying materials, which are
estimated to be approximately $50,000. No consideration has been or will be
paid to any officer, director, or employee of the Company in connection with the
proposed Reverse Stock Split or the preparation and dissemination of this
Information Statement and the accompanying materials or otherwise in connection
with the proposed Reverse Stock Split.
The Company is not asking shareholders for a proxy and shareholders are not
to send the Company a proxy.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
After the Reverse Stock Split, the Company will no longer be subject to
registration under the Securities and Exchange Act of 1934
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AND THEREFORE WILL NOT BE A REPORTING COMPANY WITH RESPECT TO ITS
STOCKHOLDERS.
THE REVERSE STOCK SPLIT WILL RESULT IN SHAREHOLDERS OWNING LESS THAN
100,000 SHARES OF COMMON STOCK RECEIVING $.05 FOR EACH SHARE OF COMMON STOCK
(INCLUDING THE PAIRED LIMITED PARTNERSHIP INTEREST) THAT SUCH SHAREHOLDERS
OWN.
Shareholders must hold at least 100,000 shares of common stock in order to
receive on full share of common stock after the Reverse Stock Split.
Shareholders will receive the same number of paired limited partnership
interests as they would receive shares of common stock after the Reverse Stock
Split.
Mr. Bollman also owns all the shares of stock of Bollman Associates, Inc.,
a co-general partner of Homefree Investors L.P. (the "Partnership"), and
therefore Bollman Associates, Inc. will also be deemed to be an affiliate of the
Company. The principal business address of Mr. Bollman, a U.S. Citizen, Bollman
Associates, Inc., the Partnership and the Company is 1400 S. Colorado Boulevard,
Suite 410, Denver, Colorado 80222.
Correspondence with respect to the proposed Reverse Stock Split should be
addressed to the Secretary of the Company at the Company's principal executive
office at 1400 S. Colorado Boulevard, Suite 410, Denver, Colorado 80222.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
SUMMARY OF THE REVERSE STOCK SPLIT............ 4
SPECIAL FACTORS
The Company................................. 12
The Reverse Stock Split..................... 18
Reasons for the Reverse Stock Split......... 18
Fairness of the Reverse Stock Split......... 23
Conflicts of Interest....................... 27
Conduct of the Company's Business
after the Reverse Stock Split.............. 27
Further Stockholder Approval Not Required... 29
Lack of Appraisal Rights.................... 29
Postponement or Abandonment................. 29
Effective Time.............................. 30
Exchange of Stock Certificates;
Cash Payments in Lieu of Shares............ 30
Financing of the Reverse Stock Split........ 31
Certain Federal Income Tax Consequences..... 31
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT............. 33
FINANCIAL INFORMATION......................... 34
OTHER INFORMATION;
DOCUMENTS INCORPORATED BY REFERENCE.......... 34
</TABLE>
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SUMMARY OF THE PROPOSED REVERSE STOCK SPLIT
AND RELATED TRANSACTIONS
The following is a summary of certain information set forth in greater
detail elsewhere in this Information Statement. It does not purport to be
complete, and is qualified in its entirety by the more detailed information set
forth elsewhere in this Information Statement.
THE COMPANY
Homefree Village Resorts, Inc. (the "Corporation") is a Delaware
corporation. Homefree Investors L.P. (the "Partnership") is a Delaware limited
partnership formed by the Corporation in 1987 and which has not commenced
operations and has no assets or properties. The shares of common stock, $0.001
par value per share, of the Corporation, and the assignee limited partnership
interests, $0.001 par value per unit, of the Partnership, are "paired" on a one-
for-one basis and may only be transferred in units consisting of one share of
common stock of the Corporation and one unit of assignee limited partnership
interest in the Partnership. Limited Partnership interests may not be traded
separately from the paired common stock. As of May 19, 1996, the Company had
outstanding 10,483,982 shares of common stock and an equal number of "paired"
assignee limited partnership units, which were held of record by approximately
548 holders. Unless expressly otherwise stated, or unless the context requires
otherwise, references in this Information Statement to the Company include the
Corporation and its wholly owned subsidiary, Resortparks of America, Inc., and
the Partnership, and references to shares of the Corporation's common stock
include the assignee limited partnership interests in the Partnership that are
paired with such shares.
Craig M. Bollman, Jr. is the Chairman of the Board of Directors and
President of the Corporation, and owns in his own name 6,325,288 shares (60.3%)
of the Common Stock of the Company. He has been associated on a full time basis
with the Company and a predecessor since 1974. Mr. Bollman, as controlling
stockholder of the Company, and Bollman Associates, Inc., will be deemed to be
an affiliate of the Company. Mr. Bollman and Bollman Associates, Inc. have
adopted the Company's Board of Directors' analysis in this Statement as if it
were their analysis.
The Company is engaged primarily in the development and operation of adult
recreational communities containing rental sites for manufactured homes and
recreational homes. In recent years, the Company has also focused on the
development of recreational resort communities in Mesa, Arizona that offer
extensive recreational facilities and social activities designed to appeal to
active pre-retirement and retirement age people. The Company operates
<PAGE>
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and has interests in one community containing a total of approximately 832
rental sites located in Arizona. The Company also has interests in two
communities containing approximately 2,300 rental sites located in Arizona. The
Company has interests in such communities through Aristek Properties, Ltd., and
Aristek Western Properties Limited Partnership, in which the Corporation is the
General Partner. The Company's objectives are to create and participate, through
such partnerships, in the cash flow from these communities and to share in
appreciation in the value of such properties. The Company also receives income
from development, management, and administrative services.
See "Special Factors -- The Company."
THE REVERSE STOCK SPLIT
On March 12, 1996 and on September 7, 1996, the Company's Board of
Directors approved a proposal authorizing:
(1) An amendment to the Company's Certificate of Incorporation
effecting a one-for-100,000 reverse stock split of the Company's existing
Common Stock, $0.001 par value per share ("Old Common Stock"), reducing the
authorized number of shares of common stock from 15,000,000 shares to
10,000 shares ("New Common Stock"); and
(2) The payment of cash in the amount of $0.05 per share of Old
Common Stock in lieu of the issuance of fractional shares of New Common
Stock to persons who would hold less than one full share of New Common
Stock after the proposed reverse stock split, (together with the amendment
described in the preceding paragraph, the "Reverse Stock Split").
REASONS FOR THE REVERSE STOCK SPLIT
The Company authorized the proposed Reverse Stock Split in order to "go
private," i.e., to reduce the number of its record stockholders to less than
300, which would permit the Company to discontinue the registration of its
Common Stock under the Securities Exchange Act of 1934 (the "Exchange Act").
The Board of Directors believes that neither the Company nor its stockholders
derive any material benefit from the continued registration of the Company's
Common Stock under the Exchange Act. The Company incurs significant direct and
indirect costs, however, as a result of the requirement that it comply with the
filing and reporting requirements applicable to public companies. Accordingly,
the Board of Directors believes that the continued expense and burden to the
Company of continued registration, including the requirement to file annual
and
<PAGE>
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quarterly reports, proxy statements, and other documents with the SEC,
significantly outweigh any benefits to the Company or its stockholders as a
result of such registration. Further, since the Common Stock is rarely traded
and the Company has not been profitable, the Company does not believe that it
can raise funds in the public market, make acquisitions with its stock, or
otherwise avail itself of advantages of a public company. The Board of
Directors has determined that the proposed Reverse Stock Split is the most
expeditious and efficient method of changing the Company's status from that of a
publicly held reporting company to that of a privately held non-reporting
company.
In making this determination, the Board of Directors considered other means
of achieving this result, but rejected these alternatives because the Board of
Directors believed that the proposed Reverse Stock Split would be simpler and
less costly. These alternatives were:
(a) A tender offer at the same $.05 price per share, but the Board
believed it would not result in sufficient number of shares being tendered
so as to accomplish the going private objective. Most of the Company's
shareholders hold very small lots which have small value and it was
unlikely that many stockholders would affirmatively act to tender their
shares due to the small amount of proceeds which they would receive
(b) A purchase of shares in the open market. Although the last reported
prices were below $.05 per share, there was nominal trading activity in the
Company's shares and therefore, it would be highly unlikely that sufficient
shares could be acquired by the Company; and
(c) A statutory merger into a new company, but this procedure would not
only involve the same issues as the Reverse Stock Split, but also the
possibility of a costly appraisal process which the Company could not
afford. Moreover, these added costs would only reduce further the amount
of Company assets available to be paid to stockholder.
FAIRNESS OF THE REVERSE STOCK SPLIT
The Board of Directors has fully reviewed and considered the terms and
conditions of the proposed Reverse Stock Split and has unanimously determined
that the proposed Reverse Stock Split, taken as a whole, is fair to and in the
best interests of the Company and its stockholders. A further analysis of the
issue of fairness is discussed under "Special Factors -- Fairness of the Reverse
Stock Split."
The Board of Directors also believes that the proposed Reverse Stock Split
is fair to the Company and to stockholders who remain as stockholders of the
Company following the consummation of the Reverse Stock
<PAGE>
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Split because, as described above, the Board of Directors believes that the
price to be paid to stockholders who receive cash in lieu of shares of New
Common Stock is fair and that the Company will realize cost-savings
(approximately $90,000 annually) if as a result of the Reverse Stock Split it
ceases to be a reporting company under the Exchange Act.
The Board of Directors believes that the payment of cash in the amount of
$0.05 per share of Old Common Stock in lieu of the issuance of shares of New
Common Stock to persons who would hold less than one full share of New Common
Stock after the Reverse Stock Split, will enable stockholders to liquidate their
shares easily and at a fair price. The Common Stock of the Company is rarely
traded and is no longer traded in the over-the-counter market or NASDAQ, which
makes it difficult for shareholders to dispose of their shares.
The Board of Directors has discussed the proposed "going private" matter
at various meetings and a more complete discussion of the actions of the Board
are discussed under "Special Factors -- Reasons for the Reverse Stock Split."
The major advantage to the Company in going private would be the termination of
the reporting Company status and the resultant savings in the costs associated
with being a public company. The disadvantage to the shareholders in effecting
the Reverse Stock Split is that the shareholders will be paid a specified price
per share with no further opportunity to remain as stockholders of the Company
and benefit from any increase in value. The Board believes that the likelihood
of any increase in value would be highly unlikely, and therefore, it would be a
benefit to shareholders to receive the proposed price per share. The auditors
for the Company have issued a "going concern" opinion with respect to the future
of the Company, and if their views should be proven correct, then the public
shareholders, as well as the shareholders affiliated with Craig M. Bollman,
would likely lose all value in the Company. The Board believes that attempting
the going private transaction and their ability thereafter to operate as a
private company is the only possible way to keep the Company in existence and
not completely go out of business with no value to any shareholders.
The Reverse Stock Split will increase from 60.3% to approximately 79% the
percentage ownership of Mr. Bollman on the assumption that no less than
2,500,000 million shares would be eliminated by the Reverse Stock Split. The
book value of the shares of Craig Bollman, on the same assumption of his
percentage ownership of the Company, would decrease based on September 30, 1996
financials from $.042 per share, to $.039 per share after the Reverse Stock
Split. Although the Board believes that the Company could survive if the
obligations of a public company are eliminated, there is no assurance that this
can be accomplished. The Board also feels that if going private is not
accomplished, the likelihood of a complete failure of the Company could be
likely. Therefore, the Company's proposal to provide a fair value (as
hereinafter described) to the public shareholders is a way of allowing these
public shareholders to see some value versus the alternative of receiving their
ratable
<PAGE>
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share upon a potential liquidation of the Company, the amount of which
would be uncertain, and to permit the remaining shareholders to have a chance at
making the Company more successful than it has been.
The Partnership, Craig Bollman and Bollman Associates, Inc. have reviewed
all the factors relating to the Reverse Stock Split as provided by the Company
and concurs with and adopts the analysis of the Company, and each of them
believes that the Reverse Stock Split and consideration to the shareholders is
fair.
See "Special Factors--Reasons for the Reverse Stock Split."
TERMINATION OF REPORTING COMPANY STATUS
If the proposed Reverse Stock Split is effected, it is anticipated that the
Company will cease to be a reporting company under the Exchange Act. The
Reverse Stock Split is expected to be made effective upon the mailing of the
Notice thereof to the stockholders, although the Company may postpone or cancel
the Reverse Stock Split if circumstances warrant, such as due to a lack of
working capital. As a result, the Company would no longer file annual and
quarterly reports, proxy statements, and other documents with the SEC. In
addition, the Company would no longer be required to comply with the proxy rules
of Regulation 14A promulgated under Section 14 of the Exchange Act, and its
officers, directors, and 10%-or-greater stockholders would no longer be subject
to the reporting requirements and "short-swing" security trading restrictions
under Section 16 of the Exchange Act. Continuing stockholders will no longer be
entitled to receive annual reports and proxy statements and will no longer have
the benefit of a public market for their shares of the Company's stock.
See "Special Factors--Conduct of the Company's Business after the Reverse
Stock Split."
FURTHER STOCKHOLDER APPROVAL NOT REQUIRED
The proposed Reverse Stock Split has been approved by the written consent
of Craig M. Bollman, Jr., the Company's majority stockholder. Such consent is
sufficient to approve the Reverse Stock Split under the Delaware General
Corporation Law, and no other vote or consent of stockholders is required or
will be sought in connection with the proposed Reverse Stock Split.
ACCORDINGLY, THE COMPANY IS NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT
TO SEND THE COMPANY A PROXY.
<PAGE>
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POSTPONEMENT OR ABANDONMENT OF THE REVERSE STOCK SPLIT
The Company's Board of Directors may postpone or abandon the proposed
Reverse Stock Split at any time prior to its consummation, for any reason,
including without limitation if in the Directors' sole judgment, consummation of
the Reverse Stock Split would unduly deplete the Company's working capital.
LACK OF APPRAISAL RIGHTS
Pursuant to the Delaware General Corporation Law, dissenting stockholders
will not have appraisal rights if the proposed Reverse Stock Split is effected.
Stockholders who believe that they may be aggrieved by the proposed Reverse
Stock Split may have other rights under federal law or common law, such as
rights relating to the fairness of the proposed Reverse Stock Split and the
fiduciary responsibilities of corporate officers, directors, and stockholders.
The nature and extent of such rights, if any, may vary depending upon the facts
and circumstances.
EXCHANGE OF STOCK CERTIFICATES; CASH PAYMENTS IN LIEU OF SHARES
If the proposed Reverse Stock Split is effected, the stock certificates
formerly representing shares of Old Common Stock will cease to represent such
shares and thereafter will represent the shares of New Common Stock into which
they have been converted, or the right to receive a cash payment in lieu of such
shares, as the case may be, all as described below. Enclosed is a Letter of
Transmittal for use in exchanging old stock certificates for a new stock
certificate or cash payment. Note that Letters of Transmittal should not be
sent to the Company, but rather should be sent to American Stock Transfer &
Trust Company, the transfer agent and registrar for Old Common Stock.
Each stockholder who holds of record less than 100,000 shares of Old Common
--------------------------------------
Stock (the equivalent of one whole share of New Common Stock) should use
-----
the enclosed Letter of Transmittal to surrender his old stock
certificate(s) and the shares of Old Common Stock represented thereby for a
cash payment in an amount equivalent to $0.05 per share of Old Common Stock
represented by such certificate(s).
Each stockholder who holds of record at least 100,000 shares of Old Common
-------------------------------------
Stock (the equivalent of one whole share of New Common Stock) should use
-----
the enclosed Letter of Transmittal to exchange his old stock certificate(s)
for a new certificate representing the shares of New Common Stock into
which the shares of Old Common
<PAGE>
- 10 -
Stock formerly represented by the old stock certificate are converted
pursuant to the Reverse Stock Split.
PLEASE NOTE THAT ALL STOCK CERTIFICATES SENT TO THE TRANSFER AGENT SHOULD
BE DULY ENDORSED FOR TRANSFER TO THE COMPANY, WITH A MEDALLION SIGNATURE
GUARANTY, WHICH MAY BE OBTAINED FROM MOST BANKS AND BROKERAGE FIRMS. DO NOT SEND
-----------
IN YOUR STOCK CERTIFICATES WITHOUT A MEDALLION SIGNATURE GUARANTY, AS THEY WILL
- -------------------------------------------------------------------------------
BE RETURNED TO YOU.
- ------------------
See "Special Factors--Exchange of Stock Certificates; Cash Payments in Lieu
of Shares."
FINANCING OF THE REVERSE STOCK SPLIT
The Company estimates that the maximum cost that the Company will incur in
connection with the proposed Reverse Stock Split will be approximately $258,000,
consisting of estimated cash payments in lieu of shares of New Common Stock of
approximately $208,000 and estimated transactional expenses of approximately
$50,000. The Company intends to pay for such costs from its working capital
and, if needed, from funds which are expected to become available from repayment
by Monte Vista of a portion of its indebtedness to the Company, subject to the
Company's right to postpone or abandon the Reverse Stock Split.
See "Special Factors--Financing of the Reverse Stock Split."
DETRIMENTS TO COMPANY OR STOCKHOLDERS
There could be disadvantages to the Company or its shareholders as a result
of the Reverse Stock Split, such as the following:
1. The Company would no longer be public;
2. Most shareholders would not be able to participate in future growth of
the Company, if any;
3. The price of $.05 per share may not be fair;
4. Mr. Bollman may benefit as the remaining principal stockholder;
See "Special Factors - Detriments to Company or Stockholders."
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CONFLICTS OF INTEREST
The directors of the Company are Craig M. Bollman, Jr., the Company's
President, Chairman of the Board of Directors, and majority stockholder, Phyllis
A. Bollman, Mr. Bollman's spouse, and Taylor M. Bollman, Mr. Bollman's son.
The Board of Directors did not retain either an investment bank or other
financial adviser to render a report or opinion with respect to the fairness of
the proposed Reverse Stock Split to the Company or its stockholders or an
unaffiliated representative to represent the unaffiliated stockholders of the
Company in negotiating the terms of the Reverse Stock Split.
Mr. Bollman owns 60.3% of the Company's Common Stock. If the Reverse Stock
Split is consummated, Mr. Bollman's ownership interest in the Company would
increase due to the reduction in the number of public shareholders.
See "Special Factors--Fairness of the Reverse Stock Split - and Conflicts
of Interest."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The proposed Reverse Stock Split is not expected to have any material
federal income tax consequence to the Company, or to stockholders who receive
shares of New Common Stock in exchange for their shares of Old Common Stock. In
general, for federal income tax purposes stockholders who receive cash in
exchange for their shares of Old Common Stock will recognize taxable capital
gain or loss as a result of the transaction, provided they hold their Old Common
Stock as a capital asset on the date of exchange. Any such capital gain or loss
will be long-term capital gain or loss if the Old Common Stock had been held for
more than one year, and otherwise will be short-term capital gain or loss. THE
COMPANY HAS NOT SOUGHT, AND DOES NOT INTEND TO SEEK, A RULING OF THE INTERNAL
REVENUE SERVICE OR AN OPINION OF COUNSEL AS TO ANY TAX CONSEQUENCES OF THE
PROPOSED REVERSE STOCK SPLIT. EACH STOCKHOLDER IS ADVISED TO CONSULT HIS OWN
TAX ADVISOR AS TO THE LIKELY TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT IN THAT
STOCKHOLDER'S PARTICULAR CIRCUMSTANCES.
See "Special Factors--Certain Federal Income Tax Consequences."
<PAGE>
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END OF SUMMARY
<PAGE>
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SPECIAL FACTORS
THE COMPANY
ORGANIZATION. Homefree Village Resorts, Inc. (the "Corporation") is a
Delaware corporation. Homefree Investors L.P. (the "Partnership") is a Delaware
limited partnership formed by the Corporation in 1987 and which has not
commenced operations and has no assets or properties. The shares of common
stock, $0.001 par value per share, of the Corporation, and the assignee limited
partnership interests, $0.001 par value per unit, of the Partnership, are
"paired" on a one-for-one basis and may only be transferred in units consisting
of one share of common stock of the Corporation and one unit of assignee limited
partnership interest in the Partnership. As of May 19, 1996, the Company had
outstanding 10,483,982 shares of common stock and an equal number of "paired"
assignee limited partnership units, which were held of record by approximately
548 holders. Unless expressly otherwise stated, or unless the context requires
otherwise, references in this Information Statement to the Company include the
Corporation and its wholly owned subsidiary (Resortparks of America, Inc.) and
the Partnership, and references to shares of the Company's common stock include
the assignee limited partnership interests in the Partnership that are paired
with such shares.
BUSINESS. The Company is engaged primarily in the development and
operation of adult recreational communities containing rental sites for
manufactured homes and recreational homes. In recent years, the Company has
also focused on the development of recreational resort communities in Mesa,
Arizona that offer extensive recreational facilities and social activities
designed to appeal to active pre-retirement and retirement age people. During
1995, the Company operated and had interests in one community containing a total
of approximately 832 rental sites located in Arizona. The Company also has
interests in two communities containing approximately 2,300 rental sites located
in Arizona. The Company has interests in such communities through Aristek
Properties, Ltd. and Aristek Western Properties Limited Partnership, in which
the Corporation is the General Partner. The Company's objectives are to create
and participate, through such partnerships, in the cash flow from these
communities and to share in appreciation in the value of such properties. The
Company also receives income from development, management, and administrative
services.
THE CORPORATION. The Corporation is a Delaware corporation which was
organized in February 1972. The Corporation has been engaged in the business of
operating manufactured home communities since its organization. In 1977, the
Corporation, then called Metrix, Inc., acquired all of the capital stock of
Aristek Real Estate Corporation in exchange for 6,230,000 shares of Common
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Stock of the Company which were issued to the stockholders of that corporation,
including 4,449,600 shares to Craig M. Bollman, Jr. and Phyllis A. Bollman. The
name of the Corporation was changed to "Aristek Corporation," and subsequently
changed to "Aristek Communities, Inc." and then to "Homefree Village Resorts,
Inc." Aristek Real Estate Corporation itself was engaged in the development and
operation of manufactured home communities from 1974 to 1977. Since 1977, the
business of the Corporation has continued to consist primarily of the
development and operation of such communities. However, in recent years, the
Corporation has refocused its business on adult recreational communities
containing rental sites for manufactured homes. The Corporation conducts
substantially all of its business through the affiliated limited partnerships
described below.
RESORTPARKS. The Corporation owns 100% of the capital stock of Resortparks
of America, Inc. ("Resortparks"), a Delaware corporation organized in September
1982 to engage in the design, development and management of adult recreational
communities offering extensive recreational facilities and social activities to
pre-retirement and retirement age people. References herein to the Corporation
or the Company include Resortparks.
THE PARTNERSHIP. In July 1987, the Corporation formed the Partnership as a
Delaware limited partnership for the purpose of engaging in certain aspects of
future business opportunities of the type presently conducted by the
Corporation. The general partner of Homefree Investors L.P. is Homefree General
Partners, a Delaware general partnership, comprised of the Corporation and
Bollman Associates, Inc., a Delaware corporation, all of the capital stock of
which is owned by Craig M. Bollman, Jr., President and Chairman of the Board of
the Company. The Corporation owns 90% of Homefree General Partners and Bollman
Associates, Inc. owns 10%.
When it formed the Partnership, the Corporation intended to conduct its
business in conjunction with the Partnership. However, the Partnership never
commenced operations. The Company anticipates that, where possible, in future
real estate acquisitions the Partnership will acquire an ownership interest and
the Corporation will manage operations. The Corporation has no plans to
transfer the Corporation's assets to the Partnership.
The Partnership's Agreement of Limited Partnership (the "Partnership
Agreement") provides that it may engage in virtually any business activity,
although the primary focus of its business is intended to be investment in real
estate related activities, which may include, for example, investing in
securities of other real estate companies and participating in condominium
conversion programs. If the Partnership generates capital to invest, Homefree
General Partners, the general partner of the Partnership, anticipates making
investments in such areas. Although the Partnership has the power under state
law to make investments in securities of other entities, the Partnership cannot
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be engaged primarily in the business of investing, reinvesting or trading in
securities without subjecting itself to regulation under the Investment Company
Act of 1940. In such event, the Partnership would be subject to the limitations
and disclosure requirements of such act. The Partnership has no present
intention to engage in activities which would cause it to become subject to
regulation under the Investment Company Act of 1940 or to engage in non-real
estate related activities.
The Partnership currently has no employees. The Partnership intends to
utilize employees of the Corporation on an as-needed basis, and to contribute to
the compensation of such persons on a pro-rata basis.
AFFILIATED PARTNERSHIPS
ARISTEK PROPERTIES, LTD. The principal affiliated partnership of the
Company is Aristek Properties, Ltd. ("Aristek Properties"). Aristek Properties
was formed as a Colorado limited partnership in June 1976. The Corporation
holds a 1% interest in Aristek Properties as sole General Partner and an
additional 1% interest as a limited partner. Resortparks also owns a 1.3%
interest as a limited partner. The remaining 96.7% of limited partnership
interests is held by individual limited partners. The Corporation also held a
30% residual interest in Aristek Properties, which it relinquished in 1994. See
"Residual Interests in Affiliated Partnerships" below.
Although Aristek Properties has provided significant income tax benefits to
its limited partners, its primary objective is to create significant long-term
capital appreciation that may be realized by the limited partners and the
Corporation, as General Partner, through net proceeds from refinancing of the
properties, and ultimately, net proceeds from the sale of such properties or the
conversion of such properties to other residential or commercial uses and the
distribution of the resulting cash to the partners. The Corporation, as General
Partner of Aristek Properties, is also entitled to receive an annual
administrative fee (currently an amount equal to 2.5% of the capital
contributions of the partners), leasing commissions, management fees and
development fees. However, this fee has not been paid since 1993.
Aristek Properties has a 99% interest in Monte Vista I Joint Venture ("MV-
I"), an Arizona joint venture. The remaining interest in MV-I is owned by the
Corporation. Previously, Aristek Properties owned 60% and Aristek Western
Properties Limited Partnership (see "Aristek Western Properties Limited
Partnership" below) owned 40% of MV-I. Aristek Western transferred to Aristek
Properties and to the Corporation its 40% interest in MV-I, 39% to Aristek
Properties, and 1% to the Corporation.
The interests in MV-I were modified again in connection with a
restructuring of certain loans owed by Aristek Properties and MV-I to the
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Corporation. The obligors on such loans were not able to make principal and
interest payments. With the consent of most of the limited partners of Aristek
Properties, the Corporation agreed to extend these loans until June 30, 1998 in
return for a 7% annual interest rate and a 75% participation in MV-I's operating
cash flow, and in its net sale or refinancing proceeds after all liabilities
(including those payable to the Corporation) are satisfied. At the time of the
restructuring, the net amounts owed to the Corporation by MV-I were
approximately $4,053,341. The Corporation believes that such amount exceeded
the value of the net assets of MV-I, after payment of MV-I's other liabilities.
Aristek Properties has no material assets other than its interest in MV-I.
Since the Corporation is a creditor of both Aristek Properties and MV-I as
described above, the Corporation expects to be entitled to substantially all of
the equity value of MV-I in excess of MV-I's existing first mortgage.
In connection with obtaining such consent of the limited partners of
Aristek Properties, such consenting limited partners granted to the Corporation,
or its designee, an option to purchase their limited partnership interests in
Aristek Properties. This option may be exercised between January 1, 1997 and
November 30, 1998; in any event, the Corporation is required to exercise the
option by November 30, 1998. The purchase price will be equal to the greater of
$20,000 per limited partner Unit (an original $100,000 investment) or the fair
market value (based on appraisal) of such limited partnership unit. Holders of
twenty-six and one-half (26.5) Units granted the above described option, which
would result in a minimum total purchase price for all such Units of $530,000.
ARISTEK WESTERN PROPERTIES LIMITED PARTNERSHIP. The Corporation formed
Aristek Western Properties Limited Partnership ("Aristek Western"), a
Massachusetts limited partnership, in October 1984 for the purpose of acquiring,
financing, and developing or redeveloping adult recreational communities with
affordable rental homesites for manufactured homes, located primarily in the
western and southwestern United States. The Corporation has a 1% interest in
Aristek Western as the General Partner and a 1.625% limited partnership interest
and has residual equity interests as the General Partner and as a Special
Limited Partner. See "Residual Interests in Affiliated Partnerships" below.
Aristek Western purchased a 50% interest in a joint venture with an
unaffiliated third party in July 1985. The joint venture purchased two adult
recreational communities in Mesa, Arizona, named Good Life and Towerpoint. See
"Properties" below. In September 1985, Aristek Western acquired from the
Partnership a 30% interest in MV-I. This interest was increased to 40% in July
1986. This 40% interest was transferred to Aristek Properties and the
Corporation. See "Aristek Properties, Ltd." above.
<PAGE>
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RESIDUAL INTERESTS IN AFFILIATED PARTNERSHIPS
ARISTEK PROPERTIES, LTD. Prior to the restructuring described above, as
General Partner of Aristek Properties, the Corporation had a residual interest
in Aristek Properties that entitled it to receive 30% of all excess cash flow
from operations and net proceeds from the refinancing and sale of properties
after distributions have been made to the limited partners in an amount equal to
their initial capital investments. The Corporation relinquished its residual
interest in Aristek Properties as part of the loan restructuring described
above. As a result, the limited partners of Aristek Properties will be entitled
to all distributions, but only after the Corporation receives its loan repayment
and participating interest as described above.
ARISTEK WESTERN PROPERTIES LIMITED PARTNERSHIP. The Corporation has a
direct residual interest in Aristek Western that entitles the Corporation to 30%
of the excess cash flow from operations, refinancings, and sales of properties
when Aristek Western has made cash distributions to the limited partners of at
least $65,000 per unit and the sum of the cash distributions per unit plus the
product of the highest marginal federal income tax rate in effect for each year
times the aggregate net tax losses allocated per unit in each year equal the
initial capital investment. Aristek Western has not yet made any cash
distributions to its limited partners. The Corporation cannot presently predict
whether distributions will be made to the limited partners.
DEVELOPMENT ACTIVITIES. The Corporation, through Aristek Properties and in
conjunction with Resortparks, developed a community for recreational homes and
park model travel trailers in Mesa, Arizona, a city 20 miles east of Phoenix.
The community, called Monte Vista, is designed to appeal to active adults in the
pre-retirement and retirement age groups and is recreation-oriented.
Monte Vista planned a two-stage development process. During the first
stage, Monte Vista developed 832 recreational home rental sites and extensive
common facilities, including a 35,600 square foot social and recreation complex.
This first stage is on 80 acres owned by MV-I. Construction began in 1983 and
was substantially completed in December 1984. Monte Vista opened for occupancy
in January 1985.
During the second stage, assuming market conditions permit and financing
were available, Monte Vista may at some future date develop additional
manufactured home sites on a portion of 80 acres conveyed by Aristek Properties
to MV-I. See "Properties" below.
COMPETITION. The Corporation competes generally with all companies engaged
in community development and home construction.
<PAGE>
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The three properties in Mesa, Arizona compete in what is regarded as a
competitive market for adult recreational manufactured housing communities. The
Corporation continues to compete in this market by offering special amenities
and adult recreational and educational services.
Each of the Corporation's geographic markets includes competitors which are
larger and have greater financial and other resources than the Corporation.
PERSONNEL. During 1995 the Company employed two full-time employees.
PROPERTIES. The Corporation, through Aristek Properties and other related
limited partnerships, has ownership interests in the properties described below.
The Corporation operates the Monte Vista property described below.
MONTE VISTA. Monte Vista is an adult recreational community located in
Mesa, Arizona containing 832 sites for recreational homes. Most sites are
leased on an annual basis to residents who leave their homes at the site year-
round. Remaining sites are reserved for monthly and weekly rentals. Most
residents and guests stay at the community during the months from November
through April. During the peak months of January through March, Monte Vista
reached approximately 90% occupancy for the past five years. The effective
average occupancy based on annual rental income was approximately 95% during
1995. Monte Vista is owned by the Monte Vista I Joint Venture ("MV-I"), which
is owned 99% by Aristek Properties and 1% by the Corporation. At December 31,
1995, the Monte Vista property was subject to a mortgage in the amount of
approximately $5,015,345 held by a commercial lender.
MONTE VISTA II. In December 1983, the Company sold to Resortparks an 80-
acre parcel on which the development of Monte Vista II is planned. See
"Development Activities" below. This land was transferred to Aristek Properties
in April 1990, and then to Monte Vista in October 1991, and is subject to the
mortgage described under the caption "Monte Vista" above.
GOOD LIFE TRAVEL TRAILER RESORT. Good Life is an adult recreational
community located in Mesa, Arizona containing 1,198 sites for recreational
vehicles. Most sites are rented on an annual basis with the remainder rented on
a monthly or weekly basis. Most residents stay at the community during the
months from November through April. Good Life is owned by H-H Resorts Joint
Venture, which is owned 50% by Aristek Western and 50% by Hankins Enterprises,
an unaffiliated third party. Good Life is managed by Hankins Enterprises and
has historically been 100% occupied from January through April and its effective
average occupancy based on annual rental income was 97% in 1995. At December
31, 1995, Good Life, together with the Towerpoint
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property described below, was subject to a mortgage in the amount of
approximately $9,113,071 held by a commercial lender.
TOWERPOINT TRAVEL TRAILER RESORT. Towerpoint is an adult recreational
community located in Mesa, Arizona containing 1,115 sites for recreational
vehicles. Most sites are rented on an annual basis with the remainder rented on
a monthly or weekly basis. Most residents stay at the community during the
months from November through April. Towerpoint is owned by H-H Resorts Joint
Venture and is managed by Hankins Enterprises. Towerpoint has historically been
100% occupied from November through April and its effective average occupancy
based on annual rental income was 98% in 1995. At December 31, 1995,
Towerpoint, together with the Good Life property described above, was subject to
a mortgage in the amount of approximately $9,113,071 held by a commercial
lender.
FURTHER INFORMATION. For further information with respect to the Company
and its business and operations, see the Company's Annual Report on Form 10-K
for the year ended December 31, 1995 and its Quarterly Report on Form 10-Q for
the quarter ended March 31, 1996, June 30, 1996, and September 30, 1996.
THE REVERSE STOCK SPLIT
On March 12, 1996, the Company's Board of Directors approved a proposal
authorizing:
(1) An amendment to the Company's Certificate of Incorporation
effecting a one-for-100,000 reverse stock split of the Company's existing
Common Stock, $0.001 par value per share ("Old Common Stock"), reducing the
authorized number of shares of common stock from 15,000,000 shares to
10,000 shares ("New Common Stock"); and
(2) The payment of cash in the amount of $0.05 per share of Old Common
Stock in lieu of the issuance of fractional shares of New Common Stock to
persons who would hold less than one full share of New Common Stock after
the proposed reverse stock split, (together with the amendment described in
the preceding paragraph, the "Reverse Stock Split").
The Board has made an analysis of why the Reverse Stock Split is fair and
that the price is fair to the stockholders. See "Special Factors -- Fairness of
the Reverse Stock Split."
<PAGE>
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REASONS FOR THE REVERSE STOCK SPLIT
GOING-PRIVATE TRANSACTION. The Board of Directors determined to effect the
proposed Reverse Stock Split in order to "go private," i.e., to reduce the
number of record stockholders of the Company to fewer than 300, which would
permit the Company to discontinue the registration of its Common Stock under the
Securities Exchange Act of 1934 (the "Exchange Act"). The Board of Directors
believes that neither the Company nor its stockholders derive any material
benefit from the continued registration of the Company's Common Stock under the
Exchange Act. The Company does not intend to raise capital in the public
securities markets, to use registered stock to effect acquisitions, or to avail
itself of other advantages of being a public company. Its Common Stock has been
de-listed by NASDAQ, and is thinly traded. The Company incurs significant
direct and indirect costs, however, as a result of the requirement that it
comply with the filing and reporting requirements applicable to public
companies: The Company annually incurs direct costs, including legal and
accounting expenses, of approximately $90,000 in years in which the minimum
filings with the Securities and Exchange Commission (the "SEC") are required.
It also incurs indirect costs as a result of, among other things, the management
time required to prepare and review such filings. Because the Company has only
one executive officer, the indirect costs caused by the diversion of this
officer's time from the Company's business can be substantial.
Accordingly, the Board of Directors believes that the continued expense and
burden to the Company of continued registration, including the requirement to
file annual and quarterly reports, proxy statements, and other documents with
the SEC, significantly outweigh any benefits to the Company or its stockholders
as a result of such registration. The proposed Reverse Stock Split is being
undertaken at this time because the sooner the transaction can be consummated,
the sooner the Company will cease to incur such expenses and burdens and the
sooner stockholders who receive cash in lieu of shares of New Common Stock will
receive and be able to reinvest or otherwise make use of such cash payments.
The Company could have benefited from these cost savings if it had gone
"private" earlier, but the Company wanted to make certain that full
consideration and opportunity was given by management to continuing its status
as a public company, before giving up such a status. Since the time of initial
Board discussions, the Company's operating results have not improved and in
fact, have deteriorated such that it became more important that the Company
attempt to go private and to have a better opportunity to turn around the
operations of the business to a profitable basis.
The Board initially discussed the Company's going private at a meeting on May
18, 1993, at which time four of the five Board of Directors were in attendance,
along with counsel to the Company. The Board discussed numerous factors,
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reporting on discussions which some members had with investment bankers and
Company counsel. The Board also discussed alternatives to going private. A
result of a full discussion, the Board voted to have the officers of the
Corporation investigate whether a reverse stock split would be the best method
of accomplishing a going private transaction and to determine what would be in
the best interest of the Company and its stockholders. Although the President
had discussions from time to time since the 1993 meeting, both with individual
directors and with Company counsel, no further action was taken by the Board
until toward the end of 1995 when preliminary discussions were had with
individual board members, as well as company counsel, to determine whether it
would be feasible to undertake a going private transaction.
On February 13, 1996, a Board of Directors meeting was held via telephone
conference call with four of the five directors being present, pursuant to a
duly called meeting. Company counsel prepared a memorandum for the Board to
discuss various items relating to a decision whether to undergo a reverse stock
split. The Board discussed these in great detail, including what an appropriate
price should be for the shares of stock and whether a fairness opinion from an
investment banking firm would be appropriate. Subsequent to that Board meeting,
there was further discussion with Company counsel and individual members of the
Board which were initiated by Craig Bollman. No formal vote was taken at that
Board meeting concerning the going private transaction. After further
discussion with Craig Bollman, certain Board members expressed a desire to
reduce the size of Board and include only family members of Craig Bollman.
Three board members, W. Phillip Marcum, Michael T. Oliver, and Anthony B.
Petrelli resigned on February 18, 1996, leaving Craig Bollman and Phyllis
Bollman as the remaining directors. These three directors, after discussion
with Mr. Bollman, concluded that they need not undertake any liability as
directors, resulting from the decisions involving the Reverse Stock Split, since
the stockholders after the Reverse Stock Split would be principally limited to
Mr. Bollman and a few others. Thereafter, the Board was reduced to three
members and Taylor Bollman, the son of Craig and Phyllis Bollman, was added to
the Board of Directors. These three board members discussed the factors similar
to those previously discussed by the Board, at a duly held Board meeting, and
voted to have the Company prepare the Information Statement and to take the
necessary corporate action to accomplish the going private transaction.
The initial plan for the Reverse Stock Split provided a procedure whereby a
stockholder with less than 100,000 shares could elect to purchase, at $.05 per
share, additional shares of the Company in order to round up the shareholdings
to 100,000. Such purchase would be made from the shares of the shareholders
with less than 100,000 who did not make such election. However, this procedure
could have constituted a public offering of the Company's shares and would have
been an expensive and time consuming procedure, and therefore, such plan was not
pursued. Both the original and the current plan is considered by the Board
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to be fair. The Board also considered the following alternatives to a Reverse
Stock Split, but rejected these as either being too costly or likely to be
ineffective, as compared to the simplicity of a Reverse Stock Split:
(a) A tender offer at the same $.05 price per share, but the Board believed
it would not result in sufficient number of shares being tendered so as to
accomplish the going private objective. Most of the Company's shareholders
hold very small lots which have small value and it was unlikely that many
stockholders would affirmatively act to tender their shares due to the
small amount of proceeds which they would receive
(b) A purchase of shares in the open market. Although the last reported
prices were below $.05 per share, there was nominal trading activity in the
Company's shares and therefore, it would be highly unlikely that sufficient
shares could be acquired by the Company; and
(c) A statutory merger into a new company, but this procedure would not
only involve the same issues as the Reverse Stock Split, but also the
possibility of a costly appraisal process which the Company could not
afford. Moreover, these added costs would only reduce further the amount
of Company assets available to be paid to stockholder.
DETRIMENTS TO COMPANY OR STOCKHOLDERS
The Board considered that there were, or could be, disadvantages to the
Company or its shareholders, including shareholders not affiliated with Mr.
Bollman, as a result of the Reverse Stock Split. Such disadvantages are:
1. The Company would no longer be public, and therefore, lose the
advantage of issuing shares pursuant to a public offering, or not be able to
issue publicly traded stock to acquire other companies. Further, any
shareholders who remain after the Reverse Stock Split will not have the
liquidity for the shares which might be the case in a public company.
2. Most of the shareholders would not be able to participate in the
future growth, if any, of the Company, although the "going concern" opinion of
the accountants might indicate that the Company's future potential for growth
may not be very great.
3. The price of $.05 per share may not be fair. No appraisal was
obtained, and such appraisal could have resulted in a higher price per share.
See "Special Factors - Fairness of the Reverse Stock Split."
4. Craig M. Bollman, Jr. (and other shareholders who currently own more
than 100,000 shares) will benefit because his percentage ownership
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interest in the Company will increase. Because the $.05 price per share is
slightly more than the book value per share as of September 30, 1996, the book
value per share of Mr. Bollman's would decrease from $.042 to $.039.
5. Mr. Bollman and his wife and son, as the sole members of the Board of
Directors, made the decision on the Reverse Stock Split and the price per share.
Such decision required the Board to act in a conflicts situation because of Mr.
Bollman's potential advantages from the Reverse Stock Split.
FORM OF TRANSACTION. The Board of Directors has determined that the
proposed Reverse Stock Split is the most expeditious and efficient method of
changing the Company's status from that of a publicly held reporting company to
that of a privately held non-reporting company. In making this determination,
the Board of Directors, considered other means of achieving this result, such as
making privately or publicly negotiated purchases of outstanding shares of its
Common Stock (including making a public tender offer for such shares) or
effecting a merger in which the Company's public stockholders would receive cash
instead of stock in the surviving corporation. These alternatives were rejected
because the Board of Directors believed that the proposed Reverse Stock Split
would be simpler to effect as well as less costly. In addition, the Board of
Directors considered that in the case of a merger, the Delaware General
Corporation Law would afford dissenting stockholders appraisal rights that they
would not be entitled to in the case of the proposed Reverse Stock Split. The
Board of Directors believes that the availability of appraisal rights could
unduly increase the complexity and potential cost of going private without
materially benefiting the Company's stockholders. Such costs for appraisals,
legal and accounting fees and management time would be too large a burden for
the Company and the Company believed that such procedure would not result in any
increase in value over $.05 per share. However, it is possible that an
appraisal procedure may have resulted in a value over $.05 per share. As
mentioned, appraisal rights were not a viable option for the Company since the
Company could not afford going through the appraisal process and having
uncertainty as to appraisal values and whether the process could be accomplished
within the financial resources of the Company. There was no attempt to solicit
potential buyers for the Company since the Company did not desire to sell its
business. A tender offer would not be made at any increased value for the
shares over $.05 per share, and it would not necessarily accomplish the
corporate purpose of reducing shareholders to a minimum level, and therefore,
there would be no benefit to the Company. Although, there would be a choice for
stockholders in a tender offer, there would be no point in the Company making
such an offer since there is no assurance that shareholders, particularly those
with very small lots, would tender the requisite number of shares which would
result in the Company being able to go private.
RULE 13E-3 TRANSACTION STATEMENT. In connection with the proposed Reverse
Stock Split, the Company has filed with the SEC a Rule 13e-3
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Transaction Statement on Schedule 13e-3. See "Other Information; Documents
Incorporated by Reference."
FAIRNESS OF THE REVERSE STOCK SPLIT
The Board of Directors has unanimously determined and reasonably believe
that the Reverse Stock Split is fair to those stockholders whose shares of Old
Common Stock would be purchased for cash because they did not own at least
100,000 shares of Old Common Stock. The Board considered numerous factors in
reaching its conclusion as to fairness:
1. Current and historical market prices of the Company's stock. The
Company's Common Stock is not listed on any stock exchange or quoted in the
National Association of Securities Dealers Automated Quotation (NASDAQ) system
and the Company does not receive reports with respect to trading in Common
Stock. The Company does not know of any market makers with respect to Common
Stock. The Common Stock is thinly traded: According to the records of the
Company's stock transfer agent, American Stock Transfer & Trust Company, an
aggregate of 75,148 shares of Common Stock were transferred during 1995. The
Company made inquiry of the initiating brokers with respect to a number of such
trades, but was not able to obtain any information with respect to the prices at
which these transfers were effected.
In September 1995, the Company received an inquiry from a stockholder who
wished to dispose of 9,900 shares of Common Stock in order to recognize a loss
for federal income tax purposes. The Company put this stockholder in touch with
a Company employee who had previously expressed an interest in acquiring shares
of Common Stock, which resulting in this stockholder selling these shares to
this employee for cash consideration of $0.05 per share. Except for such
isolated transaction there has not been, to the Company's knowledge, any sales
in recent years at any value near the proposed price of $.05 per share.
Therefore a stockholder under the present market conditions for the Company's
stock may not be able to sell his shares at or near $.05 per share.
2. Net Book Value. As of December 31, 1995, the net book per share of
Common Stock was approximately $.10. Such net book value was $.042 as of
September 30, 1996, as a result of the Company's loss of $.06 per share during
the year 1996. The Company's primary asset consists of net receivables from
Aristek Properties and MV-I. Because of significant uncertainties with respect
to the collectibility of these receivables, for financial accounting purposes,
as of December 31, 1994 the Company suspended recording interest income on
receivables from Aristek Properties, interest expense on amounts payable by the
Company to Aristek Properties (which may be set off against amounts owing to the
Company by Aristek Properties), and management fees payable by Aristek
<PAGE>
-25-
Properties to the Company, the net amount of which, as of December 31, 1995, was
approximately $1,500,000. The face amount of these net receivables (including
accrued interest) as of December 31, 1995, was $4,000,000. Because of the
uncertainties as to their collectibility, however, they are reflected in the
Company's financial statements at $1,500,000. The Company believes that such
valuation is appropriate and the debt or a reasonable portion thereof will be
collected at some future, but not immediate, date. At the time of the Board
vote on the Reverse Stock Split in March 1996, the book value was greater than
the purchase price, and the Board considered this to be an important factor.
Such book value was not weighted heavily in view of the Corporation's inability
to liquidate the receivables and the "going concern" issue described below. As
of September 30, 1996, the book value per share was $.042. However, book value
was a factor which was considered by the Board among all factors in determining
a price per share.
3. Going Concern Value. The audit report of the Company's independent
public accountants, Hein + Associates, LLP, with respect to the Company's
financial statements for the year ended December 31, 1995, included a "going-
concern" explanatory paragraph. The Company's financial statements are prepared
on the assumption that the Company will continue as a going concern, i.e., that
it will realize its assets and liquidate its liabilities in the normal course of
business. Given that the Company has suffered losses of over $900,000 since the
end of 1990, and that it is anticipated that it will need additional investment
of cash to fund its operations, the Company's independent public accountants
have stated that there is substantial doubt as to the ability of the Company to
continue as a going concern. This was a key element in the Board's decision
since the failure of the Company could deprive all shareholders of any value if
there were not assets available for distribution to shareholders.
4. Liquidation Value. The Company has no current plan to effect any
liquidation of the Company. See "Special Factors -- Conduct of the Company's
Business after the Reverse Stock Split -- Absence of Planned Extraordinary
Transactions." As described above under the caption "Book Value", the Company's
primary asset consists of net receivables from Aristek Properties and MV-I. The
Board of Directors believes that the Company would not be able to realize the
full value of these receivables through liquidation, because it is unlikely that
any buyer would purchase these receivables except at a steep discount from their
face value, and that to realize the full value of the Aristek Properties and MV-
I net receivables, it is necessary that MV-I successfully complete the second
stage of the development process with respect to Monte Vista. Further, the loan
documents relating to the financing of Monte Vista require that Craig Bollman,
Jr. remain as the controlling shareholder of the company and that the Company
remain as General partner of Aristek Properties and Monte Vista. A liquidation
of Homefree, or a disposition of Monte Vista, would likely result in the
acceleration of the due date of mortgage financing for
<PAGE>
-26-
Monte Vista, thereby making it even more difficult to realize value for the
Company with respect to such receivables. The Board believed that a liquidation
would not result in any increased value over book value, and possibly a lesser
amount for the reasons noted above.
ABSENCE OF INDEPENDENT THIRD-PARTY VALUATION OR ARMS'-LENGTH NEGOTIATION.
The Company has not received any report, opinion, or appraisal from any outside
party that is materially related to the proposed Reverse Stock Split. In light
of the circumstances, including the directors' knowledge of and familiarity with
the Company's own business, financial condition, operating results, cash flows,
assets, liabilities, and prospects, as well as with general economic, industry,
and market conditions and prospects, the wide variety of factors considered in
connection with its evaluation of the fairness of the proposed Reverse Stock
Split, the Board of Directors did not consider it necessary to retain either an
investment bank or other financial adviser to render a report or opinion with
respect to the fairness of the proposed Reverse Stock Split to the Company or
its stockholders or an unaffiliated representative to represent the unaffiliated
stockholders of the Company in negotiating the terms of the Reverse Stock Split.
The primary factor considered by the Board of Directors in determining not to
retain the services of such a financial adviser or unaffiliated representative
was its belief that the cost of such services would be excessive relative to the
size of the transaction and the potential benefits to the Company and its
stockholders. The cost of such an appraisal or investment banking opinion would
have drained even more assets of the Company, making it more unlikely that the
stockholders would be able to receive cash of $.05 per share on the Reverse
Stock Split.
ABSENCE OF FIRM OFFERS FOR ALTERNATIVE TRANSACTIONS. The Company is not
aware of any firm offers made by any unaffiliated persons during the preceding
eighteen months for the merger or consolidation of the Company with or into such
person or of such person with the Company, for the sale or other transfer of all
or any substantial portion of the Company's assets, or for securities of the
Company that would enable the holder thereof to exercise control of the Company.
The Company did not seek or solicit any proposals for any such merger,
consolidation or sale.
The Board considered what value could be received by the Company upon the
sale of its principal asset, which is the note receivable from APL and Monte
Vista. Salability of that note is based on an evaluation of the likelihood that
the Monte Vista project has sufficient value to allow for the full value of the
note to be paid. The note is definitely due in June 1998 and is payable only to
the extent of available cash flow from the Monte Vista project or from sale or
refinancing proceeds, if any, before that time. The Monte Vista project has
been operating substantially on a break-even basis, paying only its debt service
under a first mortgage of over $5,000,000. Although projections indicate a
slight
<PAGE>
-27-
increase in the cash flow, it was considered by the Board not likely that a
purchaser would pay any more and may possibly pay less than the value of that
receivable as reflected on the books of the Company which is approximately
$1,500,000 even though the face value is approximately $4,000,000.
The accountants for the Company had raised a "going concern" opinion in
respect to the Company's 1995 financial statements. This was a factor
considered by the Board, among all of the other factors. The ability of the
Company to receive either repayments on its loan or any other additional income
which would permit it to meet its current level of expenses was a very important
factor. The Board felt that a key element in succeeding as a going concern was
to eliminate the costs of a public company. That would give it the most chance
to succeed even though it would require an initial payment and other costs in
order accomplish the going private transaction. By eliminating the public costs
there could be an annual savings of approximately $90,000 resulting from a
saving of annual audit fees of $60,000, bookkeeping and administrative fees of
$15,000, legal fees of $10,000, and miscellaneous other costs of $5,000. These
savings may permit the Company to have its other expenses met by its available
income from its management fees and some limited repayment of its loan from
Monte Vista. If this change were not made, it would be a material risk that the
Company could not survive.
By providing a payment of $.05 per share to the non-affiliated shareholders
pursuant to the Reverse Stock Split, it would provide a fair realization to
them, at the same time permitting the Company to survive for the benefit of the
remaining shareholders. The Board looked at the book value, no marketability
or pricing for any of its shares, the availability of funds of the Company, the
future prospects, the fact that a liquidation would not be beneficial, that the
Company was continuing to lose money and thereby depleting its assets that
continuing as a going concern would be difficult, and determined that price per
share was fair. The Board also considered that the possible disadvantage to the
non-affiliated shareholders of a repurchase of their shares at the present time
if the Company should turn the corner and become much more valuable in the
future. However, this was considered a very unlikely event and even less likely
if the public company costs were not eliminated.
In addition to a fair price, and depending upon a particular stockholder's
tax basis in his shares of Common Stock, the Reverse Stock Split may enable a
stockholder to obtain a tax benefit by recognizing a loss for federal income tax
purposes. The Company does not know the tax basis of shares owned by
shareholders, but believes that many shareholders have a tax basis in excess of
$.05 per share since trading activity, when there was reasonable such activity,
was at selling prices in excess of $.05 per share. See "Special Factors--
Certain Federal Income Tax Consequences." Moreover, by having their shares of
the Company's stock repurchased by the Company, stockholders will be able to
liquidate their investments in the Company without incurring brokerage
costs
<PAGE>
-28-
that, especially in the case of small stockholdings, would otherwise sharply
decrease or even eliminate the actual net proceeds of a sale by the
stockholder.
CONFLICTS OF INTEREST.
The directors of the Company are Craig M. Bollman, Jr., the Company's
President, Chairman of the Board of Directors, and majority stockholder, Phyllis
A. Bollman, Mr. Bollman's spouse, and Taylor M. Bollman, Mr. Bollman's son. Mr.
Bollman owns 60.3% of the Company's Common Stock.
As noted above, the Board of Directors did not retain either an investment
bank or other financial adviser to render a report or opinion with respect to
the fairness of the proposed Reverse Stock Split to the Company or its
stockholders or an unaffiliated representative to represent the unaffiliated
stockholders of the Company in negotiating the terms of the Reverse Stock
Split.
Mr. Bollman's percentage stock ownership interest in the Company would
increase from 60.3% to approximately 79% if the Reverse Stock Split is
consummated. His book value per share would decrease as of September 30, 1996
financials from $.042 per share to $.039 per share. Therefore, a possible
conclusion was that Mr. Bollman's ownership position would be enhanced as a
result of the Reverse Stock Split. Mr. Bollman believes that he and other Board
members were acting in a fiduciary manner in adopting the Reverse Stock Split.
It would result in an opportunity for the non-affiliated shareholders to receive
some current value for their shares, It left the risk of continuing the Company
to Mr. Bollman, who was willing to run this risk because the Company had a
better chance of survival by eliminating the obligations and cost of a public
company.
The Board believes it was acting in a fiduciary manner in considering the
issues of the Company's future as a "going concern" and the potential risks to
all stockholders if the Company should fail. In particular, the non-affiliated
shareholders were a primary concern so as to make certain that they receive fair
value for their shares since they were not able to continue as shareholders due
to the need to become a private company. The Board weighed all these factors
even though its members were all related to Mr. Bollman and that Mr. Bollman
could be deemed to benefit from the Reverse Stock Split.
Stockholders should be aware that the Conflicts of Interest in the decision
making by the Board of Directors is enhanced due to the Board's failure to
utilize an appraisal process, an independent third party evaluation, independent
directors or any arms' length negotiations. Any such procedure may have
resulted in a valuation higher than $.05 per share at the time of the Board's
determination.
<PAGE>
-29-
CONDUCT OF THE COMPANY'S BUSINESS AFTER THE REVERSE STOCK SPLIT
NO EFFECT ON CONTINUING BUSINESS AND OPERATIONS. The Company believes that
the proposed Reverse Stock Split will not have any effect on its business and
operations, and expects to continue to conduct such business and operations as
they are currently being conducted. If the Reverse Stock Split is effected,
stockholders who receive cash payments in lieu of shares of New Common Stock
will not remain as stockholders of the Company and therefore will not
participate in any future earnings or growth of the Company.
Although the Company's auditors raised an issue as to the Company's ability
to continue as a "going concern", the Company believes that "going private" will
enhance its chances in the future to conduct its business in a profitable
manner. The Company will save the costs of being public, management (Mr.
Bollman) will not have to deal with public company matters, and capital or
financing may be more readily available for a company which can operate without
having to deal with public shareholders. If the Company does not "go private",
it is more likely that it will not be able to continue which could cause a
further loss in the investment in the Company of both the public shareholders
and Mr. Bollman and his affiliates.
If feasible, based on economics and market conditions, the Monte Vista
Joint Venture, consisting of Aristek Properties (99%) and Homefree (1%), may
attempt to develop the remaining land at Monte Vista by using funds which may
become available from Monte Vista's operations or from its refinancing, and may
attempt to acquire other properties, including the interest of H & H Resorts
owned by Aristek Western.
TERMINATION OF REPORTING COMPANY STATUS. If the proposed Reverse Stock
Split is effected, it is anticipated that the Company will cease to be a
reporting company under the Exchange Act. As a result, the Company would no
longer file annual and quarterly reports, proxy statements, and other documents
with the SEC. In addition, the Company would no longer be required to comply
with the proxy rules of Regulation 14A promulgated under Section 14 of the
Exchange Act, and its officers, directors, and 10%-or-greater stockholders would
no longer be subject to the reporting requirements and "short-swing" security
trading restrictions under Section 16 of the Exchange Act. Continuing
stockholders will no longer be entitled to receive annual reports and proxy
statements and will no longer have the benefit of a public market for their
shares of the Company's stock.
CHANGES TO AUTHORIZED CAPITAL STOCK; TERMS OF STOCK UNCHANGED. If the
proposed Reverse Stock Split is effected, the number of authorized shares of the
Company's Common Stock will be reduced from 15,000,000 shares to
<PAGE>
-30-
10,000 shares. Apart from such change, the terms of the New Common Stock will
remain the same as those of the Old Common Stock.
CHANGES IN PROPORTIONATE STOCK OWNERSHIP AND SHARE VALUES. Stockholders
who remain stockholders of the Company after the Reverse Stock Split will
experience an increase in their percentage stock ownership in the Company as a
result of the elimination of the shares held by shareholders owning less than
100,000 shares, resulting in less outstanding shares of the Company. The use of
Company funds to finance the repurchase of shares and to pay transactional costs
of the Reverse Stock Split will cause a slight decrease in the Company's
assets.
ABSENCE OF PLANNED EXTRAORDINARY TRANSACTIONS. Other than as described in
this Information Statement, the Company has no current plan to effect any
extraordinary corporate transaction, such as a merger, reorganization,
liquidation, sale or transfer of a material amount of assets, change in its
present Board of Director or management, or change in dividend rate or policy,
indebtedness, or capitalization, or otherwise to effect any material change in
its corporate structure or business. The Company also has no current plan to
engage in any public offering of shares of Common Stock or other securities.
There is no assurance, however, that the Company will not form an intention to
engage in any of the foregoing transactions in the future.
FURTHER STOCKHOLDER APPROVAL NOT REQUIRED
The proposed Reverse Stock Split has been approved by the written consent
of Craig M. Bollman, Jr., the Company's majority stockholder. Such consent is
sufficient to approve the Reverse Stock Split under the Delaware General
Corporation Law, and no other vote or consent of stockholders is required or
will be sought in connection with the Reverse Stock Split. ACCORDINGLY, THE
COMPANY IS NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND THE
COMPANY A PROXY.
LACK OF APPRAISAL RIGHTS
Pursuant to the Delaware General Corporation Law, dissenting stockholders
will not have appraisal rights if the proposed Reverse Stock Split is effected.
Stockholders who believe that they may be aggrieved by the Reverse Stock Split
may have other rights under federal law or common law, such as rights relating
to the fairness of the Reverse Stock Split and the fiduciary responsibilities of
corporate officers, directors, and stockholders. The nature and extent of such
rights, if any, may vary depending upon the facts and circumstances.
<PAGE>
-31-
POSTPONEMENT OR ABANDONMENT
The Company's Board of Directors may postpone or abandon the proposed
Reverse Stock Split at any time prior to its consummation, for any reason,
including without limitation if in the Directors' sole judgment, consummation of
the Reverse Stock Split would unduly deplete the Company's working capital.
EFFECTIVE TIME
Subject to the rights of the Board of Directors to postpone or abandon the
proposed Reverse Stock Split, the Reverse Stock Split will be effected by filing
an amendment to the Company's Certificate of Incorporation with the Delaware
Secretary of State and will be effective upon such filing. The form of the
proposed amendment to the Company's Certificate of Incorporation is set forth
as Appendix A to this Information Statement.
----------
EXCHANGE OF STOCK CERTIFICATES; CASH PAYMENTS IN LIEU OF SHARES
LETTERS OF TRANSMITTAL. If the proposed Reverse Stock Split is effected,
the stock certificates formerly representing shares of Old Common Stock will
cease to represent such shares and thereafter will represent the shares of New
Common Stock into which they have been converted, or the right to receive a cash
payment in lieu of such shares, as the case may be, all as described below.
Enclosed is a Letter of Transmittal for use in exchanging old stock certificates
for a new stock certificate or cash payment.
Each stockholder who holds of record less than 100,000 shares of Old Common
--------------------------------------
Stock (the equivalent of one whole share of New Common Stock) should use
-----
the enclosed Letter of Transmittal to surrender his old stock
certificate(s) and the shares of Old Common Stock represented thereby for a
cash payment in an amount equivalent to $0.05 per share of Old Common Stock
represented by such certificate(s).
Each stockholder who holds of record at least 100,000 shares of Old Common
-------------------------------------
Stock (the equivalent of one whole share of New Common Stock) should use
-----
the enclosed Letter of Transmittal to exchange his old stock certificate(s)
for a new certificate representing the shares of New Common Stock into
which the shares of Old Common Stock formerly represented by the old stock
certificate(s) are converted pursuant to the Reverse Stock Split.
AGAIN, PLEASE NOTE THAT ALL STOCK CERTIFICATES SENT TO THE COMPANY SHOULD BE
DULY ENDORSED FOR TRANSFER
<PAGE>
-32-
TO THE COMPANY, WITH A MEDALLION SIGNATURE GUARANTY. DO NOT SEND IN YOUR STOCK
-------------------------
CERTIFICATES WITHOUT A MEDALLION SIGNATURE GUARANTY, AS THEY WILL BE RETURNED TO
- --------------------------------------------------------------------------------
YOU.
- ---
FINANCING OF THE REVERSE STOCK SPLIT
The Company estimates that the maximum cost that the Company will incur in
connection with the proposed Reverse Stock Split will be approximately $258,000
consisting of estimated cash payments in lieu of shares of New Common Stock of
approximately $208,000 and estimated transactional expenses of approximately
$50,000 (consisting primarily of legal and accounting expenses of approximately
$35,000, printing and mailing expenses of approximately $10,000, and
miscellaneous expenses of approximately $5,000 (including SEC filing fees of
approximately $50). The Company intends to finance such costs from its working
capital, and, if needed, from funds which may become available from repayment by
Monte Vista of a portion of its indebtedness to the Company. The Company is
presently owed by Monte Vista and Aristek Properties a sum in excess of
$4,000,000, which bears interest at the rate of 7 1/2% per year, but payable
only from the cash flow, if available, of Monte Vista.
The Company's Board of Directors may, however, postpone or abandon the
Reverse Stock Split at any time prior to its consummation, for any reason,
including without limitation if in the Directors' sole judgment, consummation of
the Reverse Stock Split would unduly deplete the Company's working capital.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
THE COMPANY HAS NOT SOUGHT, AND DOES NOT INTEND TO SEEK A RULING FROM THE
INTERNAL REVENUE SERVICE OR AN OPINION OF COUNSEL AS TO ANY TAX CONSEQUENCES OF
THE PROPOSED REVERSE STOCK SPLIT. THE FOLLOWING DISCUSSION SUMMARIZES CERTAIN
FEDERAL INCOME TAX CONSEQUENCES THAT THE COMPANY BELIEVES WOULD RESULT TO
STOCKHOLDERS WHO ARE RESIDENTS OF THE UNITED STATES AS
<PAGE>
-33-
A CONSEQUENCE OF THE REVERSE STOCK SPLIT. THIS DISCUSSION IS BASED ON CURRENT
LAW AS OF THE DATE OF THIS PROXY STATEMENT AND DOES NOT TAKE INTO ACCOUNT ANY
SPECIAL RULES THAT MAY AFFECT THE TREATMENT OF PARTICULAR STOCKHOLDERS, SUCH AS
DEALERS IN SECURITIES, TAX-EXEMPT ENTITIES, NON-RESIDENT ALIENS, OR FOREIGN
CORPORATIONS. THIS DISCUSSION IS INCLUDED FOR GENERAL INFORMATION ONLY, WITHOUT
REFERENCE TO THE PARTICULAR FACTS AND CIRCUMSTANCES OF ANY SPECIFIC STOCKHOLDER.
EACH STOCKHOLDER SHOULD CONSULT HIS OWN TAX ADVISOR WITH RESPECT TO THE FEDERAL
INCOME TAX CONSEQUENCES IN HIS OWN CIRCUMSTANCES, AND WITH RESPECT TO THE
EFFECTS OF APPLICABLE STATE, LOCAL, AND FOREIGN TAX LAWS AS TO WHICH NO
INFORMATION IS PROVIDED HERE.
TAX CONSEQUENCES TO THE COMPANY. The proposed Reverse Stock Split is
intended to qualify for federal income tax purposes as a tax-free reorganization
of the Company pursuant to Section 368(a) of the Internal Revenue Code of 1986,
as amended (the "Code"). Accordingly, the Company does not expect that it will
experience any tax consequences as a result of the Reverse Stock Split.
TAX CONSEQUENCES TO STOCKHOLDERS. The following discussion assumes each
stockholder holds his shares of Old Common Stock as a capital asset.
Exchange of Old Common Stock Solely for New Common Stock. A stockholder
who exchanges all of his Old Common Stock solely for New Common Stock will not
recognize any gain or loss on the exchange. The aggregate tax basis of the New
Common Stock received will be equal to the aggregate tax basis of the Old Common
Stock exchanged, and the holding period of the New Common Stock received will
include the holding period of the Old Common Stock exchanged.
Exchange of Old Common Stock Solely for Cash. A stockholder who exchanges
all of his Old Common Stock received in the transaction for cash will, assuming
he is not treated as owning any other New Common Stock immediately after the
Reverse Stock Split, recognize capital gain or loss equal to the difference
between the basis of the Old Common Stock surrendered and the cash received.
Such capital gain or loss will be long-term capital gain or loss, if the
stockholder's holding period for his Old Common Stock exceeds one year, and
otherwise will be short-term capital gain or loss.
For this purpose, stock "owned" immediately after the Reverse Stock Split
will include stock actually owned as well as stock constructively owned pursuant
to the rules of Section 318 of the Code (which in general attributes to a
taxpayer
<PAGE>
-34-
stock owned by certain related individuals and entities and stock that the
taxpayer has the right to acquire upon the exercise of options). In the event
such a stockholder actually or constructively owns shares of New Common Stock
immediately after the Reverse Stock Split, it is unclear whether the holder will
automatically recognize capital gain or loss or instead be required to treat the
entire amount of the cash received as a dividend. Such a holder may be required
to treat the entire amount of the cash received as a dividend unless the
redemption of the stockholder's shares is a substantially disproportionate
redemption of stock with respect to such stockholder or is not essentially
equivalent to a dividend, in each case under rules similar to the rules of
Sections 356(a)(2) and 302 of the Code.
BACKUP WITHHOLDING. Each stockholder who receives cash in lieu of shares
of New Common Stock will be required to provide the Company with a correct
Taxpayer Identification Number on the Form W-9 or substitute Form W-9 included
with the Letters of Transmittal and to certify that he is not subject to backup
withholding. FAILURE TO PROVIDE THE INFORMATION AND CERTIFICATION ON THE FORM
W-9 (OR SUBSTITUTE FORM W-9) MAY SUBJECT THE STOCKHOLDER TO 31% FEDERAL INCOME
TAX BACKUP WITHHOLDING WITH RESPECT TO ANY CASH PAYMENT FOR THE STOCKHOLDER'S
SHARES.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to
beneficial ownership of shares of Old Common Stock as of May 19, 1996 by (i)
each person or group who is known by the Company to own beneficially more than
5% of the issued and outstanding shares of Common Stock as of that date, (ii)
each director and each executive officer of the Company, and (iii) all directors
and executive officers of the Company, as a group. Except as otherwise
indicated below, to the best of the Company's knowledge each person listed below
has sole voting and investment power with respect to his shares of Common Stock,
except to the extent that such power may be with his or her spouse under
applicable law.
<TABLE>
<CAPTION>
Shares Beneficially Owned
--------------------------
Name Number Percent of Class
- ---- ------ ----------------
<S> <C> <C>
Craig M. Bollman, Jr. 7,036,940* 67.1*
c/o Homefree Village
Resorts, Inc.
1400 S. Colorado Boulevard, Suite 410
Denver, Colorado 80222
</TABLE>
<PAGE>
-35-
<TABLE>
<S> <C> <C>
All directors and executive 7,036,940* 67.1*
officers, as a group
</TABLE>
* Includes 6,325,288 shares held by Craig M. Bollman, Jr. Also includes
711,652 shares held by the Aristek Foundation, with respect to which Mr. Bollman
has sole voting and investment power, but in which he has no beneficial
interest. Mr. Bollman disclaims beneficial ownership of the shares held by the
Aristek Foundation.
Based on records with the Company's Transfer Agent as of May 19, 1996,
there were seven stockholders (including Craig M. Bollman, Jr. and The Aristek
Foundation) of record with more than 100,000 shares registered in each such
shareholder's name. Since some of these shareholders may be acting in a nominee
capacity, the Company cannot determine whether the beneficial ownership may be
more or less than 100,000 shares for a given shareholder.
FINANCIAL INFORMATION.
See attached Financial Statements of the Company.
OTHER INFORMATION; DOCUMENTS INCORPORATED BY REFERENCE
Pursuant to the Exchange Act, the Company files with the SEC periodic
reports and other documents relating to its business, financial condition, and
other matters. In connection with the Reverse Stock Split, the Company has
filed with the SEC a Rule 13e-3 Transaction Statement on Schedule 13e-3. The
Schedule 13e-3, including exhibits, and other filings made by the Company as
described above, may be inspected without charge, and copies may be obtained at
prescribed rates, at the public reference facilities maintained by the SEC at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
The Schedule 13e-3 is also available for inspection and copying during normal
business hours at the principal executive offices of the Company at 1400 S.
Colorado Boulevard, Suite 410, Denver, Colorado 80222.
<PAGE>
APPENDIX A
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF HOMEFREE VILLAGE RESORTS, INC.
Incorporated under the name "Metrix, Inc."
pursuant to a Certificate of Incorporation
filed with the Secretary of State of the State of Delaware
on February , 1972
--------------------
Homefree Village Resorts, Inc. (the "Company"), a Delaware corporation,
hereby certifies as follows:
FIRST. The total number of shares of Common Stock, $0.001 par value per
share, that the Company is authorized to issue is hereby reduced from 15,000,000
shares to 10,000 shares.
SECOND. Upon filing of this Certificate of Amendment, each share of the
Company's Common Stock, $.001 par value per share, issued and outstanding or
held in treasury immediately prior to such filing ("Old Common Stock") shall be
combined into and reclassified as, and shall become, one hundred thousandth
(1/100,000) of one fully paid and non-assessable share of the Company's Common
Stock, $0.001 par value per share ("New Common Stock"). Until surrendered, the
certificates formerly representing the shares of Old Common Stock, that have
been combined and reclassified in accordance with the foregoing shall thereafter
represent the shares of New Common Stock that they have been combined into and
reclassified as in accordance with the foregoing.
THIRD. The Company in its discretion may, but shall not be required to,
issue fractional shares of New Common Stock (whether as a result of the
combination and reclassification of shares hereby effected or otherwise) to any
person or entity who would not hold at least one whole share of New Common
Stock. If the Company determines not to issue fractional shares to any such
person or entity who would otherwise be entitled thereto, it may in lieu thereof
pay in cash the fair value of such fractional shares, as determined by the
Company's Board of Directors, whose determination shall be conclusive and
binding on all persons and entities. The Company shall be required to, issue
fractional shares to any person or entity holding at least one whole share of
New Common Stock after such reverse stock split and may pay cash in lieu of
fractional shares to any person or entity holding less than one whole share of
New Common Stock.
<PAGE>
-2-
The foregoing amendments were duly adopted in accordance with Sections 228
and 242 of the Delaware General Corporation Law, and written notice thereof has
been given as provided in Section 228(d) thereof.
Executed on ____________, 19___.
HOMEFREE VILLAGE RESORTS, INC.
By __________________________
Authorized Officer
<PAGE>
LETTER OF TRANSMITTAL
TO ACCOMPANY CERTIFICATES REPRESENTING SHARES
OF THE OLD COMMON STOCK OF HOMEFREE VILLAGE RESORTS, INC.
TO BE EXCHANGED FOR CERTIFICATES REPRESENTING SHARES
OF NEW COMMON STOCK OR CASH PAYMENTS IN LIEU OF SHARES
STOCKHOLDERS: PLEASE READ CAREFULLY THE IMPORTANT INSTRUCTIONS ON THE LAST PAGE
OF THIS LETTER OF TRANSMITTAL.
List of CertificatesEnclosed
and Number of Sharesof Old
Name and Address Common Stock Represented
of Registered Owner by Each Certificate
- ------------------- -------------------
Cert. No. No. Shares
-------- ----------
To: American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
Attention: Tammy Davis
Pursuant to the Information Statement dated ____________, 1996, of
Homefree Village Resorts, Inc. (the "Company") with respect to the one-for-
100,000 Reverse Stock Split described therein, enclosed are the above-listed
stock
<PAGE>
-2-
certificates, to be exchanged for stock certificates representing shares of New
Common Stock or cash payments in lieu of such shares, in accordance with the
following.
PART I STOCKHOLDERS OF RECORD OF LESS THAN 100,000 SHARES OF OLD COMMON
------------------------
STOCK, PLEASE COMPLETE THE FOLLOWING, AND DO NOT COMPLETE PART II
---
BELOW:
[__] I, the undersigned stockholder of the Company, holding of record less
than 100,000 shares of the Old Common Stock of the Company, hereby
surrenders my old stock certificate(s) and the shares of Old Common Stock
represented thereby for a cash payment in an amount equivalent to $0.05
per share of Old Common Stock represented by such certificates. (Note: To
avoid back-up withholding for federal income tax purposes, you must also
enclose a Form W-9 or substitute Form W-9.)
PART II STOCKHOLDERS OF RECORD OF AT LEAST 100,000 SHARES OF OLD COMMON STOCK,
-----------------------
PLEASE COMPLETE THE FOLLOWING, AND DO NOT COMPLETE PART I ABOVE :
---
I, the undersigned stockholder of the Company, holding of record at least
100,000 shares of the Old Common Stock of the Company, hereby exchange my
old stock certificate(s) for a new certificate representing the shares of
New Common Stock into which the shares of Old Common Stock represented by
my old stock certificate(s) are converted pursuant to the Reverse Stock
Split.
Please sign below exactly as your name appears on your stock
certificate(s). If acting as attorney, executor, trustee, or in other
representative capacity, please give full title as such. If stock is held
jointly, both owners should sign.
Dated:_______________, 1996 _______________________________________
(Signature)
Print name:
Dated:_______________, 1996 _______________________________________
(Signature of joint owner, if any)
<PAGE>
-3-
Print name:
STOCKHOLDER: PLEASE NOTE THE FOLLOWING IMPORTANT INSTRUCTIONS:
. ALL STOCK CERTIFICATES SUBMITTED SHOULD BE DULY ENDORSED FOR TRANSFER TO
THE COMPANY, WITH A MEDALLION SIGNATURE GUARANTY, WHICH MAY BE OBTAINED
FROM MOST BANKS AND BROKERAGE FIRMS. DO NOT SEND IN YOUR STOCK CERTIFICATES
WITHOUT A MEDALLION SIGNATURE GUARANTY, AS THEY WILL BE RETURNED TO YOU.
. THE COMPANY'S BOARD OF DIRECTORS MAY POSTPONE OR ABANDON THE PROPOSED
REVERSE STOCK SPLIT AT ANY TIME PRIOR TO ITS CONSUMMATION, FOR ANY REASON,
INCLUDING WITHOUT LIMITATION IF IN THE DIRECTORS' SOLE JUDGMENT,
CONSUMMATION OF THE REVERSE STOCK SPLIT WOULD UNDULY DEPLETE THE COMPANY'S
WORKING CAPITAL. IN SUCH EVENT, YOUR ENCLOSED STOCK CERTIFICATE(S) WILL BE
RETURNED TO YOU.
. TO AVOID BACK-UP WITHHOLDING WITH RESPECT TO ANY CASH PAYMENT IN LIEU OF
SHARES OF NEW COMMON STOCK, PLEASE COMPLETE, DATE, SIGN, AND RETURN THE
ENCLOSED FORM W-9 OR SUBSTITUTE FORM W-9.
<PAGE>
ARISTEK PROPERTIES, LTD.
(A LIMITED PARTNERSHIP)
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1995, 1994, AND 1993
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HOMEFREE VILLAGE RESORTS, INC. AND HOMEFREE INVESTORS L.P.
- ----------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT....................................................................... S-1
COMBINED BALANCE SHEETS - December 31, 1995 and 1994............................................... S-2
COMBINED STATEMENTS OF OPERATIONS - For the Years Ended December 31, 1995, 1994, and 1993.......... S-3
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY AND PARTNERS' DEFICIT - For the Years Ended
December 31, 1995, 1994, and 1993.............................................................. S-4
COMBINED STATEMENTS OF CASH FLOWS - For the Years Ended December 31, 1995, 1994, and 1993.......... S-5
HOMEFREE VILLAGE RESORTS, INC.
INDEPENDENT AUDITOR'S REPORT....................................................................... S-6
CONSOLIDATED BALANCE SHEETS - December 31, 1995 and 1994........................................... S-7
CONSOLIDATED STATEMENTS OF OPERATIONS - For the Years Ended December 31, 1995, 1994, and 1993...... S-8
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - For the Years Ended December 31,
1995, 1994, and 1993........................................................................... S-9
CONSOLIDATED STATEMENTS OF CASH FLOWS - For the Years Ended December 31, 1995, 1994, and 1993...... S-10
HOMEFREE INVESTORS L.P.
- -----------------------
INDEPENDENT AUDITOR'S REPORT....................................................................... S-11
BALANCE SHEETS - December 31, 1995 and 1994........................................................ S-12
STATEMENTS OF OPERATIONS - For the Years Ended December 31, 1995, 1994 and 1993.................... S-13
STATEMENTS OF PARTNERS' CAPITAL - For the Years Ended December 31, 1995, 1994, and 1993............ S-14
STATEMENTS OF CASH FLOWS - For the Years Ended December 31, 1995, 1994, and 1993................... S-15
NOTES TO FINANCIAL STATEMENTS...................................................................... S-16
ARISTEK PROPERTIES, LTD.
- ------------------------
INDEPENDENT AUDITOR'S REPORT....................................................................... S-27
CONSOLIDATED BALANCE SHEETS - December 31, 1995 and 1994........................................... S-28
CONSOLIDATED STATEMENTS OF OPERATIONS - For the Years Ended December 31, 1995, 1994, and 1993...... S-29
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT - For the Years Ended
December 31, 1995, 1994, and 1993.............................................................. S-30
CONSOLIDATED STATEMENTS OF CASH FLOWS - For the Years Ended December 31, 1995,
1994, and 1993................................................................................. S-31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS......................................................... S-33
</TABLE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Homefree Village Resorts, Inc.
Denver, Colorado
To the Partners
Homefree Investors L.P.
Denver, Colorado
We have audited the accompanying combined balance sheets of Homefree Village
Resorts, Inc. (a Delaware Corporation) and subsidiaries and Homefree Investors
L.P. (a Massachusetts limited partnership) as of December 31, 1995 and 1994, and
the related combined statements of operations, stockholders' equity and
partners' deficit, and cash flows for the years ended December 31, 1995, 1994,
and 1993. These financial statements are the responsibility of the Company's
and Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Homefree Village
Resorts, Inc. and subsidiaries and Homefree Investors L.P. as of December 31,
1995 and 1994, and the results of their operations and their cash flows for the
years ended December 31, 1995, 1994, and 1993 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company and the Partnership will continue as a going concerns, which contemplate
the realization of assets and liquidation of liabilities in the normal course of
business. As discussed in Note 1 to the financial statements, the Company and
the Partnership have suffered substantial operating losses, and anticipate the
need for additional cash to fund operations. These conditions raise substantial
doubt about the ability of the Company and the Partnership to continue as a
going concern. Management's plans in regard to these matters are also discussed
in Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
HEIN + ASSOCIATES LLP
Denver, Colorado
June 12, 1996
S-1
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES
AND HOMEFREE INVESTORS L.P.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-----------------------
1995 1994
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and equivalents $ 38,700 $ 10,600
Other current assets 4,000 9,600
---------- ----------
Total current assets 42,700 20,200
RECEIVABLES FROM UNCONSOLIDATED ENTITIES, net 8,620,200 8,915,600
INVESTMENTS IN UNCONSOLIDATED ENTITIES 82,400 94,400
PROPERTY AND EQUIPMENT, at cost:
Office furniture and equipment 102,900 95,100
Vehicles 25,000 25,000
----------- -----------
127,900 120,100
Accumulated depreciation (110,000) (103,600)
----------- -----------
Net property and equipment 17,900 16,500
LAND OPTION COSTS 195,600 195,600
----------- -----------
TOTAL ASSETS $ 8,958,800 $ 9,242,300
=========== ===========
LIABILITIES, STOCKHOLDERS' EQUITY AND PARTNERS' DEFICIT
-------------------------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 94,600 $ 93,600
Payable to AWP 150,500 -
Current maturities of long-term debt 44,400 -
Total current liabilities 289,500 93,600
LONG-TERM DEBT, less current maturities:
Unconsolidated entity 7,154,500 7,154,500
Other - 44,400
DEFERRED INCOME TAXES - 200,000
DEFERRED PROFIT 488,500 488,500
OTHER LIABILITIES, payable to unconsolidated entities - 3,400
COMMITMENTS AND CONTINGENCIES (Notes 1, 3 and 8)
STOCKHOLDERS' EQUITY AND PARTNERS' DEFICIT:
Preferred stock, $1.00 par value; 3,000,000
shares authorized; none issued and outstanding - -
Common stock, $.001 par value; 15,000,000 shares
authorized; 10,484,000 shares issued
and outstanding 10,500 10,500
Additional paid-in capital 3,537,000 3,537,000
Accumulated deficit (2,293,100) (2,061,800)
Partners' deficit - limited partners (228,100) (227,800)
----------- -----------
Total stockholders' equity and partners'
deficit 1,026,300 1,257,900
TOTAL LIABILITIES, STOCKHOLDERS' EQUITY AND
PARTNERS' DEFICIT $ 8,958,800 $ 9,242,300
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
S-2
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES
AND HOMEFREE INVESTORS L.P.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended December 31,
1995 1994 1993
---------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Management and administrative fees
from unconsolidated entities $ 245,400 $ 244,600 $ 253,400
Equity in earnings of AWP 11,000 10,800 16,900
Interest 512,100 555,300 594,800
----------- ----------- -----------
768,500 810,700 865,100
EXPENSES:
General and administrative 450,900 429,400 394,600
Interest 503,900 549,600 585,000
Equity in losses of APL 23,000 26,000 13,000
Loss on related party receivables 147,300 53,700 600
Administrative fee 75,000 75,000 75,000
1,200,100 1,133,700 1,057,100
LOSS BEFORE INCOME TAXES (431,600) (323,000) (203,100)
DEFERRED INCOME TAX BENEFIT 200,000 87,000 43,000
----------- ----------- -----------
NET LOSS $ (231,600) $ (236,000) $ (160,100)
=========== =========== ===========
NET LOSS PER PAIRED SHARE $ (.02) $ (.02) $ (.02)
=========== =========== ===========
WEIGHTED AVERAGE PAIRED SHARES
OUTSTANDING 10,484,000 10,484,000 10,484,000
=========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
S-3
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES
AND HOMEFREE INVESTORS L.P.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY AND PARTNERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
Additional
Paired Common Stock Paid-in Accumulated Partners'
Shares Amount Capital Deficit Deficit Total
---------- ------------ ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, January 1, 1993 10,484,000 $ 10,500 $ 3,537,000 $ (1,677,400) $ (216,100) $ 1,654,000
Net loss - - - (148,700) (11,400) (160,100)
---------- -------- ---------- ------------ ---------- -----------
BALANCES, December 31, 1993 10,484,000 10,500 3,537,000 (1,826,100) (227,500) 1,493,900
Net loss - - - (235,700) (300) (236,000)
---------- -------- ---------- ------------ ---------- -----------
BALANCES, December 31, 1994 10,484,000 10,500 3,537,000 (2,061,800) (227,800) 1,257,900
Net loss - - - (231,300) (300) (231,600)
---------- -------- ---------- ------------ ---------- -----------
BALANCES, December 31, 1995 10,484,000 $ 10,500 $3,537,000 $ (2,293,100) $ (228,100) $ 1,026,300
========== ======== ========== ============ ========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
S-4
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES
AND HOMEFREE INVESTORS L.P.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
December 31,
1995 1994 1993
----------- ----------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(231,600) $(236,000) $(160,100)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation 6,400 6,300 8,700
Amortization - - 11,100
Equity in losses (earnings) of unconsolidated 12,000 15,200 (3,900)
entities, net
Provision for loss on related party receivables 147,300 53,700 600
Deferred income taxes (200,000) (87,000) (43,000)
Changes in operating assets and liabilities:
Decrease (increase) in:
Accrued interest receivable - officer and
director (12,100) (15,300) (13,100)
Other assets 5,600 (23,200) 31,500
Receivables from unconsolidated entities (3,600) 49,600 15,800
Increase (decrease) in:
Accounts payable and accrued expenses 1,000 37,300 (27,600)
Other (3,400) - 3,100
--------- -------- --------
Net cash used in operating activities (278,400) (199,400) (176,900)
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash advances to officer and director (135,200) (38,400) -
Cash advances to unconsolidated entities - (700) (4,500)
Collection of advances from unconsolidated entities 299,000 374,900 10,000
Cash advance for land option - - (35,000)
Investment in unconsolidated entities - (50,000) -
Purchase of equipment (7,800) (11,300) (10,600)
--------- -------- ---------
Net cash provided by (used in) investing activities 156,000 274,500 (40,100)
CASH FLOWS FROM FINANCING ACTIVITIES:
Advance from related party 150,500 - -
Payments under land option contract - (88,400) (27,700)
Principal payments on long-term debt - (10,600) (4,800)
--------- --------- ---------
Net cash provided by (used in) financing activities 150,500 (99,000) (32,500)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 28,100 (23,900) (249,500)
CASH AND EQUIVALENTS, beginning of year 10,600 34,500 284,000
--------- -------- --------
CASH AND EQUIVALENTS, end of year $ 38,700 $ 10,600 $ 34,500
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
Cash paid for:
Interest $ 3,900 $ 11,000 $ 3,600
========= ========= =========
Income taxes $ - $ - $ -
========== ========= =========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCING ACTIVITIES -
Obligation under land option contract $ - $ 160,600 $ -
========== ========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
S-5
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Homefree Village Resorts, Inc.
Denver, Colorado
We have audited the accompanying consolidated balance sheets of Homefree Village
Resorts, Inc. (a Delaware Corporation) and subsidiaries as of December 31, 1995
and 1994, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the years ended December 31, 1995, 1994, and 1993.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Homefree Village
Resorts, Inc. and subsidiaries as of December 31, 1995 and 1994, and the results
of their operations and their cash flows for the years ended December 31, 1995,
1994, and 1993 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern, which contemplates the realization of
assets and liquidation of liabilities in the normal course of business. As
discussed in Note 1 to the financial statements, the Company has suffered
substantial operating losses and anticipates the need for additional cash to
fund operations. These conditions raise substantial doubt about the ability of
the Company to continue as a going concern. Management's plans in regard to
these matters are also discussed in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Hein + Associates llp
Denver, Colorado
June 12, 1996
S-6
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
--------------------------
1995 1994
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 38,700 $ 10,600
Other current assets 4,000 9,600
----------- -----------
Total current assets 42,700 20,200
RECEIVABLES FROM UNCONSOLIDATED ENTITIES, net 8,620,200 8,915,600
INVESTMENTS IN UNCONSOLIDATED ENTITIES 82,400 94,400
PROPERTY AND EQUIPMENT, at cost:
Office furniture and equipment 102,900 95,100
Vehicles 25,000 25,000
127,900 120,100
Accumulated depreciation (110,000) (103,600)
Net property and equipment 17,900 16,500
LAND OPTION COSTS 195,600 195,600
----------- -----------
TOTAL ASSETS $ 8,958,800 $ 9,242,300
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 94,600 $ 93,600
Payable to AWP 150,500 -
Current maturities of long-term debt 44,400 -
----------- -----------
Total current liabilities 289,500 93,600
LONG-TERM DEBT, less current maturities:
Unconsolidated entity 7,154,500 7,154,500
Other - 44,400
DEFERRED INCOME TAXES - 200,000
DEFERRED PROFIT 488,500 488,500
OTHER LIABILITIES, payable to unconsolidated entities - 3,400
COMMITMENTS AND CONTINGENCIES (Notes 1, 3 and 8)
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value; 3,000,000 shares authorized;
none issued and outstanding - -
Common stock, $.001 par value; 15,000,000 shares authorized;
10,484,000 shares issued and outstanding 10,500 10,500
Additional paid-in capital 3,537,000 3,537,000
Accumulated deficit (2,521,200) (2,289,600)
----------- -----------
Total stockholders' equity 1,026,300 1,257,900
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,958,800 $ 9,242,300
----------- -----------
</TABLE>
See accompanying notes to financial statements.
S-7
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993
<S> <C> <C> <C>
REVENUES:
Management and administrative fees from
unconsolidated entities $ 245,400 $ 244,600 $ 253,400
Equity in earnings of AWP 11,000 10,800 16,900
Interest 512,100 555,300 594,800
----------- ----------- -----------
768,500 810,700 865,100
EXPENSES:
General and administrative 450,600 429,100 383,200
Interest 503,900 549,600 585,000
Equity in losses of APL 23,000 26,000 13,000
Impairment of investment in HILP 300 300 300
Loss on related party receivables 147,300 53,700 600
Administrative fee 75,000 75,000 75,000
1,200,100 1,133,700 1,057,100
LOSS BEFORE INCOME TAXES (431,600) (323,000) (192,000)
DEFERRED INCOME TAX BENEFIT 200,000 87,000 43,000
----------- ----------- -----------
NET LOSS $ (231,600) $ (236,000) $ (149,000)
----------- ----------- -----------
NET LOSS PER COMMON SHARE $ (.02) $ (.02) $ (.01)
----------- ----------- -----------
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 10,484,000 10,484,000 10,484,000
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
S-8
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN ACCUMULATED
--------------------
SHARES AMOUNT CAPITAL DEFICIT TOTAL
---------- -------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
BALANCES, January 1, 1993 10,484,000 $ 10,500 $ 3,537,000 $ (1,904,600) $ 1,642,900
Net loss - - - (149,000) (149,000)
---------- ------- ---------- ----------- ----------
BALANCES, December 31, 1993 10,484,000 10,500 3,537,000 (2,053,600) 1,493,900
Net loss - - - (236,000) (236,000)
---------- ------- ---------- ----------- ----------
BALANCES, December 31, 1994 10,484,000 10,500 3,537,000 (2,289,600) 1,257,900
Net loss - - - (231,600) (231,600)
---------- ------- ---------- ----------- ----------
BALANCES, December 31, 1995 10,484,000 $ 10,500 $ 3,537,000 $ (2,521,200) $ 1,026,300
========== ======== =========== ============ ===========
</TABLE>
See accompanying notes to financial statements.
S-9
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (231,600) $ (236,000) $ (149,000)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation 6,400 6,300 8,700
Equity in losses (earnings) of unconsolidated
entities, net 12,000 15,200 (3,900)
Impairment of investment in HILP 300 300 300
Provision for loss on related party receivables 147,300 53,700 600
Deferred income tax benefit (200,000) (87,000) (43,000)
Changes in operating assets and liabilities:
Decrease (increase) in:
Accrued interest receivable - officer and
director (12,100) (15,300) (13,100)
Other assets 5,600 (23,200) 31,900
Receivables from unconsolidated entities (3,600) 49,600 15,500
Increase (decrease) in:
Accounts payable and accrued expenses 1,000 37,300 (27,600)
Other (3,400) - 3,100
---------- ---------- ----------
Net cash used in operating activities (278,100) (199,100) (176,500)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash advances to officer and director (135,200) (38,400) -
Cash advances to unconsolidated entities - (700) (4,500)
Collection of advances from unconsolidated entities 299,000 374,900 10,000
Cash advance for land option - - (35,000)
Investment in unconsolidated entities (300) (50,300) (400)
Purchase of equipment (7,800) (11,300) (10,600)
---------- ---------- ----------
Net cash provided by (used in) investing activities 155,700 274,200 (40,500)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advance from related party 150,500 - -
Payments under land option contract - (88,400) (27,700)
Principal payments on long-term debt - (10,600) (4,800)
Net cash provided by (used in) financing activities 150,500 (99,000) (32,500)
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 28,100 (23,900) (249,500)
CASH AND EQUIVALENTS, beginning of year 10,600 34,500 284,000
---------- ---------- ----------
CASH AND EQUIVALENTS, end of year $ 38,700 $ 10,600 $ 34,500
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
Cash paid for:
Interest $ 3,900 $ 11,000 $ 3,600
---------- ---------- ----------
Income taxes $ - $ - $ -
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCING ACTIVITIES -
Obligation under land option contract $ - $ 160,600 $ -
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
S-10
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Partners
Homefree Investors L.P.
Denver, Colorado
We have audited the accompanying balance sheets of Homefree Investors L.P. (a
Massachusetts limited partnership) as of December 31, 1995 and 1994, and the
related statements of operations, partners' capital and cash flows for the years
ended December 31, 1995, 1994, and 1993. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Homefree Investors L.P. as of
December 31, 1995 and 1994, and the results of its operations and cash flows for
the years ended December 31, 1995, 1994, and 1993 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern, which contemplates the realization
of assets and liquidation of liabilities in the normal course of business. As
discussed in Note 1 to the financial statements, the Partnership has suffered
losses from inception, and anticipates the need for additional cash to fund
operations. These conditions raise substantial doubt about the ability of the
Partnership to continue as a going concern. Management's plans in regard to
these matters are also discussed in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
HEIN + ASSOCIATES LLP
Denver, Colorado
June 12, 1996
S-11
<PAGE>
HOMEFREE INVESTORS L.P.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------------
1995 1994
ASSETS
<S> <C> <C>
CURRENT ASSET, receivable from Homefree Village Resorts, Inc. $ 150,500 $ -
--------- ----------
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
CURRENT LIABILITY, payable to AWP $ 150,500 $ -
COMMITMENT (NOTE 8)
PARTNERS' CAPITAL - -
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 150,500 $ -
========= ==========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
S-12
<PAGE>
HOMEFREE INVESTORS L.P.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
REVENUE $ - $ - $ -
EXPENSES:
Amortization of organization costs - - 11,100
General and administrative 300 300 400
----------- ----------- -----------
NET LOSS $ (300) $ (300) $ (11,500)
----------- ----------- -----------
NET LOSS PER LIMITED PARTNERSHIP INTEREST $ - $ - $ -
=========== =========== ===========
WEIGHTED AVERAGE LIMITED PARTNERSHIP 10,484,000 10,484,000 10,484,000
INTERESTS OUTSTANDING =========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
S-13
<PAGE>
HOMEFREE INVESTORS L.P.
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
General Limited
Partner* Partners Total
<S> <C> <C> <C>
BALANCES, January 1, 1993 $227,200 $(216,100) $ 11,100
Partner's capital contributions 400 - 400
Net loss (100) (11,400) (11,500)
-------- --------- --------
BALANCES, December 31, 1993 227,500 (227,500) -
Partner's capital contributions 300 - 300
Net loss - (300) (300)
-------- --------- --------
BALANCES, December 31, 1994 227,800 (227,800) -
Partner's capital contributions 300 - 300
Net loss - (300) (300)
-------- --------- --------
BALANCES, December 31, 1995 $228,100 $(228,100) $ -
======== ========= ========
</TABLE>
________________________
* The General Partner's capital account is eliminated for purposes of the
combined financial statements.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
S-14
<PAGE>
HOMEFREE INVESTORS L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
December 31,
1995 1994 1993
---------- ---------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (300) $ (300) $ (11,500)
Adjustments to reconcile net loss to net cash from
operating activities:
Amortization - - 11,100
Increase in:
Receivable from Homefree Village Resorts, Inc. (150,500) - -
Payable to related party 150,500 - -
--------- ---------- -----------
Net cash provided by operating activities (300) (300) (400)
CASH FLOWS FROM INVESTING ACTIVITIES - - -
CASH FLOWS FROM FINANCING ACTIVITIES -
Capital contributions by general partner 300 300 400
--------- ---------- -----------
NET CHANGE IN CASH - - -
CASH, beginning of year - - -
--------- ---------- -----------
CASH, end of year $ - $ - $ -
========= ========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
S-15
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND
SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF OPERATIONS:
-------------------------------------
Nature of Operations - The Company is engaged primarily in the development
--------------------
and operation of adult recreational communities containing rental sites for
manufactured homes and recreational homes. The Company has interests in
such communities through Aristek Properties, Ltd., and Aristek Western
Properties Limited Partnership, in which the Company is the general
partner. The Company's objectives are to create and participate, through
such partnerships, in the cash flow from these communities and share in
appreciation in the value of such properties. The Company also receives
income from development, management, and administrative services.
Paired Shares - Effective May 2, 1988, Homefree Village Resorts, Inc. and
-------------
subsidiaries (the Company) and Homefree Investors L.P. (the Partnership),
entered into a Pairing Agreement (the Agreement) which provided for the
pairing of assignee limited partnership interests of the Partnership with
shares of common stock of the Company. Subsequently, the Company funded a
distribution of one assignee limited partnership interest of the
Partnership for each share of common stock of the Company.
The shares of the Company's common stock, par value of $.001 per share, and
the assignee limited partnership interests, par value of $.001 per unit,
are "paired" on a one-for-one basis and may only be transferred in units
(Paired Shares) consisting of one share of common stock and one limited
partnership interest.
Continuing Operations - The accompanying financial statements have been
---------------------
prepared on a going concern basis which contemplates the realization of
assets and liquidation of liabilities in the ordinary course of business.
The Company has experienced a significant decrease in revenues over the
last several years due to cash flow difficulties experienced by Aristek
Properties Limited (APL), an investment of the Company of which it is also
general partner (see Note 3). APL has been unable to pay its management fee
to the Company; as a result, the Company ceased accruing management fee
revenues due from APL. The Company also has extended loans to help finance
APL's operations, which has severely impacted the Company's liquidity.
During 1994, the Company restructured debt arrangements with APL which
provides that all of APL's available cash flow will be utilized to repay
advances to the Company (see Note 8). As of December 31, 1995, the Company
has a significant net receivable due from APL and is obligated to purchase
the limited partners' interests in APL at a future date for a minimum of
$530,000. Recovery of the Company's net receivable from and investment in
APL is dependent upon further development of APL's underlying properties
and for APL to ultimately achieve profitable operations or the sale of APL
at a price in excess of its liabilities and partners investments.
These conditions raise substantial doubt about the ability of the Company
to continue as a going concern. The accompanying financial statements do
not include any adjustments which might result from the outcome of this
uncertainty.
Management has also taken action in recent years to reduce costs, including
staff reductions, relocation of the corporate offices, and contracting out
its accounting and administrative support functions. In addition, the
principal operating property of APL, Monte Vista I Joint Venture (Monte
Vista), recently obtained an additional $525,000 in bank financing, and
deferred the due date on its total bank debt of $5,015,000 until December
1998. Management believes that these actions will enable the Company to
continue as a going concern.
S-16
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND
SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
NOTES TO FINANCIAL STATEMENTS
Combined and Consolidated Financial Statements - The accompanying
----------------------------------------------
consolidated financial statements include the Company and its majority-
owned subsidiaries. The combined financial statements include the accounts
of the Partnership and the Company. All material intercompany balances and
transactions have been eliminated. The Company's majority-owned
subsidiaries are Resortparks of America, Inc. (RPA), which is 100% owned,
and Homefree General Partners (HGP), which is 90% owned. The minority
interest in HGP is not material.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------
Property and Equipment - Property and equipment is recorded at cost.
----------------------
Depreciation is provided utilizing accelerated methods over the estimated
useful lives of the related assets.
Investments in Unconsolidated Entities - Investments in unconsolidated
--------------------------------------
entities, which are all less than 20% owned, are accounted for by the
equity method because of the significance of the Company's influence as
general partner over operating and financial policies of its investees.
Impairment of Notes Receivable - Effective January 1, 1995, the Company
------------------------------
adopted Statement of Financial Accounting Standards No. 114, as amended
(FAS 114). Under FAS 114, the Company evaluated the notes receivable from
APL (see Note 8) for impairment based upon the estimated fair value of the
APL's assets, net of bank debt and other liabilities. No impairment was
recognized since the estimated fair value of APL's net assets is in excess
of the Company's net investment in this loan.
Income Taxes - The Company accounts for income taxes under the liability
------------
method of SFAS No. 109, whereby current and deferred tax assets and
liabilities are determined based on tax rates and laws enacted as of the
balance sheet date. The deferred tax benefit represents the net change in
the deferred tax asset and liability accounts.
No provision for Federal and state income taxes or related benefits has
been made for the Partnership since the Partnership's taxable income or
loss is required to be reported in the income tax returns of the partners.
The provision for income taxes will not bear a normal relationship to pre-
tax operating results on a combined basis, since no provision for income
taxes has been made for the Partnership.
Loss Per Share - The computation of net loss per share is based on the
--------------
weighted average number of shares of common stock and equivalent paired
shares outstanding during the respective years. The effect of outstanding
stock options on the computation of net loss per share is antidilutive for
all periods presented.
Cash and Equivalents - For purposes of the Statements of Cash Flows, the
--------------------
Company and the Partnership consider cash and equivalents to include all
highly liquid debt instruments purchased with an original maturity of three
months or less.
S-17
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND
SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
NOTES TO FINANCIAL STATEMENTS
Accounting Estimates - The preparation of financial statements in
--------------------
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and the accompanying notes. The actual
results could differ from those estimates.
The Company's financial statements are based on a number of significant
estimates including the realizability of the Company's investments and
receivables due from unconsolidated entities, and the realizability of land
option costs.
Reclassifications - Certain reclassifications have been made to the 1994
-----------------
and 1993 financial statements to conform to the presentation in 1995. The
reclassifications had no effect on the net loss for 1994 and 1993.
3. INVESTMENTS IN UNCONSOLIDATED ENTITIES:
--------------------------------------
APL was formed in 1976 and the Company is the sole general partner with a
1% general partner interest and a 2.3% limited partner interest. As general
partner of APL, the Company has a 30% residual interest which entitles it
to receive 30% of all excess cash flow from operations and net proceeds
from the refinancing or sale of properties. APL's principal asset was a 60%
joint venture interest in the Monte Vista I Joint Venture ("MVIJV").
Aristek Western Properties Limited Partnership ("AWP") owned the remaining
40% joint venture interest until December 1993 when APL increased its
ownership to 99% and the Company acquired the remaining 1% interest. MVIJV
owns an adult recreational community containing 832 sites for recreational
homes. Due to APL's controlling interest, the accounts of MVIJV are
consolidated in APL's financial statements.
As summarized in Notes 5 and 8, the Company has entered into significant
transactions with APL, resulting in $8.6 million of net receivables and
$7.2 million of long-term debt at December 31, 1995. Due to significant
uncertainties about the collectibility of the net receivables from APL,
effective January 1, 1992, the Company suspended recording management fees
and interest income which accrues on the principal balance of notes
receivable in excess of the principal balance of the note payable to APL.
Accordingly, all cash receipts from APL are treated as a reduction in the
principal balance due on the notes receivable. As of December 31, 1995, APL
owed the Company an additional $1.9 million, which represents the net
amount of such items which are not recorded in the accompanying financial
statements.
Effective June 30, 1994, the partners of APL consented to a restructuring
of the intercompany loans whereby all of APL's excess cash flow will be
utilized to repay outstanding advances. The interest rate was reduced from
8.1% to 7%, and the maturity date was extended to June 30, 1998. The
parties to the intercompany loans agreed to provide set-off rights in the
event of a default with respect to either the restructured notes or the
underlying debt of MVIJV. APL also agreed to pay additional interest equal
to 75% of the net proceeds from a refinancing or sale of the Monte Vista
property, after repayment of all liabilities. In connection with the
restructuring, the holders of 26.5 limited partner units of APL agreed to
provide the Company with an option to purchase their units for a minimum
purchase price of $20,000 per unit or a total of approximately $530,000.
Based on an appraisal of the Monte Vista property which is required to be
prepared at the date the Company exercises its option, the Company may be
required to pay a higher price per unit. The Company is required to
exercise its
S-18
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND
SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
NOTES TO FINANCIAL STATEMENTS
option between January 1, 1997 and November 30, 1998. No gain or loss was
recognized on this restructuring transaction.
Condensed balance sheets and operating statements of APL are presented below (in
thousands).
<TABLE>
<CAPTION>
BALANCE SHEETS
--------------
December 31,
--------------------------------
1995 1994 1993
<S> <C> <C> <C>
ASSETS:
Properties, net of depreciation $ 6,355 $ 6,596 $ 6,817
Receivables from the Company:
Notes 7,154 7,154 7,154
Accrued interest 764 256 1,325
Cash and temporary cash investments 665 833 490
Other assets 304 320 833
------- ------- -------
$15,242 $15,159 $16,619
======= ======= =======
LIABILITIES AND PARTNERS' DEFICIT:
Mortgage payable $ 5,015 $ 4,493 $ 4,050
Payable to the Company:
Notes 11,208 11,208 10,144
Accrued interest 694 198 2,297
Management and administrative fees 361 226 100
Other liabilities 1,542 1,490 1,290
Partners' deficit (3,578) (2,456) (1,262)
------- ------- -------
$15,242 $15,159 $16,619
======= ======= =======
</TABLE>
S-19
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND
SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
------------------------
<S> <C> <C> <C>
REVENUES:
Rentals and other operating income $ 2,045 $ 1,905 $ 1,836
Interest and other income 533 575 723
------- ------- -------
Total 2,578 2,480 2,559
Expenses:
Operating (1,973) (1,954) (1,847)
Interest (1,325) (1,310) (1,422)
Depreciation and amortization (402) (410) (406)
Minority interest - - 352
------- ------- -------
NET LOSS $(1,122) $(1,194) $ (764)
======= ======= =======
</TABLE>
Presented below is a reconciliation of APL's net loss to the Company's equity in
the losses of APL:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------
1995 1994 1993
<S> <C> <C> <C>
NET LOSS OF APL $(1,122) $(1,194) $ (764)
Adjustments to remove net expenses of APL which are
not recorded as income by the Company:
Interest expense 795 815 835
Interest income (508) (547) (588)
Administrative fees 95 95 95
Management fees 41 42 28
------- ------- --------
ADJUSTED LOSS $ ( 699) $ (789) $ (394)
======= ======= ========
EQUITY IN LOSS BASED ON 3.3% OWNERSHIP INTEREST $ (23) $ (26) $ (13)
======= ======= ========
</TABLE>
The Company also owns a 2.6% interest in AWP and is the general partner. AWP is
a limited partnership with investments in real estate. Until 1994, the Company
owned a 2.0% general partner interest in Grandview Club Ltd. (Grandview Club).
The primary property held by Grandview Club was foreclosed on by a bank in 1991
and the partnership's affairs were concluded in 1994 when all remaining assets
were liquidated.
S-20
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND
SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
NOTES TO FINANCIAL STATEMENTS
4. INCOME TAXES:
------------
Deferred income taxes relate exclusively to long-term assets and
liabilities and consist of the following as of December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Deferred tax assets (liabilities):
Notes receivable - installment sales $(509,000) $(509,000)
Partnership basis differences 38,000 (133,000)
Receivable reserves 485,000 547,000
Net operating loss carryforwards 198,000 65,000
Other 14,000 7,000
--------- ---------
Net 226,000 (23,000)
Valuation allowance related to deferred tax assets (226,000) (177,000)
--------- ---------
$ - $(200,000)
========== =========
</TABLE>
For income tax reporting purposes, the Company and RPA file a consolidated
return. The composition of the income tax benefit for the years ended
December 31, 1995, 1994, and 1993 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- -------- --------
<S> <C> <C> <C>
Current $ - $ - $ -
Deferred:
Federal 183,800 80,000 40,000
State 16,200 7,000 3,000
-------- ------- -------
Total $200,000 $87,000 $43,000
======== ======= =======
</TABLE>
Following is a reconciliation of the Company's effective tax rate on the
consolidated loss to the statutory U.S. Federal income tax rate for the
years ended December 31, 1995, 1994, and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Statutory rate (34)% (34)% (34)%
State taxes, net of Federal benefit (3) (3) (3)
Graduated tax rates - - 3
Change in valuation allowance (12) 10 12
---- ---- ----
Effective tax rate (49)% (27)% (22)%
==== ==== ====
</TABLE>
S-21
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND
SUBSIDIARIES AND HOMEFREE INVESTORS L.P
NOTES TO FINANCIAL STATEMENTS
As of December 31, 1995, the Company and RPA had a tax net operating loss
carryforward of approximately $500,000. This loss carryforward will expire
in 2009 and 2010 if not previously utilized to offset taxable income of the
Company and RPA.
During 1993 and 1994, the Company provided a valuation allowance for a
portion of the Company's deferred tax assets since the treatment of certain
items reported on the Company's income tax returns was uncertain. During
1995, the Internal Revenue Service completed an examination of the
Company's Federal income tax returns for 1992 through 1994 and it became
apparent that the items were properly reported. Accordingly, a portion of
the valuation allowance provided in prior years was reversed in 1995. The
valuation allowance also increased due to 1995 losses.
5. LONG-TERM DEBT:
---------------
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1994
------------ -----------
<S> <C> <C>
Restructured note payable - APL, interest at 7%, due June 1998. $ 7,154,500 $ 7,154,500
Contract payable for purchase of land, interest imputed at 12%,
due July 1997. 44,400 44,400
----------- -----------
Total 7,198,900 7,198,900
Less current maturities (44,400) -
----------- -----------
$ 7,154,500 $ 7,198,900
=========== ===========
</TABLE>
The scheduled annual principal reductions of long-term debt are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
-------------------------
<S> <C>
1996 $ 44,400
1998 7,154,500
-------------
Total $ 7,198,900
=============
</TABLE>
S-22
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND
SUBSIDIARIES AND HOMEFREE INVESTORS L.P
NOTES TO FINANCIAL STATEMENTS
6. STOCK INCENTIVE PLANS:
---------------------
The Company has a stock option plan which enables officers and employees of
the Company to purchase shares of common stock at its fair market value on
the date of the grant. The Company has reserved a total of 1,250,000 shares
for options which may be granted under the plan. Options may be exercised
for a maximum term of ten years after the date of grant. At December 31,
1995, all options previously granted under the Plan had expired.
The Company also has a stock appreciation rights plan, whereby up to
250,000 rights may be awarded to certain directors, officers and employees.
The plan entitles the holder of the rights to receive upon redemption, the
increase, if any, of the market value of the Company's common stock at the
redemption date over the market value at date of grant. Each right has a
maximum term of ten years after the date of grant. One right is deemed the
equivalent of one share of common stock. No rights have been granted as of
December 31, 1995.
7. LAND OPTION COSTS:
-----------------
In October 1993, the Company entered into an option agreement for the
purchase of a parcel of land which is adjacent to property owned by APL.
Under the option agreement, the Company paid $38,200 for the option and
agreed to loan an additional $125,000 to the seller. The option was
originally exercisable until April 1, 1995 through the payment of an
additional $46,800 and the application of the $125,000 loan to the purchase
price. During 1996, the parties agreed to extend the exercise period
through July 1, 1997.
At December 31, 1995 and 1994, the Company recorded the total payments
required to purchase the land as land option costs in the accompanying
balance sheets. The required payments were discounted at 12% to arrive at a
total cost for the land of $195,600.
8. RELATED-PARTY TRANSACTIONS:
--------------------------
Receivables from unconsolidated entities consist of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
Restructured notes receivable
from APL, 7%, due June 1998 $ 9,602,100 $ 9,901,100
Less allowance for doubtful accounts (1,000,000) (1,000,000)
----------- -----------
Net 8,602,100 8,901,100
Other receivables, unsecured:
Advances to AWP 6,400 3,600
Advances to Monte Vista 11,700 10,900
----------- -----------
Total $ 8,620,200 $ 8,915,600
=========== ===========
</TABLE>
S-23
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND
SUBSIDIARIES AND HOMEFREE INVESTORS L.P
NOTES TO FINANCIAL STATEMENTS
In 1990, the Company entered into two separate like-kind exchange
transactions with APL. In one transaction, the Company conveyed land to APL
in return for cash and a note receivable for $3,317,800. The Company has
deferred the gain of $488,500 on this transaction until sufficient cash
payments are received by the Company on the note to qualify the transaction
as a sale. In the second transaction, APL conveyed land to the Company in
return for cash and a note payable of $7,154,500 (see Note 5). Also, in
connection with this second transaction, the Company advanced (by
delivering a certificate of deposit) $5,300,000 in the form of a note
receivable to APL to enable APL to pay off bank debt it had on this
property. The Company also made advances to APL to enable it to finance its
operating needs.
The collection of notes receivable and advances from APL is dependent upon
future events, including the ability of Monte Vista to develop certain
additional land in a manner which will provide APL with a return of its
capital after the repayment of loans made to Monte Vista. At December 31,
1990, management provided an allowance of $1,400,000 and $900,000 against
these notes receivable and advances, respectively, due to the uncertainty
of the successful outcome of this development project. In 1991, because of
reservations regarding the ability of APL to continue operations with its
existing debt level, $1,300,000 of the obligation from APL was forgiven by
the Company with a corresponding reduction in the allowance previously
provided.
Receivable from Officer and Administrative Fees - Pursuant to the Homefree
Investors Limited Partnership Agreement, the Partnership is liable to pay
an annual administrative fee of $75,000 per year to HGP, which in turn pays
this fee to a general partner of HGP, which is an entity owned 100% by the
president of the Company. Such administrative fee is not payable until the
earlier of the date that, in the opinion of the general partners, the
Partnership has sufficient cash to pay the fee without jeopardizing the
Partnership or the Company, or upon liquidation of the Partnership. Due to
the lack of operations and cash flows of the Partnership, no amounts are
accrued in the Partnership's financial statements. However, this fee is
reflected as an expense in the Company's financial statements since the
Company is a general partner of the Partnership and, as such, may
ultimately be required to fund the obligations of the Partnership.
Over the past several years, the Company has made a series of cash advances
to, and on behalf of, the Company's president. These advances are evidenced
by formal notes which bear interest at approximately 3.8% as of December
31, 1995. The following is a summary of activity during the years ended
December 31, 1995, 1994, and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Notes receivable, beginning of year $ 520,900 $ 392,200 $ 316,600
Cash advances 210,200 113,400 62,500
Accrued interest 12,100 15,300 13,100
Deemed repayment (433,200) - -
--------- --------- ---------
Notes receivable, end of year 310,000 520,900 392,200
Less allowance for bad debts (310,000) (520,900) (392,200)
--------- --------- ---------
$ - $ - $ -
========= ========= =========
</TABLE>
S-24
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND
SUBSIDIARIES AND HOMEFREE INVESTORS L.P
NOTES TO FINANCIAL STATEMENTS
The president has always intended to repay the notes from the annual
administrative fee discussed above. Accordingly, since the Company will
ultimately be required to fund the administrative fee in order to collect
the receivables, for financial reporting purposes the initial $75,000 of
cash advances and/or accrued interest in each year has been recorded as the
Company's funding of the administrative fee. For cash advances and accrued
interest in excess of $75,000 per year, the Company recognized a loss due
to substantial uncertainty regarding the collectibility of such amounts.
During 1995, a total of $433,200 was designated for the deemed payment of
administrative fees and related repayment of notes receivable with no
effect on the Company's cash flows. For financial reporting purposes, the
deemed repayment of notes receivable from the president represents a write-
off of receivables which had been fully provided for through a related
allowance for bad debts. Without regard to the deemed repayment, through
December 31, 1995, the Company has recognized cumulative losses (including
the $75,000 annual provision for the administrative fee) on the notes
receivable of $743,200 compared to cumulative administrative fees of
$674,000. Accordingly, the Company's financial statements include
recognition of $69,200 of expenses in excess of the cumulative contractual
amount of the administrative fee.
Revenues - The Company and its corporate subsidiaries serve as a real
--------
estate advisor, developer, manager and marketing agent and perform certain
administrative functions for related entities. The Company's principal
sources of revenue are fees, commissions and cash flow participation from
properties under its supervision (see Note 3).
9. FINANCIAL INSTRUMENTS:
---------------------
Statement of Financial Accounting Standards No. 107 requires all entities
to disclose the fair value of certain financial instruments in their
financial statements. Accordingly, at December 31, 1995, management's best
estimate is that the carrying amount of cash and equivalents, contract
payable, and accounts payable and accrued expenses approximates fair value
due to the short maturity of these instruments. For the Company's
investment and receivables due from APL and AWP, management believes that
fair value is approximately equal to the carrying value as of December 31,
1995.
10. SIGNIFICANT CONCENTRATIONS:
The Company has an investment of $18,100, receivables of $8,613,800, and
long-term debt of $7,154,500 which is payable to APL and its subsidiary.
Due to the Company's current general and limited partner interests in APL
and the commitment described in Note 3 to purchase an additional 26.5
limited partner units, the Company has a substantial concentration of its
net assets which are dependent upon the future success of APL.
Substantially all of the Company's receivables, investments in
partnerships, and land option costs relate to properties which are located
in the Phoenix, Arizona metropolitan area. This concentration may impact
the Company's ability, either positively or negatively, to realize the
carrying value of these assets.
S-25
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND
SUBSIDIARIES AND HOMEFREE INVESTORS L.P
NOTES TO FINANCIAL STATEMENTS
The Company earns substantially all of its management and administrative
fees from APL and Aristek Western Properties Limited Partnership.
11. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS:
----------------------------------------------
In March 1995, the Financial Accounting Standards Board issued a new
Statement titled "Accounting for Impairment of Long-Lived Assets." This new
standard is effective for years beginning after December 15, 1995 and
establishes standards for determining impairment of long-lived assets, such
as the Company's land option costs. Although the Company has not performed
a detailed analysis of the impact of this new standard on the Company's
financial statements, management estimates that the application of the new
standard would not have a material impact on the Company's 1995 financial
statements. The Company will adopt the new standard in the first quarter of
1996.
S-26
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Partners
Aristek Properties, Ltd.
Denver, Colorado
We have audited the accompanying consolidated balance sheets of Aristek
Properties, Ltd. (a limited partnership) and its subsidiary as of December 31,
1995 and 1994, and the related consolidated statements of operations, changes in
partners' deficit, and cash flows for each of the years in the three-year period
ended December 31, 1995. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Aristek Properties,
Ltd., and its subsidiary as of December 31, 1995 and 1994, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern, which contemplates the realization
of assets and liquidation of liabilities in the normal course of business. As
discussed in Note 1 to the financial statements, the Partnership has suffered
substantial operating losses, and anticipates the need for additional cash to
fund operations. These conditions raise substantial doubt about the ability of
the Partnership to continue as a going concern. Management's plans in regard to
these matters are also discussed in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Hein + Associates llp
Denver, Colorado
June 12, 1996
S-27
<PAGE>
ARISTEK PROPERTIES, LTD. AND SUBSIDIARY
(A LIMITED PARTNERSHIP)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------------
1995 1994
------------- ----------
<S> <C> <C>
ASSETS
OPERATING PROPERTIES:
Land $ 1,239,381 $ 1,239,381
Land improvements 5,235,140 5,135,346
Buildings and improvements 2,716,077 2,712,942
Furniture and equipment 1,300,019 1,242,724
------------ ------------
Total operating properties 10,490,617 10,330,393
Less accumulated depreciation and amortization (5,185,898) (4,784,278)
------------ ------------
Net operating properties 5,304,719 5,546,115
OTHER ASSETS:
Cash and equivalents 664,730 833,236
Note receivable from General Partner 7,154,529 7,154,529
Accrued interest receivable - General Partner 764,000 256,000
Deferred loan costs, net of accumulated
amortization of $73,405 and $18,270 166,382 219,241
Land held for development 1,050,000 1,050,000
Rent and other receivables 103,890 59,568
Other assets 34,033 40,735
------------ ------------
TOTAL ASSETS $ 15,242,283 $ 15,159,424
============ ============
LIABILITIES AND PARTNERS' DEFICIT
LIABILITIES:
Mortgage payable $ 5,015,346 $ 4,492,913
Notes payable to General Partner 11,207,870 11,207,870
Accrued interest payable - General Partner 694,000 198,000
Accrued management and administrative fees -
General Partner 360,679 225,876
Accounts payable and accrued expenses 125,798 144,376
Unearned rental income 1,228,124 1,257,384
Payable to affiliate 188,433 88,933
------------ ------------
Total liabilities 18,820,250 17,615,352
COMMITMENT AND CONTINGENCY (NOTE 1)
PARTNERS' DEFICIT (3,577,967) (2,455,928)
------------ ------------
TOTAL LIABILITIES AND PARTNERS' DEFICIT $ 15,242,283 $ 15,159,424
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS.
S-28
<PAGE>
ARISTEK PROPERTIES, LTD. AND SUBSIDIARY
(A LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended
December 31,
-----------------------------------------
1995 1994 1993
------------ ------------- ------------
<S> <C> <C> <C>
OPERATING REVENUE:
Rental income $ 2,004,648 $ 1,862,058 $ 1,797,419
Other 40,671 43,149 38,928
----------- ----------- -----------
Total revenue 2,045,319 1,905,207 1,836,347
----------- ----------- -----------
OPERATING COSTS AND EXPENSES:
Salaries, wages and benefits 623,131 667,081 601,675
Maintenance and repairs 227,252 204,053 235,203
Utilities 260,827 279,916 247,258
Property taxes 69,221 72,092 73,681
Management and administrative fees -
General Partner 191,533 194,853 182,708
Depreciation 401,621 409,884 406,050
General and administrative 601,764 536,915 506,517
Total operating costs and expenses 2,375,349 2,364,794 2,253,092
----------- ----------- -----------
OPERATING LOSS (330,030) (459,587) (416,745)
OTHER INCOME (EXPENSE):
Interest income:
General Partner 508,000 547,398 587,566
Other 24,981 27,704 134,935
Interest expense:
General Partner (795,000) (814,806) (835,493)
Other (529,990) (495,095) (586,686)
----------- ----------- -----------
LOSS BEFORE MINORITY INTEREST (1,122,039) (1,194,386) (1,116,423)
MINORITY INTEREST SHARE OF MVIJV LOSS - - 352,441
----------- ----------- -----------
NET LOSS $(1,122,039) $(1,194,386) $ (763,982)
=========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS.
S-29
<PAGE>
ARISTEK PROPERTIES, LTD. AND SUBSIDIARY
(A LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<S> <C>
PARTNERS' DEFICIT, January 1, 1993 $ (538,572)
Advances from AWP contributed to capital
in connection with sale of 40% interest in MVIJV, net of
minority interest in loss of MVIJV 41,012
Net loss (763,982)
------------
PARTNERS' DEFICIT, December 31, 1993 (1,261,542)
Net loss (1,194,386)
------------
PARTNERS' DEFICIT, December 31, 1994 (2,455,928)
Net loss (1,122,039)
------------
PARTNERS' DEFICIT, December 31, 1995 $ (3,577,967)
============
</TABLE>
SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS.
S-30
<PAGE>
ARISTEK PROPERTIES, LTD. AND SUBSIDIARY
(A LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
December 31,
------------------------------------------
1995 1994 1993
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,122,039) $ (1,194,386) $ (763,982)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Minority interest - - (352,441)
Depreciation 401,621 409,884 406,050
Amortization of deferred loan costs 55,137 136,376 141,052
Changes in operating assets and liabilities:
Decrease (increase) in:
Rent and other receivables (44,322) 19,841 37,384
Accrued interest receivable - General
Partner (508,000) (547,398) (587,566)
Other (71,905) 5,954 137,833
Increase (decrease) in:
Accounts payable and accrued expenses 116,225 62,569 144,217
Accrued interest payable - General
Partner 496,000 675,875 756,077
Unearned rental income 49,346 173,710 96,557
Payable to affiliate 99,500 79,183 -
----------- ----------- ----------
Net cash provided by (used in) operating activities (528,437) (178,392) 15,181
----------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from collection of note receivable - - 46,398
Land development costs - - (45,650)
Capital expenditures for operating properties (160,224) (189,156) (40,144)
---------- ----------- ----------
Net cash used in investing activities (160,224) (189,156) (39,396)
----------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from mortgage loans 522,043 269,300 -
Principal payments on mortgage loans (1,888) (7,087) -
Principal payments on loans from General Partner - (95,000) (75,129)
Proceeds from release of loan escrow deposit - 600,000 -
Payment of deferred loan costs - (56,811) -
Advances from AWP to MVIJV - - 393,453
---------- ----------- ----------
Net cash provided by financing activities 520,155 710,402 318,324
----------- ----------- ----------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (168,506) 342,854 294,109
CASH AND EQUIVALENTS, at beginning of year 833,236 490,382 196,273
----------- ----------- ----------
CASH AND EQUIVALENTS, at end of year $ 664,730 $ 833,236 $ 490,382
=========== =========== ==========
</TABLE>
S-31
<PAGE>
ARISTEK PROPERTIES, LTD. AND SUBSIDIARY
(A LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
December 31,
------------------------------------------
1995 1994 1993
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION-
Cash paid for interest $ 773,853 $ 560,719 $ 445,634
=========== =========== ==========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Repayment of note payable in connection with
collection of note receivable $ - $ - $4,250,292
Payment of deferred loan costs from mortgage loan
proceeds 2,278 180,700 -
Land conveyed to former partner in settlement of note
payable - - 245,000
Purchase of AWP interest in MVIJV - - 9,750
Net accrued interest converted to note payable to
General Partner - 2,775,236 -
</TABLE>
SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS.
S-32
<PAGE>
ARISTEK PROPERTIES, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF OPERATIONS:
-------------------------------------
Organization - Aristek Properties, Ltd. ("the Partnership") is a Colorado
------------
limited partnership formed on June 29, 1976. At December 31, 1995, the
sole general partner is Homefree Village Resorts, Inc. (the "General
Partner"). In accordance with the terms of the Partnership Agreement, the
partnership was extended by the General Partner to December 31, 1998. The
Partnership Agreement provides that partnership profit and loss, after
adjustment for certain gains earned solely by the General Partner, shall be
allocated 1% to the General Partner and 99% to the Limited Partners, in
direct proportion to their respective ownership of limited partnership
units. Under the terms of the agreement, as amended, distributions may be
made to the General Partner based on the adjusted cash flow from operations,
sales and refinancing of the Partnership's properties.
Pursuant to the partnership agreement, the General Partner earns an annual
administrative fee of $94,750. In addition, the Partnership Agreement
provides for additional compensation to the General Partner for certain
services rendered and payment of costs and expenses incurred by the General
Partner on behalf of the Partnership.
Effective June 30, 1994, the partners of the Partnership consented to a
restructuring of the intercompany loans whereby all of the Partnership's
excess cash flow will be utilized to repay outstanding debt to the General
Partner. The interest rate was reduced from 8.1% to 7%, and the maturity
date was extended to June 30, 1998. The parties to the loans agreed to
provide set-off rights in the event of a default with respect to either the
restructured notes or the underlying debt of MVIJV. The Partnership also
agreed to pay additional interest equal to 75% of the net proceeds from a
refinancing or sale of the Monte Vista property, after repayment of all
liabilities. In connection with the restructuring, the holders of 26.5
limited partner units of the Partnership agreed to provide the General
Partner with an option to purchase their units for a minimum purchase price
of $20,000 per unit or a total of approximately $530,000. Based on an
appraisal of the Monte Vista property which is required to be prepared at
the date the Company exercises its option, the General Partner may be
required to pay a higher price per unit. The General Partner is required to
exercise its option between January 1, 1997 and November 30, 1998. No gain
or loss was recognized on this restructuring transaction. When this option
is exercised, there will be a change in control of the Partnership to the
General Partner. However, the General Partner does not presently have
sufficient liquidity to exercise the option.
Nature of Operations - The Partnership is engaged primarily in the
--------------------
development and operation of an adult recreational community containing 832
rental sites for manufactured homes and recreational homes. This community
is located in Mesa, Arizona and offers extensive recreational facilities and
social activities designed to appeal to active pre-retirement and retirement
age people. The rental operations generally include operating leases which
do not extend beyond one year.
Going Concern - The accompanying financial statements have been prepared on
--------------
a going concern basis which contemplates the realization of assets and
liquidation of liabilities in the ordinary course of business. At December
31, 1995, the Partnership has approximately $5 million of debt (net of
receivables) payable to the General Partner and a partners' deficit of
approximately $3.6 million. The Partnership has experienced operating losses
in each of the past three years and the Partnership's operating activities
have not generated net cash flow in either of the past two years. Due to the
Partnership's lack of liquidity, it was necessary to restructure outstanding
debt payable to the General Partner during 1994 and, as a result, the
Partnership is required to pay all excess cash flow to the General Partner
until maturity of the debt in 1998. However, the
S-33
<PAGE>
ARISTEK PROPERTIES, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
General Partner has also experienced financial difficulties over the past
several years and is not presently expected to be capable of providing
capital to support operations.
These conditions raise substantial doubt about the ability of the
Partnership to continue as a going concern. The accompanying financial
statements do not include any adjustments which might result from the
outcome of this uncertainty.
In addition to financial support from the General Partner, in recent years
the Partnership has relied on debt financing from a commercial lender to
support operations and the commercial lender has extended the due date until
December 1998. However, management believes that the ultimate success of
the Partnership is dependent upon the ability to obtain additional funding
to develop its 75-acre parcel of land which is adjacent to the Monte Vista
property. Management believes the Partnership has financing arrangements in
place to allow it to continue in operation through 1997 and efforts are
continuing to obtain additional financing to fully develop the project.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------
Principles of Consolidation - The financial statements include the accounts
----------------------------
of the Partnership and its affiliate, Monte Vista I Joint Venture (MVIJV).
All material intercompany transactions and balances have been eliminated.
Through 1993, AWP owned a 40% minority interest in MVIJV. In December 1993,
the Partnership acquired 97.5% of AWP's interest and the General Partner
acquired the remaining 2.5%. No amounts are reflected in the accompanying
financial statements for the General Partner's minority interest since MVIJV
incurred losses in each of the past two years and HVR is not funding its
share of the losses. The General Partner's share of such losses is
approximately $15,000 through December 31, 1995.
Property and Equipment - Property is recorded at the lower of cost or net
----------------------
realizable value. Depreciation is provided using the straight-line method
over estimated useful lives, as follows:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Land improvements 20
Buildings and improvements 25
Furniture and equipment 7
</TABLE>
The cost of normal maintenance and repairs is charged to operating expenses
as incurred. Material expenditures which increase the life of an asset are
capitalized and depreciated over the estimated remaining useful life of the
asset. The cost of properties sold, or otherwise disposed of, and the
related accumulated depreciation or amortization are removed from the
accounts, and any gains or losses are reflected in current operations.
Partnership Accounting - All income or loss is allocated to the partners in
----------------------
accordance with the Partnership Agreement. The accompanying financial
statements do not include any assets, liabilities or operations attributable
to the partners' individual activities and no provision has been made for
income taxes (credits), as they are the responsibility of the partners.
S-34
<PAGE>
ARISTEK PROPERTIES, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash Equivalents - For purposes of the statements of cash flows, the
----------------
Partnership considers cash and equivalents to include cash on hand and all
highly liquid debt instruments purchased with an original maturity of three
months or less.
Deferred Loan Costs - Deferred loan costs were incurred in connection with
--------------------
the origination of the mortgage note discussed in Note 4. These costs are
being amortized using the interest method.
Unearned Rental Income - Rental income is typically received in advance for
----------------------
a one year period. The Partnership recognizes rental income ratably over
the period for which the payment relates.
Accounting Estimates - The preparation of financial statements in conformity
---------------------
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and the accompanying notes. The actual results could differ from
those estimates.
The Partnership's financial statements are based on a number of significant
estimates including the realizability of net operating properties and land
held for development, selection of depreciation methods and estimated useful
lives, and the realization of receivables which affects recognition of
profit on the sale of real estate.
Impact of Recently Issued Accounting Standards - In March 1995, the
----------------------------------------------
Financial Accounting Standards Board issued a new statement titled
"Accounting for Impairment of Long-Lived Assets." This new standard is
effective for years beginning after December 15, 1995 and would change the
Partnership's method of determining impairment of long-lived assets.
Although the Partnership has not performed a detailed analysis of the impact
of this new standard on the Partnership's financial statements, the
Partnership does not believe that adoption of the new standard will have a
material effect on the financial statements.
3. NOTE RECEIVABLE:
---------------
The note receivable of $7,154,529 at December 31, 1995 is due from the
General Partner and bears interest at 7%. Principal and interest are due at
the maturity date in June 1998.
4. MORTGAGE AND NOTES PAYABLE:
At December 31, 1995 and 1994, the Partnership has a mortgage note payable
with an outstanding principal balance of $5,015,346 and $4,492,913,
respectively. This note bears interest at 4% above the published LIBOR rate
(total of $9.9% at December 31, 1995) and requires minimum monthly payments
at 10%. Payments that exceed the monthly interest rate are applied to
principal. The borrower also covenants that, so long as any of the
indebtedness remains outstanding, as of May 31 of any given loan year,
borrower shall have cash balances in its bank accounts for the trust
property that equal the greater of $400,000, or an amount sufficient to
cover property operations and debt service during the months of June, July,
and August of said loan year. The note is collateralized by operating
properties and land held for development.
Notes payable to the General Partner amount to $11,207,870 at December 31,
1995 and 1994. These notes bear interest at 7% and no principal or interest
payments are due until the maturity date in June 1998.
S-35
<PAGE>
ARISTEK PROPERTIES, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Assuming the interest rate in effect under the mortgage note payable does
not change after December 31, 1995, the aggregate maturities of debt are as
follows:
<TABLE>
<CAPTION>
Year Ending December 31, Notes Mortgage
-------------------------- ----------- -----------
<S> <C> <C>
1996 $ - $ 9,600
1997 - 10,000
1998 11,207,870 4,995,746
$11,207,870 $5,015,346
=========== ==========
</TABLE>
5. FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK:
-------------------------------------------------------
At December 31, 1995, the Partnership had cash and money market investments
with a single bank which totaled approximately $560,000. The Company has
mortgage debt with a single lender and substantially all of the Company's
tangible assets are pledged as collateral for this obligation.
At December 31, 1995, the Partnership had a note receivable from the General
Partner for $7,154,529 and notes payable to the General Partner for
$11,207,870. A right of set-off exists between these instruments but none
of the notes are collateralized. Management does not believe it is
practicable to estimate the fair value of the payables and receivables from
the General Partner due to the financial interest of the General Partner.
Management believes that the fair value of the bank debt is equivalent to
the carrying value due to the floating interest rate. Management believes
that the fair value and carrying value are approximately the same for all
other financial instruments due to the relatively short maturities.
S-36
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES
HOMEFREE INVESTORS L.P.
EXHIBIT A
---------
<TABLE>
<CAPTION>
NINE NINE
YEAR YEAR MONTHS MONTHS
ENDING ENDING ENDING ENDING
------ ------ ------ ------
<S> <C> <C> <C> <C>
(a) SUMMARY FINANCIAL
INFORMATION
INCOME STATEMENT:
Net Sales & Other Revenue 810,700 768,500 560,800 558,300
Loss Before Extraordinary
Items (236,000) (231,600) (134,700) (589,100)
Net Loss (236,000) (231,600) (134,700) (589,100)
BALANCE SHEET (AT END
OF PERIOD):
Working Capital (73,400) (246,800) (7,300) (963,700)
Total Assets 9,242,300 8,958,800 9,172,000 9,061,900
Shareholders Equity 1,257,900 1,026,300 1,123,200 437,200
PER SHARE:
Loss per Common Share
Before Extraordinary Items (0.02) (0.02) (0.01) (0.06)
Extraordinary Items 0 0 0 0
Net Loss Per Common Share (0.02) (0.02) (0.01) (0.06)
Net Loss Per Share (0.02) (0.02) (0.01) (0.06)
On a Fully Diluted Basis (0.02) (0.02) (0.01) (0.06)
(b) RATIO OF EARNINGS
TO FIXED CHARGES N/A N/A N/A N/A
(c) BOOK VALUE PER
SHARE 0.12 0.10 0.11 0.04
</TABLE>
