<PAGE>
SCHEDULE 14C
(Rule 14c-101)
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c)
of the Securities Exchange Act of 1934
Check the appropriate box:
[_] Preliminary information statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14c-5(d)(2))
[X] Definitive information statement
Homefree Village Resorts, Inc.
Homefree Investors L.P.
---------------------------------------------------
(Names of Registrants as Specified in Charters)
Payment of Filing Fee (Check the appropriate box):
[_] $125 per Exchange Act Rules 011(c)(ii), or 14c-5(g)
[X] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, $.001 Par Value; Assignee Limited Partnership Interests
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
4,158,694 shares of Common Stock; 4,158,694 Assignee
- --------------------------------------------------------------------------------
Limited Partnership Interests
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
$0.05 per unit, each unit consisting of one share of Common Stock of
Homefree Village Resorts, Inc. (the "Corporation") and one Assignee Limited
Partnership Interest of Homefree Investors L.P. (the "Partnership, and
together with the Corporation, the "Company"). The shares of Common Stock
of the Corporation and the Assignee Limited Partnership Interests 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 and one Assignee Limited
Partnership Interest. The Company proposes to pay $0.05 per share of
Common Stock and "paired" Assignee Limited Partnership Interest in lieu of
the issuance of fractional shares of Common Stock to persons who would hold
less than one whole share of Common Stock after the proposed reverse stock
split described in the information
<PAGE>
- 2 -
statement, and to other stockholders who desire to liquidate their
investment in the Company. The filing fee of $42 represents one-50th of one
percent of the maximum aggregate value (approximately $208,000) of the
fractional shares that may be repurchased by the Company on this basis.
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
Approximately $208,000 (see the preceding Item 3).
- --------------------------------------------------------------------------------
(5) Total fee paid:
$42
- --------------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials
[X] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
$42
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
Schedule 13E-3
- --------------------------------------------------------------------------------
(3) Filing Party:
Homefree Village Resorts, Inc./Homefree Investors L.P.
- --------------------------------------------------------------------------------
(4) Date Filed:
March 25, 1996
- --------------------------------------------------------------------------------
<PAGE>
- 3 -
Item 1. Information Required by Items of Schedule 14A.
The following cross-references indicate where the information required by
the Items of Schedule 14A may be found in the Information Statement:
<TABLE>
<CAPTION>
Schedule 14A Item No. Location in Information Statement
- -------------------- ---------------------------------
<S> <C>
Item 1. Date, Time and Place Information. Not applicable.
Item 2. Revocability of Proxy. Not applicable.
Item 3. Dissenters' Rights of Appraisal. "Special Factors--Lack of Appraisal Rights."
(Pages 30, 31 )
Item 4. Persons Making the Solicitation. Cover page of Information Statement.
Item 5. Interest of Certain Persons in Not applicable.
Matters to be Voted Upon.
Item 6. Voting Securities and Principal "Security Ownership of Certain Beneficial Owners
Holders Thereof. and Management." (Page 34)
Item 7. Directors and Executive Officers. Not applicable.
Item 8. Compensation of Directors and Not applicable.
Executive Officers.
Item 9. Independent Public Accountants. Not applicable.
Item 10. Compensation Plans. Not applicable.
Item 11. Authorization or Issuance of Not applicable.
Securities Otherwise Than for Exchange.
Item 12. Modification or Exchange of Not applicable.
Securities.
Item 13. Financial and Other Information. "Financial Information." (Page S-1 )
</TABLE>
<PAGE>
- 4 -
<TABLE>
<CAPTION>
Schedule 14A Item No. Location in Information Statement
- -------------------- ---------------------------------
<S> <C>
Item 15. Acquisition or Disposition Not applicable.
of Property.
Item 16. Restatement of Accounts. Not applicable.
Item 17. Action With Respect to Reports. Not applicable.
Item 18. Matters Not Required to be Not applicable.
Submitted.
Item 19. Amendment of Charter, By-Laws, or Not applicable.
Other Documents.
Item 20. Other proposed action. Special Factors. (Pages 12-30)
Item 21. Voting Procedures. "Special Factors--Further Stockholder
Approval Not Required." (Page 30)
Item 22. Information Required in Investment Not applicable.
Company Proxy Statements.
</TABLE>
Item 2. Statement that Proxies are not Solicited.
See cover page of Information Statement.
Item 3. Interest of Certain Persons in or in Opposition to Matters to be Acted
Upon.
Not applicable.
Item 4. Proposals from Security Holders.
Not applicable.
<PAGE>
HOMEFREE VILLAGE RESORTS, INC.
HOMEFREE INVESTORS L.P.
1400 S. Colorado Boulevard, Suite 410
Denver, Colorado 80222
NOTICE REGARDING ONE-FOR-100,000
REVERSE STOCK SPLIT AND
RELATED TRANSACTIONS
To all Stockholders:
NOTICE IS HEREBY GIVEN that on March 26, 1997, the Board of Directors of
Homefree Village Resorts, Inc. (the "Company") 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 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.
The Reverse Stock Split became effective upon filing on March 27, 1997 of a
certificate of amendment to the certificate of incorporation of the Company with
the Secretary of State of Delaware. As a result, 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.
<PAGE>
-ii-
You are urged to read carefully the accompanying Information Statement and
other disclosure documents in their entirety for important information with
respect to the Reverse Stock Split.
HOMEFREE VILLAGE RESORTS, INC.
Dated April 9, 1997 By authority of the Board of
Directors
By: /s/ Craig M. Bollman, Jr.
-------------------------
Craig M. Bollman, Jr.
Chairman and President
HOMEFREE INVESTORS L.P.
Dated April 9, 1997 By Homefree General Partners,
its General Partner
By Homefree Village Resorts, Inc.,
a General Partner
By: /s/ Craig M. Bollman, Jr.
-------------------------
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
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 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 and March 26, 1997. The Reverse Stock Split has
been approved by the written consent of Craig M. Bollman, Jr., the Company's
majority stockholder, and became effective upon filing on March 27, 1997 of a
certificate of amendment to the certificate of incorporation of the Company with
the Secretary of State of Delaware. This Information Statement and such
accompanying materials are being sent to stockholders on or about April 9,
1997.
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
Reverse Stock Split or the preparation and dissemination of this Information
Statement and the accompanying materials or otherwise in connection with the
Reverse Stock Split.
The Company is not asking stockholders for a proxy and stockholders 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.
<PAGE>
-2-
As a result of the Reverse Stock Split, the Company will no longer be
subject to registration under the Securities and Exchange Act of 1934 and
therefore will not be a reporting company with respect to its stockholders.
The Reverse Stock Split will result in stockholders 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 stockholders own.
Shareholders must hold at least 100,000 shares of common stock in order to
receive one 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 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.
<PAGE>
-3-
TABLE OF CONTENTS
Page
----
SUMMARY OF THE REVERSE STOCK SPLIT...................................... 4
SPECIAL FACTORS
The Company........................................................... 12
The Reverse Stock Split............................................... 19
Reasons for the Reverse Stock Split................................... 20
Fairness of the Reverse Stock Split .................................. 24
Conflicts of Interest................................................. 28
Conduct of the Company's Business
after the Reverse Stock Split....................................... 29
Further Stockholder Approval Not Required............................. 30
Lack of Appraisal Rights.............................................. 30
Postponement or Abandonment........................................... 31
Effective Time........................................................ 31
Exchange of Stock Certificates;
Cash Payments in Lieu of Shares..................................... 31
Financing of the Reverse Stock Split.................................. 32
Certain Federal Income Tax Consequences............................... 32
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT....................................... 34
FINANCIAL INFORMATION................................................... 35
OTHER INFORMATION;
DOCUMENTS INCORPORATED BY REFERENCE.................................... 35
<PAGE>
-4-
SUMMARY OF THE 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 "Company") is a Delaware corporation.
Homefree Investors L.P. (the "Partnership") is a Delaware limited partnership
formed by the Company 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 Company, 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 Company
and one unit of assignee limited partnership interest in the Partnership.
Assignee limited partnership interests may not be traded separately from the
paired common stock. As of March 27, 1997, 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 [555]
holders. Unless expressly otherwise stated, or unless the context requires
otherwise, references in this Information Statement to the Company include the
Company's 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.
Craig M. Bollman, Jr. is the Chairman of the Board of Directors and
President of the Company, 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
<PAGE>
-5-
pre-retirement and retirement age people. The Company operates 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 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 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 confirmed on September 7, 1996 and March 26, 1997,
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 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>
-6-
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 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 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 stockholders
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 Reverse Stock Split and has unanimously determined that the
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 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 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
<PAGE>
-7-
that the Company will realize cost-savings (approximately $90,000 annually) if
as a result of the Reverse Stock Split since 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 stockholders 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 stockholders in effecting the
Reverse Stock Split is that the stockholders 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 stockholders 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
stockholders, as well as the stockholders affiliated with Craig M. Bollman,
would likely lose all value in the Company. The Board believes that attempting
the going private transaction and the 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 stockholders.
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 Board's proposal to provide a fair value (as hereinafter
described) to the public stockholders is a way of allowing
<PAGE>
-8-
these public stockholders to see some value versus the alternative of receiving
their ratable share upon a potential liquidation of the Company, the amount of
which would be uncertain, and to permit the remaining stockholders 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 concur with and adopt the analysis of the Board, and each of them believes
that the Reverse Stock Split and consideration to the stockholders is fair.
See "Special Factors--Reasons for the Reverse Stock Split."
Termination of Reporting Company Status
The Reverse Stock Split has become effective and therefore, the Company
will cease to be a reporting company under the Exchange Act. As a result, the
Company will no longer file annual and quarterly reports, proxy statements, and
other documents with the SEC. In addition, the Company will 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 will 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 Reverse Stock Split has been approved on March 27, 1997, 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.
Postponement or Abandonment of the Reverse Stock Split
<PAGE>
-9-
Since the Reverse Stock Split has become effective, the Company's Board of
Directors may not postpone or abandon the Reverse Stock Split.
Lack of Appraisal Rights
Pursuant to the Delaware General Corporation Law, dissenting stockholders
do not have appraisal rights in connection with the Reverse Stock Split.
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.
Exchange of Stock Certificates; Cash Payments In Lieu of Shares
As a result of the Reverse Stock Split, 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 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
<PAGE>
-10-
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 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 stockholders as a result
of the Reverse Stock Split, such as the following:
1. The Company would no longer be public;
2. Most stockholders 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."
<PAGE>
-11-
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 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. As a result of the
Reverse Stock Split, Mr. Bollman's ownership interest in the Company will
increase due to the reduction in the number of public stockholders.
See "Special Factors--Fairness of the Reverse Stock Split - and Conflicts
of Interest."
Certain Federal Income Tax Consequences
The 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
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."
END OF SUMMARY
<PAGE>
-12-
SPECIAL FACTORS
The Company
Organization. Homefree Village Resorts, Inc. (the "Company") is a Delaware
corporation. Homefree Investors L.P. (the "Partnership") is a Delaware limited
partnership formed by the Company 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 Company, 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 Company and one unit of assignee limited partnership interest in
the Partnership. As of March 27, 1997, 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 [555] holders.
Unless expressly otherwise stated, or unless the context requires otherwise,
references in this Information Statement to the Company include the Company's
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 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 to share in appreciation in the value of such properties. The Company also
receives income from development, management, and administrative services.
The Company. The Company is a Delaware corporation which was organized in
February 1972. The Company has been engaged in the business of operating
manufactured home communities since its organization. In 1977, the Company, then
called Metrix, Inc., acquired all of the capital
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stock of Aristek Real Estate Corporation in exchange for 6,230,000 shares of
Common 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 Company 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 Company has continued to consist primarily of
the development and operation of such communities. However, in recent years, the
Company has refocused its business on adult recreational communities containing
rental sites for manufactured homes. The Company conducts substantially all of
its business through the affiliated limited partnerships described below.
Resortparks. The Company 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 Company
include Resortparks.
The Partnership. In July 1987, the Company 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 Company.
The general partner of Homefree Investors L.P. is Homefree General Partners, a
Delaware general partnership, comprised of the Company 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
Company owns 90% of Homefree General Partners and Bollman Associates, Inc. owns
10%.
When it formed the Partnership, the Company 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 Company will manage operations. The Company has no plans to transfer the
Company'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
<PAGE>
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law to make investments in securities of other entities, the Partnership cannot
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 Company 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 Company 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 Company 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
Company, 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 Company, 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
Company. 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 Properties Limited
Partnership transferred to Aristek Properties and to the Company its 40%
interest in MV-I, 39% to Aristek Properties, and 1% to the Company.
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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
Company. 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 Company 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 Company) are satisfied. At the time of the
restructuring, the net amounts owed to the Company by MV-I were approximately
$4,053,341. The Company 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 Company is a
creditor of both Aristek Properties and MV-I as described above, the Company
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 Company, 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 Company 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 Company 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 Company 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 Travel Trailer Resort
and Towerpoint Travel Trailer Resort. 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
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was transferred to Aristek Properties and the Company. 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 Company 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 Company 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 Company receives its loan repayment and
participating interest as described above.
Aristek Western Properties Limited Partnership. The Company has a direct
residual interest in Aristek Western that entitles the Company 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 Company cannot presently predict whether
distributions will be made to the limited partners.
Development Activities. The Company, 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.
<PAGE>
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Competition. The Company competes generally with all companies engaged in
community development and home construction.
The three properties in Mesa, Arizona compete in what is regarded as a
competitive market for adult recreational manufactured housing communities. The
Company continues to compete in this market by offering special amenities and
adult recreational and educational services.
Each of the Company's geographic markets includes competitors which are
larger and have greater financial and other resources than the Company.
Personnel. During 1995 the Company employed two full-time employees.
Properties. The Company, through Aristek Properties and other related
limited partnerships, has ownership interests in the properties described below.
The Company 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 Company. At September 30,
1996, the Monte Vista property was subject to a mortgage in the amount of
approximately $5,167,091 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 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%
<PAGE>
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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 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 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 and confirmed on September 7, 1996 and March 26, 1997,
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
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 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,
<PAGE>
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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 Company
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 stockholders
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
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current plan is considered by the Board 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 stockholders
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 stockholders, including stockholders 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
stockholders 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 stockholders 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."
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4. Craig M. Bollman, Jr. (and other stockholders who currently own more
than 100,000 shares) will benefit because his percentage ownership 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
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 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 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 stockholders 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 stockholders, particularly those with very small lots, would
tender the requisite number of shares which would result in the Company being
able to go private.
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Rule 13e-3 Transaction Statement. In connection with the Reverse Stock
Split, the Company has filed with the SEC a Rule 13e-3 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 199,558 shares of Common Stock were transferred during 1996. 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
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Company to Aristek Properties (which may be set off against amounts owing to the
Company by Aristek Properties), and management fees payable by Aristek
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 first
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 Company'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 stockholders of any value if
there were not assets available for distribution to stockholders.
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 stockholder of
<PAGE>
-26-
the company and that the Company remain as General partner of Aristek Properties
and Monte Vista. A liquidation of the Company, or a disposition of Monte Vista,
would likely result in the acceleration of the due date of mortgage financing
for 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 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 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 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 Aristek
Properties 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
<PAGE>
-27-
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 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 stockholders
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 stockholders. 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 the price
per share was fair. As noted above, the Board did not specifically determine a
specific amount for the Company's going concern value or liquidation value, but
did consider the various points discussed above relating to such values, along
with all the above factors in arriving at what it considered to be a fair price.
The Board did not deem it necessary that it have specific dollar values for each
of the factors since it reached its determination based on a composite of the
above categories of financial information. The Board also considered that the
possible disadvantage to the non-affiliated stockholders 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.
<PAGE>
-28-
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
stockholders, but believes that many stockholders 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
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 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 will
increase from 60.3% to approximately 79% if the Reverse Stock Split is
consummated. His book value per share will 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 stockholders 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
stockholders 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 stockholders due
to the need to become a private company. The Board
<PAGE>
-29-
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.
Conduct of the Company's Business after the Reverse Stock Split
No Effect on Continuing Business and Operations. The Company believes that
the 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. As a result of the Reverse Stock Split, 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 stockholders. 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 stockholders
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 the Company (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. The Company has ceased to be a
reporting company under the Exchange Act. As a result, the Company will no
longer file annual and quarterly reports, proxy statements, and other documents
with the SEC. In addition, the Company will 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
<PAGE>
-30-
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. As a result
of the Reverse Stock Split, the number of authorized shares of the Company's
Common Stock has been reduced from 15,000,000 shares to 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 stockholders 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 Reverse Stock Split has been approved on March 27, 1997, 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
<PAGE>
-31-
Pursuant to the Delaware General Corporation Law, dissenting stockholders
do not have appraisal rights in connection with the Reverse Stock Split.
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.
Postponement or Abandonment
The Company's Board of Directors can not postpone or abandon the Reverse
Stock Split.
Effective Time
The Reverse Stock Split became effective upon the filing of an amendment to
the Company's Certificate of Incorporation with the Delaware Secretary of State
on March 27, 1997. The form of the 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. As a result of the Reverse Stock Split, 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.
<PAGE>
-32-
AGAIN, PLEASE NOTE THAT ALL STOCK CERTIFICATES SENT TO THE COMPANY SHOULD BE
DULY ENDORSED FOR TRANSFER 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 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.
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 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 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
<PAGE>
-33-
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 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 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.
<PAGE>
-34-
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 March 27, 1997, 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
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 March 27, 1997,
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
stockholder's name. Since some of these stockholders
<PAGE>
-35-
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
stockholder.
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.
Homefree Village Resorts, Inc. (the "Company"), a Delaware corporation,
does hereby certify, pursuant to Sections 228 and 242 of the General Corporation
Law of the State of Delaware, that Article Fourth of the Certificate of
Incorporation is amended 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.
IN WITNESS WHEREOF, Homefree Village Resorts, Inc. has caused this
Certificate of Amendment to its Certificate of Incorporation to be executed by
Craig M. Bollman, Jr., its President, this ___ day of March, 1997.
HOMEFREE VILLAGE RESORTS, INC.
By:
---------------------------------
Craig M. Bollman, Jr., President
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Homefree Village Resorts, Inc. And Homefree Investors L.P.
- ----------------------------------------------------------
<TABLE>
<S> <C>
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
<CAPTION>
Homefree Village Resorts, Inc.
- ------------------------------
<S> <C>
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
<CAPTION>
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 (Deficit) - 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
<CAPTION>
Aristek Properties, Ltd.
- ------------------------
<S> <C>
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
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 8,620,200 8,915,600
Entities, net
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
</TABLE>
S-2
<PAGE>
<TABLE>
<S> <C> <C>
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 - 3,400
unconsolidated entities
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 10,500 10,500
shares authorized; 10,484,000 shares
issued and outstanding
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 1,026,300 1,257,900
partners' deficit ----------- -----------
Total Liabilities, Stockholders' Equity $ 8,958,800 $ 9,242,300
and Partners' Deficit =========== ===========
</TABLE>
See accompanying notes to financial statements.
S-3
<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 $ 245,400 $ 244,600 $ 253,400
from unconsolidated entities
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 10,484,000 10,484,000 10,484,000
Outstanding =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
S-4
<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 Paid-in Accumulated Partners'
Shares Stock 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-5
<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 12,000 15,200 (3,900)
unconsolidated entities, net
Provision for loss on related 147,300 53,700 600
party receivables
Deferred income taxes (200,000) (87,000) (43,000)
Changes in operating assets and
liabilities:
Decrease (increase) in:
Accrued interest receivable - (12,100) (15,300) (13,100)
officer and director
Other assets 5,600 (23,200) 31,500
Receivables from unconsolidated (3,600) 49,600 15,800
entities
Increase (decrease) in:
Accounts payable and accrued 1,000 37,300 (27,600)
expenses
Other (3,400) - 3,100
--------- --------- ---------
Net cash used in operating (278,400) (199,400) (176,900)
activities --------- --------- ---------
Cash Flows from Investing Activities:
Cash advances to officer and (135,200) (38,400) -
director
Cash advances to unconsolidated - (700) (4,500)
entities
Collection of advances from 299,000 374,900 10,000
unconsolidated entities
Cash advance for land option - - (35,000)
Investment in unconsolidated - (50,000) -
entities
Purchase of equipment (7,800) (11,300) (10,600)
--------- --------- ---------
Net cash provided by (used in) 156,000 274,500 (40,100)
investing activities --------- --------- ---------
</TABLE>
S-6
<PAGE>
<TABLE>
<S> <C> <C> <C>
Cash Flows from Financing Activities:
Advance from related party 150,500 - -
Payments under land option - (88,400) (27,700)
contract
Principal payments on long-term - (10,600) (4,800)
debt -------- -------- ---------
Net cash provided by (used in) 150,500 (99,000) (32,500)
financing activities -------- -------- ---------
Net Increase (Decrease) in Cash and 28,100 (23,900) (249,500)
Equivalents
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 $ - $ 160,600 $ -
contract ======== ========= =========
</TABLE>
See accompanying notes to financial statements.
S-7
<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-8
<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 8,620,200 8,915,600
Entities, net
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
========== ==========
</TABLE>
S-9
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<S> <C> <C>
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-10
<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 $245,400 $244,600 $253,400
unconsolidated entities
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-11
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
Common Additional
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-12
<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 12,000 15,200 (3,900)
entities, net
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)
-------- -------- --------
</TABLE>
S-13
<PAGE>
<TABLE>
<S> <C> <C> <C>
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-14
<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 (deficit) 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-15
<PAGE>
HOMEFREE INVESTORS L.P.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1995 1994
ASSET
-----
<S> <C> <C>
Current Asset, receivable from Homefree Village Resorts, Inc. $150,500 $ -
======== ========
LIABILITIES AND PARTNERS' DEFICIT
---------------------------------
Current Liabilities:
Payable to HGP $674,000 $599,000
Payable to AWP 150,500 $ -
======== ========
Total current liabilities 824,500 599,000
Commitment (Note 8)
Partners' Deficit (674,000) (599,000)
-------- --------
Total Liabilities and Partners' Deficit $150,500 $ -
======== ========
</TABLE>
See accompanying notes to financial statements.
S-16
<PAGE>
HOMEFREE INVESTORS L.P.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Revenue - - $ -
----------- ----------- -----------
Expenses:
Administrative fee 75,000 75,000 75,000
Amortization of organization costs _ _ 11,100
----------- -----------
General and administrative 300 300 400
----------- ----------- -----------
Net Loss $ (75,300) $ (75,300) $ (86,500)
=========== =========== ===========
Net Loss Per Limited Partnership Interest $ (.01) $ (.01) $ (.01)
=========== =========== ===========
Weighted Average Limited Partnership 10,484,000 10,484,000 10,484,000
Interests Outstanding =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
S-17
<PAGE>
HOMEFREE INVESTORS L.P.
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
General Limited Total
Partner* Partners -----------
---------- -----------
<S> <C> <C> <C>
Balances, January 1, 1993 $218,200 $(656,100) $(437,900)
Partner's capital contributions 400 - 400
Net loss (1,700) (84,800) (86,500)
-------- --------- ---------
Balances, December 31, 1993 216,900 (740,900) (524,000)
Partner's capital contributions 300 - 300
Net loss (1,500) (73,800) (75,300)
-------- --------- ---------
Balances, December 31, 1994 215,700 (814,700) (599,000)
Partner's capital contributions 300 - 300
Net loss (1,500) (73,800) (75,300)
-------- --------- ---------
Balances, December 31, 1995 $214,500 $ (88,500) $(674,000)
======== ========= =========
</TABLE>
* The General Partner's capital account is eliminated for purposes of the
combined financial statements.
See accompanying notes to financial statements.
S-18
<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 $ (75,300) $(75,300) $(86,500)
Adjustments to reconcile net loss to net
cash used in operating activities:
Amortization - - 11,100
Increase in:
Receivable from Homefree Village Resorts, Inc. (150,500) - -
Payable to HGP 75,000 75,000 75,000
Payable to AWP 150,500 - -
-------- -------- -------
Net cash used in 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-19
<PAGE>
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
S-20
<PAGE>
December 1998. Management believes that these actions will enable the Company to
continue as a going concern.
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.
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.
Accounting Estimates - The preparation of financial statements in conformity
- --------------------
with generally accepted accounting principles requires management to make
estimates and assumptions
S-21
<PAGE>
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.
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 option between January 1, 1997 and November 30, 1998. No gain
or loss was recognized on this restructuring transaction.
S-22
<PAGE>
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-23
<PAGE>
<TABLE>
<CAPTION>
Statements of Operations
------------------------
Revenues:
<S> <C> <C> <C>
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-24
<PAGE>
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 (226,000) (177,000)
tax assets --------- ---------
$ - $(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>
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.
S-25
<PAGE>
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 44,400 44,400
1997. ---------- ----------
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>
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.
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
S-26
<PAGE>
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.
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%, $ 9,602,100 $ 9,901,100
due June 1998
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-27
<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. This fee is included in the
Partnership's financial statements and is also 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-28
<PAGE>
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).
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.
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-29
<PAGE>
The Company earns substantially all of its management and administrative fees
from APL and Aristek Western Properties Limited Partnership.
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.
<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-31
<PAGE>
ARISTEK PROPERTIES, LTD. AND SUBSIDIARY
(A Limited Partnership)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-----------
1995 1994
ASSETS
------
<S> <C> <C>
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 166,382 219,241
accumulated amortization
of $73,405 and $18,270
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
=========== ===========
<CAPTION>
LIABILITIES AND PARTNERS' DEFICIT
---------------------------------
<S> <C> <C>
Liabilities:
Mortgage payable $5,015,346 $4,492,913
Notes payable to General Partner 11,207,870 11,207,870
Accrued interest payable - General 694,000 198,000
Partner
Accrued management and administrative 360,679 225,876
fees - General Partner
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-32
<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-33
<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>
<CAPTION>
<S> <C>
Partners' Deficit, January 1, 1993 $ (538,572)
Advances from AWP contributed to capital in 41,012
connection with sale of 40% interest in MVIJV, net of
minority interest in loss of MVIJV
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-34
<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
------- ------- -------
</TABLE>
S-35
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Cash and Equivalents, at end of year $664,730 $833,236 $490,382
======== ======== ========
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 $ - $ - $4,250,292
connection with collection of note receivable
Payment of deferred loan costs from 2,278 180,700 -
mortgage loan proceeds
Land conveyed to former partner in - - 245,000
settlement of note payable
Purchase of AWP interest in MVIJV - - 9,750
Net accrued interest converted to - 2,775,236 -
note payable to General Partner
</TABLE>
See accompanying notes to these consolidated financial statements.
S-36
<PAGE>
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 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.
S-37
<PAGE>
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.
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.
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.
S-38
<PAGE>
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.
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.
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-39
<PAGE>
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>
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-40
<PAGE>
UNAUDITED FINANCIAL STATEMENTS
OF THE COMPANY AND THE PARTNERSHIP FOR THE NINE
MONTH PERIOD ENDING SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1996
See accompanying notes to financial statements
1
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND HOMEFREE INVESTORS L.P.
----------------------------------------------------------
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.........................................3
COMBINED
Combined Balance Sheets --
September 30, 1996 and December 31, 1995.........................3
Combined Statements of Operations --
Three and Nine Month Periods ended
September 30, 1996 and 1995......................................5
Combined Statements of Cash Flows --
Nine Months ended September 30, 1996 and 1995....................6
THE COMPANY
Consolidated Balance Sheets --
September 30, 1996 and December 31, 1995.........................7
Consolidated Statements of Operations --
Three and Nine Month Periods ended
September 30, 1996 and 1995......................................9
Consolidated Statements of Cash Flows --
Nine Months ended September 30, 1996 and 1995...................10
THE PARTNERSHIP
Balance Sheets -- September 30, 1996 and
December 31, 1995...............................................11
Statements of Operations --
Three and Nine Month Periods ended
September 30, 1996 and 1995.....................................12
Statements of Cash Flows --
Nine Months ended September 30, 1996 and 1995...................13
Notes to Financial Statements................................................14
</TABLE>
See accompanying notes to financial statements
2
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES
-----------------------------------------------
AND HOMEFREE INVESTORS L.P. (a limited partnership)
---------------------------------------------------
COMBINED BALANCE SHEETS
-----------------------
ASSETS
------
<TABLE>
<CAPTION>
----------------------------------
September 30, December 31,
1996 1995
----------------- ---------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS: $ 13,300 $ 38,700
Cash and cash equivalents
Other current assets 4,700 4,000
----------------- ---------------
Total current assets 18,000 42,700
RECEIVABLES FROM UNCONSOLIDATED ENTITIES, net 8,747,000 8,620,200
INVESTMENTS IN UNCONSOLIDATED ENTITIES 86,500 82,400
PROPERTY AND EQUIPMENT, at cost
Office furniture and equipment 104,500 102,900
Vehicles 25,000 25,000
----------------- ---------------
129,500 127,900
Accumulated depreciation (114,700) (110,000)
----------------- ---------------
Net property and equipment 14,800 17,900
----------------- ---------------
OTHER ASSETS
Land option costs 195,600 195,600
----------------- ---------------
TOTAL ASSETS $9,061,900 $8,958,800
================= ===============
</TABLE>
See accompanying notes to financial statements
3
<PAGE>
LIABILITIES, STOCKHOLDERS' EQUITY AND PARTNERS' DEFICIT
-------------------------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------------ -----------------
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 103,800 $ 94,600
Payable to unconsolidated entity 833,500 150,500
Current maturities of long-term debt 44,400 44,400
Total current liabilities 981,700 289,500
LONG TERM DEBT, less current maturities:
Unconsolidated entity 7,154,500 7,154,500
Other -- --
DEFERRED INCOME TAXES -- --
DEFERRED PROFIT 488,500 488,500
OTHER LIABILITIES, payable to unconsolidated entities -- --
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; 10,500 10,500
15,000,000 shares authorized; 10,484,000 shares issued and
outstanding
Additional paid-in capital 3,537,000 3,537,000
Accumulated deficit (2,881,300) (2,293,100)
Partners' deficit - limited partners ( 229,000) ( 228,100)
------------------ -----------------
Total stockholders' equity and partners' deficit 437,200 1,026,300
------------------ -----------------
TOTAL LIABILITIES, STOCKHOLDERS' EQUITY AND
PARTNERS' DEFICIT $ 9,061,900 $ 8,958,000
================== =================
</TABLE>
See accompanying notes to financial statements 4
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES
-----------------------------------------------
AND HOMEFREE INVESTORS L.P. (a limited partnership)
---------------------------------------------------
COMBINED STATEMENTS OF OPERATIONS
---------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------------- ----------------------------------
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
1996 1995 1996 1995
-------------------------------- ----------------------------------
(unaudited) (unaudited)
-------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
REVENUES (SUBSTANTIALLY ALL
FROM RELATED PARTIES):
Management and administrative
fees from unconsolidated
entities $ 51,200 $ 48,300 $ 166,700 $ 161,600
Equity in earnings of
unconsolidated entities 2,600 400 8,000 6,700
Interest 127,700 130,700 383,600 392,500
--------------- -------------- -------------- --------------
$ 181,500 $ 179,400 $ 558,300 560,800
--------------- -------------- -------------- --------------
EXPENSES:
General and administrative 226,400 100,000 742,800 332,900
Interest 125,000 125,000 375,000 375,000
Equity in losses of unconsolidated 1,100 (800) 4,000 700
entities
Loss on related party receivable (10,400) -- (30,700) --
Administrative fee 18,800 18,800 56,300 56,300
--------------- -------------- -------------- --------------
360,900 243,000 1,147,400 764,900
--------------- -------------- -------------- --------------
EARNINGS (LOSSES) BEFORE
INCOME TAX $ (179,400) (63,600) (589,100) (204,100)
INCOME TAX -- 21,600 -- 69,400
--------------- -------------- -------------- --------------
NET EARNINGS (LOSSES) $ (179,400) $ (42,000) $(589,100) $(134,700)
=============== ============== ============== ==============
EARNINGS (LOSS) PER PAIRED
SHARE $( .02) $(.00) $(.06) $(.01)
=============== ============== ============== ==============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 10,484,000 10,484,000 10,484,000 10,484,000
=============== ============== ============== ==============
</TABLE>
AS REVISED
See accompanying notes to financial statements 5
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES
-----------------------------------------------
AND HOMEFREE INVESTORS L.P. (a limited partnership)
---------------------------------------------------
COMBINED STATEMENTS OF CASH FLOWS
---------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------------------------
SEPT. 30, SEPT. 30,
1996 1995
--------------------- ------------------
(unaudited) (unaudited)
--------------------- ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (losses) earnings $(589,100) $(134,700)
Adjustments to reconcile net income (loss) to net cash
used in operating activities
Depreciation and amortization 4,700 4,800
Provision for loss on related party receivable ( 30,700) --
Equity in losses (earnings) of unconsolidated entities, ( 4,100) ( 6,000)
net
Deferred income taxes -- ( 69,400)
Changes in operating assets and liabilities:
Other assets ( 700) 5,100
Accounts payable and accrued expenses 9,200 (16,500)
Other liabilities -- --
------------------- ------------------
Net cash used in operating activities (610,700) (216,700)
------------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash advance to officer 30,700 ( 56,700)
Cash advances to unconsolidated entities (294,500) --
Collection of advances from unconsolidated entities 167,700 126,800
Purchase of property, furniture and equipment ( 1,600) ( 5,900)
------------------- ------------------
Net cash provided by investing activities ( 97,700) 64,200
------------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advance from related party 683,000 150,500
------------------- ------------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ( 25,400) ( 2,000)
CASH AND CASH EQUIVALENTS,
beginning of period 38,700 10,600
------------------- ------------------
CASH AND CASH EQUIVALENTS, end of period $ 13,300 $ 8,600
=================== ==================
</TABLE>
See accompanying notes to financial statements 6
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES
-----------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
ASSETS Sept. 30, December 31,
- ------ 1996 1995
--------------------- ---------------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 13,300 $ 38,700
Other current assets 4,700 4,000
--------------------- ---------------------
Total current assets 18,000 42,700
RECEIVABLES FROM UNCONSOLIDATED
ENTITIES, NET 8,747,000 8,620,200
INVESTMENTS IN UNCONSOLIDATED ENTITIES 86,500 82,400
PROPERTY AND EQUIPMENT, at cost:
Office furniture and equipment 104,500 102,900
Vehicles 25,000 25,000
--------------------- ---------------------
129,500 127,900
Accumulated depreciation (114,700) (110,000)
--------------------- ---------------------
Net property and equipment 14,800 17,900
LAND OPTION COSTS 195,600 195,600
--------------------- ---------------------
TOTAL ASSETS $9,061,900 $8,958,800
===================== =====================
</TABLE>
See accompanying notes to financial statements 7
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY AND PARTNERS' DEFICIT
----------------------------------------------------------
<TABLE>
<CAPTION>
------------------------------
September 30, December 31,
1996 1995
--------------- ------------
<S> <C> <C>
(unaudited)
CURRENT LIABILITIES:
Accounts payable and accrued
expenses $ 103,800 $ 94,600
Payable to unconsolidated
entity 833,500 150,500
Current maturities of
long-term debt 44,400 44,400
Total current liabilities 981,700 289,500
LONG TERM DEBT, less current
maturities: 7,154,500 7,154,500
Unconsolidated entity
Other -- --
DEFERRED INCOME TAXES -- --
DEFERRED PROFIT 488,500 488,500
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value;
3,000,000 shares authorized; none
issued and outstanding
Common stock, $.001 par
value; authorized 15,000,000
shares authorized; issued
and outstanding 10,484,000 10,500 10,500
Additional paid-in capital 3,537,000 3,537,000
Accumulated deficit (3,110,300) (2,521,200)
--------------- ------------
TOTAL STOCKHOLDERS' EQUITY 437,200 1,026,300
--------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 9,061,900 $ 8,958,800
=============== ============
</TABLE>
8
See accompanying notes to financial statements.
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES
-----------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
1996 1995 1996 1995
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Management and administrative fees $ 51,200 $ 48,300 $ 166,700 $ 161,600
from unconsolidated entities
Equity in earnings of 2,600 400 8,000 6,700
unconsolidated entities
Interest 127,700 130,700 383,600 392,500
181,500 179,400 558,300 560,800
-------------- -------------- ------------- -------------
EXPENSES:
General and administrative 227,000 99,900 741,900 332,700
Interest 125,000 125,000 375,000 375,000
Equity in losses of unconsolidated
entities 1,100 (800) 4,000 700
Impairment of investment in HILP 200 100 900 200
Loss on related party receivable ( 10,400) -- ( 30,700) --
Administrative fee 18,000 18,800 56,300 56,300
-------------- -------------- ------------- -------------
360,900 243,000 1,147,400 764,900
-------------- -------------- ------------- -------------
EARNINGS (LOSS) BEFORE INCOME
TAXES (179,400) ( 63,600) (589,100) (204,100)
-------------- -------------- ------------- -------------
INCOME TAX BENEFIT -- 21,600 -- 69,400
-------------- -------------- ------------- -------------
NET EARNINGS (LOSS) $ (179,400) $ (42,000) $ (589,100) $ (134,700)
============== ============== ============= =============
EARNINGS (LOSS) PER COMMON SHARE $(.02) $(.00) $(.06) $(.01)
============== ============== ============= =============
WEIGHTED AVERAGE NUMBER OF COMMON 10,484,000 10,484,000 10,484,000 10,484,000
SHARES OUTSTANDING ============== ============== ============= =============
AS REVISED
</TABLE>
9
See accompanying notes to financial statements.
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES
-----------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------------
SEPT. 30, SEPT. 30,
1996 1995
--------------- -------------
(unaudited) (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES: $(589,100) $(134,700)
Net earnings/(loss)
Adjustments to reconcile net earnings
to net cash used in operating
activities:
Depreciation and amortization 4,700 4,800
Provision for loss on related
party receivable ( 30,700) --
Deferred income taxes -- ( 69,400)
Equity in losses (earnings) of
unconsolidated entities ( 4,100) ( 6,000)
Impairment of investment in
HILP 900 200
Changes in operating assets
and liabilities:
Other assets ( 700) 5,100
Accounts payable and accrued 9,200 ( 16,500)
expenses
Income taxes currently payable -- --
Other liabilities -- --
------------ -----------
Net cash used in operating (609,800) (216,500)
activities ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash advances to officer 30,700 ( 56,700)
Investment in unconsolidated ( 900) ( 200)
entities
Cash advances to (294,500) --
unconsolidated entities
Collection of advances from 167,700 126,800
unconsolidated entities
From sale/(acquisition) of ( 1,600) ( 5,900)
property, furniture and equipment ------------ -----------
Net cash provided/(used in) by investing
activities ( 98,600) 64,000
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advance from related party 683,000 150,500
------------- -----------
Net cash provided/(used) by financing
activities 683,000 150,500
------------ -----------
NET INCREASE/DECREASE IN CASH AND CASH ( 25,400) ( 2,000)
EQUIVALENTS
CASH AND CASH EQUIVALENTS,
beginning of period 38,700 10,600
------------ -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 13,300 $ 8,600
============ ===========
</TABLE>
10
See accompanying notes to financial statements
<PAGE>
HOMEFREE INVESTORS L.P.
-----------------------
(a limited partnership)
BALANCE SHEETS
--------------
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
--------------- ------------
<S> <C> <C>
(unaudited)
ASSETS
------
CURRENT ASSET, Receivable from
Homefree Village Resorts, Inc. $ 833,500 $ 150,500
=============== ============
LIABILITIES
-----------
CURRENT LIABILTIES:
Payable to AWP $ 833,500 $ 150,500
Payable the HGP 730,250 674,000
---------- ---------
Total Current Liabilities $1,563,750 $ 824,000
PARTNERS' DEFICIT (730,250) (674,000)
=============== ============
TOTAL LIABILITIES AND PARTNERS' DEFICIT $ 833,500 $ 150,500
=============== ============
</TABLE>
11
See accompanying notes to financial statements.
<PAGE>
HOMEFREE INVESTORS L.P.
-----------------------
(a limited partnership)
STATEMENTS OF OPERATIONS
------------------------
<TABLE>
<CAPTION>
THREE NINE MONTHS ENDED
MONTHS
ENDED
------------- -----------------------
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
1996 1995 1996 1995
------------------------- ----------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
REVENUES:
EXPENSE
- ADMINISTRATION FEE $ 18,750 $ 18,750 $ 56,250 $ 56,250
------------- ----------- ----------- -----------
- GENERAL AND
ADMINISTRATIVE 200 100 900 200
------------- ----------- ----------- -----------
NET EARNINGS (LOSSES) $ (18,790) $ (18,690) $ (57,150) $ (56,450)
============= =========== =========== ===========
EARNINGS (LOSSES) PER
LIMITED PARTNERSHIP
INTEREST $ (.002) $ (.002) $ (.005) $ (.005)
============= =========== =========== ===========
WEIGHTED AVERAGE SHARES
OUTSTANDING 10,484,000 10,484,000 10,484,000 10,484,000
============= =========== =========== ===========
</TABLE>
12
See accompanying notes to financial statements
<PAGE>
HOMEFREE INVESTORS L.P.
-----------------------
(a limited partnership)
STATEMENTS OF CASH FLOWS
------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------
SEPT. 30, SEPT. 30,
1996 1995
------------ ---------
<S> <C> <C>
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(57,150) $(56,450)
Adjustments to reconcile net lost to net cash used
in operating activities:
Increase in payable to HGP 56,250 56,250
Amortization -- --
------------ ---------
Net cash used in operating activities ( 900) ( 200)
------------ ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital investment by limited partners -- --
Capital investment by General Partner 900 200
------------ ---------
NET CASH FLOW FROM FINANCING ACTIVITIES $ 900 $ 200
NET INCREASE IN CASH AND CASH EQUIVALENTS -- --
CASH AND CASH EQUIVALENTS, -- --
beginning of period
CASH AND CASH EQUIVALENTS, end of period $ -- $ --
============= =========
</TABLE>
13
See accompanying notes to financial statements
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES
-----------------------------------------------
AND HOMEFREE INVESTORS L.P.
---------------------------
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(unaudited)
HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES
-----------------------------------------------
AND HOMEFREE INVESTORS L.P. (a limited partnership)
--------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Unaudited)
A. COMBINED, CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS
--------------------------------------------------------
Reference is made to Note 2 of the Financial Statements included in the
Joint Annual Report on Form 10-K for the year ended December 31, 1995. In
the opinion of management of the Company and the Partnership, the
accompanying unaudited combined, consolidated and separate financial
statements contain all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the financial position as of
September 30, 1996, the results of operations and the cash flows for the
nine months ended September 30, 1996.
Certain information and footnote disclosures, normally included in
financial statements prepared in accordance with generally accepted
accounting principles, have been omitted. It is suggested that the above
combined, consolidated and separate financial statements be read in
conjunction with the financial statements and notes thereto included in the
Company's and the Partnership's Joint Annual Report on Form 10-K for the
fiscal year ended December 31, 1995. The results of operations for the
nine-month period ended September 30, 1996, are not necessarily indicative
of the operating results for the Company and the Partnership for the full
year.
The combined financial statements include the accounts of the Partnership
and of the Company and its subsidiaries. All material intercompany
balances and transactions have been eliminated.
B. PAIRING PLAN
------------
The Assignee Limited Partnership interests in the Partnership ("Partnership
Shares") and the shares of Common Stock of the Company are paired on a
share-for-share basis. The shares can be transferred and traded only in
units ("Paired Shares") consisting of the same number of Partnership Shares
and shares of Common Stock of the Company.
C. RELATED PARTY TRANSACTIONS
--------------------------
The Company holds an interest-bearing note from Craig M. Bollman, Jr.,
President and Chairman of the Board, in the amount of $279,300 at September
30, 1996. This indebtedness was incurred in connection with personal
loans. This note bears interest at the "Applicable Federal rate" which is
the lowest rate permitted by the Internal Revenue Service without imputing
interest on a transaction. The largest amount outstanding under this note
during fiscal 1996 was $310,000. In prior years, a provision for losses
was recorded in connection with this note that constituted 100% of the
outstanding balance. During 1996, the Company recorded a loss restoration
of $30,700 associated with this note inasmuch as partial repayments have
been made.
14
<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
12/31/94 12/31/95 9/30/95 9/30/96
-------- -------- ------- -------
<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 (236,000) (231,600) (134,700) (589,100)
Items
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 N/A N/A N/A N/A
TO FIXED CHARGES
(c) BOOK VALUE PER 0.12 0.10 0.11 0.04
SHARE
</TABLE>
<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 Certificates Enclosed
and Number of Shares of Old
Name and Address Common Stock Represented
of Registered Owner by Each Certificate
- ------------------- -------------------
Cert. No. No. Shares
-------- --- ------
To: American Securities Transfer & Trust, Inc.
938 Quail Street
Suite 101
Lakewood, CO 80215-5513
Attention: Reorganization Department
Pursuant to the Information Statement dated April __, 1997, 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
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.
<PAGE>
-2-
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:_______, 1997 ---------------------------------
(Signature)
Print name:
Dated:_______, 1997 ----------------------------------
(Signature of joint owner, if any)
Print name:
<PAGE>
-3-
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.
. 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.
