<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 20, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
NASHVILLE COUNTRY CLUB, INC.
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
TENNESSEE 7389 62-1535897
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
---------------------
<TABLE>
<C> <C>
402 HERITAGE PLANTATION WAY THOMAS J. WEAVER III
HICKORY VALLEY, TENNESSEE 38042 NASHVILLE COUNTRY CLUB, INC.
(901) 764-2300 402 HERITAGE PLANTATION WAY
(Address and telephone number HICKORY VALLEY, TENNESSEE 38042
of principal executive offices) (901) 764-2300
(Name, address and telephone number
of agent for service)
</TABLE>
---------------------
Copies to:
<TABLE>
<S> <C>
RANDALL E. ROBERTS, ESQ. JAMES R. TANENBAUM, ESQ.
TED S. SCHWEINFURTH, ESQ. STROOCK & STROOCK & LAVAN LLP
WINSTEAD SECHREST & MINICK P.C. 180 MAIDEN LANE
5400 RENAISSANCE TOWER NEW YORK, NEW YORK 10038
1201 ELM STREET (212) 806-5400
DALLAS, TEXAS 75270
(214) 745-5400
</TABLE>
---------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=========================================================================================================
TITLE OF EACH CLASS OF AMOUNT TO AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, no par value............... $10,000,000 $3,030.00
=========================================================================================================
</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED , 1997
2,222,222 SHARES
NASHVILLE COUNTRY CLUB, INC.
COMMON STOCK
-------------------------------
All of the shares of common stock, no par value per share (the "Common
Stock"), offered hereby are being sold by Nashville Country Club, Inc. (the
"Company"). The Common Stock is traded on The Nasdaq Stock Market's National
Market (the "Nasdaq National Market") under the symbol "NCCI." On June 18, 1997,
the last reported sale price of the Common Stock on the Nasdaq National Market
was $4.50 per share. See "Price Range of Common Stock."
-------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 10 OF THIS PROSPECTUS FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE
PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
-------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
==============================================================================================================
PRICE TO PLACEMENT PROCEEDS TO
PUBLIC AGENT FEES(1) COMPANY(2)(3)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................................ $ $ $
- --------------------------------------------------------------------------------------------------------------
Total.................................... $ $ $
==============================================================================================================
</TABLE>
(1) The Common Stock is being offered by the Company principally to selected
institutional investors. Rauscher Pierce Refsnes, Inc. (the "Placement
Agent") has been retained to act, on a best efforts basis, as agent for the
Company in connection with the arrangement of this transaction. The Company
has agreed to pay the Placement Agent a fee in connection with the
arrangement of this transaction, to reimburse the Placement Agent for
certain out-of-pocket expenses, to grant the Placement Agent a warrant to
purchase up to [5% of the number of shares sold in this offering] shares of
Common Stock at $[120% of the offering price] per share, exercisable over a
period of four years commencing one year from the date of this Prospectus
(the "Placement Agent's Warrant"), and to indemnify the Placement Agent
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended (the "Act"). See "Plan of Distribution."
(2) The termination date of the offering is , 1997, subject to
extension by the mutual agreement of the Company and the Placement Agent.
Prior to the closing date of this best efforts, all or nothing offering, all
investor funds will promptly be placed in escrow with Citibank, N.A., as
escrow agent for funds collected in connection with the offering (the
"Escrow Agent"), in an escrow account established for the benefit of the
investors. Upon receipt of notice from the Escrow Agent that investors have
affirmed purchase of the Common Stock and deposited the requisite funds in
the escrow account, the Company will deposit with The Depository Trust
Company ("DTC") the shares of Common Stock to be credited to the accounts of
the investors and will collect the investor funds from the Escrow Agent. In
the event that investor funds are not received in the full amount necessary
to satisfy the requirements of the offering, all funds deposited with the
Escrow Agent will be returned promptly to the investors. See "Plan of
Distribution."
(3) Before deducting expenses of the offering payable by the Company estimated
at $400,000.
-------------------------------
[RAUSCHER PIERCE REFSNES, INC. LOGO]
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE> 3
[Pictures of crowd at Fruit of the Loom 1996 CountryFest concert, couple
riding horses, couple riding mountain bikes and person skiing.]
[Pictures of exterior of Nashville Country Club restaurant, aerial view of
the Village at Breckenridge Resort, night view of ice skaters and hot-air
balloon on Maggie Pond and exterior of Breckenridge Mountain Lodge.]
[Pictures of concert ticket stubs for concerts produced by Avalon
Attractions, aerial view of Fruit of the Loom 1996 CountryFest concert, aerial
view of Irvine Meadows Amphitheater which would be acquired as part of the
proposed Avalon West Coast acquisition and musical performer managed by Avalon
Entertainment Group.]
[Pictures of persons whitewater rafting, persons skiing, crowd at concert,
horse-drawn sleigh and musical performer managed by Avalon Entertainment Group.]
---------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE PLACEMENT AGENT. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK WHERE, OR
TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN
THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 10
Use of Proceeds........................ 17
Dividend Policy........................ 17
Price Range of Common Stock............ 18
Capitalization......................... 19
Unaudited Pro Forma Consolidated
Financial Data....................... 20
Selected Historical Consolidated
Financial Data -- The Company........ 29
Selected Historical Financial
Data -- Avalon Entertainment Group,
Inc.................................. 30
Selected Historical Combined Financial
Data -- Avalon West Coast............ 31
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 32
Business............................... 47
Management............................. 61
Certain Relationships and Related
Transactions......................... 65
Principal Shareholders................. 66
Description of Securities.............. 67
Shares Eligible for Future Sale........ 71
Plan of Distribution................... 72
Legal Matters.......................... 73
Experts................................ 73
Available Information.................. 73
Index to Historical Financial
Statements........................... F-1
</TABLE>
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial data appearing elsewhere herein. Each prospective
investor is urged to read this Prospectus in its entirety. Unless otherwise
indicated, the information in this Prospectus does not assume the consummation
of the Concurrent Financing (as defined), which is not a condition to this
offering. All references herein to the "Company" mean Nashville Country Club,
Inc. and its wholly owned subsidiaries.
THE COMPANY
The Company is a diversified entertainment company operating in two primary
business divisions: Entertainment and Resorts. The Entertainment Division
produces live entertainment for corporate meetings and special events
("Corporate Entertainment") and develops and produces integrated music marketing
programs for corporate clients ("Entertainment Marketing"). In addition, the
Company has entered into an agreement to acquire a controlling interest in a
group of affiliated entities (collectively, "Avalon West Coast" or "AWC") that
own and operate concert amphitheaters, produce and promote concerts and manage
merchandising for concerts and sporting events ("Amphitheater Operation,"
"Concert Production" and "Event Merchandising," respectively). The Resort
Division owns and operates resort hotels and restaurants.
The Entertainment Division currently operates through the Company's wholly
owned subsidiary, Avalon Entertainment Group, Inc. ("AEG"), which the Company
acquired in April 1997 (the "AEG Acquisition"). In the last two years, AEG has
produced over 200 Corporate Entertainment events for corporate clients,
including events for Sprint, Northern Telecom, State Farm, Microsoft and
Pontiac. AEG provides Entertainment Marketing services through Warner/Avalon, a
joint venture with Warner Custom Music Corp., a subsidiary of Time Warner, Inc.
In the last two years, Warner/Avalon has produced over 400 Entertainment
Marketing events to audiences of over 4,000,000 people, including the
Blockbuster RockFest and the Fruit of the Loom CountryFest events in June 1997,
which together were attended by over 350,000 people.
The Company is expanding its Entertainment Division to include Amphitheater
Operation, Concert Production and Event Merchandising through the acquisition
(the "AWC Acquisition") of a 51% interest in AWC, which consists of Irvine
Meadows Amphitheater, a California general partnership ("IMA Partners"), and a
group of entities affiliated with AEG. Among other things, AWC owns Irvine
Meadows Amphitheater (the "IMA") in Irvine, California, and, through a joint
venture, manages the operations of the Glen Helen (Blockbuster) Amphitheater
(the "GHA") in Devore, California and the IMA, where it has produced 63 shows in
the last two years. During the last two years, AWC has produced over 300
concerts to audiences of over 1,300,000 people, primarily in venues in Southern
California. AWC's Event Merchandising operations focus on serving large-scale
sporting and entertainment events, such as the 1996 Summer Olympic Games, where,
through a joint venture, AWC served as the primary event merchandiser.
The Resort Division owns and operates the Village at Breckenridge Resort
(the "Breckenridge Resort"), a year-round destination resort located at the base
of Breckenridge Mountain, the second most popular ski area in the United States.
The Breckenridge Resort, which the Company acquired in April 1996, consists of
two hotels, eight restaurants and taverns and 120,000 square feet of commercial
and meeting space and banquet facilities. The Breckenridge Resort also manages
315 condominium units and single family homes in Breckenridge, making it the
largest property manager in the Town of Breckenridge. The Resort Division has
also entered into an agreement in principle with East-West Partners, a leading
developer of commercial and residential properties in Vail, Beaver Creek and
Breckenridge, Colorado, to develop certain residential and commercial facilities
located at the Breckenridge Resort. The Resort Division also owns and operates
the Nashville Country Club restaurant (the "Nashville Restaurant") located on
Nashville's Music Row and has developed plans to construct a 107-room,
all-suites hotel adjacent to the Nashville Restaurant (the "Nashville Hotel").
The Company was incorporated in Tennessee in June 1993. On June 19, 1997,
the Company's Board of Directors approved reincorporating the Company in
Delaware. The Company's executive offices are located at 402 Heritage Plantation
Way, Hickory Valley, Tennessee 38042, and its telephone number is (901)
764-2300.
3
<PAGE> 5
BUSINESS STRATEGY
The Company's business strategy is to acquire and develop a portfolio of
complementary entertainment assets, develop and capitalize on synergies between
those assets to raise the profiles of the Company's Entertainment and Resort
divisions and pursue internal and external growth opportunities within those
divisions. Key aspects of this strategy include (i) increasing the number of
entertainment events managed by the Entertainment Division and the average
revenues earned per event; (ii) increasing the number of rooms managed, the
average occupancy rates and the average daily room rates of the Resort Division;
and (iii) pursuing acquisition and development opportunities and strategic joint
ventures with industry leaders.
The Company believes that significant strategic advantages arise from
developing joint venture relationships with industry leaders. In particular, the
Company believes that such relationships allow the Company to expand its
entertainment offerings, control the quality of its products, limit its capital
requirements and reduce its business risks. Currently, the Company or AWC is
party to joint ventures or contractual relationships with such industry leaders
as (i) Warner Custom Music Corp; (ii) Pavilion Partners, a joint venture of Sony
Music Entertainment, Inc. and S.M/Pace Concerts, Inc.; (iii) First Team
Marketing, Inc., a corporation wholly owned by Earvin "Magic" Johnson; (iv)
Wyndham Hotel Company, Ltd. ("Wyndham"); and (v) East-West Partners.
RECENT DEVELOPMENTS
On April 21, 1997, the Company acquired AEG. The purchase price for AEG of
$7,200,000 was paid through the issuance of Common Stock having an aggregate
value of $4,320,000 and the delivery of promissory notes (the "AEG Promissory
Notes") in the aggregate principal amount of $2,480,000 and cash in the amount
of $400,000. The AEG Promissory Notes bear interest at 10% per annum and are due
and payable on July 31, 1997.
On June 12, 1997, the Company entered into a letter agreement to acquire a
51% interest in AWC. The letter agreement provides for the payment of cash in
the amount of $7,000,000 and contingent stock consideration, if any, based upon
AWC's average results of operations for the years 1996, 1997 and 1998. The
Company intends to use a portion of the proceeds of this offering to fund the
cash consideration of the AWC Acquisition.
Concurrently with this offering, the Company is seeking to enter into a new
$15.0 million credit facility (the "Credit Facility"). Consummation of this
offering and the closing of the Credit Facility (the "Concurrent Financing") are
not conditioned upon each other. The Company intends to use a portion of the
proceeds of the Concurrent Financing to repay the AEG Promissory Notes.
On June , 1997, the Company's Board of Directors approved changing the
Company's name to . The proposed new name will be
submitted to the Company's shareholders for approval at the Company's annual
shareholders meeting to be held on September , 1997.
4
<PAGE> 6
THE OFFERING
Common Stock offered by the
Company.......................... 2,222,222 shares
Common Stock to be outstanding
after the offering............... 7,622,497 shares(1)
Use of proceeds.................. To fund the AWC Acquisition and for working
capital and general corporate purposes. The
Company currently plans to use the Credit
Facility to repay the AEG Promissory Notes
and to fund potential future development
projects and acquisitions, which may
include the construction of the Nashville
Hotel and the acquisition or development of
amphitheaters. See "Use of Proceeds" and
"Management's Discussion and Analysis of
Financial Condition and Results of
Operations."
Risk factors..................... See "Risk Factors" for certain information
that should be considered by prospective
purchasers of the Common Stock offered
hereby.
Nasdaq National Market symbols:
Common Stock................... NCCI
Redeemable Warrants............ NCCIW
- ---------------
(1) Excludes: (i) 334,285 shares of Common Stock reserved for issuance upon the
conversion of outstanding shares of the Company's Series A Convertible
Preferred Stock (the "Series A Preferred Stock"); (ii) 330,000 shares of
Common Stock issuable upon the exercise of outstanding stock options; (iii)
1,783,955 shares of Common Stock issuable upon the exercise of outstanding
warrants; and (iv) [5% of the number of shares sold in this offering] shares
of Common Stock issuable upon exercise of the Placement Agent's Warrant. See
"Risk Factors -- Shares Eligible for Future Sale," "Description of
Securities" and "Shares Eligible for Future Sale."
5
<PAGE> 7
SUMMARY HISTORICAL FINANCIAL DATA
The following tables set forth summary historical financial data of the
Company, AEG and AWC for the periods ended and as of the dates indicated. The
summary historical financial data for each of the two years in the period ended
December 31, 1996 and as of December 31, 1996 is derived from the financial
statements of each of the Company, AEG and AWC which have been audited by Arthur
Andersen LLP, independent public accountants, appearing elsewhere herein. The
summary historical financial data for the three months ended March 31, 1996 and
1997 and as of March 31, 1997 is derived from the unaudited financial statements
of each of the Company, AEG and AWC prepared on the same basis as the audited
financial statements and containing, in management's opinion, all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the financial position and results of operations of each of the
Company, AEG and AWC, respectively, for these periods. The information below
should be read in conjunction with the Financial Statements and related notes
thereto of each of the Company, AEG and AWC and the information provided under
the captions "Unaudited Pro Forma Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing elsewhere herein.
COMPANY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
---------------- ------------------
1995 1996 1996 1997
------ ------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Revenues................................................ $2,230 $10,809 $ 515 $10,102
Departmental expenses................................... 2,031 8,902 444 6,389
------ ------- ------ -------
Departmental profit..................................... 199 1,907 71 3,713
Undistributed operating expenses........................ 1,011 3,867 172 1,523
------ ------- ------ -------
(Loss) income from operations........................... (812) (1,960) (101) 2,190
Interest income (expense), net.......................... 18 (1,167) 2 (411)
------ ------- ------ -------
Net (loss) income....................................... $ (794) $(3,127) $ (99) $ 1,779
====== ======= ====== =======
Net (loss) income per share............................. $ (.54) $ (.87) $ (.07) $ .36
====== ======= ====== =======
Weighted average shares outstanding..................... 1,470 3,576 1,470 4,925
====== ======= ====== =======
OTHER DATA:
EBITDA(2)............................................... $ (698) $(1,361) $ (72) $ 2,446
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, MARCH 31,
1996 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)................................. $(1,799) $(1,943)
Property and equipment, net............................... 34,044 33,870
Total assets.............................................. 38,108 38,648
Total debt................................................ 21,139 20,975
Total liabilities......................................... 25,895 24,656
Stockholders' equity...................................... 12,213 13,992
</TABLE>
- ---------------
(1) The Company acquired the Breckenridge Resort on April 29, 1996. The
Statement of Operations Data includes the operating results of the
Breckenridge Resort for the periods from April 29, 1996 to December 31, 1996
and from January 1, 1997 to March 31, 1997.
(2) Earnings before interest income and expense, income taxes, depreciation and
amortization. EBITDA should not be considered, however, as an alternative to
operating income as an indicator of the Company's operating performance, or
as an alternative to cash flows as a measure of overall liquidity.
6
<PAGE> 8
AVALON ENTERTAINMENT GROUP
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
--------------- ---------------
1995 1996 1996 1997
------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................................. $3,970 $5,570 $1,040 $1,544
Cost of revenues......................................... 2,887 4,029 738 1,222
General and administrative expenses(1)................... 1,260 2,010 278 339
------ ------ ------ ------
(Loss) income from operations............................ (177) (468) 24 (17)
Equity in income of joint venture(2)..................... 538 449 217 8
Other (expense) income, net.............................. (11) 8 -- --
Provision for taxes(3)................................... (3) (1) (1) --
------ ------ ------ ------
Net income (loss)........................................ $ 347 $ (12) $ 240 $ (9)
====== ====== ====== ======
OTHER DATA:
EBITDA(4)................................................ $ 397 $ 8 $ 249 $ (2)
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, MARCH 31,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)................................. $(304) $(203)
Property and equipment, net............................... 54 59
Total assets.............................................. 628 565
Total liabilities......................................... 848 793
Stockholders' deficit..................................... (219) (228)
</TABLE>
- ---------------
(1) Includes salaries and profit distributions to shareholders of $410,000 and
$902,000 for the years ended December 31, 1995 and 1996, respectively, and
$50,000 and $63,000 for the three months ended March 31, 1996 and 1997,
respectively.
(2) Represents AEG's 50% joint venture interest in Warner/Avalon.
(3) In each of the periods presented, AEG operated as an S corporation under
Subchapter S of the Internal Revenue Code of 1986, as amended (the "Internal
Revenue Code"). Accordingly, AEG was not subject to federal income taxation.
(4) Earnings before interest income and expense, income taxes, depreciation and
amortization. EBITDA should not be considered, however, as an alternative to
operating income as an indicator of the Company's operating performance, or
as an alternative to cash flows as a measure of overall liquidity.
7
<PAGE> 9
AVALON WEST COAST
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
----------------- ----------------
1995 1996 1996 1997
------- ------- ------- ------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................... $16,471 $18,011 $1,869 $ 599
Costs of revenues(1)................................... 14,526 15,666 1,568 363
Operating expenses(2).................................. 2,439 2,122 443 403
------- ------- ------ -----
(Loss) income from operations.......................... (494) 223 (142) (167)
Equity in income (loss) from investments(3)............ 39 12 (102) (122)
Other income (expense), net(4)......................... 334 (43) (23) 4
Benefit (provision) for taxes.......................... 4 (11) (1) (1)
------- ------- ------ -----
Net (loss) income...................................... $ (117) $ 181 $ (268) $(286)
======= ======= ====== =====
OTHER DATA:
EBITDA(5).............................................. $ 6 $ 368 $ (222) $(256)
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, MARCH 31,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)................................. $ (637) $ (845)
Property and equipment, net............................... 259 242
Investment in IMA Partners(3)............................. 1,031 909
Total assets.............................................. 2,455 2,129
Total loans from stockholders............................. 374 314
Total liabilities......................................... 1,811 1,771
Stockholders' equity...................................... 644 358
</TABLE>
- ---------------
(1) Includes profit distributions to shareholders of $1,113,000 for the year
ended December 31, 1996.
(2) Includes salaries and profit distributions to shareholders of $320,000 and
$120,000 for the years ended December 31, 1995 and 1996, respectively, and
$30,000 and $30,000 for each of the three months ended March 31, 1996 and
1997, respectively.
(3) Represents AWC's historical 25% interest in IMA Partners. Upon completion of
the AWC Acquisition, the Company will own a 51% interest in IMA Partners.
(4) Includes a one-time gain of $429,000 in the year ended December 31, 1995
from a recovery on a fire insurance casualty claim.
(5) Earnings before interest income and expense, income taxes, depreciation and
amortization. EBITDA should not be considered, however, as an alternative to
operating income as an indicator of the Company's operating performance, or
as an alternative to cash flows as a measure of overall liquidity.
8
<PAGE> 10
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth summary pro forma consolidated financial
data of the Company for the year ended December 31, 1996, for the three months
ended March 31, 1997 and as of March 31, 1997. The summary pro forma
consolidated financial data gives effect to the consummation of this offering
and the AEG Acquisition and the AWC Acquisition (collectively, the
"Acquisitions"), and reflects the assumed use of proceeds from this offering as
though such transactions had occurred for balance sheet purposes as of March 31,
1997 and for statement of operations purposes as of January 1, 1996. The summary
pro forma consolidated financial data also gives effect to the consummation of
the acquisition of the Breckenridge Resort (the "Breckenridge Resort
Acquisition") as though such transaction had occurred for balance sheet purposes
as of April 29, 1996 and for statement of operations purposes as of January 1,
1996. The summary pro forma consolidated financial data is not necessarily
indicative of the operating results or financial position that would have
occurred had such transactions been consummated on the dates and for the periods
for which such transactions have been given effect, nor is it necessarily
indicative of the Company's future operating results or financial position. The
information below should be read in conjunction with information under the
caption "Unaudited Pro Forma Consolidated Financial Data" appearing elsewhere
herein.
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA
---------------------------------
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
1996 1997
------------ ------------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Entertainment.......................................... $33,887 $ 2,217
Resort................................................. 20,724 10,102
------- -------
Total revenues.................................... 54,611 12,319
------- -------
Operating expenses:
Entertainment.......................................... 32,465 2,982
Resort................................................. 19,191 7,523
Depreciation and amortization.......................... 1,892 525
Corporate expense...................................... 347 133
------- -------
Total operating expenses.......................... 53,895 11,163
------- -------
Income from operations.................................... 716 1,156
Interest expense, net.................................. (2,154) (498)
Other income, net...................................... 496 23
Minority interest(1)................................... (550) 437
------- -------
(Loss) income before taxes................................ (1,492) 1,118
Provision for taxes....................................... -- 1
------- -------
Net (loss) income......................................... $(1,492) $ 1,117
======= =======
Net (loss) income per share............................... $ (.20) $ .15
======= =======
Weighted average shares outstanding....................... 7,622 7,622
======= =======
OTHER DATA:
EBITDA(2)................................................. $ 2,554 $ 2,141
</TABLE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA
AS OF MARCH 31,
1997
-------------------
<S> <C>
BALANCE SHEET DATA:
Working capital (deficit)................................. $(5,915)
Property and equipment, net............................... 39,635
Total assets.............................................. 60,747
Total debt................................................ 24,828
Total liabilities......................................... 31,923
Minority interest(1)...................................... 1,512
Stockholders' equity...................................... 27,312
</TABLE>
- ---------------
(1) Represents a 49% interest in AWC not being acquired by the Company pursuant
to the AWC Acquisition.
(2) Earnings before interest income and expense, income taxes, depreciation and
amortization. EBITDA should not be considered, however, as an alternative to
operating income as an indicator of the Company's operating performance, or
as an alternative to cash flows as a measure of overall liquidity.
9
<PAGE> 11
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating an investment in the Common
Stock offered hereby.
GENERAL RISKS ASSOCIATED WITH THE COMPANY
Limited Operating History; Operating Losses. The Company commenced
operations in November 1994, acquired the Breckenridge Resort in April 1996,
acquired AEG in April 1997 and anticipates acquiring AWC contemporaneously with
the closing of this offering. Consequently, the Company has a limited operating
history upon which investors may evaluate its performance. In view of its
limited operating history, the Company remains susceptible to a variety of
business risks. Future operating results will depend on many factors, including,
but not limited to, the Company's ability to successfully integrate and expand
its business operations and the revenues generated from its acquired operations.
The Company has experienced losses from inception through December 31, 1996.
There can be no assurance that such losses will not continue. The Company had a
net loss of approximately $646,000 for the year ended December 31, 1994, a net
loss of approximately $794,000 for the year ended December 31, 1995 and a net
loss of approximately $3,127,000 for the year ended December 31, 1996. There can
be no assurance that the Company will be able to achieve and sustain
profitability on an ongoing basis. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Liquidity Shortages; Need for Additional Financing. Since inception, the
Company has experienced temporary liquidity shortages. The Company's business
operations and strategy require substantial amounts of capital on a continuing
basis. For instance, the Company's Resort Division requires capital to expand
and to conduct renovations and improvements to its properties. The need to make
such capital improvements involves certain risks, including the possibility that
the Company will not have available sufficient cash to fund such expenditures or
that financing for renovations will not be available on favorable terms. The
Company's Entertainment and Resort divisions also require capital to expand
their operations. The Company will depend on obtaining additional capital in the
future through securities offerings, unsecured and secured debt financing and
cash flow from operations to expand its business operations and effect its
business strategy. The Company intends to use a portion of the proceeds of this
offering to fund the AWC Acquisition. The Company will require additional
financing to implement its business strategy beyond the AWC Acquisition. In
particular, the Company will require the proceeds of the Concurrent Financing to
repay the AEG Promissory Notes and to fund future potential development projects
and acquisitions, which may include the construction of the Nashville Hotel and
the acquisition or development of amphitheaters. Should the Company's actual
results of operations fall short of, or its rate of expansion significantly
exceed, its projections, or should its costs or capital expenditures exceed the
amounts projected, the Company could be required to seek additional financing
sooner than currently expected. There can be no assurance that the Company will
be able to raise additional capital on terms satisfactory to the Company. See
"Use of Proceeds," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business."
Possible Failure to Consummate Concurrent Financing. There can be no
assurance that the Concurrent Financing will occur or that it will occur in a
timely manner to enable the Company to use the proceeds of such financing to
repay the AEG Promissory Notes prior to their maturity or to proceed with its
business strategy. The Company's failure to repay such promissory notes prior to
their maturity could have important consequences for the Company, including a
default under such notes permitting the lenders to foreclose on their security
interests.
Substantial Leverage. In connection with the AEG Acquisition, the Company
issued the AEG Promissory Notes in the aggregate principal amount of $2,480,000.
In connection with the Breckenridge Resort Acquisition, the Company assumed
loans encumbering the assets of the Breckenridge Resort (the "Loans") in the
aggregate principal amount of approximately $20,644,000, of which $20,406,000
was outstanding as of December 31, 1996. Of the Loans, approximately $884,000
matures in 1997, approximately $2,250,000 matures in 1998, approximately
$6,690,000 matures in 1999, approximately $583,000 matures in 2000,
approximately $9,305,000 matures in 2001 and approximately $694,000 matures
thereafter. The
10
<PAGE> 12
Company does not anticipate being able to generate sufficient cash flow to repay
the Loans as they become due and believes it will be necessary to refinance all
or a portion of the Loans at or prior to maturity. Interest rates on any debt
incurred to refinance the Loans may be higher than the present rates on the
Loans. There can be no assurance that the Company will be able to repay or
refinance all or any portion of such Loans when due, or any other indebtedness
the Company may incur, or to otherwise obtain funds by selling assets or raising
capital to make required payments on maturing indebtedness. In the event that
the Company is unable to refinance all or a significant portion of such Loans
when due, the Company may be required to reduce or delay planned expenditures or
acquisitions. In addition, an inability to make payments when due or to comply
with applicable covenants and restrictions could give a lender the right to
foreclose on the properties securing such loans, which would have a material
adverse effect on the Company. Substantially all of the properties and assets
comprising the Breckenridge Resort are pledged as collateral for the Loans. As
of March 31, 1997, the Company had approximately $17,560,000 of outstanding
long-term indebtedness. See "Capitalization." After giving effect to the Credit
Facility, the Company would have approximately $15,000,000 of additional
outstanding long-term indebtedness. This substantial indebtedness and fixed
charges of the Company may have several important consequences for holders of
the Company's securities, including, but not limited to, the following: (i) a
substantial portion of the Company's cash flow is required to pay the Company's
current interest expense of approximately $1,700,000 per year and principal
repayment obligations; (ii) the Company's ability to obtain additional financing
in the future, as needed, may be impaired; (iii) the Company's leveraged
position and the covenants contained in certain of its debt agreements could
limit the Company's ability to compete through future expansion and capital
improvements, preventing the Company from maintaining its facilities at an
operating level that will continue to attract patrons; and (iv) the Company's
leverage may make it vulnerable to changing business and economic conditions,
limit its ability to withstand competitive pressures, reduce its flexibility in
responding to changing economic conditions and limit its ability to absorb
adverse operating results. See "Management's Discussion of Financial Condition
and Results of Operations."
No Assurance of Successful Integration of Business Operations; Management
of Growth. The Company's success depends, to a significant degree, on its
ability to effectively implement its business strategy. Central to such strategy
is the coordinated marketing and operation of the Company's Entertainment and
Resort divisions and the successful integration of AEG, AWC and any subsequently
acquired businesses. The Company believes it will realize substantial benefits
from the integration of AEG and AWC. However, there can be no assurance that the
Company will be able to run these businesses profitably or that these businesses
will be successfully integrated into the Company's operations. In addition,
there can be no assurance that the Company will realize the synergies it has
identified in connection with integrating AEG's and AWC's entertainment
operations with its existing resort operations. The Company continually
evaluates potential acquisitions and intends to actively pursue acquisition
opportunities. Future acquisitions could be financed by internally generated
funds, bank borrowings, public offerings or private placements of equity or debt
securities, or any combination of the foregoing. There can be no assurance that
the Company will be able to make acquisitions on terms favorable to the Company.
If the Company completes acquisitions, it will encounter various associated
risks, including the difficulty associated with integrating an acquired business
into the Company's operations, diversion of management's attention and
unanticipated problems or liabilities, some or all of which could have a
material adverse effect on the Company's results of operations and financial
condition. See "Business."
Possible Failure to Consummate AWC Acquisition. The Company expects to
close the AWC Acquisition contemporaneously with the closing of this offering.
However, there can be no assurance that the AWC Acquisition will be closed as
contemplated. If the Company does not consummate the AWC Acquisition, the
Company will need to find alternative uses for approximately $7.0 million of the
net proceeds of this offering that it will have invested in short-term
investments.
Dependence on Key Personnel. The success of the Company is substantially
dependent on the abilities and continued service of the executive officers of
the Company and its subsidiaries. In particular, the Company is dependent on
Thomas J. Weaver III, the Company's Chief Executive Officer. Mr. Weaver founded
the Company and is essential to its growth. Mr. Weaver devotes all of his
business time to the
11
<PAGE> 13
Company. The Company has obtained key-man life insurance on the life of Mr.
Weaver in the amount of $1,000,000. The Company has also entered into an
employment agreement with Mr. Weaver. AEG's continued success depends in large
part upon the abilities and continued service of Marc W. Oswald, Greg M. Janese,
Robert E. Geddes and Thomas Miserendino. In connection with the AEG Acquisition,
the Company entered into employment agreements with each of Messrs. Oswald and
Janese and consulting agreements with each of Messrs. Geddes and Miserendino.
The Company anticipates entering into employment agreements with each of Messrs.
Geddes and Miserendino in replacement of their existing consulting agreements in
connection with the AWC Acquisition. The success of the Breckenridge Resort is
largely dependent upon the expertise of Jeffrey McIntyre and Mark van
Hartesvelt. The Company has entered into employment agreements with each of
Messrs. McIntyre and van Hartesvelt. See "Management -- Employment and
Consulting Agreements."
Economic Conditions. The Company's results of operations will be adversely
affected by economic downturns. The Entertainment Division's business is
dependent in large part on the sale of services to clients in connection with
discretionary spending activities that decrease during periods of economic
slowdown. Spending on marketing and sales activities generally declines during
recessionary climates. There can be no assurance that a general economic
recession or slowdown would not have a material adverse effect on the
Entertainment Division. The Resort Division similarly derives its revenues from
the leisure market which is affected by recessionary trends. In addition,
inflationary pressures could also increase room rates and operating expenses of
the Breckenridge Resort above expected levels and could reduce its occupancy
rates. An economic downturn, consequently, could have a material adverse effect
on the Company's results of operations and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Seasonality; Adverse Effects of Unfavorable Weather. The businesses of the
Company's Entertainment and Resort divisions are highly seasonal. AEG and AWC
generally realize a substantial majority of their cash flow during the second
and third quarters of each fiscal year. The Resort Division generally reports
losses during such periods and recognizes most of its income during the first
and fourth fiscal quarters. While the Company is seeking to develop the
Breckenridge Resort as a year-round destination resort, there can be no
assurance that such development will reduce the seasonal variations. Attracting
guests to the Breckenridge Resort and audiences to the Entertainment Division's
entertainment events depends upon favorable weather conditions and, in the case
of the Breckenridge Resort, adequate snowfall during the winter ski season.
While the Company may be able to mitigate the adverse effects of unfavorable
weather conditions, continuing periods of adverse weather conditions could have
a material adverse impact on the Company's results of operations and financial
condition. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Losses in Excess of Insurance Coverage. The Company maintains comprehensive
insurance on the Breckenridge Resort and the Company's other properties,
including liability, fire and extended coverage, in the types and amounts
customarily obtained by an owner and operator in the resort and hotel industry.
In addition, AWC and AEG each maintain comprehensive insurance, including
liability coverage, for their general operations and obtain event-specific
coverage in connection with certain concerts and events. Nevertheless, there are
certain types of losses, generally of a catastrophic nature, such as hurricanes,
earthquakes and floods, that may be uninsurable or not economically insurable.
The Company will use its discretion in determining amounts, coverage limits and
deductibility provisions of insurance, with a view to obtaining appropriate
insurance on the operations of the Breckenridge Resort, AEG and AWC and on the
Company's other properties and operations at a reasonable cost and on suitable
terms. This may result in insurance coverage that, in the event of a loss, would
not be sufficient to pay the full current market value or current replacement
value of the Company's lost investment and the insurance proceeds received by
the Company might not be adequate to restore its economic position with respect
to such properties and operations. The inability of the Company, AEG or AWC to
obtain comprehensive insurance at adequate levels, or the inability to obtain
event-specific coverage at a reasonable cost, could have a material adverse
impact on the Company's results of operations and financial condition.
12
<PAGE> 14
Risks Involved in Development Activities Through Partnerships and Joint
Ventures. The Company is party to several joint ventures and partnerships with
unaffiliated investors, including, among others, Warner/Avalon and, following
the AWC Acquisition, IMA Partners, and may enter into similar partnership or
joint venture arrangements in the future, such as with East-West Partners.
Partnership and joint venture arrangements may, under certain circumstances,
present certain risks to the Company, including the possibility that the
Company's partners or co-venturers might become bankrupt, that such partners or
co-investors might have economic or other business interests or goals that are
inconsistent with the interests or goals of the Company, and that such partners
or co-venturers may, in certain circumstances, be in a position to take actions
contrary to the instructions or requests of the Company or contrary to the
Company's policies or objectives. In the event that a co-venturer becomes
bankrupt, such development has the risk of imposing greater financial
obligations on the Company than anticipated to continue the operations of the
venture. Such developments also have the risk of delay or impasse on decisions
regarding the jointly-held business, which may prevent the Company from making
business decisions that would be in its best interests with respect to the
jointly-held business. In addition, the agreements governing the partnerships
and joint ventures to which the Company is currently a party provide for their
termination under certain circumstances, the occurrence of which could have a
material adverse effect on the Company's results of operations and financial
condition.
Anti-takeover Considerations. The Company is subject to certain provisions
of Tennessee law which limit or restrict certain "business combinations." These
provisions could have the effect of discouraging, delaying or preventing a
change in control of the Company. See "Description of Securities -- Tennessee
Business Combination Act." The Company's Board of Directors has approved
reincorporating the Company in Delaware, the corporate laws of which contain
similar provisions limiting or restricting certain business combinations. In the
event that the Company reincorporates in Delaware, management of the Company may
elect to be subject to such provisions.
RISKS ASSOCIATED WITH THE COMPANY'S ENTERTAINMENT OPERATIONS
Reliance on Large Clients. A significant portion of AEG's Corporate
Entertainment revenues and Warner/Avalon's Entertainment Marketing revenues are
derived from a small number of large corporate clients. AEG's two largest
clients, Northern Telecom and State Farm Insurance Company, accounted for
approximately 25% of AEG's Corporate Entertainment revenues in 1996.
Warner/Avalon's two largest clients, Union Underwear Company, Inc., d/b/a Fruit
of the Loom ("Fruit of the Loom"), and Seagrams Crown Royal ("Crown Royal"),
accounted for approximately 95% of Warner/Avalon's Entertainment Marketing
revenues in 1996. Accordingly, the loss of any one client could have a material
adverse effect on the results of operations and financial condition of AEG and
Warner/Avalon. A significant portion of AWC's revenues are derived from concert
events held at the IMA. The loss of the use of the IMA for concert events would
have a material adverse effect on AWC's results of operations and financial
condition.
Episodic Nature of Corporate Entertainment Business. AEG generally produces
Corporate Entertainment events for its clients on an event-by-event basis and
typically does not have long-term arrangements with its clients requiring such
clients to utilize AEG on an on-going basis for such clients' Corporate
Entertainment needs. Accordingly, there can be no assurance that AEG will
maintain its present client relationships or that its clients will continue to
use AEG for their future Corporate Entertainment needs.
Variance from Budgeted Costs. AEG generally provides services to its
clients on a fixed-fee-for-services basis, with the fee established based upon
estimated expenditures required to produce an entertainment event. If the
expenditures for an event are greater than anticipated, AEG generally will not
be able to pass along the higher costs to the client, which may result in lower
net profits or a loss for such event, which could have a material adverse effect
on AEG's results of operations and financial condition.
Changes in Entertainment Trends; Concert Promotion. AEG's Entertainment
Marketing and Corporate Entertainment businesses and AWC's concert promotion and
production business are based primarily upon the appeal to audiences of seeing
live performances in a concert setting. The increasing trend toward electronic
presentations, including music videos, compact disks and CD-ROMs, and the
increasing sophistication of
13
<PAGE> 15
home equipment for utilizing such products may result in a decrease in the
popularity of large concerts, which could have a material adverse effect on the
demand for AEG's and AWC's services.
Absence of Operating History in Corporate Entertainment and Concert
Promotion Businesses. The Company's ownership of AEG and AWC is subject to all
of the risks inherent in the acquisition and ownership of a new business. The
Company's absence of an operating history in the corporate entertainment and
concert promotion businesses makes it impossible to predict whether the Company
will operate AEG and AWC profitably.
Geographic Concentration. AWC's operations are primarily concentrated in
Southern California. A significant weakening in the Southern California economy
may cause the residents of that area to curtail discretionary spending which, in
turn, could materially affect the profitability of AWC.
Competition. The entertainment industry is highly competitive and the
success of the Company's entertainment operations depends on its ability to
attract and promote popular and successful artists and events. Some of AEG's and
AWC's competitors have been in existence for a substantially longer period than
AEG and AWC, have greater financial, marketing, personnel and other resources
than AEG and AWC and are better established in markets where AEG and AWC may
look to expand.
RISKS ASSOCIATED WITH THE COMPANY'S RESORT OPERATIONS
Geographic Concentration of Resort Assets. The Breckenridge Resort
represented approximately 92% of the Company's total assets and approximately
80% of the Company's total revenues for the year ended December 31, 1996. Due to
this geographic concentration of the Company's resort assets, a deterioration in
economic conditions in Colorado generally or in the Breckenridge area
specifically could have a substantial adverse effect on the results of
operations and financial condition of the Company.
Uncontrollable Factors Affecting Performance. The economic performance of
the Breckenridge Resort is subject to certain risks incidental to the ownership
and operation of real estate. These include the risks normally associated with
changes in regional and local economic and market conditions. Such local real
estate market conditions may include excess supply and intense competition for
guests and tenants, including competition based on room and rental rates,
attractiveness and location of the property and quality of maintenance,
insurance and management services. In addition, other factors may affect the
performance and value of a property adversely, including changes in interest
rates and the availability of financing. The success of the Breckenridge Resort,
for example, is highly dependent upon its ability to compete with respect to
such features as access, location, quality of accommodations, room rate
structure and, to a lesser extent, the quality and scope of other amenities such
as food and beverage facilities. The success of the Breckenridge Resort also is
highly dependent upon the ability of the Town of Breckenridge and Breckenridge
Mountain to attract visitors year round. The ski industry is highly competitive
and Breckenridge Mountain competes directly with numerous ski areas in Colorado
for day skiers and with major resort areas throughout the United States for the
destination vacation skier. The restaurant industry is also intensely
competitive with respect to price, service, location and food quality, and there
are many well-established competitors with substantially greater financial and
other resources than the Company. The restaurant business is also often affected
by changes in consumer tastes, national, regional or local economic conditions,
demographic trends, traffic patterns and the type, number and location of
competing businesses.
Real Estate Development; Illiquidity. The Company has substantial real
estate assets. Investments in real estate are subject to a number of risks. The
value of the Company's properties and the revenue from the related development
activities may be adversely affected by a number of factors, including the
national and local economic climate, local real estate conditions (including
conditions of oversupply of space or reduction in demand for real estate), the
attractiveness of the properties to prospective purchasers and tenants,
competition from other available property or spaces, the ability to obtain
adequate insurance and to cover other construction costs, government regulations
and changes in real estate, zoning or tax laws, interest rate levels and the
availability of financing. There can be no assurance that the Company will be
able to mitigate these risks.
14
<PAGE> 16
Operating Risks. The Resort Division is subject to all of the operating
risks common to the resort and hotel industry. These risks include, among other
things, over-building in the resort and hotel industry which adversely affects
rates charged by the Breckenridge Resort; increases in operating costs due to
inflation and other factors; dependence on tourism and weather conditions; and
increases in energy costs and other expenses of travel. Any of these factors
could have a material adverse effect on the Company's results of operations and
financial condition.
Lease Expiration and Lease of Vacant Space. The Company is subject to the
risks that, upon expiration, leases for space in the commercial properties
included in the Breckenridge Resort may not be renewed, the space may not be
re-leased or the terms of renewal or re-lease (including the cost of required
renovations or concessions to tenants) may be less favorable than current lease
terms. If the Company were unable to re-lease substantial amounts of vacant
space promptly, if the rental rates upon such re-leasing were significantly
lower than expected or if cash reserves for costs of re-leasing prove
inadequate, the Company's cash flow would be adversely affected.
Redevelopment of the Breckenridge Resort. The Company intends to proceed
with the redevelopment of the Breckenridge Resort. To the extent the Company
engages in such redevelopment activities, it will be subject to the risks
normally associated with such activities. Such risks include, without
limitation, risks relating to the availability and timely receipt of zoning and
other regulatory approvals, the cost and timely completion of construction
(including risks from causes beyond the Company's control, such as weather or
labor conditions or material shortages) and the risk of temporary interference
with the operations of those portions of the Breckenridge Resort under
development. These risks could result in substantial unanticipated delays and
expense and lost revenues and, under certain circumstances, could prevent
completion of redevelopment activities once undertaken, any of which could have
an adverse effect on the results of operations and financial condition of the
Company.
Development of Nashville Hotel. The Company's present business plan
contemplates the expenditure of approximately $10.3 million to develop the
Nashville Hotel. The Company expects to finance the initial stages of
construction of the Nashville Hotel with a portion of the Concurrent Financing.
The development of the Nashville Hotel involves risks associated with
construction, including the possibility of construction costs overruns and
delays due to various factors (including receipt of regulatory approvals,
inclement weather and labor or material shortages) and market or site
deterioration. The Company expects that the development of the Nashville Hotel
could take a substantial period of time to complete. Any unanticipated delays,
expenses or disturbances in the development of the Nashville Hotel could have an
adverse effect on the results of operations and financial condition of the
Company.
Potential "Dram Shop" Liability. Restaurants in most states, including
Tennessee and Colorado, are subject to "dram shop" laws and legislation, which
impose liability on licensed alcoholic beverage servers for injuries or damages
caused by their negligent service of alcoholic beverages to a visibly
intoxicated person or to a minor, if such service is the proximate cause of the
injury or damage and such injury or damage is reasonably foreseeable. While the
Company maintains liquor liability insurance as part of its comprehensive
general liability insurance which management believes is adequate to protect
against such liability, there can be no assurance that it will not be subject to
a judgment in excess of such insurance coverage or that it will be able to
continue to maintain such insurance coverage at reasonable costs or at all. The
imposition of a judgment substantially in excess of the Company's insurance
coverage would have a material adverse effect on the Company. The failure of the
Company to obtain and maintain insurance coverage could materially and adversely
affect the Company.
RISKS ASSOCIATED WITH THE COMPANY'S SECURITIES AND THIS OFFERING
Shares Eligible for Future Sale. Upon consummation of this offering, the
Company will have 7,622,497 shares of Common Stock outstanding. Of these shares
of Common Stock, 5,615,132 shares will be freely tradeable except for shares
purchased by "affiliates" of the Company. In addition, the Company will have
outstanding (i) options to purchase up to 330,000 shares of Common Stock at
exercise prices ranging from $5.40 per share to $6.00 per share; (ii) warrants
(the "Lender Warrants") to purchase up to 12,500
15
<PAGE> 17
shares of Common Stock at an exercise price of $6.00 per share; (iii) 1,351,455
redeemable Common Stock purchase warrants (the "Redeemable Warrants") with an
exercise price of $6.25 per share; (iv) a warrant to purchase up to 60,000
shares of Common Stock at an exercise price of $6.00 per share (the "Yee Desmond
Warrant") issued to Yee, Desmond, Schroeder & Allen, Inc. ("Yee Desmond") in
connection with the Company's initial public offering; (v) warrants (the "1996
Warrants") to purchase up to an aggregate of 120,000 units (the "Units"), each
Unit consisting of two shares of Common Stock and one Redeemable Warrant, issued
to H.J. Meyers & Co., Inc. ("H.J. Meyers") and Yee Desmond in connection with
the Company's public offering in April 1996, having an exercise price of $15.50
per Unit, with the underlying Redeemable Warrants having an exercise price of
$7.75 per share; and (vi) the Placement Agent's Warrant to purchase up to [5% of
the number of shares sold in this offering] shares of Common Stock. In
connection with the Breckenridge Resort Acquisition, the Company issued 417,525
shares of Common Stock to the former owners of the Breckenridge Resort. In
connection with the AEG Acquisition, the Company issued 809,840 shares of Common
Stock to the former owners of AEG. Sales by present shareholders of substantial
amounts of Common Stock in the public market after this offering pursuant to
Rule 144 adopted under the Act, or otherwise, or the availability of such shares
for sale, could adversely affect prevailing market prices and could impair the
Company's future ability to raise capital through the sale of its equity
securities should it desire to do so. The Company's directors and certain of its
officers have agreed that, for a period of 180 days after the date of this
Prospectus (the "Lock-Up Period"), they will not offer, sell or otherwise
dispose of any shares of Common Stock beneficially owned or controlled by them
(including shares acquired during such period) without the prior written consent
of the Placement Agent. Subject to the expiration of the Lock-Up Period, shares
held by such officers and directors (approximately 22.0% of the outstanding
shares of Common Stock after this offering) will be eligible for resale subject
to the requirements of Rule 144 under the Act. See "Shares Eligible for Future
Sale."
Risks Associated with Forward-Looking Statements Included in this
Prospectus. This Prospectus may contain certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Such statements are intended to be
covered by the safe harbors created by such provisions. These statements include
the plans and objectives of management for future growth of the Company,
including plans and objectives relating to the operation of AEG, the acquisition
of AWC, the consummation of the Concurrent Financing and the consummation of
future private and public issuances of the Company's equity and debt securities.
The forward-looking statements included herein are based on current expectations
that involve numerous risks and uncertainties. The Company's plans and
objectives are also based on the assumptions that competitive conditions within
the entertainment and resort industries will not change materially or adversely
and that there will be no material adverse change in the Company's operations or
business. Assumptions relating to the foregoing involve judgments with respect
to, among other things, future economic, competitive and market conditions and
future business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond the control of the Company. Although the
Company believes that the assumptions underlying the forward-looking statements
are reasonable, any of the assumptions could be inaccurate and, therefore, there
can be no assurance that the forward-looking statements included in this
Prospectus will prove to be accurate. In light of the significant uncertainties
inherent in the forward-looking statements included herein, the inclusion of
such information should not be regarded as a representation by the Company or
any other person that the objectives and plans of the Company will be achieved.
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<PAGE> 18
USE OF PROCEEDS
The net proceeds from the sale of the Common Stock offered hereby are
estimated to be approximately $9,000,000, after deducting the Placement Agent's
fee and other estimated offering expenses payable by the Company. The net
proceeds of the offering will be used approximately as follows:
<TABLE>
<S> <C>
Purchase of 51% interest in AWC(1).......................... $7,000,000
Working capital and general corporate purposes.............. 2,000,000
----------
Total.................................................. $9,000,000
==========
</TABLE>
- ------------------
(1) In consideration for the 51% interest in AWC, the Company will pay
$7,000,000 in cash. Excludes $300,000 of estimated transaction costs.
Concurrently with this offering, the Company is seeking to consummate the
Concurrent Financing. The consummation of this offering and the Concurrent
Financing are not conditioned upon each other. It is currently anticipated that
a portion of the Credit Facility will be used to repay the AEG Promissory Notes
and for potential future development projects and acquisitions. The AEG
Promissory Notes are in the aggregate principal amount of $2,480,000, bear
interest at 10% per annum and are due and payable in full on July 31, 1997. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition."
The initial estimate for the use of net proceeds of this offering and the
Concurrent Financing represents management's estimate based upon current
business and economic conditions. Although the Company does not contemplate
material changes in the proposed use of the net proceeds, to the extent the
Company finds that adjustment is required by reason of changing business
conditions, the amounts shown may be adjusted among the intended uses. Until
utilized for the above purposes, the net proceeds of this offering will be
invested in short-term, high quality, investment grade, interest-bearing
securities.
DIVIDEND POLICY
The Company has not paid or declared cash distributions or dividends and
does not intend to pay cash dividends on the Common Stock in the foreseeable
future. The Company currently intends to retain all earnings to finance the
development and expansion of its operations. In addition, the agreements
governing the Loans restrict, and it is anticipated that the Credit Facility
will restrict, the Company's ability to pay dividends. The declaration of cash
dividends in the future will be determined by the Board of Directors based upon
the Company's earnings, financial condition, capital requirements and other
relevant factors.
17
<PAGE> 19
PRICE RANGE OF COMMON STOCK
The Common Stock is quoted on the Nasdaq National Market under the symbol
NCCI. On June 18, 1997, the last reported sale price of the Common Stock was
$4.50 per share. The following table sets forth the range of high and low sales
prices of the Common Stock for the indicated periods, as reported on the Nasdaq
National Market.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1995
First Quarter............................................. $7 1/2 $4 1/2
Second Quarter............................................ 7 3/4 5 1/2
Third Quarter............................................. 8 5
Fourth Quarter............................................ 7 5
1996
First Quarter............................................. $6 1/2 $5
Second Quarter............................................ 8 1/4 4 33/64
Third Quarter............................................. 6 3/8 4
Fourth Quarter............................................ 5 7/8 3 3/8
1997
First Quarter............................................. $6 $3 3/8
Second Quarter (through June 18, 1997).................... 5 7/8 4 1/8
</TABLE>
18
<PAGE> 20
CAPITALIZATION
The following table sets forth the capitalization of the Company as
reflected in the Company's unaudited consolidated financial statements as of
March 31, 1997, and as adjusted to give effect to the Acquisitions and this
offering and the application of the estimated net proceeds therefrom as
described under "Use of Proceeds" as if these transactions had been consummated
on March 31, 1997. The following table does not reflect the consummation of the
Concurrent Financing. This table should be read in conjunction with "Unaudited
Pro Forma Consolidated Financial Data" and the Financial Statements and the
related notes thereto of each of the Company, AEG, AWC and IMA Partners
appearing elsewhere herein.
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS PRO FORMA
MARCH 31, 1997 ------------------------- AS
ACTUAL ACQUISITIONS OFFERING ADJUSTED
-------------- ------------ -------- ---------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C>
Short-term debt and current portion of
long-term debt........................ $ 2,683 $ 915(1) $ 6,078
------- -------
2,480(2)
Long-term debt:
Capital lease obligation, net of
current portion.................... 733 384(1) 1,117
Long-term debt, net of current
portion............................ 17,559 74(1) 17,633
------- -------
Total long-term debt.......... 18,292 18,750
------- -------
Total debt.................... 20,975 24,828
------- -------
Minority interest....................... -- 1,512(3) 1,512
-------
Stockholders' equity:
Preferred Stock, no par value,
1,000,000 shares authorized,
334,285 shares of Series A
Convertible Preferred Stock issued
and outstanding, $10,029
liquidation preference............. 10 10
Common Stock, no par value, 20,000,000
shares authorized, 4,590,435 shares
issued and outstanding(4);
7,622,497 shares issued and
outstanding, as adjusted(5)........ 16,770 4,320(6) $9,000(7) 30,090
Accumulated deficit................... (2,788) (2,788)
------- -------
Total stockholders' equity.... 13,992 27,312
------- -------
Total capitalization.......... $34,967 $53,652
======= =======
</TABLE>
- ---------------
(1) Reflects indebtedness of AWC and IMA Partners.
(2) Reflects the issuance by the Company of the AEG Promissory Notes in
connection with the AEG Acquisition.
(3) Reflects the 49% interest in AWC not being acquired by the Company pursuant
to the AWC Acquisition.
(4) Excludes: (i) 334,285 shares issuable upon conversion of the Series A
Preferred Stock, (ii) 80,000 shares issuable upon the exercise of
outstanding stock options, (iii) 1,351,455 shares issuable upon exercise of
the Redeemable Warrants, (iv) 60,000 shares issuable upon exercise of the
Yee Desmond Warrant, (v) 12,500 shares issuable upon exercise of the Lender
Warrants, and (vi) 240,000 shares issuable upon exercise of the 1996
Warrants, plus an additional 120,000 shares underlying the Redeemable
Warrants included in the Units underlying the 1996 Warrants. See
"Description of Securities."
(5) Reflects the issuance of 809,840 shares of Common Stock to the former owners
of AEG in connection with the AEG Acquisition and the issuance of shares of
Common Stock pursuant to this offering. Excludes shares of Common Stock
issuable upon exercise of the Placement Agent's Warrant.
(6) Reflects the fair value of 809,840 shares of Common Stock issued to the
former owners of AEG in connection with the AEG Acquisition.
(7) Reflects the assumed net proceeds of this offering.
19
<PAGE> 21
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated financial data (the "Pro
Forma Financial Data") of the Company has been prepared utilizing the historical
Financial Statements and related notes thereto of each of the Company, AEG and
AWC appearing elsewhere herein and the unaudited financial statements of the
Breckenridge Resort for the period from January 1, 1996 to April 29, 1996 not
included herein. The Pro Forma Financial Data gives pro forma effect to the
consummation of this offering and the Acquisitions as if they had occurred on
March 31, 1997 for balance sheet purposes and as of January 1, 1996 and January
1, 1997 for purposes of the pro forma statements of operations and to the
consummation of the Breckenridge Resort Acquisition as though such transaction
had occurred for balance sheet purposes as of April 29, 1996 and as of January
1, 1996 for statement of operations purposes. As a result of the Acquisitions,
the Company has reconfigured its financial reporting segments into Entertainment
and Resort to separate the operations of its two primary business divisions.
The Breckenridge Resort Acquisition has been accounted for, and the
Acquisitions are being accounted for, under the purchase method of accounting
and the Pro Forma Financial Data has been prepared on such basis of accounting
utilizing estimates and assumptions as set forth below and in the notes thereto.
The Pro Forma Financial Data is presented for informational purposes and is not
necessarily indicative of the future financial position or results of operations
of the combined businesses that would have resulted had the Breckenridge Resort
Acquisition and the Acquisitions been consummated on the dates or as of the
periods described above. The purchase price allocations reflected in the Pro
Forma Financial Data have been based on preliminary estimates of the respective
fair value of assets and liabilities, which may differ from the actual
allocations, and are subject to revision. The Pro Forma Financial Data should be
read in conjunction with the Financial Statements and the related notes thereto
of each of the Company, AEG, AWC and IMA Partners appearing elsewhere herein.
20
<PAGE> 22
NASHVILLE COUNTRY CLUB, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET DATA
AS OF MARCH 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
------------------------ ACQUISITION OFFERING PRO FORMA
COMPANY AEG AWC ADJUSTMENTS ADJUSTMENTS CONSOLIDATED
------- ----- ------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents.................. $ 2,620 $ 194 $ 500 $ (700)(a) $9,000(e)
(7,300)(b)
285(c) $ 4,599
Accounts receivable........................ 1,235 103 244 (92)(d) 1,490
Inventories................................ 431 -- -- 431
Prepaid expenses and other current
assets................................... 135 293 107 203(c) 738
------- ----- ------ -------
Total current assets............. 4,421 590 851 7,258
Property and equipment, net................ 33,870 59 242 5,464(c) 39,635
Intangible and other assets................ 357 (84) 1,036 7,728(a)
5,726(b)
(909)(d) 13,854
------- ----- ------ -------
Total assets..................... $38,648 $ 565 $2,129 $60,747
======= ===== ====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt and current portion of
long-term debt........................... $ 2,683 $ -- $ 515 $ 400(c)
2,480(a) $ 6,078
Accounts payable and accrued liabilities... 3,681 793 1,182 1,531(c)
(92)(d) 7,095
------- ----- ------ -------
Total current liabilities........ 6,364 793 1,697 13,173
Long-term debt:
Capital lease obligation, net of current
portion............................... 733 -- -- 384(c) 1,117
Long-term debt, net of current portion... 17,559 -- 74 17,633
------- ----- ------ -------
Total liabilities................ 24,656 793 1,771 31,923
------- ----- ------ -------
Minority interest.......................... -- -- -- (270)(b)
1,782(c) 1,512
-------
Stockholders' equity:
Preferred Stock.......................... 10 10
Stock and partners' capital.............. 16,770 19 18 (19)(a)
(18)(b)
4,320(a) 9,000(e) 30,090
Accumulated (deficit) earnings........... (2,788) (247) 340 247(a)
(340)(b) (2,788)
------- ----- ------ -------
Total stockholders' equity....... 13,992 (228) 358 27,312
------- ----- ------ -------
Total liabilities and
stockholders' equity........... $38,648 $ 565 $2,129 $60,747
======= ===== ====== =======
</TABLE>
See notes to unaudited pro forma consolidated financial data.
21
<PAGE> 23
NASHVILLE COUNTRY CLUB, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1997
(a) This entry reflects the AEG Acquisition and the related elimination of AEG's
historical stockholders' deficit. The AEG Acquisition will result in the net
liabilities of AEG being revalued to reflect the purchase price of the
transaction. The purchase price of AEG will be calculated as the sum of (i)
the fair value of the Company's Common Stock that was issued to the former
owners of AEG, (ii) the fair value of notes payable issued by the Company to
the former owners of AEG, (iii) the cash payment made to the former owners
of AEG, (iv) AEG's net liabilities as of March 31, 1997 and (v) transaction
costs. Under the purchase accounting method, the acquisition cost is
allocated to the assets and liabilities acquired based on their relative
fair values. The Company has not yet completed any appraisals or other
valuation studies, nor has it made a final determination of the useful lives
of the assets acquired. The Company's preliminary allocation of the
acquisition costs resulted in an excess purchase price over the fair value
of the net liabilities acquired of approximately $7,728,000. For purposes of
the pro forma consolidated financial data, this excess has been allocated to
goodwill. Amortization expense in the pro forma consolidated financial data
has been calculated assuming an amortization period of 20 years. The Company
believes that the final allocation of the purchase price (and related
amortization period) will not differ materially from the pro forma amounts
included herein. The Company expects the final allocation to be completed no
later than March 31, 1998.
The following table summarizes the components of the purchase price:
<TABLE>
<S> <C>
Fair value of Common Stock issued........................... $4,320,000
Fair value of notes payable issued.......................... 2,480,000
Cash payments............................................... 400,000
Transaction costs........................................... 300,000
AEG's net liabilities at March 31, 1997..................... 228,000
----------
Purchase price.............................................. $7,728,000
==========
</TABLE>
The Merger Agreement relating to the AEG Acquisition (the "Merger
Agreement") provides for an adjustment to the purchase price based on AEG's
net income before taxes for the year ending December 31, 1997 (the "1997
Pre-Tax Net Income"). In the event that AEG's 1997 Pre-Tax Net Income
equals or exceeds $1.2 million, the purchase price is not adjusted. In the
event that AEG's 1997 Pre-Tax Net Income is less than $1.2 million, the
purchase price is adjusted downward in an amount equal to six times the
difference between the 1997 Pre-Tax Net Income and $1.2 million. The former
owners of AEG may satisfy the adjusted purchase price, if any, by
delivering to the Company either cash or shares of Common Stock valued
based on the average closing prices of the Common Stock for the 30 trading
days ending 5 days prior to the calculation of the 1997 Pre-Tax Net Income.
Management does not anticipate that the purchase price will be adjusted
materially.
(b) This entry reflects the AWC Acquisition and the related elimination of AWC's
historical stockholders' equity. The AWC Acquisition will result in the net
assets of AWC being revalued to reflect the purchase price of the
transaction. The purchase price of AWC will be calculated as the sum of (i)
the cash payment made to the former owners of AWC and (ii) transaction
costs. Under the purchase accounting method, the acquisition cost is
allocated to the assets and liabilities acquired based on their relative
fair values. In addition, the Company will record a minority interest equal
to the 49% of AWC's net assets not acquired by the Company. The Company has
not yet completed any appraisals or other valuation studies, nor has it made
a final determination of the useful lives of the assets acquired. The
Company's preliminary allocation of the acquisition cost resulted in an
excess purchase price over the fair value of the net tangible assets
acquired of approximately $5,726,000. For purposes of the pro forma
consolidated financial data, this excess has been allocated to goodwill.
Amortization expense in the pro forma consolidated financial data has been
calculated assuming an amortization period of 20 years. In consideration for
the 51% interest in AWC, the Company has agreed to pay an aggregate purchase
price
22
<PAGE> 24
NASHVILLE COUNTRY CLUB, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET -- (CONTINUED)
AS OF MARCH 31, 1997
equal to the greater of (i) $7,000,000 or (ii) 51% of the sum of (a) six
times the average of EBITDA (as defined elsewhere herein) from the
operations of the AWC entities which will own and operate amphitheaters
("AWC's Amphitheater Operations") for the years 1996, 1997 and 1998 (the
"Computation Period") and (b) six times the average of the net income before
taxes of the remaining business entities constituting AWC ("AWC's
Non-amphitheater Operations") for the Computation Period. The Company
believes that the final allocation of the purchase price (and related
amortization period) will not differ materially from the pro forma amounts
included herein. The Company expects the final allocation to be completed no
later than June 30, 1998.
The following table summarizes the purchase price in excess of fair value
basis:
<TABLE>
<S> <C>
Cash payments............................................... $7,000,000
Transaction costs........................................... 300,000
----------
Purchase price.............................................. 7,300,000
51% of AWC's net assets at March 31, 1997 after giving
effect to the consolidation of IMA Partners............... 1,574,000
----------
Purchase price in excess of fair value basis................ $5,726,000
==========
</TABLE>
The letter agreement relating to the AWC Acquisition provides for an
aggregate purchase price equal to the greater of (i) $7,00,000 or (ii) 51%
of the sum of (a) six times the average of EBITDA for AWC's Amphitheater
Operations for the Computation Period and (b) six times the average of the
net income before taxes of AWC's Non-amphitheater Operations for the
Computation Period. To the extent the aggregate purchase price exceeds
$7,000,000 for the Computation Period, the difference will be payable by
the Company in shares of Common Stock valued at the average closing price
of the Common Stock for each day in the Computation Period. Management does
not anticipate that any adjustment in the purchase price would result in
the issuance of a material amount of Common Stock.
(c) At March 31, 1997, AWC held a 25% interest in IMA Partners which results in
the use of the equity method of accounting for AWC's investment in IMA
Partners. Upon completion of the AWC Acquisition, the Company will hold a
51% interest in IMA Partners. As a result, the operations of IMA Partners
will be presented using the consolidated method of accounting. This
adjustment is presented to show the impact of including all assets,
liabilities, partners' capital and minority interest of IMA Partners as if
IMA Partners were consolidated.
The following table provides summary balance sheet data for IMA Partners as
of March 31, 1997:
<TABLE>
<S> <C>
Current assets.............................................. $ 488,000
Property and equipment...................................... 5,464,000
Current portion of capital lease obligation................. 400,000
Other current liabilities................................... 1,531,000
Capital lease obligation, net of current portion............ 384,000
Partners' capital........................................... 3,637,000
</TABLE>
(d) As a result of the consolidation of IMA Partners as discussed in (c) above,
the investment in IMA Partners and all related intercompany accounts are
eliminated in consolidation.
(e) Reflects the application of the net proceeds of this offering.
23
<PAGE> 25
NASHVILLE COUNTRY CLUB, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS DATA
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
BRECKENRIDGE
HISTORICAL RESORT
-------------------------- ACQUISITION ACQUISITION OFFERING PRO FORMA
COMPANY AEG AWC ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS(1) CONSOLIDATED
------- ------ ------- ------------ ----------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Entertainment......................... $ -- $5,570 $18,011 $10,306(f) $33,887
Resort................................ 10,809 -- -- $ 9,915(a) 20,724
------- ------ ------- -------
Total revenues................ 10,809 5,570 18,011 54,611
------- ------ ------- -------
Operating expenses:
Entertainment......................... -- 6,013 17,723 (635)(e)
9,818(f)
(304)(c)
(150)(e) 32,465
Resort................................ 11,823 -- -- 7,368(a) 19,191
Depreciation and amortization......... 599 25 65 225(a) 386(b)
286(d)
306(f) 1,892
Corporate expenses.................... 347 -- -- 347
------- ------ ------- -------
Total operating expenses...... 12,769 6,038 17,788 53,895
------- ------ ------- -------
(Loss) income from operations........... (1,960) (468) 223 716
Interest (expense) income, net.......... (1,167) 5 (111) (595)(a) (38)(f)
(248)(j) (2,154)
Other income, net....................... -- 452 80 (36)(g) 496
Minority interest....................... -- -- -- (479)(i)
(71)(f) (550)
------- ------ ------- -------
(Loss) income before taxes.............. (3,127) (11) 192 (1,492)
Provision for taxes..................... -- 1 11 (12)(h) --
------- ------ ------- -------
Net (loss) income....................... $(3,127) $ (12) $ 181 $(1,492)
======= ====== ======= =======
Net (loss) per share.................... $ (.20)
=======
Weighted average shares outstanding..... 7,622
=======
</TABLE>
- ---------------
(1) There were no pro forma offering adjustments to the Statement of Operations
Data.
See notes to unaudited pro forma consolidated financial data.
24
<PAGE> 26
NASHVILLE COUNTRY CLUB, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(a) The Breckenridge Resort was acquired on April 29, 1996 and, accordingly, the
results of operations of the Breckenridge Resort for the period from January
1, 1996 to April 29, 1996 are not included in the historical consolidated
financial statements of the Company for the year ended December 31, 1996.
This adjustment is presented to show the impact of including the revenues
and expenses of the Breckenridge Resort as if the Breckenridge Resort
Acquisition had occurred on January 1, 1996.
(b) The AEG Acquisition results in recording goodwill of approximately
$7,728,000. The Company expects to amortize this amount over a period of 20
years. This results in annual amortization of approximately $386,000.
(c) In 1996, AEG paid salaries and made ownership distributions based primarily
on the profitability of AEG and the availability of cash to fund such
payments. These payments were charged to entertainment expenses. Under the
terms of the Merger Agreement, these individuals have been provided with
employment/consulting agreements which specifically define salaries,
consulting fees and bonuses. The adjustment results from the net change in
expense as if the employment/consulting agreements had been in effect in
1996.
(d) The AWC Acquisition results in recording goodwill of approximately
$5,726,000. The Company expects to amortize this amount over a period of 20
years. This results in annual amortization of approximately $286,000.
(e) In 1996, AWC paid salaries and made ownership distributions based primarily
on the profitability of AWC and the availability of cash to fund such
payments. These payments were charged to entertainment expenses. Under the
terms of the definitive agreement relating to the AWC Acquisition, these
individuals will be provided with employment/consulting agreements which
specifically define salaries, consulting fees and bonuses. The adjustment
results from the net change in expense as if the employment/consulting
agreements had been in effect in 1996.
(f) At March 31, 1997, AWC held a 25% interest in IMA Partners which results in
the use of the equity method of accounting for AWC's investment in IMA
Partners. Upon completion of the AWC Acquisition, the Company will hold a
51% interest in IMA Partners. As a result, the operations of IMA Partners
will be presented using the consolidated method of accounting. This
adjustment is presented to show the impact of including all revenues,
expenses and minority interest of IMA Partners as if IMA Partners were
consolidated.
In April 1997, IMA Partners entered into a joint venture with Pavilion
Partners known as Western Amphitheater Partners ("WAP") for the operation
of the IMA and the GHA. Pursuant to the WAP joint venture, IMA Partners
will participate in the net operations of WAP.
The following table provides summary statement of operations data of IMA
Partners for the year ended December 31, 1996:
<TABLE>
<S> <C>
Revenues................................ $10,306,000
Cost of revenues........................ 7,604,000
Operating expenses...................... 2,214,000
Depreciation and amortization........... 306,000
Interest expense........................ 38,000
Net income.............................. 144,000
</TABLE>
(g) As a result of the consolidation of IMA Partners as discussed in (f) above,
the equity income (loss) from IMA Partners is eliminated.
25
<PAGE> 27
NASHVILLE COUNTRY CLUB, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS -- (CONTINUED)
(h) As a result of the expected utilization of net operating loss carryforwards,
the tax provisions have been removed as a pro forma adjustment.
(i) Reflects the 49% minority interest in AWC, after considering the earnings
effect of pro forma adjustments discussed in (e) and (h) above.
(j) The Company anticipates repaying the AEG Promissory Notes with proceeds from
the Concurrent Financing. This adjustment reflects pro forma interest
expense assuming the AEG Promissory Notes were outstanding as of January 1,
1996 and a 10% interest rate, the contractual interest rate of the AEG
Promissory Notes.
26
<PAGE> 28
NASHVILLE COUNTRY CLUB, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS DATA
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
------------------------ ACQUISITION OFFERING PRO FORMA
COMPANY AEG AWC ADJUSTMENTS ADJUSTMENTS(1) CONSOLIDATED
------- ------ ----- ----------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Entertainment............... $ -- $1,544 $ 599 $74(e) $ 2,217
Resort...................... 10,102 -- -- 10,102
------- ------ ----- -------
Total revenues...... 10,102 1,544 599 12,319
------- ------ ----- -------
Operating expenses:
Entertainment............... -- 1,555 749 470(e)
88(b)
120(d) 2,982
Resort...................... 7,523 -- -- 7,523
Depreciation and
amortization............. 256 6 17 97(a)
72(c)
77(e) 525
Corporate expense........... 133 -- -- 133
------- ------ ----- -------
Total operating
expenses.......... 7,912 1,561 766 11,163
------- ------ ----- -------
Income (loss) from
operations.................. 2,190 (17) (167) 1,156
Interest expense, net......... (411) -- (12) (13)(e)
(62)(h) (498)
Other income, net............. -- 8 (106) 121(f) 23
Minority interest............. -- -- -- 199(f)
238(f) 437
------- ------ ----- -------
Income (loss) before taxes.... 1,779 (9) (285) 1,118
Provision for taxes........... -- -- 1 1
------- ------ ----- -------
Net income (loss)............. $ 1,779 $ (9) $(286) $ 1,117
======= ====== ===== =======
Net income per share.......... $ .15
=======
Weighted average shares
outstanding................. 7,622
=======
</TABLE>
- ---------------
(1) There were no pro forma offering adjustments to the Statement of Operations
Data.
See notes to unaudited pro forma consolidated financial data.
27
<PAGE> 29
NASHVILLE COUNTRY CLUB, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(a) The AEG Acquisition results in recording goodwill of approximately
$7,728,000. The Company expects to amortize this amount over a period of 20
years. This results in quarterly amortization of approximately $97,000.
(b) For the three months ended March 31, 1997, AEG paid salaries and made
ownership distributions based primarily on the profitability of AEG and the
availability of cash to fund such payments. These payments were charged to
entertainment expenses. Under the terms of the Merger Agreement, these
individuals have been provided with employment/consulting agreements which
specifically define salaries, consulting fees and bonuses. The adjustment
results from the net change in expense as if the employment/consulting
agreements had been in effect in the first quarter of 1997.
(c) The AWC Acquisition results in recording goodwill of approximately
$5,726,000. The Company expects to amortize this amount over a period of 20
years. This results in quarterly amortization of approximately $72,000.
(d) For the three months ended March 31, 1997, AWC paid salaries and made
ownership distributions based primarily on the profitability of AWC and the
availability of cash to fund such payments. These payments were charged to
entertainment expenses. Under the terms of the definitive agreement relating
to the AWC Acquisition, these individuals will be provided with
employment/consulting agreements which specifically define salaries,
consulting fees and bonuses. The adjustment results from the net change in
expense as if the employment/consulting agreements had been in effect in the
first quarter 1997.
(e) At March 31, 1997, AWC held a 25% interest in IMA Partners which results in
the use of the equity method of accounting for AWC's investment in IMA
Partners. Upon completion of the AWC Acquisition, the Company will hold a
51% interest in IMA Partners. As a result, the operations of IMA Partners
will be presented using the consolidated method of accounting. This
adjustment is presented to show the impact of including all revenues,
expenses and minority interest of IMA Partners as if IMA Partners were
consolidated.
In April 1997, IMA Partners entered into the WAP joint venture with
Pavilion Partners for the operation of the IMA and GHA. Pursuant to the WAP
joint venture, IMA Partners will participate in the net operations of WAP.
The following table provides summary statement of operations data of IMA
Partners for the three months ended March 31, 1997:
<TABLE>
<S> <C>
Revenue..................................................... $ 74,000
Operating expenses.......................................... 470,000
Depreciation and amortization............................... 77,000
Interest expense............................................ 13,000
Net loss.................................................... (486,000)
</TABLE>
(f) As a result of the consolidation of IMA Partners as discussed in (e) above,
the equity in losses from IMA Partners is eliminated.
(g) Reflects the 49% minority interest in AWC, after considering the earnings
effect of pro forma adjustment discussed in (d) above.
(h) The Company anticipates repaying the AEG Promissory Notes with proceeds from
the Concurrent Financing. This adjustment reflects pro forma interest
expense assuming the AEG Promissory Notes were outstanding as of January 1,
1997 and a 10% interest rate, the contractual interest rate of the AEG
Promissory Notes.
28
<PAGE> 30
THE COMPANY
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The information presented below for each of the two years in the period
ended December 31, 1996 and as of December 31, 1996 is derived from the
consolidated financial statements of the Company, which have been audited by
Arthur Andersen LLP, independent public accountants, appearing elsewhere herein.
The information presented below for the three month periods ended March 31, 1996
and March 31, 1997 and as of March 31, 1997 is derived from the unaudited
consolidated financial statements of the Company appearing elsewhere herein,
prepared on the same basis as the audited financial statements and containing,
in management's opinion, all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the financial position and
results of operations of the Company for these periods. The results of
operations for any interim period are not necessarily indicative of the results
of operations for a full year.
The information presented below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and related notes thereto of the
Company appearing elsewhere herein.
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
------------------- -----------------
1995 1996 1996 1997
------ ------- ----- ------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Revenues:
Rooms................................................... $ -- $ 4,202 $ -- $5,796
Food and beverage....................................... 2,216 4,151 502 2,453
Other................................................... 14 2,456 13 1,853
------ ------- ----- ------
Total revenues...................................... 2,230 10,809 515 10,102
------ ------- ----- ------
Departmental expenses:
Rooms................................................... -- 3,283 -- 3,339
Food and beverage....................................... 2,031 4,004 444 1,823
Other................................................... -- 1,615 -- 1,227
------ ------- ----- ------
Total departmental expenses......................... 2,031 8,902 444 6,389
------ ------- ----- ------
Departmental profit....................................... 199 1,907 71 3,713
Undistributed operating expenses:
General and administrative.............................. 480 1,461 55 586
Sales and marketing..................................... 212 825 38 239
Property operation and maintenance...................... 206 982 50 442
Depreciation and amortization........................... 114 599 29 256
------ ------- ----- ------
Total undistributed operating expenses.............. 1,011 3,867 172 1,523
------ ------- ----- ------
(Loss) income from operations............................. (812) (1,960) (101) 2,190
Interest income (expense):
Interest income......................................... 21 56 2 24
Interest expense........................................ (3) (1,223) -- (435)
------ ------- ----- ------
Net (loss) income......................................... $ (794) $(3,127) $ (99) $1,779
====== ======= ===== ======
Net (loss) income per share............................... $ (.54) $ (.87) $(.07) $ .36
====== ======= ===== ======
Weighted average number of shares outstanding............. 1,470 3,576 1,470 4,925
====== ======= ===== ======
OTHER DATA:
EBITDA(2)............................................... $ (698) $(1,361) $ (72) $2,446
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, 1996 MARCH 31, 1997
----------------- --------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)................................. $(1,799) $(1,943)
Property and equipment, net............................... 34,044 33,870
Total assets.............................................. 38,108 38,648
Total debt................................................ 21,139 20,975
Total liabilities......................................... 25,895 24,656
Stockholders' equity...................................... 12,213 13,992
</TABLE>
- ---------------
(1) The Company acquired the Breckenridge Resort on April 29, 1996. The
Statement of Operations Data includes the operating results of the
Breckenridge Resort for the periods from April 29, 1996 to December 31, 1996
and from January 1, 1997 to March 31, 1997.
(2) Earnings before interest income and expense, income taxes, depreciation and
amortization. EBITDA should not be considered, however, as an alternative to
operating income as an indicator of the Company's operating performance, or
as an alternative to cash flows as a measure of overall liquidity.
29
<PAGE> 31
AVALON ENTERTAINMENT GROUP, INC.
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS)
The information presented below for each of the two years in the period
ended December 31, 1996 and as of December 31, 1996 is derived from the
financial statements of AEG, which have been audited by Arthur Andersen LLP,
independent public accountants, appearing elsewhere herein. The information
presented below for the three month periods ended March 31, 1996 and March 31,
1997 and as of March 31, 1997 is derived from the unaudited financial statements
of AEG appearing elsewhere herein, prepared on the same basis as the audited
financial statements and containing, in management's opinion, all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the financial position and results of operations of AEG for
these periods. The results of operations for any interim period are not
necessarily indicative of the results of operations for a full year.
The information presented below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and related notes thereto of AEG
appearing elsewhere herein.
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
------------------ ------------------
1995 1996 1996 1997
------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................. $3,969 $5,570 $1,040 $1,544
Cost of revenues.......................................... 2,887 4,029 738 1,222
------ ------ ------ ------
1,082 1,541 302 322
General and administrative(1)............................. 1,259 2,009 278 339
------ ------ ------ ------
(Loss) gain from operations............................. (177) (468) 24 (17)
Other income (expense):
Interest income (expense), net.......................... (16) 5 -- --
Equity in income of joint venture(2).................... 538 449 217 8
Other income, net....................................... 5 3 -- --
------ ------ ------ ------
Income (loss) before provision for income taxes......... 350 (11) 241 (9)
Provision for income taxes(3)............................. 3 1 1 --
------ ------ ------ ------
Net income (loss)....................................... $ 347 $ (12) $ 240 $ (9)
====== ====== ====== ======
OTHER DATA:
EBITDA(4)................................................. $ 397 $ 8 $ 249 $ (2)
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, 1996 MARCH 31, 1997
----------------- --------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)................................. $(304) $(203)
Property and equipment, net............................... 54 59
Total assets.............................................. 628 565
Total liabilities......................................... 848 793
Stockholders' (deficit)................................... (219) (228)
</TABLE>
- ---------------
(1) Includes salaries and profit distributions to shareholders of $410,000 and
$902,000 for the years ended December 31, 1995 and 1996, respectively, and
$50,000 and $63,000 for the three months ended March 31, 1996 and 1997,
respectively.
(2) Represents AEG's 50% interest in Warner/Avalon.
(3) In each of the periods presented, AEG operated as an S corporation under
Subchapter S of the Internal Revenue Code. Accordingly, AEG was not subject
to federal income taxation.
(4) Earnings before interest income and expense, income taxes, depreciation and
amortization. EBITDA should not be considered, however, as an alternative to
operating income as an indicator of the Company's operating performance, or
as an alternative to cash flows as a measure of overall liquidity.
30
<PAGE> 32
AVALON WEST COAST
SELECTED HISTORICAL COMBINED FINANCIAL DATA
(IN THOUSANDS)
The information presented below for each of the two years in the period
ended December 31, 1996 and as of December 31, 1996 is derived from the combined
financial statements of AWC, which have been audited by Arthur Andersen LLP,
independent public accountants, appearing elsewhere herein. The information
presented below for the three month periods ended March 31, 1996 and March 31,
1997 and as of March 31, 1997 is derived from the unaudited combined financial
statements of AWC appearing elsewhere herein, prepared on the same basis as the
audited combined financial statements and containing, in management's opinion,
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of the financial position and results of operations of AWC
for these periods. The results of operations for any interim period are not
necessarily indicative of the results of operations for a full year.
The information presented below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and related notes thereto of AWC
appearing elsewhere herein.
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
-------------------- -----------------
1995 1996 1996 1997
------- ------- ------ -----
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................. $16,471 $18,011 $1,869 $ 599
Costs of revenues(1)...................................... 14,526 15,666 1,568 363
------- ------- ------ -----
1,945 2,345 301 236
Operating expenses:
General and administrative expenses(2).................. 2,395 2,065 428 382
Selling and marketing expenses.......................... 44 57 15 21
------- ------- ------ -----
(Loss) income from operations........................... (494) 223 (142) (167)
Other income (expense):
Equity income (loss) from investments(3)................ 39 12 (102) (122)
Interest expense, net................................... (109) (111) (28) (12)
Consulting income....................................... 14 68 5 16
Fire insurance gain(4).................................. 429 -- -- --
------- ------- ------ -----
Income (loss) before provision for income taxes......... (121) 192 (267) (285)
(Benefit) provision for taxes............................. (4) 11 1 1
------- ------- ------ -----
Net (loss) income......................................... $ (117) $ 181 $ (268) $(286)
======= ======= ====== =====
OTHER DATA:
EBITDA(5)................................................. $ 6 $ 368 $ (222) $(256)
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, 1996 MARCH 31, 1997
----------------- --------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)................................. $ (637) $ (845)
Fixed assets, net......................................... 259 242
Investment in IMA Partners(3)............................. 1,031 909
Total assets.............................................. 2,455 2,129
Total loans from stockholders............................. 374 314
Total liabilities......................................... 1,811 1,771
Stockholders' equity...................................... 644 358
</TABLE>
- ---------------
(1) Includes profit distributions to shareholders of $1,113,000 for the year
ended December 31, 1996.
(2) Includes salaries and profit distributions to shareholders of $320,000 and
$120,000 for the years ended December 31, 1995 and 1996, respectively, and
$30,000 and $30,000 for the three months ended March 31, 1996 and 1997,
respectively.
(3) Represents AWC's historical 25% interest in IMA Partners. Upon completion of
the AWC Acquisition, the Company will own a 51% interest in IMA Partners.
(4) Includes a one-time gain of $429,000 in the year ended December 31, 1995
from a recovery on a fire insurance casualty claim.
(5) Earnings before interest income and expense, income taxes, depreciation and
amortization. EBITDA should not be considered, however, as an alternative to
operating income as an indicator of the Company's operating performance, or
as an alternative to cash flows as a measure of overall liquidity.
31
<PAGE> 33
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS -- THE COMPANY
The Company has pursued an aggressive growth strategy since its formation
in 1993. The Company opened the Nashville Restaurant in November 1994, acquired
the Breckenridge Resort on April 29, 1996, acquired AEG in April 1997 and plans
to acquire AWC contemporaneously with the closing of this offering. The
Company's results of operations have incorporated the Breckenridge Resort's
activities since the date of the Breckenridge Resort Acquisition. To enhance
comparability, the information below is presented on a pro forma basis and
reflects the acquisition of the Breckenridge Resort as though such transaction
had occurred as of January 1, 1995 for statement of operations purposes. The pro
forma results are not necessarily indicative of the combined results that would
have occurred had the Breckenridge Resort Acquisition actually occurred as of
January 1, 1995. The information below does not include the historical results
of operations of AEG, as the AEG Acquisition was consummated in April 1997.
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA
-----------------------------------------
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------ -------------------
1995 1996 1996 1997
------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Rooms............................................ $ 8,229 $ 9,918 $5,056 $ 5,796
Food and beverage................................ 6,034 6,444 2,613 2,453
Other............................................ 2,856 4,362 1,607 1,853
------- ------- ------ -------
Total revenues.............................. 17,119 20,724 9,276 10,102
------- ------- ------ -------
Departmental expenses:
Rooms............................................ 5,399 6,624 3,007 3,339
Food and beverage................................ 5,046 5,620 1,908 1,823
Other............................................ 1,309 2,688 933 1,227
------- ------- ------ -------
Total departmental expenses................. 11,754 14,932 5,848 6,389
------- ------- ------ -------
Department profit................................... 5,365 5,792 3,428 3,713
------- ------- ------ -------
Undistributed operating expenses:
General and administrative....................... 2,054 2,080 540 586
Sales and marketing.............................. 888 1,063 226 239
Property operation and maintenance............... 1,474 1,463 425 442
Depreciation and amortization.................... 859 824 197 256
------- ------- ------ -------
Total undistributed operating expenses...... 5,275 5,430 1,388 1,523
------- ------- ------ -------
Income from operations.............................. 90 362 2,040 2,190
Interest income (expense), net...................... (1,878) (1,762) (451) (411)
------- ------- ------ -------
Net (loss) income................................... $(1,788) $(1,400) $1,589 $ 1,779
======= ======= ====== =======
</TABLE>
Components of Income. The following are the principal components of the
Company's historical revenues and expenses:
Revenues. The Company's revenues are derived from resort and
restaurant operations, which include room rentals, food and beverage sales,
commercial leasing, travel services and ancillary departments.
Departmental expenses. Departmental expenses include those costs
directly attributable to the operations of a revenue department, including
rental fees paid to the owners of living units managed by the Breckenridge
Resort, payroll and related expenses, cost of goods sold (food and beverage
and travel
32
<PAGE> 34
services) and other operating expenses. Other operating expenses generally
include guest supplies, travel agent commissions, linen, cleaning supplies,
equipment costs, restaurant entertainment costs and special promotions.
General and administrative expenses. General and administrative
expenses include all overhead expenses related to the Company's
headquarters, the Nashville Restaurant and the Breckenridge Resort,
including payroll and related expenses, office supplies, occupancy,
professional fees, credit card fees, insurance and bad debt expenses.
Sales and marketing expenses. Sales and marketing expenses include
those expenses incurred for the sales and marketing staff, including
payroll and related expenses, travel expenses, advertising campaigns and
promotional materials.
Property operation and maintenance expenses. Property operation and
maintenance expenses include payroll and related expenses for maintenance
personnel, cost of repairs and maintenance, energy costs for gas,
electricity and water, trash removal and property taxes.
Depreciation and amortization expense. Depreciation and amortization
expense consists of the depreciation of the Company's property and
equipment and amortization of deferred loan fees.
Interest expense. Interest expense consists primarily of the interest
costs associated with long-term debt recorded on the books of the
Breckenridge Resort.
Comparison of Three Months Ended March 31, 1997 and 1996
The Breckenridge Resort's operations provided approximately 95% of the
Company's consolidated revenues and all of the consolidated gross operating
profit for the three months ended March 31, 1997 (the "first quarter of 1997").
As a result of the inclusion of the Breckenridge Resort in the first quarter of
1997, the Company's consolidated revenues increased to $10,102,000 in such
quarter compared to $515,000 for the three months ended March 31, 1996 (the
"first quarter of 1996"). The Company recorded net income of $1,779,000 for the
first quarter of 1997 compared to a net loss of $99,000 for the first quarter of
1996. Net loss from the Nashville Restaurant and corporate activities increased
from a net loss of $99,000 for the first quarter of 1996, to a net loss of
$168,000 for the first quarter of 1997. The increase in net loss between periods
resulted primarily from an increase in corporate activities as the Company
continued its significant growth, including the Breckenridge Resort Acquisition.
The following discussion of the results of operations of the Company is on
a pro forma basis as if the Breckenridge Resort Acquisition had occurred as of
January 1, 1996.
Revenues increased $826,000, or 9%, to $10,102,000 for the first quarter of
1997 from $9,276,000 for the first quarter of 1996. Revenues at the Breckenridge
Resort increased $808,000, or 9%, to $9,569,000 for the first quarter of 1997
from $8,761,000 for the first quarter of 1996 due to an increase in rooms and
other revenues offset by a decline in food and beverage revenues. Rooms revenues
increased $740,000, or 15%, to $5,796,000 for the first quarter of 1997 from
$5,056,000 for the first quarter of 1996 due primarily to an increase of 14% in
average room rates. Additionally, the Breckenridge Resort added an additional 25
living units under management contracts, raising the total number of units under
management to 315. Food and beverage revenue decreased $182,000, or 9%, to
$1,929,000 for the first quarter of 1997 from $2,111,000 for the first quarter
of 1996 due to heightened food and beverage competition in Breckenridge from
restaurants, taverns and grocery stores in Breckenridge. Other revenues
increased $250,000, or 16%, to $1,844,000 for the first quarter of 1997 from
$1,594,000 for the first quarter of 1996 due primarily to revenue growth of A
Travel Company of $222,000, or 25%, to $1,119,000 in the first quarter of 1997
from $897,000 in the first quarter of 1996 as the Company sought to provide
travel and recreation services to more visitors to the Breckenridge Resort.
Revenues at the Nashville Restaurant increased $18,000, or 3%, to $533,000 in
1997 from $515,000 in 1996.
Departmental expenses increased $541,000, or 9%, to $6,389,000 for the
first quarter of 1997 from $5,848,000 for the first quarter of 1996.
Departmental expenses at the Breckenridge Resort increased
33
<PAGE> 35
$513,000, or 9%, to $5,917,000 for the first quarter of 1997 from $5,404,000 for
the first quarter of 1996. Rooms departmental expenses increased $332,000, or
11%, to $3,339,000 for the first quarter of 1997 from $3,007,000 for the first
quarter of 1996 due to an increase in rooms revenues, almost half of which were
paid to homeowners. Rooms departmental expenses as a percent of rooms revenue,
decreased slightly to 58% for the first quarter of 1997 from 59% for the first
quarter of 1996. Food and beverage departmental expenses at the Breckenridge
Resort decreased $112,000, or 8%, to $1,351,000 for the first quarter of 1997
from $1,463,000 for the first quarter of 1996 due to reduced revenues. Food and
beverage departmental expenses, as a percent of revenue, increased slightly to
70% for the first quarter of 1997 from 69% for the first quarter of 1996. Other
departmental expenses increased $294,000, or 31%, to $1,227,000 for the first
quarter of 1997 from $933,000 for the first quarter of 1996 due to the increased
business of A Travel Company. Other departmental expenses as a percent of
revenues increased to 66% for the first quarter of 1997 from 58% for the first
quarter of 1996 due primarily to the higher cost of A Travel Company's revenues,
which increased from $807,000 for the first quarter of 1996 to $1,036,000 for
the first quarter of 1997. Department expenses related to the Nashville
Restaurant increased $28,000, or 6%, to $472,000 for the first quarter of 1997
from $444,000 for the first quarter of 1996. These expenses, as a percent of
revenues, increased slightly to 88% for the first quarter of 1997 from 86% for
the first quarter of 1996.
General and administrative expenses increased $46,000 or 9%, to $586,000
for the first quarter of 1997 from $540,000 for the first quarter of 1996 due
primarily to franchise fees required under the Wyndham Franchise Agreement
entered into in February 1996. As a percentage of revenues, general and
administrative expenses remained constant at 6% from the first quarter of 1996
to the first quarter of 1997.
Sales and marketing expenses increased $13,000, or 6%, to $239,000 for the
first quarter of 1997 from $226,000 for the first quarter of 1996. Sales and
marketing expenses, as a percent of revenues, remained constant at 2% for the
first quarter of 1996 to the first quarter of 1997.
Property operation and maintenance expenses increased $17,000, or 4%, to
$442,000 for the first quarter 1997 from $425,000 for the first quarter of 1996.
Property operation and maintenance expenses, as a percent of revenues, decreased
slightly to 4% for the first quarter of 1997 from 5% for the first quarter of
1996.
Depreciation and amortization expense increased $59,000, or 30%, to
$256,000 for the first quarter of 1997 from $197,000 for the first quarter of
1996 due primarily to the effect of approximately $600,000 of capital
expenditures in 1996.
Net interest expense decreased $40,000, or 9%, to $411,000 for the first
quarter of 1997 from $451,000 for the first quarter of 1996. The decrease was
due to principal payments on the Breckenridge Resort's long-term debt which
decreased the average outstanding balance.
Net income increased $190,000, or 12%, to $1,779,000 for the first quarter
of 1997 from $1,589,000 for the first quarter of 1996 due to the reasons
described above.
Comparison of Years Ended December 31, 1996 and 1995
As a result of the inclusion of the operations of the Breckenridge Resort
for the period from April 29, 1996 to December 31, 1996, the Company's
consolidated revenues increased to $10,809,000 in 1996 compared to $2,230,000 to
1995. Consolidated net loss in 1996 was $3,127,000 compared to $794,000 in 1995.
The increase in net loss was due in part to the timing of the Breckenridge
Resort Acquisition, which occurred after the end of the first quarter, the most
profitable quarter of the Breckenridge Resort (the Breckenridge Resort
contributed $2,518,000 of the consolidated net loss in 1996). The results of
corporate activities and the Nashville Restaurant improved from a net loss of
$794,000 in 1995 to a net loss of $609,000 in 1996, primarily due to a reduction
in sales and general and administrative expenses. Interest expense on a
consolidated basis increased to $1,223,000 in 1996 from $3,000 in 1995,
primarily as a result of the Breckenridge Resort Acquisition, which resulted in
the assumption of $20,644,000 of long-term debt.
The following discussion of the results of operations of the Company is on
a pro forma basis as if the Breckenridge Resort had been acquired on January 1,
1995.
34
<PAGE> 36
Revenues increased $3,605,000, or 21%, to $20,724,000 in 1996 from
$17,119,000 in 1995. Revenues at the Breckenridge Resort increased $3,697,000,
or 25%, to $18,586,000 in 1996 from $14,889,000 in 1995 due to an increase in
rooms, food and beverage and other revenues. Rooms revenues increased
$1,689,000, or 21%, to $9,918,000 in 1996 from $8,229,000 in 1995. The increase
in rooms revenues was due to an 11% increase in average room rates from 1995 to
1996 and an 8% increase in revenue occupied room nights from approximately
70,000 in 1995 to approximately 76,000 in 1996. The increase in occupied room
nights resulted from an enhanced sales and marketing department and management's
continued positioning of the Breckenridge Resort as a year-round destination
resort. Food and beverage revenues increased $535,000, or 14%, to $4,353,000 in
1996 from $3,818,000 in 1995 due primarily to an increase in banquet revenues
resulting from a 33% increase in the number of group room nights at the
Breckenridge Resort. Other revenues increased $1,473,000, or 52%, to $4,315,000
in 1996 from $2,842,000 in 1995 due primarily to increased operations of A
Travel Company and an increase in the number of entertainment events held at the
Breckenridge Resort in 1996. The revenues of A Travel Company increased
$1,165,000, or 143%, to $1,979,000 in 1996 from $814,000 in 1995 as the Company
sought to provide travel and recreation services to more visitors to the
Breckenridge Resort. Revenues at the Nashville Restaurant decreased by $91,000
or 4% to $2,139,000 in 1996 from $2,230,000 in 1995.
Departmental expenses increased $3,178,000, or 27%, to $14,932,000 in 1996
from $11,754,000 in 1995. Departmental expenses at the Breckenridge Resort
increased $3,298,000, or 34%, to $13,021,000 in 1996 from $9,723,000 in 1995.
Rooms departmental expenses increased $1,225,000, or 23%, to $6,624,000 in 1996
from $5,399,000 in 1995 due primarily to an increase in revenue occupied room
nights and an increase in room revenues, approximately half of which was paid to
homeowners. Rooms departmental expenses, as a percent of rooms revenues,
increased slightly to 67% for the year ended December 31, 1996 from 66% for the
year ended December 31, 1995. Food and beverage departmental expenses increased
$694,000, or 23%, to $3,709,000 in 1996 from $3,015,000 in 1995 due partly to
the increase in food and beverage revenues discussed above. Food and beverage
departmental expenses, as a percent of food and beverage revenues, increased to
85% in 1996 from 79% in 1995 due primarily to an increase in cost of goods sold
for food and beverage items which could not be passed on through higher menu
pricing due to increased competition in the Breckenridge market. Other
departmental expenses increased $1,379,000, or 105%, to $2,688,000 in 1996 from
$1,309,000 in 1995 due primarily to the increase in the departmental expenses of
A Travel Company, which increased from $803,000 in 1995 to $1,861,000 in 1996.
Other departmental expenses, as a percent of other revenues increased from 46%
in 1995 to 62% in 1996 due primarily to the higher cost of A Travel Company's
revenues. Departmental expenses related to the Nashville Restaurant decreased
$120,000, or 6%, to $1,911,000 in 1996 from $2,031,000 in 1995. These expenses,
as a percent of Nashville Restaurant revenues, remained relatively constant from
1995 to 1996.
General and administrative expenses increased $26,000, or 1%, to $2,080,000
in 1996 from $2,054,000 in 1995. The increase was primarily due to increased
staff levels at the Breckenridge Resort required to support the increased number
of revenue occupied room nights. As a percentage of revenues, general and
administrative expenses decreased to 10% in 1996 from 12% in 1995. Breckenridge
Resort general and administrative expenses, as a percent of total Breckenridge
Resort revenues, decreased to 9% of Breckenridge Resort revenues in 1996 from
11% in 1995. The decrease was primarily due to the Breckenridge Resort's ability
to leverage staffing levels in administration, human resources and accounting,
thereby providing the ability to increase revenues without corresponding
increases in general and administrative expenses.
Sales and marketing expenses for 1996 increased $175,000, or 20%, to
$1,063,000 from $888,000 in 1995 due to an increase in payroll and related costs
as the Breckenridge Resort placed a greater emphasis on increasing its sales
force and its advertising and promotion in order to continue positioning the
Breckenridge Resort as a year-round destination location. As a percent of
revenues, sales and marketing expenses were constant at 5%.
Property operation and maintenance expenses and depreciation and
amortization expense remained relatively constant from 1995 to 1996.
35
<PAGE> 37
Net interest expense decreased $116,000, or 6%, to $1,762,000 in 1996 from
$1,878,000 in 1995 due to principal payments made in 1996 on the Breckenridge
Resort's long-term debt which decreased the average outstanding debt balance.
Net loss decreased $388,000, or 22%, to a net loss of $1,400,000 in 1996
from a net loss of $1,788,000 in 1995 due to the reasons described above.
LIQUIDITY AND CAPITAL RESOURCES -- THE COMPANY
Prior to April 1996, the Company's primary sources of liquidity were the
net proceeds from the Company's initial public offering in February 1994 of
approximately $2,725,000 and the net proceeds from a private placement of debt
in December 1995 and January 1996 of an aggregate of approximately $300,000. In
April 1996, the Company completed a secondary public offering of 2,702,910
shares of Common Stock generating net proceeds of approximately $11,448,000. The
proceeds of this secondary offering were used to repay the private placement
debt, to fund the cash portion of the purchase price for the Breckenridge
Resort, to pay fees and expenses associated with the Breckenridge Resort
Acquisition, for property and equipment expenditures and for working capital
purposes. As of March 31, 1997, the Company had cash and cash equivalents of
approximately $2,660,000 and a working capital deficit of approximately
$1,943,000, including $2,683,000 of current maturities of long-term debt.
The Company's primary capital requirements relate to maintaining the
property and equipment at the Breckenridge Resort and Nashville Restaurant,
servicing of the Company's indebtedness and the acquisition of businesses and
assets in the entertainment and resort industries. In 1996, the Company expended
$618,000 for capital expenditures at the Breckenridge Resort and Nashville
Restaurant and expects to incur a similar level of capital expenditures in 1997,
excluding capital expenditures, if any, associated with the Nashville Hotel
development.
The Company is currently highly leveraged. In connection with the
Breckenridge Resort Acquisition, the Company became subject to certain long-term
debt secured by liens on substantially all of the assets of the Breckenridge
Resort. The long-term debt of the Breckenridge Resort totaled $20,242,000 at
March 31, 1997, of which $2,683,000 represents current maturities. The long-term
debt consists of five notes payable to banks or unaffiliated third parties,
which are secured by deeds of trust on Breckenridge Resort property and
equipment and security agreements on substantially all other assets of the
Breckenridge Resort, and various other equipment and other notes payable. The
Company has entered into discussions with certain of the holders of its mortgage
notes payable to modify the terms of the mortgage notes payable to reduce
scheduled principal payments and to extend the maturity dates. There can be no
assurance that the Company will be able to modify the terms of these mortgage
notes payable. In November 1996, the Company entered into a revolving credit
facility which provides up to a maximum of $300,000 of unsecured borrowings
through November 5, 1997. As of May 31, 1997, $300,000 was outstanding under
this revolving credit facility.
In April 1997, the Company acquired AEG. The purchase price for AEG of
$7,200,000 was paid through the issuance of Common Stock having an aggregate
value of $4,320,000 and the delivery of the AEG Promissory Notes in the
aggregate principal amount of $2,480,000 and cash in the amount of $400,000. The
AEG Promissory Notes bear interest at 10% per annum and are due and payable on
July 31, 1997. The Company intends to use a portion of the proceeds of the
Concurrent Financing to repay the AEG Promissory Notes. The Merger Agreement
relating to the AEG Acquisition provides for an adjustment to the purchase price
based on AEG's 1997 Pre-Tax Net Income. In the event that AEG's 1997 Pre-Tax Net
Income equals or exceeds $1.2 million, the purchase price is not adjusted. In
the event that AEG's 1997 Pre-Tax Net Income is less than $1.2 million, the
purchase price is adjusted downward in an amount equal to six times the
difference between the 1997 Pre-Tax Net Income and $1.2 million. The former
owners of AEG may satisfy the adjusted purchase price, if any, by delivering to
the Company either cash or shares of Common Stock valued based on the average
closing prices of the Common Stock for the 30 trading days ending 5 days prior
to the calculation of the 1997 Pre-Tax Net Income. Management does not
anticipate that the purchase price will be adjusted materially.
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On June 12, 1997, the Company entered into a letter agreement to acquire a
51% interest in AWC. The letter agreement relating to the AWC Acquisition
provides for an aggregate purchase price equal to the greater of (i) $7,000,000
or (ii) 51% of the sum of (a) six times the average of EBITDA for AWC's
Amphitheater Operations for the Computation Period and (b) six times the average
of the net income before taxes of AWC's Non-amphitheater Operations for the
Computation Period. To the extent the aggregate purchase price exceeds
$7,000,000 for the Computation Period, the difference will be payable by the
Company in shares of Common Stock valued at the average closing price of the
Common Stock for each day in the Computation Period. Management does not
anticipate that any adjustment in the purchase price would result in the
issuance of a material amount of Common Stock, but there can be no assurance in
this regard. The Company intends to use a portion of the proceeds of this
offering to satisfy the cash consideration to be paid in connection with the AWC
Acquisition.
The Company has also begun development of the 107-room Nashville Hotel
adjacent to the Nashville Restaurant in Nashville. This development, which the
Company estimates will cost approximately $10,300,000, includes the acquisition
of an existing, multi-story parking facility, the purchase of land and the
construction of a hotel with guest suites and office space. The Company
currently plans to use a portion of the proceeds of the Credit Facility to fund
the initial stages of the construction of the Nashville Hotel.
In August 1996, the Company entered into an agreement in principle with
East-West Partners relating to the proposed development of residential and
commercial facilities located at the Breckenridge Resort. The Company expects to
enter into a definitive agreement with East-West Partners relating to the
proposed joint venture which will provide, among other things, that the Company
will contribute undeveloped land, commercial space and capital to the venture
and East-West Partners will contribute capital and manage master planning,
development, construction, funding and sales for these properties. Following the
anticipated execution of a definitive agreement, the Company anticipates that
its capital requirements associated with this joint venture will not be material
in the aggregate and will arise from time to time over the course of the
development.
In connection with the Breckenridge Resort Acquisition, the Company agreed
to repurchase shares of the Company's Common Stock owned by certain prior owners
of the Breckenridge Resort in an aggregate amount of up to $413,170 and agreed
to pay a fee of $97,000 to one of the former owners of the Breckenridge Resort.
The Company is currently negotiating the amount and timing of such repurchase
and payment.
Management believes that cash flow from operations, cash generated from the
operations of AEG and AWC, the proceeds of future issuances of its equity and
debt securities and the use of short-term bank debt will be adequate to fund the
operations and expansion plans of the Company during 1997. In addition, to
provide any additional funds necessary for the continued pursuit of the
Company's growth strategies, the Company may incur, from time to time,
additional short-and long-term bank indebtedness, including indebtedness under
the Credit Facility. The availability and attractiveness of any outside sources
of financing will depend on a number of factors, some of which will relate to
the financial condition and performance of the Company, and some of which will
be beyond the Company's control, such as prevailing interest rates and general
economic conditions. There can be no assurance that such additional financing
will be available or, if available, will be on terms acceptable to the Company.
To the extent that the Company is able to finance its growth through external
sources of capital, the Company intends to continue to grow its operations
through additional acquisitions. Management believes that there are currently a
number of possible future acquisition opportunities in the entertainment
industry, and it is possible that any acquisition could be material to the
Company. Even if the Company is able to secure external financing sources for
its growth plans, there can be no assurance that the Company will be able to
acquire any additional businesses or assets, that any businesses or assets that
are acquired will be or will become profitable or the Company will be able to
effectively integrate any such businesses into its existing operations.
RESULTS OF OPERATIONS -- AEG
The Company's Entertainment Division currently operates through AEG, which
the Company acquired in April 1997. AEG produces live entertainment for
corporate meetings and special events and, through its
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Warner/Avalon joint venture, develops and produces integrated music marketing
programs for corporate clients. AEG also provides artist management services.
AEG recognizes income and expense (i) for single day events, the day the event
occurs, and (ii) for multi-day events and tours, ratably over the life of the
event or tour. Moreover, as a consequence of the episodic nature of AEG's
entertainment business, operating results for any period are not necessarily
indicative of the operating results which AEG can expect to achieve in any
future period.
Components of Income. The following are the principal components of AEG's
revenues and expenses:
Revenues. AEG's revenues are derived primarily from the production of
entertainment shows for corporate clients, which may be as small as
providing a piano player for a reception to as large as providing all
production services, entertainment, catering, etc., for a large corporate
event utilizing well-known entertainers. Other revenues are derived from
AEG's artist management division and providing booking services for
theaters.
Cost of revenues. Cost of revenues include those costs directly
attributable to the production of entertainment shows for corporate
clients. These costs may include artist payments, sound and lights,
production, travel costs, insurance and other miscellaneous expenses. In
addition, AEG incurs various costs in promoting the careers of artists
within its artist management operations.
General and administrative expenses. General and administrative
expenses include all overhead expenses related to AEG's operations, such as
payroll and related expenses, occupancy, professional fees, office
supplies, promotional expenses, telephone costs, travel expenses and
salaries and distributions paid to the owners of AEG.
Interest income/expense. AEG does not incur significant interest
income or expense as it distributes excess cash and has no credit
facilities or other long-term debt.
Equity in income of joint venture. Effective January 1, 1996, AEG
entered into a joint venture with Warner Custom Music Corp. for the
creation of Warner/Avalon. Warner/Avalon generates revenues from fees
received for the development of Entertainment Marketing programs for
corporations. Prior to 1996, AEG and Warner Custom Music Corp. operated the
business of Warner/Avalon under an informal joint venture arrangement.
Warner/Avalon produces Entertainment Marketing programs, which may provide
for a series of concerts for up to nine months, as well as single day
events. Revenues are generated based on contractual agreements with
companies such as Fruit of the Loom. Cost of revenues includes all talent
costs, administrative costs, touring costs, travel, promotional materials,
etc., directly associated with the tour or event. General and
administrative costs include non-tour or event-specific costs such as
payroll and related costs, rent, project development, insurance expense,
office supplies, promotion costs, telephone expense, travel and
depreciation.
Comparison of Three Months Ended March 31, 1997 and 1996
Revenues increased $504,000, or 48%, to $1,544,000 for the first quarter of
1997 from $1,040,000 for the first quarter of 1996. The increase resulted
primarily from AEG's production of five additional Corporate Entertainment
events in the first quarter of 1997 to 30 events as compared to 25 events in the
first quarter of 1996. In addition, the average revenue per event increased by
approximately $10,000 in the first quarter of 1997 versus 1996 as AEG strived to
increase the number of larger events produced.
Cost of revenues increased $484,000, or 66%, to $1,222,000 for the first
quarter of 1997 from $738,000 for the first quarter of 1996. The increase in
cost of revenues was directly correlated to the increase in the number and size
of events produced. Cost of revenues as a percentage of revenues increased to
78% in the first quarter of 1997 from 73% for the first quarter of 1996. The
increase was primarily due to the production of three large Corporate
Entertainment shows at lower profit margins in the first quarter of 1997
compared to the production of one very large Corporate Entertainment show at a
higher profit margin in the first quarter of 1996.
General and administrative expenses increased $61,000, or 22%, to $339,000
for the first quarter of 1997 from $278,000 for the first quarter of 1996
primarily due to salary and related expense increases of
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approximately $53,000. This increase resulted primarily from general salary
increases and the addition of staff members to handle the increased number of
Corporate Entertainment events discussed above. During the first quarter of
1997, base salaries paid to the owners of AEG were $63,000, while in the first
quarter of 1996 base salaries paid were $50,000. Additional distributions were
typically paid to the owners of AEG based on the profitability of AEG and the
availability of excess cash flow. No distributions were made during the first
quarter of 1997 or 1996.
Equity income from AEG's 50% Warner/Avalon joint venture interest decreased
$209,000, or 96%, to $8,000 for the first quarter of 1997 from $217,000 for the
first quarter of 1996 principally due to a change in the timing of
Warner/Avalon's two primary Entertainment Marketing programs in 1997. In 1996,
Warner/Avalon's Entertainment Marketing programs occurred ratably throughout the
year and therefore generated significant income in the first quarter. However,
in 1997, due to the timing of the Entertainment Marketing programs in place,
Warner/Avalon expects to recognize a significant portion of its income in the
second and third quarters of 1997.
Revenues for Warner/Avalon decreased $661,000, or 34%, to $1,258,000 for
the first quarter of 1997 from $1,919,000 for the first quarter of 1996
primarily due to the following: (i) the Crown Royal Music Series contract
expired in 1996, which resulted in a decrease in revenue of approximately
$362,000 in the first quarter of 1997; (ii) the timing of the Fruit of the Loom
program in 1997, which management expects to provide significant revenue during
the second and third quarters of 1997, provided $1,250,000 of revenue in the
first quarter of 1997, while revenue from the 1996 program, which was recognized
ratably over the year, provided $1,429,000 of revenue in the first quarter of
1996; and (iii) other smaller events which occurred in the first quarter of 1996
but not in 1997 resulted in a decrease in revenue of approximately $120,000.
Warner/Avalon's second significant 1997 program, which did not exist in 1996, is
the Blockbuster RockFest, which management expects will provide significant
revenues in the second quarter of 1997.
Cost of revenues for Warner/Avalon decreased $357,000, or 28%, to $927,000
for the first three months of 1997 from $1,284,000 for the first three months of
1996. The largest component of cost of revenues was talent costs which were
approximately $519,000 in the first quarter of 1997 and $940,000 in the first
quarter of 1996. The decrease in talent costs was directly related to the
decrease in revenues discussed above. Cost of revenues as a percentage of
revenues increased to 74% in the first three months of 1997 from 67% in the
first three months of 1996. The increase in cost of revenues resulted
principally from producing "The Experience," an interactive showcase which
travels with the Fruit of the Loom tour. Total costs associated with "The
Experience," a new part of the Fruit of the Loom tour in 1997, were
approximately $259,000 in the first quarter of 1997, and additional costs
associated with the program will be recognized ratably throughout the remainder
of the project.
General and administrative expenses for Warner/Avalon increased $116,000,
or 57%, to $321,000 for the first quarter of 1997 from $205,000 for the first
quarter of 1996. As a percentage of revenues, general and administrative
expenses increased to 26% in 1997 versus 11% in 1996. Overhead expenses
increased substantially as Warner/Avalon continued to develop as a formal
operating entity with its own infrastructure. The increase of $116,000 was
principally made up of the following items: (i) increase in salary and related
expenses of $65,000, and (ii) increases in other components of overhead of
approximately $51,000.
Interest income for Warner/Avalon decreased approximately $1,000, or 15%,
to $6,000 for the first quarter of 1997 from $7,000 for the first quarter of
1996. This decrease resulted primarily from the small decrease in cash available
for short-term investment purposes due to the decrease in contracted payment
receipts from the overall change in business.
As a result of the decrease in equity income from AEG's Warner/Avalon joint
venture discussed above, as well as the increase in general and administrative
expenses partially offset by income from the higher number of Corporate
Entertainment events produced, operating results decreased $249,000 to a net
loss of $9,000 for the first quarter of 1997 from net income of $240,000 for the
first quarter of 1996.
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Comparison of Years Ended December 31, 1996 and 1995
Revenues for 1996 increased $1,601,000, or 40%, to $5,570,000 from
$3,969,000 in 1995. This increase in revenues resulted from a 33% increase in
the number of Corporate Entertainment events produced to 117 in 1996 from 88 in
1995. The increase in the number of Corporate Entertainment events resulted from
the expansion of AEG's operations in San Diego. The Southern California office
was moved from Anaheim to San Diego in April 1996 and provided an immediate
increase in business as AEG began providing services for the San Diego
Convention Center as well as additional hotels in the area. In addition, the San
Diego office hired an additional sales representative to increase its business.
The remaining increase resulted from an increase in the average revenue per show
in 1996 versus 1995 of approximately $2,500 per show. This increase was a direct
result of AEG's efforts to reduce the number of small shows which it produces,
while at the same time producing additional shows for clients with larger
entertainment budgets.
Cost of revenues increased $1,142,000, or 40%, to $4,029,000 in 1996 from
$2,887,000 in 1995 due to the increase in the number of Corporate Entertainment
events produced. As a percent of revenues, cost of revenues remained relatively
constant at 73% and 72% for 1996 and 1995, respectively.
General and administrative expenses increased $750,000, or 60%, to
$2,009,000 in 1996 from $1,259,000 in 1995. Approximately $494,000, or 66%, of
the increase related to increased salaries paid to former owners of AEG.
Cumulative salaries and distributions paid to the former owners totaled $902,000
in 1996 and $410,000 in 1995, respectively. In 1996, base salaries paid to the
owners of AEG were $229,000, while in 1995 base salaries paid were $200,000.
Additional distributions of $675,000 and $210,000 in 1996 and 1995,
respectively, were paid to the owners of AEG based on the profitability of AEG
and the availability of excess cash flow. The remainder of the increase resulted
primarily from an increase in payroll costs for new account representatives and
a general increase in staffing levels as a result of the increase in the number
of entertainment shows produced.
AEG's equity income from Warner/Avalon decreased $89,000, or 17%, to
$449,000 in 1996 from $538,000 in 1995 as a result of a decrease in net income
of Warner/Avalon from $1,076,000 in 1995 to $898,000 in 1996. Revenues for
Warner/Avalon increased $6,185,000, or 179%, to $9,639,00 in 1996 from
$3,454,000 in 1995. The increase in revenue resulted primarily from the
following (i) the Fruit of the Loom contract in 1996 provided for the addition
of a second tour, as well as expanded operations within each tour which resulted
in an increase in revenues from 1995 to 1996 of approximately $3,713,000 to
$5,838,000, (ii) CountryFest, a new single day country music event, was created
in 1996 which resulted in additional revenue of $1,922,000, (iii) the Crown
Royal Music Series contract increased by approximately $186,000, and (iv) other
smaller single day events resulted in an increase in revenue of approximately
$364,000.
Cost of revenues for Warner/Avalon increased $5,678,000, or 294%, to
$7,606,000 in 1996 from $1,928,000 in 1995. The increase in 1996 versus 1995
resulted from increases in talent costs related to the expanded programs and the
additional cost of producing CountryFest. Cost of revenues as a percentage of
revenues increased to 79% in 1996 from 56% in 1995. The largest component of
costs of revenues was talent costs which were approximately $3,745,000 in 1996
and $1,538,000 in 1995. The increase in talent costs was directly correlated to
the increase in the size of the tours produced in 1996 from 1995. The remaining
cost of revenues in both 1996 and 1995 principally included salary and related
expenses, travel costs, sound and light expenses, promotions and hospitality.
General and administrative expenses for Warner/Avalon increased $699,000,
or 155%, to $1,149,000 in 1996 from $450,000 in 1995. Overhead expenses
increased substantially as a result of the increase in business discussed above.
As a percentage of revenues, general and administrative expenses declined to 12%
in 1996 from 13% in 1995 due to Warner/Avalon's ability to leverage its fixed
costs over a higher revenue base.
Interest income for Warner/Avalon increased $14,000 to $15,000 in 1996 from
$1,000 in 1997. This increase results from the increase in cash available for
short-term investment purposes due to the increase in contracted payment
receipts from the overall increase in business.
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AEG generated interest income in 1996 of $5,000 as a result of interest
earned on excess deposits received in advance of corporate entertainment events.
AEG incurred interest expense of $16,000 in 1995 as a result of short-term
borrowings. These borrowings were not required in 1996.
As a result of the above, AEG's operating results decreased from income of
$347,000 in 1995 to a loss of $12,000 in 1996.
LIQUIDITY AND CAPITAL RESOURCES -- AEG
AEG's primary source of liquidity is from advance deposits on events
produced by its Corporate Entertainment business and distributions from
Warner/Avalon. AEG currently has no line of credit or other bank debt
facilities. On occasion, AEG has borrowed operating funds from related entities.
As of December 31, 1996 and March 31, 1997, AEG had no outstanding loan
obligations. As of March 31, 1997, AEG had cash of approximately $194,000 and a
working capital deficit of approximately $203,000, which is expected to be
funded through operating cash flows throughout the remainder of 1997. Management
believes that cash flows from operations will be adequate to fund operations
during 1997.
AEG's business is not capital intensive, and as such, AEG does not expect
to incur significant capital expenditures in 1997. Total capital expenditures in
1997 are expected to approximate $30,000 and are expected to be funded through
operating cash flows.
RESULTS OF OPERATIONS -- AWC
The entities comprising AWC include New Avalon, Inc., d/b/a Avalon
Attractions ("Avalon Attractions"), Eric/Chandler, Ltd., Inc. ("ECL"), Eric
Chandler Merchandising, Inc. ("ECM"), TBA Media, Inc. ("TBA") and a minority
equity investment in Irvine Meadows Amphitheater, a California general
partnership ("IMA Partners"). AWC conducts its concert promotion and advertising
activities through Avalon Attractions and TBA. AWC conducts its merchandising
and sponsorship businesses through ECL and ECM. IMA Partners owns the IMA and,
through a joint venture, manages the operations of the IMA and the GHA.
Avalon Attractions signs contracts with artists, venues and advertising
organizations relating to concert events held principally in Southern
California. ECL and ECM provide merchandising operations, consulting services
and sponsorship contracts with companies interested in promoting their products
and services at live music events held primarily in Southern California. ECL has
historically also managed the manufacture and sale of merchandise at stadium
music events and occasionally at other events. TBA primarily advertises music
events promoted by Avalon Attractions and IMA Partners. AWC's business is
episodic in nature. Accordingly, AWC's operating results for any period are not
necessarily indicative of the operating results which AWC can expect to achieve
in any future period.
Components of Income. The following are the principal components of AWC's
revenues and expenses:
Revenues. Avalon Attractions' principal source of revenue is from
ticket sales from live music events. In addition, Avalon Attractions often
participates in the ancillary revenue generated at these events, which
include sponsorships, merchandise, concession income, parking fees,
facility surcharges and ticket service fees.
ECL's principal source of revenue is from consulting fees earned from
a single contract which provides $380,000 in revenues annually through
2003. In addition, historically, ECL has generated revenue from providing
merchandising and consulting activities at certain stadium events. ECL also
retains a fee for all sponsorships generated on behalf of IMA Partners and
Avalon Attractions. Historically, ECM's sole source of revenue has been
from its equity interest in a related entity which provided all venue
merchandising at the 1996 Olympics in Atlanta, along with related
management fees.
TBA's primary source of revenue is from the production and placement
of radio, television and newspaper advertising from live music events in
Southern California. Substantially all of the revenue is generated for work
performed on behalf of Avalon Attractions and IMA Partners. All revenue
generated on behalf of Avalon Attractions is eliminated in consolidation.
Additionally, upon the Company's
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acquisition of AWC, all revenue generated by TBA on behalf of IMA Partners
will be eliminated in consolidation, leaving only minimal revenues for TBA.
Cost of revenues. Avalon Attractions' largest cost of revenue is the
talent payment for each live music event. Additional costs of revenue
include advertising, facility rental and staffing, production costs and
insurance.
ECL's cost of revenue relates solely to merchandising events produced
at various stadium events. These costs include the cost of merchandise
purchased, sales staff, commissions paid to the venue and/or municipal
agencies, sales tax and other miscellaneous costs. ECM's principal cost of
revenue is the consulting fees paid to its owners for services provided
during the 1996 Summer Olympic Games merchandising project.
TBA's cost of revenue relates entirely to the production of various
mediums of advertising, including the purchase of radio, television and
newspaper advertising for events produced by Avalon Attractions and IMA
Partners.
General and administrative expenses. General and administrative
expenses include all overhead expenses related to AWC's operations, such as
payroll and related expenses, occupancy, professional and consulting fees,
office supplies, promotional expenses, telephone costs, travel expenses and
consulting fees/distributions paid to the owners of AWC.
Interest income/expense. Interest income is generated on excess cash
maintained by Avalon Attractions and IMA Partners, which is generally the
result of advance ticket receipts. Interest expense relates primarily to
lines of credit maintained by IMA Partners and Avalon Attractions as well
as long-term debt maintained by Avalon Attractions and ECL.
Equity income from investments. Equity income from investments
consists principally of amounts related to AWC's 25% equity investment in
IMA Partners. IMA Partners' primary source of revenue is from ticket sales
from live music events held at its facility. In addition, IMA Partners
retains the net ancillary revenue generated at these events, which include
sponsorship, merchandise, concession income, parking fees, facility
surcharges and ticket service fees. IMA Partners also generates rental
income, box seat and season seat income. IMA Partners' largest cost of
revenue is the talent fees paid to artists performing at its facility.
Additional costs of revenue include advertising, staffing, production costs
and insurance.
Comparison of Three Months Ended March 31, 1997 and 1996
Revenues decreased $1,270,000, or 68%, to $599,000 for the first quarter of
1997 from $1,869,000 for the first quarter of 1996. Avalon Attractions revenues
decreased $1,001,000, or 67%, to $483,000 from $1,484,000 resulting from a
decrease in the number of shows produced from 20 in the first quarter of 1996 to
8 in the first quarter of 1997. The most significant component of this decrease
resulted from 3 arena shows produced in the first quarter of 1996 which
generated $660,000 in revenue and none in the first quarter of 1997. ECL
revenues decreased $224,000 to $107,000 for the first quarter of 1997 from
$331,000 for the first quarter of 1996 primarily due to the loss of
merchandising from a single event in the first quarter of 1997.
Cost of revenues decreased $1,205,000, or 77%, to $363,000 for the first
quarter of 1997 from $1,568,000 for the first quarter of 1996. As a percentage
of revenues, cost of revenues declined to 61% for the first quarter of 1997
versus 84% for the first quarter of 1996. Cost of revenues at Avalon Attractions
declined $948,000 to $369,000 for the first quarter of 1997 from $1,317,000 for
the first quarter of 1996 due to the lower number of shows produced. As a
percent of Avalon Attractions revenues, the cost of Avalon Attractions revenues
declined to 76% for the first quarter of 1997 from 89% for the first quarter of
1996. This improvement resulted from an increase in average attendance as a
percentage of capacity at shows produced in the first quarter of 1997 as
compared to the first quarter of 1996. ECL's cost of revenues declined to $0 in
the first quarter of 1997 from $215,000 in the first quarter of 1996. In the
first quarter of 1996, ECL's only component of cost of revenues was related to
merchandising activities at a single event, which ECL did not serve in the first
quarter
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of 1997. In the first quarter 1997, ECL's only revenue item was its consulting
contract which has no associated cost.
General and administrative expenses decreased $40,000, or 9%, to $403,000
for the first quarter of 1997 from $443,000 for the first quarter of 1996
primarily due to decreases at TBA of $18,000 in salaries and related expenses
and at ECL of bank finance fees and overhead related to sponsorship procurement,
partially offset by modest increases at Avalon Attractions and ECM.
Equity in loss on investments increased $20,000, or 20%, to a loss of
$122,000 for the first quarter of 1997 from a loss of $102,000 for the first
quarter of 1996. The loss for the first quarter of 1996 included the effect of
AEG's $21,000 equity share in the loss of Avalon Entertainment Partners ("AEP"),
a joint venture formed to promote concerts in San Diego, which was dissolved in
1996 and did not provide material revenues to AWC. The remaining equity in loss
from investments was generated from AWC's equity interest in IMA Partners. The
following is a summary of the results of operations of IMA Partners for the
first quarter of 1997 as compared to the first quarter of 1996.
Revenues of IMA Partners increased $21,000, or 40%, to $74,000 for the
first quarter of 1997 from $53,000 for the first quarter of 1996. This increase
related to ancillary parking revenues in the first quarter of 1997, which did
not exist in the first quarter of 1996, offset by a decrease in certain
sponsorship revenues.
IMA Partners did not record any cost of revenues for first quarters of 1997
or 1996 as no shows were performed at the facility during these periods.
General and administrative expenses of IMA Partners increased $192,000, or
54%, to $547,000 for the first quarter of 1997 from $355,000 for the first
quarter of 1996. The increase was comprised primarily of a $46,000 increase in
rent due to a new ground lease and $70,000 in repairs and maintenance due to an
earlier season start up in 1997 from 1996. The remaining $76,000 was principally
comprised of increases in salaries and management fees, legal and professional
fees, and insurance expense.
Interest income for IMA Partners decreased $7,000 to $13,000 in the first
quarter of 1997 from $20,000 in the first quarter of 1996 due to a lower
outstanding average debt balance.
Net loss of IMA Partners increased $164,000, or 51%, to $486,000 for the
first quarter of 1997 from $322,000 for the first quarter of 1996. The increase
resulted from the overall increase in operating expenses discussed above.
Net loss of AWC increased $18,000, or 7%, to $286,000 for the first quarter
of 1997 from $268,000 for the first quarter of 1996. The increase in the net
loss resulted primarily from the increase of AWC's share of IMA Partners' net
loss and lower show profits during the first quarter, partially offset by
reductions in certain operating expenses.
Comparison of Years Ended December 31, 1996 and 1995
Revenue increased $1,540,000, or 9%, to $18,011,000 for 1996 from
$16,471,000 for 1995. Approximately $1,361,000 of the increase was generated by
ECM, for management fees earned from Eric Chandler Merchandising Partners,
L.L.C. ("ECMP") and its equity interest in the income of ECMP. Both ECM and ECMP
were formed for the principal purpose of providing venue merchandise operations
for the 1996 Summer Olympic Games and did not generate revenues in 1995. Avalon
Attractions' revenues increased $609,000, or 4%, to $14,707,000 in 1996 from
$14,108,000 in 1995. Although the number of shows produced decreased from 141 in
1995 to 114 in 1996, Avalon Attractions focused more in 1996 on arena level
shows as opposed to club and theater level shows, and experienced an increase in
ticket revenues of $75,000. Generally Avalon Attractions participates in the
ancillary revenues of arena shows to a much greater extent than with club and
theater shows, and accordingly recorded an increase in such ancillary revenues
of $534,000. ECL revenues decreased $340,000 primarily resulting from
merchandise revenues earned at one stadium concert show in 1995 compared to none
in 1996, offset by an increase in consulting fees earned in 1996 related to the
1996 Summer Olympic Games.
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Cost of revenues increased $1,140,000, or 8%, to $15,666,000 for 1996 from
$14,526,000 for 1995. Approximately $1,113,000 of the increase was generated by
ECM in its first complete year of operations, substantially all of which
represented a distribution to shareholders. Avalon Attractions' cost of revenues
increased $530,000 due to the increase in revenues at Avalon Attractions for
1996 from 1995. As a percent of revenues, Avalon Attractions' cost of revenues
was constant at 92% in 1996 and 1995. Cost of revenues at ECL decreased
$412,000, or 66%, to $208,000 in 1996 from $620,000 in 1995 as a result of the
decreased merchandising activities discussed above.
General and administrative expenses decreased $317,000, or 13%, to
$2,122,000 for 1996 from $2,439,000 for 1995. Avalon Attractions' expenses
decreased $333,000, or 22%, from $1,508,000 in 1996 to $1,175,000 in 1995
resulting from direct management efforts to decrease general and administrative
expenses, including a $207,000 decrease in salaries and related expenses and a
$97,000 decrease in legal and professional fees. ECL expenses decreased $197,000
resulting primarily from payments made to stockholders of ECL in 1995 which were
not made in 1996. Payments to stockholders were made based, in part, on the
profitability of the entity and the availability of cash. These reductions were
offset by operating expenses of ECM of $249,000 in its first year of operation.
Equity in income from investments decreased $27,000 or 69% to $12,000 for
1996 from $39,000 for 1995. Equity in income included the effect of AEG's
$24,000 equity share of the loss of AEP for 1996 and $61,000 equity share of the
income of AEP for 1995, which did not provide material revenues to AWC. The
remaining equity income from investments was generated from AWC's equity
interest in IMA Partners. The following is a summary of the results of
operations of IMA Partners for 1996 as compared to 1995.
Revenues of IMA Partners increased $584,000, or 6%, to $10,306,000 for 1996
from $9,722,000 for 1995. Although the total number of shows decreased by one in
1996 to 33 from 32 shows in 1995, the total attendance remained relatively
unchanged between 1996 and 1995. In 1996, IMA Partners constructed and developed
a box seat program, which generated an additional $244,000 in revenues. The
remaining increase resulted from an increase in average ticket prices and an
increase in ancillary income of $130,000, or 5% to $2,500,000 in 1996 from
$2,370,000 in 1995.
Cost of revenues of IMA Partners increased $334,000, or 5%, to $7,604,000
for 1996 from $7,270,000 for 1995. The increase was directly attributable to the
increase in revenues for the same period. As a percentage of revenues, cost of
revenues of IMA Partners was 74% in 1996 and 75% in 1995.
General and administrative expenses of IMA Partners increased $49,000, or
2%, to $2,521,000 for 1996 from $2,472,000 for 1995. This increase resulted from
increased advertising and administrative salary expenses.
Operating results of IMA Partners improved $232,000 to $144,000 for 1996
from a net loss of $88,000 for 1995. The improvement resulted primarily from the
implementation of the box seat program in 1996.
Operating results of AWC improved $298,000 to net income of $181,000 for
1996 from a net loss of $117,000 for 1995. The improvement in net income
included the increase of $58,000 in AWC's share of IMA Partners' net income for
1996 compared to IMA Partners' net loss for 1995. Further, net income improved
as a result of the decreased net loss from the operations of Avalon Attractions
of $75,000 and an increase in net income from the operations of ECL.
LIQUIDITY AND CAPITAL RESOURCES -- AWC
AWC's primary source of liquidity is cash flow generated from its concert
promotion and merchandising operations and advanced ticket sales from
amphitheater operations. Additionally, AWC has a short term line of credit
facility with a bank which had an outstanding balance of $175,000 as of December
31, 1996 and $275,000 as of March 31, 1997. The line of credit proceeds are used
primarily for funding of AWC's working capital needs. As of March 31, 1997, AWC
had cash of approximately $500,000 and a working capital deficit of
approximately $845,000, which is expected to be funded through operating cash
flows in the second and third quarters of 1997. Management believes that cash
flows from operations and the use of short term financing will be adequate to
fund operations during 1997.
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CONCURRENT FINANCING
Concurrently with this offering, the Company is seeking to enter into the
Credit Facility. Management anticipates that the Credit Facility will provide
the Company with up to $15.0 million in additional capital. Management further
anticipates that the Credit Facility will be secured by a security interest in
certain assets of the Company.
In connection with the Credit Facility, it is anticipated that the Company
will agree to certain standard affirmative covenants, including maintenance of
its corporate existence, maintenance of its properties and insurance coverage,
prompt payment of taxes and other claims and the maintenance of a standard
accounting system. Entering into the Credit Facility will also require the
Company to make certain negative covenants which will (i) require it to maintain
specified interest and fixed charge coverage ratios, (ii) limit its ability to
incur additional indebtedness, (iii) require a minimum net worth, (iv) limit the
Company's ability to pledge, mortgage or encumber its assets, (v) limit the
Company's ability to merge with another entity or dispose of more than a
specified percentage of its total assets, (vi) limit the Company's ability to
enter into new areas of business, and (vii) limit the ability of the Company to
make capital expenditures beyond a specified level.
The Company plans to use a portion of the proceeds of the Credit Facility
to finance the repayment of the AEG Promissory Notes and for potential future
development projects and acquisitions, which may include the construction of the
Nashville Hotel and the acquisition or development of amphitheaters.
OTHER CONSOLIDATED ITEMS
Income Taxes. As of December 31, 1996, the Company had net operating loss
carryforwards ("NOLs") of approximately $4.5 million for income tax purposes,
which expire at various dates through 2011. Pursuant to Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," the tax benefit of
such NOLs and the net tax benefit of other temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes are to be recorded as an asset.
Deferred tax assets are then reduced by a valuation allowance for the amount of
any tax benefits which, based on current circumstances, are not expected to be
realized. Due to the losses of the Company through December 31, 1996, management
was unable to determine that realization of the net deferred tax asset, totaling
$1,770,000 at the end of December 31, 1996, was more likely than not and thus
provided a valuation allowance for the entire net deferred tax asset.
Adoption of New Accounting Pronouncements. In March 1995, the Financial
Accounting Standards Board ("FASB") Issued Statement of Financial Accounting
Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," ("SFAS 121") which requires impairment
losses to be recorded on long-lived assets in operations when indicators of
impairment are present and undiscounted cash flows estimated to be generated by
those assets are less than the assets' carrying amount. SFAS 121 also addresses
the accounting for long-lived assets that are expected to be disposed of. The
adoption of SFAS 121 in the first quarter of 1996 did not have a material impact
on the Company's consolidated financial statements.
Statement of Financial Accounting Standard No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), encourages, but does not require,
companies to record compensation cost for stock-based employee compensation
plans at fair value. The Company has chosen to continue to account for
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. Accordingly, compensation cost for
stock options is measured as the excess, if any, of the market price of the
Company's stock at the date of grant over the amount the employee must pay to
acquire the stock. The impact of applying SFAS 123 was not material in the year
ending December 31, 1996.
SEASONALITY
AEG's and AWC's operations are subject to seasonal variations, with the
majority of AEG's and AWC's operating profits generated in the second and third
quarters. The Breckenridge Resort's operations are also
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subject to significant seasonal variations, with substantially all of the
Breckenridge Resort's operating profits generated in the first quarter and in
the months of November and December, which periods correspond to the winter ski
season. Generally, the Breckenridge Resort reports a loss for the spring, summer
and fall periods. Such fluctuations may materially affect the Company's revenues
and profitability.
FORWARD-LOOKING STATEMENTS
The foregoing discussion may contain certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Such statements are intended to be
covered by the safe harbors created by such provisions. These statements include
the plans and objectives of management for future growth of the Company,
including plans and objectives relating to the operation of AEG, the development
of the Nashville Hotel, the acquisition of AWC and the consummation of future
private and public issuances of the Company's equity and debt securities,
including the Concurrent Financing. The forward-looking statements included
herein are based on current expectations that involve numerous risks and
uncertainties. Assumptions relating to the foregoing involve judgments with
respect to, among other things, future economic, competitive and market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the control of the
Company. Although the Company believes that the assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could be
inaccurate and, therefore, there can be no assurance that the forward-looking
statements included in this Prospectus will prove to be accurate. In light of
the significant uncertainties inherent in the forward-looking statements
included herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives and plans
of the Company will be achieved.
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BUSINESS
GENERAL
The Company is a diversified entertainment company operating in two primary
business divisions: Entertainment and Resorts. The Entertainment Division
produces live entertainment for corporate meetings and special events
("Corporate Entertainment") and develops and produces integrated music marketing
programs for corporate clients ("Entertainment Marketing"). In addition, the
Company has entered into an agreement to acquire a controlling interest in a
group of affiliated entities that own and operate concert amphitheaters, produce
and promote concerts and manage merchandising for concerts and sporting events
("Amphitheater Operation," "Concert Production" and "Event Merchandising,"
respectively). The Resort Division owns and operates resort hotels and
restaurants.
The Entertainment Division currently operates through the Company's wholly
owned subsidiary, Avalon Entertainment Group, Inc. ("AEG"), which the Company
acquired in April 1997. In the last two years, AEG has produced over 200
Corporate Entertainment events for corporate clients, including events for
Sprint, Northern Telecom, State Farm, Microsoft and Pontiac. AEG provides
Entertainment Marketing services through Warner/Avalon, a joint venture with
Warner Custom Music Corp., a subsidiary of Time Warner, Inc. In the last two
years, Warner/Avalon has produced over 400 Entertainment Marketing events to
audiences of over 4,000,000 people, including the Blockbuster RockFest and the
Fruit of the Loom CountryFest events in June 1997, which together were attended
by over 350,000 people.
The Company is expanding its Entertainment Division to include Amphitheater
Operation, Concert Production and Event Merchandising through the acquisition of
a controlling interest in a group of entities affiliated with AEG (collectively,
"Avalon West Coast" or "AWC"). Among other things, AWC owns Irvine Meadows
Amphitheater (the "IMA") in Irvine, California, and manages the operations of
the Glen Helen (Blockbuster) Amphitheater (the "GHA") in Devore, California and
the IMA, where it has produced 63 shows in the last two years. During the last
two years, AWC has produced over 300 concerts to audiences of over 1,300,000
people, primarily in venues in Southern California. AWC's Event Merchandising
operations focus on serving large-scale sporting and entertainment events, such
as the 1996 Summer Olympic Games in Atlanta, where, through a joint venture, AWC
served as the primary event merchandiser.
The Resort Division owns and operates the Village at Breckenridge Resort
(the "Breckenridge Resort"), a year-round destination resort located at the base
of Breckenridge Mountain, the second most popular ski area in the United States.
The Breckenridge Resort, which the Company acquired in April 1996, consists of
two hotels, eight restaurants and taverns and 120,000 square feet of commercial
and meeting space and banquet facilities. The Breckenridge Resort also manages
315 condominium units and single family homes in Breckenridge, making it the
largest property manager in the Town of Breckenridge. The Resort Division has
also entered into an agreement in principle with East-West Partners, a leading
developer of commercial and residential properties in Vail, Beaver Creek and
Breckenridge, Colorado, to develop certain residential and commercial facilities
located at the Breckenridge Resort. The Resort Division also owns and operates
the Nashville Country Club Restaurant (the "Nashville Restaurant") located on
Nashville's Music Row and has developed plans to construct a 107-room,
all-suites hotel adjacent to the Nashville Restaurant (the "Nashville Hotel").
BUSINESS STRATEGY
The Company's business strategy is to acquire and develop a portfolio of
complementary entertainment assets, develop and capitalize on synergies between
those assets to raise the profiles of the Company's Entertainment and Resort
divisions, and pursue internal and external growth opportunities within those
divisions. Key aspects of this strategy include the following:
- Increase the number of entertainment events managed by the Entertainment
Division and the average revenues earned per event. Management believes
that Entertainment Marketing is relatively new and has significant growth
potential as corporations become more aware of its marketing
capabilities. Management also believes that the Corporate Entertainment
business presents significant growth
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opportunities as the use of entertainment events in conjunction with
conventions and corporate meetings continues as a popular business tool
and as corporations and Corporate Entertainment venues increasingly use
third parties to produce Corporate Entertainment events. The Company plans
to increase the number of Entertainment Marketing programs and Corporate
Entertainment events managed by the Entertainment Division by enhancing
and increasing its advertising and marketing efforts to corporations and
upscale hotels and into new geographical markets, increasing the number of
account managers and sales representatives for each business and expanding
relationships with artists and agents. For AWC, the Company plans to
increase the average revenues earned per event by attracting more popular
acts to AWC's facilities and increasing the ancillary revenues derived
from these and other events. In addition, the Company plans to increase
the merchandising revenues of AWC by seeking to procure more contracts to
provide the merchandising for large-scale sporting and entertainment
events.
- Increase the number of rooms managed, the average occupancy rates and the
average daily room rates of the Resort Division. Management believes that
significant potential exists to enhance and expand the Breckenridge
Resort's operations. The Company plans to continue to grow the number of
residential living units managed by the Breckenridge Resort. The Company
also plans to continue to market the Breckenridge Resort as a year-round
destination resort to increase off-season occupancy. Management plans to
use its affiliation with Wyndham Hotel Company, Ltd. ("Wyndham") and its
company-operated travel service, A Travel Company, to increase marketing
of the Breckenridge Resort as a year-round destination resort. In
addition, pursuant to a proposed joint venture with East-West Partners,
the Company is planning to redevelop commercial and residential space at
the Breckenridge Resort to add new residential units, expand existing
units and redevelop commercial space. Management believes that this
redevelopment will position the Breckenridge Resort to capitalize on
growth opportunities in the Breckenridge Resort market.
- Pursue acquisition and development opportunities and strategic joint
ventures with industry leaders. Management intends to actively pursue
acquisition opportunities and strategic joint ventures in its
Entertainment and Resort divisions. Management believes that acquisitions
and joint ventures can provide the Company with access to new geographic
markets, enhanced business opportunities through relationships with
industry leaders and increased purchasing power and pricing flexibility.
In particular, following the acquisition of AWC, the Company intends to
pursue opportunities to acquire additional amphitheaters and contracts to
manage the merchandising operations at additional venues. Management of
AWC is currently negotiating to develop two additional amphitheaters in
Camarillo, California and Portland, Oregon (the "Camarillo Amphitheater"
and the "Portland Amphitheater," respectively). In addition, the Company
plans to expand its Corporate Entertainment business by acquiring
regional Corporate Entertainment operations in selected markets
throughout the United States. The Company is also actively searching for
resort properties in warm weather climates to complement its existing
resort operations. The Company has also developed plans to construct the
Nashville Hotel and to associate it with a recognized hotel industry
name.
The Company believes that significant strategic advantages arise from
developing joint venture relationships with industry leaders. In particular, the
Company believes that such relationships allow the Company to expand its
entertainment offerings, control the quality of its products, limit its capital
requirements and reduce its business risks. Currently, the Company or AWC is
party to joint ventures or contractual relationships with the following industry
leaders:
- Warner Custom Music Corp. -- AEG's Warner/Avalon joint venture with
Warner Custom Music Corp. is one of only a few joint ventures of Warner
Custom Music Corp.
- Pavilion Partners -- AWC is party to a joint venture with Pavilion
Partners to manage the operations of the IMA and the GHA. Pavilion
Partners is a joint venture of Sony Music Entertainment, Inc., a
subsidiary of Sony Music Corp., and SM/Pace Concerts, Inc., a leading
concert promoter.
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- Urban Music Associates, L.L.C. -- Warner/Avalon is a 25% joint venture
member in Urban Music Associates, L.L.C. ("Urban Music Associates"), a
joint venture which includes First Team Marketing, Inc., a corporation
wholly owned by Earvin "Magic" Johnson, and VIBE Ventures.
- Wyndham Hotel Company, Ltd. -- In February 1996, the Breckenridge Resort
signed a ten-year franchise agreement with Wyndham to operate a portion
of the residential units owned and operated by the Breckenridge Resort as
Wyndham Resort units.
- East-West Partners -- In August 1996, the Company entered into an
agreement in principle with East-West Partners, a leading developer of
commercial and residential properties in Vail, Beaver Creek and
Breckenridge, Colorado, to develop certain residential and commercial
facilities located at the Breckenridge Resort.
ENTERTAINMENT OPERATIONS
The Company's Entertainment Division, which currently operates through AEG,
provides a wide array of entertainment services, including Corporate
Entertainment, Entertainment Marketing and artist management. With the
acquisition of AWC, the Company will expand its Entertainment Division to
include Amphitheater Operation, Concert Production and Event Merchandising.
AVALON ENTERTAINMENT GROUP, INC.
Acquired in April 1997, AEG specializes in Entertainment Marketing,
Corporate Entertainment and artist management. Management believes that AEG
provides the Company with access to significant entertainment talent and
entertainment production expertise which may be utilized in the Company's Resort
Division.
Entertainment Marketing. Warner/Avalon, AEG's joint venture with Warner
Custom Music Corp., was formed in 1995 to create, develop and execute highly
integrated and innovative music marketing programs for corporate clients.
Management believes that among the strengths of this joint venture are
Warner/Avalon's ability to draw on the significant resources of Time Warner,
Inc., one of the world's largest entertainment companies, and AEG's
long-standing relationships with artists and concert venues. In 1996,
Warner/Avalon reported gross revenues of $9.6 million, representing an increase
of 179% over its 1995 revenues.
Warner/Avalon develops and manages music marketing programs from start to
finish, including developing program strategies and designs, and providing
program implementation and evaluation. Warner/ Avalon designs and develops each
marketing program with the client to meet the client's particular marketing
needs and strategies and typically includes one or more of the following
components:
- A multi-city concert tour by one or more artists
- A single day multi-artist music extravaganza
- Television/radio programming of the music extravaganza
- Distribution of promotional merchandise
- Promotional appearances by artists at marketing events
- Sponsorship support through displays, side attractions and vendors
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Management believes that Warner/Avalon has earned a reputation for
developing music marketing programs that appeal to highly focused demographic
segments. The following table presents information regarding significant
programs developed by Warner/Avalon:
<TABLE>
<CAPTION>
NUMBER TOTAL
CLIENT EVENT YEAR(S) OF SHOWS ATTENDANCE(1)
------ ----- ------- -------- -------------
<S> <C> <C> <C> <C>
Fruit of the Loom.......... Country Comfort Music Series 1995 104 1,100,000
1996 140 1,200,000
1997 53 500,000
CountryFest (Atlanta) 1996 1 125,000
CountryFest (Dallas) 1997 1 150,000
Blockbuster RockFest
Entertainment............ 1997 1 200,000
Miller Beer................ Jamizon Tour(2) 1997 30 240,000
Crown Royal................ Country Music Series 1993 21 100,000
1994 46 200,000
1995 45 400,000
1996 45 200,000
</TABLE>
- ---------------
(1) Attendance numbers for events held in the years 1993, 1994, 1995, 1996 and
1997 are estimated and attendance numbers for events scheduled to be held in
1997 are projected.
(2) Warner/Avalon is a member of Urban Music Associates, a joint venture formed
to develop a live, sponsored music event franchise based on concert touring
and utilizing the name recognition of Earvin "Magic" Johnson and VIBE
Magazine and Warner/Avalon's artist relationships. In connection with Urban
Music Associates, Warner/Avalon has entered into an agreement with Miller
Brewing Company ("Miller Beer"), whereby Miller Beer has obtained certain
advertising, sponsorship and promotional rights to such concerts and events.
Pursuant to such agreement, Warner/Avalon will produce concerts and events
known as the "Jamizon Tours," which are expected to travel to a minimum of
30 and a maximum of 35 cities in each of 1997, 1998 and 1999. In connection
with the Jamizon Tours, Urban Music Associates is also expected to develop
related projects, including television shows, home videos, recorded music
and merchandise.
The programs highlighted in the preceding table are representative of the
types of Entertainment Marketing programs developed by Warner/Avalon. Management
believes that the Fruit of the Loom Entertainment Marketing Program is
particularly representative of the scale and depth of these programs.
In 1995, Warner/Avalon contracted with Fruit of the Loom to develop,
produce and execute the 1995, 1996 and 1997 programs for the Fruit of the Loom
Country Comfort Music Series, an integrated music marketing program intended to
expand upon the identification of the "Fruit of the Loom" brand and trademark
with country music. The 1997 program consists of the following main elements:
- Title sponsorship by Fruit of the Loom of the Country Comfort Music
Series, a national country music concert tour with a minimum of 60
concert dates by Hank Williams Jr., Charlie Daniels, Travis Tritt and
JoDee Messina;
- Title sponsorship by Fruit of the Loom of CountryFest, a high-profile
music festival at the Texas Motor Speedway on June 14, 1997; and
- Title sponsorship by Fruit of the Loom of a private "fantasy" weekend
music event, including an acoustic concert by the headline artists, to be
held in the Fall of 1997 at the Breckenridge Resort.
Warner/Avalon is responsible for providing the artists, special marketing
support, creation and production of Fruit of the Loom radio and television spots
and newspaper advertisements, placement of in-market media support, distribution
of promotional merchandise and other matters. Warner/Avalon is currently
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negotiating with Fruit of the Loom to enter into a new contract for programs in
1998 and beyond. There can be no assurance that Warner/Avalon will reach an
agreement with Fruit of the Loom for such future programs. Fruit of the Loom
represented approximately $5.8 million, or 60%, of Warner/Avalon's revenues in
1996.
Warner/Avalon's Entertainment Marketing business is characterized by a
relatively few number of accounts with high revenues per account. As a result,
the loss or addition of any one account could have a material affect on
Warner/Avalon's revenues. Because contracts for Warner/Avalon's marketing
programs are typically signed six months to one year before the program takes
place, management believes that, to a reasonable degree, it can forecast and
take appropriate action for changes in its client portfolio. Management believes
these marketing programs are interchangeable with a number of national consumer
product companies such that an existing client which decides not to renew its
contract with Warner/Avalon could be replaced in accordance with the terms of
the existing agreements. When possible, Warner/Avalon seeks to enter into
multi-year contracts with its clients. Warner/Avalon establishes the price of
each Entertainment Marketing program by determining its cost to produce the
program and adding a profit margin. Once a price is established for a project,
subsequent changes in the cost of the project directly impact Warner/Avalon's
gross profit on the project. Management believes that Warner/Avalon's experience
in managing large complex Entertainment Marketing programs allows it to
effectively predict and manage cost fluctuations.
Management believes that Entertainment Marketing is relatively new and has
significant growth potential as corporations become more aware of its marketing
capabilities. Management believes that national consumer product companies are
well suited to use Entertainment Marketing as a tool and seeks to target these
industry participants as potential customers. Management intends to increase the
number of account representatives employed by AEG to expand its ability to
create, develop and execute Entertainment Marketing programs for new clients.
Management also strives to increase its revenues per existing client over
time as clients become more comfortable with the program format and recognize
the success of Entertainment Marketing campaigns. The Company continually works
with clients to tailor programs to the exact specifications of the client. Over
time, Management believes existing clients will expand their programs, including
by increasing the size of existing components of programs, such as the number of
cities included on a concert tour, and by adding new components to programs,
such as television and radio specials or "fantasy weekend" events.
Corporate Entertainment. AEG's Corporate Entertainment division specializes
in booking and producing live entertainment for conventions, corporate meetings
and special events. AEG provides turn-key services, including planning,
scheduling, staging and managing Corporate Entertainment events from start to
finish. In the last two years, AEG has produced over 200 shows by artists such
as Tony Bennett, Bill Cosby and Alabama for clients including Sprint, Northern
Telecom, State Farm, Microsoft, Pontiac and Toyota.
Management believes that the Corporate Entertainment business complements
AEG's Entertainment Marketing operations. The Corporate Entertainment business
is characterized by a larger number of shows produced at lower revenues per show
than the Entertainment Marketing business. Accordingly, the Corporate
Entertainment business serves as a source of more predictable revenues from
events occurring on a more regular basis.
AEG works with its clients to create and develop Corporate Entertainment
events. AEG's access to information regarding the cost of talent allows its
clients to obtain the best artists within their budgets. AEG charges its clients
a fixed fee based on its costs of producing the event, which includes the
artist's fee and the cost of staging the event (such as lighting, sound,
staffing and other costs), to which AEG adds a profit margin. Once a contract
has been executed with a client, AEG's only variable cost is its cost of staging
the event. Accordingly, AEG seeks to control its event profitability by tightly
managing its staging expenses.
Management believes the Corporate Entertainment business has historically
been served by hotels and convention centers ("Convention Venues") who have used
their ability to stage entertainment events as a strategic advantage in
attracting convention customers. In such role, Convention Venues must plan and
produce the entertainment events they host. A key component of AEG's strategy is
to market its services to Convention Venues providing a significant number of
entertainment events each year for corporate gatherings.
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A strategic advantage enjoyed by AEG is its leading reputation as a developer
and producer of Corporate Entertainment events in the United States. AEG
believes its reputation positions it to overcome the concerns of Convention
Venues who cannot risk displeasing clients, by either failing to organize
Corporate Entertainment events or organizing poor Corporate Entertainment
events, and therefore are reluctant to give control of the planning of the
events to third parties. A second component of AEG's strategy involves expanding
AEG's marketing coverage. Because Management believes a local presence is
critical in marketing its services to many Convention Venues, as well as
directly to corporations, AEG intends to extend its base of sales offices, which
currently consists of offices in Nashville and San Diego, into new cities,
including Phoenix, Arizona and Vancouver, Canada.
Artist Management. AEG currently manages four artists, one of whom is an
established country music performer. AEG believes that its familiarity with all
facets of the entertainment industry enables it to help artists create and
capitalize on opportunities and avoid mishaps that can hinder a promising
career. With its expertise in producing concerts and Corporate Entertainment
events and its relationships with venue managers, outside concert promoters,
broadcasting executives and other industry professionals, management believes
that AEG is uniquely positioned to offer services which can significantly
enhance the careers of its clients. Management believes that following the
acquisition of AWC, growth opportunities will exist for the artist management
business through the cross-marketing of the Company's Amphitheater Operation,
Concert Production and Event Merchandising activities and the Company's artist
management activities.
AVALON WEST COAST
On June 12, 1997, the Company entered into an agreement in principle to
acquire a 51% interest in AWC, which consists of (i) IMA Partners, and (ii) a
group of affiliated entertainment companies and entities that produce concerts
and manage merchandising for concerts and sports events, including IMA Partners,
New Avalon, Inc., Eric/Chandler Ltd., Inc., Eric Chandler Merchandising, Inc.
and TBA Media, Inc.
Amphitheater Operation. IMA Partners owns the IMA, a 15,000-seat outdoor
amphitheater located in Irvine, California. The IMA contains wide aisles,
comfortable chair seating, name brand food and beverage service from providers
such as Domino's Pizza and Del Taco, and open, well-landscaped spaces for people
to enjoy the concert and to gather before and after shows. Until April 1997, IMA
Partners promoted all events held at the IMA, which in 1996 included 26
contemporary concerts and five symphonies attended by over 250,000 people. The
1996 contemporary concerts included appearances by Sting, Hootie & the Blowfish,
Jimmy Buffett and Lollapalooza. All symphonies were performed by the Pacific
Symphony Orchestra.
IMA Partners generates revenues from ticket sales and its share of the
sales of ancillary items. Because an affiliate of IMA Partners serves as both
the promoter and the venue operator, IMA Partners is able to capture a
significant share of ancillary revenues per event. Additionally, IMA Partners'
ownership of the IMA allows it to receive additional revenues by selling the
sponsorship of the facility, currently held by Coors.
IMA Partners continually seeks to increase its ancillary revenues by
improving its guests' entertainment experience and by offering new features. IMA
Partners maintains a landscaped, natural-grass concession and merchandising area
which provides ample space for pre-event socializing by guests. By providing its
guests with name-brand food and beverage choices in a comfortable setting, IMA
Partners motivates its guests to arrive early and dine or drink at the shows. In
1996, IMA Partners created a membership-only "club" in a restricted patio area
adjacent to the IMA. The club serves premium priced food and beverages in a less
crowded area and is open for several hours before show time.
In April 1997, IMA Partners and Pavilion Partners formed Western
Amphitheater Partners ("WAP"). Pavilion Partners owns and operates the GHA, a
65,000-seat amphitheater located near San Bernardino, California. Under the
terms of the joint venture agreement, WAP will operate both the IMA and the GHA,
with all revenues and expenses split equally between IMA Partners and Pavilion
Partners. The purpose of WAP is to increase the operating efficiencies of the
IMA and the GHA.
Management of AWC is currently negotiating to develop two additional
amphitheaters: the Camarillo Amphitheater and the Portland Amphitheater. The
Camarillo Amphitheater is anticipated to be a 16,000-seat
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capacity amphitheater located in Camarillo, California, between the San Fernando
Valley and Santa Barbara. The 300-acre site for the amphitheater is located on
Ventura County land, adjacent to a proposed public 18-hole golf course. The
county has agreed to a 60-year exclusive lease. Management estimates that
construction of the amphitheater will cost approximately $8.0 million. The
market surrounding the proposed site for the Camarillo Amphitheater has a
population of approximately 1.5 million people. The Portland Amphitheater is a
proposed 12,000-seat capacity amphitheater located in Portland, Oregon,
approximately 10 miles from downtown Portland. The proposed site is located
within the Portland International Raceway, which hosts an annual Indy Car race
and several sports car races. It is contemplated that much of the existing
infrastructure, such as parking, electrical and phone connections, restrooms,
landscaping, entrance and exit roads and seating, can be utilized to reduce
construction costs of the Portland Amphitheater. Management estimates that
construction of the Portland Amphitheater will cost approximately $6.0 million.
Concert Production. Avalon Attractions is one of the preeminent concert
producers and promoters in Southern California. In the last three years, Avalon
Attractions has produced over 500 shows to paid attendance of over 2,000,000
people. In addition, during the last 15 years, Avalon Attractions has produced
all but three of the stadium shows in the Southern California market.
Entertainment acts whose concerts were produced by Avalon Attractions in 1996
include Crosby, Stills and Nash, Counting Crows, The Wallflowers, Kiss, Bruce
Springsteen, Neil Young, Smashing Pumpkins, Merle Haggard, Peter, Paul and Mary
and Gloria Estefan.
Avalon Attractions generates revenues through ticket sales, which are
distributed primarily through Ticketmaster, and its share of the sale of
ancillary items, including food and beverages, merchandising, parking, service
charges and facility fees. AWC negotiates its percentage of the sale of each
ancillary item with the concessionaire, merchandiser, or other service provider
for each event. Avalon Attractions' largest costs are talent, whereby Avalon
Attractions typically provides artists a guaranteed appearance fee as well as a
percentage of ticket sales above a predetermined threshold, and show expenses,
which vary but typically include event staffing, advertising, facility rent and
insurance. Avalon Attractions' typical strategy in managing an event is, at a
minimum, to cover its total costs of production through ticket sales and to earn
a profit on the ancillary revenues of the event.
The promotion contract between Avalon Attractions and the artist
establishes the ticket prices as well as the artist's compensation. In
negotiating the promotion contract, Avalon Attractions estimates the public
interest in the concert and the expected attendance at different ticket prices.
Avalon Attractions believes its ability to gauge public interest in concerts,
which has been developed over 15 years of industry experience, provides it with
a strategic advantage in the marketplace.
Avalon Attractions produces shows in the following venue types:
<TABLE>
<CAPTION>
NUMBER OF SHOWS
PRODUCED IN
AVERAGE ------------------
VENUE SIZE TICKET PRICE 1994 1995 1996
----- ---- ------------ ---- ---- ----
<S> <C> <C> <C> <C> <C>
Stadium................... More than 20,000 seats High 5 1 0
Arena/Amphitheater........ 5,000-20,000 seats Mid 26 10 32
Theater................... 1,000-5,000 seats Mid 85 76 46
Club...................... Up to 1,000 seats Low 94 54 36
--- --- ---
Total...................................................... 210 141 114
=== === ===
</TABLE>
Over the last three years, Avalon Attractions has shifted the mix of its
venue locations, placing increased emphasis on producing arena/amphitheater
events and decreased emphasis on club and theater events. Management believes
that arena/amphitheater events provide significantly greater profitability due
to the premium status of the performing artists and the larger audiences. These
characteristics combine to maximize the ancillary revenues and the profitability
to Avalon Attractions.
Similarly, due to the higher ticket prices and larger attendance at stadium
events, such events generate significantly higher revenues on a per event basis
than other venues. However, the drawing power of the artists
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who are able to fill stadiums also allows such artists to demand higher
appearance fees, a higher percentage of ticket revenues in excess of the
threshold, and a significantly higher share of ancillary revenues, which reduces
Avalon Attractions' ability to capture a sizable share of ancillary revenues. As
a result, stadium shows are typically not as profitable as arena/amphitheater
shows. However, due to the high profile nature of the stadium events and
artists, Avalon Attractions intends to continue to produce a significant share
of the stadium events held in Southern California.
Event Merchandising. ECL and ECM are primarily engaged in merchandising and
sponsor procurement. Through a joint venture with ECMP, ECL and ECM conducted
merchandising activities, including venue-related merchandising, at the 1996
Summer Olympics in Atlanta. The joint venture generated revenues of over $28.5
million, of which 85% was generated in two weeks of sales. ECM provides current
merchandising activities through a joint venture established in 1997 which
focuses primarily on serving large-scale entertainment and sporting events and
will be the event merchandiser for the 1997 CountryFest and RockFest events, and
the 1997, 1998 and 1999 Jamizon Tours.
ECL procures sponsorships for corporate clients at its amphitheaters. Over
the last ten years, ECL has obtained sponsorships from Anheuser-Busch, Coke,
American Airlines, Coors, Miller Beer, 7-Up and Taco Bell.
Other. AWC's other operations are conducted through TBA, which procures
television, radio and newspaper advertising in connection with concert promotion
activities. Approximately 60% of TBA's revenues are derived from sales to Avalon
Attractions.
RESORT OPERATIONS
The Company's Resort Division currently owns and operates the Village at
Breckenridge Resort, which includes the Village Hotel, the Breckenridge Mountain
Lodge and eight restaurants and taverns in Breckenridge, Colorado, and one
restaurant in Nashville, Tennessee. The Company has developed plans to construct
a hotel adjacent to the Nashville Restaurant.
THE VILLAGE AT BRECKENRIDGE RESORT
General. The Breckenridge Resort is situated on approximately 19 acres
between the base of the Breckenridge Mountain ski area and historic Main Street
at the south end of the Town of Breckenridge. Breckenridge Mountain, located
approximately 85 miles west of Denver, Colorado, is North America's second most
popular ski area as measured in skier days (a skier day is defined as one skier
accessing the mountain for one day). In the 1995-1996 ski season, Breckenridge
Mountain's skier days reached 1.35 million -- a new record for the mountain.
Breckenridge Mountain is adjacent to the Town of Breckenridge, Colorado, a
restored 140 year old mining town. The Town of Breckenridge has significant
apres-ski activities which have made it an attractive destination to national
and international destination guests. The Breckenridge Resort consists of the
60-room Village Hotel, the 71-room Breckenridge Mountain Lodge, eight
restaurants and taverns and 120,000 square feet of commercial and meeting space
and banquet facilities. The Company also manages approximately 220 condominium
units located in the Breckenridge Resort complex and approximately 95 additional
single family homes and residential condominium units in Breckenridge. The 60
rooms in the Village Hotel and 220 of the residential units managed by the
Company are operated as Wyndham Resort units pursuant to a ten-year franchise
agreement (the "Wyndham Franchise Agreement") with Wyndham Hotel Company, Ltd.
Pursuant to the Wyndham Franchise Agreement, the Breckenridge Resort pays a
monthly royalty fee and certain marketing and reservation fees and group
commissions for group business booked through a Wyndham national sales office.
The Breckenridge Resort's amenities include a health club, two swimming
pools, eleven hot tubs, a billiards room and video arcade and access to the
Breckenridge Ski School, backstage theater, day-care center and children's
programs. The Breckenridge Resort also features a full service recreation
center. Breckenridge Resort guests can arrange a wide variety of moderate to
high adventure activities through the recreation center, including golf, white
water rafting, Jeep tours, gold panning and nature walks in the summer and
skiing, ice skating, sleigh riding, snow mobiling and dog sledding in the
winter.
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The Breckenridge Resort's full service travel agency, A Travel Company,
offers guests and visitors to the Breckenridge Resort a unique opportunity to
experience one-stop shopping for their lodging, transportation and entertainment
needs. The Breckenridge Resort's travel specialists can arrange discount
airfares, airport transfers, car rentals, lift tickets, ski lessons, equipment
rental and concierge services for a variety of activities. This full-service
reservation department uses state-of-the-art equipment to handle an average of
900 calls per day in the winter.
Lodging. The Company owns and operates the Village Hotel and the
Breckenridge Mountain Lodge. In addition, the Company manages approximately 315
condominium and single family homes located in the Breckenridge Resort and in
the Town of Breckenridge. As a result, the Breckenridge Resort offers guests a
wide variety of lodging accommodations. Breckenridge Resort guests can choose
from standard hotel rooms to condominium units with fully-equipped kitchens to
luxury homes. The Breckenridge Resort's lodging and property management
operations combine to make the Company the largest property manager of hotels,
condominiums and houses in The Town of Breckenridge.
The Village Hotel is located at the base of Lift Nine, one of Breckenridge
Mountain's primary access points for skiers, and includes 60 guest rooms (50
standard and 10 family rooms) and was built in 1984 and renovated in 1995. The
Breckenridge Mountain Lodge, located on Main Street across from the Village
Hotel (approximately 1/4 mile from the base of Lift Nine), includes 71 standard
rooms and was built in 1965 and renovated in 1995.
Of the 315 units managed by the Breckenridge Resort, approximately 220 are
condominium units located in the Breckenridge Resort complex and approximately
95 are single family homes and residential condominium units in the Town of
Breckenridge. The Company pays the owners of the condominium units and single
family homes a fee in return for use of their units. As a result, the Company
earns a lower margin on room revenues generated from managed units than revenues
generated from owned units. However, the Company believes it can leverage
certain components of its operating infrastructure, particularly its
housekeeping and reservations operations, to generate additional operating
income from managed rooms. Additionally, the Company believes its property
management operations provide the Company with a number of important advantages,
including the ability to market its restaurant, retail and entertainment
operations to a larger guest population and the ability to develop a large
inventory of quality lodging. The Company expects its property management
operations to continue to expand.
Food and Beverage. The Breckenridge Resort operates six restaurants and two
taverns as well as banquet services. The Breckenridge Resort's restaurants offer
a wide variety of dining experiences, from the Village Pasta Company, offering
Italian cuisine and award-winning pizza, to the Breckenridge Cattle Company,
offering steaks, seafood and prime rib. Throughout the ski season, guests and
visitors to the Breckenridge Resort can also enjoy live entertainment in many of
the Breckenridge Resort's dining establishments. The Company believes that by
owning and operating a variety of restaurants at the Breckenridge Resort it can
ensure the quality of the products and services offered its guests while
appealing to their varied tastes. The Company believes the majority of its
growth in food and beverage revenues will result from increases in the occupancy
rates of its owned and managed lodging facilities and increases in the number of
managed lodging units. Depending upon the Company's success in obtaining an
increasing number of occupied group room nights, the Company believes it could
increase revenues at both its core restaurant and banquet facilities.
Additionally, the Company believes the strategic location at the base of Lift
Nine of all of the Company's restaurants will allow it to capture a significant
share of day skiers to the Breckenridge Mountain ski area.
Commercial Operations. The Breckenridge Resort owns approximately 87,000
square feet of commercial space, offering guests and visitors a wide variety of
shopping options in 34 establishments, including restaurants, specialty retail
shops, apparel shops, ski and/or mountain bike rental shops and the Breckenridge
Mountain skier services operations. The Breckenridge Resort's location at the
base of Breckenridge Mountain has allowed it to maintain commercial occupancy
rates averaging 95% since 1994. The leases relating to these tenants are
typically for three- to ten-year terms with annual rental rates varying from $15
to $30 per square foot. In certain cases, the leases provide for additional
compensation to the Breckenridge Resort based on a percentage of gross sales.
The leases typically provide for renewal terms of one to five years.
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The strategy of the Breckenridge Resort's leasing operation is to select
the appropriate tenant mix for its locations to provide a high quality and
diverse selection of retailers and restaurateurs. Pursuant to this strategy, the
Company has entered into an agreement in principle with East-West Partners which
contemplates that the Company will, pursuant to a definitive agreement,
contribute approximately 28,000 square feet of commercial space to the East-West
joint venture. It is contemplated that this commercial space will undergo
significant redevelopment to provide a higher quality of retail shopping and a
more pleasant shopping experience for the Breckenridge Resort's guests and that
the Company will receive a return of capital on its contribution and retain a
50% interest in the profits generated by the contributed commercial property.
See "-- Resort Operations -- East-West JV."
Group Room Nights Marketing Initiative. Management believes the
Breckenridge Resort has historically been undermarketed as a year-round
destination resort and as a preferred location for commercial and recreational
group meetings and events. The Breckenridge Resort has 18 meeting rooms with
approximately 33,000 square feet of meeting space and a full range of convention
services, including state-of-the-art audio/visual equipment, a fully-equipped
business center and extensive banquet facilities. Prior to December 1994, the
Breckenridge Resort was managed primarily as a winter resort. Accordingly, the
Breckenridge Resort was not generally considered as an alternative to meeting
planners for group business. Beginning in December 1994, the Breckenridge
Resort's current management began to reposition the Breckenridge Resort as a
year-round destination resort, focusing on individual and family travelers and
group ski business in the winter months and corporate groups in the spring,
summer and fall months. As part of this repositioning, management enhanced the
services of A Travel Company, improved the food and beverage offerings at the
Breckenridge Resort, created more entertainment events, invested approximately
$3.0 million in capital improvements and increased the number of living units
under management.
The Breckenridge Resort utilizes a number of sources for its group
bookings, including reservations obtained through Wyndham national sales offices
and the Breckenridge Resort's on-site group sales department, which focuses on
target customers, including local and national associations, corporations,
government groups, recreational groups and educational organizations. The
Breckenridge Resort's sales department utilizes a variety of sales strategies to
attract corporate and group guests, including direct sales, promotions,
advertising, direct mail, data base marketing and telemarketing targeted to
major domestic and international markets. Since 1994, the Breckenridge Resort's
marketing budget has more than tripled, with the increase being spent primarily
on more sales personnel, better promotional activities, additional advertising
and sophisticated call programs, all of which utilize a state-of-the-art
automated sales management system, which was installed in 1995 and 1996. As a
result of the Breckenridge Resort's enhanced marketing activities, the
Breckenridge Resort increased group room nights from approximately 13,000 in
1995 to approximately 31,000 in 1996.
Entertainment/Programming Marketing Initiative. The Company believes it
holds a significant marketing advantage over its competitors by being able to
provide premium live entertainment to its guests. Prior to April 1997, the
Breckenridge Resort relied on unaffiliated third parties to bring live
entertainment opportunities to the Breckenridge Resort. With the acquisition of
AEG in April 1997, the Company now has the ability to attract and stage at the
Breckenridge Resort live entertainment events of a quality and number that was
not possible prior to April 1997. In 1997, the Company has held or has scheduled
a variety of live entertainment events at the Breckenridge Resort, including
Genuine Jazz in July, Mountain Fest Music Festival, Fourth of July Great
American Music Festival, Labor Day Blues Festival, A Breckenridge Christmas and
Breckenridge International Film Festival. With the acquisition of AEG, the
Company is beginning plans for a complete concert series to be held at the
Breckenridge Resort in 1998 utilizing AEG's expertise and relationships.
Management believes that the Company's ownership of AEG will provide the Company
with significant marketing advantages over the Company's competitors and create
increased opportunities to promote public awareness of the Breckenridge Resort.
Real Estate. The Breckenridge Resort owns approximately five acres of
developable real estate zoned for residential or commercial construction. The
Breckenridge Resort intends to sell substantially all of such real estate to the
East-West joint venture. See "-- Resort Operations -- East-West JV."
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East-West JV. In August 1996, the Company entered into an agreement in
principle with East-West Partners, a leading developer of commercial and
residential properties in Vail, Beaver Creek and Breckenridge, Colorado,
relating to a proposed development of certain residential and commercial
facilities located at the Breckenridge Resort ("East-West JV"). The Company
expects to enter into a definitive agreement with East-West Partners relating to
the proposed East-West JV which will provide, among other things, the following:
(i) the Company will contribute undeveloped land, commercial space and capital
to the East-West JV, while East-West Partners, through its subsidiary East-West
Resorts Development III, L.P., will contribute capital and perform master
planning, development, construction, funding and sales for the East-West JV;
(ii) the Company and East-West Partners will each receive a fixed annual return
on all cash capital contributions; (iii) after all capital contributions have
been returned, the Company and East-West Partners will each receive cash flow
from the East-West JV which cash flow will be derived from sales and ongoing
rental management of residential condominiums, leasing of commercial space and
sale of commercial space; (iv) East-West Partners will be retained under a
project management agreement pursuant to which the Company will receive a
portion of the management fees; and (v) certain affiliates of East-West Partners
will also enter into property management agreements and brokerage agreements
related to the sale of residential condominiums and the leasing and/or sale of
commercial space. It is currently anticipated that following the execution of a
definitive agreement the Company will begin receiving cash flow from the
proposed East-West JV in 1998.
Vail Resorts Acquisition. On January 3, 1997, the ski operations of
Breckenridge Mountain were acquired by Vail Resorts, Inc. ("Vail"). Vail, which
operates the Vail Mountain and Beaver Creek Mountain resort, is the largest
mountain resort operator in the United States. Vail has publicly announced its
intention to spend up to $18.0 million to improve the lift equipment, snowmaking
coverage, and ancillary services of Breckenridge Mountain, and to initiate a
strong marketing campaign for all of Vail's resorts, including Breckenridge
Resort, in an attempt to grow the number of skier days on each of its resorts.
Management believes Vail's aggressive expansion into Breckenridge and its strong
marketing programs should increase awareness of and visits to Breckenridge.
NASHVILLE HOTEL AND NASHVILLE RESTAURANT
The Company opened the Nashville Country Club restaurant in November 1994
on Nashville's Music Row. The Nashville Restaurant combines progressive and
traditional recorded country music and broadly appealing American-style food in
a highly-charged, informal atmosphere.
As a part of the Company's goal of creating an overall attractive
environment that appeals to dining customers, the Company has positioned the
Nashville Restaurant as a preferred location for informal dining by country
music artists and music industry professionals as well as a site for country
music industry special events, such as parties to celebrate "#1" records. Since
the opening of the Company's Nashville restaurant, the restaurant has hosted
numerous special events including MCA Record Company's publicity party for
George Strait, Curb Record Company's party for Tim McGraw, Atlantic Record
Company's platinum party for Confederate Railroad, Buckhorn Publishing Company's
Beatles Album release party, the Dove Awards party for Benson Music and the
Gospel Music Association party for EMI. None of the above-mentioned
organizations is actively endorsing or promoting the Company's restaurant.
The Company has begun development of a hotel adjacent to its Nashville
Restaurant. Management believes that the addition of a hotel adjacent to the
Nashville Restaurant and Music Row will raise the profile of the Company's
Entertainment and Resort divisions by providing additional opportunities to host
country music industry special events. The Nashville Hotel will be positioned
and marketed to meet the needs of Music Row businesses, as well as travelers
visiting the medical community and Vanderbilt University. A feasibility study
has been completed and the Company expects to commence construction in 1997. The
Nashville Hotel will consist of multiple stories and have direct access to the
Nashville Restaurant. An existing parking garage adjacent to the site of the
hotel will serve as the parking garage for the entire complex. The 107 suites
will be decorated consistently with the Nashville Restaurant, have living and
sleeping areas, wet bars and average approximately 445 square feet. The
Nashville Hotel will also include meeting space to accommodate small groups and
board meetings and an exercise facility and business center. Management
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believes that the hotel market in the area surrounding the proposed site of the
Nashville Hotel is strong with accommodations in the area in the $80 to $130
price range experiencing annual occupancies from 82% to 88%.
Other activities. In November 1993, the Company entered into an agreement
with the Nashville Songwriters Foundation, Inc. (the "Foundation") pursuant to
which the Company agreed to manage certain activities of the Foundation,
including activities in connection with the development, financing, construction
and management of a facility to house the Nashville Songwriters' Hall of Fame
(the "Hall of Fame"), which is operated by the Foundation. In consideration for
these services, the Company will be entitled to receive a management fee equal
to 10% of the gross revenues received by the Foundation (excluding interest
income) in connection with the development and operation of the Hall of Fame.
The Company's agreement with the Foundation is for successive one-year terms
which renew automatically unless terminated in advance by either party. The
Foundation currently is continuing to explore possible locations for the Hall of
Fame; however, the Company does not anticipate that its relationship with the
Foundation will develop significantly during 1997.
COMPETITION
The Company's entertainment and resort operations compete with virtually
all other forms of entertainment and resort activities. In addition to the
competitive factors outlined below for each of the Company's businesses within
the Entertainment Division, the success of the Entertainment Division is
dependent upon certain factors beyond the Company's control, including economic
conditions, amounts of available leisure time, transportation costs, public
taste and weather conditions. The Entertainment Marketing business is
competitive, with AEG's competition coming primarily from five or six
privately-held companies. The Corporate Entertainment business is also
competitive, with AEG's competition coming primarily from four privately-held
companies and one publicly-held company and smaller regional companies and
hotels. Competition in the artist management area is extremely fragmented. AEG
also competes with in-house marketing and communications staffs of many clients
and potential clients. There can be no assurance that, as AEG's industry
continues to evolve, additional competitors with greater resources than AEG will
not enter the industry (or particular segments of the industry) or that AEG's
clients will not choose to service more of their needs internally.
AWC's Amphitheater Operation, Concert Production and Merchandising business
is highly competitive with AWC's competition coming from numerous concert
promoters, merchandisers and entertainment venues in Southern California. The
resort business is also highly competitive. The Breckenridge Resort competes
with other resort facilities and food and beverage operations in Breckenridge,
Colorado and Summit County which have greater financial and other resources than
the Breckenridge Resort. Some of the Breckenridge Resort's competitors have been
in operation for longer periods than the Breckenridge Resort and have greater
marketing, personnel and other resources than the Breckenridge Resort. The
success of the Breckenridge Resort is dependent on a variety of factors,
including the ability of the managers of the Breckenridge Resort to attract
visitors to the Breckenridge Resort on a year-round basis.
TRADEMARKS
The Company has licensed from its founder, Thomas J. Weaver III, the
exclusive right to use and eventually acquire for nominal consideration the
trademark NASHVILLE COUNTRY CLUB and the related logo design. On July 11, 1995,
the U.S. Patent and Trademark Office ("PTO") issued a Certificate of
Registration for the trademark. The trademark registration is valid for ten
years and may be renewed for an unlimited number of ten-year periods provided
that the Company continues to use the trademark. There can be no assurance,
however, that the trademark does not or will not violate the proprietary rights
of others, that any registration of the trademark or the Company's use thereof
will be upheld if challenged, or that the Company will not be prevented from
using the trademark, any of which could have a material adverse effect on the
Company. AEG has not obtained trademarks relating to its name or logo. AEG
believes that the name and logo have significant value and are important to
AEG's marketing. There can be no assurance, however, that the name or logo used
do not or will not violate the proprietary rights of others, that the name or
logo will be upheld if challenged, or that AEG will not be prevented from using
the name or logo, any of which could have a material adverse effect on the
operations of the Company's Entertainment Division.
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REGULATION AND LICENSES
The Company is subject to federal, state and local laws affecting its
business, including various health, sanitation and safety standards. AEG's and
AWC's entertainment operations are subject to state and local government
regulation, including regulating relating to live music performances. Each live
concert performance must comply with regulations adopted by federal agencies and
with licensing and other regulations enforced by state and local health,
sanitation, safety, fire and other departments. Difficulties or failures in
obtaining the required licenses or approvals can delay and sometimes prevent the
promotion of live concerts. The failure to receive or retain, or delay in
obtaining, a license to serve alcohol and beer in a particular location could
adversely affect the Company's operations in that location and impair the
Company's ability to obtain licenses elsewhere. Restaurants in most states,
including Tennessee and Colorado, are subject to "dram shop" laws and
legislation which impose liability on licensed alcoholic beverage servers for
injuries or damages caused by their negligent service of alcoholic beverages to
a visibly intoxicated person or to a minor, if such service is the proximate
cause of the injury or damage and such injury or damage is reasonably
foreseeable. While the Company maintains liquor liability insurance as part of
its existing comprehensive general liability insurance, which management
believes is adequate to protect against such liability, there can be no
assurance that it will not be subject to a judgment in excess of such insurance
coverage or that it will be able to continue to maintain such insurance coverage
at reasonable costs. The imposition of a judgment substantially in excess of the
Company's insurance coverage would have a material adverse effect on the
Company. The failure or inability of the Company to maintain insurance coverage
could materially and adversely affect the Company. The Americans with
Disabilities Act (the "ADA") prohibits discrimination on the basis of disability
in public accommodations and employment. The Company took into account the
requirements of the ADA in the construction of the Nashville Restaurant;
however, the Company could be required to further modify the restaurant's
physical facilities to comply with the provisions of the ADA.
EMPLOYEES
As of May 31, 1997, the Company had approximately 259 full-time and
part-time employees. As of May 31, 1997, AWC had 43 full-time and part-time
employees. It is the Company's intention to manage its growth consistent with
its ability to attract and retain qualified employees to manage its operations.
The Company believes that its relationship with its employees is good.
PROPERTIES
The Breckenridge Resort consists of the 60-room Village Hotel and the
71-room Breckenridge Mountain Lodge. The Breckenridge Resort's other primary
facilities consist of six restaurants and two taverns including The Village Pub,
a 150-seat restaurant, the Village Pasta Company, a 131-seat restaurant,
Breckenridge Cattle Company, a 134-seat restaurant, Breckenridge Mountain Lodge,
a 126-seat restaurant and bar, Cafe Breckenridge, an 80-seat restaurant, J.T.
Pounders, a 110-seat bar, the Maggie, a 500-seat cafeteria and bar, and Gold
Strike Saloon, an apres-ski bar and function space.
In addition to the hotels and restaurants described above, the Company owns
certain commercial space used in connection with the Breckenridge Resort. The
commercial space consists of approximately 33,000 rentable square feet of
meeting and conference space and 87,000 rentable square feet of retail shopping
space. To serve conventions, the commercial space has one ballroom with
approximately 6,700 square feet located in the "Cinema Building." The
Breckenridge Resort also includes two swimming pools, thirty-four commercial
establishments and a pond known as the "Maggie Pond."
AEG maintains leased office space in Nashville, Tennessee and San Diego,
California. The San Diego office's lease agreement expires in April 1998 and
contains two options for one-year extensions. The San Diego lease currently
provides for a rent of approximately $1,829 per month. AEG's Nashville lease
expires in June 1997 and currently provides for a monthly rental payment of
approximately $4,631.
AWC operates from leased office space in Encino, California and the office
space it shares with AEG in San Diego, California. The Encino office's lease
agreement expires on June 30, 2002 and currently provides for a rent of $13,502
per month. IMA Partners also has entered into a ground lease related to the IMA
which
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expires on February 28, 2017. The ground lease for the amphitheater provides for
lease payments of $58,333.33 per month as minimum rent plus, to the extent they
exceed the minimum rent, the greater of (i) five percent (5%) of gross sales
from amphitheater operations (including ticket sales, parking, and food,
beverage and merchandise sales, or (ii) twenty-five percent (25%) of net cash
flow from all amphitheater operations before debt service or rent. The
amphitheater lease provides for the exclusive use of approximately 27.7 acres
and the shared use of a common area of approximately 46.0 acres with The Splash,
a water theme amusement park.
The Company leases the real property on which the Nashville Restaurant is
located pursuant to a lease agreement that expires in September 2013. The lease
agreement contains an option to purchase the property at a purchase price of
$733,000. The Company currently intends to exercise its option to purchase the
property and is presently evaluating the timing of such purchase. The current
monthly lease payments are approximately $9,750.
The Company's executive offices are located in Hickory Valley, Tennessee in
a building owned by a limited partnership, the general partner of which is a
corporation owned by Thomas J. Weaver III and Frank A. McKinnie Weaver, Sr., an
officer and director of the Company, and of which they also are limited
partners. The limited partnership does not charge the Company rent for its
executive offices.
INSURANCE
The Company, AWC and AEG each maintain general liability and commercial
insurance (including liquor liability insurance) and product liability insurance
to cover customary risks inherent in the operation of their businesses in
general. In addition, AWC and AEG each customarily obtain event-specific
coverage in connection with concerts and events. For events held at the IMA,
third-party promoters are generally required to provide liability insurance for
the benefit of the IMA. While the Company believes it maintains insurance
policies which are adequate in amount and coverage for its current operations,
there can be no assurance coverage will continue to be available in adequate
amounts or at a reasonable cost.
LEGAL PROCEEDINGS
From time to time the Company is involved in litigation, most of which is
incidental to its business. In the Company's opinion, no litigation to which the
Company currently is a party is likely to have a material adverse effect on the
Company's results of operations or financial condition.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the directors
and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Thomas Jackson Weaver III(1)...... 39 Chairman of the Board, Chief Executive Officer
and President
Bryan J. Cusworth................. 37 Chief Financial Officer
Robert E. Geddes.................. 51 Director
Thomas Miserendino................ 47 Director
Prab Nallamilli................... 48 Director
Jeffrey McIntyre(1)............... 47 Director
Mark van Hartesvelt(1)............ 46 Director
Frank Bumstead.................... 54 Director
Charles Flood..................... 52 Director
Louis J. Risi, Jr................. 60 Director
Steven L. Risi(2)(3).............. 41 Director
Jose F. Rosado.................... 49 Director
Frank A. McKinnie Weaver, 36 Director, Secretary
Sr.(2)..........................
Kyle Young(2)(3).................. 43 Director
</TABLE>
- ---------------
(1) Member of Executive Committee of the Board of Directors
(2) Member of Audit Committee of the Board of Directors
(3) Member of Compensation Committee of the Board of Directors
Thomas Jackson Weaver III. Mr. Weaver has served as Chairman of the Board,
President and Chief Executive Officer of the Company since its inception. From
1986 to 1988, Mr. Weaver served as president of Hard Rock International plc, an
English public company whose securities traded on the London Stock Exchange and
the American Stock Exchange. In such capacity, Mr. Weaver oversaw the
development and/or expansion of Hard Rock Cafes in Dallas, Texas; Cancun,
Mexico; London, England; New York, New York; and Boston, Massachusetts; and the
sale of Hard Rock International plc to Pleasurama plc, an unaffiliated English
public company, in September 1988 (references herein to the Hard Rock Cafe and
affiliated entities do not include any company controlled by Peter Morton after
1982). Since 1988 he has been the President of Heritage Trust Company, a
corporation with investments in numerous public and private companies. Mr.
Weaver continues to serve as President of Heritage Trust Company, but devotes
his full-time efforts to the business operations of the Company. Mr. Weaver is
the brother of Frank A. McKinnie Weaver, Sr.
Bryan J. Cusworth. Mr. Cusworth has served as Chief Financial Officer of
the Company since September 1996. Prior to joining the Company, Mr. Cusworth was
employed by Arthur Andersen LLP from July 1982 to September 1996, where he
specialized in the resort, real estate and entertainment industries. Mr.
Cusworth is a certified public accountant.
Robert E. Geddes. Mr. Geddes has served as a director of the Company since
April 1997. Mr. Geddes is a founder and the Chairman of the Board and Chief
Executive Officer of Eric/Chandler, Ltd., managing partner of Irvine Meadows
Amphitheater, and a stockholder, director and executive officer of New Avalon,
Inc. and TBA Media, Inc. For at least five years prior to April 1997, Mr. Geddes
was a director of Avalon Entertainment Group, Inc. In connection with the
closing of the AWC Acquisition, Mr. Geddes will become the President of the
Company.
Thomas Miserendino. Mr. Miserendino has served as a director of the Company
since April 1997. Since 1986, Mr. Miserendino has served as President of
Eric/Chandler, Ltd. Mr. Miserendino is a stockholder,
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<PAGE> 63
director and executive officer of New Avalon, Inc. and TBA Media, Inc. In
connection with the closing of the AWC Acquisition, Mr. Miserendino will become
the Executive Vice President of the Company. Mr. Miserendino is a certified
public accountant.
Prab Nallamilli. Mr. Nallamilli has served as a director and as Director of
Operations of the Company since inception. From 1971 to 1991, Mr. Nallamilli
served in various capacities for Hard Rock International plc and its
predecessors, most recently as Director of World Wide Operations. In that
capacity he was directly responsible for the development of restaurants in
London, England; Paris, France; New York, New York; Acapulco, Mexico; Stockholm,
Sweden; Boston, Massachusetts; Monte Carlo; Orlando, Florida; Tokyo, Japan;
Puerto Vallarta, Mexico; Berlin, Germany; Reykjavik, Iceland; Cancun, Mexico;
Washington, D.C.; and Dallas, Texas. Since 1991, Mr. Nallamilli has owned and
operated restaurants in London and has served as a consultant in the restaurant
industry. Mr. Nallamilli is also a director of Sunrise Diner, Limited. Mr.
Nallamilli is not a full-time employee of the Company.
Jeffrey McIntyre. Mr. McIntyre has served as a director of the Company
since April 1996. He has served as Co-Managing Director of the Breckenridge
Resort since December 1994. From 1988 to 1994, Mr. McIntyre was Senior Vice
President of Operations for Doubletree/Guest Quarters Suite Hotels. Mr. McIntyre
has also served in senior management positions for Radisson Hotel Corporation
and Sheraton Hotel Corporation.
Mark van Hartesvelt. Mr. van Hartesvelt has served as a director of the
Company since April 1996. He has served as Co-Managing Director of the
Breckenridge Resort since December 1994. From 1989 to 1994, Mr. van Hartesvelt
was Senior Vice President of Marketing and Sales for Doubletree/Guest Quarters
Suite Hotels. Mr. van Hartesvelt has also served in senior management positions
in marketing, strategic planning and operations with Pratt Hotels Corporation,
Resorts International, Harrah's Casinos, Holiday Inns, Inc., and Levanthal and
Horwath.
Frank Bumstead. Mr. Bumstead has served as a director of the Company since
its inception. Since 1989, Mr. Bumstead has been President and a principal
shareholder of Flood, Bumstead, McCready & McCarthy, Inc., a business management
firm which represents the financial interests of artists, songwriters and
producers in the music industry ("FBMM, Inc."). Since 1993, he has also served
as Chairman and Chief Executive Officer, and been a principal shareholder, of
FBMS Financial, Inc., a registered investment advisor under the Investment
Company Act of 1940 ("FBMS Financial"). From 1986 to December 1990, Mr. Bumstead
was President of Bumstead Co., a financial consulting company. He is also Vice
Chairman of the Board of Response Oncology Inc., a health care services firm
listed on The Nasdaq National Market, a director of First Union National Bank of
Tennessee, a director of American Retirement Corp., and a director of Veritas
Music Entertainment, Inc.
Charles Flood. Mr. Flood has served as a director of the Company since May
1995. Since 1989, Mr. Flood has been the Chairman of the Board and a principal
shareholder of FBMM, Inc. Since 1993 he has also served as a Director and
Treasurer, and been a principal shareholder, of FBMS Financial. Prior to that
time, Mr. Flood worked at Capitol Records in Nashville as the Director of Artist
Relations and later as Director of Talent Acquisition. Mr. Flood is a director
of Veritas Music Entertainment, Inc.
Louis J. Risi, Jr. Mr. Risi has served as a director of the Company since
April 1996. For more than the past five years, Mr. Risi has served as the
Chairman and Chief Executive Officer of Risi Holdings Group, a private
investment and operating company. Prior to that time, Mr. Risi held various
executive positions, including President, Director and Chairman of the Executive
Committee of Norin Corp., an American Stock Exchange-traded company, Chairman
and Chief Executive Officer of National Investors Fire and Casualty Company,
Executive Vice-President and Director of the Detroit Red Wings Hockey Club,
Inc., member of the Board of Governors of the National Hockey League, Member of
the Advisory Counsel of the American Stock Exchange, Director of the Chicago
Rock Island and Pacific Railroad, Director of Midland National Bank, Executive
Vice President and Director of Ivan Tors Films, Inc., Director of Upper Lakes
Shipping, Ltd., Director of Maple Leaf Mills, Ltd., Director of Investors Equity
Life Insurance Company of Hawaii, Director of Corporate Foods, Inc. and Director
of Southeast Airlines, Inc. Mr. Risi is a director of
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<PAGE> 64
Bankmanagers Corp., a bank holding company in Milwaukee, Wisconsin. Mr. Risi is
the father of Steven L. Risi.
Steven L. Risi. Mr. Risi has served as a director of the Company since
April 1996. Mr. Risi has served as the Chief Financial Officer of Risi Holdings
Group since 1989. He has also served as trustee and personal adviser to the
beneficiary of the Bruce A. Norris Trust, Wendy G. Norris, since 1988. Mr. Risi
is a director of Community Bank of Homestead, Florida. Mr. Risi is a certified
public accountant. Mr. Risi is the son of Louis J. Risi, Jr.
Jose F. Rosado. Mr. Rosado has served as a director of the Company since
April 1996. For more than the past five years, Mr. Rosado has served as the
Chief Executive Officer of IBEX Institutional Advisors ("IBEX"), a real estate
investment and management firm serving the domestic pension fund industry and
corporate and individual offshore investors. In 1976, Mr. Rosado helped to
organize Florida Atlantic Investments, Inc., a real estate investment fund
which, together with the Trust Department of Chemical Bank and various offshore
investment groups, acquired distressed real estate from the REIT industry. From
1978 to 1982, Mr. Rosado served as President of Shearson Properties
International, a division of Shearson Hayden Stone engaged in real estate
investments for Shearson's offshore investors. In 1982, when American Express
acquired Shearson Hayden Stone, Mr. Rosado formed Interholden Equities and
subsequently IBEX to continue his investment and advisory activities in the real
estate industry.
Frank A. McKinnie Weaver, Sr. Mr. Weaver has served as a director of the
Company since inception. Since 1994, Mr. Weaver has served as Vice President,
Private Banking, for the National Bank of Commerce ("NBC") in Memphis,
Tennessee. NBC is a wholly owned subsidiary of National Commerce Bancorporation.
Prior to joining NBC, Mr. Weaver served as Vice President and Director of
Whiteville Bank from 1991 to 1994. Mr. Weaver also is a director of Heritage
Trust Company, Heritage Farms of Hickory Valley, Inc., and a member of the Board
of Regents of the Mid-South School of Banking. Mr. Weaver is the brother of
Thomas J. Weaver III.
Kyle Young. Mr. Young has served as a director of the Company since March
1996. Since 1985, Mr. Young has been the Deputy Director of the Country Music
Foundation (the "CMF"). From 1975 to 1985, Mr. Young was employed by the CMF in
various other capacities, including involvement in the development and licensing
of television shows, radio programs and music festivals produced by the CMF. Mr.
Young is actively involved in the Country Music Association, the National
Academy of the Recording Arts and Sciences, the National Association of
Independent Record Distributors, the Nashville Entertainment Association, the
Inter-Museum Council of Nashville, the Nashville Institute for the Arts and
Vanderbilt University Press.
All directors hold office for terms of one year and until the next annual
meeting of shareholders scheduled to vote on the election and qualification of
their respective successors. Executive officers are elected by the Board of
Directors and, subject to existing employment agreements, serve at the
discretion of the Board of Directors.
EXECUTIVE COMPENSATION
Thomas J. Weaver III, the Company's Chairman of the Board, President and
Chief Executive Officer, was the only executive officer of the Company who
received annual salary and bonus in excess of $100,000 for the three years ended
December 31, 1996 (the "Named Executive Officer"). Mr. Weaver received salaries
of $88,942, $125,000 and $62,500, respectively, for the years 1994, 1995 and
1996. Mr. Weaver did not receive a bonus during any of those years. The Company
has an employment agreement with Mr. Weaver. See "-- Employment and Consulting
Agreements."
EMPLOYMENT AND CONSULTING AGREEMENTS
The Company has entered into an employment agreement with Thomas J. Weaver
III for a term of five years, commencing January 1, 1994. The agreement provides
for an annual base salary of $125,000 and an annual bonus as determined by the
Board of Directors based on the operating results of the Company. The
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<PAGE> 65
agreement is automatically renewed on each anniversary date for an additional
five-year term unless it is terminated by either party prior to the anniversary
date. The agreement provides that Mr. Weaver is entitled to payment for the
unexpired portion of the current term in the event his employment is terminated
without cause by the Company. Under the agreement, cause is defined to include
failure to perform the duties of his office, breach of fiduciary duty to the
Company and willful violation of the confidentiality or non-competition
provisions of the agreement.
The Company has entered into an employment agreement commencing January 1,
1994 with Prab Nallamilli for a term of five years. The agreement provides for
an annual base salary of $35,000. Mr. Nallamilli also will participate in any
stock option plan adopted by the Company.
The Company has entered into employment agreements with Jeff McIntyre and
Mark van Hartesvelt providing for the employment of Messrs. McIntyre and van
Hartesvelt for five year terms commencing April 29, 1996. The agreements provide
for annual base salaries of $125,000 and annual incentive bonuses based upon the
operating results of the Breckenridge Resort.
AEG has entered into employment agreements with Marc Oswald and Greg Janese
providing for the employment of Messrs. Oswald and Janese for terms commencing
on April 21, 1997 and ending December 31, 2002. The agreements provide for
annual base salaries of $150,000, with cost of living increases as determined by
the Board of Directors of the Company, and, for each calendar year after 1996,
annual incentive compensation based on AEG's operating results.
AEG has entered into consulting agreements with Robert E. Geddes and Thomas
Miserendino providing for consulting services to AEG for terms commencing on
April 21, 1997 and ending December 31, 2002. The agreements provide for annual
base compensation of $100,000 for Mr. Geddes and $50,000 for Mr. Miserendino,
with cost of living increases as determined by the Board of Directors of the
Company, and, for each calendar year after 1996, annual incentive compensation
based on AEG's operating results. The Company anticipates entering into
employment agreements with Messrs. Geddes and Miserendino in replacement of
their consulting agreements with AEG in connection with the AWC Acquisition.
STOCK OPTION PLANS
On August 14, 1995, the Board of Directors approved the issuance, pursuant
to the Nashville Country Club, Inc. 1995 Stock Option Plan (the "1995 Employee
Plan"), of options (the "1995 Options") to six employees of the Company to
purchase a total of 50,000 shares of Common Stock at a price of $5.50 per share.
The 1995 Options are intended to qualify as incentive stock options under the
Internal Revenue Code and vest and become exercisable in four equal installments
on August 14, 1996 and each anniversary date thereof.
On April 20, 1997, the Board of Directors approved the Nashville Country
Club, Inc. 1997 Stock Option Plan (the "1997 Employee Plan") and the issuance
thereunder of options to purchase an aggregate of 300,000 shares of Common
Stock, including the issuance to Mr. Weaver of options (the "1997 Options") to
purchase up to 250,000 shares of Common Stock at a price of $5.40 per share. The
1997 Options are intended to qualify as incentive stock options under the
Internal Revenue Code and are immediately exercisable.
DIRECTOR COMPENSATION
Directors who are officers or employees of the Company receive no
compensation, as such, for serving as members of the Board. Directors who are
not officers or employees of the Company receive $100 per meeting attended, and
all directors are reimbursed for their out-of-pocket expenses incurred in
attending Board and committee meetings.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Tennessee Business Corporation Act ("TBCA") provides that a corporation
may indemnify any of its directors and officers against liability incurred in
connection with a proceeding if (i) such person acted in good faith; (ii) in the
case of conduct in an official capacity, the director or officer reasonably
believed such
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conduct was in the corporation's best interests; (iii) in all other cases, the
director or officer reasonably believed that his conduct was not opposed to the
best interests of the corporation; and (iv) in connection with any criminal
proceeding, the director or officer has no reasonable cause to believe his
conduct was unlawful. In actions brought by or in the right of the corporation,
however, the TBCA provides that no indemnification may be made if the director
or officer was adjudged liable to the corporation. The TBCA also provides that
in connection with any proceeding charging improper personal benefit to an
officer or director, no indemnification may be made if such officer or director
is adjudged liable on the basis that such personal benefit was improperly
received. In cases where the director or officer is wholly successful, on the
merits or otherwise, in the defense of any proceeding instigated because of his
or her status as an officer or director of a corporation, the TBCA mandates that
the corporation indemnify the director or officer against reasonable expenses
incurred in the proceeding. Notwithstanding the foregoing, the TBCA provides
that a court of competent jurisdiction, upon application, may order that an
officer or director be indemnified for reasonable expenses if, in consideration
of all relevant circumstances, the court determines that such individual is
fairly and reasonably entitled to indemnification, notwithstanding the fact that
(i) he was adjudged liable to the corporation in a proceeding by or in right of
the corporation; (ii) he was adjudged liable on the basis that personal benefit
was improperly received by him; or (iii) he breached his duty of care to the
corporation.
The Company's Charter provides that to the fullest extent permitted by
Tennessee law no director shall be personally liable to the Company or its
shareholders for monetary damages for breach of any fiduciary duty as a
director. Under the TBCA, this Charter provision relieves the Company's
directors from personal liability to the Company or its shareholders for
monetary damages for breach of fiduciary duty as a director, except for
liability arising from a judgment or other final adjudication establishing (i)
any breach of the director's duty of loyalty; (ii) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law; or
(iii) any unlawful distributions. In addition, the Company's Bylaws provide that
each director and officer of the Company shall be indemnified by the Company to
the fullest extent allowed by Tennessee law, and the Company has entered into
indemnification agreements with each of the Company's directors and executive
officers.
Insofar as indemnification for liabilities arising under the TBCA may be
permitted to directors, officers and controlling persons of the Company pursuant
to the foregoing provisions, or otherwise, the Company has been advised that in
the opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Board of Directors has adopted a policy which provides that any
transaction between the Company and any of its officers, directors or 5%
shareholders, or affiliates thereof, must be on terms no less favorable than
those which could be obtained from unaffiliated parties and must be approved by
a majority of the disinterested members of the Company's Board of Directors.
The Company will not make loans to officers, directors or affiliates of the
Company other than advances for travel, business expense, relocation and similar
operating expenditures, and other loans for specific purposes directly related
to the ordinary course of the Company's business; provided, that these loans
will be approved by a majority of the members of the Company's Board of
Directors, including a majority of the disinterested members of the Board of
Directors.
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PRINCIPAL SHAREHOLDERS
The following table sets forth as of June 15, 1997 certain information with
respect to the beneficial ownership of the Common Stock and Series A Preferred
Stock by (i) each person who is known by the Company to be the beneficial owner
of more than 5% of the outstanding shares of Common Stock and Series A Preferred
Stock of the Company, (ii) each of the Company's directors, (iii) the Named
Executive Officer and (iv) all directors and executive officers of the Company
as a group. Unless otherwise indicated, each of the shareholders listed below
has sole voting and investment power with respect to the shares of Common Stock
beneficially owned.
<TABLE>
<CAPTION>
PERCENT OF TOTAL
-------------------------------
NUMBER OF SHARES COMMON
BENEFICIALLY OWNED STOCK
----------------------- ------------------- SERIES A
SERIES A BEFORE AFTER PREFERRED
NAME AND ADDRESS(1) COMMON PREFERRED OFFERING OFFERING STOCK
------------------- --------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Thomas Jackson Weaver III.......... 1,030,000(2) 152,839 18.2% 13.1% 45.7%
Bryan Cusworth..................... 0 0 0 0 0
Prab Nallamilli.................... 0 238 0 0 *
Frank Bumstead..................... 0 36,099(3) 0 0 10.8
Charles Flood...................... 0 36,099(3) 0 0 10.8
Jeffrey McIntyre................... 18,233 0 * * 0
Louis Risi, Jr..................... 139,322(4) 0 2.6% 1.8 0
Steven L. Risi..................... 20,684(4) 0 * * 0
Jose F. Rosado..................... 222,094(4) 0 4.1% 2.9 0
Mark van Hartesvelt................ 18,233 0 * * 0
Frank A. McKinnie Weaver, Sr....... 0 54,000 0 0 16.2
Kyle Young......................... 0 0 0 0 0
Robert E. Geddes................... 165,342 0 3.1% 2.2 0
Thomas Miserendino................. 40,492 0 * * 0
All executive officers and
directors as a group (14
persons)......................... 1,654,400 268,135 29.1% 20.9% 80.2%
</TABLE>
- ---------------
* Less than 1%.
(1) The address for Messrs. Weaver, Nallamilli and Weaver is 402 Heritage
Plantation Way, Hickory Valley, Tennessee 38042, the address for Messrs.
Bumstead and Flood is 1700 Hayes Street, Suite 304, Nashville, Tennessee
37203, the address for Mr. Young is 4 Music Square East, Nashville,
Tennessee 37203, the address for Messrs. McIntyre, van Hartesvelt and
Cusworth is 535 South Park, Breckenridge, Colorado 80424, the address for
Messrs. Risi, Rosado and Risi is 2333 Ponce de Leon Blvd., Suite 650, Coral
Gables, Florida 33134, and the address for Messrs. Geddes and Miserendino is
17835 Ventura Blvd., Suite 300, Encino, California 91316.
(2) Includes 250,000 shares issuable upon the exercise of the 1997 Options.
(3) Includes 11,140 shares held by a corporation over which Mr. Bumstead and Mr.
Flood share voting and investment power.
(4) Includes 10,000 shares issuable upon the exercise of outstanding stock
options.
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DESCRIPTION OF SECURITIES
AUTHORIZED SHARES
The authorized capital stock of the Company consists of 20,000,000 shares
of Common Stock and 1,000,000 shares of preferred stock, no par value.
COMMON STOCK
As of the date of this Prospectus, there were 5,400,275 shares of Common
Stock outstanding and held of record by approximately 90 shareholders. There
will be 7,622,497 shares of Common Stock outstanding after giving effect to the
sale of shares of Common Stock offered hereby. All outstanding shares are, and
all shares to be outstanding after completion of this offering will be, validly
issued, fully paid and nonassessable.
Holders of shares of Common Stock are entitled to one vote per share on all
matters to be voted upon by the shareholders and are not entitled to cumulative
voting. Holders of shares of Common Stock are entitled to receive dividends and
other distributions when, as and if declared from time to time by the Board of
Directors out of funds legally available therefor subject to any preferential
rights of, and sinking fund or redemption or purchase rights with respect to,
outstanding shares of preferred stock. In the event of a voluntary or
involuntary liquidation, dissolution or winding up of the Company, the holders
of shares of Common Stock would be entitled to share ratably in all assets
remaining after payment of liabilities, subject to prior distribution rights of
any shares of preferred stock then outstanding. Holders of shares of Common
Stock have no preemptive or conversion rights and the shares of Common Stock are
not subject to further calls or assessment by the Company. There are no
redemption or sinking fund provisions applicable to the shares of Common Stock.
REDEEMABLE WARRANTS
General. In April and May 1996, the Company issued 1,351,455 Units (the
"Units"), each Unit consisting of two shares of Common Stock and one redeemable
Common Stock purchase warrant (the "Redeemable Warrants"). Each Redeemable
Warrant entitles the holder to purchase one share of Common Stock at an exercise
price of $6.25 per share, subject to adjustment upon the occurrence of certain
events as provided in the Redeemable Warrant certificate and summarized below
(such price as adjusted from time to time is called the "Exercise Price").
Unless previously redeemed, the Redeemable Warrants may be exercised at any time
during the period commencing on April 23, 1996 and ending on April 23, 2001
(such date being called the "Expiration Date"). The Redeemable Warrants not
previously exercised will expire on the Expiration Date. A holder of a
Redeemable Warrant will not be deemed to be a holder of the underlying Common
Stock for any purpose whatsoever until the Redeemable Warrant has been properly
exercised.
Separate Transferability. The Redeemable Warrants are detachable and
separately transferable.
Redemption. The Company currently has the right to redeem all, or less than
all, of the Redeemable Warrants at a redemption price of $.05 per Redeemable
Warrant after providing 30 days' prior written notice to the Redeemable Warrant
holders, if the average closing bid price of the Common Stock equals or exceeds
$10.00 per share for a minimum of 20 consecutive trading days ending within 15
days prior to the date of the notice of redemption. The written notice of
redemption will be sent by first class mail to the holders of Redeemable
Warrants at their last known addresses appearing on the registration records
maintained by the Company's transfer agent. No other form of notice or
publication or otherwise will be required. If the Redeemable Warrants are called
for redemption they must be exercised prior to the close of business on the
business day next preceding the specified redemption date (the "Redemption
Date") or the right to exercise will lapse.
Exercise. A Redeemable Warrant holder may exercise Redeemable Warrants only
if an appropriate registration statement is then in effect with the Commission
and if the shares of Common Stock underlying the Redeemable Warrants are
qualified for sale under the securities laws of the state in which the holder
resides. The Company has agreed to use its best efforts to maintain a current
registration statement while the
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Redeemable Warrants are exercisable and to maintain current qualifications for
sale of the shares of Common Stock underlying the Redeemable Warrants under the
securities laws of those states in which the Units were initially qualified for
sale. Redeemable Warrants may be deprived of value if a current registration
statement covering the Common Stock issuable upon exercise of the Redeemable
Warrants is not maintained or if the Common Stock is not qualified for sale in
the state in which a Redeemable Warrant holder resides.
The Redeemable Warrants may be exercised by delivery to the Company's
transfer agent of the applicable Redeemable Warrant certificate on or prior to
the Expiration Date or the Redemption Date, as applicable, with the form on the
reverse side of the certificate executed as indicated, accompanied by payment of
the full Exercise Price for the number of Redeemable Warrants being exercised.
Fractional shares of Common Stock will not be issued upon exercise of the
Redeemable Warrants.
Adjustments of Exercise Price. The Exercise Price is subject to adjustment
if the Company (i) declares any stock dividend to shareholders, excluding any
cash dividends paid out of retained earnings of the Company or (ii) effects any
split or share combination with respect to its Common Stock. Therefore, if the
Company effects any stock split or stock combination with respect to its Common
Stock, the exercise price in effect immediately prior to such stock split or
combination will be proportionately reduced or increased, as the case may be.
Any adjustment of the Exercise Price will also result in an adjustment of the
number of shares purchasable upon exercise of a Redeemable Warrant or, if the
Company so elects, an adjustment of the number of Redeemable Warrants
outstanding.
Transfer Agent. The Company has appointed American Stock Transfer & Trust
Company as transfer agent for its Redeemable Warrants.
OTHER OUTSTANDING WARRANTS
Yee Desmond Warrant. In connection with the Company's initial public
offering in February 1994, the Company issued the Yee Desmond Warrant to
purchase up to 60,000 shares of Common Stock at an exercise price of $6.00 per
share at any time prior to February 1999.
The Yee Desmond Warrant may not be transferred except to successors in
interest to Yee Desmond, officers of Yee Desmond and members of the selling
group of the Company's initial public offering and officers and partners
thereof. During the exercise term of the Yee Desmond Warrant, the holders of the
Yee Desmond Warrant are given, at a nominal cost, the opportunity to profit from
a rise in the market price of the Common Stock. To the extent that the warrant
is exercised, dilution of the interests of the Company's shareholders will
occur. Further, the terms upon which the Company will be able to obtain
additional equity capital may be adversely affected since the holders of the Yee
Desmond Warrant can be expected to exercise it at a time when the Company would,
in all likelihood, be able to obtain any needed capital on terms more favorable
to the Company than those provided in the Yee Desmond Warrant. The Company has
agreed that, upon demand by the holder(s) of at least 50% of the Yee Desmond
Warrant, made on no more than one occasion during the exercise term of the Yee
Desmond Warrant, the Company will register the Yee Desmond Warrant and/or the
Common Stock issuable upon exercise thereof.
The Yee Desmond Warrant does not entitle the holder to any rights as a
shareholder of the Company until it is exercised and shares are purchased
thereunder.
1996 Warrants. In connection with the Company's public offering in April
1996, the Company issued the 1996 Warrants to purchase up to 120,000 Units,
exercisable over a period of four years commencing on April 23, 1997. The
exercise price of the 1996 Warrants is $15.50 per Unit, and the exercise price
of the Redeemable Warrants included in the Units subject to the 1996 Warrants is
$7.75 per share. The 1996 Warrants are not transferable prior to their exercise
date except to officers of H.J. Meyers and members of the selling group for the
Company's offering in April 1996 and officers and partners thereof.
The 1996 Warrants contain anti-dilution provisions providing for adjustment
in the event of any stock dividend, stock split, recapitalization,
reclassification or similar transaction. The 1996 Warrants do not entitle the
holders thereof to any rights as a shareholder of the Company until such warrant
is exercised and Units are purchased thereunder.
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<PAGE> 70
The 1996 Warrants and the securities thereunder may not be offered for sale
except in compliance with the applicable provisions of the Act. The Company has
agreed that, upon written request by a holder or holders of 50% or more of the
1996 Warrants which is made during the exercise period of the 1996 Warrants, the
Company will, on two separate occasions, register the 1996 Warrants and any of
the securities issuable upon exercise thereof. The initial such registration
will be at the Company's expense and the second such registration will be at the
expense of the holder(s) of the 1996 Warrants.
Other Warrants. In connection with the extension of certain loans relating
to the Breckenridge Resort, the Company issued warrants to seven individuals and
entities, granting to such persons the right to purchase up to an aggregate of
12,500 shares of Common Stock at an exercise price of $6.00 per share. Such
warrants may be exercised during the four-year period commencing February 24,
1995. The Company has agreed to register the shares of Common Stock issuable
upon the exercise of such warrants for resale from time to time by the holders
thereof. These warrants will not entitle the holders to any rights as a
shareholder of the Company until they are exercised and shares are purchased
thereunder.
PREFERRED STOCK
The Company is authorized to issue 1,000,000 shares of preferred stock. The
Company has designated 557,143 shares of the authorized preferred stock as
Series A Preferred Stock, of which 334,285 shares are issued and outstanding.
Holders of shares of Series A Preferred Stock are not entitled to vote, except
as required by applicable law. Each share of Series A Preferred Stock is
convertible into one share of Common Stock (i) at the option of the holder if
during the five-year period following the issuance of the Series A Preferred
Stock the Company has earned after tax net income for any fiscal year of at
least $500,000, based on generally accepted accounting principles and (ii)
automatically in the event that 80% or more of the Common Stock is acquired by
an entity or individual not previously affiliated with the Company if the Common
Stock has traded at an average bid price per share of $7.50 or more during the
preceding 90 business days or if the acquisition price per share for the Common
Stock is $7.50 or more. The Series A Preferred Stock has a liquidation
preference to the Common Stock equal to $0.03 per share. The Series A Preferred
Stock does not have any preference in the payment of dividends and is entitled
to participate equally in all dividends on a share-for-share basis with the
Common Stock. The outstanding shares of Series A Preferred Stock are validly
issued, fully paid and nonassessable. The Company has agreed that it will not
issue any additional shares of preferred stock without the consent of H.J.
Meyers. The Company is seeking the consents of the holders of shares of Series A
Preferred Stock to the conversion of such shares into shares of Common Stock on
a one-for-one basis.
TENNESSEE BUSINESS COMBINATION ACT
The Tennessee Business Combination Act (the "TBCA") provides, among other
things, that any corporation to which the TBCA applies, including the Company,
shall not engage in any "business combination" with an "interested shareholder"
for a period of five years following the date that such shareholder became an
interested shareholder unless prior to such date the board of directors of the
corporation approved either the business combination or the transaction which
resulted in the shareholder becoming an interested shareholder.
The TBCA defines "business combination" generally to mean any: (i) merger
or consolidation; (ii) share exchange; (iii) sale, lease, exchange, pledge,
mortgage or other transfer (in one transaction or a series of transactions) of
assets representing 10% or more of (A) the market value of consolidated assets,
(B) the market value of the corporation's outstanding shares or (C) the
corporation's consolidated net income; (iv) issuance or transfer of shares from
the corporation to the interested shareholder; (v) plan of liquidation; (vi)
transaction in which the interested shareholder's proportionate share of the
outstanding shares of any class of securities is increased; or (vii) financing
arrangements pursuant to which the interested shareholder, directly or
indirectly, receives a benefit except proportionately as a shareholder.
The TBCA defines "interested shareholder" generally to mean any person who
is the beneficial owner, either directly or indirectly, of 10% or more of any
class or series of the outstanding voting stock, or any
69
<PAGE> 71
affiliate or associate of the corporation who has been the beneficial owner,
either directly or indirectly, of 10% or more of the voting power of any class
or series of the corporation's stock at any time within the five-year period
preceding the date in question. Consummation of a business combination that is
subject to the five-year moratorium is permitted after such period if the
transaction (i) complies with all applicable charter and bylaw requirements and
applicable Tennessee law and (ii) is approved by at least two-thirds of the
outstanding voting stock not beneficially owned by the interested shareholder,
or when the transaction meets certain fair price criteria. The fair price
criteria include, among others, the requirement that the per share consideration
received in any such business combination by each of the shareholders is equal
to the highest of (i) the highest per share price paid by the interested
shareholder during the preceding five-year period for shares of the same class
or series plus interest thereon from such date at a treasury bill rate less the
aggregate amount of any cash dividends paid and the market value of any
dividends paid other than in cash since such earliest date, up to the amount of
such interest, (ii) the highest preferential amount, if any, such class or
series is entitled to receive on liquidation or (iii) the market value of the
shares on either the date the business combination is announced or the date when
the interested shareholder reaches the 10% threshold, whichever is higher, plus
interest thereon less dividends as noted above.
The Tennessee Greenmail Act prohibits the Company from purchasing or
agreeing to purchase any of its equity securities, at a price in excess of fair
market value, from a holder of 3% or more of such securities who has
beneficially owned such securities for less than two years, unless such purchase
has been approved by the affirmative vote of a majority of the outstanding
shares of each class of voting stock issued by the Company or the Company makes
an offer, of at least equal value per share, to all holders of shares of such
class.
The effect of these provisions of Tennessee law may be to render more
difficult a change of control of the Company.
On June 18, 1997, the Company's Board of Directors approved the
reincorporation of the Company in Delaware.
REGISTRAR AND TRANSFER AGENT
The registrar and transfer agent for the Company's Common Stock is American
Stock Transfer & Trust Company.
70
<PAGE> 72
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 7,622,497 shares of
Common Stock outstanding. In addition, the Company will have outstanding options
to purchase up to 330,000 shares of Common Stock and warrants to purchase up to
shares of Common Stock. Of these shares of Common Stock, 3,810,435
shares (plus the 2,222,222 shares sold in the offering) will be freely tradeable
without restriction or further registration under the Act, except for shares
purchased by "affiliates" of the Company which will be subject to the resale
limitations of Rule 144 under the Act. As defined in Rule 144, an affiliate of
an issuer is a person who directly, or indirectly through one or more
intermediaries, controls, is controlled by or is under common control with, such
issuer, and generally includes members of the Board of Directors and senior
management.
The remaining shares (the "Restricted Shares") will be deemed
"restricted securities" under Rule 144 in that they will have been originally
issued and sold by the Company in private transactions in reliance upon an
exemption from registration under the Act. of the Restricted Shares
are subject to lock-up agreements with H.J. Meyers which restrict their resale
prior to April 23, 1998 without the prior written consent of H.J. Meyers. After
such date, these shares will be eligible for resale in accordance with the
provisions of Rule 144 or pursuant to a registration statement filed pursuant to
the Securities Act. However, in connection with the Company's initial public
offering in February 1994, of these shares are currently being held in
escrow for periods ranging from 15 months to four years from February 24, 1994
as a condition of the offering therein. of the Restricted Shares are
subject to a registration rights agreement between the holders thereof and the
Company granting to such holders certain rights to have their shares of Common
Stock registered by the Company for resale from time to time after April 23,
1997.
The directors and certain officers of the Company have agreed not to offer,
sell, contract to sell, grant any option or other right for the sale of, or
otherwise dispose of any shares of Common Stock or any securities, indebtedness
or otherwise exercisable for or convertible or exchangeable into Common Stock
owned or acquired in the future in any manner prior to the expiration of
days after the date of this Prospectus without the prior written consent of the
Placement Agent.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) is entitled to sell within any three month period
Restricted Shares that were acquired from the Company or an "affiliate" of the
Company not less than one year before the sale, in an amount that does not
exceed the greater of 1% of the then outstanding shares of Common Stock (
shares based on the number of shares to be outstanding after the
offering) or the average weekly trading volume in the public market during the
four calendar weeks preceding such sale. Sales under Rule 144 are also subject
to certain requirements as to the manner and notice of sale and the availability
of public information concerning the Company. A person (or persons whose shares
are aggregated) who is not an "affiliate" of the Company at the time of sale and
has not been such an "affiliate" at any time during the three months preceding
such sale, and whose Restricted Shares were acquired from the Company or an
affiliate of the Company at least two years before the sale would be entitled to
sell such shares under Rule 144 without regard to the volume limitations,
manner-of-sale provisions, notice or public information requirements described
above. Rule 144A under the Securities Act permits the immediate sale by the
current holders of Restricted Shares of all or a portion of their shares to
certain qualified institutional buyers as defined in Rule 144A.
In 1995, the Company issued options to certain employees under the 1995
Employee Plan to purchase up to 50,000 shares of Common Stock. The 1995 Options
are subject to a vesting schedule that provides for vesting in four equal
installments on each of August 14, 1996, August 14, 1997, August 14, 1998 and
August 14, 1999. In April 1997, the Company issued options to Mr. Weaver under
the 1997 Employee Plan to purchase up to 250,000 shares of Common Stock. The
Company intends to file a Registration Statement on Form S-8 covering all shares
of Common Stock issuable under the 1995 Employee Plan and the 1997 Employee
Plan. Accordingly, any shares issued upon exercise of outstanding options will
be eligible for sale in the public market after the effective date of such
Registration Statement.
In 1996, in connection with the Breckenridge Resort Acquisition, the
Company agreed to issue options to certain directors to purchase up to an
aggregate of 30,000 shares of Common Stock. The Company intends to
71
<PAGE> 73
file a registration statement covering all shares of Common Stock issuable under
these options. Accordingly, any shares issued upon exercise of such options will
be eligible for sale in the public market after the effective date of such
registration statement.
No prediction can be made as to the effect, if any, that market sales of
shares or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of substantial amounts of
shares in the public market could adversely affect market prices of the shares
and make it more difficult for the Company to sell equity securities in the
future at a time and price which it deems appropriate.
PLAN OF DISTRIBUTION
The Common Stock is being offered for sale by the Company on a best
efforts, all or nothing, basis to selected investors. Rauscher Pierce Refsnes,
Inc., the Placement Agent, has been retained pursuant to a placement agency
agreement to act as the exclusive agent for the Company in connection with the
arrangement of offers and sales of the Common Stock on a best efforts basis.
The Placement Agent is not obligated to and does not intend to itself take
(or purchase) any of the shares of Common Stock. It is anticipated that the
Placement Agent will obtain indications of interest from potential investors for
the amount of the offering and that effectiveness of the Registration Statement
will not be requested until indications of interest have been received for the
amount of the offering. No investor funds will be accepted until indications of
interest have been received for the amount of the offering and no investor funds
will be accepted prior to effectiveness of the Registration Statement.
Confirmations and definitive prospectuses will be distributed to all investors
at the time of pricing, informing investors of the closing date, which will be
scheduled for three business days after pricing. After the Registration
Statement is declared effective and prior to the closing date, all investor
funds will promptly be placed in escrow with Citibank, N.A., as Escrow Agent, in
an escrow account established for the benefit of the investors. The Escrow Agent
will invest such funds in accordance with Rule 15c2-4 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Prior to the
closing date, the Escrow Agent will advise the Company that payment for the
purchase of the shares of Common Stock offered hereby has been affirmed by the
investors and that the investors have deposited the requisite funds in the
escrow account at the Escrow Agent. Upon receipt of such notice, the Company
will deposit with DTC the shares of Common Stock to be credited to the
respective accounts of the investors. Investor funds, together with interest
thereon, if any, will be collected by the Company through the facilities of the
Escrow Agent on the scheduled closing date. The offering will not continue after
the closing date. In the event that investor funds are not received in the full
amount necessary to satisfy the requirements of the offering, all funds
deposited in the escrow account will be returned promptly. The Company has
agreed (i) to pay to the Placement Agent the greater of (a) 6% of the gross
proceeds of this offering and (b) $450,000 as the selling commission, (ii) to
indemnify the Placement Agent against certain liabilities, including liabilities
under the Act, and (iii) to reimburse the Placement Agent for certain expenses
incurred by it in connection with the offering.
Additionally, the Company has agreed, for a price of $100.00, to grant to
the Placement Agent, pursuant to an agreement (the "Placement Agent Warrant
Agreement") by and between the Company and the Placement Agent, warrants (the
"Placement Agent's Warrant") to purchase up to 5% of the number of shares sold
in this offering exercisable for a period of four years, commencing 12 months
after the date of this offering, at an exercise price of 120% of the public
offering price of the shares, subject to certain adjustments. The following
discussion of the material terms of the Placement Agent Warrant Agreement is
qualified in its entirety by reference to the detailed provisions of the
Placement Agent Warrant Agreement, the form of which has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part. The
Placement Agent's Warrant will contain antidilution provisions in the event of
any recapitalization, split-ups of shares or certain stock dividends, as well as
certain registration rights. The Placement Agent's Warrant will also contain
provisions for a "cashless exercise." The Placement Agent's Warrant may not be
transferred, sold, assigned or hypothecated, in part or in whole (other than by
will or pursuant to the laws of descent and distribution) except to officers of
the Placement Agent. The Company has agreed, with certain limitations, that if,
at any time within the period commencing two years and ending five years after
the effective date, it
72
<PAGE> 74
should file a registration statement under the Act, the Company, at its own
expense (other than seller's commissions and expenses of seller's counsel or
others hired by seller), will offer to said holder(s) the opportunity to
register or qualify the shares underlying the Placement Agent's Warrant.
For the life of the Placement Agent's Warrant, the holders thereof are
given the opportunity to profit from a rise in the market price of the Common
Stock which may result in a dilution of the interest of the shareholders. The
Company may find it more difficult to raise additional equity capital if it
should be needed for the business of the Company while the Placement Agent's
Warrant is outstanding. At any time when the holders thereof might be expected
to exercise them, the Company would probably be able to obtain additional equity
capital on terms more favorable than those provided by the Placement Agent's
Warrant. Any profit realized on the sale of the securities issuable upon the
exercise of the Placement Agent's Warrant may be deemed additional underwriting
compensation.
The Company has also agreed that, during the period ending three years
after the closing of this offering, the Placement Agent shall have a right of
first refusal to act as lead manager or agent in connection with any proposed
offering of securities by the Company or by any affiliates of the Company. If
the Placement Agent agrees to render its assistance for any such transaction, it
shall be for fees and expenses competitive with those which would likely be
charged by comparable investment banking firms. The Company has agreed not to
issue, and certain officers and directors of the Company have agreed that they
will not, directly or indirectly, offer, sell or otherwise dispose of any shares
of Common Stock or any securities convertible into or exercisable for, or any
rights to purchase or acquire, Common Stock for a period of 180 days from the
date of this Prospectus, without the prior written consent of the Placement
Agent. See "Shares Eligible for Future Sale."
LEGAL MATTERS
Certain legal matters with respect to the validity of the Common Stock
offered hereby will be passed upon for the Company by Winstead Sechrest & Minick
P.C., Dallas, Texas. Certain legal matters in connection with this offering will
be passed upon for the Placement Agent by Stroock & Stroock & Lavan LLP, New
York, New York.
EXPERTS
The consolidated financial statements of Nashville Country Club, Inc. and
subsidiaries at December 31, 1996 and for each of the two years in the period
ended December 31, 1996, appearing in this Prospectus and in the Registration
Statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
report.
The financial statements of Avalon Entertainment Group, Inc. at December
31, 1996 and for each of the two years in the period ended December 31, 1996,
appearing in this Prospectus and in the Registration Statement have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
The combined financial statements of Avalon West Coast as of December 31,
1996 and for each of the two years in the period ended December 31, 1996,
appearing in this Prospectus and in the Registration Statement have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
The financial statements of Irvine Meadows Amphitheater at December 31,
1996 and for each of the two years in the period ended December 31, 1996,
appearing in this prospectus and in the Registration Statement have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
report with
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<PAGE> 75
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said reports.
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form SB-2, including
amendments thereto, relating to the shares of Common Stock offered hereby with
the Commission. This Prospectus, which is part of the Registration Statement,
does not contain all of the information included in the Registration Statement
and the exhibits and schedules thereto. For further information with respect to
the Company and the shares of Common Stock offered hereby, reference is made to
the Registration Statement, including the exhibits and schedules thereto.
Statements contained in this Prospectus concerning the provisions or contents of
any contract, agreement or any other document referred to herein are not
necessarily complete. With respect to each such contract, agreement or document
filed as an exhibit to the Registration Statement, reference is made to such
exhibit for a more complete description of the matters involved.
The Company is subject to the reporting requirements of the Exchange Act,
and, in accordance therewith, files reports, proxy statements and other
information with the Commission. The Registration Statement (with exhibits), as
well as such reports, proxy statements and other information, may be inspected
and copied at prescribed rates at the public reference facilities maintained by
the Commission at 450 Fifth Street, N.W., Washington, DC 20549 and at the
Commission's regional offices at 7 World Trade Center, 13th Floor, New York, New
York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The
Commission maintains a site on the World Wide Web at http://www.sec.gov that
contains reports, proxy statements and information regarding registrants that
file electronically with the Commission. The Company's Common Stock is listed on
the Nasdaq National Market, and such reports, proxy statements and other
information also can be inspected at the offices of the National Association of
Securities Dealers, Inc., Corporate Financing Department, 9513 Key West Avenue,
3rd Floor, Rockville, Maryland 20850.
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<PAGE> 76
INDEX TO HISTORICAL FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
NASHVILLE COUNTRY CLUB, INC.
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets -- December 31, 1996 (audited)
and March 31, 1997 (unaudited)............................ F-3
For the Two Years Ended December 31, 1996 (audited) and for
the Three-Month Periods Ended March 31, 1996 and March 31,
1997 (unaudited):
Consolidated Statements of Operations..................... F-4
Consolidated Statements of Stockholders' Equity........... F-5
Consolidated Statements of Cash Flows..................... F-6
Notes to Consolidated Financial Statements.................. F-7
AVALON ENTERTAINMENT GROUP, INC.
Report of Independent Public Accountants.................... F-16
Balance Sheets -- December 31, 1996 (audited) and March 31,
1997 (unaudited).......................................... F-17
For the Two Years Ended December 31, 1996 (audited) and for
the Three-Month Periods Ended March 31, 1996 and March 31,
1997 (unaudited):
Statements of Operations.................................. F-18
Statements of Stockholders' Deficit....................... F-19
Statements of Cash Flows.................................. F-20
Notes to Financial Statements............................... F-21
AVALON WEST COAST
Report of Independent Public Accountants.................... F-24
Combined Balance Sheets -- December 31, 1996 (audited) and
March 31, 1997 (unaudited)................................ F-25
For the Two Years Ended December 31, 1996 (audited) and for
the Three-Month Periods Ended March 31, 1996 and March 31,
1997 (unaudited):
Combined Statements of Operations......................... F-26
Combined Statements of Stockholders' Equity............... F-27
Combined Statements of Cash Flows......................... F-28
Notes to Combined Financial Statements...................... F-29
IRVINE MEADOWS AMPHITHEATER
Report of Independent Public Accountants.................... F-34
Balance Sheet -- December 31, 1996 (audited)................ F-35
For the Two Years Ended December 31, 1996 (audited):
Statements of Operations.................................. F-36
Statements of Partners' Capital........................... F-37
Statements of Cash Flows.................................. F-38
Notes to Financial Statements............................... F-39
</TABLE>
F-1
<PAGE> 77
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
Nashville Country Club, Inc.:
We have audited the accompanying consolidated balance sheet of Nashville
Country Club, Inc. (a Tennessee corporation) and subsidiaries as of December 31,
1996, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the two years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Nashville Country Club, Inc.
and subsidiaries as of December 31, 1996, and the consolidated results of their
operations and their cash flows for each of the two years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas
April 4, 1997
F-2
<PAGE> 78
NASHVILLE COUNTRY CLUB, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 2,659,921 $ 2,619,879
Accounts receivable, net of allowance for doubtful
accounts of $85,500 and $92,600, respectively.......... 611,279 1,235,276
Inventories............................................... 429,987 430,597
Prepaid expenses and other current assets................. 139,771 134,850
----------- -----------
Total current assets.............................. 3,840,958 4,420,602
PROPERTY AND EQUIPMENT, net................................. 34,043,605 33,870,263
OTHER ASSETS, net of accumulated amortization............... 223,544 357,166
----------- -----------
Total assets...................................... $38,108,107 $38,648,031
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt......................... $ 884,311 $ 2,682,653
Accounts payable and accrued liabilities.................. 4,755,732 3,681,005
----------- -----------
Total current liabilities......................... 5,640,043 6,363,658
CAPITAL LAND LEASE OBLIGATION............................... 733,000 733,000
LONG-TERM DEBT, net of current portion...................... 19,521,739 17,559,436
----------- -----------
Total liabilities................................. 25,894,782 24,656,094
----------- -----------
COMMITMENTS
STOCKHOLDERS' EQUITY:
Preferred stock, no par value; 1,000,000 shares
authorized, 334,285 of Series A convertible preferred
stock issued and outstanding, $10,029 liquidation
preference............................................. 10,000 10,000
Common stock, no par value; 20,000,000 shares authorized,
4,590,435 shares issued and outstanding................ 16,770,423 16,770,423
Accumulated deficit....................................... (4,567,098) (2,788,486)
----------- -----------
Total stockholders' equity........................ 12,213,325 13,991,937
----------- -----------
Total liabilities and stockholders' equity........ $38,108,107 $38,648,031
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE> 79
NASHVILLE COUNTRY CLUB, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------ -----------------------
1995 1996 1996 1997
---------- ----------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Rooms.................................... $ -- $ 4,202,040 $ -- $ 5,795,591
Food and beverage........................ 2,215,436 4,151,056 501,841 2,453,426
Other.................................... 14,144 2,455,872 13,401 1,852,512
---------- ----------- --------- -----------
Total revenues................... 2,229,580 10,808,968 515,242 10,101,529
---------- ----------- --------- -----------
DEPARTMENTAL EXPENSES:
Rooms.................................... -- 3,283,172 -- 3,339,459
Food and beverage........................ 2,030,826 4,003,775 444,400 1,823,015
Other.................................... -- 1,615,045 -- 1,226,460
---------- ----------- --------- -----------
Total departmental expenses...... 2,030,826 8,901,992 444,400 6,388,934
---------- ----------- --------- -----------
DEPARTMENTAL PROFIT........................ 198,754 1,906,976 70,842 3,712,595
---------- ----------- --------- -----------
UNDISTRIBUTED OPERATING EXPENSES:
General and administrative............... 479,602 1,460,723 54,660 585,830
Sales and marketing...................... 211,680 825,182 38,408 238,482
Property operation and maintenance....... 205,924 981,918 49,729 442,157
Depreciation and amortization............ 113,845 599,277 29,105 256,109
---------- ----------- --------- -----------
Total undistributed operating
expenses....................... 1,011,051 3,867,120 171,902 1,522,578
---------- ----------- --------- -----------
(LOSS) INCOME FROM OPERATIONS.............. (812,297) (1,960,144) (101,060) 2,190,017
INTEREST INCOME (EXPENSE):
Interest income.......................... 21,200 55,938 1,601 23,559
Interest expense......................... (2,800) (1,223,103) -- (434,964)
---------- ----------- --------- -----------
NET (LOSS) INCOME.......................... $ (793,897) $(3,127,309) $ (99,459) $ 1,778,612
========== =========== ========= ===========
Net (loss) income per common and equivalent
share.................................... $ (.54) $ (.87) $ (.07) $ .36
========== =========== ========= ===========
Weighted average number of common and
equivalent shares outstanding............ 1,470,000 3,575,867 1,470,000 4,924,720
========== =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE> 80
NASHVILLE COUNTRY CLUB, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND THE THREE MONTH PERIOD ENDED MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK TOTAL
----------------- ----------------------- ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT DEFICIT EQUITY
------- ------- --------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, December 31,
1994..................... 334,285 $10,000 1,470,000 $ 3,224,747 $ (645,892) $ 2,588,855
Net loss................. -- -- -- -- (793,897) (793,897)
------- ------- --------- ----------- ----------- -----------
BALANCES, December 31,
1995..................... 334,285 10,000 1,470,000 3,224,747 (1,439,789) 1,794,958
Issuance of shares of
common stock and
warrants, net of
offering costs........ -- -- 2,702,910 11,448,049 -- 11,448,049
Issuance of shares of
common stock in
business
combination........... -- -- 417,525 2,097,627 -- 2,097,627
Net loss................. -- -- -- -- (3,127,309) (3,127,309)
------- ------- --------- ----------- ----------- -----------
BALANCES, December 31,
1996..................... 334,285 10,000 4,590,435 16,770,423 (4,567,098) 12,213,325
Net income (unaudited)... -- -- -- -- 1,778,612 1,778,612
------- ------- --------- ----------- ----------- -----------
BALANCES, March 31, 1997
(unaudited).............. 334,285 $10,000 4,590,435 $16,770,423 $(2,788,486) $13,991,937
======= ======= ========= =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE> 81
NASHVILLE COUNTRY CLUB, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------ -----------------------
1995 1996 1996 1997
---------- ----------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income............................... $ (793,897) $(3,127,309) $ (99,459) $ 1,778,612
Adjustments to reconcile net (loss) income to
net cash (used in) provided by operating
activities --
Depreciation and amortization................ 139,493 599,277 29,105 253,805
Loss on asset retirement..................... 2,751 -- -- --
Changes in assets and liabilities --
(Increase) decrease in assets --
Accounts receivable..................... -- 107,462 (25,074) (623,997)
Inventories............................. (29,774) (59,885) (355) (610)
Prepaid expenses and other current
assets................................ 5,429 (98,222) (20,185) 4,921
Other assets............................ (73,822) (85,132) (139,063) (43,105)
Increase (decrease) in liabilities --
Accounts payable and accrued
liabilities........................... (245,327) 2,569,179 27,216 (1,074,727)
---------- ----------- --------- -----------
Total adjustments....................... (201,250) 3,032,679 10,707 (143,713)
---------- ----------- --------- -----------
Net cash (used in) provided by operating
activities............................ (995,147) (94,630) (88,752) 294,899
---------- ----------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Breckenridge Resort, net of $231,259
of cash acquired............................. -- (7,823,329) -- --
Expenditures for property and equipment......... (54,395) (617,520) (2,304) (74,202)
Increase in other assets........................ (11,456) -- (139,063) (96,778)
---------- ----------- --------- -----------
Net cash used in investing activities... (65,851) (8,440,849) (141,367) (170,980)
---------- ----------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net of
offering costs............................... -- 11,448,049 -- --
Proceeds from borrowings........................ 250,000 1,497,731 50,000 --
Principal payments on borrowings................ -- (1,986,091) -- (163,961)
---------- ----------- --------- -----------
Net cash provided by (used in) financing
activities............................ 250,000 10,959,689 50,000 (163,961)
---------- ----------- --------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS..................................... (810,998) 2,424,210 (180,119) (40,042)
CASH AND CASH EQUIVALENTS, beginning of period.... 1,046,709 235,711 235,711 2,659,921
---------- ----------- --------- -----------
CASH AND CASH EQUIVALENTS, end of period.......... $ 235,711 $ 2,659,921 $ 55,592 $ 2,619,879
========== =========== ========= ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest............................ $ 2,800 $ 1,254,699 $ -- $ 1,779,000
========== =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE> 82
NASHVILLE COUNTRY CLUB, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(INCLUDING INFORMATION AS OF MARCH 31, 1997, AND FOR THE
THREE MONTH PERIODS ENDED MARCH 31, 1996 AND MARCH 31, 1997, WHICH IS UNAUDITED)
1. NATURE OF BUSINESS AND MANAGEMENT'S BUSINESS STRATEGY
Nashville Country Club, Inc. (the "Company") was incorporated in June 1993
for the purpose of developing, owning and operating restaurants, hotels and
other entertainment-related business assets. The Company opened its first
restaurant in Nashville, Tennessee on November 17, 1994 (the "Nashville
Restaurant").
In April 1996, the Company acquired The Village at Breckenridge Resort (the
"Breckenridge Resort"), a resort complex consisting of hotels, restaurants,
meeting and commercial space, and property management contracts with respect to
guest accommodations located in properties included in and separate from the
Breckenridge Resort, all located in Breckenridge, Colorado. The accompanying
consolidated financial statements for the year ended December 31, 1996, include
the revenues and expenses of the Breckenridge Resort from the date of
acquisition (April 29, 1996) through December 31, 1996. The operations of the
Breckenridge Resort are recorded on the books of The Village at Breckenridge
Acquisition Corp., Inc., a wholly owned subsidiary of the Company.
Since inception, the Company's principal source of funding has been net
proceeds from issuances of the Company's common stock which have been used to
implement the Company's business strategy. The net proceeds, which totaled
approximately $14 million, have been used to construct the Nashville Restaurant,
to acquire the Breckenridge Resort, to purchase property and equipment and to
fund the operations of the Nashville Restaurant and the Breckenridge Resort. The
Company reported net losses of $793,897 and $3,127,309 for the fiscal years
ended December 31, 1995 and December 31, 1996, respectively. In addition, the
Company has a working capital deficit of $1,799,085 as of December 31, 1996. The
net loss for 1996 is primarily due to the timing of the Breckenridge Resort
Acquisition in April 1996. On a proforma basis, as if the Breckenridge Resort
were acquired on January 1, 1996, the net loss for 1996 would have been
$1,399,569.
Management has undertaken recent actions to increase revenues and reduce
expenses at the Nashville Restaurant and at the Breckenridge Resort to address
the net losses incurred by these operations. The Company has also entered into a
letter of intent with an unaffiliated third party development company to
redevelop portions of the Breckenridge Resort's assets (Note 9) and has proposed
a hotel to be constructed adjacent to the Nashville Restaurant to complement the
Nashville Restaurant's operations.
In addition, in April 1997, the Company acquired Avalon Entertainment
Group, Inc. ("AEG"), an entertainment marketing company whose primary operations
occur in the second and third quarters (Note 10). The Company has also entered
into an agreement to acquire a controlling interest in a group of affiliated
entertainment entities ("AWC") whose primary operations also occur in the second
and third quarters (Note 10). The Company has entered into agreements with two
investment advisors to assist the Company in obtaining financing for its
activities. Such financing will be used to finance a portion of the cash
requirements for the acquisition of AEG and AWC, the development of the
Nashville hotel and the acquisition of equity interests in other businesses that
complement the Company's business strategy.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries -- NCC Broadcast, Inc., The Village at
Breckenridge Acquisition Corp., Inc. and Property Management Acquisition Corp.,
Inc. All significant intercompany accounts and transactions have been eliminated
in consolidation.
F-7
<PAGE> 83
NASHVILLE COUNTRY CLUB, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cash and Cash Equivalents
Cash and cash equivalents consist primarily of cash in banks and highly
liquid investments purchased with an original maturity of three months or less.
Inventories
Inventories consist primarily of food and beverage, retail, and operating
supplies, which are stated at the lower of cost or market on a first-in,
first-out (FIFO) basis.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided for
using the straight-line method over 5 to 7 years on furniture, fixtures, and
equipment and 30 to 39 years on buildings and improvements.
Other Assets
Loan fees incurred with respect to certain of the Company's mortgage notes
payable are being amortized over the five-year term of the note payable using
the straight-line method. Accumulated amortization of loan fees totaled $28,497
at December 31, 1996. Costs incurred during the investigation of potential
acquisitions or development projects are capitalized and charged to expense at
such time as management concludes that the project is no longer deemed viable.
Management continually evaluates the viability of such projects.
Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 MARCH 31, 1997
----------------- --------------
(UNAUDITED)
<S> <C> <C>
Accounts payable...................................... $1,282,723 $ 910,735
Advance deposits...................................... 1,739,839 520,161
Due to homeowners..................................... 515,589 923,938
Accrued property taxes................................ 385,605 310,117
Accrued payroll....................................... 319,610 200,897
Other accrued expenses................................ 512,366 815,157
---------- ----------
$4,755,732 $3,681,005
========== ==========
</TABLE>
Advance Deposits and Revenue Recognition
Advance deposits are recorded as a liability until rooms and other services
are provided and revenues are earned. Advance deposits reflected in the
accompanying consolidated balance sheets relate primarily to the winter ski
season ending in April.
Property Management Contracts
The Breckenridge Resort has contracts relating to the management and rental
of approximately 315 living units, located in properties included in and
separate from the Breckenridge Resort. These contracts are primarily for a
period of one year with renewal options. The Breckenridge Resort pays a fee of
55% to 60% of the gross revenue to the owner of the living unit. This amount is
due monthly and is recorded as due to homeowners in the accompanying
consolidated balance sheets. Revenues generated from the rental of these units
are reported as rooms revenue with the fee paid to the owner reported as rooms
department expense in the accompanying consolidated statements of operations.
The loss of all or a significant amount of the contracts would be significant to
the operations of the Breckenridge Resort.
F-8
<PAGE> 84
NASHVILLE COUNTRY CLUB, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
The Company accounts for income taxes under the liability method required
by Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" ("SFAS 109"). SFAS 109 requires recognition of deferred income tax assets
and liabilities based on enacted tax laws for any temporary differences between
financial reporting and tax bases of assets, liabilities and carryforwards.
Deferred tax assets are then reduced by a valuation allowance for the amount of
any tax benefits which, based on current circumstances, are not expected to be
realized.
Net (Loss) Income Per Common and Common Equivalent Share
The computation of net (loss) income per common and common equivalent share
is based on the weighted average number of common and common equivalent shares
outstanding. The effect of outstanding options and warrants has not been
considered as their inclusion would be antidilutive.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Unaudited Quarterly Information
Information with respect to the three month periods ended March 30, 1996
and March 31, 1997, and as of March 31, 1997, included in these consolidated
financial statements and notes thereto, is unaudited; however, in the opinion of
the Company's management, all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the consolidated financial
position and results of operations of the Company for such period have been
included.
Adoption of New Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
("SFAS 121"), which requires impairment losses to be recorded on long-lived
assets in operations when indicators of impairment are present and undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount. SFAS 121 also addresses the accounting for long-lived assets
that are expected to be disposed of. The adoption of SFAS 121 in the first
quarter of 1996 did not have a material impact on the Company's consolidated
financial statements.
Statement of Financial Accounting Standard No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), encourages, but does not require,
companies to record compensation cost for stock-based employee compensation
plans at fair value. The Company has chosen to continue to account for
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. Accordingly, compensation cost for
stock options is measured as the excess, if any, of the market price of the
Company's stock at the date of grant over the amount the employee must pay to
acquire the stock. The impact of applying SFAS 123 was not material in 1995 and
1996.
F-9
<PAGE> 85
NASHVILLE COUNTRY CLUB, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Reclassifications
Certain reclassifications have been made to the 1995 consolidated financial
statements to conform with classifications used in 1996.
3. THE BRECKENRIDGE RESORT ACQUISITION
Effective April 29, 1996, the Company acquired the Breckenridge Resort from
an unaffiliated third party for approximately $31.5 million, consisting of
approximately $8.1 million in cash, $2.1 million of common stock (417,525
shares) and the assumption of $21.3 million of net Breckenridge Resort
liabilities. The acquisition was accounted for using the purchase method of
accounting and, accordingly, the net purchase price was allocated to the assets
acquired and liabilities assumed based on their estimated fair values on the
date of acquisition. The allocation was made as follows:
<TABLE>
<S> <C>
Assets acquired:
Land and buildings........................................ $30,360,000
Furniture, fixtures, and equipment........................ 1,100,000
Cash...................................................... 231,000
Accounts receivable....................................... 719,000
Other current assets...................................... 318,000
-----------
32,728,000
-----------
Liabilities assumed:
Long-term debt............................................ 20,644,000
Accounts payable.......................................... 776,000
Other current liabilities................................. 1,156,000
-----------
22,576,000
-----------
Net assets acquired......................................... $10,152,000
===========
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ -----------
<S> <C> <C>
(UNAUDITED)
Land...................................................... $14,041,904 $14,041,903
Land under capital lease.................................. 800,000 800,000
Buildings and improvements................................ 17,794,141 17,816,580
Furniture, fixtures, and equipment........................ 2,102,922 2,161,304
----------- -----------
34,738,967 34,819,787
Less -- accumulated depreciation.......................... (695,362) (949,524)
----------- -----------
Property and equipment, net............................... $34,043,605 $33,870,263
=========== ===========
</TABLE>
5. LEASES
Operating Leases
The Breckenridge Resort leases its retail stores to tenants under
noncancelable operating lease agreements. The agreements generally require that
the Breckenridge Resort pay applicable property taxes, insurance, repairs, and
common area maintenance costs, which are billable to tenants under lease terms.
F-10
<PAGE> 86
NASHVILLE COUNTRY CLUB, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Expense pass-throughs billed to tenants totaled approximately $290,000 for the
year ended December 31, 1996. Several of these leases also require percentage
rent payments based on sales and have escalation clauses based on changes in the
consumer price index for future periods.
The following is a schedule of future minimum rents to be received
(excluding percentage rent payments) under the noncancelable operating lease
agreements.
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1997................................................... $1,132,000
1998................................................... 979,000
1999................................................... 800,000
2000................................................... 435,000
2001................................................... 235,000
Thereafter............................................. 342,000
----------
Total minimum rents............................... $3,923,000
==========
</TABLE>
Capital Lease
The Company is a party to an agreement dated September 30, 1993 to lease
real property on which the Nashville restaurant is located. The lease had an
initial term of twenty years with a ten-year renewal option. Initial lease
payments were $5,000 per month. Upon the completion of the Company's initial
public offering, effective March 1, 1994, lease payments totaling $84,000
annually commenced. Effective March 1, 1995, in accordance with terms of the
lease agreement, the monthly lease payment increased to $7,000 plus 4 1/2% of
the purchase option price.
In accordance with terms of the lease agreement, at any time during the
lease term, the Company has the option to purchase the leased property for
$800,000 less lease payments and base rent paid through the closing date, or in
the event of the death of the original landlord, the amount of base rent paid by
the Company prior to and within 60 days after such death. The land under capital
lease and the lease obligation totaling $800,000 were recorded on the
consolidated balance sheets due to the existence of the bargain purchase option
provision in the lease. As a result of the death of the lessor of the property
on June 23, 1994, the Company's option to purchase the property became fixed at
$733,000 in August 1994.
The Company's intent is to exercise its option to purchase the property and
it is presently evaluating the timing of that decision and the means by which it
will finance the purchase. Rental expense totaled $111,487 and $118,185 during
1995 and 1996, respectively.
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
Note payable to a bank, bearing interest at 9%, due in
monthly installments of $115,021, including interest,
through January 31, 2001, when unpaid principal and
interest are due. The note is collateralized by a deed of
trust on property and security agreement, including the
assignment of leases and rents and financing statements.... $11,044,403 $10,947,253
</TABLE>
F-11
<PAGE> 87
NASHVILLE COUNTRY CLUB, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
Note payable to an unaffiliated third party, interest due
monthly at 7% through March 1997, monthly installments of
$47,216, including interest, beginning April 1997 through
December 1, 1999, when unpaid principal and interest are
due. The note is collateralized by two wraparound deeds of
trust on the property and security agreement, including the
assignment of leases and rents and financing statements.... 5,253,057 5,253,057
Note payable to a bank, bearing interest at 10%, due in
monthly installments of $24,590 including interest, through
March 1, 1998 when unpaid principal and interest are due.
The note is collateralized by a deed of trust on property
and security agreement, including the assignment of leases
and rents and financing statements......................... 1,625,941 1,592,479
Note payable to an unaffiliated third party, bearing
interest due monthly at 9%, principal balance due December
21, 1999. The note is collateralized by the deed of trust
on property and security agreement, including the
assignment of leases and rents and financing statements.... 1,250,000 1,250,000
Note payable to two individuals, interest at 9%, due in
monthly installments of $7,925, including interest through
October 1, 2013 when unpaid principal and interest are due.
The note is collateralized by a deed of trust on property
and security agreement, including the assignment of leases
and rents and financing statements......................... 823,107 817,811
Equipment notes payable to financial institutions, bearing
interest ranging from 11% to 15.5%, due in monthly
installments of principal and interest, with various
maturity dates through July 2001. The notes are
collateralized by accounts receivable, equipment, machinery
and contract rights........................................ 324,537 296,489
Note payable to an unaffiliated third party, bearing
interest at 9%, due annually in June, $50,000 principal
payment due June 1997, balance due June 1998. The note is
secured by rental management and property management
agreements................................................. 85,000 85,000
----------- -----------
$20,406,050 $20,242,089
Less-current portion....................................... (848,311) (2,682,653)
----------- -----------
$19,521,739 $17,559,436
=========== ===========
</TABLE>
F-12
<PAGE> 88
NASHVILLE COUNTRY CLUB, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future annual maturities of long-term debt consist of the following at
December 31, 1996:
<TABLE>
<S> <C>
1997........................................................ $ 884,311
1998........................................................ 2,249,967
1999........................................................ 6,690,480
2000........................................................ 583,044
2001........................................................ 9,304,432
Thereafter.................................................. 693,816
-----------
Total............................................. $20,406,050
===========
</TABLE>
The Company entered into a private placement with five non-affiliated
accredited investors pursuant to which the Company borrowed $250,000 in December
1995 for working capital purposes. In January 1996, the Company entered into one
additional note agreement with a non-affiliated accredited investor for $50,000
under the same terms. The Notes were repaid in April 1996 with proceeds from the
stock offering. (Note 7)
In November 1996, the Company entered into a revolving credit facility
which provides up to a maximum of $300,0000 of unsecured borrowings through
November 5, 1997. Amounts outstanding under the revolving credit facility bear
interest at prime plus 2%. As of April 4, 1997, no amounts have been borrowed
under the revolving credit facility.
7. STOCKHOLDERS' EQUITY
Preferred Stock
The Company is authorized to issue 1,000,000 shares of preferred stock. The
Company has designated 557,143 shares of the authorized preferred stock as
Series A Convertible Preferred Stock ("Series A Preferred Stock"), of which
334,285 shares have been issued to the Company's founder and others for various
services rendered. These shares are reflected in the accompanying consolidated
balance sheets at $10,000. Holders of shares of Series A Preferred Stock are not
entitled to vote, except as required by applicable law. Each share of Series A
Preferred Stock has a liquidation preference of $0.03 per share and is
convertible into one share of common stock at the option of the holder (i) if
during the five-year period following the issuance of the Series A Preferred
Stock, the Company has earned after tax income for any fiscal year of at least
$500,000 based on generally accepted accounting principles and (ii) at any time,
in the event that 80% or more of the Company's common stock is acquired by an
entity or individual not previously affiliated with the Company if the common
stock has traded at an average bid price per share of $7.50 or more during the
preceding 90 business days or if the acquisition price per share for the
Company's common stock is $7.50 or more. The Series A Preferred Stock does not
have any preference on the payment of dividends and participates equally in all
dividends on a share for share basis with the common stock.
Common Stock
The Company was initially capitalized through the issuance of 780,000
shares of common stock to the Company's Chairman of the Board in September 1993
for $500,000 in cash, and through the issuance of 334,285 shares of preferred
stock as described above.
In February 1994, the Company completed an initial public offering of
690,000 shares of the Company's no par value common stock, which resulted in net
proceeds to the Company totaling $2,724,747. In connection with the offering, a
warrant was granted to the underwriter to purchase up to 60,000 shares of common
stock at $6.00 per share, exercisable over a period of four years commencing one
year from the date of the offering.
In 1996, the Company issued 12,500 warrants in connection with the
extension of certain loans to the Breckenridge Resort. In April 1996, the
Company completed a secondary public offering of 1,351,455 units,
F-13
<PAGE> 89
NASHVILLE COUNTRY CLUB, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
each consisting of two shares of common stock and one redeemable common stock
purchase warrant. The net proceeds were used to consummate the Breckenridge
Resort Acquisition (Note 3), to repay indebtedness (Note 6), and for working
capital purposes. The redeemable warrants are detachable and separately
transferable. Each redeemable warrant entitles the holder to purchase one share
of common stock at a price of $6.25 per share until April 2001, and is
redeemable by the Company at $.05 per warrant under certain conditions. In
connection with the secondary offering, the underwriter was granted a warrant to
acquire up to 120,000 units at $15.50 per unit.
On August 14, 1995, the Company issued options to purchase up to 50,000
shares of common stock at a price of $5.50 per share to certain employees under
the 1995 Stock Option Plan. The options are subject to a vesting schedule that
provides for vesting in four equal installments on each annual anniversary date.
As of December 31, 1996, no options have been exercised.
8. INCOME TAXES
At December 31, 1996, the Company had net operating loss carryforwards of
approximately $4.5 million for income tax purposes which expire at various dates
through 2011. Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax liabilities and assets as of December
31, 1996 are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 1,740,000
Deferred costs............................................ 70,000
Other..................................................... 20,000
-----------
1,830,000
Deferred tax liabilities:
Accelerated depreciation for tax.......................... (60,000)
-----------
Net deferred tax assets..................................... 1,770,000
Valuation allowance......................................... (1,770,000)
-----------
$ --
===========
</TABLE>
During 1996, the valuation allowance for net deferred tax assets increased
$1,229,000 from $541,000 to $1,770,000.
9. COMMITMENTS
Franchise Agreement
On February 1, 1996, the Breckenridge Resort entered into a franchise
agreement with Wyndham Hotel Company, Ltd. to operate certain of the rooms in
the Breckenridge Resort as a Wyndham Resort and for the use of the Wyndham name
and reservation system, including Wyndham advertising, marketing, and
promotions. The royalty fee, payable beginning January 1997, related to the
above agreement is equal to one percent of room revenues, as defined. In
addition, the Breckenridge Resort is also obligated to pay a marketing fee of
one and one half percent of room revenues and a commission fee of seven and one
half percent of room rates, as defined. Total fees paid in 1996 were $52,000.
Redevelopment of the Breckenridge Resort
In August 1996, the Company entered into a letter of intent with an
unaffiliated third party development company which set forth the major business
points pursuant to which the two parties would form a joint
F-14
<PAGE> 90
NASHVILLE COUNTRY CLUB, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
venture to redevelop a portion of the Breckenridge Resort's assets. It is
anticipated that the Company will contribute cash and certain land and buildings
to the joint venture and the joint venture partner will contribute cash and
services. Proceeds from the sale of redeveloped assets and from the management
of assets retained by the joint venture will be distributed as provided in the
letter of intent, subject to the negotiation of a definitive joint venture
agreement. As of April 4, 1997, the joint venture partners are proceeding with
initial planning and design efforts associated with the redevelopment.
Repurchase of Stock
In connection with the Breckenridge Resort Acquisition, the Company agreed
to repurchase up to $413,170 of stock issued to the sellers of the Breckenridge
Resort. The Company is currently negotiating with the holders of the shares
subject to the repurchase as to the timing of the repurchase.
10. EVENTS (UNAUDITED) SUBSEQUENT TO DATE OF AUDITORS' REPORT
On April 21, 1997, the Company acquired 100% of the common stock of Avalon
Entertainment Group, Inc. ("AEG") (Note 1). AEG is engaged in producing
corporate entertainment events, entertainment marketing programs and artist
management. The $7.2 million purchase price was satisfied by the issuance of
$4,320,000 in aggregate fair value of common stock of the Company (809,840
shares), $2,480,000 of promissory notes and $400,000 in cash. The promissory
notes bear interest at 10% per annum and are due on July 31, 1997. The Company
expects to repay the promissory notes with proceeds from debt and/or equity
financing which the Company is currently seeking to obtain.
The Merger Agreement relating to the AEG Acquisition provides for an
adjustment to the purchase price based on AEG's net income before taxes for the
year ending December 31, 1997 (the "1997 Pre-Tax Net Income"). In the event that
AEG's 1997 Pre-Tax Net Income equals or exceeds $1.2 million, the purchase price
is not adjusted. In the event that AEG's 1997 Pre-Tax Net Income is less than
$1.2 million, the purchase price is adjusted downward in an amount equal to six
multiplied by the difference between the 1997 Pre-Tax Net Income and $1.2
million. The former owners of AEG may satisfy the adjusted purchase price by
delivering to the Company either cash or shares of common stock valued based on
the average closing prices of the common stock for the 30 trading days ending 5
days prior to the calculation of the 1997 Pre-Tax Net Income. Management does
not anticipate that the purchase price will be adjusted materially.
In June 1997, the Company entered into a letter agreement to acquire a 51%
controlling interest in a group of entities (collectively, "AWC") (Note 1)
affiliated with AEG. AWC manages amphitheaters, produces concerts, provides
advertising services and is involved in event merchandising for large-scale
sporting and entertainment events. The Company will acquire its interest in AWC
for an initial purchase price of $7 million with proceeds from debt and/or
equity financing which the Company is currently seeking to obtain.
The final purchase price for the Company's 51% interest in AWC will be
equal to the greater of (i) $7 million or (ii) 51% of the sum of (a) six times
the average of the EBITDA for AWC's amphitheater operations for the years 1996,
1997 and 1998 and (b) six times the average of the net income before taxes of
the remaining business entities constituting AWC for the years 1996, 1997 and
1998. The excess of the final purchase price over $7 million will be payable in
common stock of the Company based on an average of the common stock price for
the years 1996, 1997 and 1998.
In April 1997, the Company issued options to purchase 250,000 shares of
common stock at a price of $5.40 per share to an officer under the 1997 Stock
Option Plan. The options were exercisable as of the date of grant.
F-15
<PAGE> 91
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Avalon Entertainment Group, Inc.:
We have audited the accompanying balance sheet of Avalon Entertainment
Group, Inc., a Tennessee corporation, as of December 31, 1996, and the related
statements of operations, stockholders' deficit and cash flows for each of the
two years in the period ended December 31, 1996. These financial statements are
the responsibility of Avalon Entertainment Group'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 Avalon Entertainment Group,
Inc. as of December 31, 1996, and the results of its operations and its cash
flows for each of the two years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
May 9, 1997
F-16
<PAGE> 92
AVALON ENTERTAINMENT GROUP, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 275,988 $ 193,761
Accounts receivable....................................... 59,537 102,965
Due from joint venture.................................... 13,244 --
Prepaid production expenses............................... 195,343 293,345
--------- ---------
Total current assets.............................. 544,112 590,071
--------- ---------
PROPERTY AND EQUIPMENT, at cost:
Furniture and fixtures.................................... 201,525 204,854
Computer and other equipment.............................. 59,652 67,465
Leasehold improvements.................................... 26,344 26,344
--------- ---------
287,521 298,663
Less -- accumulated depreciation and amortization........... (233,133) (239,564)
--------- ---------
54,388 59,099
--------- ---------
INVESTMENT IN JOINT VENTURE................................. 27,239 (87,219)
--------- ---------
DEPOSITS.................................................... 2,746 2,746
--------- ---------
Total assets...................................... $ 628,485 $ 564,697
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable.......................................... $ 51,253 $ 22,986
Accrued expenses.......................................... 64,095 33,756
Commission payable........................................ 64,080 --
Profit distributions payable.............................. 150,000 26,852
Deferred revenues......................................... 518,500 709,200
--------- ---------
Total current liabilities......................... 847,928 792,794
--------- ---------
COMMITMENTS
STOCKHOLDERS' DEFICIT:
Common stock, no par value; 2,000 shares authorized, 1,333
shares issued and outstanding.......................... 2,000 2,000
Additional paid-in capital................................ 16,560 16,560
Accumulated deficit....................................... (238,003) (246,657)
--------- ---------
Total stockholders' deficit....................... (219,443) (228,097)
--------- ---------
Total liabilities and stockholders' deficit....... $ 628,485 $ 564,697
========= =========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-17
<PAGE> 93
AVALON ENTERTAINMENT GROUP, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
----------------------- -----------------------
1995 1996 1996 1997
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES..................................... $3,969,531 $5,570,136 $1,039,863 $1,543,515
COST OF REVENUES............................. 2,887,475 4,028,794 737,689 1,221,689
---------- ---------- ---------- ----------
1,082,056 1,541,342 302,174 321,826
GENERAL AND ADMINISTRATIVE EXPENSES.......... 1,259,271 2,009,793 278,577 338,523
---------- ---------- ---------- ----------
(Loss) income from operations.............. (177,215) (468,451) 23,597 (16,697)
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest (expense), income net............... (15,903) 5,656 (76) --
Equity in income of joint venture............ 538,215 449,496 217,353 8,043
Other income, net............................ 5,135 2,819 160 --
---------- ---------- ---------- ----------
Income (loss) before provision for taxes... 350,232 (10,480) 241,034 (8,654)
PROVISION FOR TAXES.......................... 2,852 1,263 1,000 --
---------- ---------- ---------- ----------
NET INCOME (LOSS)............................ $ 347,380 $ (11,743) $ 240,034 $ (8,654)
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-18
<PAGE> 94
AVALON ENTERTAINMENT GROUP, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND THE THREE MONTH PERIOD ENDED MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
--------------- ADDITIONAL ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT PAID-IN CAPITAL DEFICIT DEFICIT
------ ------ --------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCES, December 31, 1994.............. 1,333 $2,000 $16,560 $(573,640) $(555,080)
Net income............................. -- -- -- 347,380 347,380
----- ------ ------- --------- ---------
BALANCES, December 31, 1995.............. 1,333 2,000 16,560 (226,260) (207,700)
Net loss............................... -- -- -- (11,743) (11,743)
----- ------ ------- --------- ---------
BALANCES, December 31, 1996.............. 1,333 2,000 16,560 (238,003) (219,443)
Net loss (unaudited)................... -- -- -- (8,654) (8,654)
----- ------ ------- --------- ---------
BALANCES, March 31, 1997 (unaudited)..... 1,333 $2,000 $16,560 $(246,657) $(228,097)
===== ====== ======= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-19
<PAGE> 95
AVALON ENTERTAINMENT GROUP, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
--------------------- ---------------------
1995 1996 1996 1997
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................. $ 347,380 $ (11,743) $ 240,034 $ (8,654)
Adjustments to reconcile net income (loss)
to net cash (used in) provided by
operating activities --
Depreciation and amortization............ 30,692 24,228 7,597 6,431
Loss on disposal of equipment............ -- 3,124 3,124 --
Equity in income of joint venture........ (538,215) (449,496) (217,353) (8,043)
Changes in assets and liabilities --
(Increase) decrease in assets --
Accounts receivable................. 12,642 (22,284) (19,050) (43,428)
Due from joint venture.............. (149,825) (54,387) (41,143) 13,244
Prepaid production expenses and
deposits......................... (109,012) 32,547 (8,283) (98,002)
Increase (decrease) in liabilities --
Accounts payable.................... (271,115) (71,777) (20,156) (28,267)
Accrued expenses.................... (33,354) 196,797 45,020 (217,567)
Deferred revenues................... 158,050 97,500 207,850 190,700
--------- --------- --------- ---------
Net cash (used in) provided by operating
activities................................. (552,757) (255,491) 197,640 (193,586)
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions from joint venture.............. 560,472 400,000 -- 122,500
Expenditures for property and equipment....... (22,955) (22,491) -- (11,141)
--------- --------- --------- ---------
Net cash provided by investing activities..... 537,517 377,509 -- 111,359
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES............ -- -- -- --
--------- --------- --------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS................................... (15,240) 122,018 197,640 (82,227)
CASH AND CASH EQUIVALENTS, beginning of
period........................................ 169,210 153,970 153,970 275,988
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period........ $ 153,970 $ 275,988 $ 351,610 $ 193,761
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-20
<PAGE> 96
AVALON ENTERTAINMENT GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(INCLUDING INFORMATION AS OF MARCH 31, 1997, AND FOR THE
THREE MONTH PERIODS ENDED MARCH 31, 1996 AND MARCH 31, 1997, WHICH IS UNAUDITED)
1. NATURE OF BUSINESS
Avalon Entertainment Group, Inc. ("AEG"), a Tennessee corporation,
specializes in corporate entertainment events, event marketing programs and
artist management. AEG was incorporated on April 7, 1989 and has operations in
Nashville and San Diego. AEG is also a 50% partner in a joint venture,
Warner/Avalon, that coordinates live sponsored music entertainment marketing
programs.
2. SIGNIFICANT ACCOUNTING POLICIES
Revenue recognition
Customer deposits and AEG expenditures related to future corporate shows
are recorded as deferred revenues and prepaid assets, respectively, and
recognized as revenue and expense in the month the show takes place.
Property and equipment
Property and equipment are recorded at cost and are depreciated or
amortized using the double-declining balance method, except for leasehold
improvements which are amortized using the straight-line method, over the
following estimated useful lives:
<TABLE>
<S> <C>
Furniture and fixtures................................... 7 years
Computer and other equipment............................. 5 years
Leasehold improvements................................... The lesser of 15 years or the
remaining term of the lease.
</TABLE>
AEG follows the policy of capitalizing expenditures that materially
increase asset lives and charges ordinary maintenance and repairs to operations
as incurred.
Income taxes
AEG has elected to be an S corporation under provisions of the Internal
Revenue Code. As long as AEG continues to qualify for S corporation tax
treatment, no federal income taxes are payable. Accordingly, there is no
provision for federal income taxes reflected in the accompanying financial
statements. Tennessee, which has not conformed to the federal provisions
recognizing S corporations, imposes an excise tax of 6 percent of taxable
income.
Deferred state income taxes are provided for the tax effect of temporary
differences in the recognition of income and expenses for financial reporting
and tax purposes.
Because of the acquisition of AEG (Note 7), AEG's S corporation election
was automatically terminated subsequent to year end.
Statements of cash flows
AEG has a cash management program that invests excess cash in money market
funds. Cash balances not required to meet daily checks clearing the banks are
temporarily invested. For purposes of the statements of cash flows, AEG
considers all highly liquid investments with original maturities of less than
three months to be cash equivalents.
F-21
<PAGE> 97
AVALON ENTERTAINMENT GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AEG prepares its statements of cash flows using the indirect method as
defined under Statement of Financial Accounting Standards No. 95. Supplemental
cash flow disclosures are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- MARCH 31,
1995 1996 1997
------- ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Cash paid during the period for:
Income taxes......................................... $ -- $6,054 $ --
======= ====== ======
Interest............................................. $15,903 $ 810 $ --
======= ====== ======
</TABLE>
Payments to stockholders
AEG has made payments to its stockholders, who are all employees of AEG,
based in part on the profitability of AEG and availability of cash. These
payments can cause significant variations in AEG's results of operations as they
are included in general and administrative expenses in the period paid. These
payments totalled $410,000 and $902,000 for the years ended December 31, 1995
and 1996, respectively, and $50,000 and $62,500 for the three month periods
ended March 31, 1996 and 1997, respectively.
Use of estimates in preparation of financial statements
The preparation of financial statements in conformity with generally
accepted accounting principles require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Unaudited quarterly information
Information with respect to the three month periods ended March 31, 1996
and 1997, and as of March 31, 1997, included in these financial statements and
notes thereto, is unaudited; however, in the opinion of AEG's management, all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial position and results of operations of AEG for
such period have been included.
3. INVESTMENT IN JOINT VENTURE
AEG has a 50% interest in a joint venture with Warner Custom Music Corp., a
California corporation. The joint venture, Warner/Avalon, was formally organized
as a Delaware general partnership on November 21, 1995, and commenced limited
operations in 1994. Warner/Avalon develops and coordinates live, sponsored music
entertainment marketing tours and programs and related projects. AEG accounts
for the investment using the equity method of accounting.
Warner/Avalon generates revenues primarily from third party corporate
sponsorships. Warner/Avalon recognizes revenue by amortizing the contract
sponsorship funds over the life of the related tour. Tours may range from a
single day event to several months.
During 1995, the two largest customers accounted for 62% and 36% of gross
revenues of Warner/Avalon. During 1996, the same two customers accounted for 80%
and 15% of gross revenues of Warner/Avalon.
F-22
<PAGE> 98
AVALON ENTERTAINMENT GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Summary balance sheet data and statement of operations data of
Warner/Avalon are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
Current assets............................................. $1,385,106 $2,193,719
Non-current assets......................................... 107,750 263,799
Current liabilities........................................ 1,438,377 2,631,953
Partners' capital (deficit)................................ 54,479 (174,435)
Income for the year
-- 1995.................................................. 1,076,430
-- 1996.................................................. 898,993
Income for the three months ended March 31, 1997........... 16,086
</TABLE>
4. RELATED PARTY TRANSACTIONS
AEG is affiliated, through common ownership, with several companies. The
following represents a summary of activity with these affiliates.
AEG paid New Avalon, Inc. ("Avalon Attractions"), an affiliate involved in
the entertainment and music industries, $60,000 and $93,000 in 1995 and 1996,
respectively, for financial and accounting services. In addition, AEG paid
Avalon Attractions $104,000 in 1996 for assistance with business development.
Accounts payable to Avalon Attractions for payroll paid on behalf of AEG were
approximately $21,000 and $32,000 in 1995 and 1996, respectively. In 1995, AEG
paid Avalon Attractions $15,908 for interest on a loan with principal amount of
$253,390 beginning in October 1994. All principal and interest were paid off in
June 1995.
AEG paid consulting fees of $20,000 and $60,000 in 1995 and 1996,
respectively, to the Vice-President of Operations of Irvine Meadows
Amphitheater, an outdoor amphitheater in which an affiliated entity has an
ownership interest. Accounts receivable for a loan to an employee of Warner
Custom Music Corp. was $10,000 as of December 31, 1996.
5. COMMITMENTS
AEG leases facilities and certain equipment under lease agreements through
1998. Rent expense under operating leases was approximately $55,000 and $29,000
for the years ended December 31, 1995 and 1996, respectively. The minimum lease
commitments as of December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997....................................................... $55,000
1998....................................................... 9,000
-------
$64,000
=======
</TABLE>
6. SIGNIFICANT CONCENTRATIONS
During 1995, AEG's four largest customers each accounted for approximately
12 percent of revenues. During 1996, AEG's two largest customers accounted for
approximately 15 and 10 percent of revenues. (Note 3).
7. SUBSEQUENT EVENTS
On April 21, 1997, AEG entered into an Agreement and Plan of Merger whereby
it was acquired by Avalon Acquisition Corp., Inc., a Tennessee corporation and
wholly owned subsidiary of Nashville Country Club, Inc. ("NCCI"), a Tennessee
corporation, for $7,200,000. NCCI is a public company and a developer, owner and
operator of restaurants, hotels and other entertainment-related business assets.
F-23
<PAGE> 99
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Avalon West Coast:
We have audited the accompanying combined balance sheet of Avalon West
Coast (an affiliated group of one Texas and three California corporations) as of
December 31, 1996, and the related combined statements of operations,
stockholders' equity and cash flows for each of the two years in the period
ended December 31, 1996. These financial statements are the responsibility of
Avalon West Coast'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 combined financial statements referred to above present
fairly, in all material respects, the financial position of Avalon West Coast as
of December 31, 1996, and the results of their operations and their cash flows
for each of the two years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
May 9, 1997
F-24
<PAGE> 100
AVALON WEST COAST
COMBINED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash...................................................... $ 478,197 $ 500,177
Accounts receivable....................................... 368,060 244,275
Prepaid expenses.......................................... 135,454 92,495
Notes receivable.......................................... 52,500 14,400
Loans to related parties.................................. 5,088 --
---------- ----------
Total current assets.............................. 1,039,299 851,347
---------- ----------
PROPERTY AND EQUIPMENT, at cost:
Furniture and fixtures.................................... 228,831 229,368
Computer and other equipment.............................. 94,618 94,618
Leasehold improvements.................................... 16,548 16,548
---------- ----------
339,997 340,534
Less -- accumulated depreciation and amortization......... (81,353) (98,352)
---------- ----------
258,644 242,182
---------- ----------
INVESTMENT IN IRVINE MEADOWS AMPHITHEATER................... 1,030,845 909,220
---------- ----------
DEPOSITS AND OTHER ASSETS................................... 126,063 126,063
---------- ----------
Total assets...................................... $2,454,851 $2,128,812
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit............................................ $ 175,000 $ 275,000
Accounts payable.......................................... 614,445 193,835
Accrued expenses and other................................ 477,767 324,593
Advance ticket receipts................................... 169,306 570,228
Current portion of loans from stockholders................ 240,000 240,000
Loans from related parties................................ -- 92,876
---------- ----------
Total current liabilities......................... 1,676,518 1,696,532
LOANS FROM STOCKHOLDERS, net of current portion............. 134,000 74,000
---------- ----------
Total liabilities................................. 1,810,518 1,770,532
---------- ----------
COMMITMENTS
STOCKHOLDERS' EQUITY:
Common stock.............................................. 18,500 18,500
Retained earnings......................................... 625,833 339,780
---------- ----------
Total stockholders' equity........................ 644,333 358,280
---------- ----------
Total liabilities and stockholders' equity........ $2,454,851 $2,128,812
========== ==========
</TABLE>
The accompanying notes are an integral part of these combined balance sheets.
F-25
<PAGE> 101
AVALON WEST COAST
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------- ----------------------
1995 1996 1996 1997
----------- ----------- ---------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES................................... $16,470,709 $18,011,481 $1,869,307 $ 598,957
COSTS OF REVENUES.......................... 14,525,673 15,665,720 1,568,185 362,721
----------- ----------- ---------- ---------
1,945,036 2,345,761 301,122 236,236
OPERATING EXPENSES:
General and administrative expenses...... 2,394,916 2,065,631 428,136 382,573
Selling and marketing expenses........... 44,599 56,810 14,873 21,159
----------- ----------- ---------- ---------
(Loss) income from operations............ (494,479) 223,320 (141,887) (167,496)
OTHER INCOME (EXPENSE):
Equity income (loss) from investments.... 38,699 11,912 (101,883) (121,625)
Interest expense, net.................... (109,266) (111,491) (28,792) (11,943)
Consulting income........................ 14,543 67,641 5,479 15,811
Fire insurance gain, net of expenses..... 429,342 -- -- --
----------- ----------- ---------- ---------
(Loss) income before provision for income
taxes................................. (121,161) 191,382 (267,083) (285,253)
(BENEFIT) PROVISION FOR TAXES.............. (3,846) 10,725 800 800
----------- ----------- ---------- ---------
NET (LOSS) INCOME.......................... $ (117,315) $ 180,657 $ (267,883) $(286,053)
=========== =========== ========== =========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-26
<PAGE> 102
AVALON WEST COAST
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND THE THREE MONTH PERIOD ENDED MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK (NOTES 1 AND 3) TOTAL
------------------------------------------ RETAINED STOCKHOLDERS'
AVA ECL TBA ECM TOTAL EARNINGS EQUITY
------- ------ ------ ---- ------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, December 31,
1994................... $12,500 $1,000 $5,000 $ -- $18,500 $ 562,491 $ 580,991
Net loss............... -- -- -- -- -- (117,315) (117,315)
------- ------ ------ ---- ------- --------- ---------
BALANCES, December 31,
1995................... 12,500 1,000 5,000 -- 18,500 445,176 463,676
Net income............. -- -- -- -- -- 180,657 180,657
------- ------ ------ ---- ------- --------- ---------
BALANCES, December 31,
1996................... 12,500 1,000 5,000 -- 18,500 625,833 644,333
Net loss (unaudited)... -- -- -- -- -- (286,053) (286,053)
------- ------ ------ ---- ------- --------- ---------
BALANCES, March 31, 1997
(unaudited)............ $12,500 $1,000 $5,000 $ -- $18,500 $ 339,780 $ 358,280
======= ====== ====== ==== ======= ========= =========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-27
<PAGE> 103
AVALON WEST COAST
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
---------------------- ---------------------
1995 1996 1996 1997
--------- ---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income............................ $(117,315) $ 180,657 $(267,883) $(286,053)
Adjustments to reconcile net (loss) income to
net cash provided by (used in) operating
activities --
Depreciation and amortization............. 17,649 65,451 16,362 16,999
Fire insurance gain....................... (591,422) -- -- --
Provision for doubtful accounts........... 217,080 195,082 42,616 --
Equity in loss (income) from IMA
Partners................................ 21,967 (36,025) 80,624 121,625
Equity in (income) loss from other
investments............................. (60,666) 24,113 -- --
Changes in assets and liabilities --
(Increase) decrease in assets --
Accounts receivable..................... 398,434 379,314 372,527 123,785
Prepaid expenses........................ 277,316 (31,726) (56,070) 42,959
Deposits and other assets............... (335,381) 316,573 16,950 --
Loans to related parties................ 247,824 26,833 14,421 5,088
Increase (decrease) in liabilities --
Accounts payable........................ 239,545 22,108 (299,510) (420,610)
Accrued expenses and other.............. (24,313) (40,575) 152,927 (153,174)
Advance ticket receipts................. (241,401) (54,566) (149,383) 400,922
Loans from related parties.............. -- -- 55,232 92,876
--------- ---------- --------- ---------
Net cash provided by (used in) operating
activities................................ 49,317 1,047,239 (21,187) (55,583)
--------- ---------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Purchases of) proceeds from investments..... 302,255 (293,005) -- --
Advances made on notes receivable............ -- (52,500) -- --
Payments received on notes receivable........ -- -- -- 38,100
Expenditures for property and equipment...... (219,900) (124,496) (87,867) (537)
Insurance proceeds from fire gain............ 635,287 -- -- --
--------- ---------- --------- ---------
Net cash provided by (used in) investing
activities.............................. 717,642 (470,001) (87,867) 37,563
--------- ---------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on debt................... (204,000) (487,000) (34,000) (60,000)
Proceeds from line of credit................. -- 310,000 310,000 100,000
Payments on line of credit................... (350,000) (135,000) -- --
--------- ---------- --------- ---------
Net cash (used in) provided by financing
activities.............................. (554,000) (312,000) 276,000 40,000
--------- ---------- --------- ---------
NET INCREASE IN CASH........................... 212,959 265,238 166,946 21,980
CASH, beginning of period...................... -- 212,959 212,959 478,197
--------- ---------- --------- ---------
CASH, end of period............................ $ 212,959 $ 478,197 $ 379,905 $ 500,177
========= ========== ========= =========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-28
<PAGE> 104
AVALON WEST COAST
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(INCLUDING INFORMATION AS OF MARCH 31, 1997, AND FOR THE
THREE MONTH PERIODS ENDED MARCH 31, 1996 AND MARCH 31, 1997, WHICH IS UNAUDITED)
1. NATURE OF BUSINESS
Avalon West Coast consists of the combined accounts of New Avalon, Inc.
("Avalon Attractions"), Eric/Chandler Ltd., Inc. ("ECL"), Eric Chandler
Merchandising, Inc. ("ECM") and TBA Media, Inc. ("TBA") (collectively, "AWC")
and the minority equity investment in Irvine Meadows Amphitheater, a California
general partnership ("IMA Partners").
Ownership and incorporation
Avalon Attractions, a California corporation, was incorporated on October
21, 1982 and is owned by Robert Geddes, Brian Murphy, and Thomas Miserendino.
ECL, a Texas corporation, was incorporated on August 16, 1982 and is owned by
Robert Geddes and Thomas Miserendino. ECM, an S corporation, was incorporated on
June 5, 1995 and is owned by Robert Geddes and Thomas Miserendino. TBA, a
California corporation, was incorporated on March 4, 1983 and is owned by Robert
Geddes, Brian Murphy and Thomas Miserendino. Robert Geddes, through Audrey &
Jane, Inc., owns a 25% interest in IMA Partners.
Business operations
Avalon Attractions signs contracts with talent, venues and advertising
organizations relating to concert events held in Southern California. ECL and
ECM provide "merchandising operations" consulting services and authors
sponsorship contracts with companies interested in promoting their products
and/or services at concert events held in Southern California. ECL,
historically, has also managed the manufacture and sale of merchandise at
stadium concerts and occasionally at other events. TBA primarily advertises
concert events promoted by Avalon Attractions. Concert events occur year round
with the majority occurring between March and November.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of combination
The accompanying combined financial statements include the combined
accounts of AVA, ECL, ECM, and TBA. The companies are combined because of common
ownership. All significant intercompany accounts and transactions have been
eliminated. AWC's investment in IMA Partners is accounted for under the equity
method. (Note 7)
Revenue recognition
AWC recognizes revenues as concert events occur. Expenses are properly
matched to the period in which related revenues are recognized.
Property and Equipment
Property and equipment are stated at cost and related depreciation and
amortization is provided using the straight-line method over the following
estimated useful lives:
<TABLE>
<S> <C>
Furniture and fixtures................................... 5 years
Computer and other equipment............................. 3-5 years
Leasehold improvements................................... The lesser of 15 years or the
remaining term of the lease
</TABLE>
F-29
<PAGE> 105
AVALON WEST COAST
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
AWC follows the policy of capitalizing expenditures that materially
increase asset lives and charges ordinary maintenance and repairs to operations
as incurred.
Income taxes
AVA and TBA are taxed as C Corporations.
ECL and ECM have elected to be taxed as S corporations under provisions of
the Internal Revenue Code. As long as ECL continues to qualify for S corporation
tax treatment, no federal income taxes are payable. Accordingly, there is no
provision for federal income taxes reflected in the accompanying combined
financial statements. California has conformed to the federal provisions
recognizing S corporations and requires a tax of 1.5 percent of income for an S
corporation at the entity level. The proposed sale of the majority interest in
the combined companies discussed in Note 9 will automatically terminate the S
corporation elections.
Deferred income taxes are provided for the tax effect of temporary
differences in the recognition of income and expenses for financial reporting
and tax purposes.
Statements of cash flows
AWC prepares its statements of cash flows using the indirect method as
defined under Statement of Financial Accounting Standards No. 95. Supplemental
cash flow disclosures are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1995 1996 1997
-------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Cash paid during the period for:
Income taxes....................................... $ 10,678 $ 2,400 $ --
======== ======= =======
Interest........................................... $151,907 $95,267 $13,653
======== ======= =======
</TABLE>
Payments to stockholders
AWC has made payments to its stockholders, who are all employees of AWC,
based in part on the profitability of AWC and availability of cash. These
payments can cause significant variations in the results as they are included in
cost of revenues and general and administrative expenses in the period paid.
These payments totaled $320,000 and $1,233,000 for the years ended December 31,
1995 and 1996, respectively, and $30,000 and $30,000 for the three month periods
ended March 31, 1996 and 1997, respectively.
Use of estimates in preparation of financial statements
The preparation of financial statements in conformity with generally
accepted accounting principles require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Unaudited quarterly information
Information with respect to the three month periods ended March 31, 1996
and 1997, and as of March 31, 1997 included in these combined financial
statements and notes thereto, is unaudited; however, in the opinion of AWC's
management, all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the combined financial position and results
of operations of AWC for such period have been included.
F-30
<PAGE> 106
AVALON WEST COAST
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. COMMON STOCK
The combined entities have one class of voting common stock. The number of
shares issued and outstanding summarized in the following table remained
consistent between 1995 and 1996.
<TABLE>
<CAPTION>
ISSUED AND
ENTITY AUTHORIZED OUTSTANDING PAR VALUE
------ ---------- ----------- ---------
<S> <C> <C> <C>
AVA.................................. 100,000 12,500 No par
ECL.................................. 100,000 1,000 $ .01
ECM.................................. 100,000 3,000 No par
TBA.................................. 50,000 12,500 No par
------- ------
Total...................... 350,000 29,000
======= ======
</TABLE>
4. COMMITMENTS
AWC leases one facility under an 80 month lease agreement ending June 30,
2002. Rent expense under operating leases was $109,000 and $151,000 for the
years ended December 31, 1995 and 1996, respectively. The minimum lease
commitments as of December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997...................................................... $164,000
1998...................................................... 165,000
1999...................................................... 165,000
2000...................................................... 165,000
2001...................................................... 165,000
Thereafter................................................ 83,000
--------
$907,000
========
</TABLE>
5. RELATED PARTIES
AWC is affiliated, through common ownership, with several companies
involved in the music and entertainment industries. The following represents a
summary of activity with these affiliates.
As of December 31, 1995 and 1996, AWC had loans from stockholders of
$861,000 and $374,000, bearing interest at 11.5% and 11.25%, and loans to
related parties of $14,421 and $5,088, respectively. AWC also had a $52,500 note
receivable from a stockholder at December 31, 1996. In 1995 and 1996, Audrey &
Jane, Inc., received management fees of $140,000 and $143,100 from IMA Partners.
Eric Chandler Merchandising Partners ("ECMP"), an affiliate established in 1996
to coordinate merchandising at the 1996 Atlanta Summer Olympics, utilized the
services of AWC beginning in 1996. ECMP paid $531,000 to AWC in connection with
the services provided. AWC, also a 40% owner of ECMP, reported a loss in 1995
and income in 1996 of approximately $316,000 and $830,000, respectively.
AWC received from Avalon Entertainment Group, Inc. ("AEG"), an affiliate
involved in the entertainment and music industries, $60,000 and $93,000 in 1995
and 1996, respectively, for financial and accounting services and $104,000 in
1996 for assistance with business development. Accounts receivable from AEG for
payroll paid on behalf of AEG was approximately $21,000 and $32,000 in 1995 and
1996, respectively. In 1995, AWC received interest income of $15,908 from AEG
for interest on a loan with a principal amount of $253,390. All interest and
principal payments were received in June 1995.
In 1995, AWC invested $50,000 in Avalon Entertainment Partners, a
California limited liability company. The purpose of the entity was to promote
concerts in the San Diego market. AWC, a 50% owner, reported income in 1995 and
a loss in 1996 of $60,666 and $24,113, respectively. The entity ceased
operations in April 1996.
F-31
<PAGE> 107
AVALON WEST COAST
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. SIGNIFICANT CONCENTRATIONS
AVA generated 55% of revenues in 1996 through concert events held at one
venue and contracted artists through one major agency, which accounted for 10%
of total cost of revenues. In 1995, 30%, 25%, 19% and 11% of AVA's revenues were
generated at four venues. A single customer accounted for 34% and 51% of ECL's
revenues in 1995 and 1996, respectively. TBA generated 50% and 58% of revenues
from AVA in 1995 and 1996, respectively. Two vendors accounted for 23% and 11%
of cost of revenues in 1995, and the same two vendors accounted for 22% and 16%
of cost of revenues in 1996. All revenues and expenses generated and incurred by
ECM in 1996 related to the operations of ECMP.
7. INVESTMENT IN IMA PARTNERS
IMA Partners owns the Irvine Meadows Amphitheater, a 15,000 seat outdoor
facility in Southern California. IMA Partners generates revenue through ticket
sales, concessions, parking and service fees and merchandise sales. AWC promotes
all concert events held at the facility for a fee specified in contracts signed
with the artists and pays IMA Partners a percentage of sponsorship income
generated as the facility is used by AWC to perform sponsor related obligations.
IMA Partners primarily utilizes Ticketmaster to sell tickets, Service America
Corporation to manage concessions and parking, and Events Merchandising to
manage merchandise sales. Ticketmaster, Service America Corporation and Events
Merchandising are not related parties.
The investment in IMA Partners is accounted for using the equity method of
accounting. Audrey and Jane, Inc.'s share of the IMA Partners' loss in 1995 and
income in 1996 was $21,967 and $36,025, respectively. Condensed financial
information of IMA Partners is summarized below:
Condensed Financial Information:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
Current assets....................................... $ 217,970 $ 487,876
Non-current assets................................... 5,220,677 5,463,577
Current liabilities.................................. 898,303 1,930,940
Non-current liabilities.............................. 416,963 383,631
Partners' capital.................................... 4,123,381 3,636,882
Income for the year -- 1996.......................... 144,101
Loss for the year -- 1995............................ (87,867)
Loss for the three months ended March 31, 1997....... (486,499)
</TABLE>
In April 1997, IMA Partners entered into a joint venture, Western
Amphitheater Partners ("WAP"), with Pavilion Partners, a Delaware general
partnership. Each partner owns a 50% interest in the revenues and direct show
related expenses of WAP, and contributed an irrevocable, exclusive right to use
and operate their respective amphitheaters and related assets. Certain facility
expenses, as defined in the joint venture agreement, will be recorded separately
on each partners' respective books. Pavilion Partners is the sole owner of the
Glen Helen Amphitheater, which seats 65,000, located in Devore, California. The
purpose of WAP is to improve operational efficiencies at the two amphitheaters.
In connection with the venture, Avalon Attractions, for a fee, will carry out
booking and logistical production of all events until November 2016, when the
venture agreement ends.
8. EVENTS (UNAUDITED) SUBSEQUENT TO DATE OF AUDITORS' REPORT
In April 1997, Audrey & Jane, Inc. signed a letter of intent to purchase an
additional 50% interest in IMA Partners. In June 1997, Audrey & Jane, Inc. then
agreed in principle to sell a 51% interest in IMA Partners to Nashville Country
Club, Inc. ("NCCI").
F-32
<PAGE> 108
AVALON WEST COAST
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
In June 1997, the stockholders of AWC entered into an agreement to sell a
51% controlling interest in all entities to NCCI, a public company involved in
the development, ownership and operations of restaurants, hotels and other
entertainment related business assets.
F-33
<PAGE> 109
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of Irvine Meadows Amphitheater:
We have audited the accompanying balance sheet of Irvine Meadows
Amphitheater (a California general partnership) as of December 31, 1996, and the
related statements of operations, partners' capital and cash flows for each of
the two years in the period ended December 31, 1996. These financial statements
are the responsibility of Irvine Meadows Amphitheater'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 Irvine Meadows Amphitheater
as of December 31, 1996, and the results of its operations and its cash flows
for each of the two years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
May 9, 1997
F-34
<PAGE> 110
IRVINE MEADOWS AMPHITHEATER
BALANCE SHEET
DECEMBER 31, 1996
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 180,237
Accounts receivable....................................... 13,214
Prepaid expenses.......................................... 24,519
-----------
Total current assets.............................. 217,970
-----------
PROPERTY AND EQUIPMENT, at cost:
Leasehold improvements.................................... 10,396,874
Capitalized lease equipment............................... 458,941
-----------
10,855,815
Less -- accumulated depreciation and amortization......... (5,635,138)
-----------
5,220,677
-----------
Total assets...................................... $ 5,438,647
===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable.......................................... $ 254,790
Accrued expenses and other................................ 230,479
Season tickets and deferred income........................ 107,950
Loans from related parties................................ 5,088
Loan from partners........................................ 200,000
Current portion of capital lease obligation............... 99,996
-----------
Total current liabilities......................... 898,303
CAPITAL LEASE OBLIGATION, net of current portion............ 416,963
-----------
Total liabilities................................. 1,315,266
COMMITMENTS
PARTNERS' CAPITAL........................................... 4,123,381
-----------
Total liabilities and partners' capital........... $ 5,438,647
===========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-35
<PAGE> 111
IRVINE MEADOWS AMPHITHEATER
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1995 1996
---------- -----------
<S> <C> <C>
REVENUES.................................................... $9,722,368 $10,306,418
COST OF REVENUES............................................ 7,270,122 7,603,947
OPERATING EXPENSES:
General and administrative expenses....................... 2,142,713 2,153,556
Selling and marketing expenses............................ 27,677 61,437
Depreciation and amortization............................. 301,623 305,648
---------- -----------
(Loss) income from operations.......................... (19,767) 181,830
INTEREST EXPENSE, net....................................... 68,100 37,729
---------- -----------
NET (LOSS) INCOME........................................... $ (87,867) $ 144,101
========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-36
<PAGE> 112
IRVINE MEADOWS AMPHITHEATER
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
PARTNERS (NOTE 1)
-----------------------------------------
IMA TOTAL
ANDREY & SHELLI INVESTMENT PARTNERS'
JANE, INC. MEADOWS, INC. CORP. CAPITAL
---------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
BALANCES, December 31, 1994.............. $1,016,787 $1,016,787 $2,033,573 $4,067,147
Net loss............................... (21,967) (21,967) (43,933) (87,867)
---------- ---------- ---------- ----------
BALANCES, December 31, 1995.............. 994,820 994,820 1,989,640 3,979,280
Net income............................. 36,025 36,025 72,051 144,101
---------- ---------- ---------- ----------
BALANCES, December 31, 1996.............. $1,030,845 $1,030,845 $2,061,691 $4,123,381
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-37
<PAGE> 113
IRVINE MEADOWS AMPHITHEATER
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1995 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income......................................... $ (87,867) $ 144,101
Adjustments to reconcile net (loss) income to net cash
provided by operating activities --
Depreciation and amortization.......................... 301,623 305,648
Changes in assets and liabilities --
(Increase) decrease in assets --
Accounts receivable............................... (101,912) 54,579
Prepaid expenses.................................. 22,407 (9,456)
Deposits and other assets......................... 1,312 --
Increase (decrease) in liabilities --
Accounts payable.................................. 108,999 97,112
Accrued expenses and other........................ 92,333 (175,394)
Season tickets and deferred income................ (43,175) (98,935)
Loans from related parties........................ (265,324) (9,333)
--------- ---------
Net cash provided by operating activities....... 28,396 308,322
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES;
Expenditures for property and equipment................... (10,037) (65,654)
--------- ---------
Net cash used in investing activities........... (10,037) (65,654)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligation...................... (99,996) (99,996)
Proceeds from debt........................................ -- 200,000
Proceeds from line of credit.............................. 990,000 170,000
Payments on line of credit................................ (925,000) (360,000)
--------- ---------
Net cash used in financing activities........... (34,996) (89,996)
--------- ---------
NET DECREASE (INCREASE) IN CASH AND CASH EQUIVALENTS........ (16,637) 152,672
CASH AND CASH EQUIVALENTS, beginning of year................ 44,202 27,565
--------- ---------
CASH AND CASH EQUIVALENTS, end of year...................... $ 27,565 $ 180,237
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-38
<PAGE> 114
IRVINE MEADOWS AMPHITHEATER
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. NATURE OF BUSINESS
Irvine Meadows Amphitheater, a California general partnership ("IMA
Partners"), was formed on January 1, 1981. IMA Partners is owned 50% by IMA
Investment Corp., 25% by Shelli Meadows, Inc., and 25% by Audrey & Jane, Inc.
IMA Partners owns the Irvine Meadows Amphitheater (the "IMA"), a 15,000
seat outdoor facility in Irvine, California. IMA Partners generates revenue
through ticket sales, concessions, parking and service fees and merchandise
sales. Affiliates of IMA Partners promote all concert events held at the
facility for a fee specified in contracts signed with the artists and also pay
IMA Partners a percentage of sponsorship income generated as the facility is
used by the affiliated companies to fulfill sponsor related obligations.
2. SIGNIFICANT ACCOUNTING POLICIES
Revenue recognition
IMA Partners recognizes revenues as concert events occur. Expenses are
properly matched to the period in which related revenues are recognized.
Property and equipment
Property and equipment are recorded at cost and related depreciation and
amortization is provided using the straight-line method over the following
useful lives:
<TABLE>
<S> <C>
Leasehold improvements.................................. The lesser of 5-35 years or
the remaining term of the lease
Capitalized lease equipment............................. 15 years
</TABLE>
IMA Partners follows the policy of capitalizing expenditures that
materially increase asset lives and charges ordinary maintenance and repairs to
operations as incurred.
Statements of cash flows
IMA Partners has a cash management program that invests excess cash in
money market funds. Cash balances not required to meet daily checks clearing the
banks are temporarily invested. For purposes of the statements of cash flows,
IMA Partners considers all highly liquid investments with original maturities of
less than three months to be cash equivalents.
IMA Partners prepares its statements of cash flows using the indirect
method as defined under Statement of Financial Accounting Standards No. 95.
Supplemental cash flow disclosures are as follows:
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Cash paid during the year for:
Interest.................................................. $81,389 $60,001
======= =======
</TABLE>
Payments to partners
IMA Partners has made payments to its partners, one of whom is an employee
of IMA Partners, based in part on the profitability of IMA Partners and the
availability of cash. These payments can cause significant variations in IMA
Partners results of operations as they are included in general and
administrative expenses in the period paid. These payments totaled $280,000 and
$286,000 for the years ended December 31, 1995 and
F-39
<PAGE> 115
IRVINE MEADOWS AMPHITHEATER
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1996, respectively, and $37,500 and $50,000 for the three month period ended
March 31, 1996 and 1997, respectively.
Use of estimates in preparation of financial statements
The preparation of financial statements in conformity with generally
accepted accounting principles require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Income taxes
In accordance with Internal Revenue Service regulations, IMA Partners is
not an income tax paying entity. Its income or losses are reported in the tax
returns of its partners.
Impairment of property and equipment
In March 1995, the Financial Accounting Standards Board (FASB) issued SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed of," which requires IMA Partners to review for impairment
of long-lived assets, certain identifiable intangibles, and goodwill related to
those assets whenever events or changes in circumstances indicate the carrying
amount of an asset might not be recoverable. In certain situations, an
impairment loss would be recognized. IMA Partners has reviewed property and
equipment and does not believe they have been impaired as of December 31, 1996.
3. FINANCING ARRANGEMENTS
IMA Partners utilizes various forms of short-term debt to finance
operations. At December 31, 1996 IMA Partners had a $200,000 non-interest
bearing note payable to the partners, due in 1997, and a line of credit with a
maximum borrowing limit of $500,000 at 9.25% with no outstanding balance, which
expires in December 1997. At December 31, 1995, IMA Partners had a line of
credit with a maximum borrowing limit of $500,000 and $190,000 outstanding
bearing 9.75% interest.
4. COMMITMENTS
IMA Partners leases the land on which the amphitheater is located and in
February 1997, entered into a new 20 year lease agreement ending February 28,
2017. The new lease agreement specifies annual payments of the greater of
$700,000, 5% of gross amphitheater sales, or 25% of net cash flow from
operations. Rent expense under operating leases was approximately $544,000 and
$507,000 for the years ended December 31, 1995 and 1996, respectively. The
minimum lease commitments as of December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997.................................................... $ 608,000
1998.................................................... 700,000
1999.................................................... 700,000
2000.................................................... 700,000
2001.................................................... 700,000
Thereafter.............................................. 10,617,000
-----------
$14,025,000
===========
</TABLE>
F-40
<PAGE> 116
IRVINE MEADOWS AMPHITHEATER
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. RELATED PARTIES
IMA Partners is affiliated, through common ownership with Robert Geddes,
with several companies involved in the music and entertainment industries. The
following represents a summary of activity with these affiliates.
As of December 31, 1995 and 1996, IMA Partners had loans from related
parties, consisting mainly of short-term payables, of $14,421 and $5,088,
respectively. In 1995 and 1996, Audrey & Jane, Inc., received management fees of
$140,000 and $143,100 from IMA Partners. IMA Partners received $257,000 and
$325,000 in sponsorship income from Eric/Chandler Ltd., Inc. in 1995 and 1996,
respectively.
6. SIGNIFICANT CONCENTRATIONS
IMA Partners primarily utilizes Ticketmaster to sell tickets, Service
America Corporation to manage concessions and parking, and Events Merchandising
to manage merchandise sales. Ticketmaster, Service America Corporation and
Events Merchandising are not related parties. IMA Partners has multi-year
contracts with these companies to provide services at Irvine Meadows
Amphitheater.
7. WESTERN AMPHITHEATER PARTNERS
In April 1997, IMA Partners entered into a joint venture, Western
Amphitheater Partners ("WAP"), with Pavilion Partners, a Delaware general
partnership. Each partner owns a 50% interest in the revenues and direct show
related expenses of WAP and contributed an irrevocable, exclusive right to use
and operate their respective amphitheaters and related assets. Certain facility
expenses, as defined in the joint venture agreement, will be recorded separately
on each partners' respective books. Pavilion Partners is the sole owner of the
Glen Helen Amphitheater, which seats 65,000, located in Devore, California. The
purpose of WAP is to improve operational efficiencies at the two amphitheaters.
In connection with the venture, an affiliate, for a fee, will carry out booking
and logistical production of all events until November 2016, when the venture
agreement ends.
8. EVENTS (UNAUDITED) SUBSEQUENT TO DATE OF AUDITORS' REPORT
In April 1997, Audrey & Jane, Inc. signed a letter of intent to purchase
IMA Investment Corp.'s 50-percent interest in IMA Partners. In June 1997, Audrey
& Jane, Inc. then agreed in principle to sell a 51-percent interest in IMA
Partners to Nashville Country Club, Inc. ("NCCI") in conjunction with NCCI's
acquisition of certain other affiliated companies. NCCI is a public company
involved in the development, ownership and operations of restaurants, hotels and
other entertainment related business assets.
F-41
<PAGE> 117
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The TBCA provides that a corporation may indemnify any of its directors and
officers against liability incurred in connection with a proceeding if (i) the
director or officer acted in good faith, (ii) in the case of conduct in his or
her official capacity with the corporation, the director or officer reasonably
believed such conduct was in the corporation's best interest, (iii) in all other
cases, the director or officer reasonably believed that his or her conduct was
not opposed to the best interest of the corporation, and (iv) in connection with
any criminal proceeding, the director or officer had no reasonable cause to
believe that his or her conduct was unlawful. In actions brought by or in the
right of the corporation, however, the TBCA provides that no indemnification may
be made if the director or officer was adjudged to be liable to the corporation.
In cases where the director or officer is wholly successful, on the merits or
otherwise, in the defense of any proceeding instigated because of his or her
status as an officer or director of a corporation, the TBCA mandates that the
corporation indemnify the director or officer against reasonable expenses
incurred in the proceeding. The TBCA also provides that in connection with any
proceeding charging improper personal benefit to an officer or director, no
indemnification may be made if such officer or director is adjudged liable on
the basis that personal benefit was improperly received. Notwithstanding the
foregoing, the TBCA provides that a court of competent jurisdiction, upon
application, may order that an officer or director be indemnified for reasonable
expenses if, in consideration of all relevant circumstances, the court
determines that such individual is fairly and reasonably entitled to
indemnification, whether or not the standard of conduct set forth above was met.
Paragraph 8 of the Company's Charter, as amended (the "Charter"), provides
that to the fullest extent permitted by law no director of the Company shall be
personally liable to the Company or any of its shareholders for monetary damages
for breach of any fiduciary duty as a director. Under the TBCA, this Charter
provision relieves the Company's directors from personal liability to the
Company or its shareholders for monetary damages for breach of fiduciary duty as
a director except for liability arising from (i) any breach of a director's duty
of loyalty to the Company or its shareholders, (ii) acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, or (iii) any unlawful distributions. In addition, the Company's bylaws
provide that the Company shall indemnify all present and future directors and
officers (and any person who may have served at its request as an officer or
director of another company in which the Company owns shares of its capital
stock) to the fullest extent permitted by law.
The proposed form of Placement Agent Agreement filed as Exhibit 1.1 to this
Registration Statement contains certain provisions relating to the
indemnification of the Company and its directors and officers by the Placement
Agent, and certain provisions relating to the indemnification of the Placement
Agent by the Company and its directors and officers, for certain liabilities,
including liabilities arising under the Act, and affords certain rights of
contribution with respect thereto.
II-1
<PAGE> 118
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered hereby, other than the
underwriting discount. All amounts are estimated except the Commission
registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $3,030
NASD fee.................................................... $1,500
Blue Sky fees and expenses.................................. *
Accounting fees and expenses................................ *
Legal fees and expenses..................................... *
Printing and engraving expenses............................. *
Registrar and transfer agent's fees......................... *
Miscellaneous fees and expenses............................. *
------
Total............................................. $
======
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
On February 24, 1994, the Company issued a warrant to purchase 60,000
shares of Common Stock to Yee, Desmond, Schroeder & Allen in connection with the
Company's initial public offering. The exercise price of the warrant is $6.00
per share. No registration was required with respect to the issuance of the
warrant pursuant to Section 4(2) of the Act.
On January 16, 1996, the Company issued warrants to purchase an aggregate
of 12,500 shares of Common Stock at an exercise price of $6.00 per share to
eight persons and entities in connection with the extension of certain
promissory notes held by such persons and entities relating to the Breckenridge
Resort. The warrants are exercisable beginning one year following the
consummation of this offering. No registration was required with respect to the
issuance of the warrants pursuant to Section 4(2) of the Act.
Between December 1, 1995 and January 15, 1996, the Company issued six
promissory notes, each in the principal amount of $50,000 and bearing interest
at the rate of 30% per annum. No registration was required with respect to the
issuance of the notes pursuant to Section 4(2) of the Act.
On April 23, 1996, the Company issued a warrant to purchase up to 120,000
Units, each Unit consisting of two shares of Common Stock and one Redeemable
Warrant, to H.J. Meyers & Co., Inc. in connection with the Company's public
offering. The exercise price of the 1996 Warrants is $15.50 per Unit and the
exercise price of the underlying Redeemable Warrants is $7.75 per share. No
registration was required with respect to the issuance of the warrant pursuant
to Section 4(2) of the Act.
On April 29, 1996, the Company issued 417,525 shares of Common Stock in
connection with the Resort Acquisition. No registration was required with
respect to the issuance of the shares pursuant to Section 4(2) of the Act.
On April 21, 1997, the Company issued 809,840 shares of Common Stock in
connection with the acquisition of AEG. No registration was required with
respect to the issuance of the shares pursuant to Section 4(2) of the Act.
II-2
<PAGE> 119
ITEM 27. EXHIBITS
(a) Exhibits. See attached Exhibit Index.
(b) Financial Statement Schedules.
ITEM 28. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the Placement
Agent at the closing specified in the Placement Agent Agreement certificates in
such denominations and registered in such names as required by the Placement
Agent to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the foregoing provisions, or otherwise, the Company has been advised that in
the opinion of the Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4), or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-3
<PAGE> 120
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of
Nashville, State of Tennessee, on June 18, 1997.
NASHVILLE COUNTRY CLUB, INC.
By:/s/ THOMAS JACKSON WEAVER III
----------------------------------
Thomas Jackson Weaver III
Chairman of the Board, Chief
Executive
Officer and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated. Each person whose signature appears below
hereby authorizes and appoints Thomas Jackson Weaver III, and each of them, any
one of whom may act without the joinder of the others, as his attorney-in-fact
to sign on his behalf individually and in the capacity stated below, all
amendments and post-effective amendments to this Registration Statement as such
attorney-in-fact may deem necessary or appropriate.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ THOMAS JACKSON WEAVER III Chairman of the Board, Chief June 18, 1997
- ----------------------------------------------------- Executive Officer and President
Thomas Jackson Weaver III (Principal Executive and Financial
Officer)
/s/ BRYAN CUSWORTH Chief Financial Officer (Principal June 18, 1997
- ----------------------------------------------------- Accounting Officer)
Bryan Cusworth
/s/ PRAB NALLAMILLI Director June 18, 1997
- -----------------------------------------------------
Prab Nallamilli
/s/ FRANK BUMSTEAD Director June 18, 1997
- -----------------------------------------------------
Frank Bumstead
Director June , 1997
- -----------------------------------------------------
Charles Flood
/s/ ROBERT E. GEDDES Director June 18, 1997
- -----------------------------------------------------
Robert E. Geddes
Director June , 1997
- -----------------------------------------------------
Jeffrey McIntyre
/s/ FRANK A. MCKINNIE WEAVER, SR. Director June 18, 1997
- -----------------------------------------------------
Frank A. McKinnie Weaver, Sr.
/s/ THOMAS MISERENDINO Director June 18, 1997
- -----------------------------------------------------
Thomas Miserendino
</TABLE>
II-4
<PAGE> 121
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ LOUIS J. RISI, JR. Director June 18, 1997
- -----------------------------------------------------
Louis J. Risi, Jr.
/s/ STEVEN L. RISI Director June 18, 1997
- -----------------------------------------------------
Steven L. Risi
Director June , 1997
- -----------------------------------------------------
Jose F. Rosado
Director June , 1997
- -----------------------------------------------------
Mark van Hartesvelt
/s/ KYLE YOUNG Director June 18, 1997
- -----------------------------------------------------
Kyle Young
</TABLE>
II-5
<PAGE> 122
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
-------------- -----------------------
<C> <S>
1.1 -- Form of Placement Agency Agreement.
2.1 -- Merger Agreement among Nashville Country Club, Inc.,
Avalon Acquisition Corp., Inc. and Avalon Entertainment
Group, Inc.(1)
2.2 -- Letter Agreement among Nashville Country Club, Inc.,
Robert E. Geddes, Thomas Miserendino and Brian F.
Murphy.(6)
3.1 -- Charter of the Company, as amended.(2)
3.2 -- Restated Bylaws of the Company.(2)
4.1 -- Specimen Common Stock Certificate.(2)
4.2 -- Paragraph 6 of the Charter of the Company (included in
Exhibit 3.1).(2)
4.3 -- Specimen Warrant Certificate.(3)
*5.1 -- Opinion of Winstead Sechrest & Minick P.C.
10.1 -- Lease dated September 30, 1993 between the Company and
William Madison Smith.(2)
10.2 -- Employment Agreement dated as of January 1, 1994 between
the Company and Thomas Jackson Weaver III.(2)
10.3 -- Employment Agreement dated as of January 1, 1994 between
the Company and Prab Nallamilli.(2)
10.4 -- Intentionally omitted.
10.5 -- Stock Purchase Warrant dated February 24, 1994 between
the Company and Yee, Desmond, Schroeder & Allen, Inc.(2)
10.6 -- Form of Indemnification Agreement between the Company and
each of the directors and executive officers.(2)
10.7 -- Employment Agreement dated April 29, 1996 between the
Company and Jeffrey McIntyre.(3)
10.8 -- Employment Agreement dated April 29, 1996 between the
Company and Mark van Hartesvelt.(3)
10.9 -- Nashville Country Club, Inc. 1995 Stock Option Plan.(4)
10.10 -- Form of Stock Option Agreement for options granted under
the 1995 Stock Option Plan.(4)
10.11 -- Nashville Country Club, Inc. 1997 Stock Option Plan.(5)
10.12 -- Form of Stock Option Agreement for options granted under
the 1997 Stock Option Plan.(5)
10.13 -- Representative's Warrant Agreement dated April 23, 1996
between the Company and H.J. Meyers & Co., Inc.(4)
10.14 -- Warrant Agreement dated April 23, 1996 among the Company,
H.J. Meyers & Co., Inc. and American Stock Transfer &
Trust Company.(4)
10.15 -- Registration Rights Agreement between the Company, Robert
E. Geddes, Greg M. Janese, Thomas Miserendino, Brian K.
Murphy and Marc W. Oswald.(5)
10.16 -- Consulting Agreement between Avalon Entertainment Group,
Inc. and Robert E. Geddes.(5)
10.17 -- Consulting Agreement between Avalon Entertainment Group,
Inc. and Thomas Miserendino.(5)
</TABLE>
<PAGE> 123
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
-------------- -----------------------
<C> <S>
10.18 -- Employment Agreement between Avalon Entertainment Group,
Inc. and Marc W. Oswald.(5)
10.19 -- Employment Agreement between Avalon Entertainment Group,
Inc. and Greg M. Janese.(5)
10.20 -- Form of Placement Agent Warrant Agreement between the
Company and Rauscher Pierce Refsnes, Inc. as Placement
Agent.
10.21 -- Form of Escrow Agreement between the Company, Rauscher
Pierce Refsnes, Inc. and Citibank, N.A. as Escrow Agent.
21.1 -- Subsidiaries of the Company.
23.1 -- Consent of Arthur Andersen LLP.
*23.2 -- Consent of Winstead Sechrest & Minick P.C. (included in
Exhibit 5.1).
24.1 -- Power of Attorney (set forth on the signature page
hereof).
</TABLE>
- ---------------
* To be filed by amendment.
(1) Incorporated by reference to the same exhibit number in the Company's
Current Report on Form 8-K filed on April 30, 1997.
(2) Incorporated by reference to the same exhibit number in the Company's
Registration Statement on Form SB-2 (Registration No. 33-69944).
(3) Incorporated by reference to the same exhibit number in the Company's
Registration Statement on Form SB-2 (Registration No. 33-97890).
(4) Incorporated by reference to the same exhibit number in the Company's Form
10-KSB for the fiscal year ended December 31, 1995.
(5) Incorporated by reference to the same exhibit number in the Company's Form
10-KSB, as amended, for the fiscal year ended December 29, 1996.
(6) Incorporated by reference to the same exhibit number in the Company's
Current Report on Form 8-K filed on June 20, 1997.
<PAGE> 1
EXHIBIT 1.1
NASHVILLE COUNTRY CLUB, INC.
__________ Shares of Common Stock, no par value per share
FORM OF
PLACEMENT AGENCY AGREEMENT
June __, 1997
Rauscher Pierce Refsnes, Inc.
As Placement Agent
2711 N. Haskell Ave., Suite 2400
Dallas, Texas 75204
Dear Sir or Madam:
Nashville Country Club, Inc., a Tennessee corporation (the
"Company"), proposes to issue and sell _________ shares (the "Shares") of
common stock, no par value per share (the "Common Stock"), to certain investors
(collectively, the "Investors"). The Company desires to engage you as its
placement agent (the "Placement Agent") in connection with such issuance and
sale. The Common Stock is more fully described in the Registration Statement
(as hereinafter defined).
The Company hereby confirms as follows its agreements with the
Placement Agent.
1. Agreement to Act as Placement Agent.
On the basis of the representations, warranties and
agreements of the Company herein contained and subject to all the terms and
conditions of this Agreement, the Placement Agent agrees to act as the
Company's exclusive placement agent in connection with the issuance and sale,
on a best efforts basis, by the Company of the Shares to the Investors. The
Company shall (i) pay to the Placement Agent the greater of 6.0% of the gross
proceeds received by the Company from the sale of the Shares as set forth on
the cover page of the Prospectus (as hereinafter defined) or $450,000, and (ii)
issue to the Placement Agent pursuant
<PAGE> 2
to the Placement Agent's Warrant Agreement dated the date hereof by and between
the Company and you (the "Warrant Agreement") a 5-year warrant to purchase an
amount of shares equal to 5% of the shares of Common Stock sold to the
Investors at a purchase price equal to 120% of the purchase price set forth on
the cover page of the Prospectus (the "Warrants"). The shares of Common Stock
issuable upon exercise of the Warrants are hereinafter referred to as the
"Warrant Shares," and the Warrants and the Warrant Shares are hereinafter
referred to as the "Placement Agent Securities."
2. Delivery and Payment. Concurrently with the execution and
delivery of this Agreement, the Company, the Placement Agent, and Citibank,
N.A. as escrow agent (the "Escrow Agent"), shall enter into an escrow agreement
substantially in the form of Exhibit A attached hereto (the "Escrow
Agreement"), pursuant to which an escrow account will be established, at the
Company's expense, for the benefit of the Investors (the "Escrow Account").
Prior to the Closing Date (as defined below), (i) each of the Investors will
deposit an amount equal to the price per Security multiplied by the number of
Shares purchased by it in the Escrow Account, and (ii) the Escrow Agent will
notify the Company and the Placement Agent in writing whether the Investors
have deposited in the Escrow Account funds in the amount equal to the proceeds
of the sale of all of the Shares offered hereby (the "Requisite Funds") into
the Escrow Account. At 10:00 a.m., New York City time, on _________, 1997, or
at such other time on such other date as may be agreed upon by the Company and
the Placement Agent but in no event prior to the date on which the Escrow Agent
shall have received all of the Requisite Funds (such date is hereinafter
referred to as the "Closing Date"), the Escrow Agent will release the Requisite
Funds from the Escrow Account for collection by the Company and the Placement
Agent as provided in the Escrow Agreement and the Company shall deliver the
Shares to the Investors, which delivery may be made through the facilities of
the Depository Trust Company. The closing (the "Closing") shall take place at
the office of Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York, New
York 10038. All actions taken at the Closing shall be deemed to have occurred
simultaneously.
Certificates evidencing the Shares shall be in definitive form
and shall be registered in such names and in such denominations as the
Placement Agent shall request by written notice to the Company. For the purpose
of expediting the checking and packaging of certificates for the Shares, the
Company agrees to make such certificates available for inspection at least 24
hours prior to delivery to the Investors.
3. Representations and Warranties of the Company. The Company
represents and warrants and covenants to the Placement Agent that:
(a) A registration statement (Registration No.
333-_____) on Form SB-2 relating to the Shares and the Placement Agent
Securities, including a preliminary prospectus relating to the Shares and such
amendments to such registration statement as may have been required to the date
of this Agreement, has been prepared by the Company, under the provisions of
the Securities Act of 1933, as amended (the "Act"), and the rules and
regulations (collectively referred to as the "Rules and Regulations") of the
Securities and Exchange
-2-
<PAGE> 3
Commission (the "Commission") thereunder, and has been filed with the
Commission. The Commission has not issued any order preventing or suspending
the use of the Prospectus or the Preliminary Prospectus (as defined below). The
term "Preliminary Prospectus" as used herein means a preliminary prospectus
relating to the Shares as contemplated by Rule 430 or Rule 430A ("Rule 430A")
of the Rules and Regulations included at any time as part of the registration
statement. Copies of such registration statement and amendments and of each
related Preliminary Prospectus have been delivered to the Placement Agent. If
such registration statement has not become effective, a further amendment to
such registration statement, including a form of final prospectus, necessary to
permit such registration statement to become effective will be filed promptly
by the Company with the Commission. If such registration statement has become
effective, a final prospectus relating to the Shares containing information
permitted to be omitted at the time of effectiveness by Rule 430A will be filed
by the Company with the Commission in accordance with Rule 424(b) of the Rules
and Regulations promptly after execution and delivery of this Agreement. The
term "Registration Statement" means the registration statement as amended at
the time it becomes or became effective (the "Effective Date"), including all
material incorporated by reference therein and any information deemed to be
included by Rule 430A. The term "Prospectus" means the prospectus relating to
the Shares as first filed with the Commission pursuant to Rule 424(b) of the
Rules and Regulations or, if no such filing is required, the form of final
prospectus relating to the Shares included in the Registration Statement at the
Effective Date, in either case, including all material, if any, incorporated by
reference therein.
(b) On the date that any Preliminary Prospectus was
filed with the Commission, the date the Prospectus is first filed with the
Commission pursuant to Rule 424(b) (if required), at all times subsequent to
and including the Closing Date and when any post-effective amendment to the
Registration Statement becomes effective or any amendment or supplement to the
Prospectus is filed with the Commission, the Registration Statement, each
Preliminary Prospectus and the Prospectus (as amended or as supplemented if the
Company shall have filed with the Commission any amendment or supplement
thereto), including the financial statements included in the Prospectus, did or
will comply with all applicable provisions of the Act and the Rules and
Regulations and did or will contain all statements required to be stated
therein in accordance with the Act and the Rules and Regulations. On the
Effective Date and when any post-effective amendment to the Registration
Statement becomes effective, no part of the Registration Statement or any such
amendment did or will contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the statements therein not misleading. At the Effective Date, at the date
the Prospectus or any amendment or supplement to the Prospectus is filed with
the Commission and at the Closing Date the Prospectus did not or will not
contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The Company has not
distributed any offering material in connection with the offering or sale of
the Common Stock, other than the Registration Statement, the Preliminary
Prospectus and the Prospectus.
-3-
<PAGE> 4
(c) Each of the Company and its subsidiaries listed on
Schedule I hereto (the "Subsidiaries") and at the Closing Date will be duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation. Each of the Company and its Subsidiaries has,
and at the Closing Date will have, full power and authority to conduct all the
activities conducted by it, to own or lease all the assets owned or leased by
it and to conduct its business as described in the Registration Statement and
the Prospectus (or, if the Prospectus is not in existence, in the most recent
Preliminary Prospectus). Each of the Company and its Subsidiaries is, and at
the Closing Date will be, duly licensed or qualified to do business and in good
standing as a foreign organization in all jurisdictions in which the nature of
the activities conducted by it or the character of the assets owned or leased
by it makes such licensing or qualification necessary. Except for the stock of
the Subsidiaries and as otherwise disclosed in the Registration Statement, the
Company does not own, and at the Closing Date will not own, directly or
indirectly, any shares of stock or any other equity or long-term debt
securities of any corporation or have any equity interest in any firm,
partnership, joint venture, association or other entity. Complete and correct
copies of the articles or certificate of incorporation and of the bylaws of
each of the Company and its Subsidiaries and all amendments thereto have been
delivered to the Placement Agent, and no changes therein will be made
subsequent to the date hereof and prior to the Closing Date.
(d) The issued and outstanding shares of capital stock
of the Company have been duly authorized, validly issued, are fully paid and
nonassessable and are not subject to any preemptive or similar rights. The
Company has an authorized, issued and outstanding capitalization as set forth
in the Prospectus (or, if the Prospectus is not in existence, in the most
recent Preliminary Prospectus). The issued shares of capital stock of each of
the Subsidiaries have been duly authorized and validly issued, are fully paid
and nonassessable and are owned by the Company free and clear of any security
interests, liens, encumbrances, equities or claims. The description of the
securities of the Company in the Registration Statement and the Prospectus (or,
if the Prospectus is not in existence, in the most recent Preliminary
Prospectus) is, and at the Closing Date will be, complete and accurate in all
respects. Except as set forth in the Registration Statement and the Prospectus
(or, if the Prospectus is not in existence, in the most recent Preliminary
Prospectus), neither the Company nor its Subsidiaries has outstanding, and at
the Closing Date will not have outstanding, any options to purchase, or any
rights or warrants to subscribe for, or any securities or obligations
convertible into, or exchangeable for, or any contracts or commitments to issue
or sell, any shares of capital stock or other securities.
(e) This Agreement has been duly authorized and
validly executed and delivered by the Company and is a legal, valid and binding
agreement of the Company enforceable against the Company in accordance with its
terms. The Escrow Agreement has been duly authorized and validly executed and
delivered by the Company and is a legal, valid and binding agreement of the
Company enforceable against the Company in accordance with its terms. The
Warrant Agreement has been duly authorized and validly executed and delivered
by the Company and is a legal, valid and binding agreement of the Company
enforceable against the Company in accordance with its terms. The Escrow
Agreement and the Warrant Agreement will conform to the descriptions thereof
set forth in the Prospectus.
-4-
<PAGE> 5
(f) The issuance and sale of the Shares have been duly
authorized by the Company, and the Shares, when issued and paid for in
accordance with this Agreement, will be duly and validly issued, fully paid and
nonassessable and will not be subject to preemptive or similar rights. The
holders of the Shares will not be subject to personal liability by reason of
being such holders. The issuance and sale of the Warrants have been duly
authorized by the Company, and the Warrants, when issued in accordance with
this Agreement and the Warrant Agreement, will (i) be duly and validly issued,
(ii) constitute valid and legally binding obligations of the Company,
enforceable against the Company in accordance with their terms and entitled to
the benefits of the Warrant Agreement and (iii) be exerciseable for the Warrant
Shares in accordance with the terms of the Warrants. The Warrant Shares have
been duly authorized and reserved for issuance upon exercise of the Warrants
and, when issued and paid for upon such exercise in accordance with the terms
of the Warrant Agreement, will be duly and validly issued, fully paid and
nonassessable and will not be subject to preemptive or similar rights. The
Shares, the Warrants and the Warrant Shares when issued, will conform to the
respective descriptions thereof set forth in the Prospectus.
(g) The consolidated financial statements and the
related notes and schedules included in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, in the most recent
Preliminary Prospectus) present fairly the financial condition of the Company,
and its Subsidiaries, as of the date thereof and the results of operations,
stockholders' equity (deficit) and cash flows of the Company and its
Subsidiaries at the respective dates and for the respective periods covered
thereby, all in conformity with generally accepted accounting principles
("GAAP") applied on a consistent basis throughout the entire period involved,
except as otherwise disclosed therein. No other financial statements or
schedules of the Company, its Subsidiaries or any other entity are required by
the Act or the Rules and Regulations to be included in the Registration
Statement or the Prospectus. Arthur Andersen LLP (the "Accountants"), who have
reported on such financial statements and schedules, are independent
accountants with respect to the Company and its Subsidiaries, as required by
the Act and the Rules and Regulations. The statements included in the
Registration Statement with respect to the Accountants pursuant to Rule 509 of
Regulation S-B of the Rules and Regulations are true and correct in all
material respects. The consolidated financial statements of the Company and the
related notes and schedules included in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, in the most recent
Preliminary Prospectus) have been prepared in conformity with the requirements
of the Act and the Rules and Regulations and present fairly the information
shown therein. The financial statements of Avalon Entertainment Group, Inc., a
Tennessee corporation ("AEG"), included in the Registration Statement or the
Prospectus present fairly the financial condition of AEG as of the respective
dates thereof and the consolidated results of operations and cash flows of AEG
for the respective periods covered thereby, all in conformity with GAAP applied
on a consistent basis throughout the entire period involved, except as
otherwise disclosed in the Prospectus. The combined financial statements of
Avalon West Coast ("AWC") (an affiliated group of companies, including New
Avalon, Inc. ("AVA"), a California corporation, Eric/Chandler Ltd.,
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<PAGE> 6
Inc. ("ECL"), a Texas corporation, Eric Chandler Merchandising, Inc. ("ECM"), a
Texas corporation, and TBA Media, Inc. ("TBA"), a Texas corporation) included
in the Registration Statement or the Prospectus present fairly the combined
financial condition of AVA, ECL, ECM and TBA as of the respective dates thereof
and the combined results of operations and cash flows of AWC for the respective
periods covered thereby, all in conformity with GAAP applied on a consistent
basis throughout the entire period involved, except as otherwise disclosed in
the Prospectus. The financial statements of Irvine Meadows Amphitheater, a
California general partnership ("IMA"), included in the Registration Statement
or the Prospectus present fairly the financial condition of IMA as of the
respective dates thereof and the results of operations and cash flows of IMA
for the respective periods covered thereby, all in conformity with GAAP applied
on a consistent basis throughout the entire period involved, except as
otherwise disclosed in the Prospectus. The Accountants who have reported on the
financial statements of AEG, the combined financial statements of AWC and the
financial statements of IMA are independent accountants with respect to AEG,
AWC and IMA, respectively, as required by the Act and the Rules and
Regulations.
(h) The pro forma financial information included in
the Registration Statement and the Prospectus (or if the Prospectus is not in
existence, the most recent Preliminary Prospectus) has been prepared in
conformity with the applicable published rules and regulations of the
Commission with respect to pro forma financial information, all adjustments
have been properly applied and the assumptions used in preparing such
information are reasonable; and the other financial and statistical information
and data included in the Registration Statement and the Prospectus (or if the
Prospectus is not in existence, the most recent Preliminary Prospectus) are
accurately presented and prepared on a basis consistent with such financial
statements and the books and records of the Company, the Subsidiaries, and AWC,
as the case may be.
(i) The Company and its Subsidiaries maintain a system
of internal accounting controls sufficient to provide reasonable assurance that
(i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii) access
to assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(j) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus and prior
to the Closing Date, except as set forth in or contemplated by the Registration
Statement and the Prospectus, (i) there has not been and will not have been any
change in the capitalization of the Company or its Subsidiaries other than
non-material changes in the ordinary course of business, or any material
adverse change in the business, properties, business prospects, condition
(financial or otherwise) or results of operations of the Company and its
Subsidiaries, taken as a whole, arising for any reason whatsoever, (ii) neither
the Company nor any of its Subsidiaries has incurred nor will
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<PAGE> 7
any of them incur any material liabilities or obligations, direct or
contingent, nor has the Company entered into nor will it enter into any
material transactions other than pursuant to this Agreement, the Registration
Statement and the transactions referred to herein and therein, and (iii) the
Company has not and will not have paid or declared any dividends or other
distributions of any kind on any class of its capital stock.
(k) Any real property and buildings held under lease
to the Company or its Subsidiaries are held or leased by the Company or its
Subsidiaries, as the case may be, under valid, binding and enforceable leases
conforming to the description thereof set forth in the Registration Statement
and the Prospectus (or, if the Prospectus is not in existence, in the most
recent Preliminary Prospectus), with such exceptions as do not interfere with
the use made and proposed to be made of such property and buildings by the
Company or its Subsidiaries.
(l) The Company is not an "investment company" or an
"affiliated person" of, or "promoter" or "principal underwriter" for, an
"investment company," as such terms are defined in the Investment Company Act
of 1940, as amended (the "Investment Company Act"). The Company is not required
to be registered under the Investment Company Act.
(m) Except as set forth in the Registration Statement
and the Prospectus (or, if the Prospectus is not in existence, in the most
recent Preliminary Prospectus), there are no actions, suits or proceedings
pending or to the Company's best knowledge, threatened against or affecting the
Company or any of its officers in their capacity as such, before or by any
Federal or state court, commission, regulatory body, administrative agency or
other governmental body, domestic or foreign, wherein an unfavorable ruling,
decision or finding might materially adversely affect the business, properties,
prospects, condition (financial or otherwise) or results of operations of the
Company and its Subsidiaries, taken as a whole.
(n) Each of the Company and its Subsidiaries has, and
at the Closing Date will have, (i) all governmental licenses, permits,
consents, orders, approvals and other authorizations necessary to carry on its
business as contemplated in the Prospectus (or if the Prospectus is not in
existence, the most recent Preliminary Prospectus), (ii) complied with all
laws, regulations and orders applicable to either it or its business, where the
failure to so comply would have a material adverse effect on the business,
properties, prospects, condition (financial or otherwise) or results of
operations of the Company and its Subsidiaries, taken as a whole, and (iii)
performed all its obligations required to be performed, and is not, and at the
Closing Date will not be, to the Company's best knowledge, in default, under
any indenture, mortgage, deed of trust, voting trust agreement, loan agreement,
bond, debenture, note agreement, lease, contract or other agreement or
instrument (collectively, a "contract or other agreement") to which it is a
party or by which its property is bound or affected, except as otherwise set
forth in the Registration Statement and the Prospectus (or, if the Prospectus
is not in existence, in the most recent Preliminary Prospectus) and except
where such default would not have a material adverse effect on the business,
properties, prospects, condition (financial or
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<PAGE> 8
otherwise) or results of operations of the Company and its Subsidiaries, taken
as a whole, and, to the Company's best knowledge, no other party under any
contract or other agreement to which it is a party is in default in any respect
thereunder. None of the Company or its Subsidiaries is in violation of any
provision of its organizational or governing documents.
(o) The Company has all corporate power and authority
to enter into this Agreement, the Escrow Agreement and the Warrant Agreement,
and to carry out the provisions and conditions hereof and thereof, and all
consents, authorizations, approvals and orders required in connection herewith
and therewith have been obtained.
(p) Neither (i) the issuance, offering and sale of the
Shares pursuant hereto, nor (ii) the issuance, offering and sale of the
Warrants and the Warrant Shares pursuant hereto and pursuant to the Warrant
Agreement, nor (iii) the compliance by the Company with the other provisions
hereof require the consent, approval, authorization, registration or
qualification of or with any governmental authority, except such as have been
obtained, such as may be required under state securities or Blue Sky laws or
the bylaws and rules of the National Association of Securities Dealers, Inc.
(the "NASD") and, if the Registration Statement is not effective under the Act
as of the time of execution hereof, such as may be required (and shall be
obtained as provided in either this Agreement or the Warrant Agreement) under
the Act.
(q) Neither the execution of this Agreement, the
Escrow Agreement or the Warrant Agreement, nor the issuance, offering or sale
of the Shares, the Warrants or the Warrant Shares nor the consummation of any
of the transactions contemplated herein, in the Escrow Agreement or in the
Warrant Agreement, nor the compliance by the Company with the terms and
provisions hereof or thereof will conflict with, or will result in a breach of,
any of the terms and provisions of, or has constituted or will constitute a
default under, or has resulted in or will result in the creation or imposition
of any lien, charge or encumbrance upon any property or assets of the Company
or of its Subsidiaries pursuant to the terms of any contract or other agreement
to which the Company or its Subsidiaries may be bound or to which any of the
property or assets of the Company or of its Subsidiaries is subject; nor will
such action result in any violation of the provisions of the Company's or of
its Subsidiaries' organizational or governing documents, or any statute or any
order, rule or regulation applicable to the Company or its Subsidiaries or of
any court or of any federal, state or other regulatory authority or other
government body having jurisdiction over the Company or its Subsidiaries.
(r) There is no document or contract of a character
required to be described in the Registration Statement or the Prospectus or to
be filed as an exhibit to the Registration Statement which is not described or
filed as required. All such contracts to which the Company or its Subsidiaries
are a party have been duly authorized, executed and delivered by the Company or
its Subsidiaries, as the case may be,, constitute valid and binding agreements
of the Company or its Subsidiaries, as the case may be, and are enforceable
against the Company or its Subsidiaries, as the case may be in accordance with
the terms thereof.
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<PAGE> 9
(s) No statement, representation or warranty made by
the Company in this Agreement, the Escrow Agreement or the Warrant Agreement or
made in any certificate or document required by this Agreement, the Escrow
Agreement or the Warrant Agreement to be delivered to the Placement Agent, the
Investors or the Escrow Agent was or will be, when made, inaccurate, untrue or
incorrect in any material respect.
(t) Neither the Company nor any of its directors,
officers or controlling persons has taken, directly or indirectly, any action
intended, or which might reasonably be expected, to cause or result, under the
Act or otherwise, in, or which has constituted, stabilization or manipulation
of the price of any security of the Company to facilitate the sale or resale of
the Common Stock.
(u) No holder of securities of the Company has rights
to the registration of any securities of the Company as a result of the filing
of the Registration Statement, other than rights which are not exercisable due
to the Placement Agent's determination to include only securities sold directly
from the Company.
(v) The Common Stock is currently listed on The Nasdaq
Stock Market's National Market (the "Nasdaq National Market").
(w) Neither the Company nor any of its Subsidiaries is
involved in any material labor dispute nor is any such dispute threatened.
(x) The Company has common law trademark rights in all
material trademarks, service marks and trade names which are used in or
necessary for the conduct of their respective businesses as described in the
Prospectus. To the Company's best knowledge, none of such trademarks, service
marks and trade names are subject to license or other agreements to or from
other parties, and no other parties have any legal or contractual right to
terminate or limit the Company's right to continue using such trademarks,
service marks and trade names.
(y) Neither the Company nor its Subsidiaries nor any
of their respective employees or agents has made any payment of funds of the
Company or received or retained any funds in violation of any law, rule or
regulation of a character required to be disclosed in the Prospectus (or, if
the Prospectus is not in existence, in the most recent Preliminary Prospectus).
(z) The Company and its Subsidiaries are insured by
insurers against such losses and risks and in such amounts as are customary in
the business; and neither the Company nor its Subsidiaries has any reason to
believe that it will not be able to renew its existing insurance coverage as
and when such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business at a cost that would not
materially adversely affect the Company or its Subsidiaries or their business,
assets, prospects, condition (financial or otherwise) or results of operations.
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<PAGE> 10
(aa) The business, operations and properties of the
Company and its Subsidiaries have been and are being conducted in compliance
with all applicable laws, ordinances, rules, regulations, licenses, permits,
approvals, plans, authorizations or requirements relating to occupational
safety and health, or pollution, or protection of health or the environment
(including, without limitation, those relating to emissions, discharges,
releases or threatened releases of pollutants, contaminants or hazardous or
toxic substances, materials or wastes into ambient air, surface water,
groundwater or land, or relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of chemical
substances, pollutants, contaminants or hazardous or toxic substances,
materials or wastes, whether solid, gaseous or liquid in nature) of any
governmental department, commission, board, bureau, agency or instrumentality
of the United States, any state or political subdivision thereof, or any
foreign jurisdiction, and all applicable judicial or administrative agency or
regulatory decrees, awards, judgments and orders relating thereto; and neither
the Company nor any of its Subsidiaries has received any notice from any
governmental instrumentality or any third party alleging any violation thereof
or liability thereunder (including, without limitation, liability for costs of
investigating or remediating sites containing hazardous substances and/or
damages to natural resources).
(bb) Each officer, director and securityholder of the
Company listed on Exhibit B hereto has delivered to the Placement Agent an
agreement in the form of Attachment A hereto to the effect that he or she will
not, for a period of [180] days after the date hereof, without the prior
written consent of the Placement Agent, offer to sell, sell, contract to sell,
grant any option to purchase or otherwise dispose (or announce any offer, sale,
grant of any option to purchase or other disposition) of any shares of capital
stock of the Company or securities convertible into, or exchangeable or
exercisable for, shares of capital stock of the Company.
(cc) [To the best knowledge of the Company, after due
inquiry, each of the representations and warranties of each of AWC and IMA set
forth in that certain Asset Purchase Agreement dated as of June __, 1997 by and
among the Company, _________ and ___________, including the exhibits and
schedules thereto and any amendments thereof (the "Purchase Agreement"), were
true and correct on the date hereof; the Purchase Agreement has been duly
authorized, executed and delivered by the Company, constitutes a valid and
binding agreement of the Company and is enforceable against the Company in
accordance with its terms; the Company is not in default under, and has not
breached or violated the Purchase Agreement; to the best knowledge of the
Company, after due inquiry, no other party to the Purchase Agreement is in
default thereunder and no other party to the Purchase Agreement has breached or
violated such Purchase Agreement in any manner; provided, however, that if the
transactions contemplated by the Purchase Agreement are not consummated, the
representation and warranty set forth in this Section 3(dd) shall be of no
further force or effect.] [In the event there is no Purchase Agreement in
place, we will require separate representations and warranties from AWC and
IMA.]
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<PAGE> 11
(dd) Any certificate signed by any officer of the
Company and delivered to the Placement Agent or to counsel for the Placement
Agent shall be deemed a representation or warranty by the Company to the
Placement Agent as to matters covered thereby.
4. Agreements of the Company. The Company covenants and agrees
with the Placement Agent as follows:
(a) The Company will not, either prior to the
Effective Date or thereafter during such period as the Prospectus would be
required by law to be delivered in connection with sales of the Shares by an
underwriter or dealer, file any amendment or supplement to the Registration
Statement or the Prospectus, unless a copy thereof shall first have been
submitted to the Placement Agent within a reasonable period of time prior to
the filing thereof and the Placement Agent shall not have objected thereto in
good faith.
(b) The Company will use its best efforts to cause the
Registration Statement to become effective, and will notify the Placement Agent
promptly, and will confirm such advice in writing, (1) when the Registration
Statement has become effective and when any post-effective amendment thereto
becomes effective, (2) of any request by the securities or other governmental
authority (including, without limitation, the Commission) of any jurisdiction
for amendments or supplements to the Registration Statement or the Prospectus
or for additional information, (3) of the issuance by any securities or other
governmental authority (including, without limitation, the Commission) of any
jurisdiction of any stop order suspending the effectiveness of the Registration
Statement or the initiation of any proceedings for that purpose or the threat
thereof, (4) of the happening of any event during the period mentioned in the
second sentence of Section 4(c) that in the judgment of the Company makes any
statement made in the Registration Statement or the Prospectus untrue or that
requires the making of any changes in the Registration Statement or the
Prospectus in order to make the statements therein, in light of the
circumstances in which they are made, not misleading and (5) of receipt by the
Company or any representative or attorney of the Company of any other
communication from the securities or other governmental authority (including,
without limitation, the Commission) of any jurisdiction relating to any of the
Registration Statement, any Preliminary Prospectus or the Prospectus. If at any
time any securities or other governmental authority (including, without
limitation, the Commission) of any jurisdiction shall issue any order
suspending the effectiveness of the Registration Statement, the Company will
make every reasonable effort to obtain the withdrawal of such order at the
earliest possible moment. If the Company has omitted any information from the
Registration Statement, pursuant to Rule 430A, it will use its best efforts to
comply with the provisions of and make all requisite filings with the
Commission pursuant to said Rule 430A and to notify the Placement Agent
promptly of all such filings.
(c) If, at any time when a Prospectus relating to the
Shares is required to be delivered under the Act, any event occurs as a result
of which the Prospectus, as then amended or supplemented, would, in the
judgment of counsel to the Company or counsel to the Placement Agent, include
any untrue statement of a material fact or omit to state a
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<PAGE> 12
material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading, or the
Registration Statement, as then amended or supplemented, would, in the judgment
of counsel to the Company or counsel to the Placement Agent, include any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein not misleading, or if for any other reason it is
necessary, in the judgment of counsel to the Company or counsel to the
Placement Agent, at any time to amend or supplement the Prospectus or the
Registration Statement to comply with the Act or the Rules and Regulations, the
Company will promptly notify the Placement Agent and, subject to Section 4(a)
hereof, will promptly prepare and file with the Commission, at the Company's
expense, an amendment to the Registration Statement or an amendment or
supplement to the Prospectus that corrects such statement or omission or
effects such compliance and will deliver to the Placement Agent, without
charge, such number of copies thereof as the Placement Agent may reasonably
request. The Company consents to the use of the Prospectus or any amendment or
supplement thereto by the Placement Agent.
(d) The Company will furnish to the Placement Agent
and its counsel, without charge, (i) two signed copies of the registration
statement described in Section 3(a) hereof and each pre-effective amendment
thereto, including financial statements and schedules, and all exhibits thereto
and (ii) so long as a prospectus relating to the Shares is required to be
delivered under the Act, as many copies of each Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto as the Placement Agent may
reasonably request.
(e) The Company will comply with all the undertakings
contained in the Registration Statement.
(f) Prior to the sale of the Shares to the Investors,
the Company will cooperate with the Placement Agent and its counsel in
connection with the registration or qualification of the Shares for offer and
sale under the state securities or Blue Sky laws of such jurisdictions as the
Placement Agent may request; provided, that in no event shall the Company be
obligated to qualify to do business in any jurisdiction where it is not now so
qualified or to take any action which would subject it to general service of
process in any jurisdiction where it is not now so subject.
(g) During the period of five years commencing on the
Effective Date, the Company will furnish to the Placement Agent copies of such
financial statements and other periodic and special reports as the Company may
from time to time distribute generally to the holders of any class of its
capital stock, and will furnish to the Placement Agent a copy of each annual or
other report it shall be required to file with the Commission.
(h) The Company will make generally available to
holders of its securities, as soon as may be practicable, but in no event later
than the last day of the fifteenth full calendar month following the calendar
quarter in which the Effective Date falls, a consolidated earnings statement
(which need not be audited but shall be in reasonable detail)
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<PAGE> 13
for a period of 12 months ended commencing after the Effective Date, and
satisfying the provisions of Section 11(a) of the Act (including Rule 158 of
the Rules and Regulations).
(i) The Company will not at any time, directly or
indirectly, take any action intended, or which might reasonably be expected, to
cause or result in, or which will constitute, stabilization of the price of the
Shares to facilitate the sale or resale of any of the Shares.
(j) The Company will apply the net proceeds from the
offering and sale of the Shares in the manner set forth in the Prospectus under
the caption "Use of Proceeds."
5. Expenses. Whether or not the transactions contemplated by
this Agreement are consummated or this Agreement is terminated, the Company
will pay all costs and expenses incident to the performance of the obligations
of the Company under this Agreement, including but not limited to costs and
expenses of or relating to (1) the preparation, printing and filing of the
Registration Statement (including each pre- and post-effective amendment
thereto) and exhibits thereto, each Preliminary Prospectus, the Prospectus and
any amendment or supplement to the Prospectus, including all fees,
disbursements and other charges of counsel to the Company, (2) the preparation
and delivery of certificates representing the Shares, (3) furnishing (including
costs of shipping and mailing) such copies of the Registration Statement
(including all pre- and post-effective amendments thereto), the Prospectus and
any Preliminary Prospectus, and all amendments and supplements to the
Prospectus, as may be requested for use in connection with the direct placement
of the Shares, (4) the listing of the Common Stock on the Nasdaq National
Market, (5) any filings required to be made by the Placement Agent with the
NASD, and the fees, disbursements and other charges of counsel for the
Placement Agent in connection therewith, (6) the registration or qualification
of the Shares for offer and sale under the securities or Blue Sky laws of such
jurisdictions designated pursuant to Section 4(f), including the reasonable
fees, disbursements and other charges of counsel to the Placement Agent in
connection therewith and the preparation and printing of preliminary,
supplemental and final Blue Sky memoranda, (7) fees, disbursements and other
charges of counsel to the Company and (8) the fees of the Escrow Agent. The
Company shall reimburse the Placement Agent, on a fully accountable basis, for
all travel, legal and other out-of-pocket expenses incurred in connection with
the engagement hereunder.
6. Conditions of the Obligations of the Placement Agent. The
obligations of the Placement Agent hereunder are subject to the following
conditions:
(a) Notification that the Registration Statement has
become effective shall be received by the Placement Agent not later than 5:00
p.m., New York City time, on the date of this Agreement or at such later date
and time as shall be consented to in writing by the Placement Agent and all
filings required by Rule 424 of the Rules and Regulations and Rule 430A shall
have been made.
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<PAGE> 14
(b) (i) No stop order suspending the effectiveness of
the Registration Statement shall have been issued, and no proceedings for that
purpose shall be pending or threatened by any securities or other governmental
authority (including, without limitation, the Commission), (ii) no order
suspending the effectiveness of the Registration Statement or the qualification
or registration of the Shares under the securities or Blue Sky laws of any
jurisdiction shall be in effect and no proceeding for such purpose shall be
pending before or threatened or contemplated by any securities or other
governmental authority (including, without limitation, the Commission), (iii)
any request for additional information on the part of the staff of any
securities or other governmental authority (including, without limitation, the
Commission) shall have been complied with to the satisfaction of the staff of
the Commission or such authorities and (iv) after the date hereof no amendment
or supplement to the Registration Statement or the Prospectus shall have been
filed unless a copy thereof was first submitted to the Placement Agent and the
Placement Agent did not object thereto in good faith, and the Placement Agent
shall have received certificates, dated the Closing Date and signed by the
President and Chief Executive Officer or the Chairman of the Board of Directors
of the Company, and the Chief Financial Officer of the Company (who may, as to
proceedings threatened, rely upon the best of their information and belief), to
the effect of clauses (i), (ii) and (iii).
(c) Since the respective dates as of which information
is given in the Registration Statement and the Prospectus, (i) there shall not
have been a material adverse change in the general affairs, business, business
prospects, properties, management, condition (financial or otherwise) or
results of operations of the Company or its Subsidiaries, whether or not
arising from transactions in the ordinary course of business, in each case
other than as set forth in or contemplated by the Registration Statement and
the Prospectus and (ii) neither the Company nor its Subsidiaries shall not have
sustained any material loss or interference with its business or properties
from fire, explosion, flood or other casualty, whether or not covered by
insurance, or from any labor dispute or any court or legislative or other
governmental action, order or decree, which is not set forth in the
Registration Statement and the Prospectus, if in the judgment of the Placement
Agent any such development makes it impracticable or inadvisable to consummate
the sale and delivery of the Shares to Investors at the public offering price.
(d) Since the respective dates as of which information
is given in the Registration Statement and the Prospectus, there shall have
been no litigation or other proceeding instituted against the Company, its
Subsidiaries, or any of their respective officers or directors in their
capacities as such, before or by any Federal, state or local court, commission,
regulatory body, administrative agency or other governmental body, domestic or
foreign, in which litigation or proceeding an unfavorable ruling, decision or
finding would materially and adversely affect the business, properties,
business prospects, condition (financial or otherwise) or results of operations
of the Company or its Subsidiaries.
(e) The representations and warranties of each of the
Company and its Subsidiaries contained herein shall be true and correct in all
material respects at the Closing Date, as if made on such date, and all
covenants and agreements herein contained to be
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<PAGE> 15
performed on the part of the Company or its Subsidiaries and all conditions
herein contained to be fulfilled or complied with by the Company or its
Subsidiaries at or prior to the Closing Date shall have been duly performed,
fulfilled or complied with.
(f) The Placement Agent shall have received an
opinion, dated the Closing Date, of Winstead Sechrest & Minick P.C., counsel
for the Company, to the effect that:
(i) each of the Company and its Subsidiaries has been
duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation and has full power and authority
to conduct all the activities conducted by it, to own or lease all the
assets owned or leased by it and to conduct its business as described
in the Registration Statement and the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary
Prospectus) are duly licensed or qualified to do business and in good
standing as a foreign organization under the laws of all other
jurisdictions in which the nature of the activities conducted by it or
the character of the assets owned or leased by it makes such licensing
or qualification necessary, except where the failure to be so
qualified does not amount to a material liability or disability to the
Company or its Subsidiaries;
(ii) the Company has the requisite power to conduct
its business as described in the Registration Statement and the
Prospectus, and the Company has the corporate power to enter into this
Agreement and to carry out all the terms and provisions hereof to be
carried out by it;
(iii) the Company has an authorized capitalization as
set forth in the Prospectus; all of the issued and outstanding shares
of capital stock of the Company have been duly authorized, validly
issued, are fully paid and nonassessable and are not subject to any
preemptive or similar rights; the Company has an authorized, issued
and outstanding capitalization as set forth in the Prospectus (or, if
the Prospectus is not in existence, in the most recent Preliminary
Prospectus); the issued shares of capital stock of each of the
Subsidiaries have been duly authorized and validly issued, are fully
paid and nonassessable and are owned by the Company free and clear of
any security interests, liens, encumbrances, equities or claims;
except as set forth in the Registration Statement and the Prospectus
(or, if the Prospectus is not in existence, in the most recent
Preliminary Prospectus), neither the Company nor its Subsidiaries have
outstanding any options to purchase, or any rights or warrants to
subscribe for, or any securities or obligations convertible into, or
exchangeable for, or any contracts or commitments to issue or sell,
any shares of capital stock or other securities; the Shares have been
duly authorized for listing, subject to official notice of issuance,
on the Nasdaq National Market; except as disclosed in the Registration
Statement, no holders of outstanding shares of capital stock of the
Company are entitled as such to any preemptive or other rights to
subscribe for any of the Shares; and no holders of securities of the
Company are entitled to have such securities registered under the
Registration Statement;
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<PAGE> 16
(iv) the statements set forth under the heading
"Description of Securities" in the Prospectus, insofar as such
statements purport to summarize certain provisions of the securities
of the Company, provide a fair summary of such provisions;
(v) the execution and delivery of this Agreement, the
Escrow Agreement and the Warrant Agreement have been duly authorized
and validly executed by all necessary action of the Company and each
has been duly executed and delivered by the Company, and is a legal,
valid and binding agreement of the Company enforceable against the
Company in accordance with its terms, subject, as to enforcement, to
bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and to
general principles of equity and in the case of this Agreement, except
as rights to indemnity and contribution may be limited by federal or
state securities laws or the public policy underlying such laws; the
Escrow Agreement and the Warrant Agreement conform to the descriptions
thereof set forth in the Prospectus;
(vi) except as set forth in the Registration Statement
and the Prospectus (or, if the Prospectus is not in existence, in the
most recent Preliminary Prospectus), there are no actions, suits or
proceedings pending or to the Company's best knowledge, threatened
against or affecting the Company or any of its officers in their
capacity as such, before or by any Federal or state court, commission,
regulatory body, administrative agency or other governmental body,
domestic or foreign, wherein an unfavorable ruling, decision or
finding might materially adversely affect the business, properties,
prospects, condition (financial or otherwise) or results of operations
of the Company and its Subsidiaries, taken as a whole; and no contract
or other document is required to be described in the Registration
Statement or the Prospectus or to be filed as an exhibit to the
Registration Statement that is not described therein or filed as
required;
(vii) the Registration Statement is effective under
the Act; any required filing of the Prospectus pursuant to Rule 424(b)
has been made in the manner and within the time period required by
Rule 424(b); and, to such counsel's knowledge after due inquiry, no
stop order suspending the effectiveness of the Registration Statement
or any post-effective amendment thereto and no order directed at any
amendment or supplement thereto has been issued, and no proceedings
for that purpose have been instituted or threatened or are
contemplated by the Commission;
(viii) the Company is not an "investment company" or
an "affiliated person" of, or "promoter" or "principal underwriter"
for, an "investment company," as such terms are defined under the
Investment Company Act, and is not required to be registered under the
Investment Company Act;
(ix) the statements set forth in the Prospectus under
the captions, [ ], "Business- Regulation" and "Description of
Securities," insofar as such statements constitute matters of law or
legal conclusions, have been reviewed by such counsel and are accurate
in all material respects;
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<PAGE> 17
(x) the Registration Statement originally filed with
respect to the Shares and each amendment thereto and the Prospectus
(in each case, not including the financial statements and other
financial and statistical information contained therein, as to which
such counsel need express no opinion) comply as to form in all
material respects with the applicable requirements of the Act and the
respective Rules and Regulations of the Commission thereunder;
(xi) no default exists, and no event has occurred
which, with notice or lapse of time or both, would constitute a
default in the due performance and observance of any term, covenant or
condition of any indenture, mortgage, deed of trust, voting trust
agreement, loan agreement, bond, debenture, note agreement, lease,
contact or other agreement or instrument (collectively, a "contract or
other agreement") to which the Company is a party or by which the
Company or its Subsidiaries is bound or may be affected, except where
such default would not have a material adverse effect on the business,
properties, prospects, condition (financial or otherwise) of results
of operations of the Company and its Subsidiaries, taken as a whole,
and, to the Company's best knowledge, no other party under any
contract or other agreement to which it is a party is in default in
any respect thereunder; and none of the Company or its subsidiaries is
in violation of any provision of its organizational or governing
documents;
(xii) neither the execution of this Agreement, the
Escrow Agreement or the Warrant Agreement, nor the issuance, offering
or sale of the Shares, the Warrants or the Warrant Shares nor the
consummation of any of the transactions contemplated in the Agreement,
in the Escrow Agreement or in the Warrant Agreement, nor the
compliance by the Company with the other terms and provisions of the
Agreement, the Escrow Agreement and the Warrant Agreement do not (A)
require the consent, approval, authorization, registration or
qualification of or with any governmental authority, except such as
have been obtained or such as may be required under state securities
or Blue Sky laws, or (B) conflict with, or will result in a breach of,
any of the terms and provisions of, or has constituted or will
constitute a default under, or has resulted in or will result in the
creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or of its Subsidiaries pursuant to
the terms of any contract or other agreement to which the Company or
its Subsidiaries may be bound or to which any of the property or
assets of the Company or of its Subsidiaries is subject; nor will such
action result in any violation of the provisions of the Company's or
of its Subsidiaries' organizational or governing documents, or any
statute or any order, rule or regulation applicable to the Company or
its Subsidiaries or of any court or of any federal, state or other
regulatory authority or other government body having jurisdiction over
the Company or its Subsidiaries;
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<PAGE> 18
(xiii) the Company has full corporate power to enter
into and deliver the Purchase Agreement, to perform its obligations
under the Purchase Agreement and to consummate the transactions
contemplated by the Purchase Agreement; the Purchase Agreement has
been duly authorized, executed and delivered by the Company,
constitutes a valid and binding agreement of the Company and is
enforceable against the Company in accordance with its terms, subject,
as to enforcement, to bankruptcy, fraudulent conveyance, insolvency,
reorganization and other laws of general applicability relating to or
affecting creditors' rights and to general principles of equity; and
the Purchase Agreement confirms in all material respects to the
description thereof set forth in the Registration Statement and the
Prospectus; the Company is not in default under, and has not breached
or violated the Purchase Agreement; to the best knowledge of the
Company, after due inquiry, no other party to the Purchase Agreement
is in default thereunder and no other party to the Purchase Agreement
has breached or violated such Purchase Agreement in any manner.
Such counsel shall also state that in the course of the
preparation of the Registration Statement and the Prospectus, such counsel has
participated in conferences with officers and representatives of the Company
and with the Accountants, at which conferences the contents of the Registration
Statement and the Prospectus were discussed and, on the basis of the foregoing,
that they have no reason to believe that the Registration Statement, as of its
effective date and as of the date of such opinion, contained or contains any
untrue statement of a material fact or omitted or omits to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading or that the Prospectus, as of its date or the date of such
opinion, included or includes any untrue statement of a material fact or
omitted or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
In rendering any such opinion, such counsel may rely, as to
matters of fact, to the extent such counsel deems proper, on certificates of
responsible officers of the Company and public officials and, as to matters
involving the application of laws of any jurisdictions in which such counsel
are not admitted to practice, to the extent satisfactory in form and scope to
counsel for the Placement Agent, upon the opinion of local counsel. The
foregoing opinion shall also state that the Placement Agent is justified in
relying upon such opinions of local counsel, and copies of such opinions shall
be delivered to the Placement Agent and their counsel.
References to the Registration Statement and the Prospectus in
this paragraph (f) shall include any amendment or supplement thereto at the
date of such opinion.
(g) Concurrently with the execution and delivery of
this Agreement, or, if the Company elects to rely on Rule 430A, on the date of
the Prospectus, the Accountants shall have furnished to the Placement Agent a
letter, dated the date of its delivery (the "Original Letter"), addressed to
the Placement Agent and in form and substance satisfactory to the Placement
Agent, confirming that (i) they are independent public accountants with respect
to each of the Company, AEG, AWC and IMA within the meaning of the Act and the
Rules and
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<PAGE> 19
Regulations; (ii) in their opinion, the financial statements and any
supplementary financial information and schedules (and pro forma financial
information) included in the Registration Statement and examined by them comply
as to form in all material respects with the applicable accounting requirements
of the Act and the Rules and Regulations; (iii) on the basis of procedures, not
constituting an examination in accordance with generally accepted auditing
standards, set forth in detail in the Original Letter, including a reading of
the unaudited financial statements and other information referred to below, a
reading of the latest available interim financial statements of each of the
Company, AEG, AWC and IMA, inspections of the minute books of each of the
Company, AEG, AWC and IMA since the latest audited financial statements
included in the Prospectus, inquiries of officials of each of the Company, AEG,
AWC and IMA responsible for financial and accounting matters and such other
inquiries and procedures as may be specified in the Original Letter to a date
not more than five days prior to the date of the Original Letter, nothing came
to their attention that caused them to believe that (A) the unaudited financial
statements and schedules of each of the Company, AEG, AWC and IMA included in
the Prospectus do not comply as to form in all material respects with the
applicable accounting requirements of the Act and the Rules and Regulations, or
are not fairly presented in conformity with generally accepted accounting
principles applied on a basis substantially consistent with the basis for the
audited financial statements included in the Prospectus; (B) any other
unaudited income statement data and balance sheet items included in the
Prospectus do not agree with the corresponding items in the unaudited financial
statements from which such data and items were derived, and any such unaudited
data and items were not determined on a basis substantially consistent with the
basis for the corresponding amounts in the audited financial statements
included in the Prospectus; (C) the unaudited financial statements which were
not included in the Prospectus but from which were derived any unaudited
financial statements referred to in clause (A) and any unaudited income
statement data and balance sheet items included in the Prospectus and referred
to in clause (B) were to be determined on a basis substantially consistent with
the basis for the audited financial statements included in the Prospectus; (D)
the unaudited pro forma financial statements included in the Prospectus do not
comply as to form in all material respects with the applicable accounting
requirements of the Act and the Rules and Regulations or the pro forma
adjustments have not been properly applied to the historical amounts in the
compilation of those statements; (E) as of a specified date not more than five
days prior to the date of the Original Letter, there have been any changes in
the capital stock of any of the Company, AEG, AWC or IMA or any increase in the
long-term debt of any of the Company, AEG, AWC or IMA or any decreases in net
current assets or net assets or other items specified by the Placement Agent,
or any increases in any items specified by the Placement Agent, in each case as
compared with amounts shown in the latest balance sheet included in the
Prospectus, except in each case for changes, increases or decreases which the
Prospectus discloses have occurred or may occur or which are described in the
Original Letter; and (F) for the period from the date of the latest financial
statements included in the Prospectus to the specified date referred to in
Clause (E), there were any decreases in revenues or the total or per share
amounts of net income or other items specified by the Placement Agent, or any
increases in any items specified by the Placement Agent, in each case as
compared with the comparable period of the preceding year and with any other
period of corresponding length specified by the Placement Agent, except in each
case for
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<PAGE> 20
decreases or increases which the Prospectus discloses have occurred or may
occur or which are described in the Original Letter; and (iv) in addition to
the examination referred to in their reports included in the Prospectus and the
procedures referred to in clause (iii) above, they have carried out certain
specified procedures, not constituting an examination in accordance with
generally accepted auditing standards, with respect to certain amounts,
percentages and financial information specified by the Placement Agent, which
are derived from the general accounting, financial or other records of the
Company, AEG, AWC or IMA as the case may be, which appear in the Prospectus or
in Part II of, or in exhibits or schedules to, the Registration Statement, and
have compared such amounts, percentages and financial information with such
accounting, financial and other records and have found them to be in agreement.
At the Closing Date, the Accountants shall have furnished to the Placement
Agent a letter, dated the date of its delivery, which shall confirm, on the
basis of a review in accordance with the procedures set forth in the Original
Letter, that nothing has come to their attention during the period from the
date of the Original letter referred to in the prior sentence to a date
(specified in the letter) not more than five days prior to the Closing Date
which would require any change in the Original Letter if it were required to be
dated and delivered at the Closing Date.
(h) At the Closing Date, there shall be furnished to
the Placement Agent a certificate, dated the date of its delivery, signed by
each of the Chief Executive Officer and the Chief Financial Officer of the
Company, in form and substance satisfactory to the Placement Agent to the
effect that:
(i) Each signer of such certificate has carefully
examined the Registration Statement and the Prospectus and (A) as of
the date of such certificate, (x) the Registration Statement does not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to
make the statements therein not misleading and (y) the Prospectus does
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which
they were made, not misleading and (B) since the Effective Date no
event has occurred as a result of which it is necessary to amend or
supplement the Prospectus in order to make the statements therein not
untrue or misleading in any material respect.
(ii) Each of the representations and warranties of the
Company contained in this Agreement were, when originally made, and
are, at the time such certificate is delivered, true and correct in
all material respects.
(iii) Each of the covenants required herein to be
performed by the Company on or prior to the date of such certificate
has been duly, timely and fully performed and each condition herein
required to be complied with by the Company on or prior to the
delivery of such certificate has been duly, timely and fully complied
with.
(iv) No stop order suspending the effectiveness of the
Registration Statement or of any part thereof has been issued and no
proceedings for that purpose have been instituted or are contemplated
by the Securities and Exchange Commission.
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<PAGE> 21
(v) Subsequent to the date of the most recent
financial statements in the Prospectus, there has been no material
adverse change in the financial position or results of operations of
the Company, except as set forth in or contemplated by the Prospectus.
(i) The Shares shall be qualified for sale in such
states as the Placement Agent may reasonably request, each such qualification
shall be in effect and not subject to any stop order or other proceeding on the
Closing Date.
(j) The Company shall have furnished to the Placement
Agent such certificates, in addition to those specifically mentioned herein, as
the Placement Agent may have reasonably requested as to the accuracy and
completeness at the Closing Date of any statement in the Registration Statement
or the Prospectus, as to the accuracy at the Closing Date of the
representations and warranties of the Company as to the performance by the
Company of its obligations hereunder, or as to the fulfillment of the
conditions concurrent and precedent to the obligations hereunder of the
Placement Agent.
(k) Each officer, director and securityholder of the
Company listed on Exhibit B hereto shall have furnished to the Placement Agent
an agreement in the form of Attachment A hereto.
7. Indemnification.
(a) The Company shall indemnify and hold harmless the
Placement Agent, the directors, officers, employees and agents of the Placement
Agent and each person, if any, who controls the Placement Agent within the
meaning of Section 15 of the Act or Section 20 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), from and against any and all losses,
claims, liabilities, expenses and damages, joint or several, (including any and
all investigative, legal and other expenses reasonably incurred in connection
with, and any amount paid in settlement of, any action, suit or proceeding or
any claim asserted), to which it, or any of them, may become subject under the
Act or other Federal or state statutory law or regulation, at common law or
otherwise, insofar as such losses, claims, liabilities, expenses or damages
arise out of or are based on (i) any untrue statement or alleged untrue
statement made by the Company in Section 3 of this Agreement, (ii) any untrue
statement or alleged untrue statement of any material fact contained in (A) any
Preliminary Prospectus, the Registration Statement or the Prospectus or any
amendment or supplement to the Registration Statement or the Prospectus and (B)
any application or other document, or any amendment or supplement thereto,
executed by the Company based upon written information furnished by or on
behalf of the Company filed in any jurisdiction in order to qualify the Shares
under the securities or Blue Sky laws thereof or filed with the Commission or
any securities association or securities exchange (each, an "Application") or
(iii) the omission or alleged omission to state in any
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<PAGE> 22
Preliminary Prospectus, the Registration Statement or the Prospectus or any
supplement to the Registration Statement or the Prospectus or any Application a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading;
provided, however, that the Company will not be liable to the extent that such
loss, claim, liability, expense or damage arises from the sale of the Shares in
the public offering to any person and is based solely on an untrue statement or
omission or alleged untrue statement or omission made in reliance on and in
conformity with information relating to the Placement Agent furnished in
writing to the Company by the Placement Agent expressly for inclusion in the
Registration Statement, any Preliminary Prospectus or the Prospectus; and
provided further, that such indemnity with respect to any Preliminary
Prospectus shall not inure to the benefit of any Placement Agent (or any person
controlling such Placement Agent) from whom the person asserting any such loss,
claim, damage, liability or action purchased Shares which are the subject
thereof to the extent that any such loss, claim, damage or liability (i)
results from the fact that such Placement Agent failed to send or give a copy
of the Prospectus (as amended or supplemented) to such person at or prior to
the confirmation of the sale of such Shares to such person in any case where
such delivery is required by the Act and (ii) arises out of or is based upon an
untrue statement or omission of a material fact contained in such Preliminary
Prospectus that was corrected in the Prospectus (or any amendment or supplement
thereto), unless such failure to deliver the Prospectus (as amended or
supplemented) was the result of noncompliance by the Company with Section 5(d).
This indemnity agreement will be in addition to any liability which the Company
may otherwise have. The Company will not, without the prior written consent of
the Placement Agent, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action, suit or proceeding in
respect of which indemnification may be sought hereunder (whether or not such
Placement Agent or any person who controls such Placement Agent within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act is a party
to each claim, action, suit or proceeding), unless such settlement, compromise
or consent includes an unconditional release of the Placement Agent and each
such controlling person from all liability arising out of such claim, action,
suit or proceeding.
(b) The Placement Agent will indemnify and hold
harmless the Company, each person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, each
director of the Company and each officer of the Company who signs the
Registration Statement to the same extent as the foregoing indemnity from the
Company to the Placement Agent, but only insofar as losses, claims,
liabilities, expenses or damages arise out of or are based on any untrue
statement or omission or alleged untrue statement or omission made in reliance
on and in conformity with information relating to the Placement Agent furnished
in writing to the Company by the Placement Agent expressly for use in the
Registration Statement, any Preliminary Prospectus or the Prospectus. This
indemnity agreement will be in addition to any liability that the Placement
Agent might otherwise have. The Company acknowledges that, for all purposes
under this Agreement, the statements set forth under the heading "Plan of
Distribution" in any Preliminary Prospectus and the Prospectus constitute the
only information relating to the Placement Agent furnished in writing to the
Company by the Placement Agent expressly for inclusion in the Registration
Statement, any Preliminary Prospectus or the Prospectus.
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<PAGE> 23
(c) Any party that proposes to assert the right to be
indemnified under this Section 7 will, promptly after receipt of notice of
commencement of any action against such party in respect of which a claim is to
be made against an indemnifying party or parties under this Section 7, notify
each such indemnifying party of the commencement of such action, enclosing a
copy of all papers served, but the omission so to notify such indemnifying
party will not relieve it from any liability that it may have to any
indemnified party under the foregoing provisions of this Section 7 unless, and
only to the extent that, such omission results in the forfeiture of substantive
rights or defenses by the indemnifying party. If any such action is brought
against any indemnified party and it notifies the indemnifying party of its
commencement, the indemnifying party will be entitled to participate in and, to
the extent that it elects by delivering written notice to the indemnified party
promptly after receiving notice of the commencement of the action from the
indemnified party, jointly with any other indemnifying party similarly
notified, to assume the defense of the action, with counsel satisfactory to the
indemnified party, and after notice from the indemnifying party to the
indemnified party of its election to assume the defense, the indemnifying party
will not be liable to the indemnified party for any legal or other expenses
except as provided below and except for the reasonable costs of investigation
subsequently incurred by the indemnified party in connection with the defense.
The indemnified party will have the right to employ its own counsel in any such
action, but the fees, expenses and other charges of such counsel will be at the
expense of such indemnified party unless (1) the employment of counsel by the
indemnified party has been authorized in writing by the indemnifying party, (2)
the indemnified party has reasonably concluded (based on advice of counsel)
that there may be legal defenses available to it or other indemnified parties
that are different from or in addition to those available to the indemnifying
party, (3) a conflict or potential conflict exists (based on advice of counsel
to the indemnified party) between the indemnified party and the indemnifying
party (in which case the indemnifying party will not have the right to direct
the defense of such action on behalf of the indemnified party) or (4) the
indemnifying party has not in fact employed counsel to assume the defense of
such action within a reasonable time after receiving notice of the commencement
of the action, in each of which cases the reasonable fees, disbursements and
other charges of counsel will be at the expense of the indemnifying party or
parties. It is understood that the indemnifying party or parties shall not, in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the reasonable fees, disbursements and other charges of more than
one separate firm admitted to practice in such jurisdiction at any one time for
all such indemnified party or parties. All such fees, disbursements and other
charges will be reimbursed by the indemnifying party promptly as they are
incurred. The Company will not, without the prior written consent of the
Placement Agent, settle or compromise or consent to the entry of any judgment
in any pending or threatened claim, action, suit or proceeding in respect of
which indemnification may be sought hereunder (whether or not the Placement
Agent or any person who controls the Placement Agent within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act is a party to such
claim, action, suit or proceeding), unless such settlement, compromise or
consent includes an unconditional release of the Placement Agent and each such
controlling person from all liability arising out of such
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<PAGE> 24
claim, action, suit or proceeding. An indemnifying party will not be liable for
any settlement of any action or claim effected without its written consent
(which consent will not be unreasonably withheld).
(d) In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in the
foregoing paragraphs of this Section 7 is applicable in accordance with its
terms but for any reason is held to be unavailable from the Company or the
Placement Agent, the Company and the Placement Agent will contribute to the
total losses, claims, liabilities, expenses and damages (including any
investigative, legal and other expenses reasonably incurred in connection with,
and any amount paid in settlement of, any action, suit or proceeding or any
claim asserted, but after deducting any contribution received by the Company
from persons other than the Placement Agent such as persons who control the
Company within the meaning of the Act or the Exchange Act, officers of the
Company who signed the Registration Statement and directors of the Company, who
also may be liable for contribution) to which the Company and the Placement
Agent may be subject in such proportion as shall be appropriate to reflect the
relative benefits received by the Company on the one hand and the Placement
Agent on the other. The relative benefits received by the Company on the one
hand and the Placement Agent on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
Company expenses) received by the Company as set forth in the table on the
cover page of the Prospectus bear to the fee received by the Placement Agent
hereunder. If, but only if, the allocation provided by the foregoing sentence
is not permitted by applicable law, the allocation of contribution shall be
made in such proportion as is appropriate to reflect not only the relative
benefits referred to in the foregoing sentence but also the relative fault of
the Company, on the one hand, and the Placement Agent on the other, with
respect to the statements or omissions which resulted in such loss, claim,
liability, expense or damage, or action in respect thereof, as well as any
other relevant equitable considerations with respect to such offering. Such
relative fault shall be determined by reference to whether the untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact relates to information supplied by the Company or the
Placement Agent, the intent of the parties and their relative knowledge, access
to information and opportunity to correct or prevent such statement or
omission. The Company and the Placement Agent agree that it would not be just
and equitable if contributions pursuant to this Section 7(d) were to be
determined by pro rata allocation or by any other method of allocation which
does not take into account the equitable considerations referred to herein. The
amount paid or payable by an indemnified party as a result of the loss, claim,
liability, expense or damage, or action in respect thereof, referred to above
in this Section 7(d) shall be deemed to include, for purpose of this Section
7(d), any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7(d), the Placement Agent shall
not be required to contribute any amount in excess of the fee received by it,
and no person found guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) will be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. For purposes of this
Section 7(d), any person who controls a party to this Agreement within the
meaning of the Act or the Exchange Act will
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<PAGE> 25
have the same rights to contribution as that party, and each officer of the
Company who signed the Registration Statement will have the same rights to
contribution as the Company, subject in each case to the provisions hereof. Any
party entitled to contribution, promptly after receipt of notice of
commencement of any action against such party in respect of which a claim for
contribution may be made under this Section 7(d), will notify any such party or
parties from whom contribution may be sought, but the omission so to notify
will not relieve the party or parties from whom contribution may be sought from
any other obligation it or they may have under this Section 7(d). No party will
be liable for contribution with respect to any action or claim settled without
its written consent (which consent will not be unreasonably withheld).
8. Termination.
(a) The obligations of the Placement Agent under this
Agreement may be terminated at any time prior to the Closing Date, by notice to
the Company from the Placement Agent, without liability on the part of the
Placement Agent to the Company if, prior to delivery and payment for the
Shares, in the sole judgment of the Placement Agent (i) trading in the Common
Stock of the Company shall have been suspended by the Commission or by the
Nasdaq National Market (ii) trading in securities generally on the New York
Stock Exchange or the Nasdaq Stock Market's National Market shall have been
suspended or limited or minimum or maximum prices shall have been generally
established on any of such exchanges, or additional material governmental
restrictions, not in force on the date of this Agreement, shall have been
imposed upon trading in securities generally by any of such exchanges or by
order of the Commission or any court or other governmental authority, (iii) a
general banking moratorium shall have been declared by Federal or New York
State authorities, (iv) any material adverse change in the financial or
securities markets in the United States or any outbreak or material escalation
of hostilities or declaration by the United States of a national emergency or
war or other calamity or crisis shall have occurred, the effect of any of which
is such as to make it, in the sole judgment of the Placement Agent,
impracticable or inadvisable to market the Shares on the terms and in the
manner contemplated by the Prospectus.
(b) The obligations of the parties under this
Agreement shall be automatically terminated in the event that the Requisite
Funds have not been deposited by the Investors into the Escrow Account by the
close of business on the Closing Date.
9. Notices. Notice given pursuant to any of the provisions of
this Agreement shall be in writing and, unless otherwise specified, shall be
mailed or delivered (a) if to the Company, at the office of the Company, 402
Heritage Plantation Way, Hickory Valley, Tennessee, 38042, Attention: Mr.
Thomas J. Weaver III or (b) if to the Placement Agent, at the office of
Rauscher Pierce Refsnes, Inc., 2711 N. Haskell Ave., Suite 2400, Dallas, Texas
75204, Attention: Jay K. Turner. Any such notice shall be effective only upon
receipt. Any notice under Section 7 may be made by facsimile or telephone, but
if so made shall be subsequently confirmed in writing.
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<PAGE> 26
10. Survival. The respective representations, warranties,
agreements, covenants, indemnities and other statements of the Company, its
officers and the Placement Agent set forth in this Agreement or made by or on
behalf of them, respectively, pursuant to this Agreement shall remain in full
force and effect, regardless of (i) any investigation made by or on behalf of
the Company, any of its officers or directors, the Placement Agent or any
controlling person referred to in Section 7 hereof and (ii) delivery of and
payment for the Shares. The respective agreements, covenants, indemnities and
other statements set forth in Sections 5 and 7 hereof shall remain in full
force and effect, regardless of any termination or cancellation of this
Agreement.
11. Right of First Refusal. The Placement Agent shall have the
right, but not the obligation, for a period of three years from March 25, 1997,
to act as managing underwriter for the Company's equity offerings.
12. Successors. This Agreement shall inure to the benefit of
and shall be binding upon the Placement Agent, the Company and their respective
successors and legal representatives, and nothing expressed or mentioned in
this Agreement is intended or shall be construed to give any other person any
legal or equitable right, remedy or claim under or in respect of this
Agreement, or any provisions herein contained, this Agreement and all
conditions and provisions hereof being intended to be and being for the sole
and exclusive benefit of such persons and for the benefit of no other person
except that (i) the indemnification and contribution contained in Sections 7(a)
and (d) of this Agreement shall also be for the benefit of the directors,
officers, employees and agents of the Placement Agent and any person or persons
who control the Placement Agent within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act and (ii) the indemnification and contribution
contained in Sections 7(b) and (d) of this Agreement shall also be for the
benefit of the directors of the Company, the officers of the Company who have
signed the Registration Statement and any person or persons who control the
Company within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act. No Investor shall be deemed a successor because of such
purchase.
13. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS
AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN, SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
GIVING EFFECT TO ANY PROVISIONS RELATING TO CONFLICTS OF LAWS.
14. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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<PAGE> 27
Please confirm that the foregoing correctly sets forth the
agreement between the Company and the Placement Agent.
Very truly yours,
NASHVILLE COUNTRY CLUB, INC.
By:
-------------------------------
Name:
Title:
Confirmed as of the date first
above mentioned:
RAUSCHER PIERCE REFSNES, INC.
By:
--------------------------------
Name:
Title:
-27-
<PAGE> 28
Schedule I
List of Subsidiaries
[To come from NCCI]
-28-
<PAGE> 29
EXHIBIT A
ESCROW AGREEMENT
<PAGE> 30
EXHIBIT B
LOCK UP LETTERS
<PAGE> 31
ATTACHMENT A
Rauscher Pierce Refsnes, Inc.
As Placement Agent
2711 N. Haskell Ave.
Suite 2400
Dallas, Texas 75204
Ladies and Gentlemen:
Reference is made to a Placement Agency Agreement (the "Placement
Agency Agreement"), which will be executed between Nashville Country Club,
Inc., a Tennessee corporation and its subsidiaries listed on Schedule I hereto
(collectively, the "Company"), and Rauscher Pierce Refsnes, Inc. (the
"Placement Agent").
In consideration of the Placement Agency Agreement, the undersigned
hereby agrees not to, without the prior written consent of the Placement Agent,
offer, sell or otherwise dispose of any shares of the Company's Common Stock,
no par value per share (the "Common Stock"), or any securities convertible into
or exercisable or exchangeable for, or any rights to purchase or acquire,
Common Stock owned by the undersigned for a period of [180] days after the date
of the Placement Agency Agreement.
Dated: ______________, 1997
Very truly yours,
<PAGE> 32
Schedule I
List of Subsidiaries
[To come from NCCI]
<PAGE> 1
EXHIBIT 10.20
- --------------------------------------------------------------------------------
FORM OF
WARRANT AGREEMENT
By and Between
NASHVILLE COUNTRY CLUB, INC.
and
RAUSCHER PIERCE REFSNES, INC.
Dated as of June __, 1997
- --------------------------------------------------------------------------------
<PAGE> 2
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of June __, 1997 by and between
NASHVILLE COUNTRY CLUB, INC., a Tennessee corporation (the "Company"), and
RAUSCHER PIERCE REFSNES, INC. (the "Placement Agent").
The Company proposes to issue to the Placement Agent warrants
as hereinafter described (the "Placement Agent Warrants") to purchase [an
amount of shares equal to 5% of the shares of common stock sold], subject to
adjustment as provided in Section 8 hereof (such shares, as adjusted, being
hereinafter referred to as the "Shares") of the Company's Common Stock, no par
value per share (the "Common Stock"), each Placement Agent Warrant entitling
the holder thereof to purchase one share of Common Stock. All capitalized
terms used herein and not otherwise defined herein shall have the same meanings
as in that certain Placement Agency Agreement, of even date herewith, by and
between the Company and the Placement Agent (the "Placement Agency Agreement").
NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein set forth and for other good and valuable
consideration, the parties hereto agree as follows:
1. Issuance of Warrants; Form of Warrant. The Company will
issue, sell and deliver the Placement Agent Warrants to the Placement Agent or
its bona fide officers and/or directors. The form of the Placement Agent
Warrant and the form of election to purchase Shares to be attached thereto
shall be substantially as set forth on Exhibit A attached hereto. The
Placement Agent Warrants shall be executed on behalf of the Company by the
manual or facsimile signature of the present or any future Chairman of the
Board, Chief Executive Officer or any Vice President of the Company, and
attested by the manual or facsimile signature of the present or any future
Secretary or Assistant Secretary of the Company.
2. Registration. The Placement Agent Warrants shall be
numbered and shall be registered in a Placement Agent Warrant register to be
maintained by the Company (the "Placement Agent Warrant Register"). The
Company shall be entitled to treat the registered holder of any Placement Agent
Warrant on the Placement Agent Warrant Register (the "Holder") as the owner in
fact thereof for all purposes and shall not be bound to recognize any equitable
or other claim to or interest in such Placement Agent Warrant on the part of
any other person, and shall not be liable for any registration of transfer of
the Placement Agent Warrants which are registered or are to be registered in
the name of a fiduciary or the nominee of a fiduciary unless made with the
actual knowledge that a fiduciary or nominee is committing a breach of trust in
requesting such registration of transfer, or with such knowledge of such facts
that its participation therein amounts to bad faith. The Placement Agent
Warrants shall be registered initially in the name of "Rauscher Pierce Refsnes,
Inc." in such denominations as the Placement Agent may request in writing to
the Company; provided, however, that the
<PAGE> 3
Placement Agent may designate that all or a portion of the Placement Agent
Warrants be issued in varying amounts directly to its bona fide officers and/or
directors, and not to the Placement Agent. Such designation will only be made
by the Placement Agent if it determines that such issuances would not violate
the rules of the National Association of Securities Dealers, Inc. (the "NASD")
relating to the review of corporate financing arrangements.
3. Transfer of Warrants. The Placement Agent Warrants will
not be sold, transferred, assigned or hypothecated, in part or in whole (other
than by will or pursuant to the laws of descent and distribution), except to
bona fide officers of the Placement Agent and only upon delivery thereof duly
endorsed by the Holder or by his duly authorized attorney or representative, or
accompanied by proper evidence of succession, assignment or authority to
transfer. Furthermore, if any Placement Agent Warrants are transferred after
two years following the effective date of the Registration Statement, such
warrants shall be exercised immediately upon transfer, and if not exercised
immediately upon transfer, such warrants shall lapse. In all cases of transfer
by an attorney, the original power of attorney, duly approved, or an official
copy thereof, duly certified, shall be deposited with the Company. In case of
transfer by executors, administrators, guardians or other legal
representatives, duly authenticated evidence of their authority shall be
produced, and may be required to be deposited with the Company in its
discretion. Upon any registration of transfer, the Company shall deliver a new
Placement Agent Warrant or Placement Agent Warrants to the persons entitled
thereto. The Placement Agent Warrants may be exchanged at the option of the
Holder thereof for another Placement Agent Warrant, or other Placement Agent
Warrants, of different denominations, of like tenor and representing in the
aggregate the right to purchase a like number of shares of Common Stock upon
surrender to the Company or its duly authorized agent. Notwithstanding the
foregoing, the Company shall have no obligation to cause the Placement Agent
Warrants to be transferred on its books to any person, if such transfer would
violate the Securities Act of 1933, as amended (the "Act") or any applicable
state securities laws.
4. Term of Warrants; Exercise of Warrants. (a) Each
Placement Agent Warrant entitles the registered owner thereof to purchase one
Share at a purchase price of $___ per Share [120% of the purchase price set
forth on the cover page of the Prospectus] (the "Exercise Price") at any time
from the first anniversary of the effective date of the Registration Statement
until 5:00 p.m., Eastern Standard Time, on June __, 2002 [five years from the
effective date of the Registration Statement](the "Warrant Expiration Date").
Prior to the Warrant Expiration Date, the Company will not take any action
which would terminate the Placement Agent Warrants. The Exercise Price and the
Shares issuable upon exercise of the Placement Agent Warrants are subject to
adjustment upon the occurrence of certain events, pursuant to the provisions of
Section 8 of this Agreement. Subject to the provisions of this Agreement, each
Holder shall have the right, which may be exercised as set forth in such
Placement Agent Warrants, to purchase from the Company (and the Company shall
issue and sell to such Holder) the number of fully paid and nonassessable
shares of Common Stock specified in such Placement Agent Warrant as follows:
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<PAGE> 4
(i) Upon surrender to the Company, or its duly authorized
agent, of such Placement Agent Warrants with the form of election to
purchase attached thereto duly completed and signed, with signatures
guaranteed by a member firm of a national securities exchange, a
commercial bank or trust company located in the United States or a
member of the NASD and upon payment to the Company of the Exercise
Price, as adjusted in accordance with the provisions of Section 8 of
this Agreement, for the number of Shares in respect of which such
Placement Agent Warrants are then exercised. Payment of such Exercise
Price may be made in cash or by cashier's check payable to the order
of the Company. No adjustment shall be made for any dividends on any
Shares issuable upon exercise of a Placement Agent Warrant; or
(ii) Upon surrender to the Company, or its duly authorized agent,
of such Placement Agent Warrants with the form of cashless exercise
attached thereto (a "Cashless Exercise"), duly completed and signed,
with signatures guaranteed by a member firm of a national securities
exchange, a commercial bank or trust company located in the United
States or a member of the NASD. Such surrender shall be deemed a
waiver of the obligation of the Holder to pay all or any portion of
the Exercise Price. In the event of a Cashless Exercise, the Holder
shall receive that number of shares of Common Stock determined by
multiplying the number of Shares in respect of which such Placement
Agent Warrants are then exercised by a fraction, the numerator of
which shall be an amount equal to the Current Market Price (as such
term is defined in Section 8(d) hereof) per share of Common Stock less
the Exercise Price, as adjusted in accordance with the provisions of
Section 8 of this Agreement, and the denominator of which shall be the
Current Market Price per share of Common Stock. Notwithstanding the
foregoing, in the event that a Cashless Exercise would, at any time
the Placement Agent Warrants remain outstanding, reasonably be deemed
by the Company's independent certified public accountants to give rise
to a charge to the Company's earnings for reporting purposes (which
determination shall be evidenced by an opinion of such independent
certified accountants, in a form reasonably satisfactory to the
Holder), the Holder shall not be entitled to use a Cashless Exercise.
(b) Upon each surrender of the Placement Agent Warrants in
accordance with Section 4(a)(i) or 4(a)(ii) hereof, the Company shall issue and
cause to be delivered with all reasonable dispatch to or upon the written order
of the Holder of such Placement Agent Warrants and in such name or names as
such Holder may designate (so long as surrender or transfer would not violate
the Act or any applicable state securities laws), a certificate or certificates
for the number of full Shares so purchased upon the exercise of such Placement
Agent Warrants, together with cash, as provided in Section 9 of this Agreement,
in respect of any fractional Shares otherwise issuable upon such surrender.
Such certificate or certificates shall be deemed to have been issued and any
person so designated to be named therein shall be deemed to have become a
holder of record of such Shares as of the date of the surrender of the
Placement Agent Warrants as aforesaid (and payment of the Exercise Price with
respect to Section 4(a)(i) hereof); provided, however, that if, at the date of
surrender of such Placement
-3-
<PAGE> 5
Agent Warrants, the transfer books for the Common Stock or other class of
securities issuable upon the exercise of such Placement Agent Warrants shall be
closed, the certificates for the Shares shall be issuable as of the date on
which such books shall next be opened (whether before, on or after the Warrant
Expiration Date) and until such date the Company shall be under no duty to
deliver any certificate for such Shares; provided, further, however, that the
transfer books of record, unless otherwise required by law, shall not be closed
at any one time for a period longer than twenty (20) days. The rights of
purchase represented by the Placement Agent Warrants shall be exercisable, at
the election of the Holders thereof, either in full or from time to time in
part and, in the event that any Placement Agent Warrant is exercised in respect
of less than all of the Shares issuable upon such exercise at any time prior to
the Warrant Expiration Date, a new Placement Agent Warrant or Placement Agent
Warrants will be issued for the remaining number of Shares specified in the
Placement Agent Warrant so surrendered.
5. Payment of Taxes. The Company will pay all documentary
stamp taxes, if any, attributable to the issuance of Shares upon the exercise
of the Placement Agent Warrants; provided, however, that the Company shall not
be required to pay any tax or taxes which may be payable in respect of any
transfer involved in the issue or delivery of any certificates for Shares in a
name other than that of the Holder of the Placement Agent Warrants in respect
of which such Shares are issued.
6. Mutilated or Missing Warrants. In case any of the
Placement Agent Warrants shall be mutilated, lost, stolen or destroyed, the
Company may, in its discretion, issue and deliver in exchange and substitution
for and upon cancellation of the mutilated Placement Agent Warrant, or in lieu
of and substitution for the Placement Agent Warrant lost, stolen or destroyed,
a new Placement Agent Warrant of like tenor and representing an equivalent
right or interest, but only upon receipt of evidence reasonably satisfactory to
the Company of such mutilation, loss, theft or destruction of such Placement
Agent Warrant and indemnity, unless mutilated, also reasonably satisfactory to
the Company, indemnifying the Company for any claims arising under a Placement
Agent Warrant that has been lost, stolen or destroyed. An applicant for such
substitute Placement Agent Warrants shall also comply with such other
reasonable regulations and pay such other reasonable charges as the Company may
prescribe.
7. Reservation of Shares, etc. There have been reserved, and
the Company shall at all times keep reserved, out of the authorized and
unissued Common Stock, a number of shares of Common Stock sufficient to provide
for the exercise of the rights of purchase represented by the outstanding
Placement Agent Warrants. American Stock Transfer & Trust Company, transfer
agent for the Common Stock (the "Transfer Agent"), and every subsequent
transfer agent, if any, for the Company's securities issuable upon the exercise
of the Placement Agent Warrants will be irrevocably authorized and directed at
all times until the Warrant Expiration Date to reserve such number of
authorized and unissued shares as shall be required for such purpose. The
Company will keep a copy of this Agreement on file with the Transfer Agent and
with every subsequent transfer agent for any shares of the Company's securities
issuable upon the exercise of the Placement Agent Warrants. The Company will
supply the
-4-
<PAGE> 6
Transfer Agent or any subsequent transfer agent with duly executed certificates
for such purpose and will itself provide or otherwise make available any cash
which may be distributable as provided in Section 9 of this Agreement. All
Placement Agent Warrants surrendered in the exercise of the rights thereby
evidenced shall be canceled, and such canceled Placement Agent Warrants shall
constitute sufficient evidence of the number of Shares that have been issued
upon the exercise of such Placement Agent Warrants. No shares of Common Stock
shall be subject to reservation in respect of unexercised Placement Agent
Warrants subsequent to the Warrant Expiration Date.
8. Adjustments of Exercise Price and Number of Shares.
The Exercise Price and the number and kind of securities issuable upon exercise
of each Placement Agent Warrant shall be subject to adjustment from time to
time upon the happening of certain events, as follows:
(a) In case the Company shall (i) declare a
dividend on its Common Stock in shares of Common Stock or make a distribution
in Common Stock, (ii) subdivide its outstanding Common Stock, (iii) combine its
outstanding Common Stock into a smaller number of shares of Common Stock or
(iv) issue by reclassification of its Common Stock other securities of the
Company (including any such reclassification in connection with a consolidation
or merger in which the Company is the continuing corporation), the number of
Shares purchasable upon exercise of each Placement Agent Warrant immediately
prior thereto shall be adjusted so that the Holder of each Placement Agent
Warrant shall be entitled to receive the kind and number of Shares or other
securities of the Company which he would have owned or have been entitled to
receive after the happening of any of the events described above, had such
Placement Agent Warrant been exercised immediately prior to the happening of
such event or any record date with respect thereto. An adjustment made
pursuant to this paragraph (a) shall become effective immediately after the
effective date of such event.
(b) In case the Company shall issue rights,
options or warrants to all holders of its Common Stock, without any charge to
such holders, entitling them (for a period expiring within 45 days after the
record date mentioned below in this paragraph (b)) to subscribe for or to
purchase shares of Common Stock at a price per share that is lower at the
record date mentioned below than the Current Market Price per share of Common
Stock, the number of Shares thereafter purchasable upon exercise of each
Placement Agent Warrant shall be determined by multiplying the number of Shares
theretofore purchasable upon exercise of each Placement Agent Warrant by a
fraction, of which the numerator shall be the number of shares of Common Stock
outstanding on such record date plus the number of additional Common Stock
offered for subscription or purchase, and of which the denominator shall be the
number of shares of Common Stock outstanding on such record date plus the
number of shares which the aggregate offering price of the total number of
shares of Common Stock so offered would purchase at the Current Market Price
per share of Common Stock. Such adjustment shall be made whenever such rights,
options or warrants are issued, and shall become effective on the date of
issuance.
-5-
<PAGE> 7
(c) In case the Company shall distribute to all
holders of its shares of Common Stock shares of stock (other than Common
Stock) or evidences of its indebtedness or assets (excluding cash dividends
payable out of consolidated earnings or retained earnings and dividends or
distributions referred to in paragraph (a) above) or rights, options or
warrants or convertible or exchangeable securities containing the right to
subscribe for or purchase shares of Common Stock (excluding those referred to
in paragraph (b) above), then in each case the number of Shares thereafter
issuable upon the exercise of each Placement Agent Warrant shall be determined
by multiplying the number of Shares theretofore issuable upon the exercise of
each Placement Agent Warrant, by a fraction, of which the numerator shall be
the Current Market Price per share of Common Stock on the record date mentioned
below in this paragraph (c), and of which the denominator shall be the Current
Market Price per share of Common Stock on such record date, less the then fair
value (as determined by the Board of Directors of the Company, whose
determination shall be conclusive) of the portion of the shares of stock (other
than Common Stock) or assets or evidences of indebtedness so distributed or of
such subscription rights, options or warrants, or of such convertible or
exchangeable securities, applicable to one share of Common Stock. Such
adjustment shall be made whenever any such distribution is made, and shall
become effective on the date of distribution.
(d) For the purpose of any computation under this
Agreement, the Current Market Price per share of Common Stock at any date shall
be the average of the daily closing prices for fifteen (15) consecutive trading
days commencing twenty (20) trading days before the date of such computation.
The closing price for each day shall be the last reported sale price regular
way or, in case no such reported sale takes place on such day, the average of
the closing bid and asked prices regular way for such day, in either case on
the principal national securities exchange on which the shares are listed or
admitted to trading, or if they are not listed or admitted to trading on any
national securities exchange, but are traded in the over-the-counter market,
the closing sale price of the Common Stock or, in case no sale is publicly
reported, the average of the representative closing bid and asked quotations
for the Common Stock on the Nasdaq Stock Market ("NASDAQ") system or any
comparable system, or if the Common Stock is not listed on the NASDAQ system or
a comparable system, the closing sale price of the Common Stock or, in case no
sale is publicly reported, the average of the closing bid and asked prices as
furnished by two members of the NASD selected from time to time by the Company
for that purpose.
(e) No adjustment in the number of Shares
purchasable hereunder shall be required unless such adjustment would require an
increase or decrease of at least one percent (1%) in the number of Shares
purchasable upon the exercise of each Placement Agent Warrant; provided,
however, that any adjustments which by reason of this paragraph (e) are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment, but not later than three years after the happening of
the specified event or events. All calculations shall be made to the nearest
one thousandth of a share. Anything in this Section 8 to the contrary
notwithstanding, the Company shall be entitled, but shall not be required, to
make
-6-
<PAGE> 8
such changes in the number of Shares purchasable upon the exercise of each
Placement Agent Warrant, in addition to those required by this Section 8, as it
in its discretion shall determine to be advisable in order that any dividend or
distribution in shares of Common Stock, subdivision, reclassification or
combination of shares of Common Stock, issuance of rights, warrants or options
to purchase Common Stock, or distribution of shares of stock other than Common
Stock, evidences of indebtedness or assets (other than distributions of cash
out of consolidated earnings or retained earnings) or convertible or
exchangeable securities hereafter made by the Company to the holders of its
Common Stock shall not result in any tax to the holders of its Common Stock or
securities convertible into Common Stock.
(f) Whenever the number of Shares purchasable upon
the exercise of each Placement Agent Warrant is adjusted, as herein provided,
the Exercise Price shall be adjusted by multiplying the Exercise Price in
effect immediately prior to such adjustment by a fraction, of which the
numerator shall be the number of Shares purchasable upon the exercise of each
Placement Agent Warrant immediately prior to such adjustment, and of which the
denominator shall be the number of Shares so purchasable immediately
thereafter.
(g) For the purpose of this Section 8, the term
"shares of Common Stock" shall mean (i) the class of stock designated as the
Common Stock of the Company at the date of this Agreement or (ii) any other
class of stock resulting from successive changes or reclassifications of such
shares consisting solely of changes in par value, or from no par value to par
value, or from par value to no par value. In the event that at any time, as a
result of an adjustment made pursuant to paragraph (a) above, the Holders shall
become entitled to purchase any shares of capital stock of the Company other
than Common Stock, thereafter the number of such other shares so purchasable
upon exercise of each Placement Agent Warrant and the Exercise Price of such
Shares shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Shares contained in paragraphs (a) through (f), inclusive, and paragraphs (h)
through (m), inclusive, of this Section 8, and the provisions of Sections 4, 5,
7 and 10, with respect to the Shares, shall apply on like terms to any such
other shares.
(h) Upon the expiration of any rights, options,
warrants or conversion rights or exchange privileges, if any thereof shall not
have been exercised, the Exercise Price and the number of shares of Common
Stock purchasable upon the exercise of each Placement Agent Warrant shall, upon
such expiration, be readjusted and shall thereafter be such as it would have
been had it originally been adjusted (or had the original adjustment not been
required, as the case may be) as if (i) the only shares of Common Stock so
issued were the Common Stock, if any, actually issued or sold upon the exercise
of such rights, options, warrants or conversion rights or exchange privileges
and (ii) such Common Stock, if any, were issued or sold for the consideration
actually received by the Company upon such exercise plus the aggregate
consideration, if any, actually received by the Company for the issuance, sale
or grant of all of such rights, options, warrants or conversion rights or
exchange privileges whether or not exercised; provided, however, that no such
readjustment shall have the effect of
-7-
<PAGE> 9
increasing the Exercise Price by an amount in excess of the amount of the
adjustment initially made in respect to the issuance, sale or grant of such
rights, options, warrants or conversion rights or exchange privileges.
(i) The Company may, at its option, at any time
during the term of the Placement Agent Warrants, reduce the then current
Exercise Price to any amount deemed appropriate by the Board of Directors of
the Company, for any length of time.
(j) Whenever the number of Shares issuable upon
the exercise of each Placement Agent Warrant or the Exercise Price of such
Shares is adjusted, as herein provided, the Company shall promptly mail by
first class mail postage prepaid, to each Holder notice of such adjustment or
adjustments at such Holder's address appearing on the Placement Agent Warrant
Register. The Chief Financial Officer of the Company shall make any
computation required by this Section 8 and shall execute a certificate (the
"CFO Certificate") setting forth the number of Shares issuable upon the
exercise of each Placement Agent Warrant and the Exercise Price of such Shares
after such adjustment, setting forth a brief statement of the facts requiring
such adjustment and setting forth the computation by which such adjustment was
made. Each Holder shall have the right to inspect the CFO Certificate during
reasonable business hours. In the event that a Holder shall dispute the
determination set forth in the CFO Certificate, the Company shall retain, at
its expense, a firm of independent public accountants (who may be regular
accountants employed by the Company) to make the required computation and to
prepare a certificate which shall set forth the information required in the CFO
Certificate. Such certificate shall be conclusive on the correctness of such
adjustment and each Holder shall have the right to inspect such certificate
during reasonable business hours.
(k) Except as provided in this Section 8, no
adjustment in respect of any dividends shall be made during the term of a
Placement Agent Warrant or upon the exercise of a Placement Agent Warrant.
(l) In case of any consolidation of the Company
with or merger of, the Company with or into another corporation or in case of
any sale or conveyance to another corporation of the property of the Company as
an entirety or substantially as an entirety, the Company or such successor or
purchasing corporation (or an affiliate of such successor or purchasing
corporation), as the case may be, agrees that each Holder shall have the right
thereafter upon payment of the Exercise Price in effect immediately prior to
such action to purchase upon exercise of each Placement Agent Warrant the kind
and amount of shares and other securities and property (including cash) which
he would have owned or have been entitled to receive after the happening of
such consolidation, merger, sale or conveyance had such Placement Agent Warrant
been exercised immediately prior to such action. The provisions of this
paragraph (l) shall similarly apply to successive consolidations, mergers,
sales or conveyances.
-8-
<PAGE> 10
(m) Notwithstanding any adjustment in the
Exercise Price or the number or kind of shares purchasable upon the exercise of
the Placement Agent Warrants pursuant to this Agreement, certificates for the
Placement Agent Warrants issued prior or subsequent to such adjustment may
continue to express the same price and number and kind of Shares as are
initially issuable pursuant to this Agreement.
9. Fractional Interests. The Company shall not be
required to issue fractions of Shares on the exercise of the Placement Agent
Warrants. If more than one Placement Agent Warrant shall be presented for
exercise in full at the same time by the same Holder, the number of Shares
which shall be issuable upon the exercise thereof shall be computed on the
basis of the aggregate number of Shares issuable on exercise of the Placement
Agent Warrants so presented. If any fraction of a Share would, except for the
provisions of this Section 9, be issuable on the exercise of any Placement
Agent Warrant (or specified portions thereof), the Company shall purchase such
fraction for an amount in cash equal to the same fraction of the Current Market
Price per share of Common Stock on the date of exercise.
10. Registration Rights.
(a) Piggyback Registration Rights. The Company
covenants and agrees with the Placement Agent and any other Holders or
subsequent Holders of the Registrable Securities that if, at any time within
the period commencing two years and ending five years after the Effective Date,
it proposes to file a Registration Statement with respect to any class of
security under the Act in a primary registration on behalf of the Company
and/or in a secondary registration on behalf of holders of such securities and
the registration form to be used may be used for registration of the
Registrable Securities, the Company will give prompt written notice (which, in
the case of a Registration Statement or notification pursuant to the exercise
of demand registration rights other than those provided in Section 10(a) of
this Agreement, shall be within ten (10) business days after the Company's
receipt of notice of such exercise) to, the Holders of Registrable Securities
(regardless of whether some of the Holders shall have theretofore availed
themselves of the right provided in Section 10(a) of this Agreement) at the
addresses appearing on the records of the Company of its intention to file a
Registration Statement and will offer to include in such registration statement
to the maximum extent possible such number of Registrable Securities with
respect to which the Company has received written requests for inclusion
therein within ten (10) days after the giving of notice by the Company. All
registrations requested pursuant to this Section 10(b) are referred to herein
as "Piggyback Registrations." This paragraph is not applicable to a
Registration Statement filed by the Company with the Commission on Forms S-4 or
S-8 or any successor forms.
(i) Priority on Primary Registrations. If a
Piggyback Registration includes an underwritten primary registration
on behalf of the Company and the underwriter(s) for the offering being
registered by the Company shall determine in good
-9-
<PAGE> 11
faith and advise the Company in writing that in its/their opinion the
number of Registrable Securities requested to be included in such
registration exceeds the number that can be sold in such offering
without materially adversely affecting the distribution of such
securities by the Company, the Company will include in such
registration (A) first, the securities that the Company proposes to
sell and (B) second, other securities requesting registration
(including the Registrable Securities), apportioned pro rata among the
Holders of Registrable Securities and the holders of other securities
requesting registration.
(ii) Priority on Secondary Registrations. If a
Piggyback Registration consists only of an underwritten secondary
registration on behalf of a holder of securities of the Company (other
than pursuant to Section 10(a)), and the underwriter(s) for the
offering being registered by the Company advise the Company in writing
that in its/their opinion the number of Registrable Securities
requested to be included in such registration exceeds the number which
can be sold in such offering without materially adversely affecting
the distribution of such securities by the Company, the Company will
include in such registration (A) first, the securities requested to be
included therein by the holders requesting such registration and the
Registrable Securities requested to be included in such registration
above, pro rata, among all such holders on the basis of the number of
shares requested to be included by each such holder and (B) second,
other securities requested to be included in such registration.
Notwithstanding the foregoing, if any such
underwriter(s) shall determine in good faith and advise the Company in
writing that the distribution of the Registrable Securities requested
to be included in the registration concurrently with the securities
being registered by the Company would materially adversely affect the
distribution of such securities by the Company, then the Holders of
such Registrable Securities shall not participate in the Company's
distribution by the underwriter(s) and shall delay their offering and
sale for such period ending on the earliest of (1) 90 days following
the effective date of the Company's registration statement, (2) the
day upon which the underwriting syndicate, if any, for such offering
shall have been disbanded or (3) such date as the Company, managing
underwriter and Holders of Registrable Securities shall not
participate in the Company's distribution by the underwriter(s) and
shall otherwise agree. In the event of such delay, the Company shall
file such supplements, post-effective amendments and take any such
other steps as may be necessary to permit such Holders to make their
proposed offering and sale for a period of 120 days immediately
following the end of such period of delay. If any party disapproves
of the terms of any such underwriting, it may elect to withdraw
therefrom by written notice to the Company, the underwriter, and the
Placement Agent. Notwithstanding the foregoing, the Company shall not
be required to file a registration statement to include Shares
pursuant to this Section 10(b) if an opinion of counsel, reasonably
satisfactory to counsel for the Placement Agent, that the Shares
proposed to be disposed of may be transferred pursuant to the
provisions of Rule 144 under the Act shall have been delivered to the
Company and the Placement Agent.
-10-
<PAGE> 12
(b) Action to be Taken by the Company. In
connection with the registration of Registrable Securities in accordance with
paragraphs (a) or (b) of this Section 10, the Company agrees to:
(i) Bear the expenses of any registration or
qualification under paragraphs (a) or (b) of this Section 10,
including, but not limited to, legal, accounting and printing fees;
provided, however, that in no event shall the Company be obligated to
pay (A) any fees and disbursements of special counsel for Holders of
Registrable Securities, or (B) any underwriters' discount or
commission in respect of such Registrable Securities, or (C) upon the
exercise of the demand registration right provided for in paragraph
(a) of this Section 10, the cost of any liability or similar insurance
required by an underwriter, to the extent that such costs are
attributable solely to the offering of such Registrable Securities,
payment of which shall, in each case, be the sole responsibility of
the Holders of the Registrable Securities; and
(ii) Use its best efforts to register or qualify the
Registrable Securities for offer or sale under state securities or
Blue Sky laws of jurisdictions in which the Placement Agent shall
reasonably request and to do any and all other acts and things which
may be necessary or advisable to enable the holders to consummate the
proposed sale, transfer or other disposition of such securities in any
jurisdiction; and
(iii) Enter into a cross-indemnity agreement, in
customary form, with each underwriter, if any, and each holder of
securities included in such Amendment or Registration Statement.
(c) For purposes of this Section 10, (i) the term
"Holder" shall include holders of Shares, (ii) the term "Registrable
Securities" shall mean the Shares issuable or issued upon exercise of the
Placement Agent Warrants, and (iii) the term "Financing Effort" shall mean a
financing undertaken by the Company pursuant to a filed registration statement
or pursuant to an executed letter of intent or similar agreement whereupon the
Company reasonably contemplates the commencement of marketing within fourteen
days from the date thereof. Nothing in this Section 10, however, shall be
deemed to require the Company to register the Placement Agent Warrants, it
being understood that the registration rights granted hereby relate only to the
Shares issuable or issued upon exercise of the Placement Agent Warrants and any
securities issued in substitution or exchange therefor.
11. Notices to Holders.
(a) Nothing contained in this Agreement or in any
of the Placement Agent Warrants shall be construed as conferring upon the
Holders thereof the right to vote or to receive dividends or to consent or to
receive notice as shareholders in respect of the meetings of
-11-
<PAGE> 13
shareholders or the election of directors of the Company or any other matter,
or any rights whatsoever as shareholders of the Company; provided, however,
that in the event that a meeting of shareholders shall be called to consider
and take action on a proposal for the voluntary dissolution of the Company,
other than in connection with a consolidation, merger or sale of all, or
substantially all, of its property, assets, business and good will as an
entirety, then and in that event the Company shall cause a notice thereof to be
sent by first-class mail, postage prepaid, at least twenty (20) days prior to
the date filed as a record date or the date of closing the transfer books in
relation to such meeting, to each registered Holder of the Placement Agent
Warrants at such Holder's address appearing on the Placement Agent Warrant
Register; but failure to mail or to receive such notice or any defect therein
or in the mailing thereof shall not affect the validity of any action taken in
connection with such voluntary dissolution. If such notice shall have been so
given and if such a voluntary dissolution shall be authorized at such meeting
or any adjournment thereof, then from and after the date on which such
voluntary dissolution shall have been duly authorized by the shareholders, the
purchase rights represented by the Placement Agent Warrants and all other
rights with respect thereto shall cease and terminate.
(b) In the event the Company intends to make any
distribution on its Common Stock (or other securities which may be issuable in
lieu thereof upon the exercise of the Placement Agent Warrants), including,
without limitation, any such distribution to be made in connection with a
consolidation or merger in which the Company is the continuing corporation, or
to issue subscription rights or warrants to holders of its Common Stock, the
Company shall cause a notice of its intention to make such distribution to be
sent by first-class mail, postage prepaid, at least twenty (20) days prior to
the date fixed as a record date or the date of closing the transfer books in
relation to such distribution, to each registered Holder of the Placement Agent
Warrants at such Holder's address appearing on the Placement Agent Warrant
Register, but failure to mail or to receive such notice or any defect therein
or in the mailing thereof shall not affect the validity of any action taken in
connection with such distribution.
12. Notices. Any notice pursuant to this Agreement to be
given or made by the Holder of any Placement Agent Warrant and/or the holder of
any Share to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed as follows or to such other
address as the Company may designate by notice given in accordance with this
Section 12, to the Holders of Placement Agent Warrants and/or the holders of
Shares:
Nashville Country Club, Inc.
402 Heritage Plantation Way
Hickory Valley, Tennessee 38042
Attn: Thomas Jackson Weaver, III
-12-
<PAGE> 14
with a copy to:
Winstead, Sechrest & Minick P.C.
5400 Renaissance Tower
1201 Elm Street
Dallas, Texas 75270-2199
Attn: Randall E. Roberts, Esq.
Notices or demands authorized by this Agreement to be
given or made by the Company to or on the Holder of any Placement Agent Warrant
and/or the holder of any Share shall be sufficiently given or made (except as
otherwise provided in this Agreement) if sent by first-class mail, postage
prepaid, addressed to such Holder or such holder of Shares at the address of
such Holder or such holder of Shares as shown on the Placement Agent Warrant
Register or the books of the Company, as the case may be.
13. Governing Law. This Agreement and each Placement
Agent Warrant issued hereunder shall be governed by and construed in accordance
with the substantive laws of the State of New York. The Company hereby agrees
to accept service of process by notice given to it pursuant to the provisions
of Section 12.
14. Counterparts. This Agreement may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original; but such counterparts together shall constitute but one and the same
instrument.
-13-
<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day, month and year first above
written.
NASHVILLE COUNTRY CLUB, INC.
By:
-------------------------------
Attest:
- -----------------------------
Name:
Title:
RAUSCHER PIERCE REFSNES, INC.
By:
-------------------------------
Attest:
- -----------------------------
Name:
Title:
-14-
<PAGE> 16
EXHIBIT A
No. ________ ________ Warrants
VOID AFTER 5:00 P.M. EASTERN STANDARD TIME
ON JUNE __, 2002
NASHVILLE COUNTRY CLUB, INC.
Warrant Certificate
THIS CERTIFIES THAT for value received Rauscher Pierce
Refsnes, Inc. or registered assigns, is the owner of the number of warrants set
forth above, each of which entitles the owner thereof to purchase at any time
from June __, 1997, until 5:00 p.m., Eastern Standard Time on June __, 2002
(the "Warrant Expiration Date"), one fully paid and nonassessable share of
Common Stock, no par value per share (the "Common Stock"), of Nashville Country
Club, Inc., a Tennessee corporation (the "Company"), at the purchase price of
$____ per share (the "Exercise Price") upon presentation and surrender of this
Warrant Certificate with either the Form of Election to Purchase or Form of
Cashless Exercise duly executed. The number of Warrants evidenced by this
Warrant Certificate (and the number of shares which may be purchased upon
exercise thereof) set forth above, and the Exercise Price per share set forth
above, are the number and Exercise Price as of the date of original issuance of
the Warrants, based on the shares of Common Stock of the Company as constituted
at such date. As provided in the Warrant Agreement referred to below, the
Exercise Price and the number or kind of shares which may be purchased upon the
exercise of the Warrants evidenced by this Warrant Certificate are, upon the
happening of certain events, subject to modification and adjustment.
This Warrant Certificate is subject to, and entitled to the
benefits of, all of the terms, provisions and conditions of an agreement dated
as of June __, 1997 (the "Warrant Agreement") between the Company and Rauscher
Pierce Refsnes, Inc. which Warrant Agreement is hereby incorporated herein by
reference and made a part hereof and to which Warrant Agreement reference is
hereby made for a full description of the rights, limitations of rights, duties
and immunities hereunder of the Company and the holders of the Warrant
Certificates. Copies of the Warrant Agreement are on file at the principal
office of the Company.
This Warrant Certificate, with or without other Warrant
Certificates, upon surrender at the principal office of the Company, may be
exchanged for another Warrant Certificate or Warrant Certificates of like tenor
and date evidencing Warrants entitling the holder to purchase a like aggregate
number of shares of Common Stock as the Warrants evidenced by the Warrant
Certificate or Warrant Certificates surrendered entitled such holder to
purchase. If this Warrant Certificate shall be exercised in part, the holder
hereof shall be entitled to receive upon surrender hereof another Warrant
Certificate or Warrant Certificates for the number of whole Warrants not
exercised.
A-1
<PAGE> 17
No fractional shares of Common Stock will be issued upon the
exercise of any Warrant or Warrants evidenced hereby, but in lieu thereof a
cash payment will be made, as provided in the Warrant Agreement.
No holder of this Warrant Certificate shall be entitled to
vote or receive dividends or be deemed the holder of Common Stock, any other
securities of the Company which may at any time be issuable on the exercise
hereof for any purpose, nor shall anything contained in the Warrant Agreement
or herein be construed to confer upon the holder hereof, as such, any of the
rights of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issue of stock, reclassification of stock, change of par
value or change of stock to no par value, consolidation, merger, conveyance, or
otherwise) or, except as provided in the Warrant Agreement, to receive notice
of meetings, or to receive dividends or subscription rights or otherwise, until
the Warrant or Warrants evidenced by this Warrant Certificate shall have been
exercised and the shares shall have become deliverable as provided in the
Warrant Agreement.
If this Warrant shall be surrendered for exercise within any
period during which the transfer books for the Company's Common Stock or other
class of stock purchasable upon the exercise of this Warrant are closed for any
purpose, the Company shall not be required to make delivery of certificates for
shares purchasable upon such exercise until the date of the reopening of said
transfer books.
A-2
<PAGE> 18
IN WITNESS WHEREOF, NASHVILLE COUNTRY CLUB, INC. has caused
the signature (or facsimile signature) of its Chairman of the Board and Chief
Executive Officer and its Secretary to be printed hereon.
Dated: ____________ ___, 1997
NASHVILLE COUNTRY CLUB, INC.
By:
-------------------------------
Name:
Title:
Attest:
- ------------------------------
Name:
Title:
A-3
<PAGE> 19
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise the Warrant Certificate in
accordance with Section 4(a)(i) of the Warrant Agreement.)
TO: NASHVILLE COUNTRY CLUB, INC.
The undersigned hereby irrevocably elects to exercise Warrants
represented by this Warrant Certificate to purchase the shares of Common Stock
issuable upon the exercise of such Warrants and payment of the Exercise Price
therefor in accordance with Section 4(a)(i) of the Warrant Agreement and
requests that certificates for such shares to be issued in the name of:
Please insert social security or other
identifying number
- --------------------------------
- --------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
(Please print name and address)
-----------------------------------------------------------
If such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, a new Warrant Certificate for the balance remaining of
such Warrants shall be registered in the name of and delivered to:
Please insert social security number or other
identifying number
- --------------------------------
- --------------------------------
-----------------------------------------------------------
(Please print name and address)
-----------------------------------------------------------
DATED: ______________, ____
--------------------------------------
Signature
(Signature must conform in all respects
to name of holder as specified on the
face of this Warrant Certificate)
Signature Guaranteed:
<PAGE> 20
FORM OF CASHLESS EXERCISE
(To be executed if holder desires to exercise
the Warrant Certificate in accordance
with Section 4(a)(ii) of the Warrant Agreement)
TO: NASHVILLE COUNTRY CLUB, INC.
The undersigned hereby irrevocably elects a Cashless Exercise of the
Warrants represented by this Warrant Certificate to purchase the shares of
Common Stock issuable upon the exercise of such Warrants in accordance with
Section 4(a)(ii) of the Warrant Agreement and requests that certificates for
such shares be issued in the name of:
Please insert Social Security or
other identifying number
(Please print name and address)
If such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, a new Warrant Certificate for the balance remaining of
such Warrants shall be registered in the name of and delivered to:
Please insert Social Security or
other identifying number
(Please print name and address)
Dated: __________, ____
--------------------------------
Signature
(Signature must conform in all
respects to name of holder as
specified on the back of this
Warrant Certificate)
Signature Guaranteed:
<PAGE> 21
FORM OF
ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
Warrant Certificates.)
FOR VALUE RECEIVED, ________________________ hereby sells,
assigns and transfers unto this Warrant Certificate, together with all right,
title and interest herein, and does hereby irrevocably constitute and appoint
________________, to transfer the within Warrant Certificate on the books of
the within-named Company, with full power of substitution.
Dated: _______________,__
Signature
-----------------------
Signature Guaranteed:
NOTICE
The signature of the foregoing Assignment must correspond to
the name as written upon the face of this Warrant Certificate in every
particular, without alteration or enlargement or any change whatsoever.
<PAGE> 1
EXHIBIT 10.21
FORM OF
ESCROW AGREEMENT
ESCROW AGREEMENT, dated as of _____ __, 1997, by and among
Nashville Country Club, Inc., a Tennessee corporation (the "Company"), Rauscher
Pierce Refsnes, Inc. (the "Placement Agent") and Citibank, N.A., a national
banking institution incorporated under the laws of the United States of America
(the "Escrow Agent").
WHEREAS, the Company proposes to sell an aggregate of ______
shares of its common stock, no par value per share (the "Shares"), for an
aggregate of $_______, all as described in the Company's registration statement
on Form SB-2 (Registration No. 333-____)(which, together with all amendments or
supplements thereto is referred to herein as the "Registration Statement");
WHEREAS, the Shares are being offered by the Company to
investors whom the Placement Agent has introduced to the Company, pursuant to
registration under the Securities Act of 1933, as amended, and pursuant to
registration or exemptions from registration under state securities laws;
WHEREAS, the offering of the Shares will terminate on _____
__, 1997 (the "Closing Date"), subject to extension by the mutual agreement of
the Company and the Escrow Agent, and, if subscriptions for the total number of
Shares being offered pursuant to the Registration Statement have not been
received by the Company on or before the Closing Date, no Shares will be sold
and all payments made by subscribers will be refunded by the Escrow Agent with
interest earned thereon, if any; and
WHEREAS, with respect to all subscription payments received
from subscribers, the Company proposes to establish an escrow account with the
Escrow Agent at the office of its Escrow Administration, 120 Wall Street, 13th
Floor, New York, New York 10043.
NOW, THEREFORE, it is agreed as follows:
1. Establishment of Escrow. The Escrow Agent hereby
agrees to receive and disburse the proceeds from the offering of the Shares and
any interest earned thereon in accordance herewith.
2. Deposit of Escrowed Property. The Placement Agent,
on behalf of the subscribers for the Shares, shall from time to time, but in no
event later than 12:00 noon on the date following receipt by the Placement
Agent, cause to be wired to or deposited with, or, cause the subscribers for
the Shares to wire or deposit with, the Escrow Agent funds or checks of the
subscribers delivered in payment for Shares (the "Escrowed Property"). [Such
Escrowed Property shall be wired to or deposited with the Escrow Agent not
later than 12:00 noon on the date following the date on which it is received by
the Placement Agent.] Any checks delivered to the Escrow Agent pursuant to the
terms hereof shall be made payable to or endorsed to the order of the Escrow
Agent. The Escrow Agent upon receipt of such checks shall present such checks
for payment to the drawee-bank under such checks. Any checks not honored by
the drawee-bank thereunder after the first presentment for payment shall be
returned to the Placement Agent, on behalf of such subscriber, in the same
manner notices are delivered pursuant to Section 6. Upon receipt of funds or
checks from the Placement Agent, the Escrow Agent shall credit such funds and
the amount of such checks to a non-interest-bearing account
<PAGE> 2
(the "Escrow Account") held by the Escrow Agent. If following the credit of
the amount of any check to the Escrow Account such check is dishonored, the
Escrow Agent, if such dishonored check amount shall have been invested pursuant
to Section 3, shall liquidate to the extent of such dishonored check amount
such investments and debit the Escrow Account for the amount of such dishonored
check plus, if any, the amount of interest and other income earned with respect
to any investment of such dishonored check amount.
3. Investment of Escrowed Property. The Escrow Agent on
the second business day ("business day" defined for purposes of this Escrow
Agreement as any day which is not a Saturday, a Sunday or a day on which banks
or trust companies in the City and State of New York are authorized or
obligated by law, regulation or executive order to remain closed) succeeding
(unless such deposit is made in federal or other immediately available or "same
day" funds, in which case, on the business day next succeeding) the credit of
any subscription proceeds to the Escrow Account pursuant to Section 2 and until
release of such proceeds in accordance with the terms hereof, shall deposit
such proceeds in a Citibank Money Market Deposit Account, pursuant to Rule
15c2-4 promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended, in accordance with the terms set
forth on Exhibit A hereto (made a part of this Escrow Agreement as if herein
set forth). The Escrow Agent shall in no event be liable for any loss
resulting from any change in interest rates applicable to proceeds invested
pursuant to this Section. Interest on proceeds invested pursuant to this
Section shall accrue from the date of investment of such proceeds until the
termination of such investment pursuant to the terms hereof and shall be paid
as set forth in Section 5.
4. List of Subscribers. The Placement Agent shall
furnish or cause to be furnished to the Escrow Agent, at the time of each
deposit of funds or checks pursuant to Section 2, a list, substantially in the
form of Exhibit B hereto, containing the name of, the address of, the number of
Shares subscribed for by, the subscription amount delivered to the Escrow Agent
on behalf of, and the social security or taxpayer identification number, if
applicable, of each subscriber whose funds are being deposited, and to which is
attached a completed W-9 form (or, in the case of any subscriber who is not a
United States citizen or resident, a W-8 form) for each listed subscriber. The
Escrow Agent shall notify the Placement Agent and the Company of any
discrepancy between the subscription amounts set forth on any list delivered
pursuant to this Section 4 and the subscription amounts received by the Escrow
Agent. The Escrow Agent is authorized to revise such list to reflect the
actual subscription amounts received and the release of any subscription
amounts pursuant to Section 5.
5. Withdrawal of Subscription Amounts. (a) If the
Escrow Agent shall receive a notice, substantially in the form of Exhibit C
hereto (an "Offering Termination Notice"), from the Company, the Escrow Agent
shall (i) promptly after receipt of such Offering Termination Notice and the
clearance of all checks received by the Escrow Agent as Escrowed Property,
liquidate any investments that shall have been made pursuant to Section 3 and
send to each subscriber listed on the list held by the Escrow Agent pursuant to
Section 4 whose total subscription amount shall not have been released pursuant
to paragraph (b) or (c) of this Section 5, in the manner set forth in paragraph
(e) of this Section 5, a check to the order of such subscriber in the amount of
the remaining subscription amount held by the Escrow Agent as set forth on such
list held by the Escrow Agent, and (ii) promptly after the fourth business day
of the month immediately following the month in which the investments made
pursuant to Section 3 were terminated pursuant to this paragraph, send, in the
manner set forth in paragraph (d) of
- 2 -
<PAGE> 3
this Section 5, a check to the order of each such subscriber in the amount of
interest and other income earned and not yet paid with respect to any
investment of such subscriber's funds. The Escrow Agent shall notify the
Company and the Placement Agent of the distribution of such funds to the
subscribers.
(b) In the event that (i) the Shares have been
subscribed for and funds in respect thereof shall have been deposited with the
Escrow Agent on or before the Final Closing Date and (ii) no Offering
Termination Notice shall have been delivered to the Escrow Agent, the Company
and the Placement Agent, shall deliver to the Escrow Agent a joint notice,
substantially in the form of Exhibit D hereto (a "Closing Notice"), designating
the date on which Shares are to be sold and delivered to the subscribers
thereof (the "Closing Date"), which date shall not be earlier than the
clearance of any checks received by the Escrow Agent as Escrowed Property, the
proceeds of which are to be distributed on such Closing Date, and identifying
the subscribers and the number of Shares to be sold to each thereof on such
Closing Date, not less than two (2) nor more than seven (7) business days prior
to such Closing Date. The Escrow Agent, after receipt of such Closing Notice
and the clearance of such checks:
(i) on or prior to the Closing Date
identified in such Closing Notice, shall liquidate any investments
that shall have been made pursuant to Section 3 to the extent of the
subscription amount to be distributed pursuant to the immediately
succeeding clause (ii);
(ii) on such Closing Date, pay to the
Company and the Placement Agent, in federal or other immediately
available funds and otherwise in the manner specified by the Company
in such Closing Notice, an amount equal to the aggregate of the
subscription amounts paid by the subscribers identified in such
Closing Notice for the Shares to be sold on such Closing Date as set
forth on the list held by the Escrow Agent pursuant to Section 4; and
(iii) promptly after the fourth business day
of the month immediately following the month in which the investments
made pursuant to Section 3 were terminated pursuant to such Closing
Notice, shall send, in the manner set forth in paragraph (e) of this
Section 5, a check to the order of each subscriber identified in such
Closing Notice in the amount of interest and other income earned and
not yet paid with respect to any investment of each such subscriber's
funds distributed on such Closing Date. At the time of such transfer,
the Escrow Agent shall identify in writing to the Company and the
Placement Agent the amount of the interest earned for the account of
each subscriber and the date such subscription was received.
(c) If at any time and from time to time prior to
the release of any subscriber's total subscription amount pursuant to paragraph
(a) or (b) of this Section 5 from escrow, the Company shall deliver to the
Escrow Agent a notice, substantially in the form of Exhibit E hereto (a
"Subscription Termination Notice"), to the effect that any or all of the
subscriptions of such subscriber have been rejected by the Company (a "Rejected
Subscription"), the Escrow Agent (i) promptly after receipt of such
Subscription Termination Notice and, if such subscriber delivered a check in
payment of its Rejected Subscription, after the clearance of such check, shall
liquidate, to the extent of the sum of such subscriber's Rejected Subscription
amount as set forth in the Subscription Termination Notice, any investments
that shall have been made pursuant to Section 3 and send to such subscriber, in
the
- 3 -
<PAGE> 4
manner set forth in paragraph (e) of this Section 5, a check to the order of
such subscriber in the amount of such Rejected Subscription amount, and (ii)
promptly after the fourth business day of the month immediately following the
month in which the investments made pursuant to Section 3 were terminated
pursuant to this paragraph, shall send to such subscriber, in the manner set
forth in paragraph (e) of this Section 5, a check to the order of such
subscriber in the amount of interest and other income earned and not yet paid
with respect to any investment of such subscriber's Rejected Subscription
amount. At the time of such transfer, the Escrow Agent shall identify in
writing to the Company and the Placement Agent the amount of the interest
earned for the account of each subscriber and the date such subscription was
received.
(d) On a date following the transfer of any
interest earned for the account of each subscriber pursuant to Section 5(a),
(b) or (c), but not later than January 1, 1998, the Escrow Agent shall provide
each subscriber with tax form 1099 setting forth the amount of such interest.
(e) For the purposes of this Section 5, any check
that the Escrow Agent shall be required to send to any subscriber shall be sent
to such subscriber by first class mail, postage prepaid, at such subscriber's
address furnished to the Escrow Agent pursuant to Section 4.
6. Notices. Any notice or other communication required
or permitted to be given hereunder shall be in writing and shall be (a)
delivered by hand or (b) sent by mail, registered or certified, with proper
postage prepaid, and addressed as follows:
if to the Company, to:
Nashville Country Club, Inc.
402 Heritage Plantation Way
Hickory Valley, Tennessee 38042
Attention: Mr. Thomas J. Weaver III
with a copy to:
Winstead Sechrest & Minick P.C.
5400 Renaissance Tower
1201 Elm Street
Dallas, Texas 75270
Attention: Randall E. Roberts, Esq.
if to the Placement Agent, to:
Rauscher Pierce Refsnes, Inc.
2711 N. Haskell Avenue, Suite 2400
Dallas, Texas 75204
Attention: Jay K. Turner
- 4 -
<PAGE> 5
with a copy to:
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038
Attention: James R. Tanenbaum, Esq.
if to the Escrow Agent, to:
Citibank, N.A.
Corporate Trust
Escrow Administration
120 Wall Street, 1th Floor
New York, New York 10043
Attention: Mr. Bryan Gartenberg
or to such other address as the person to whom notice is to be given may have
previously furnished to the others in the above-referenced manner. All such
notices and communications, if mailed, shall be effective when deposited in the
mails, except that notices and communications to the Escrow Agent and notices
of changes of address shall not be effective until received.
7. Concerning the Escrow Agent. To induce the Escrow
Agent to act hereunder, it is further agreed by the Company and Placement Agent
that:
(a) The Escrow Agent shall not be under any duty
to give the Escrowed Property held by it hereunder any greater degree of care
than it gives its own similar property and shall not be required to invest any
funds held hereunder except as directed in this Escrow Agreement. Uninvested
funds held hereunder shall not earn or accrue interest.
(b) This Escrow Agreement expressly sets forth
all the duties of the Escrow Agent with respect to any and all matters
pertinent hereto. No implied duties or obligations shall be read into this
Escrow Agreement against the Escrow Agent. The Escrow Agent shall not be bound
by the provisions of any agreement among the other parties hereto except this
Escrow Agreement.
(c) The Escrow Agent shall not be liable, except
for its own negligence or willful misconduct, and, except with respect to
claims based upon such negligence or willful misconduct that are successfully
asserted against the Escrow Agent, the other parties hereto shall jointly and
severally indemnify and hold harmless the Escrow Agent (and any successor
Escrow Agent) from and against any and all losses, liabilities, claims,
actions, damages and expenses, including reasonable attorneys' fees and
disbursements, arising out of and in connection with this Escrow Agreement.
Without limiting the foregoing, the Escrow Agent shall in no event be liable in
connection with its investment or reinvestment of any cash held by it hereunder
in good faith, in accordance with the terms hereof, including without
limitation any liability for any delays (not resulting from gross negligence or
willful misconduct) in the investment or reinvestment of the Escrowed Property,
or any loss of interest incident to any such delays.
- 5 -
<PAGE> 6
(d) The Escrow Agent shall be entitled to rely
upon any order, judgment, certification, demand, notice, instrument or other
writing delivered to it hereunder without being required to determine the
authenticity or the correctness of any fact stated therein or the propriety or
validity of the service thereof. The Escrow Agent may act in reliance upon any
instrument or signature believed by it in good faith to be genuine and may
assume, if in good faith, that any person purporting to give notice or receipt
or advice or make any statement or execute any document in connection with the
provisions hereof has been duly authorized to do so.
(e) The Escrow Agent may act pursuant to the
advice of counsel with respect to any matter relating to this Escrow Agreement
and shall not be liable for any action taken or omitted in good faith and in
accordance with such advice.
(f) The Escrow Agent does not have any interest
in the Escrowed Property deposited hereunder but is serving as escrow holder
only. Any payments of income from the Escrow Account shall be subject to
withholding regulations then in force with respect to United States taxes. The
parties hereto will provide the Escrow Agent with appropriate W-9 forms for tax
I.D., number certification, or non-resident alien certifications.
This paragraph (f) and paragraph (c) of this Section 7 shall
survive notwithstanding any termination of this Escrow Agreement or the
resignation of the Escrow Agent.
(g) The Escrow Agent makes no representation as
to the validity, value, genuineness or the collectibility of any security or
other document or instrument held by or delivered to it.
(h) The Escrow Agent shall not be called upon to
advise any party as to the wisdom of selling or retaining or taking or
refraining from any action with respect to any securities or other property
deposited hereunder.
(i) The Escrow Agent (and any successor escrow
agent) at any time may be discharged from its duties and obligations hereunder
by the delivery to it of notice of termination signed by both the Company and
the Placement Agent or at any time may resign by giving written notice to such
effect to the Company and the Placement Agent. Upon any such termination or
resignation, the Escrow Agent shall deliver the Escrowed Property to any
successor escrow agent jointly designated by the other parties hereto in
writing, or to any court of competent jurisdiction if no such successor escrow
agent is agreed upon, whereupon the Escrow Agent shall be discharged of and
from any and all further obligations arising in connection with this Escrow
Agreement. The termination or resignation of the Escrow Agent shall take
effect on the earlier of (i) the appointment of a successor (including a court
of competent jurisdiction) or (ii) the day that is 30 days after the date of
delivery: (A) to the Escrow Agent of the other parties' notice of termination
or (B) to the other parties hereto of the Escrow Agent's written notice of
resignation. If at that time the Escrow Agent has not received a designation
of a successor escrow agent, the Escrow Agent's sole responsibility after that
time shall be to keep the Escrowed Property safe until receipt of a designation
of successor escrow agent or a joint written disposition instruction by the
other parties hereto or any enforceable order of a court of competent
jurisdiction.
- 6 -
<PAGE> 7
(j) The Escrow Agent shall have no responsibility
for the contents of any writing of any third party contemplated herein as a
means to resolve disputes and may rely without any liability upon the contents
thereof.
(k) In the event of any disagreement among or
between the other parties hereto and/or the subscribers of the Shares resulting
in adverse claims or demands being made in connection with the Escrowed
Property, or in the event that the Escrow Agent in good faith is in doubt as to
what action it should take hereunder, the Escrow Agent shall be entitled to
retain the Escrowed Property until the Escrow Agent shall have received (i) a
final and non- appealable order of a court of competent jurisdiction directing
delivery of the Escrowed Property or (ii) a written agreement executed by the
other parties hereto and consented to by the subscribers directing delivery of
the Escrowed Property, in which event the Escrow Agent shall disburse the
Escrowed Property in accordance with such order or agreement. Any court order
referred to in (i) above shall be accompanied by a legal opinion by counsel for
the presenting party satisfactory to the Escrow Agent to the effect that said
court order is final and non-appealable. The Escrow Agent shall act on such
court order and legal opinion without further question.
(l) As consideration for its agreement to act as
Escrow Agent as herein described, the Company agrees to pay the Escrow Agent
fees determined in accordance with the terms set forth on Exhibit F hereto
(made a part of this Escrow Agreement as if herein set forth). In addition,
the Company agrees to reimburse the Escrow Agent for all reasonable expenses,
disbursements and advances incurred or made by the Escrow Agent in performance
of its duties hereunder (including reasonable fees, expenses and disbursements
of its counsel).
(m) All parties hereto irrevocably (i) submit to
the jurisdiction of any New York State or federal court sitting in New York
City in any action or proceeding arising out of or relating to this Escrow
Agreement, (ii) agree that all claims with respect to such action or proceeding
shall be heard and determined in such New York State or federal court and (iii)
waive, to the fullest extent possible, the defense of an inconvenient forum.
The other parties hereby consent to and grant any such court jurisdiction over
the persons of such parties and over the subject matter of any such dispute and
agree that delivery or mailing of process or other papers in connection with
any such action or proceeding in the manner provided hereinabove, or in such
other manner as may be permitted by law, shall be valid and sufficient service
thereof.
(n) No printed or other matter in any language
(including, without limitation, the Registration Statement, the Prospectus,
notices, reports and promotional material) which mentions the Escrow Agent's
name or the rights, powers, or duties of the Escrow Agent shall be issued by
the other parties hereto or on such parties' behalf unless the Escrow Agent
shall first have given its specific written consent thereto. The Escrow Agent
hereby consents to the use of its name and the reference to the escrow
arrangement in the Registration Statement and in the Prospectus.
8. Miscellaneous.
(a) This Escrow Agreement shall be binding upon and
inure solely to the benefit of the parties hereto and their respective
successors and assigns, heirs, administrators and representatives, and the
subscribers of the Shares and shall not be enforceable by or inure to the
benefit of any other third party except as provided in paragraph (i) of Section
7 with respect
- 7 -
<PAGE> 8
to the termination of, or resignation by, the Escrow Agent. No party may
assign any of its rights or obligations under this Escrow Agreement without the
written consent of the other parties.
(b) This Escrow Agreement shall be construed in
accordance with and governed by the internal law of the State of New York
(without reference to its rules as to conflicts of law).
(c) This Escrow Agreement may only be modified by
a writing signed by all of the parties hereto and consented to by the
subscribers of the Shares adversely affected by such modifications. No waiver
hereunder shall be effective unless in a writing signed by the party to be
charged.
(d) This Escrow Agreement shall terminate upon
the payment pursuant to Section 5 of all amounts held in the Escrow Account.
(e) The section headings herein are for
convenience only and shall not affect the construction thereof. Unless
otherwise indicated, references to Sections are to Sections contained herein.
(f) This Escrow Agreement may be executed in one
or more counterparts but all such separate counterparts shall constitute but
one and the same instrument; provided that, although executed in counterparts,
the executed signature pages of each such counterpart may be affixed to a
single copy of this Agreement which shall constitute an original.
- 8 -
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have caused this Escrow
Agreement to be executed as of the day and year first above written.
NASHVILLE COUNTRY CLUB, INC.
By:
------------------------------
Name:
Title:
RAUSCHER PIERCE REFSNES, INC.
By:
------------------------------
Name:
Title:
CITIBANK, N.A.
By:
------------------------------
Name:
Title:
- 9 -
<PAGE> 10
EXHIBIT A
Citibank Insured Money Market Deposit Accounts
Deposits/Withdrawals may be made to the Citibank Money Market
Deposit Account ("MMDA") established under the Escrow Agreement to which this
Exhibit is attached only through the Escrow Account. All transaction and
balance reporting of the MMDA will be included as part of the Escrow Account
Statement. Activity in the MMDA will be reflected as the equivalent of dollars
on deposit in a Citibank Money Market Deposit Account. Deposits/Withdrawals to
the MMDA will be made only as permitted by the Escrow Agreement to which this
Exhibit is attached. The MMDA has certain regulatory restrictions as well as
some minimum requirements:
1. By regulation, Citibank, N.A. is required to reserve the
right to require seven days' prior notice of any withdrawals of funds from an
account; provided, however, that, if Citibank, N.A. elects to exercise its
right to require seven days' prior notice, it shall exercise such right as to
all such accounts established.
2. A daily balance of $10,000 must be maintained on deposit
in the MMDA. If the MMDA should fall below $10,000 on any day, Citibank, N.A.
will be authorized to transfer the remaining balance to the Escrow Account.
3. Rates will be determined by Citibank, N.A. and can be
determined by calling your custody account officer.
4. Balances up to $100,000 (total on deposit at Citibank,
N.A.) are FDIC-insured.
<PAGE> 11
EXHIBIT B
SUMMARY OF CASH RECEIVED
NEW PARTICIPANT DEPOSIT
<TABLE>
<S> <C> <C> <C> <C> <C>
Date:
----------------------
Deposit Date: List Number:
----------------------
Investment Date: Page of
--- ----------------------
Batch Number: Approved By:
----------------------
JOB#:
----------------------
For Bank use only
TITLE:
---------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
* * AMOUNT OF * *TAX ID NO./ | | FOR BANK
NAME * DEPOSIT * SHARES * ADDRESS |SOC.SEC. NO. * *USE ONLY * * *
- ------------------ ----------- ------ ------------------------ ------ ------------
* * * TAX CODE
* * * * * * EXEMPT(Y/N)
* * * * * * W-9(YR) NRA
* * * * * * W-8(YR)
* * * * * * 1008(87)
* * * * * *
- -----------------------------------------------------------------------------------------------------------------
Broker Misc. * * * * Misc. II * Misc. III | TAX CODE
* * * * * * EXEMPT(Y/N)
* * * * * * W-2(YR) NRS
* * * * * * W-8(YR)
* * * * * * 1008(87)
* * * * * *
- -----------------------------------------------------------------------------------------------------------------
Broker Misc. * * * * Misc. II * Misc. III | TAX CODE
* * * * * * EXEMPT(Y/N)
* * * * * * W-2(YR) NRS
* * * * * * W-8(YR)
* * * * * * 1008(87)
* * * * * *
- -----------------------------------------------------------------------------------------------------------------
Broker Misc. * * * * Misc. II * Misc. III | TAX CODE
* * * * * * EXEMPT(Y/N)
* * * * * * W-2(YR) NRS
* * * * * * W-8(YR)
* * * * * * 1000(87)
* * * * * *
- -----------------------------------------------------------------------------------------------------------------
Broker Misc. * * * * Misc. II * Misc. III |
* * * * * *
</TABLE>
B-1
<PAGE> 12
EXHIBIT C
[Form of Offering Termination Notice]
______________ ____, 1997
Citibank, N.A.
Corporate Trust
Escrow Administration
120 Wall Street, 13th Floor
New York, New York 10043
Attention: Mr. Bryan Gartenberg
Senior Trust Officer
Dear Mr. Gartenberg:
Pursuant to Section 5(a) of the Escrow Agreement dated as of _____ __,
1997 (the "Escrow Agreement") among Nashville Country Club, Inc. (the
"Company"), Rauscher Pierce Refsnes, Inc. and you, the Company hereby notifies
you of the termination of the offering of the Shares (as that term is defined in
the Escrow Agreement) and directs you to make payments to subscribers as
provided for in Section 5(a) of the Escrow Agreement.
Very truly yours,
NASHVILLE COUNTRY CLUB, INC.
By:
-------------------------------
Name:
Title:
C-1
<PAGE> 13
EXHIBIT D
[Form of Closing Notice]
__________ __, 1997
Citibank, N.A.
Corporate Trust
Escrow Administration
120 Wall Street, 13th Floor
New York, New York 10043
Attention: Mr. Bryan Gartenberg
Senior Trust Officer
Ladies and Gentlemen:
Pursuant to Section 5(b) of the Escrow Agreement dated as of _______
__, 1997, (the "Escrow Agreement") among Nashville Country Club, Inc. (the
"Company"), Rauscher Pierce Refsnes, Inc. and you, the Company hereby certifies
that it has received subscriptions for the Shares (as that term is defined in
the Escrow Agreement) and the Company will sell and deliver Shares to the
subscribers thereof at a closing to be held on _____ __, 1997 (the "Closing
Date"). The names of the subscribers concerned, the number of Shares
subscribed for by each of such subscribers and the related subscription amounts
are set forth on Schedule I annexed hereto.
Please accept these instructions as standing instructions for the
closing to be held on the Closing Date. The parties hereto certify that they
do not wish to have a call back regarding these instructions.
We hereby request that the aggregate subscription amount be paid to
you, the Placement Agent and us as follows:
1. To the Company, $_________;
2. To Rauscher Pierce Refsnes, Inc., $_________; and
3. To the Escrow Agent, $_________.
<PAGE> 14
These instructions may be executed in any number of counterparts,
each of which shall be deemed to be an original, and all of which together
shall constitute one and the same instrument.
Very truly yours,
NASHVILLE COUNTRY CLUB, INC.
By:
-------------------------------
Name:
Title:
RAUSCHER PIERCE REFSNES, INC.
By:
-------------------------------
Name:
Title:
<PAGE> 15
SCHEDULE I
<TABLE>
<CAPTION>
Name of Number of Subscription
Subscriber Shares Amount
- ---------- --------- ------------
<S> <C> <C>
</TABLE>
<PAGE> 16
EXHIBIT E
[Form of Subscription Termination Notice]
Citibank, N.A.
Corporate Trust
Escrow Administration
120 Wall Street, 13th Floor
New York, New York 10043
Attention: Mr. Bryan Gartenberg
Senior Trust Officer
Dear Mr. Gartenberg:
Pursuant to Section 5(c) of the Escrow Agreement dated as of
______ __, 1997 (the "Escrow Agreement") among Nashville Country Club, Inc.
(the "Company"), Rauscher Pierce Refsnes, Inc. and you, the Company hereby
notifies you that the following subscription(s) have been rejected:
<TABLE>
<CAPTION>
Dollar
Amount of Subscribed Amount of
Name of Shares Rejected
Subscriber Rejected Subscription
- ---------- ----------- ------------
<S> <C> <C>
</TABLE>
Very truly yours,
NASHVILLE COUNTRY CLUB, INC.
By:
---------------------------
Name:
Title:
<PAGE> 17
EXHIBIT F
A fee equal to:
(i) $_________ for any amount up to $________;
(ii) $_________ for any amount between $____________ and
(iii) $_________ for any amount between $_________ and
(iv) $_________ for any amount between $________ and
(v) $_________ for any amount between $_________ and
[Fee to Citibank, N.A.: $5,000.00]
F-1
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES
Avalon Entertainment Group, Inc.
NCC Broadcast, Inc.
The Village at Breckenridge Acquisition Corp., Inc.
Property Management Acquisition Corp., Inc.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports dated April 4, 1997 with respect to Nashville Country Club, Inc. and
subsidiaries, dated May 9, 1997 with respect to Avalon Entertainment Group,
Inc., dated May 9, 1997 with respect to Avalon West Coast, and dated May 9, 1997
with respect to Irvine Meadows Amphitheater (and all references of our firm)
included in or made part of this Form SB-2 registration statement.
ARTHUR ANDERSEN LLP
Dallas, Texas,
June 20, 1997
