<PAGE> 1
Filed pursuant to Rule 424(a)
Registration Number 333-29775
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 JULY 1, 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 30, 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 8 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 RESFNES, INC. LOGO]
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE> 2
This page intentionally left blank
<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.]
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 8
Use of Proceeds............................................. 15
Dividend Policy............................................. 15
Price Range of Common Stock................................. 16
Capitalization.............................................. 17
Unaudited Pro Forma Consolidated Financial Data............. 18
Selected Historical Consolidated Financial Data -- The
Company.................................................. 27
Selected Historical Financial Data -- Avalon Entertainment
Group, Inc............................................... 28
Selected Historical Combined Financial Data -- Avalon West
Coast.................................................... 29
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................ 30
Business.................................................... 46
Management.................................................. 60
Certain Relationships and Related Transactions.............. 64
Principal Shareholders...................................... 65
Description of Securities................................... 66
Shares Eligible for Future Sale............................. 70
Plan of Distribution........................................ 71
Legal Matters............................................... 72
Experts..................................................... 72
Available Information....................................... 73
Index to Historical Financial Statements.................... F-1
</TABLE>
---------------------
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.
(Certain illustrations and references in this Prospectus relate to business
activities conducted by Avalon West Coast (including concert promotion, venue
management and merchandising), which the Company intends to acquire a
controlling interest in upon the completion of this offering; however, there can
be no assurance that the Company will consummate such acquisition.)
<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 325 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 400,000 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 30, 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.
1
<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 SM/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 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 30, 1997, the Company entered into a letter agreement to refinance
approximately $14.5 million of long-term indebtedness encumbering the
Breckenridge Resort. The letter agreement contemplates the execution of
definitive loan documents providing for a loan of approximately $14.5 million
secured by substantially all of the assets of the Breckenridge Resort, maturing
seven years from the date of funding. Consummation of the loan is contingent on
the completion of this offering.
On June 30, 1997, the Company's Board of Directors approved changing the
Company's name to TBA Entertainment Corporation. 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 8, 1997.
2
<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(2):
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."
(2) The Company intends to change the Nasdaq National Market symbols for the
Common Stock and Redeemable Warrants to TBAE and TBAEW, respectively, in the
event that the Company's shareholders approve changing the Company's name to
TBA Entertainment Corporation.
3
<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, AWC and IMA Partners 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.
4
<PAGE> 8
AVALON ENTERTAINMENT GROUP, INC.
(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.
5
<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(5)....................... 4 (11) (1) (1)
------- ------- ------ -----
Net (loss) income...................................... $ (117) $ 181 $ (268) $(286)
======= ======= ====== =====
OTHER DATA:
EBITDA(6).............................................. $ 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) In each of the periods presented, certain of the entities comprising AWC
operated as S corporations under Subchapter S of the Internal Revenue Code
or as partnerships and, accordingly, were not subject to federal income
taxation.
(6) 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> 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.
7
<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. On
8
<PAGE> 12
June 30, 1997, the Company entered into a letter agreement to refinance
approximately $14.5 million of the Loans. The letter agreement contemplates the
execution of definitive loan documents providing for a loan of approximately
$14.5 million (the "New Loan") with principal and interest due and payable in
2004. There can be no assurance that the Company will be able to consummate the
New Loan. In the event that the Company is unable to consummate the New Loan,
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 and
are anticipated to be pledged as collateral for the New Loan. 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 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
9
<PAGE> 13
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.
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
10
<PAGE> 14
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 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
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<PAGE> 15
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.
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
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<PAGE> 16
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 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
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<PAGE> 17
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 not less than 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 of these financings, 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.
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<PAGE> 19
PRICE RANGE OF COMMON STOCK
The Common Stock is quoted on the Nasdaq National Market under the symbol
NCCI. On June 30, 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............................................ 5 7/8 4 1/8
</TABLE>
16
<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.
17
<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, AWC
and IMA Partners 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 as of April 29, 1996 for balance sheet purposes 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.
18
<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
Stockholders' 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.
19
<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. Based on the foregoing, the Company has established
a purchase price for AEG of approximately $7,728,000. For purposes of the
pro forma consolidated financial data, the entire purchase price amount 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
20
<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, 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.
21
<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 other than the inclusion of the 2,222,222 shares of Common Stock being
offered pursuant to this offering in the weighted average number of shares
outstanding for the year ended December 31, 1996.
See notes to unaudited pro forma consolidated financial data.
22
<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.
23
<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.
24
<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(g)
238(e) 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 other than the inclusion of the 2,222,222 shares of Common Stock being
offered pursuant to this offering in the weighted average number of shares
outstanding for the three months ended March 31, 1997.
See notes to unaudited pro forma consolidated financial data.
25
<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.
26
<PAGE> 30
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
THE COMPANY
(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.
27
<PAGE> 31
SELECTED HISTORICAL FINANCIAL DATA
AVALON ENTERTAINMENT GROUP, INC.
(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.
28
<PAGE> 32
SELECTED HISTORICAL COMBINED FINANCIAL DATA
AVALON WEST COAST
(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 and
IMA Partners 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.
29
<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 in April 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 to reflect 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
30
<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 from other 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 the first quarter of 1997
from $515,000 in the first quarter of 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
31
<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 and 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 $618,000 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 in
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 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
approximately $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.
32
<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 due primarily
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. Departmental
expenses, as a percent of Nashville Restaurant revenues, declined to 89% in 1996
from 91% in 1995.
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 increased $175,000, or 20%, to $1,063,000 in
1996 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 resort. As a percent of
revenues, sales and marketing expenses were constant at 5% from 1995 to 1996.
Property operation and maintenance expenses and depreciation and
amortization expense remained relatively constant from 1995 to 1996.
33
<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 public 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 (the
"Loans"), 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. On
June 30, 1997, the Company entered into a letter agreement to refinance
approximately $14.5 million of the Loans at an interest rate of 9.0% for the
first three years of the new loan (the "New Loan") and adjusting to the lender's
base rate plus 0.5% for the remaining four years of the New Loan. The letter
agreement contemplates the execution of definitive loan documents providing for,
among other things, (i) the amortization of principal and interest payments
under the New Loan over a period of 20 years for the first three years of the
loan and over a period of 12 years for the remaining four years of the loan,
(ii) a security interest in substantially all of the assets of the Breckenridge
Resort and (iii) the repayment of all principal and accrued interest under the
New Loan seven years from the date of funding. The consummation of the New Loan
is contingent upon the successful completion of this offering. There can be no
assurance that the Company will consummate the New Loan in accordance with the
terms of the letter agreement or at all. 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
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the adjusted purchase price, if any, by delivering to the Company either cash or
shares of Common Stock valued based on the average closing price 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.
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, 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.
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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 Warner/Avalon joint
venture, develops and produces integrated music marketing programs for corporate
clients. AEG also provides artist management services. AEG recognizes revenues
and expenses (i) for single day events, on 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,
and other costs 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, to 30 events produced in the first quarter of 1997 as compared to 25
events produced 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
the first quarter of 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% for the first quarter of 1997 from 73% for the first quarter of 1996. The
increase was primarily due to the production of three large
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Corporate Entertainment events at lower profit margins in the first quarter of
1997 compared to the production of one very large Corporate Entertainment event
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 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 quarter of 1997 from $1,284,000 for the first quarter 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 quarter 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 the first quarter of 1997 versus 11% in the first
quarter of 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 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.
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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.
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. 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 Corporate
Entertainment events 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 approximately $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 295%, 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.
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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.
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.
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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 historically has
owned and managed the operations of the IMA.
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 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.
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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 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 for the first quarter of 1997 from
$1,484,000 for the first quarter of 1996 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
compared to no arena shows produced 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 which was produced in the first quarter of 1996 but not 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 for
the first quarter of 1997 from $215,000 for 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 of 1997. As a result, in the first quarter of 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.
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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 expense for IMA Partners decreased $7,000, or 35%, to $13,000 for
the first quarter of 1997 from $20,000 for 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 primarily 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 for 1996 from
$14,108,000 for 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.
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 for 1996 from $620,000 for 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 for 1996 to $1,175,000 for 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 distributions 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. The remaining equity income from investments was
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<PAGE> 46
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 for 1996 from
$2,370,000 for 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% for 1996 and 75% for 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.
Management of AWC is currently negotiating to construct amphitheaters in
Camarillo, California and Portland, Oregon. Management estimates that the
combined construction costs of these two amphitheaters will be approximately
$14.0 million. There can be no assurance that AWC will proceed with the
construction of either or both of these amphitheaters, that the cost of their
construction will approximate $14.0 million or that AWC will have access to
sufficient capital to finance such construction if undertaken. In the event that
AWC determines to proceed with the construction of either or both of these
amphitheaters, management currently intends to use a portion of the proceeds of
the Concurrent Financing to fund initial development costs. AWC will require
additional financing to complete the construction of these amphitheaters.
Management believes that additional financing will be available through
construction loans; however, there can be no assurance that any such financing
will be available to AWC or that it will be available on terms that are
favorable to AWC.
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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 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.
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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 subject to significant
seasonal variations, with substantially all of the Breckenridge Resort's
operating profits generated in the period from November through March, which
period corresponds 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 325 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 400,000 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 1 250,000
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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<PAGE> 53
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 small 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 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, which is 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 Olympic Games 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 was the event merchandiser for the 1997 CountryFest and RockFest events, and
will be the event merchandiser for 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 resorts, 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 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 will be required to take
into account the requirements of the ADA in connection with the construction and
operation of its 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> 64
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> 65
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,
Correspondent 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 The
Whiteville Bank from 1991 to 1994. Mr. Weaver also is a director of Heritage
Trust Company and Heritage Farms of Hickory Valley, Inc. 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 agreement
is automatically renewed on each anniversary date for an additional five-year
term unless it is
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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 conduct was in the corporation's best interests; (iii) in all
other cases, the director or officer reasonably
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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 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 30, 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 -------------------------------
BENEFICIALLY OWNED COMMON
----------------------- STOCK
SERIES A ------------------- SERIES A
COMMON PREFERRED BEFORE AFTER PREFERRED
NAME AND ADDRESS(1) STOCK STOCK 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> 71
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
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<PAGE> 72
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 30, 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.
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<PAGE> 73
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
[1,783,955 plus 5% of the number of shares sold in this offering] 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 1,589,840 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. 976,472 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, 780,000 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. 417,525 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 at
least 180 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 (76,225
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
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<PAGE> 74
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
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<PAGE> 75
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 not less than 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> 76
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> 77
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 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 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 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> 78
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> 79
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> 80
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> 81
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> 82
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> 83
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> 84
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> 85
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> 86
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> 87
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> 88
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> 89
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> 90
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> 91
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> 92
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> 93
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> 94
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> 95
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> 96
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> 97
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> 98
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> 99
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> 100
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> 101
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> 102
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> 103
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> 104
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> 105
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> 106
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> 107
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> 108
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 & 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> 109
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> 110
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> 111
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> 112
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> 113
IRVINE MEADOWS AMPHITHEATER
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
PARTNERS (NOTE 1)
-----------------------------------------
IMA TOTAL
AUDREY & 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> 114
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> 115
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> 116
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> 117
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.
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