SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
WASHINGTON, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 0-27270
VACATION BREAK U.S.A., INC.
FLORIDA 59-2581811
State or other jurisdiction of (I.R.S. Employer
Incorporation or organization Identification No.)
6400 N. ANDREWS AVENUE
PLAZA SUITE 200
FT. LAUDERDALE, FL 33309
Registrant's telephone number (954) 351-8500
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
The number of shares outstanding of registrant's common stock at April 30,
1997 was 8,612,525 shares.
<PAGE>
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
VACATION BREAK U.S.A., INC.
INDEX
PAGE
NO.
PART I FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS
Consolidated Condensed Balance Sheets as of
March 31, 1997 and December 31, 1996 3
Consolidated Condensed Statements of Operations for the
three months ended March 31, 1997 and 1996 4
Consolidated Condensed Statements of Cash Flows for the
three months ended March 31, 1997 and 1996 5
Notes to Consolidated Condensed Financial Statements 6
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8
PART II OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 12
Signatures 12
2
<PAGE>
<TABLE>
<CAPTION>
Vacation Break U.S.A., Inc. and Consolidated Subsidiaries
Consolidated Condensed Balance Sheets
ASSETS
March 31, December 31,
--------------- --------------
1997 1996
--------------- --------------
(Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 3,818,294 $ 6,307,928
Certificates of deposit 124,235 124,235
Restricted cash 1,412,310 1,647,236
Cash in escrow from vacation ownership interests sales 13,770,709 8,055,543
Mortgages receivable on vacation ownership interests sales - net 80,082,885 73,028,510
Receivables - net 3,636,315 3,757,385
Note receivable 2,087,665 1,993,883
Vacation ownership interests held for sale and real estate and
development costs 24,063,829 25,310,450
Prepaid expenses and other assets 5,618,789 5,919,983
Investment in unconsolidated affiliates 1,989,088 1,946,917
Due from unconsolidated affiliates 72,341 54,369
Income tax receivable 58,238 58,238
Property and equipment - net 10,057,799 10,274,870
---------- -----------
TOTAL ASSETS $146,792,497 $138,479,547
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $17,404,527 $13,210,543
Due to unconsolidated affiliates - 5,578
Notes and mortgages payable 59,672,569 53,302,723
Note payable to unconsolidated affiliate 435,000 532,778
Capital lease obligations 1,374,685 1,349,426
Deferred income taxes 7,464,361 6,207,527
Advance deposits 3,746,001 2,948,884
Deferred revenues - vacation packages 14,503,813 16,588,264
Deferred revenues - vacation ownership interests 5,375,625 6,407,050
Due to affiliate of joint ventures 3,822,685 7,517,719
Minority interest in joint ventures 2,782,899 2,582,436
---------- ----------
Total Liabilities 116,582,165 110,652,928
----------- -----------
Commitments and contingencies (Note 6)
Stockholders' Equity:
Preferred stock ($ .01 par value; 25,000,000 shares authorized;
no shares issued and outstanding at March 31, 1997 and December 31, 1996,
respectively)
Common stock ($ .01 par value; 25,000,000 shares authorized;
8,610,225 and 8,593,725 shares issued and outstanding at
March 31, 1997 and December 31, 1996, respectively ) 86,102 85,937
Additional paid in capital 13,512,044 13,414,457
Retained earnings 16,612,186 14,326,225
----------- -----------
Total Stockholders' Equity 30,210,332 27,826,619
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $146,792,497 $138,479,547
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
<TABLE>
<CAPTION>
Vacation Break U.S.A., Inc. and Consolidated Subsidiaries
Consolidated Condensed Statements of Operations
For the three months ended March 31,
(Unaudited)
1997 1996
------------ ------------
<S> <C> <C>
Revenues:
Vacation ownership interests $ 22,759,430 $ 15,917,000
Resort operations and other 3,333,997 4,004,000
Interest earned on mortgages receivable 2,871,837 1,734,000
Commissions earned on marketing agreements - 542,000
------------ -----------
28,965,264 22,197,000
------------ -----------
Costs and operating expenses:
Vacation ownership interests - cost of units sold 6,681,395 3,883,410
Vacation ownership interests - sales & marketing costs 9,970,442 7,031,590
Resort operations and other 2,726,877 3,901,000
Interest expense on financed mortgages receivable 819,337 529,000
Commissions and related expenses on marketing agreements - 296,000
Interest expense - other 171,214 466,000
General and administrative 3,246,857 2,839,000
Costs related to terminated merger 463,933 -
Provision for doubtful accounts 653,555 197,000
Depreciation and amortization 528,846 569,000
------------ -----------
25,262,456 19,712,000
------------ -----------
Income from operations before income taxes,
minority interest and equity in earnings of unconsolidated affiliates 3,702,808 2,485,000
Minority interest in earnings of joint ventures (200,013) (370,000)
Equity in earnings of unconsolidated affiliates 40,000 30,000
------------ -----------
Income before income taxes 3,542,795 2,145,000
Provision for Income taxes (1,256,834) (657,000)
------------ -----------
Net income $ 2,285,961 $ 1,488,000
========== ==========
Net income per share $ 0.26 $ 0.17
==== ====
Average common stock and common stock equivalents -
outstanding 8,936,710 8,540,000
========= =========
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
<TABLE>
<CAPTION>
Vacation Break U.S.A., Inc. and Consolidated Subsidiaries
Consolidated Condensed Statements of Cash Flows
For the three months ended March 31,
(Unaudited)
1997 1996
-------------- --------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 2,285,961 $ 1,488,000
Adjustments to reconcile net income to net
cash (provided by) used in operating activities:
Provision for doubtful accounts 653,555 197,000
Depreciation and amortization 528,846 569,000
Equity in earnings of unconsolidated affiliates (40,000) (30,000)
Provision for deferred taxes 1,256,834 657,000
Minority interest in earnings of joint ventures 200,013 370,000
Changes in operating assets and liabilities:
Mortgages receivable on vacation ownership interests sales (7,707,930) (8,915,000)
Receivables 121,520 (995,000)
Note receivable (93,782) -
Vacation ownership interests held for sale and real estate and development 1,246,621 (1,989,000)
Prepaid expenses and other assets 301,194 (3,057,000)
Due to/from unconsolidated affiliates - net (23,550) 42,000
Accounts payable and accrued liabilities 4,193,984 3,740,000
Deferred revenues - vacation ownership interests (1,031,425) 4,215,000
Deferred income - vacation packages (2,084,451) 355,000
Advance deposits 797,117 1,685,000
Stockholder income tax distributions - (850,000)
----------- -----------
Net cash provided by (used in) operating activities 604,507 (2,518,000)
----------- -----------
Cash Flows from Investing Activities:
Purchases of property and equipment (159,609) (949,000)
Additions to restricted cash (592,700) (1,491,000)
Releases of restricted cash 827,626 1,975,000
Increase in cash in escrow from vacation ownership interests (5,715,166) (5,904,000)
Investment in unconsolidated affiliate (2,171) -
Maturities of certificates of deposit - 303,000
----------- -----------
Net cash used in investing activities (5,642,020) (6,066,000)
------------ --------------
Cash Flows from Financing Activities:
Borrowings of notes and mortgages payable 15,462,544 9,587,000
Repayments of notes and mortgages payable (9,092,698) (2,989,000)
(Repayments) borrowings from affiliate of joint ventures - net (3,695,034) 1,862,000
Repayment of note payable to unconsolidated affiliate (97,778) (2,000)
Payments on capital lease obligations (126,907) (93,000)
Proceeds from the exercise of employee stock options 97,752 -
Proceeds from issuance of common stock - 1,182,000
----------- -----------
Net cash provided by financing activities 2,547,879 9,547,000
----------- -----------
Net (decrease) increase in cash and cash equivalents (2,489,634) 963,000
Cash and cash equivalents at beginning of period 6,307,928 8,499,000
----------- ----------
Cash and cash equivalents at end of period $ 3,818,294 $ 9,462,000
========= =========
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
VACATION BREAK U.S.A., INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL
Vacation Break U.S.A., Inc. and consolidated subsidiaries (the "Company")
is engaged in the sale of vacation packages, hotel operations and the
renovation, construction, sale and financing of resort vacation ownership
interests (VOIs). At March 31, 1997 the consolidated financial statements
include the accounts of Vacation Break U.S.A., Inc. and its subsidiaries.
In the opinion of management, the unaudited consolidated financial
statements include all adjustments and accruals necessary to present fairly the
Company's consolidated financial position at March 31,1997 and the consolidated
results of its operations and its cash flows for the three month periods ended
March 31, 1997 and 1996. The interim results of operations are not necessarily
indicative of the results which may occur for the year. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. All significant intercompany accounts and transactions are eliminated
in consolidation. These unaudited consolidated condensed financial statements
and notes thereto should be read in conjunction with the annual consolidated
financial statements and notes thereto contained in the Company's Form 10-K as
filed with the United States Securities and Exchange Commission on
March 31, 1997.
2. RECLASSIFICATIONS
Certain amounts in the 1996 financial statements have been reclassified to
conform to the 1997 presentation. Vacation package revenues, less vacation
package costs, have been included as vacation ownership interest - sales &
marketing costs in the statement of operations for the quarter ended
March 31, 1996. This presentation more closely correlates to the presentation
method of other companies in the vacation ownership industry.
3. NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 128, "Earnings per Share" must be implemented by the Company for
the year ended December 31, 1997. This pronouncement specifies the computation,
presentation and disclosure requirements for earnings per share. It requires
presentation of earnings per share for entities that have issued common stock or
potential common stock if those securities trade in the public market. The
Company anticipates adopting SFAS No. 128, although the impact of such
disclosure has not been determined.
4. ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Such estimates consist of the allowances for doubtful
accounts on mortgages receivable on VOI sales and receivables, revenue
recognition under the percentage of completion method on VOI sales, depreciation
and amortization of property and equipment, accrued liabilities and deferred
revenues on vacation packages and VOIs. Actual results could differ from those
estimates.
5. NET INCOME PER SHARE
Earnings per share amounts are based upon the weighted average number of
common and common equivalent shares. Common equivalent shares are excluded from
the computation for periods in which they have an anti-dilutive effect. For the
three months ended March 31, 1997, primary and fully diluted earnings per share
are the same since the computation of fully diluted earnings per share was
anti-dilutive. The dilutive effect of common stock equivalents was less than 3%
for the three months ended March 31, 1996.
6
<PAGE>
VACATION BREAK U.S.A., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
6. COMMITMENTS AND CONTINGENCIES
The Company is a party to twelve state or county actions related to the
Company's marketing program alleging that the Company violated their consumer
protection or telemarketing laws. The Company is and will actively attempt to
settle with each of these states or counties over the next several months and
does not anticipate its legal and settlement costs will have a material impact
on the financial condition of the Company.
On March 28, 1997, the Company was served with a lawsuit filed in the
Circuit Court for Pinellas County, Florida by Market Response Group and Laser
Company, Inc. (MRG&L), against the Company and Kevin M. Sheehan, its President.
MRG&L was a former vendor to Vacation Break with respect to direct mail
marketing. The complaint alleges that the defendants, in concert with other
companies, conspired to boycott MRG&L and to fix prices for mailings in
violation of the Florida Antitrust Act, and in concert with others, engaged in
various acts of unfair competition, deceptive trade practices and common law
conspiracy. The complaint also alleges that the defendants breached various
provisions of a Sales and Marketing Agreement with plaintiff and interfered with
and caused other companies to breach Sales and Marketing Agreements with MRG&L
and that the defendants misappropriated proprietary information. The complaint
also demands that the Company indemnify plaintiff for costs incurred by MRG&L to
defend a 1996 Federal Trade Commission action. MRG&L claims to have suffered
substantial damages. The actual aggregate amount of damages claimed is not
calculable but appears to be in excess of $50 million. The Company believes it
has meritorious defenses to each and every claim, intends to defend each and
every claim vigorously, and will file counterclaims if appropriate.
Additionally, the Company is currently a defendant in certain litigation
arising in the ordinary course of business. In the opinion of management, based
on the advice of legal counsel, the outcome of these actions will not have a
material effect on the financial statements of the Company.
7. SUBSEQUENT EVENTS
In November 1996 the Company announced that it had entered into an
Agreement and Plan of Merger (as amended in March 1997) with various companies
owned or controlled by James E. Lambert. On April 23, 1997 the Company announced
that this Agreement and Plan of Merger had been terminated by mutual agreement
of the parties. The Company had incurred legal, accounting and various other
costs in anticipation of and preparation for the proposed merger. These costs,
which amounted to approximately $0.5 million, have been charged to the
operations of the Company as "Costs related to terminated merger" included on
the statement of operations for the three months ended March 31, 1997. The
Company does not anticipate any renewal of discussions regarding the terminated
transaction.
7
<PAGE>
The following table presents key statistics representing VOI activities in
properties owned by the Company or under marketing and purchase agreements.:
<TABLE>
<CAPTION>
SEA SANTA STAR ROYAL
GARDENS (1) BARBARA PALM AIRE ISLAND VISTA(2) TOTAL
<S> <C> <C> <C> <C> <C> <C>
Number of VOI's available 11,388 4,680 5,564 5,200 5,148 31,980
Net number of VOI's sold through
March 31, 1997 6,968 3,882 2,591 3,026* - 16,467
Percent sold through
March 31, 1997 61% 83% 47% 58%* 0% 51%
Net number of VOI's sold during the
3 months ended March 31, 1997 -3 493 637 579* - 1,706
<FN>
* Includes units sold at properties where revenue and income recognition
were deferred or partially deferred for financial reporting purposes.
(1) Includes 4,368 unit weeks at the Ocean Palms phase under construction.
(2) Acquired in January 1996 - formerly known as "Ocean Ranch".
</FN>
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Consolidated Condensed Financial Statements, including the notes thereto,
contained elsewhere herein.
INTRODUCTION
Vacation package revenues less vacation package costs have been included as
Vacation ownership interests - sales and marketing costs in the statement of
operations for the three months ended March 31, 1997. Previous years' amounts
have been reclassified to reflect this change in presentation which more closely
correlates to the presentation of other companies in the VOI industry.
In 1993, the Company began to develop its own properties and sell VOIs in
these properties while continuing to sell VOIs in properties owned by other
developers, thereby adding a new source of revenues and earnings including sales
of vacation ownership interests and interest earned on mortgages receivable. The
Company generates additional revenues from resort operations, which include room
rental operations and ancillary resort operations such as food and beverage
sales and from management fees. In the three months ended March 31, 1997, the
Company realized no revenues from the sale of VOIs in properties owned by other
developers.
Generally, VOIs are sold under binding sales contracts executed by the
Company and the purchaser requiring a 10% down payment and monthly installments
for periods of up to 7 years. VOI revenue is recognized when a 10% down payment
has been received and the 10 day rescission period has expired. During the 10
day rescission period, a customer may cancel for any reason and have the down
payment returned. Revenue relating to sales of VOIs in projects under
development is recognized using the percentage of completion method. Under this
method, the portion of revenues applicable to costs incurred, as compared to
total estimated construction and acquisition costs, is recognized in the period
of sale. The remaining revenue is deferred and recognized as the remaining costs
are incurred. As the Company is currently in the development stage of certain
projects, it is anticipated that certain VOI sales in these projects will
generate deferred revenue as the Company completes sales at a more rapid pace
than the completion of the related VOI units. Costs associated with the
acquisition and development of vacation ownership resorts, including carrying
costs such as interest, are generally capitalized and subsequently recorded as a
cost of sales as the related revenues are recognized.
8
<PAGE>
The following table sets forth certain consolidated operating information
for the entities comprising the Company for the three month periods ended
March 31, 1997 and 1996:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1997 1996
---------- -------
<S> <C> <C>
STATEMENT OF OPERATIONS:
AS A PERCENTAGE OF TOTAL REVENUES
Sales of vacation ownership interests 78.6 71.7
Resort operations and other 11.5 18.0
Interest earned on mortgages receivable 9.9 7.8
Commissions earned on marketing agreements .0 2.5
----- -----
Total revenues 100.0 100.0
===== =====
AS A PERCENTAGE OF VACATION OWNERSHIP INTEREST SALES
Vacation ownership interests costs of units sold 29.4 24.4
Sales and marketing 43.8 44.2
Provision for doubtful accounts 2.9 1.2
AS A PERCENTAGE OF REVENUES FROM RESORT OPERATIONS
AND OTHER
Resort operations and other expense 81.8 97.4
AS A PERCENTAGE OF INTEREST EARNED ON MORTGAGES RECEIVABLE
Interest expense on financed mortgages receivable 28.5 30.5
AS A PERCENTAGE OF COMMISSIONS EARNED ON
MARKETING AGREEMENTS
Commission and related expenses on marketing agreements n/a 54.6
AS A PERCENTAGE OF TOTAL REVENUES
General and administrative 11.2 12.8
Depreciation and amortization 1.8 2.6
Interest expense - other 0.6 2.1
</TABLE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
The Company's total revenues for the three months ended March 31, 1997 were
$29.0 million, an increase of $6.8 million or 30.6% from the three months ended
March 31, 1996. The Company sold 1,706 VOIs at Company-owned properties during
the three months ended March 31, 1997 compared to 1,690 VOI units during the
three months ended March 31, 1996. The Company recognized revenues from the sale
of VOIs of $22.8 million during the three months ended March 31, 1997, of which
$1.0 million was recognized from the net decrease in deferred revenues - VOIs
from $6.4 million recorded on the percentage of completion method on the
Company's balance sheet at December 31, 1996 to $5.4 million of VOI sales
recorded as deferred revenue - VOIs at March 31, 1997. The Company derived
revenues of $20.1 million from the sales of VOIs during the three months ended
March 31, 1996, of which $15.9 million of VOI sales was recorded as earned
revenue and $4.2 million from the sales of VOIs in pre-construction units was
recorded as additional deferred revenue - VOIs on the Company's balance sheet at
March 31, 1996.
Costs of units sold as a percentage of VOI sales increased from 24.4% for
the three months ended March 31, 1996 to 29.4% for the three months ended
March 31, 1997 reflecting an increased percentage of VOIs sold at the Orlando
project in the three months ended March 31, 1997 compared to the three months
ended March 31, 1996. The unit-week cost to the Company for the Orlando units is
fixed by contract at 35% of the related VOI sales price, resulting in a higher
cost per unit than at other projects, but providing protection against
volatility in construction and financing costs.
9
<PAGE>
Vacation package revenues less vacation package costs have been included
as Vacation ownership interest - sales and marketing costs section in the
statement of operations for the three months ended March 31, 1997. Previous
years' amounts have been reclassified to reflect this change in presentation
which more closely correlates with the presentation of other companies in the
VOI industry. These costs, which include VOI sales commissions, lead generation
marketing and vacation fulfillment costs and the administrative costs of
processing VOI sales contracts, were $10.0 million, or 43.8% of related VOI
revenues, for the three months ended March 31, 1997 compared to $7.0 million, or
44.2% of related VOI revenues, for the three months ended March 31, 1996. The
Company has placed an increased emphasis on diversification of lead generation
programs to include the fulfillment of third party certificate programs,
mini-vacations, referral and in-house sales programs as well as other moderate
cost traditional lead procurement programs which have the primary goal of
producing a high quality, low to moderate cost tour at a resort property and
increase VOI sales. The costs of sales commissions and administrative costs have
remained relatively constant, as a percentage of recognized sales volume for the
three months ended March 31, 1997 compared to the three months ended March 31,
1996.
The Company's revenues from resort and other operations decreased to $3.3
million for the three months ended March 31, 1997 from $4.0 million for the
three months ended March 31, 1996, primarily as a result of having fewer units
available for resort occupancy during the 1997 period. Cost of resort operations
decreased to $2.7 million for the three months ended March 31, 1997 from $3.9
million for the three months ended March 31, 1996 as a result of operating
efficiencies primarily at the Palm Aire Resort & Spa and the Santa Barbara
Resort and the discontinuance of unprofitable food and beverage operations at
the Sea Gardens Beach and Tennis Resort, Inc. Such costs as a percentage of
revenues from resort and other operations decreased to 81.8% for the three
months ended March 31, 1997 from 97.4% for the three months ended March 31,
1996, as a result of these efficiencies.
At March 31, 1997 and 1996, the Company's weighted average interest rate on
its entire loan portfolio was 16.2% and 16.3%, respectively, compared to a
weighted average interest rate on borrowings against loans hypothecated by the
Company to unaffiliated lenders of 10.4% and 11.2%, respectively. As a result of
the continued increase in sales of VOIs and the proportionate increase of VOIs
sold in Company-owned properties from 1993 through March 31, 1997, the Company's
interest income from financing activities increased to $2.9 million for the
three months ended March 31, 1997 from $1.7 million for the three months ended
March 31, 1996. This increase was partially offset by interest paid on increased
borrowings against loans hypothecated by the Company to unaffiliated lenders of
$0.8 million during the three months ended March 31, 1997 compared to $0.5
million during the three months ended March 31, 1996.
The Company's continued development of Company-owned resort properties and
sale of VOIs in such properties resulted in the discontinuance of commissions
received in connection with the sale of VOIs for other developers. During 1996,
the Company terminated its sales and marketing arrangement with a developer in
the Bahamas and curtailed the sales of VOIs in the Bahamas. The Company derived
no revenues from such commissions for the three months ended March 31, 1997 and
$0.5 million for the three months ended March 31, 1996 with related costs in the
1996 period of $0.3 million or 54.6% of related commission revenues.
General and administrative expenses, consisting primarily of expenses
relating to corporate overhead, increased to $3.2 million for the three months
ended March 31, 1997 compared to $2.8 million for the three months ended March
31, 1996, and amounted to approximately 11.2% of the Company's total revenues
during the three months ended March 31, 1997 as compared to 12.8% during the
three months ended March 31, 1996.
During the quarter ended March 31, 1997, the Company charged approximately
$0.5 million to operations representing legal, accounting and other costs
related to the termination of the merger agreement with the Lambert Companies.
The provision for doubtful accounts increased to $0.7 million for the three
months ended March 31, 1997 from $0.2 million for the three months ended
March 31, 1996. This represents 2.9% of VOI sales revenues for the three months
ended March 31, 1997 compared to 1.2% for the three months ended March 31, 1996.
The Company monitors its provision for doubtful accounts on a quarterly basis to
provide for future losses associated with defaults on customer mortgages
receivable. This increase was due to the increased provision against mortgages
receivable resulting from the increased mortgage receivable portfolio balance as
well as an increase in the overall provision to more closely correlate to
industry averages.
Depreciation and amortization expense remained relatively constant at $0.5
million for the three months ended March 31, 1997 from $0.6 million for the
three months ended March 31, 1996.
As a result of the foregoing, the Company's net income was $2.3 million for
the three months ended March 31, 1997, an increase of $0.8 million or 53.3% from
$1.5 million for the three months ended March 31, 1996.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company offers financing to the purchasers of VOIs in the Company's
resort properties who make a down payment generally equal to at least 10% of the
purchase price. This financing bears interest at fixed rates, unless the down
payment equals at least 50% of the purchase price and the purchaser agrees to
pay the balance of the purchase price within one year from the date of purchase,
in which case the Company's loan bears no interest. This financing is
collateralized by a mortgage on the underlying VOI. The Company has entered into
agreements with three lenders for the financing of customer receivables which
provide an aggregate of up to approximately $60.0 million of available financing
(of which $45.9 million was outstanding as of March 31, 1997) to the Company
bearing interest at variable rates tied to the "prime" rate plus 2.00% to 2.50%
or a rate ranging between 425 and 475 basis points over LIBOR. Included in this
availability is up to $17.5 million of pre-construction sales financing
(financing of sales of units under construction which have not been deeded), of
which $2.2 million was outstanding at March 31, 1997. A significant portion of
this indebtedness has been guaranteed by Ralph Muller, the Chairman, Chief
Executive Officer and majority shareholder of the Company. Under these
arrangements, the Company hypothecates, or pledges as security, qualified
purchaser promissory notes to these lenders, who lend the Company 75% to 85% of
the principal amount of such notes or, in the case of pre-sale financing, 60% to
65% of the principal amount of such notes. Payments under these promissory notes
are made by the purchaser borrowers directly to a 'lockbox,' or payment
processing center, and such payments are credited against the Company's
outstanding balance with the respective lenders. Of the aggregate availability
of $60.0 million, $30.0 million of such financing is a revolving loan with
scheduled availability until December 1997; $15.0 million of such financing is a
revolving loan with scheduled availability until August 1997 and $15.0 million
of such financing is a revolving loan scheduled to terminate March 1998. The
Company is in the process of extending and increasing the two $15.0 million
lines into a consolidated $40.0 million warehouse facility. Additionally, the
Company is in the process of extending, through December 31, 1997, $17.5 million
of prior financings with expired availability. After the respective termination
of the availability period, the respective outstanding borrowings under the
aggregate agreements are required to be repaid over a period of five to eight
years. The Company believes that, for the four presently active selling resorts,
it has substantial loan availability to provide financing of new VOI purchases
through the third quarter of 1997. Although the Company believes it can obtain
additional financing from other lenders if necessary, other than as set forth
herein, it does not presently have binding agreements to extend the terms of
such financing or for any replacement financing, and there can be no assurance
that alternative or additional arrangements can be made on terms that are
satisfactory to the Company. Accordingly, future sales of VOIs may be limited by
both the availability of funds to finance the initial negative cash flow that
results from sales that are financed by the Company and by reduced demand which
may result if the Company is unable to provide financing to purchasers of VOIs.
If the Company is required to sell its customer receivables, discounts from the
face value of such receivables may be required. At March 31, 1997, the Company
had a portfolio of 12,103 loans to VOI purchasers, which loans had a weighted
average maturity of approximately 5.2 years, and a weighted average interest
rate of 16.2%, compared to a weighted average interest rate of 10.4% on
borrowings against loans hypothecated by the Company to unaffiliated lenders.
The Company has historically derived substantial income from its financing
activities.
The Company also requires funds to finance the future purchases of and
improvements to resort properties. Such funds have been provided from operations
and from secured term loans under existing credit facilities, as well as from
the proceeds of the Company's initial public offering ("IPO"). The Company
presently has no commitments to make capital expenditures other than (i) a $13.0
million construction facility from SunTrust and Finova Capital Corporation to
finance the construction of the ten story, 84 unit Ocean Palms addition to the
SEA GARDENS RESORT and (ii) a $12.7 million construction facility from Bank
Atlantic to finance the construction of the 99 unit renovation and new
construction to ROYAL VISTA RESORT (formerly known as OCEAN RANCH) and (iii) an
unconditional $8.8 million obligation to purchase units at STAR ISLAND, complete
construction of such units and guarantee a maximum of $6.5 million of
construction debt.
The Company intends to continue to provide financing to purchasers of VOIs
and to obtain funds to finance the negative cash flow resulting from the payment
of sales commissions and other selling expenses and to make release payments on
bank indebtedness relating to development of its resort properties. For the
three months ended March 31, 1997 and 1996, the Company derived interest income
of $2.9 million and $1.7 million, respectively, from the financing of purchaser
notes receivable and incurred interest expense of $0.8 and $0.5 million,
respectively, relating to loans secured by notes hypothecated to these
unaffiliated lenders.
During the three months ended March 31, 1997 and 1996, the Company's
operating activities provided approximately $0.6 million and used approximately
$2.5 million, respectively, in cash and cash equivalents and its investing
activities used approximately $5.6 million and $6.0 million, respectively, in
cash. During these periods $2.5 million and $9.5 million, respectively, was
provided through the Company's financing activities, resulting in a net decrease
in cash and cash equivalents of $2.5 million for the three months ended March
31, 1997 and a net increase in cash and cash equivalents of $1.0 million for
the three months ended March 31, 1996.
The Company believes that funds from operating and financing activities,
borrowings under its existing credit facilities and the net remaining proceeds
from the IPO are sufficient to satisfy its contemplated cash requirements
through 1997, and that its long-term financing requirements will be met through
operating and financing activities in the normal course of its business and, if
deemed necessary or appropriate, through additional financing. No assurance can
be given that additional financing will be available on terms and conditions
acceptable to the Company.
11
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The foregoing Management's Discussion and Analysis contains various
"forward looking statements" within the meaning of Section 27A of the Securities
Act of 1933 which represent the Company's expectations or beliefs concerning
future events, including, but not limited to, statements regarding increased
sales of VOIs in Company owned resorts and the sufficiency of the Company's cash
flow, as well as receivables financing, for its future liquidity and capital
resource needs. These forward looking statements are further qualified by
important factors that could cause actual results to differ materially from
those in the forward looking statements. These factors include, without
limitation, the Company's ability to continue to develop and market resort
properties, increases in marketing costs, the availability of favorable
financing agreements, increases in sales of vacation packages, fluctuations in
interest rates and the effects of governmental regulation. Results actually
achieved may differ materially from expected results included in these
statements as a result of these or other factors.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
Refer to Note 6, Commitments and Contingencies, of the Consolidated
Condensed Financial Statements included elsewhere herein.
ITEM 6. Exhibits and Reports on Form 8-K
a. Exhibits
11.1 Statement regarding computation of per share earnings
27.1 Financial Data Schedule
b. Reports on Form 8-K:
NONE
12
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
VACATION BREAK U.S.A., INC.
By: /S/ RALPH P. MULLER
Ralph P. Muller
Chairman of the Board and Chief Executive Officer
Date: May 12, 1997
By: /S/ KEVIN M. SHEEHAN
Kevin M. Sheehan
President
Date: May 12, 1997
By: /S/ HENRY M. CAIRO
Henry M. Cairo
Chief Financial Officer and Chief Operating Officer
Date: May 12, 1997
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EXHIBIT INDEX
EXHIBIT PAGE
- ------- ----
10.79 Amendment, dated January 1997 to Loan and Security Agreement dated
March 14, 1996 between Vacation Break Resorts at Star Island,
Inc. and Textron Financial Corporation
11.1 Statement regarding computation of per share earnings
27.1 Financial Data Schedule
AGREEMENT AND AMENDMENT
AGREEMENT AND AMENDMENT (this "Agreement" or "Amendment") dated January
__, 1997 ("Amendment Effective Date"), by and among Vacation Break Resorts at
Star Island, Inc., a Florida corporation ("Borrower"), the individual and
corporate Guarantors identified on the signature pages of this Agreement
(individually, a "Guarantor" or jointly and severally, the "Guarantors"), and
Textron Financial Corporation, a Delaware corporation ("Lender").
PRELIMINARY STATEMENT
The Borrower, the Guarantors, and Lender, are parties to a Loan and
Security Agreement dated as of March 14, 1996 (as amended hereby, and as further
amended from time to time, and including all schedules and exhibits to it, the
"Loan Agreement"). Pursuant to the Loan Agreement and the other Loan Documents,
Lender made in favor of Borrower a loan in the principal amount of up to
$5,000,000 (the "Loan"). The Loan is guaranteed by the Guarantors, jointly and
severally, and secured by, among other Collateral, purchase and sale agreements
with Purchasers included among the Timeshare Documents, together with cash
deposits and related rights and interests in connection with TFC Financed Escrow
Sales, and Pledged Notes Receivable and Mortgages deriving from sales of
Intervals at the Resorts.
At the time of the original Closing under the Loan Agreement, the
Resorts consisted of the condominium vacation ownership time-share projects
known as Vacation Break Resorts at Star Island I, a Condominium ("VBSI I") and
Vacation Break Resorts at Star Island II, a Condominium ("VBSI II"), each as
more particularly described in the Loan Agreement. Subsequent to the original
Closing Date, the Borrower, as Developer, filed certain Timeshare Documents with
the Division, and on October 10, 1996 the Division approved as a condominium
vacation ownership time-share project, a separate portion of the Star Island
Project presently under construction which is known as Vacation Break Resort at
Star Island III, a Condominium ("VBSI III"), as more particularly described
below. The parties wish to enter into this Amendment, among other things, to
include VBSI III as a Resort and to provide for Advances to be made in respect
of Eligible Escrow Sales or Eligible Notes Receivable arising from sales of
Intervals in VBSI III.
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and the agreements
contained herein, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties, intending to be legally
bound, agree as follows:
1. CAPITALIZED TERMS. Capitalized terms used in this Agreement and not
otherwise defined herein shall have the meanings given to such terms in the Loan
Agreement, and all such defined terms are deemed incorporated herein by this
reference. Capitalized terms defined in the introductory Preliminary Statement
or elsewhere in this Agreement, or in the Loan Documents other than the Loan
Agreement (including as amended by this Agreement), shall have the meanings
assigned to them at the place first defined. The definitions include the
singular and plural forms of the terms defined.
2. AMENDMENT. The provisions of this Amendment shall govern and control
over conflicting or inconsistent provisions in the Loan Agreement and the other
Loan Documents, but except as expressly modified by this Amendment, all
provisions of the Loan Agreement and the other Loan Documents remain unmodified
and in full force and effect, and are expressly reaffirmed by the parties
hereto. As used herein, references to (a) the Loan Agreement shall mean the Loan
Agreement as amended by this Amendment; and (b) the Loan Documents shall be
deemed to include, in addition to the other Loan Documents, this Agreement, the
Intercreditor Agreement (defined below), and the various assignments, financing
statements, consents, certifications, authorizations, opinions and other
documents, instruments or materials executed and delivered in connection with
this Agreement.
3. VACATION BREAK RESORT AT STAR ISLAND - BACKGROUND. As discussed more
fully in the Loan Documents, prior to the Amendment Effective Date identified in
the initial paragraph hereof, Borrower, as Developer, commenced the
establishment of a multiple condominium time-share plan and project defined in
the Loan Documents as the Resort. As of the Closing Date, the Resort consisted
of VBSI I, as more particularly described and provided in the VBSI I
Declaration, and VBSI II, as more particularly described and provided in the
VBSI II Declaration. As described more fully in the VBSI I Declaration and the
VBSI II Declaration (collectively, and including Declarations of Condominium
relating to future condominiums included within the Resort, the "Declarations"),
the Resort consists or is to consist of, among other things, condominium
buildings (the "Buildings") in which "Timeshare Interests" (also referred to as
"Intervals") are or will be established. VBSI I consists of one Building
designated as Building 2, containing 11 Units, and VBSI II consists of one
Building designated as Building 28, containing 16 Units.
2
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Building 2 and Building 28 were constructed, and Units or
Intervals have been or are being conveyed to Borrower, pursuant to and as
provided in, among other agreements, the May 15, 1995 amended Purchase Agreement
between the Borrower and Star Island Development Corp. ("SIDC"). SIDC's
Construction of Building 2 and Building 28 was financed by Lender pursuant to a
separate loan transaction between Lender and SIDC described in the Agreement and
Consent included among the Loan Documents as the "SIDC Loan." Final certificates
of occupancy have been issued with respect to Building 2 and Building 28, and
all of the Units (and Intervals) therein.
Since the Closing Date, Borrower and SIDC have agreed to the
construction and conveyance to Borrower, pursuant to the Purchase Agreement, of
an Additional Resort Building known as "Building 9", containing 48 Units, for
inclusion by the Borrower in the Resort as an additional condominium established
as VBSI III. SIDC's Construction of Building 9 is being financed by Colonial
Bank ("Colonial"), pursuant to a construction loan transaction dated as of July
30, 1996 between SIDC and Colonial Bank (the "SIDC Colonial Loan"). In
connection with the SIDC Colonial Loan, an Affiliate of Borrower and a
Guarantor, Vacation Break U.S.A., Inc. ("VBUSA"), delivered in favor of Colonial
a limited guaranty of SIDC's payment and performance of the SIDC Colonial Loan
as it relates to Building 9 only ("VBUSA Colonial Guaranty"). A true copy of the
VBUSA Colonial Guaranty is attached as Exhibit "A". Borrower, Lender and the
Guarantors acknowledge the VBUSA Colonial Guaranty, and Lender consents to same
on the terms set forth in Exhibit "A", subject, however, to VBUSA's and the
other Guarantors' Guaranty in favor of Lender.
4. VBSI III APPROVALS. As evidenced by an approval letter dated October
10, 1996, a public offering statement and other Timeshare Documents relating to
VBSI III have been approved by the Division. Building 9 is an Additional Resort
Building as described in Section 4.2 of the Loan Agreement. In addition to all
other conditions to the making of Advances as set forth in any of the Loan
Documents, as a further condition to any Advances in respect of Eligible Escrow
Sales at VBSI III, or Eligible Notes Receivable deriving from sales of Intervals
at VBSI III, Borrower shall have delivered to Lender, and Lender shall have
approved prior to the date of any such Advance, all of the documents or
materials provided for in Section 4.1 and 4.2 of the Loan Agreement as the same
relate to VBSI III, including without limitation, true copies (or originals, as
may be required) of all Timeshare Documents and Operating Contracts (which, as
defined in the Loan Agreement, shall be deemed to pertain to each Resort),
evidence of compliance with the Timeshare Act, the Condominium Act and other
Applicable Laws, and, when issued, all related governmental licenses, permits
and approvals, together with certified surveys, engineering, environmental and
wood-boring insects reports, evidence of insurance, evidence of payment of taxes
and assessments, and all of the other conditions set forth in
3
<PAGE>
Sections 4.1, 4.2 and 4.3, and Section 5, of the Loan Agreement shall, with
respect to VBSI III, have been or be performed or complied with to Lender's
satisfaction.
5. CERTAIN DEFINITIONS. In view of the inclusion of VBSI III as an
additional Resort in respect of which Advances under the Loan may be made, from
and after the Amendment Effective Date the following defined terms used herein
or in the Loan Agreement or other Loan Documents shall be amended to have the
following meanings:
(a) "Declaration" or "Declarations" as defined in Section 1.16
of the Loan Agreement (and in other Loan Documents), is amended to refer,
individually and collectively, to the VBSI I Declaration and the VBSI II
Declaration, and the Declaration of Condominium for Vacation Break Resorts at
Star Island III, a Condominium, to be recorded in the Official Records of
Osceola County, Florida, as amended from time to time ("VBSI III Declaration"),
and the other Declarations of Condominium relating to future condominiums
included in the Resort, in each case as recorded or to be recorded in the Public
Records of Osceola County, Florida and in each case as the same may be amended
from time to time.
(b) "Resort" as defined in Section 1.54 of the Loan Agreement
(and in other Loan Documents), is amended to include, as of the original Closing
Date, VBSI I and VBSI II, and as of the Amendment Effective Date, VBSI I, VBSI
II, and VBSI III, consisting of, among other things, all Buildings and
improvements, Condominium Property, Units and Intervals, now existing or
hereafter added or arising, located at One Avenue of the Stars, Kissimmee,
Osceola County, Florida 34746, upon the real property more fully described in
Exhibit "B" (including other property as added to the Resort from time to time,
the "Real Property"), and including all Condominium Property and related or
appurtenant properties, facilities, equipment, appliances, fixtures, easements,
licenses, rights and interests, including access and use rights with respect to
the Recreational and Support Facilities, as established by and more fully
described in the Declarations and the other Timeshare Documents, and as the same
may be amended from time to time.
(c) "Sales Escrow Agreement" as defined in Section 1.55 of the
Loan Agreement (and in other Loan Documents) is amended to refer, individually
and collectively, (i) as to VBSI I and VBSI II, to the Sales Escrow Agreement
dated June 21, 1995 between Borrower and Stanton & Gasdick, P.A., as "Sales
Escrow Agent", and (ii) as to VBSI III, to the Sales Escrow Agreement dated May
31, 1996 between Borrower and Sales Escrow Agent, and (iii) as to future
condominiums included in the Resort and approved by Lender, additional Sales
Escrow Agreements between Borrower and Sales Escrow Agent as may relate to such
future condominiums.
4
<PAGE>
6. LOAN ESTOPPEL. The parties acknowledge and confirm that as a result
of Advances made prior to the Amendment Effective Date, and without giving
effect to any advances that may be made in connection with the closing hereof,
the outstanding principal and interest under the Loan, and the status of the
Available Funding, are as reflected in the Available Funding Report attached
hereto as Schedule 6. In connection with the closing under this Agreement,
Borrower is seeking Advances as reflected in the Certificate and Draw Request,
with accompanying Available Funding Report, delivered in connection with such
requested Advances.
7. CONDITIONS TO AMENDMENT CLOSING. The obligation of Lender to enter
into this Agreement and, in addition to all of the other conditions precedent
set forth in the Loan Agreement or the other Loan Documents, to fund any
Advances in respect of VBSI III, shall be subject to the satisfaction of each of
the following additional conditions precedent:
(a) Lender shall have received from Borrower and the
Guarantors a fully executed original or executed counterpart originals of this
Agreement.
(b) Lender, Borrower, Colonial Bank and SIDC shall have
entered into an Intercreditor and Non-Disturbance Agreement in form and
substance acceptable to Lender ("Intercreditor Agreement"). The Intercreditor
Agreement shall confirm and provide for, among other things, the release of the
mortgage and other security documents and UCC financing statements relating to
the SIDC Colonial Loan (collectively, "Colonial Mortgage"), upon payment of a
per Interval or per Unit "Release Fee" as set forth therein. In addition, the
Intercreditor Agreement will provide Lender with notice of defaults under the
SIDC Colonial Loan, and with an acceptable period of time and means either to
cure SIDC defaults, or, upon such default, to acquire Colonial's rights,
interests and priorities in, to and under the SIDC Colonial Loan, in order to
forestall foreclosure by Colonial and to enable Completion of Construction of
Building 9. If deemed necessary by any party to the Closing Escrow Agreement, or
by Colonial Bank, Borrower, Lender and other parties will also enter into a new
or modified Closing Escrow Agreement to further provide for releases of the
Colonial Mortgage. As to any Advances in respect of VBSI III, Borrower shall
take actions as may be necessary to cause Colonial to execute and deliver, and
cause to be recorded, partial releases of the Colonial Mortgage in connection
with closings of the related Intervals or Units. In addition, SIDC, Borrower and
Lender shall have entered into an Amendment to the Agreement and Consent
delivered at Closing, providing, among other things, that for purposes of the
Agreement and Consent, the Resort consists of VBSI I, VBSI II and VBSI III,
together with future condominiums as may be included by Borrower in the Resort
and approved by Lender.
5
<PAGE>
(c) If required by Lender, Lender shall have received from
Rochelle Golub, Esq., or other counsel reasonably acceptable to Lender, closing
opinions relating to VBSI III in form and substance reasonably acceptable to
Lender.
(d) The representations and warranties contained in the Loan
Agreement and Loan Documents, and in this Agreement, and in the certifications
and closing documents delivered in connection herewith, shall be true and
correct in all material respects, and all covenants and agreements to have been
complied with or performed by Borrower (or Guarantors) shall have been fully
complied with and performed to the satisfaction of Lender.
(e) Lender shall have received a certificate of the secretary
or assistant secretary of the Borrower and the corporate Guarantors certifying
the incumbency of, and verifying the authenticity of the signatures of, the
officers of the Borrower or Guarantor authorized to sign this Agreement and the
other documents, instruments and materials to be executed and delivered in
connection herewith, and Borrower shall deliver to Lender an acceptable
certificate of the secretary of the Borrower and the corporate Guarantors
certifying the adoption by their respective Boards of Directors of resolution
authorizing specified officers of the Borrower or Guarantors to enter and
execute this Agreement and all other documents, certificates and instruments to
be executed and delivered in connection with this Agreement and to consummate
the transactions contemplated hereunder.
(f) Lender shall have received a certificate or certificates
in form and substance satisfactory to it, dated as of the date hereof and signed
by the president or other authorized officer of the Borrower, certifying that
the conditions specified in this Agreement have been fulfilled, and "bringing
down" the representations and warranties contained in the Loan Documents.
(g) Lender shall have received an estoppel in form and
substance reasonably acceptable to it from SIDC addressing the Borrower's status
and good standing under the Purchase Agreement, and confirming that VBSI III is
included as a Resort, including for purposes of the Agreement and Consent
between Lender and SIDC.
(h) Lender shall have received and reasonably approved copies
of the Colonial Mortgage and related loan documents.
(i) All actions taken in connection with the execution or
delivery of this Agreement, and all documents, certificates, instruments and
materials relating hereto, shall be reasonably satisfactory to Lender and its
counsel. Lender and its counsel shall have received
6
<PAGE>
copies of such documents and papers as Lender or such counsel may reasonably
request in connection herewith all in form and substance and satisfactory to
Lender and its counsel.
8. GUARANTY. The Guarantors jointly and severally:
(a) have reviewed with counsel of their choice, this
Agreement, the Intercreditor Agreement, the Amendment to the Agreement and
Consent, the Collateral Assignment relating to the initial Advance in respect of
TFC Financed Escrow Sales, and the other Loan Documents, and accept and consent
to the terms thereof and hereof and the transactions provided for therein and
herein;
(b) acknowledge and agree that they each receive material
benefit and valuable consideration as a result of the transactions provided for
herein or contemplated hereunder;
(c) ratify and reaffirm the Guaranty, and all of the terms,
provisions, agreements, conditions, waivers and undertakings contained in the
Guaranty, or any of the Loan Documents (as applicable to the Guarantors), all of
which remain unmodified and in full force and effect;
(d) acknowledge and confirm their joint and several,
continuing obligations under the Guaranty and agreement to be bound by the terms
thereof, and that they have been since March 14, 1996 and remain jointly and
severally liable as principal debtors with respect to the Guaranteed Obligations
as defined and in accordance with the terms of the Guaranty;
(e) acknowledge and agree that the Guaranteed Obligations
encompass and apply to all Advances and the entire Loan, including Advances from
and after the Amendment Effective Date, and expressly including Advances made
pursuant to this Agreement, and to all Obligations, including Obligations
arising pursuant to this Agreement;
(f) are fully aware of the financial and other condition of
the Borrower, the Resort, the Santa Barbara Project and the Sea Gardens Project,
and each other, and are executing and delivering this Agreement based solely
upon their own independent investigation and not upon any representation or
statement of Lender;
(g) represent and warrant that, as of the date of this
Agreement and after giving effect hereto and to the full potential Obligations
which the Borrower could incur under the Loan Documents, and the full potential
extent of the Guaranteed Obligations, the fair saleable value of each
Guarantor's assets exceeds his, her, its or their respective liabilities, each
7
<PAGE>
Guarantor is meeting current liabilities as they mature, each Guarantor has
sufficient capital for his, her, its or their operations in respect of the
Resort and any other business in which he, she, it or they is or are engaging,
and each Guarantor has not incurred debts beyond his, her, its or their ability
to pay same as they mature;
(h) reaffirm, restate and incorporate by this reference all of
the representations, warranties and covenants made in the Guaranty as if the
same were made as of this date; and
(i) acknowledge that their agreements, consents and
acknowledgements contained herein, and the provisions of the Guaranty which are
reaffirmed by all the Guarantors, are a material inducement to Lender to enter
into this Agreement, and that, but for the Guaranty and the Guarantors'
agreements as set forth herein, Lender would decline to enter into this
Agreement.
9. ADDITIONAL REPRESENTATIONS AND WARRANTIES. Borrower, and as
applicable, the Guarantors, hereby reaffirm, restate and incorporate by this
reference all of their respective representations, warranties and covenants made
in the Loan Agreement (including as amended hereby), as if the same were made as
of this date and with reference to the Loan Agreement as amended hereby. In
addition, Borrower and, as applicable, the Guarantors, jointly and severally,
represent, warrant and covenant as follows:
(a) This Agreement has been duly authorized by the Borrower
and is the legal, valid and binding obligation of the Borrower, enforceable
against it in accordance with its terms; and, with respect to Section 8 of this
Agreement and as otherwise applicable with respect to the Guarantors, this
Agreement is the legal, valid and binding obligation of the Guarantors,
enforceable against them, jointly and severally, in accordance with its terms;
(b) The execution, delivery and performance of this Agreement
and the documents, instruments and materials to be delivered in connection
herewith and the transactions contemplated hereby do not and will not result in
any breach of, or constitute a default under, or result in the creation of any
lien, charge or encumbrance upon the Collateral or the Resort (except in favor
of Lender) pursuant to, any provision of law, or any indenture, agreement or
instrument to which the Borrower or the Guarantors is a party or by which the
Borrower or the Guarantors may be bound or affected, including, without
limitation, with respect to the Heller Loan or the Colonial Bank Loan.
8
<PAGE>
(c) Borrower and the Guarantors hereby represent, warrant and
confirm that there are no Defaults or Events of Default pursuant to the Loan
Documents; that Lender has fully performed its obligations under the Loan
Documents, and that neither the Borrower nor the Guarantors have any defenses,
set-offs, claims, counterclaims or recoupments against Lender or with respect to
the Loan.
(d) There has been no material adverse change in the financial
condition of any of the Resort, the Borrower or the Guarantors, respectively,
since the Closing Date.
(e) The collateral security for the Heller Loan does not and
will not encumber any properties, rights, interests or benefits included among
the Collateral.
(f) The escrow accounts established under the Sales Escrow
Agreements for use in connection with TFC Financed Escrow Sales are, as to VBSI
I and VBSI II, SunTrust Account No. 0417-006224530, and as to VBSI III, SunTrust
Account No. 0417-006232395, each established and maintained at SunTrust Bank,
N.A. in Orlando, Florida (such accounts, respectively, are sometimes called,
individually or collectively, the "TFC Escrow Sales Accounts"). The TFC Escrow
Sales Accounts will be used for Purchaser deposits and payments in escrow in
respect of all TFC Financed Escrow Sales, and such Accounts will not be closed
or changed without the prior written consent of Lender. At Lender's request,
Borrower will provide Lender with evidence reflecting that the records
pertaining to the TFC Escrow Sales Accounts reasonably identify them as relating
to TFC Financed Escrow Sales.
(g) Borrower and the Guarantors hereby reaffirm their
respective obligations, agreements and undertakings as set forth in the Loan
Documents, and acknowledge that the Obligations, or with respect to the
Guarantors, the Guaranteed Obligations def-med in the Guaranty, are the valid,
legally binding and enforceable obligations of the Borrower, and the Guarantors,
respectively.
10. SCRIVENER'S ERRORS. With respect to Eligible Escrow Sales, Section
1.20 (f) of the Loan Agreement refers to ENR criteria set forth in Section 1.20
(c), (d), (k), (p) and (q).
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The reference to Section 1.20 (c), (d), (k), (p) and (q) is erroneous. The
correct reference is to Section 1.21 (c), (d), (k), (p) and (q); and the Loan
Agreement is amended accordingly. Also, as set forth in Section 2.3 (b) with
respect to amounts paid to Lender at closings of Escrow Sales (or upon
termination of escrow without closing), Section 2.3 (b) (ii) provides that such
payments will be applied by Lender as provided in "subsection (b) below". The
correct reference is to subsection (c) of Section 2.3, and the Loan Agreement is
amended accordingly.
11. MISCELLANEOUS.
(a) This Agreement is entered into for the benefit of the
parties hereto, and is binding on the respective heirs, successors or assigns;
provided that Borrower may not transfer or assign any of its fights or
obligations under this Agreement without the prior written consent of Lender.
(b) This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument. This Agreement shall become effective upon Lender's
receipt of one or more counterparts hereof timely executed by Borrower, the
Guarantors and Lender. This Agreement may not be amended or modified, and no
term or provision hereof may be waived, except by written instrument signed by
the parties hereto. This Agreement shall not be construed more strictly against
one party than against any other party merely by virtue of the fact that this
Agreement may have been physically prep@ by one of the parties, or such party's
counsel, it being agreed that all parties and their respective counsel have
mutually participated in the negotiation and preparation of this Agreement.
(c) This Agreement and all of the transactions hereunder, and
all of the rights of the parties, shall be governed as to validity, construction
and enforcement and in all other respects by the laws of the State of Florida.
(d) Borrower hereby agrees to pay (i) all documentary stamp
taxes, intangibles taxes, or other taxes or charges, including recording
charges, filing fees and search fees, payable in connection with the
transactions provided for herein, (ii) reasonable legal fees and disbursements
incurred by Lender in connection with the preparation, negotiation and closing
under this Agreement, and (iii) any other reasonable fees, costs or expenses
incurred by Lender or otherwise arising in consummating the transactions
contemplated hereby.
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(e) Section headings have been inserted in this Agreement as a
matter of convenience of reference only; such headings are not part of the
Agreement and shall not be used in the interpretation of this Agreement.
(f) TO THE FULLEST EXTENT NOT PROHIBITED BY APPLICABLE LAW
WHICH CANNOT BE WAIVED, THE BORROWER, THE GUARANTORS AND LENDER HEREBY
KNOWINGLY, VOLUNTARILY, INTENTIONALLY AND IRREVOCABLY WAIVE ANY AND ALL RIGHT TO
A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND OR CLARIFY ANY
RIGHT, POWER REMEDY OR DEFENSE ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE
OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREIN OR THEREIN,
WHETHER SOUNDING IN TORT OR CONTRACTOR OTHERWISE,OR WITH RESPECT TO ANY COURSE
OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS
OF ANY PARTY; AND EACH AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED
BEFORE A JUDGE AND NOT BEFORE A JURY. THE BORROWER, GUARANTORS AND LENDER
FURTHER WAIVE ANY RIGHT TO SEEK TO CONSOLIDATE ANY SUCH LITIGATION IN WHICH A
JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER LITIGATION IN WHICH A JURY TRIAL
CANNOT OR HAS NOT BEEN WAIVED. FURTHER, THE BORROWER AND GUARANTORS HEREBY
CERTIFY THAT NO REPRESENTATIVE OR AGENT OF LENDER, NOR LENDER'S COUNSEL, HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT LENDER WOULD NOT, IN THE EVENT OF SUCH
LITIGATION, SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION. THE
BORROWER AND THE GUARANTORS ACKNOWLEDGE THAT THE PROVISIONS OF THIS SECTION ARE
A MATERIAL INDUCEMENT TO LENDER'S ACCEPTANCE OF THIS AGREEMENT AND THE OTHER
LOAN DOCUMENTS.
IN WITNESS WHEREOF, the parties have caused this Agreement and
Amendment to be executed by the respective duly authorized signatories, as of
the date first written above.
BORROWER:
VACATION BREAK RESORTS AT STAR
ISLAND, INC., a Florida corporation
By:_______________________________________
Name:_____________________________________
Title:____________________________________
11
<PAGE>
LENDER:
TEXTRON FINANCIAL CORPORATION,
a Delaware corporation
By:_______________________________________
Name:_____________________________________
Title:____________________________________
12
<PAGE>
GUARANTORS:
------------------------------------------
RALPH P. MULLER
------------------------------------------
ALICE B. MULLER
VACATION BREAK U.S.A., INC., a
Florida corporation
By:_______________________________________
Name:_____________________________________
Title:____________________________________
ATLANTIC MARKETING REALTY, INC.,
a Florida corporation
By:_______________________________________
Name:_____________________________________
Title:____________________________________
ACKNOWLEDGED AND AGREED TO:
VACATION BREAK RESORTS, INC., a
Florida corporation
By:_______________________________________
Name:_____________________________________
Title:____________________________________
SEA GARDENS BEACH AND TENNIS
RESORT, INC., a Florida corporation
By:_______________________________________
Name:_____________________________________
Title:____________________________________
13
EXHIBIT 11.1
VACATION BREAK U.S.A., INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31,
Three months ended
March 31, 1997 March 31, 1996
Primary and
Primary Fully Diluted
------- -------------
Actual number of common shares
outstanding 8,610,225 8,570,000
========= =========
Weighted average number of common
shares issued and outstanding 8,575,057 8,540,000
Common stock equivalents computed
under the Treasury Stock method 361,653 -
--------- ---------
8,936,710 8,540,000
========= =========
Net income $ 2,285,961 $ 1,488,000
========= =========
Net income per share (1) $ 0.26 $ 0.17
==== ====
(1) The use of Common stock equivalents for the EPS computation was
anti-dilutive for the computation of fully diluted EPS for the three months
ended March 31, 1997.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 5,231
<SECURITIES> 124
<RECEIVABLES> 85,033
<ALLOWANCES> (2,859)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 14,725
<DEPRECIATION> (4,667)
<TOTAL-ASSETS> 146,792
<CURRENT-LIABILITIES> 21,150
<BONDS> 59,673
0
0
<COMMON> 86
<OTHER-SE> 30,124
<TOTAL-LIABILITY-AND-EQUITY> 146,792
<SALES> 26,093
<TOTAL-REVENUES> 28,965
<CGS> 6,681
<TOTAL-COSTS> 19,378
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 654
<INTEREST-EXPENSE> 991
<INCOME-PRETAX> 3,543
<INCOME-TAX> 1,257
<INCOME-CONTINUING> 2,286
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,286
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0
</TABLE>
