Attached files
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EX-21.1 - Secure America Acquisition CORP | v181147_ex21-1.htm |
EX-32.1 - Secure America Acquisition CORP | v181147_ex32-1.htm |
EX-31.1 - Secure America Acquisition CORP | v181147_ex31-1.htm |
EX-31.2 - Secure America Acquisition CORP | v181147_ex31-2.htm |
EX-32.2 - Secure America Acquisition CORP | v181147_ex32-2.htm |
EX-10.31 - Secure America Acquisition CORP | v181147_ex10-31.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
(Mark
One)
x
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the fiscal year ended December 31, 2009
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 001-33743
ULTIMATE
ESCAPES, INC.
(Exact
Name of Registrant as Specified in Its Charter)
Delaware
|
26-0188408
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
3501
West Vine Street, Suite 225
Kissimmee,
Florida 34741
(Address
of principal executive office)
(Zip
code)
(407)
483-1900
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to section 12(b) of the Exchange Act:
Common
Stock, $0.0001 par value per share
Common
Stock Purchase Warrants
Securities
registered pursuant to section 12(g) of the Exchange Act:
None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities
Act. Yes ¨ No x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the
Act. Yes ¨ No x
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 past 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 ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes ¨ No ¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act (Check one):
Large
accelerated filer ¨
|
Accelerated filer ¨
|
Non-accelerated
filer ¨
|
Smaller reporting company x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨ No
x
As of
June 30, 2009, the last business day of the registrants’ most recently
completed second fiscal quarter, the aggregate market value of their common
equity held by non-affiliates was $58,852,988 based on the closing sales price
of the registrant’s common stock of $7.75 per share on June 30, 2009. For
purposes of this computation, all officers, directors and 10% beneficial owners
of the registrant are deemed to be affiliates. Such determination should not be
deemed to be an admission that such officers, directors or 10% beneficial owners
are, in fact, affiliates of the registrant.
The
number of shares outstanding of the registrant’s Common Stock, par value $0.0001
per share, as of March 31, 2010: 2,517,793
Documents
Incorporated by Reference
None
ULTIMATE
ESCAPES, INC.
FORM
10-K
FOR
THE YEAR ENDED DECEMBER 31, 2009
TABLE
OF CONTENTS
Page
|
||
PART
I
|
||
Item 1.
|
Business
|
4
|
Item 1A
|
Risk
Factors
|
14
|
Item
2.
|
Properties
|
29
|
Item
3.
|
Legal
Proceedings
|
32
|
Item
4.
|
(Removed
and Reserved)
|
32
|
PART
II
|
||
Item
5.
|
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
|
33
|
Item
6.
|
Selected
Financial Data
|
36
|
Item
7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
36
|
Item 7A
|
Quantitative
and Qualitative Disclosures about Market Risk
|
47
|
Item
8.
|
Financial
Statements and Supplementary Data
|
48
|
Item
9.
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
|
48
|
Item 9A
|
Controls
and Procedures
|
48
|
Item 9B
|
Other
Information
|
48
|
PART
III
|
||
Item 10
|
Directors,
Executive Officers and Corporate Governance
|
49
|
Item 11
|
Executive
Compensation
|
56
|
Item 12
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
61
|
Item 13
|
Certain
Relationships and Related Transactions and Director
Independence
|
64
|
Item 14
|
Principal
Accountant Fees and Services
|
69
|
PART
IV
|
||
Item 15
|
Exhibits
and Financial Statement Schedules
|
70
|
Signatures
|
71
|
|
Exhibit
Index
|
72
|
2
CAUTIONARY
NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Certain
statements made in this Annual Report on Form 10-K constitute forward-looking
statements. Forward-looking statements include statements preceded by, followed
by or that include the words “may,” “could,” “would,” “should,” “believe,”
“expect,” “anticipate,” “plan,” “estimate,” “target,” “project,” “potential,”
“intend” or similar expressions. These statements include, among others,
statements regarding our expected business outlook, anticipated financial and
operating results, business strategy and means to implement the strategy, the
amount and timing of capital expenditures, the likelihood of our success in
building our business, financing plans, budgets, working capital needs and
sources of liquidity. We believe it is important to communicate our
expectations to our stockholders. However, there may be events in the future
that we are not able to predict accurately or over which we have no
control.
Forward-looking
statements, estimates and projections are based on management’s beliefs and
assumptions, are not guarantees of performance and may prove to be inaccurate.
Forward-looking statements also involve risks and uncertainties that could cause
actual results to differ materially from those contained in any forward-looking
statement and which may have a material adverse effect on our business,
financial condition, results of operations and liquidity. A number of important
factors could cause actual results or events to differ materially from those
indicated by forward-looking statements. These risks and uncertainties include,
but are not limited to, those factors listed in this Report under “Risk Factors.”
You are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date of this Report. Forward-looking statements involve
known and unknown risks and uncertainties that may cause our actual future
results to differ materially from those projected or contemplated in the
forward-looking statements.
All
forward-looking statements included herein attributable to us or any person
acting on our behalf are expressly qualified in their entirety by the cautionary
statements contained or referred to in this section. Except to the extent
required by applicable laws and regulations, we undertake no obligation to
update these forward-looking statements to reflect events or circumstances after
the date of this report or to reflect the occurrence of unanticipated events.
You should be aware that the occurrence of the events described in the “Risk
Factors” section and elsewhere in this Report could have a material adverse
effect on us.
3
PART
I
ITEM 1.
BUSINESS
Ultimate
Escapes, Inc. (“we”, “us”, “our” or “the company”) operate a family of luxury
destination club offerings, including Elite ClubTM, Signature ClubTM
and Premiere Club
TM , with over 1,200 affluent club members. We provide club members and
their families with flexible access to a growing portfolio of multi-million
dollar club residences, exclusive member services and resort amenities. We
believe that we offer our club members access to more club destinations than any
other luxury destination club in the world, with over 140 luxury club residences
in 45 global destinations available in the mainland United States and Hawaii,
Mexico, Central America, the Caribbean and Europe as of December 31, 2009. Elite Club properties target
approximately $3 million in value, Signature Club properties
target approximately $2 million in value and Premiere Club properties
target approximately $1 million in value. As of December 31, 2009, we had
433 Elite Club members,
545 Signature Club
members and 236 Premiere
Club members. The majority of the properties are owned by us, and the
others are leased on either a long or short term basis. All of the properties
owned by us are subject to one or more mortgages. Of the 37 properties leased by
us as of December 31, 2009, 27 were subject to long-term leases and ten were
subject to short-term leases (including two short-term leases in which Private
Escapes Holdings, LLC (“PE Holdings”), an affiliate of ours, is the
lessor).
We
combine the privacy and intimacy of multi-million dollar residences in a wide
variety of global resort destinations with “white glove” member concierge
services and club amenities. Our management believes that we offer a unique and
compelling value proposition that is a cost effective vacation alternative for a
large, affluent target market that Spectrem Group estimates at year end 2008
included approximately 6.7 million “millionaires” in the United States with
assets of at least $1 million and approximately 840,000 “pentamillionaires” in
the United States with assets of at least $5 million. For the consumer market, a
club membership offers a more flexible, efficient and cost effective vacation
alternative as compared with the high costs, inefficiencies and hassles of
second home ownership in this cost range, the expense, uncertainties and
time-consuming effort to rent luxury villas in the United States and
international markets or the high costs and typical small rooms of luxury
hotels. For the corporate market, our corporate membership option targets the
growing multi-billion dollar corporate reward and incentive market, and offers
corporations an affordable, flexible corporate reward and incentive program for
top performing employees, senior executives, board members, key advisors,
existing customers and new prospects.
In
addition to providing club members with flexible access to a portfolio of over
140 luxury club residences in 45 global destinations as of December 31, 2009, we
provide our club members with preferred access to over 140 four and five-star
hotel properties and resorts affiliated with The Ultimate Collection
TM , offering club members access to hundreds of beach, mountain, golf,
metropolitan and leisure club properties in world-class resorts and destinations
throughout the world. With multiple club offerings and various club membership
levels in each club, we believe that we have the widest market appeal in the
destination club industry.
Club
members join us by paying a one-time, membership fee (similar to a golf club
membership) currently ranging from $70,000 to $450,000, depending on the club
level and membership usage plan. Club members also pay annual dues currently
ranging from $8,000 to $49,000 per year, again based on the corresponding club
level and membership usage plan. In addition to annual dues, additional revenues
are derived from upgrades, additional use fees and reciprocity fees from third
party operations. As currently structured, if a club member resigns from the
club, his or her club membership is redeemed on a three-in, one-out basis, which
means that three new club members must join the club before a current club
member who desires to resign from the club will have his or her club membership
redeemed. Such redeemed club member typically receives 80% of the club
membership resale proceeds with us retaining a 20% transfer fee. This redemption
mechanism is common in private country clubs and has also been adopted by most
destination clubs.
4
We also
offer an Ultimate
DiscoveryTM
“trial membership” whereby qualified club prospects or club member referrals can
purchase a seven-day “mini-vacation package” for an average of $3,500 and
experience the club as an authorized guest at one of our club properties within
six months of purchasing an Ultimate
Discovery trial membership. If the trial member purchases an
Ultimate Escapes lifetime membership within 30 days of completing the Ultimate Discovery vacation
experience, then 100% of the fee paid for the Ultimate Discovery trial
membership is applied toward the purchase of the lifetime
membership.
In 2008,
we launched the Ultimate
Reciprocity ProgramTM,
an affiliate club membership reciprocity program targeting a growing market
estimated by Ragatz Associates to consist of approximately 50,000 fractional and
private residence club owners at hundreds of private residence clubs and luxury
fractional ownership resorts in the United States, Mexico, Central America, the
Caribbean and Europe. The
Ultimate Reciprocity Program offers participating luxury resorts the
opportunity to offer their shared-use owners an affiliate club membership that
provides annual reciprocity access to our global club properties, affiliate
member services and club amenities; this program provides owners at
participating luxury resorts with reciprocal access to over 140 club properties
offered by us in the continental United States, Hawaii, Mexico, Central America,
the Caribbean and Europe. Participating resort developers sign multi-year
reciprocity agreements with us and pay an upfront affiliate resort developer fee
depending on resort size. In addition, participating resorts pay a one-time
affiliate member fee of $3,000 for each shared-use owner that participates at
each affiliated resort, which fee includes the affiliate club member’s first
year annual dues. Affiliate club members also pay us a $250 transaction fee for
each reciprocity transaction executed within our reservation system, and each
affiliate club member continues to pay its affiliate member annual dues
beginning in the second year of its affiliate club member reciprocity agreement
with us.
Participating
developers and shared-use owners contribute up to two weeks per year of
participating shared-use ownership inventory into our proprietary web-based
reservation system, providing over 1,200 club members with additional benefits,
including expanded access to new destinations and affiliated resorts generally
at no additional cost. The
Ultimate Reciprocity Program also provides participating luxury resort
developers with custom-designed websites developed and hosted by us that offer
affiliate resort developers and their club members online information about our
destinations, club properties, affiliate member services and on-line
availability, leveraging our advanced web-based technology
platform.
Participating
resorts have access to a variety of our reciprocity services designed to help
improve developer real estate sales performance, owner retention and owner
referrals. Additionally, we offer participating resorts an opportunity to
differentiate their shared ownership offerings from other non-affiliated
resorts, helping to increase participating resort developer’s sales and maintain
higher price points. To participating resort developers, bundling the Ultimate Reciprocity
Program with luxury shared ownership real estate creates a
unique “hybrid” offering that greatly expands the number of luxury resort
destinations and club properties that affiliate club members can book
reservations and travel to.
Resorts
that participate in the
Ultimate Reciprocity Program receive increased market exposure from a
base of over 1,200 affluent club members and their family and friends, some of
whom also explore purchasing additional vacation real estate while traveling to
club destinations. In addition, participating resorts benefit from reciprocal
reservations booked by our club members and their guests, who on average spend
between $5,000 and $10,000 per vacation on food, drinks, golf, spa,
entertainment and shopping when traveling to various club properties and
affiliated properties.
The
destination club industry has gone through dramatic changes and a period of
rapid consolidation over the last few years, which has led to fewer, larger
destination clubs that have achieved operating efficiencies as a result of
scalable, sustainable business models, experienced management teams, strong
capital bases, financial transparency and affordable access to high quality club
member services in the wide variety of global destinations.
5
We
believe that the two largest clubs in the industry, as measured by numbers of
members, are Exclusive Resorts and our company, with a combined 82% global
market share in the destination club industry, as noted in the chart below,
which shows the number of club members in various destination clubs and market
share, based on industry data available to us as of December 2009.
We were
structured to be more affordable than other luxury consumer vacation travel
options and business incentive travel options, including second home ownership,
while simultaneously offering equal or superior benefits (especially for anyone
requiring flexible access to private homes with multiple bedrooms for friends
and family). For individual club members, we eliminate the burdens of owning one
or multiple second homes and the uncertainties and expense of renting different
homes or villas in multiple United States and international markets. For
corporations, we offer a more affordable, flexible corporate reward and
incentive program for top performers, key advisors, key employees and important
customers and prospects.
We
operate a proprietary occupancy model that provides club members with flexible
access and reasonable availability, principally by maintaining a low 6-to-1
equivalent member-to-property ratio and purposely under-utilizing each club
property, targeting annual club occupancy of 75% or less. An
equivalent member is a member who has a 60 day annual plan. For all club
properties, occupancy was 57% during 2008 and 61% during 2009. We charge a
one-time membership fee to join the club that we believe is generally lower than
the typical down payment for a single second home property, and charge annual
dues that are generally a fraction of the cost of owning and operating a single
$1 – $3 plus million second home.
We have
focused on the creation of a unique brand supported by a valuable portfolio of
luxury properties in some of the world’s premier resort and urban destinations.
These luxury properties target the affluent family vacationer. We believe that
this affluent segment is particularly well-positioned for future
growth.
We
differentiate ourselves from our competitors with the widest offerings in the
destination club industry, with multiple clubs each offering five tiers of club
membership plans. The breadth of this offering provides our club members with
multiple upgrade paths, both in terms of use rights and club levels. Our club
membership provides club members with internal reciprocity use within all club
properties, which in some cases requires a nightly reciprocity fee for members
in Premiere Club
or Signature Club to
reserve residences in more expensive clubs (for example, Premiere Club members
reserving Elite Club
residences through internal reciprocity). The flexibility allows club members to
grow and change with the club, while providing incremental revenues streams to
us.
James M.
Tousignant, the founder of Ultimate Resort, LLC (“Ultimate Resort”) and our
President and Chief Executive Officer, and Richard Keith, the founder of Private
Escapes Destination Clubs (“Private Escapes”) and our Chairman, along with many
other members of our management team, have worked together for many years and
have over 100 years of collective experience building and managing public and
private companies.
6
History
We were
formed on May 14, 2007, as a blank check company for the purpose of acquiring,
or acquiring control of, through a merger, capital stock exchange, asset
acquisition, stock purchase or other similar business combination, one or more
domestic or international operating businesses. We changed our name from
“Fortress America Acquisition Corporation II” to “Secure America Acquisition
Corporation” on August 6, 2007 and on October 29, 2009 changed our name to
“Ultimate Escapes, Inc”.
On
October 29, 2009, we consummated a business combination with Ultimate Escapes
Holdings, LLC (“Ultimate Escapes Holdings”), pursuant to a Contribution
Agreement dated September 2, 2009, by and among us, Ultimate Escapes Holdings,
Ultimate Resort Holdings, LLC (“Ultimate Resort Holdings”) and James M.
Tousignant, in his capacity as the representative of the holders of the issued
and outstanding ownership units of Ultimate Escapes Holdings and Ultimate Resort
Holdings (the “Owner Representative”), as amended by Amendment No. 1 dated as of
October 28, 2009 (the “Contribution Agreement”). Although we legally acquired
Ultimate Escapes Holdings and it became our subsidiary, for accounting purposes,
the business combination with Ultimate Escapes Holdings was accounted for as a
reverse merger (the “reverse merger”), whereby Ultimate Escapes Holdings is the
continuing entity for financial reporting purposes and is deemed, for accounting
purposes, to have acquired us.
In
accordance with the Contribution Agreement, we received 1,232,601 ownership
units of Ultimate Escapes Holdings. The owners of Ultimate Escapes Holdings
prior to the reverse merger, consisting of Ultimate Resort Holdings, PE Holdings
and JDI Ultimate, L.L.C. (“JDI”) (collectively, the “UE Owners”) retained the
remaining 7,556,675 ownership units of Ultimate Escapes Holdings, which, under
the terms of the amended and restated operating agreement of Ultimate Escapes
Holdings (the “Operating Agreement”) may be converted on a one-to-one basis into
shares of our common stock. These 7,556,675 ownership units are held
as follows: 3,858,571 units by Ultimate Resort Holdings, 3,123,797 units by JDI
and 574,307 units by PE Holdings. Of such retained units, 717,884 units were
deposited into escrow at the closing of the reverse merger to secure the
indemnification obligations of the UE Owners to us. Additionally, the UE Owners
are eligible to receive up to an aggregate of 7,000,000 additional ownership
units of Ultimate Escapes Holdings, convertible on a one-to-one basis into
shares of our common stock upon the achievement of certain Adjusted EBITDA
milestones, as set forth in the Operating Agreement. For each ownership unit of
Ultimate Escapes Holdings issued to the UE Owners, the Owner Representative also
received one share of our Series A Voting Preferred Stock. At any time that any
UE Owner exchanges ownership units of Ultimate Escapes Holdings for shares of
our common stock, a like number of shares of Series A Voting Preferred Stock
will be canceled. Upon consummation of the reverse merger, Ultimate Escapes
Holdings became our subsidiary, and the business and assets of Ultimate Escapes
Holdings and its subsidiaries are our only operations.
Ultimate
Escapes Holdings was founded in 2004, as Ultimate Resort, by Mr. Tousignant to
address what he perceived was an emerging and underserved segment of the luxury
shared-use market — the high-end “luxury destination club.” Mr.
Tousignant has over 20 years of management experience, including with
entrepreneurial ventures and public companies.
Since its
inception in 2004, Ultimate Resort grew rapidly to become one of the largest
players in the destination club industry. Recognizing that achieving “critical
mass”, which it viewed as having at least 800 to 1,000 club members, is a key
component to operating a successful destination club business model, Ultimate
Resort aggressively pursued a two-tiered growth strategy of organic growth
combined with strategic transactions to reach critical mass
quickly.
In May
2007, Ultimate Resort Holdings acquired all of the assets and business of its
parent company, Ultimate Resort, and purchased certain real estate assets for
approximately $105 million in federal bankruptcy court as a result of the 2006
bankruptcy of Tanner & Haley. To finance the acquisition of the real estate
assets, secured debt financing was obtained from CapitalSource Finance, a
NYSE-listed specialty lender. In addition, new club membership agreements were
signed with 645 previous Tanner & Haley club members. In February 2008,
additional real estate assets were purchased for $12 million from Ventures
Equity Vacation Club and new club membership agreements were signed with 19
previous club members of Ventures Equity Vacation Club.
7
In May
2008, Ultimate Resort Holdings signed a cooperative marketing agreement and a
definitive contribution agreement to acquire certain assets and assume certain
liabilities from Private Escapes, including club properties of approximately $50
million, located in 28 beach, mountain, golf and metropolitan destinations
throughout the continental United States, Hawaii, Mexico, Central America, the
Caribbean and Europe. Private Escapes was founded by our Chairman, Richard
Keith, in 2003 and became a market leader at the one million dollar home entry
level category and, over several years of operations, became the industry’s
third largest destination club as measured by number of club members, according
to HalogenGuides. Also in May 2008, Ultimate Resort Holdings began operating its
business under the “Ultimate Escapes” brand name.
On
September 15, 2009, Ultimate Resort Holdings contributed all of its assets and
liabilities to Ultimate Escapes Holdings and, on the same date, Ultimate Escapes
Holdings completed the acquisition of a majority of the assets of Private
Escapes. On October 29, 2009, we completed the reverse merger business
combination with Ultimate Escapes Holdings.
Industry
Luxury
destination clubs first started to appear in the market in 1999 and since then
have become the second largest segment of the $1.5 billion luxury shared-use
vacation market in 2008, according to Ragatz Associates. The luxury shared-use
vacation market includes destination clubs, traditional fractional interests and
private residence clubs. Destination clubs differ from traditional fractional
interests and private residence clubs in a number of ways. The destination club
and fractional industry business models are fundamentally based on the purchase
of either a deeded real estate interest (timeshare/fractional) or some form of
member use right to access a collection of various club properties and
destinations (destination club). Within the fractional and destination club
umbrella, there are a variety of approaches, classified into the following three
categories:
•
|
Traditional Timeshare Interval
Week Ownership — The consumer purchases a deeded real
estate interest to a specific week at a specific resort. This specific
week purchased may then be exchanged through internal and/or external
exchange systems (such as RCI LLC or Interval, Leisure Group, Inc.),
either for a different interval week from another owner or, in some cases,
for an exchange credit. The traditional timeshare product structure has
been successful with low-to-medium income consumers, but has not been a
preferred choice by high-income, affluent consumers looking for a luxury
vacation experience, and, in our view, is not a competitive offering for
affluent consumers, as compared to new luxury vacation lifestyle products
like destination clubs being introduced to the market. Timeshare units are
generally smaller (1 – 2 bedroom, 1,200 square feet), with
modest furnishings and finishes and are generally thought to be
over-priced, hard to resell by owners and less flexible from the
consumer’s point of view.
|
•
|
Fractional Ownership/Private
Residence Clubs — Similar to the traditional timeshare
interval week system, the fractional or private residence club owner
typically purchases a higher quality fractional unit that generally
provides a larger deeded fractional interest, typically a one-sixth,
one-tenth or one-twelfth deeded ownership interest in a particular
fractional unit. Originally started in and around seasonal ski areas, this
product’s pricing and use structure is generally based on seasonal usage
patterns and owner use is typically planned nine to twelve months in
advance.
|
8
•
|
Destination Club
Membership — Destination clubs generally offer
non-equity, right-to-use club memberships that are structured more like
membership in a private country club. Destination clubs sell club
memberships that enable a club member to use the club’s homes, amenities
and club member services for a specified amount of time, typically two to
six weeks per year. They also provide their club members with access to
fully furnished, luxury one to six bedroom residences in any of the club’s
portfolio of residences. In addition, destination clubs typically provide
many of the amenities of a luxury five-star hotel, including personal
concierge services and access to private beaches, spas, golf courses, ski
resorts and yacht clubs. Destination clubs have grown to $349 million in
annual revenue in 2008, according to Ragatz Associates, appealing to
affluent club members who have exclusive use of a growing portfolio of
beautiful club homes, easy and flexible access, reasonable long-term value
and a superior level of member services and resort
amenities.
|
Growth
Strategy
Our
objective is to achieve significant EBITDA and revenue growth over the next
several years. Key elements of our future growth strategy include:
•
|
Expand Organic Sales
by:
|
•
|
Increasing
brand awareness and marketing spend to generate new club membership
sales
|
•
|
Increasing
club member referrals through member events held in major metropolitan
markets
|
•
|
Increasing
sales staff in major cities throughout North America and
internationally
|
•
|
Expanding
corporate membership sales programs
|
•
|
Encouraging
club member upgrades with regular incentive
programs
|
•
|
Pursue Additional
Acquisitions: Less expensive to buy existing clubs and
properties than build, due to historically lower club member acquisition
costs and real estate costs.
|
•
|
Global Expansion
in:
|
•
|
Europe
|
•
|
Asia
|
•
|
Marketing Partnerships/Joint
Ventures with Hospitality
REITS
|
•
|
“Private Label” Offerings with
Resort and Hospitality
Brands
|
Club
Membership Plans and Benefits
We offer
multiple club membership plans divided into three club tiers designated
Premiere, Signature and Elite, that provide club members between 14 and 60 days
of use annually at a unique collection of club and affiliate destinations
located around the world. Our destination properties are located in or near
markets with global tourist and business appeal that offer club members a world
class vacation experience. By combining the best elements of multi-million
dollar single family residences with world class amenities and concierge
service, management believes it has created the best and most cost-effective
option for access to luxury second-home ownership available in the market
today.
9
Premiere
Club TM
Premiere Club membership
plans range from the
Bronze plan, with an initial membership fee of $70,000 and $8,000 in
annual dues for 14 days of annual vacation use, up to the Platinum
Plus plan, with an initial membership fee of $150,000 and
$17,000 in annual dues for 60 days of annual vacation use. All of our club
membership plans include extended family use for maximum value and flexibility,
as club members may grant access to their unaccompanied family members (age 21
and over) for any amount of their given annual use. Each home in the Premiere Club portfolio is
designed to accommodate families with children of all ages. Premiere Club
properties have a target home value of approximately $1 million. The club allows
its members to upgrade their club membership plans as their vacation needs
evolve every year.
Signature
Club TM
Signature Club membership
plans range from the
Bronze plan, with an initial membership fee of $145,000 and $11,500 in
annual dues for 14 days of annual vacation use, up to the Platinum
Plus membership plan, with an initial membership fee of
$300,000 and $35,500 in annual dues for 60 days of annual vacation use. All of
our club membership plans included extended family use for maximum value and
flexibility, as club members may grant access to their unaccompanied family
members (age 21 and over) for any amount of their given annual use. Each home in
the Signature Club
portfolio is designed to accommodate families with children of all ages. Signature Club
properties are generally larger than homes in the Premiere Club and have a
target home value of approximately $2 million. The club allows its members to
upgrade their club membership plans as their vacation needs evolve every
year.
Elite
Club TM
Elite Club membership plans
range from the Bronze
plan, with an initial membership fee of $200,000 and annual dues of $16,000 for
14 days of annual vacation use, up to the Platinum Plus plan, with an
initial membership fee of $450,000 and $49,000 in annual dues for 60 days of
annual vacation use. All of our club membership plans included extended family
use for maximum value and flexibility, as club members may grant access to their
unaccompanied family members (age 21 and over) for any amount of their given
annual use. Each home in the
Elite Club portfolio is designed to accommodate families with children of
all ages. Elite
Club properties are generally larger than homes in the Premiere Club and Signature Club and are of
the highest standards, with target home values of approximately $3 million and
the club allows club members to upgrade their club membership plans as their
vacation needs evolve every year.
Members
of any club membership plan can add a “corporate option” to their
club membership for an additional 10% of their club membership and annual dues.
This allows the club member to designate any key executives, employees,
customers and business prospects (21 and over) to use the club unattended by the
primary club member. The corporate use option has proven to be a valuable tool
for employee rewards and retention programs.
The
Ultimate Collection TM
The Ultimate Collection provides
club members with access to over 140 luxury four and five-star hotels in many of
the world’s most desirable cities and resorts throughout the United States,
Europe, Asia, the Middle East, Central America and South America, Africa and
Australia. Club members can make reservations at any of the beautiful luxury
hotels in exciting cities and resorts, using up to seven of the club membership
“included days” each year, as if a club member was using club
properties.
Ultimate
Rewards Program TM
The
Ultimate Rewards Program is the destination club industry’s first club
membership rewards points program which rewards club members who recommend a
friend, family member or business colleague for club membership if they
subsequently join us. Club members can redeem reward points for extra club days,
annual dues, private yacht and jet charters, private chef services, trips to
special events and much more.
10
Smart
Home Technology
We have
invested in developing a proprietary web-based technology platform and we are
planning to begin using “smart home” technology to improve our ability to manage
club properties, reduce energy and water consumption and provide club members
with a safer and more comfortable experience and home environment.
Seasonality
Our
business, like most organizations in the travel industry, is subject to seasonal
activity. The chart below shows overall club occupancy by month for 2009 and
this seasonality pattern is typical for historical years as well. High travel
seasons are typically January through March for winter vacations and June
through August for summer vacations. A key factor is the school calendar, for
those club members with children still living at home, which creates greater
occupancy pressure during holiday periods. Seasonality also varies by type of
destination. For example, club mountain properties are typically heavily
occupied during the ski season, yet tend to remain vacant during the “shoulder
seasons” (April through early June and September through December) resulting in
an annualized occupancy of 40 – 45%. Conversely, club city
destinations are typically not seasonal due to both business and pleasure trips,
consistently generating month-over-month club occupancies in the
80 – 90% range.
2009
Seasonality
Regulation
Our
business is subject to and affected by international, federal, state and local
laws, regulations and policies, which are subject to change. The descriptions of
the laws, regulations and policies that follow are summaries of those which we
believe to be most relevant to our business and do not purport to cover all of
the laws, regulations and policies that affect our businesses. We believe that
we are in material compliance with these laws, regulations and
policies.
•
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Marketing Operations.
Our club products are marketed through a number of distribution channels,
each of which is regulated at the federal and state level. Such
regulations may limit our ability to solicit new customers or to market
additional products or services to existing customers. For example, to
comply with state and federal “do not call” regulations, we have adopted
processes to routinely identify and remove phone numbers listed on the
various “do not call” registries from our calling lists and have
instituted procedures for preventing unsolicited or otherwise unauthorized
telemarketing calls. We have similarly adopted email messaging practices,
and utilize various software systems responsive to the requirements of
various state and federal regulations which may place limitations on our
ability to engage our consumers in electronic mail marketing campaigns,
most notably, the CAN-SPAM Act, which imposes various requirements on the
transmission of e-mail messages whose primary purpose is to advertise or
promote a commercial product or service. Further we have placed an
emphasis on permission-based marketing and
referrals.
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Privacy and Data
Collection. The collection and use of personal data of
our customers, as well as the sharing of our customer data with affiliates
and third parties, are governed by privacy laws and regulations enacted in
the United States and in other jurisdictions around the world. For
instance, several states have introduced legislation or enacted laws and
regulations that require compliance with standards with standards for data
collection and protection of privacy and, in some instances, provide for
penalties for failure to notify customers when the security of a company’s
electronic/computer systems designed to protect such standards are
breached, even by third parties. Other states, such as California, have
enacted legislation that requires enhanced disclosure on Internet web
sites regarding consumer privacy and information sharing among affiliated
entities or have such legislation pending. In addition, the European Union
Directive on Data Protection requires that, unless the use of data is
“necessary” for certain specified purposes, including, for example, the
performance of a contract with the individual concerned, consent must be
obtained to use the data (other than in accordance with our stipulated
privacy policies) or to transfer it outside of the European Union. We
believe that we are in material compliance with the laws and regulations
applicable to privacy and data collection as such are relevant to our
business.
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Internet. A
number of laws and regulations have been adopted to regulate the Internet,
particularly in the areas of privacy and data collection. In addition, it
is possible that existing laws may be interpreted to apply to the Internet
in ways that the existing laws are not currently applied, particularly
with respect to the imposition of state and local taxes on transactions
through the Internet. Regulatory and legal requirements are particularly
subject to change with respect to the Internet. We cannot predict with
certainty whether such new requirements will affect our practices or
impact our ability to market our products and services
online.
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Seller of Travel
Regulation. Our activities in the State of Florida are
governed by the Florida Sellers of Travel Act, Chapter 559, Florida
Statutes. We currently hold all necessary registrations under this
statute, and believe that we are in material compliance with its
provisions.
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Regulations of Timeshare Plan
and Similar Products. We are confident based upon
various regulatory opinions and court decisions that our business is not
currently subject to any various State regulations governing timeshare
plans and similar products, provided however that we have not received nor
requested either a declaratory ruling or no-action letter from any State
agency with respect to same. Because of the lack of any enacted regulation
as specifically respects the destination club industry, we cannot predict
with certainty the likelihood of the imposition of new laws and regulation
of the industry, or the likelihood that existing regulations of timeshare
plans will be extended, interpreted and applied to include the destination
club industry and/or the club products currently being marketed and sold
in our business.
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Competition
We
operate principally in the luxury vacation industry and compete against numerous
global, regional and boutique destination clubs; as well as other shared usage
or interval ownership resort and vacation property companies, real estate
developers and sponsors; vacation home owners, brokers and managers; resort
sponsors and managers; and, more broadly, luxury resorts and other
transient/leisure accommodations; as well as alternative leisure and recreation
categories, such as golf clubs or other club membership organizations. We have
encountered and expect to encounter in the future intense competition from our
rivals in the destination club industry and from other companies offering
competitive products and services. Many of our competitors have greater consumer
recognition or resources and/or more established and familiar products than us.
The factors that we believe are important to customers include:
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number
and variety of club destinations available to club
members;
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quality
of member services and concierge
services;
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quality
of destination club properties;
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pricing
of club membership plans;
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type
and quality of resort amenities
offered;
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reputation
of club;
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destination
club properties in proximity to major population
centers;
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availability
and cost of air and ground transportation to destination club properties;
and
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ease
of travel to resorts (including direct flights by major
airlines).
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We have
many competitors for our club members, including other major resort destinations
worldwide. We also directly compete with other destination clubs, such as
Exclusive Resorts, which is the largest company in the destination club
marketplace, as measured by number of club members. Our destination club members
can choose from any of these alternatives.
Club
Members Located Abroad
As of
December 31, 2009, we had 54 club members that reside outside the United States
in the following countries:
Mexico
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2 | |||
Canada
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41 | |||
Estonia
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1 | |||
Germany
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1 | |||
United
Kingdom
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8 | |||
Brazil
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1 | |||
Total:
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54 |
Intellectual
Property
We own
the trademarks “Ultimate Escapes,” “Ultimate Resort,” “Private Escapes” and
related trademarks. Such trademarks are material to our business. All of the
material trademarks are registered (or have applications pending) with the
United States Patent and Trademark Office as well as, in some cases, with the
relevant authorities in certain foreign countries.
We also
own the following Internet domain names: ultimateescapes.com,
whatisadestinationclub.com, whatsadestinationclub.com, private-escapes.com,
ultimateescapes.info, ultimateescapes.net, ultimateescapes.org,
ultimateescapes.tv, privateescapes.com and
privateescapes.co.uk.
13
Employees
As of
December 31, 2009, we had 88 full time employees. Our employees are not covered
under any collective bargaining agreement and we have never experienced a work
stoppage. We believe we have good relations with our employees.
ITEM
1A.
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RISK
FACTORS
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We
operate in a rapidly changing environment that involves a number of risks, some
of which are beyond our control. This discussion highlights some of the risks
which may affect future operating results. These are the risks and uncertainties
we believe are most important for you to consider. Additional risks and
uncertainties not presently known to us, which we currently deem immaterial or
which are similar to those faced by other companies in our industry or business
in general, may also impair our business operations. If any of the following
risks or uncertainties actually occurs, our business, financial condition and
operating results would likely suffer.
Risks
Related to Our Company
We
have a history of losses, and may never achieve or sustain
profitability.
We
incurred substantial losses, and we may continue to incur substantial losses in
the future. We incurred net losses of $13.0 million and $23.2 million during the
year ended December 31, 2009 and the year ended December 31, 2008, respectively.
We have also experienced a decrease in new club membership sales and existing
club member upgrades during the last six months of 2008 and all of 2009. These
circumstances raise substantial doubt about our ability to continue to fund
operating losses and provide necessary operating liquidity. Even if we do
achieve profitability, we may be unable to sustain or increase our profitability
in the future.
We
have received a report from our independent registered public accounting firm
expressing doubt regarding our ability to continue as a going
concern.
Our independent registered public
accounting firm noted in their report accompanying our consolidated balance
sheets of December 31, 2009 and 2008 and the related consolidated statements of
operations, changes in owners’ equity (deficit) and cash flows for the years
ended December 31, 2009 and 2008 that our recurring losses from operations and
ongoing requirements for additional capital investment raise substantial doubt
about our ability to continue as a going concern. Management plans to maintain
our viability as a going concern by:
if necessary, selling selected club
properties;
closely maintaining and reducing
operating expenses; and
seeking to raise additional working
capital.
We cannot
assure you that our plans will be successful. This doubt about our ability to
continue as a going concern could adversely affect our ability to obtain
additional financing at favorable terms, if at all, as such an opinion may cause
investors to have reservations about our long-term prospects, and may adversely
affect our relationship with customers and others. If we cannot successfully
continue as a going concern, our stockholders may lose their entire investment
in us.
14
Our
business is capital intensive and the lack of available financing to fund the
acquisition of additional destination club properties and our operations could
adversely affect our ability to maintain and grow our club membership base which
could adversely affect our business, financial condition and results of
operations.
In order
for our destination clubs to remain attractive and competitive, we have to spend
a significant amount of money to keep the properties well maintained, modernized
and refurbished and to add new luxury properties periodically to our portfolio
of destination club properties as we add new club members. This creates an
ongoing need for cash and, to the extent we cannot fund expenditures from cash
generated by operations, funds must be borrowed or otherwise obtained. We could
finance future expenditures from any of the following sources:
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cash
flow from operations;
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non-recourse,
sale-leaseback or other financing;
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bank
borrowings;
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annual
dues increases or club member
assessments;
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public
and private offerings of debt or
equity;
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sale
of existing real estate; or
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some
combination of the above.
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We might
not be able to obtain financing for future expenditures on favorable terms or at
all, which could inhibit our ability to continue to grow. Events during 2008 and
2009, including the failures and near failures of numerous financial services
companies and the decrease in liquidity and available equity and debt capital
have negatively impacted the capital markets for real estate investments.
Accordingly, our financial results have been and may continue to be impacted by
the cost and availability of funds needed to grow our business.
We
have a substantial amount of indebtedness, which could adversely affect our
financial position.
We have a
substantial amount of indebtedness. As of December 31, 2009, we had total debt
of approximately $123 million, consisting of $99 million of borrowings under our
senior secured credit facility and $24 million of additional debt obligations
secured by destination club properties. Our senior secured credit facility is an
amended and restated $110 million revolving credit facility with CapitalSource,
secured by our real estate assets, which will mature on April 30, 2011, subject
to extension by us for up to two one-year periods. The revolving credit facility
includes financial and operational covenants that limit our ability to incur
additional indebtedness and pay dividends as well as purchase or dispose of
significant assets. Covenants in the revolving credit facility include
obligations to maintain either a restricted cash balance of not less than six
months of debt service or a debt service coverage ratio of 1.25 to 1, to
maintain a leverage ratio between debt and consolidated net worth of no more
than 3.5 to 1, to comply with specified ratios of number of club properties to
club members, to have a net loss of no more than $10 million in fiscal
2009 and $5 million in fiscal 2010, and to have net income in each
year thereafter (as adjusted in each year for the non-refundable portion of new
member initiation fees not yet recognized in income and, in 2009, for non-cash
stock-based compensation), and to maintain a consolidated debt ratio of no more
than 80%. Although we believe that we are in compliance with all of the
covenants in the revolving credit facility, we have previously violated certain
covenants contained in our prior revolving credit facility with CapitalSource,
which covenant violations were waived by the lender, we cannot provide any
assurance that in the future, if we were to need a waiver of a breach of a
covenant, that such a waiver would be granted. In addition, we have
approximately $23 million in additional indebtedness secured by real estate
assets with various first and second mortgage lenders. In the event we default
on our secured debt obligations, the lenders could enforce their rights under
the loan agreements, which would impair our ability to conduct our business and
have a material adverse effect on our business, financial condition and results
of operations. If we are unable to make payments on one or more mortgages on the
properties or otherwise default on our debt obligations, the lenders could
foreclose on such properties, which would have a material adverse effect on our
business, financial condition and results of operations. We may also incur
significant additional indebtedness in the future. Our substantial indebtedness
may:
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make
it difficult for us to satisfy our financial obligations, including making
scheduled principal and interest payments on our
indebtedness;
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limit
our ability to borrow additional funds for working capital, capital
expenditures, acquisitions or other general business
purposes;
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limit
our ability to use our cash flow or obtain additional financing for future
working capital, capital expenditures, acquisitions or other general
business purposes;
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require
us to use a substantial portion of our cash flow from operations to make
debt service payments;
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limit
our flexibility to plan for, or react to, changes in our business and
industry;
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place
us at a competitive disadvantage compared to less leveraged competitors;
and
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increase
our vulnerability to the impact of adverse economic and industry
conditions.
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We
may not be able to generate sufficient cash to service our debt
obligations.
Our
ability to make payments on and to refinance our indebtedness will depend on our
financial and operating performance, which is subject to prevailing economic and
competitive conditions and to certain financial, business and other factors
beyond our control. We may be unable to maintain a level of cash flows from
operating activities sufficient to permit us to pay the principal, premium, if
any, and interest on our indebtedness.
If our
cash flows and capital resources are insufficient to fund our debt service
obligations, we may be forced to reduce or delay investments and capital
expenditures, or to sell assets, seek additional capital or restructure or
refinance our indebtedness. These alternative measures may not be successful and
may not permit us to meet our scheduled debt service obligations. In the absence
of such operating results and resources, we could face substantial liquidity
problems and might be required to dispose of material assets or operations to
meet our debt service and other obligations. Our senior secured credit agreement
restricts our ability to dispose of assets, and requires the use of proceeds
from any disposition of assets to repay our indebtedness. We may not be able to
consummate those dispositions or to obtain the proceeds that we could realize
from them and these proceeds may not be adequate to meet any debt service
obligations then due.
The
luxury vacation industry is highly competitive and we are subject to risks
relating to competition that may adversely affect our performance.
We
operate principally in the luxury vacation industry and compete against numerous
global, regional and boutique destination clubs; as well as other shared usage
or interval ownership resort and vacation property companies, real estate
developers and sponsors; vacation home owners, brokers and managers; resort
sponsors and managers; and, more broadly, luxury resorts and other
transient/leisure accommodations; as well as alternative leisure and recreation
categories, such as golf clubs or other club membership organizations. We have
encountered and expect to encounter in the future intense competition from our
rivals in the destination club industry and from other companies offering
competitive products and services. Many of our competitors have greater consumer
recognition or resources and/or more established and familiar products than us.
The factors that we believe are important to customers include:
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•
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number
and variety of club destinations available to club
members;
|
|
•
|
quality
of member services and concierge
services;
|
|
•
|
quality
of destination club properties;
|
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•
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pricing
of club membership plans;
|
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type
and quality of resort amenities
offered;
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•
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reputation
of club;
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•
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destination
club properties in proximity to major population
centers;
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•
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availability
and cost of air and ground transportation to destination club properties;
and
|
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•
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ease
of travel to resorts (including direct flights by major
airlines).
|
We have
many competitors for our club members, including other major resort destinations
worldwide. We also directly compete with other destination clubs, such as
Exclusive Resorts, which is the largest company in the destination club
marketplace, as measured by number of club members. Our destination club members
can choose from any of these alternatives.
We
compete with numerous other resorts that may have greater financial resources
than we do and that may be able to adapt more quickly to changes in customer
requirements or devote greater resources to promotion of their offerings than we
can. We believe that developing and maintaining a competitive advantage will
require continued investment in our technology platform, brand, existing
destination club properties and the acquisition of additional luxury properties
to our portfolio of destination club properties. There can be no assurance that
we will have sufficient resources to make the necessary investments to do so, or
that we will be able to compete successfully in this market or against such
competitors.
We
are subject to the operating risks common to the luxury vacation industry which
could adversely affect our business, financial condition and results of
operations.
Our
business is subject to numerous operating risks common to the luxury vacation
industry. Some of these risks include:
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impact
of war and terrorist activity (including threatened terrorist activity)
and heightened travel security measures instituted in response
thereto;
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travelers’
fears of exposure to contagious
diseases;
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decreases
in the demand for transient rooms and related lodging services, including
a reduction in personal and business travel as a result of general
economic conditions;
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cyclical
over-building in the vacation ownership
industry;
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restrictive
changes in zoning and similar land use laws and regulations or in health,
safety and environmental laws, rules and regulations and other
governmental and regulatory action;
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changes
in travel patterns;
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the
costs and administrative burdens associated with compliance with
applicable laws and regulations, including, among others, franchising,
timeshare, privacy, licensing, labor and employment, and regulations under
the Office of Foreign Assets Control and the Foreign Corrupt Practices
Act;
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the
availability and cost of capital to allow us to fund acquisitions of
additional destination club properties, renovations and
investments;
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disruptions
in relationships with third parties, including marketing alliances and
affiliations with luxury resort property
owners;
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foreign
exchange fluctuations; and
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the
financial condition of the airline industry and the impact on air
travel.
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The
matters described above could result in a decrease in the number, or lack of
growth, in our destination club members and could have a material adverse effect
on the luxury vacation industry, which in turn could have a material adverse
effect on our business, financial condition and results of
operations.
17
The
current slowdown in the travel industry and the global economy generally will
continue to impact our financial results and growth.
The
present economic slowdown and the uncertainty over its breadth, depth and
duration has had a negative impact on the luxury vacation industry. There is now
general consensus among economists that the economies of the United States,
Europe and much of the rest of the world have been in a recession since December
2007. The current downturn in the economy has reduced, and may in the future
reduce the demand for our destination club memberships and may increase club
member resignations and redemptions. Accordingly, our financial results have
been impacted by the economic slowdown and both our future financial results and
growth could be further harmed if the recession continues for a significant
period or becomes worse.
We
are subject to the risks that generally relate to real estate investments, which
may have a material adverse effect on our business, financial condition and
results of operations.
We are
subject to the risks that generally relate to investments in real property
because we own most of our destination club properties. The investment returns
available from equity investments in real estate depend in large part on the
amount of income earned and capital appreciation generated by the related
properties, and the expenses incurred. In addition, a variety of other factors
affect income from properties and real estate values, including governmental
regulations, insurance, zoning, tax and eminent domain laws, interest rate
levels and the availability of financing. When interest rates increase, the cost
of acquiring, developing, expanding or renovating real property increases and
real property values may decrease as the number of potential buyers decreases.
Similarly, as financing becomes less available, it becomes more difficult both
to acquire and to sell real property. In addition, our loan facility restricts
our ability to sell our assets, including our real estate holdings. Finally,
under eminent domain laws, governments can take real property. Sometimes this
taking is for less compensation than the owner believes the property is worth.
Any of these factors could have a material adverse impact on our results of
operations or financial condition. In addition, equity real estate investments
are difficult to sell quickly and we may not be able to adjust our portfolio of
owned properties quickly in response to economic or other conditions. If our
properties do not generate revenue sufficient to meet operating expenses,
including debt service and capital expenditures, our income and financial
condition will be adversely affected. The real estate investment industry is
susceptible to trends in the national and/or regional economies and there can be
no assurance that we can operate our destination club properties and then later
sell any or all of them at a profit.
The
need for ongoing property renovations could adversely affect our business,
financial condition and results of operations.
Our
properties require routine maintenance as well as periodic renovations and
capital improvements. Ongoing renovations at a particular property may
negatively impact the desirability of the property as a vacation destination. A
significant decrease in the supply of available vacation rental accommodations
and the need for vacation rental services during renovation periods, coupled
with the inability to attract vacationers to properties undergoing renovations,
could have a material adverse effect on our business, financial condition and
results of operations.
18
Environmental
liabilities, including claims with respect to mold or hazardous or toxic
substances, could have a negative impact on our reputation and cause us to incur
additional expense to remedy any such liability or claim.
Under
various federal, state, local and foreign environmental laws, ordinances and
regulations, a current or previous property owner of real property may be liable
for the costs of removal or remediation of hazardous or toxic substances,
including mold, on, under or in such property. These laws could impose liability
without regard to whether we knew of, or were responsible for, the presence of
hazardous or toxic substances. The presence of hazardous or toxic substances, or
the failure to properly clean up such substances when present, could jeopardize
our ability to develop, use, sell or rent the real property or to borrow using
the real property as collateral. If we arrange for the disposal or treatment of
hazardous or toxic wastes, we could be liable for the costs of removing or
cleaning up wastes at the disposal or treatment facility, even if we never owned
or operated that facility. Other laws, ordinances and regulations could require
us to manage, abate or remove lead or asbestos containing materials. Similarly,
the operation and closure of storage tanks are often regulated by federal,
state, local and foreign laws. Certain laws, ordinances and regulations,
particularly those governing the management or preservation of wetlands, coastal
zones and threatened or endangered species, could limit our ability to develop,
use, sell or rent our real property.
We cannot
provide any assurances that environmental issues will not exist with respect to
any destination club property we own or acquire. Even if environmental
inspections are made, environmental issues may later be determined to exist
because the inspections were not complete or accurate or environmental releases
migrate to the properties from adjacent property. In addition to liability for
environmental issues which can substantially adversely impact our business and
financial condition, the marketability of the destination club properties for
sale or refinancing can be adversely affected because of the concerns of a third
party who may buy or lend money on the properties over the possible
environmental liability and/or environmental clean-up costs. In addition, our
reputation may be damaged by any alleged claim or incurrence of environmental
liabilities, which could reduce demand for our destination club memberships and
have a material adverse effect on our business.
We
own properties that are located internationally and thus are subject to special
political and monetary risks not generally applicable to our domestic
properties.
We
operate properties located abroad which, as of December 31, 2009, included 44
properties in 12 international locations. We intend to expand our portfolio of
international destination club properties. Properties abroad generally are
subject to various political, geopolitical, and other risks that are not present
or are different in the United States. These risks include the risk of war,
terrorism, civil unrest, expropriation and nationalization and regulation, as
well as the impact in cases in which there are inconsistencies between U.S. law
and the laws of an international jurisdiction. In addition, sales in
international jurisdictions typically are made in local currencies, which
subject us to risks associated with currency fluctuations. Currency devaluations
and unfavorable changes in international monetary and tax policies could have a
material adverse effect on our profitability and financing plans, as could other
changes in the international regulatory climate and international economic
conditions, in the event that we increase our operation of properties
abroad.
We
have a limited operating history, which may make it difficult to predict our
future performance.
We have
been operating only since 2004 and therefore do not have an established
operating history. In addition, the acquisition of certain assets and
liabilities of Private Escapes was consummated on September 15, 2009, and as a
result we now have a much larger base of club members, club properties and
employees to manage and operate. Consequently, any predictions you make about
our future success or viability may not be as accurate as they could be if we
had a longer operating history.
We
may experience financial and operational risks in connection with acquisitions.
In addition, businesses acquired by us may incur significant losses from
operations or experience impairment of carrying value.
We
completed our acquisition of certain assets and liabilities of Private Escapes
on September 15, 2009, and intend to selectively pursue other acquisitions.
However, we may be unable to identify attractive acquisition candidates or
complete transactions on favorable terms. In addition, in the case of acquired
assets or businesses, we may need to:
19
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successfully
integrate the operations, as well as the accounting, financial and
disclosure controls, management information, technology, human resources
and other administrative systems, of acquired businesses with existing
operations and systems;
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•
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maintain
third party relationships previously established by acquired
companies;
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retain
senior management and other key personnel at acquired businesses;
and
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successfully
manage acquisition-related strain on our and/or the acquired businesses’
management, operations and financial
resources.
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We may
not be successful in addressing these challenges or any others encountered in
connection with historical and future acquisitions. In addition, the anticipated
benefits of one or more acquisitions may not be realized and future acquisitions
could result in potentially dilutive issuances of equity securities and/or the
assumption of contingent liabilities. Also, the value of goodwill and other
intangible assets acquired could be impacted by one or more unfavorable events
or trends, which could result in impairment charges. The occurrence of any of
these events could adversely affect our business, financial condition and
results of operations.
We
may not be able to achieve our growth objectives.
We may
not be able to achieve our objectives for maintaining our existing club members,
increasing our number of new club members through organic growth, acquisitions
and acquiring additional luxury properties to add to our portfolio of
destination club properties. Our ability to complete acquisitions of additional
properties depends on a variety of factors, including our ability to obtain
financing on acceptable terms and requisite lender and government approvals.
Even if we are able to complete acquisitions of additional luxury properties, we
may not be able to grow our club membership base or effectively integrate such
acquisitions.
Extensive
laws and government regulations could affect the way we conduct our business
plan.
Our
business exists in a regulatory environment that is changing and evolving and
where certain regulatory matters are currently uncertain. Such matters include,
but are not limited to, the question of whether our destination club memberships
constitute timeshare/vacation ownership plans or timeshare use plans, as well as
whether such club memberships being offered may constitute the offering of
unregistered securities under the US federal and/or state securities laws. We
believe that our club membership sales do not constitute timeshare/vacation
ownership plans or timeshare use plans, nor do they constitute offers of
securities under any federal or state laws or regulations. If, however, the club
membership sales were determined to constitute timeshare/vacation ownership
plans or timeshare use plans, or be deemed to be securities under any state or
federal law, we would be required to comply with applicable state timeshare
regulations or state and federal securities laws, including those laws
pertaining to registration or qualification of securities, licensing of
salespeople and other matters. If we cannot comply with the applicable timeshare
regulations or state and federal securities requirements, in that event, and/or
the determination may create liabilities or contingencies, including rescission
rights relating to the club memberships we previously sold, as well as fines and
penalties that could adversely affect our business, financial condition and
results of operations.
20
If
we are unable to obtain the necessary permits and approvals in connection with
our acquisition of destination club properties, it may have a material adverse
effect on our business.
We intend
to continue to acquire additional destination club properties for our portfolio.
To successfully acquire and operate the properties as intended, we and/or our
subsidiaries must apply for and receive any necessary federal, state and/or
local and foreign permits and licenses as may be applicable to the properties.
We expect to receive such necessary permits and approvals; however, there can be
no assurance that such permits and approvals will be obtained. Failure to
receive the necessary permits and approvals could prohibit or substantially and
adversely impact our operations.
Increased
insurance risk, perceived risk of travel and adverse changes in economic
conditions as a result of recent events could significantly reduce our cash
flow, revenues and earnings.
We
believe that insurance and surety companies are re-examining many aspects of
their business, and may take actions including increasing premiums, requiring
higher self-insured retentions and deductibles, requiring additional collateral
on surety bonds, reducing limits, restricting coverages, imposing exclusions,
such as mold damage, sabotage and terrorism, and refusing to underwrite certain
risks and classes of business. Any increased premiums, mandated exclusions,
change in limits, coverages, terms and conditions or reductions in the amounts
of bonding capacity available may adversely affect our ability to obtain
appropriate insurance coverages at reasonable costs, which could significantly
reduce our business cash flow, revenues and earnings.
The
illiquidity of real estate investments could significantly limit our ability to
respond to adverse changes in the performance of our properties and
significantly reduce our cash flow, revenues and earnings.
Because
real estate investments are relatively illiquid, our ability to promptly sell
one or more of our properties in response to changing economic, financial and
investment conditions is limited. We cannot predict whether we will be able to
sell any property for the price or on the terms set by us, or whether any price
or other terms offered by a prospective purchaser would be acceptable to us. We
also cannot predict the length of time needed to find a willing purchaser and to
close the sale of a property.
We may be
required to expend funds to correct defects or to make improvements before a
property can be sold. We may not have funds available to correct those defects
or to make those improvements and as a result our ability to sell the property
would be limited. In acquiring a property, we may agree to lock-out provisions
that materially restrict us from selling that property for a period of time or
impose other restrictions on us. These factors and any others that would impede
our ability to respond to adverse changes in the performance of our properties
could significantly reduce our cash flow, revenues and earnings.
We
are subject to litigation in the ordinary course of business which could be
costly and time consuming.
We are,
from time to time, subject to various legal proceedings and claims, either
asserted or unasserted. Any such claims, whether with or without merit, could be
time-consuming and expensive to defend and could divert management’s attention
and resources. Although our management believes that we have adequate insurance
coverage and accrues loss contingencies for all known matters that are probable
and can be reasonably estimated, we cannot assure that the outcome of all
current or future litigation will not be costly and time consuming and otherwise
divert management’s attention away from operating the business.
21
Fluctuations
in real estate values may require us to write down the book value of real estate
assets.
Under
United States generally accepted accounting principles, we are required to
assess the impairment of our long-lived assets whenever events or changes in
circumstances indicate that the carrying value may not be recoverable. Factors
management considers that could trigger an impairment review include significant
underperformance relative to minimum future operating results, significant
change in the manner of use of the assets, significant technological or industry
changes, or changes in the strategy for our overall business. When we determine
that the carrying value of certain long-lived assets is impaired, an impairment
loss equal to the excess of the carrying value of the asset, or asset group,
over its estimated fair value is recognized. These impairment charges would be
recorded as operating losses. Any material write-downs of assets could have a
material adverse effect on our financial condition and earnings.
We
will incur increased costs as a result of being a public company.
As a
public company, we incur significant legal, accounting and other expenses that
we did not incur as a private company. The U.S. Sarbanes-Oxley Act of 2002 and
related rules of the SEC and stock exchanges regulate corporate governance
practices of public companies. We expect that compliance with these public
company requirements will increase costs and make some activities more
time-consuming. For example, we have created new board committees and adopted
new internal controls and disclosure controls and procedures. In addition, we
incur additional expenses associated with our SEC reporting requirements. A
number of those requirements require us to carry out activities we have not done
previously. For example, under Section 404 of the Sarbanes-Oxley Act, our
management will need to assess and report on our internal control over financial
reporting and our independent accountants may need to issue an opinion on that
assessment and the effectiveness of those controls. Furthermore, if we identify
any issues in complying with those requirements (for example, if we or our
independent accountants identified a material weakness or significant deficiency
in our internal control over financial reporting), we could incur additional
costs rectifying those issues, and the existence of those issues could adversely
affect us, our reputation or investor perceptions of us.
We also
expect that it will be difficult and expensive to obtain and maintain director
and officer liability insurance, and we may be required to accept reduced policy
limits and coverage or incur substantially higher costs to obtain the same or
similar coverage. As a result, it may be more difficult for us to attract and
retain qualified persons to serve on our board of directors or as executive
officers. Advocacy efforts by stockholders and third parties may also prompt
even more changes in governance and reporting requirements. We cannot predict or
estimate the amount of additional costs we may incur or the timing of such
costs.
We
depend on key personnel for the future success of our business and the loss of
one or more of our key personnel could have an adverse effect on our ability to
manage our business and implement our growth strategies, or could be negatively
perceived in the capital markets.
Our
future success and ability to manage future growth depends, in large part, upon
the efforts and continued service of our senior management team, which has
substantial experience in the resort and hospitality industry. Our President and
Chief Executive Officer, James Tousignant, our Chairman, Richard Keith, and our
Chief Financial Officer, Philip Callaghan, have been actively involved in the
acquisition, ownership and operation of resort properties and are actively
engaged in our management. Messrs. Tousignant, Keith and Callaghan substantially
determine our strategic direction, especially with regard to operational,
financing, acquisition and disposition activity. The departure of any of them
could negatively impact our ability to grow and manage our
operations.
Although
we are party to employment agreements with some of our key personnel, these
employment agreements do not require them to remain our employees and,
therefore, they could terminate their employment with us at any time without
penalty. We do not currently maintain key man life insurance on any of our
executives, and such insurance, if obtained in the future, may not be sufficient
to cover the costs of recruiting and hiring a replacement or the loss of an
executive’s services.
It could
be difficult for us to find replacements for such key personnel, as competition
for such personnel is intense. The loss of services of one or more members of
senior management could have an adverse effect on our ability to manage our
business and implement our growth strategies. Further, such a loss could be
negatively perceived in the capital markets, which could reduce the market value
of our securities.
22
Damage
to our destination club properties and other operational risks may disrupt our
business and adversely impact our financial results.
Depending
on the location of our destination club properties, a particular property may
bear an increased risk for damage by inclement weather, construction defects,
environmental matters, acts of terrorism, or other forces or acts, whether
intentional or unintentional. In addition, we rely heavily on our information
systems and other data processing systems. Any such damage to properties or
disruption in information systems could cause us to suffer financial loss, a
disruption of our businesses, regulatory intervention or reputational
damage.
Furthermore,
we depend on our headquarters in Kissimmee, Florida, where most of our
information systems and personnel are located, for the continued operation of
our business. A natural disaster or other catastrophic event or disruption in
the infrastructure that supports our businesses, including a disruption
involving electronic communications or other services used by us or third
parties with whom we conduct business, or directly affecting our headquarters,
could have a material adverse impact on our ability to continue to operate our
business without interruption. The impact of any disaster or disruption on our
business will likely be exacerbated by the fact that we do not have any disaster
recovery program in place to mitigate the harm or minimize the lost data that
may result from such a disaster or disruption. In addition, insurance and other
safeguards might only partially reimburse us for our losses, if at
all.
We
are vulnerable to the risk of unfavorable weather conditions and continued
inclement weather could reduce our revenues and earnings.
Our
ability to attract visitors to our resorts is influenced by weather conditions.
Unfavorable weather conditions can adversely affect visits and our revenues and
profits. Adverse weather conditions may discourage visitors from participating
in outdoor activities at our resorts. There is no way for us to predict future
weather patterns or the impact that weather patterns may have on results of
operations or visitation. Extreme weather conditions such as hurricanes or
prolonged periods of adverse weather conditions, or the occurrence of such
conditions during peak visitation periods, could have a material adverse effect
on our financial condition and results of operations by reducing revenues and
earnings.
Our
property development and management operations are conducted in many areas that
are subject to natural disasters and severe weather, such as hurricanes and
floods. We also may be affected by unforeseen engineering, environmental, or
geological problems. These conditions could delay or increase the cost of
construction projects, damage or reduce the availability of materials, and
negatively impact the demand for resorts in affected areas. If insurance
does not fully cover business interruptions or losses resulting from these
events, our earnings, liquidity and capital resources could be adversely
affected.
23
Our
success depends, in part, on the integrity of our systems and infrastructure.
System interruptions may have an adverse impact on our business, financial
condition and results of operations.
Our
success depends, in part, on our ability to maintain the integrity of our
systems and infrastructure, including websites, information and related systems
and call centers. System interruptions may adversely affect our ability to
operate websites, process and fulfill club member reservations and other
transactions, respond to customer inquiries and generally maintain
cost-efficient operations. We may experience occasional system interruptions
that make some or all systems or data unavailable or prevent us from efficiently
providing services. We also rely on third-party computer systems, broadband and
other communications systems and service providers in connection with the
provision of services generally, as well as to facilitate, process and fulfill
transactions. Any interruptions, outages or delays in these systems, or
deterioration in the performance of these systems and infrastructure, could
impair our ability to provide services. Fire, flood, power loss,
telecommunications failure, hurricanes, tornadoes, earthquakes, acts of war or
terrorism, acts of God and similar events or disruptions may damage or interrupt
computer, broadband or other communications systems and infrastructure at any
time. Any of these events could cause system interruption, delays and loss of
critical data, and could prevent us from providing services. Although we have
backup systems for certain aspects of our operations, these systems are not
fully redundant and disaster recovery planning is not sufficient for all
eventualities. In addition, we may not have adequate insurance coverage to
compensate for losses from a major interruption. If any of these adverse events
were to occur, it could adversely affect our business, financial condition and
results of operations.
In
addition, any penetration of network security or other misappropriation or
misuse of personal consumer information could cause interruptions in our
operations and subject us to increased costs, litigation and other liabilities.
Claims could also be made against us for other misuse of personal information,
such as for unauthorized purposes or identity theft, which could result in
litigation and financial liabilities, as well as administrative action from
governmental authorities. Security breaches could also significantly damage our
reputation with consumers and third parties with whom we do business. It is
possible that advances in computer capabilities, new discoveries, undetected
fraud, inadvertent violations of company policies or procedures or other
developments could result in a compromise of information or a breach of the
technology and security processes that are used to protect consumer transaction
data. As a result, current security measures may not prevent any or all security
breaches. We may be required to expend significant capital and other resources
to protect against and remedy any potential or existing security breaches and
their consequences. Consumers are generally concerned with security and privacy
of the Internet, and any publicized security problems affecting us may
discourage consumers from doing business with us, which could have an adverse
effect on our business, financial condition and results of
operations.
Our
success depends on the value of our name, image and brand, and if demand for our
destination club properties and their features decreases or the value of our
name, image or brand diminishes, our business, revenues and results of
operations would be reduced.
Our
success depends, to a large extent, on our ability to shape and stimulate
consumer tastes and demands by producing and maintaining luxurious, attractive,
and exciting properties and services, as well as our ability to remain
competitive in the areas of design and quality. There can be no assurance that
we will be successful in this regard or that we will be able to anticipate and
react to changing consumer tastes and demands in a timely manner.
Furthermore,
a high media profile is an integral part of our ability to shape and stimulate
demand for our destination club memberships with our target customers. A key
aspect of our marketing strategy is to focus on attracting media coverage. If we
fail to attract that media coverage, we may need to substantially increase our
advertising and marketing costs, which would decrease our earnings. In addition,
other types of marketing tools, such as traditional advertising and marketing,
may not be successful in attracting target customers.
Our
business would be adversely affected if our public image or reputation were to
be diminished. Our brand names and trademarks are integral to our marketing
efforts. If the value of our name, image or brands were diminished, our
business, revenues and results of operations would be reduced.
24
Any
failure to protect our trademarks could have a negative impact on the value of
our brand names and reduce our business and reduce revenues.
We
believe our trademarks are critical to our success. We rely on trademark laws to
protect our proprietary rights. The success of our business depends in part upon
our continued ability to use our trademarks to increase brand awareness and
further develop our brand. Monitoring the unauthorized use of our intellectual
property is difficult. Litigation may be necessary to enforce our intellectual
property rights or to determine the validity and scope of the proprietary rights
of others. Litigation of this type could result in substantial costs and
diversion of resources, may result in counterclaims or other claims against us
and could significantly harm our results of operations. In addition, the laws of
some foreign countries do not protect our proprietary rights to the same extent
as do the laws of the United States. From time to time, we apply to have certain
trademarks registered. There is no guarantee that such trademark registrations
will be granted. We cannot assure that all of the steps we have taken to protect
our trademarks will be adequate to prevent imitation of our trademarks by
others. The unauthorized reproduction of our trademarks could diminish the value
of our brand and our market acceptance, competitive advantages or goodwill,
which could reduce our business and reduce revenues.
Changes
in weather patterns as a result of global warming could have an adverse effect
on our business.
Scientific
reports indicate that, as a result of human activity:
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temperatures
around the world have been increasing and are likely to continue to
increase as a result of increasing atmospheric concentrations of carbon
dioxide and other carbon compounds;
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the
frequency and severity of storms, and flooding, are likely to
increase;
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severe
weather is likely to occur in places where the climate has historically
been more mild; and
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average
sea levels have risen and are likely to rise more, threatening worldwide
coastal development.
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We cannot
predict the effects that these phenomena may have on our business. We could be
impacted to the extent that global warming trends affect established weather
patterns or exacerbate extreme weather or weather fluctuations, hindering or
preventing travel by our club members in certain circumstances. They might also
affect the desirability of some of our properties, such as ones located on
beaches or in skiing areas, increase the cost and reduce the availability of
insurance covering damage from natural disasters for some of our properties and
lead to new laws and regulations that increase our expenses and reduce our
revenues. Any of these consequences, and other consequences of global warming
that we do not foresee, could materially and adversely affect our sales, profits
and financial condition.
Risks
Related to Our Common Stock
It
may be difficult for you to resell shares of our common stock if an active
market for our common stock does not develop.
As a
result of the delisting of our securities from the NYSE Amex in February 2010,
our common stock is not actively traded on a securities exchange and we
currently do not meet the initial listing criteria for any registered securities
exchange. Our securities are currently quoted on the Over-the-Counter Bulletin
Board. This factor may impair our stockholders' ability to sell their shares
when they want and/or could depress our stock price. As a result, stockholders
may find it difficult to dispose of, or to obtain accurate quotations of the
price of, our securities because smaller quantities of shares could be bought
and sold, transactions could be delayed and security analyst and news coverage
of our company may be limited. These factors could result in lower prices and
larger spreads in the bid and ask prices for our shares.
25
The
concentration of our capital stock ownership with insiders will likely limit
your ability to influence corporate matters.
As of
March 31, 2010, our executive officers, directors and affiliated entities
together beneficially owned over 70% of our outstanding common stock (after
giving effect to the exchange of all ownership units of Ultimate Escapes
Holdings held by them into shares of our common stock, excluding any earn-out
units that may be issued).. In addition, James M. Tousignant, our
President and Chief Executive Officer and a member of our board of directors,
holds, as representative on behalf of the other owners of Ultimate Escapes
Holdings, 7,556,675 shares of our Series A Preferred Voting Stock, which vote as
a single class with shares of our common stock on all matters. As a result, Mr.
Tousignant has control over most matters that require approval by our
stockholders, including the election of directors and approval of significant
corporate transactions. Corporate action might be taken even if other
stockholders oppose them. This concentration of ownership might also have the
effect of delaying or preventing a change in control of our company that other
stockholders may view as beneficial.
We
may issue additional shares of our common stock, which would increase the number
of shares eligible for future resale in the public market and result in dilution
to our stockholders. This might have an adverse effect on the market price of
our common stock.
Outstanding
warrants to purchase an aggregate of 12,075,000 shares of common stock are
currently exercisable. These warrants would only be exercised if the $8.80 per
share exercise price is below the market price of our common stock. To the
extent they are exercised, additional shares of our common stock will be issued,
which will result in dilution to our stockholders and increase the number of
shares eligible for resale in the public market.
In
addition, if we achieve certain Adjusted EBITDA targets in each of 2010, 2011
and/or 2012, we will be required to issue up to 7,000,000 additional shares of
common stock to certain of Ultimate Escapes Holdings’ owners upon conversion of
additional ownership units issued if such targets are met. See “Certain
Relationships and Related Transactions and Director
Independence — Operating Agreement of Ultimate Escapes Holdings” for
additional information. Any such issuances would dilute the percentage ownership
by our current stockholders and reduce their influence on our management. These
issuances may also result in a decrease in the trading price of our common
stock.
Future
sales of our common stock may cause the market price of our securities to drop
significantly, even if our business is doing well.
In
accordance with lock-up obligations contained in the Operating Agreement of
Ultimate Escapes Holdings, the UE Owners will be able to sell their shares
of our common stock they are entitled to receive upon conversion of their
ownership units in connection with the reverse merger beginning on the first
anniversary of the consummation of the reverse merger. Pursuant to the
registration rights agreement entered into in connection with the consummation
of the reverse merger, the UE Owners have registration rights, subject to
certain limitations, with respect to shares of our common stock for which their
ownership units of Ultimate Escapes Holdings may be exchanged. We have agreed to
file, as soon as possible after the closing date of the reverse merger but in no
event later than June 29, 2010, a registration statement covering the shares of
our common stock for which their ownership units of Ultimate Escapes Holdings
may be exchanged. The UE Owners also have certain “piggyback” registration
rights applicable to some registration statements filed by us following the
consummation of the reverse merger. In addition, pursuant to a registration
rights agreement between us and our initial stockholders, our initial
stockholders or their permitted transferees will be entitled to rights to demand
two times that we register the resale of the founder shares and the sponsor
warrants (and shares underlying the sponsor warrants) at any time, in addition
to certain “piggyback” registration rights applicable to registration statements
filed by us, generally commencing one year after the consummation of the reverse
merger as to the founder shares and two months after the consummation of the
reverse merger as to the sponsor warrants (and shares underlying the sponsor
warrants). The presence of these additional securities trading in the public
market may have an adverse effect on the market price of our securities. The
sale by any of the foregoing, or entities they control or their permitted
transferees, could cause the market price of our securities to
decline.
26
Our
ability to request indemnification from the UE Owners for damages arising out of
the reverse merger is limited to those claims where damages exceed $600,000 and
is also limited to the shares of common stock issued in the reverse merger that
are held in escrow or may be set-off against earn-out payments.
To
provide a fund to secure the indemnification obligations of Ultimate Escapes
Holdings to us against losses that we may sustain as a result of (i) the
inaccuracy or breach of any representation or warranty made by Ultimate Escapes
Holdings or any UE Owner in the Contribution Agreement or any schedule or
certificate delivered by it or the UE Owners in connection with the Contribution
Agreement and (ii) the non-fulfillment or breach of any covenant or agreement
made by Ultimate Escapes Holdings in the Contribution Agreement, the UE Owners
placed in escrow an aggregate of 717,884 ownership units of Ultimate Escapes
Holdings, or 10% of the aggregate number of ownership units owned by the UE
Owners immediately prior to the reverse merger. With respect to claims based
upon certain representations and warrants deemed “Fundamental Representations”
by the parties or fraud or intentional misconduct, those claims are not limited
to the escrowed units but are subject to a cap of 25% of the aggregate number of
ownership units owned by the UE Owners immediately prior to the reverse merger,
which amount in excess of the escrowed units may be satisfied by us setting off
such claims against payments due to the UE Owners for any future earn-out
payments. Claims for indemnification may be asserted against the escrow by us
once our damages exceed a $600,000 deductible and will be reimbursable, by
cancellation of such units or set-off against future earn-out payments, as
applicable, to the full extent of the damages in excess of such amount. Claims
for indemnification may be asserted until the later of fifteen days after the
date on which we file our Annual Report on Form 10-K for the year ending
December 31, 2010 or April 15, 2011, with respect to certain claims; up to the
applicable statute of limitations with respect to claims based upon the breach
of certain designated representations and warranties; and up to the sixth
anniversary of the closing date of the Contribution Agreement with respect to
claims based upon the breach of “Fundamental Representations” by the parties or
fraud or intentional or willful misrepresentation or omission. As a consequence
of these limitations, we may not be able to be entirely compensated for
indemnifiable damages that we may sustain.
Public
stockholders at the time of the reverse merger who purchased units in our
initial public offering and did not exercise their conversion rights may have
rescission rights and related claims.
There
were several aspects of the reverse merger and the other matters which were not
described in the prospectus issued by us in connection with our initial public
offering. These include: that we may consummate a business combination outside
of the homeland security industry; that we may seek to amend the definition of
“business combination” in our certificate of incorporation; that we may seek to
amend our amended and restated certificate of incorporation to provide
conversion rights to holders of public shares, regardless of whether such holder
votes for or against the business combination; that the funds in the trust
account might be used to purchase shares from our stockholders who have
indicated their intention to vote against the reverse merger and convert their
shares into cash; and that we may seek to amend the terms of the warrant
agreement between us, our warrant agent and warrant holders (the “Warrant
Agreement”), to revise the exercise price and the expiration date. Consequently,
our consummation of a business combination with Ultimate Escapes Holdings (which
does not operate in the homeland security industry), our filing of certain
charter amendments in connection with the reverse merger, our use of funds in
the trust account to purchase shares of stockholders who had indicated their
intention to vote against the reverse merger or our amendment of the Warrant
Agreement might be grounds for a stockholder who purchased shares in the initial
public offering, excluding our founders, and still held them at the time of the
reverse merger without seeking to convert them into cash, to seek rescission of
the purchase of the units he acquired in the initial public offering. A
successful claimant for damages under federal or state law could be awarded an
amount to compensate for the decrease in value of his or her shares caused by
the alleged violation (including, possibly, punitive damages), together with
interest, while retaining the shares. If we are required to pay damages, our
results of operations could be adversely affected.
27
If
the reverse merger’s benefits do not meet the expectations of financial or
industry analysts, the market price of our securities may decline.
The
market price of our securities may decline if:
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we
do not achieve the perceived benefits of the reverse merger as rapidly, or
to the extent anticipated by, financial or industry analysts;
or
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•
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the
effect of the reverse merger on our financial results is not
consistent with the expectations of financial or industry
analysts.
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Accordingly,
investors may experience a loss as a result of a decline in the market price of
our securities. A decline in the market price of our securities also could
adversely affect our ability to issue additional securities and our ability to
obtain additional financing in the future.
Volatility
of our stock price could adversely affect stockholders.
The
market price of our common stock could also fluctuate significantly as a result
of:
•
|
quarterly
variations in our operating
results;
|
•
|
interest
rate changes;
|
•
|
changes
in the market’s expectations about our operating
results;
|
•
|
our
operating results failing to meet the expectation of securities analysts
or investors in a particular
period;
|
•
|
changes
in financial estimates and recommendations by securities analysts
concerning our company or our industry in
general;
|
•
|
operating
and stock price performance of other companies that investors deem
comparable to us;
|
•
|
news
reports relating to trends in our
markets;
|
•
|
changes
in laws and regulations affecting our
business;
|
•
|
material
announcements by us or our
competitors;
|
•
|
sales
of substantial amounts of common stock by our directors, executive
officers or significant stockholders or the perception that such sales
could occur;
|
•
|
general
economic and political conditions such as recessions and acts of war or
terrorism; and
|
•
|
other
matters discussed in the risk
factors.
|
Fluctuations
in the price of our common stock could contribute to the loss of all or part of
an investor’s investment in our company.
We
currently do not intend to pay dividends on our common stock and consequently
your only opportunity to achieve a return on your investment is if the price of
our common stock appreciates.
We
currently do not plan to declare dividends on our common stock in the
foreseeable future. Any payment of cash dividends will depend upon our financial
condition, capital requirements, earnings and other factors deemed relevant by
our board of directors. The terms of our current indebtedness contain, and
agreements governing future indebtedness will likely contain, restrictions on
our ability to pay cash dividends. Consequently, your only opportunity to
achieve a return on your investment in the common stock of our company will be
if the market price of our common stock appreciates and you sell your common
stock at a profit.
28
ITEM
2.
|
PROPERTIES
|
We
believe that our existing facilities are suitable and adequate for our business
and have sufficient capacity for their intended purpose.
Office
Facilities
Our
office facilities are leased, as follows:
Location
|
Purpose
|
Square Feet
|
Monthly Rent
|
Lease Expires
|
|||||||
Kissimmee,
FL
|
Executive
offices
|
5,500 | $ | 11,650 |
October
31, 2010
|
||||||
Fort
Collins, CO
|
Operations
center
|
4,500 | $ | 10,400 |
August
31, 2010
|
||||||
Kansas
City, MO
|
Operations
center
|
8,800 | $ | 9,400 |
December
31,
2010
|
Our
executive offices are leased from La Mirada Plaza, LLC, an affiliate of James M.
Tousignant, our President and Chief Executive Officer and a member of our board
of directors.
Club
Properties
The
majority of our club properties are owned by us, and certain club properties are
leased on either a long or short term basis. All of the properties owned by us
are subject to one or more mortgages. We intend to sell certain club properties
and those properties are classified as Held For Sale in our consolidated balance
sheet. Of the 37 properties leased by us as of December 31, 2009, 27 were
subject to long-term leases and ten were subject to short-term leases (including
two short-term leases in which PE Holdings, an affiliate of ours, is the
lessor).
The
following table summarizes the number of club properties by location as of
December 31, 2009.
UE Club
|
Destination
|
Owned
|
Leased
|
Total
Properties
|
Held For
Sale
|
|||||||||||||||
US
|
Elite
|
Beaver
Creek
|
1 | 1 | 2 | - | ||||||||||||||
Deer
Valley
|
2 | 1 | 3 | - | ||||||||||||||||
Delray
Beach
|
1 | - | 1 | - | ||||||||||||||||
Indian
Rocks
|
1 | - | 1 | - | ||||||||||||||||
Jackson
Hole
|
- | 1 | 1 | - | ||||||||||||||||
Key
West
|
1 | - | 1 | - | ||||||||||||||||
Kiawah
|
1 | 1 | 2 | - | ||||||||||||||||
La
Quinta
|
- | 1 | 1 | - | ||||||||||||||||
Lake
Las Vegas
|
1 | - | 1 | - | ||||||||||||||||
Lake
Tahoe
|
- | 1 | 1 | - | ||||||||||||||||
Maui
|
1 | 1 | 2 | - | ||||||||||||||||
Naples
|
- | 1 | 1 | - | ||||||||||||||||
New
York City
|
4 | 1 | 5 | - | ||||||||||||||||
Scottsdale
|
2 | - | 2 | - | ||||||||||||||||
Steamboat
Springs
|
- | 1 | 1 | - |
29
Stowe
|
- | 1 | 1 | - | ||||||||||||||||
Sun
Valley
|
2 | - | 2 | - | ||||||||||||||||
Telluride
|
1 | 4 | 5 | - | ||||||||||||||||
Watercolor
|
- | 1 | 1 | - | ||||||||||||||||
Total
Elite
|
18 | 16 | 34 | 0 | ||||||||||||||||
Signature
|
Bend,
Oregon
|
- | 1 | 1 | - | |||||||||||||||
Big
Island
|
- | 1 | 1 | - | ||||||||||||||||
Boca
Raton
|
- | 1 | 1 | - | ||||||||||||||||
Breckenridge
|
1 | - | 1 | - | ||||||||||||||||
Candlewood
|
1 | - | 1 | 1 | ||||||||||||||||
Carlsbad
|
1 | - | 1 | 1 | ||||||||||||||||
Chicago
|
1 | - | 1 | 1 | ||||||||||||||||
Copper
Mountain
|
1 | - | 1 | - | ||||||||||||||||
Deer
Valley
|
- | 1 | 1 | - | ||||||||||||||||
Jackson
Hole
|
2 | - | 2 | - | ||||||||||||||||
Kiawah
|
1 | 2 | 3 | - | ||||||||||||||||
La
Quinta
|
1 | 1 | 2 | - | ||||||||||||||||
Lake
George
|
1 | - | 1 | - | ||||||||||||||||
Lake
Tahoe
|
1 | - | 1 | - | ||||||||||||||||
Maui
|
- | 2 | 2 | - | ||||||||||||||||
Miami
Beach
|
1 | - | 1 | - | ||||||||||||||||
Naples
|
1 | - | 1 | - | ||||||||||||||||
New
York City
|
4 | - | 4 | - | ||||||||||||||||
Orlando
|
- | 1 | 1 | - | ||||||||||||||||
Outerbanks
|
1 | - | 1 | - | ||||||||||||||||
Reynolds
Plantation
|
1 | - | 1 | - | ||||||||||||||||
Scottsdale
|
2 | 1 | 3 | 1 | ||||||||||||||||
Steamboat
Springs
|
1 | 1 | 2 | - | ||||||||||||||||
Telluride
|
2 | 1 | 3 | - | ||||||||||||||||
Watercolor
|
1 | - | 1 | - | ||||||||||||||||
25 | 13 | 38 | 4 | |||||||||||||||||
Premiere
|
Beaver
Creek
|
1 | - | 1 | - | |||||||||||||||
Big
Island
|
2 | - | 2 | - | ||||||||||||||||
Carlsbad
|
1 | - | 1 | 1 | ||||||||||||||||
Chicago
|
1 | - | 1 | - | ||||||||||||||||
Fox
Acres
|
1 | - | 1 | - | ||||||||||||||||
Jackson
Hole
|
1 | - | 1 | - | ||||||||||||||||
Kiawah
|
1 | - | 1 | - | ||||||||||||||||
La
Quinta
|
2 | - | 2 | - | ||||||||||||||||
Lake
Las Vegas
|
1 | - | 1 | - | ||||||||||||||||
Lake
Tahoe
|
3 | - | 3 | 1 | ||||||||||||||||
Miami
|
1 | - | 1 | - | ||||||||||||||||
Naples
|
1 | - | 1 | - |
30
New
York City
|
3 | - | 3 | - | ||||||||||||||||
Outerbanks
|
1 | - | 1 | - | ||||||||||||||||
Reynolds
Plantation
|
1 | - | 1 | - | ||||||||||||||||
Steamboat
Springs
|
1 | - | 1 | 1 | ||||||||||||||||
Stowe
|
1 | - | 1 | - | ||||||||||||||||
Watercolor
|
1 | - | 1 | - | ||||||||||||||||
Total
Premiere
|
24 | 0 | 24 | 3 | ||||||||||||||||
US
Total
|
67 | 29 | 96 | 7 | ||||||||||||||||
Foreign
|
Elite
|
Bahamas
|
2 | - | 2 | - | ||||||||||||||
Italy
|
- | 1 | 1 | - | ||||||||||||||||
London
|
- | 1 | 1 | - | ||||||||||||||||
Los
Cabos, Mexico
|
5 | 2 | 7 | - | ||||||||||||||||
Nevis
|
5 | - | 5 | - | ||||||||||||||||
Paris
|
- | 1 | 1 | - | ||||||||||||||||
St.
Thomas
|
1 | - | 1 | - | ||||||||||||||||
Total
Elite
|
13 | 5 | 18 | 0 | ||||||||||||||||
Signature
|
Bahamas
|
3 | - | 3 | 1 | |||||||||||||||
Costa
Rica
|
- | 1 | 1 | - | ||||||||||||||||
Dominican
Republic
|
1 | - | 1 | - | ||||||||||||||||
Italy
|
1 | - | 1 | - | ||||||||||||||||
La
Buscador (BVI)
|
1 | - | 1 | - | ||||||||||||||||
London
|
- | 1 | 1 | - | ||||||||||||||||
Los
Cabos, Mexico
|
7 | - | 7 | - | ||||||||||||||||
Nevis
|
2 | - | 2 | - | ||||||||||||||||
Turks
& Caicos
|
1 | - | 1 | - | ||||||||||||||||
Total
Signature
|
16 | 2 | 18 | 1 | ||||||||||||||||
Premiere
|
Belize
|
1 | - | 1 | - | |||||||||||||||
Costa
Rica
|
- | 1 | 1 | - | ||||||||||||||||
Dominican
Republic
|
1 | - | 1 | - | ||||||||||||||||
Italy
|
2 | - | 2 | - | ||||||||||||||||
Los
Cabos, Mexico
|
2 | - | 2 | - | ||||||||||||||||
Punta
Mita, Mexico
|
1 | - | 1 | - | ||||||||||||||||
Turks
& Caicos
|
1 | - | 1 | - | ||||||||||||||||
Total
Premiere
|
8 | 1 | 9 | 0 | ||||||||||||||||
Foreign
Total
|
37 | 8 | 45 | 1 | ||||||||||||||||
Grand
Total
|
104 | 37 | 141 | 8 |
31
ITEM 3.
|
LEGAL
PROCEEDINGS
|
We are
not currently subject to any material legal proceedings. From time to time,
however, we may become involved in litigation and other legal proceedings
relating to claims arising from our operations in the normal course of business,
including claims involving club membership disputes.
ITEM 4.
|
(REMOVED
AND RESERVED).
|
32
PART
II
ITEM 5.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY
SECURITIES
|
Price
Range of Our Securities
Our
common stock and warrants are each listed on the OTC Bulletin Board under the
ticker symbols ULEI and ULEIW, respectively.
Prior to
February 19, 2010, our common stock and warrants were listed on the NYSE Amex
under the symbols UEI and UEI.WS, respectively. Our units were listed on the
NYSE Amex under the symbol UEI.U until October 30, 2009. Our units commenced
public trading on October 23, 2007 and our common stock and warrants commenced
public trading on January 18, 2008.
The table
below sets forth, for the calendar quarters indicated, the high and low closing
sales prices of our units, common stock and warrants as reported on the NYSE
Amex or the OTC Bulletin Board, as appropriate.
Quarter Ended
|
Units
|
Common
|
Warrants
|
|||||||||||||||||
|
High
|
Low
|
High
|
Low
|
High
|
Low
|
||||||||||||||
March
31, 2008
|
7.95
|
7.41
|
7.30
|
6.67
|
0.68
|
0.28
|
||||||||||||||
June
30, 2008
|
7.72
|
7.40
|
7.49
|
7.18
|
0.32
|
0.25
|
||||||||||||||
September
30, 2008
|
7.70
|
7.46
|
7.60
|
7.35
|
0.26
|
0.10
|
||||||||||||||
December
31, 2008
|
7.28
|
7.00
|
7.32
|
6.99
|
0.13
|
0.02
|
||||||||||||||
March
31, 2009
|
7.65
|
6.58
|
7.85
|
7.35
|
0.15
|
0.02
|
||||||||||||||
June
30, 2009
|
7.80
|
7.45
|
7.90
|
7.32
|
0.06
|
0.01
|
||||||||||||||
September
30, 2009
|
7.93
|
7.80
|
7.91
|
7.75
|
0.15
|
0.04
|
||||||||||||||
December
31, 2009
|
8.52
|
7.93
|
8.25
|
3.70
|
0.40
|
0.06
|
As of
March 31, 2010, our common stock and warrants closed at $2.02 and $0.02,
respectively and there were 99 holders of record of our common stock and 2
holders of record of our warrants.
Dividend
Policy
We have
not paid any dividends on our common stock to date and do not anticipate paying
any dividends in the foreseeable future. We intend to retain future earnings, if
any, in the operation and expansion of our business. Any future determination to
pay cash dividends will be made at the discretion of our board of directors and
will depend on our financial condition, results of operations, capital
requirements and other factors that our board of directors deems relevant. In
addition, the terms of our current indebtedness precludes us, and the terms of
any future indebtedness that we may incur could preclude us, from paying
dividends.
33
Recent
Sales of Unregistered Securities
On
October 29, 2009, we consummated the reverse merger. Pursuant to the terms of
the Contribution Agreement, we received 1,232,601 ownership units of Ultimate
Escapes Holdings, in consideration for $9.8 million. The UE Owners retained the
remaining 7,556,675 ownership units of Ultimate Escapes Holdings, which, under
the terms of the Operating Agreement, may be converted by the UE Owners on a
one-to-one basis into shares of our common stock. Of such retained units,
717,884 units were deposited into escrow at the closing of the reverse merger to
secure the indemnification obligations of the UE Owners to us in connection with
the reverse merger. Additionally, the UE Owners are eligible to receive up to an
aggregate of 7,000,000 additional ownership units of Ultimate Escapes Holdings,
convertible on a one-to-one basis into shares of our common stock, upon the
achievement by Ultimate Escapes Holdings of certain Adjusted EBITDA milestones,
as set forth in the Operating Agreement. For each ownership unit of Ultimate
Escapes Holdings issued to the UE Owners, the Owner Representative also received
one share of our Series A Voting Preferred Stock. At any time that any UE Owner
exchanges ownership units of Ultimate Escapes Holdings for shares of our common
stock, a like number of shares of Series A Voting Preferred Stock will be
canceled. Upon consummation of the reverse merger, Ultimate Escapes Holdings
became our subsidiary, and the business and assets of Ultimate Escapes Holdings
and its subsidiaries are our only operations.
Also on
October 29, 2009, we issued options to purchase a total of 8,800 shares of our
common stock to our employees, at an exercise price of $0.01 per share, all of
which options were exercised in full on that date.
The above
shares were issued in private placements not involving a public offering under
the Securities Act of 1933 pursuant to Section 4(2) of the Securities Act of
1933 and/or Regulation D promulgated thereunder. We have not engaged in general
solicitation or advertising with regard to the issuance of the shares of Series
A Preferred Voting Stock or the common stock and have not offered securities to
the public in connection with these issuances.
Use
of Proceeds
We were
incorporated on May 14, 2007 as a blank check company for purposes of acquiring,
by way of a business combination, one or more domestic or international
businesses. In connection with our initial public offering of our
common stock and warrants (the “IPO”), the SEC declared our Registration
Statement on Form S-1 (No. 333-144028), filed under the Securities Act
of 1933, effective on October 23, 2007.
On
October 29, 2007, we completed the IPO, issuing 10,000,000 Units, consisting of
one share of common stock and one warrant, at $8.00 per Unit. Upon
the closing of the Offering, $79,200,000 of the aggregate gross proceeds of
$80,000,000 were placed in a trust account and invested in United States
government securities, pending completion of a business combination. The
net proceeds of the Offering not held in the trust account were permitted
to be used to pay for business, legal and accounting due diligence on
prospective business combinations and continuing general and administrative
expenses. Additionally, an aggregate of $1,000,000 of interest earned on the
trust account balance was released to fund working capital requirements and an
additional $150,000 of interest earned was released to repay a loan from Secure
America Acquisition Holdings, LLC (“SAAH”). Additional funds were also released
to fund tax obligations.
The
reconciliation of the funds held in trust immediately prior to the business
combination with Ultimate Escapes Holdings is as follows:
Contribution
to Trust Fund
|
$
|
79,200,000
|
||
Interest
income
|
2,007,884
|
|||
Withdrawals
to fund loan repayments
|
(150,000
|
)
|
||
Withdrawals
to fund income taxes
|
(606,826
|
)
|
||
Withdrawals
to fund operations
|
(1,000,000
|
)
|
||
Balance
at October 29, 2009
|
$
|
79,451,058
|
34
On
October 29, 2009, we consummated the business combination with Ultimate Escapes
Holdings, as described under “History” in Item 1 - Business.
In
connection with stockholder approval of the business combination, holders of
2,709,261 shares of our common stock elected to convert their shares to
cash. We also entered into forward contracts to purchase 6,031,921 of
the shares of common stock sold in the initial public offering in privately
negotiated transactions from stockholders who would otherwise have voted against
the business combination, for an aggregate purchase price of approximately
$48.1 million. The closing of such purchases was effected upon the
closing of the reverse merger out of the funds that were held in the trust
account and were released as a result of the consummation of the business
combination. In connection with such purchases, we paid a fee
to a fund managed by Victory Park Capital Advisors, LLC of $123,974 for
purchasing an aggregate of 1,561,380 shares from stockholders who
would otherwise have voted against the business combination and exercised
their conversion rights.
Following
the consummation of the business combination, the amounts in the trust fund were
disbursed as follows:
Balance
at October 29, 2009
|
$
|
79,451,058
|
||||||
Conversion
of 2,709,261 common shares to cash
|
21,525,365
|
|||||||
Settlement
of forward contracts to purchase 6,031,921 common shares
|
48,138,840
|
69,664,205
|
||||||
Funds
remaining representing 1,258,818 shares
|
9,786,853
|
|||||||
Payment
of transaction expenses
|
383,792
|
|||||||
Payment
of equity funding costs
|
3,683,298
|
4,067,090
|
||||||
Working
capital provided to Ultimate Escapes Holdings
|
$
|
5,719,763
|
Issuer
Purchases of Equity Securities
Period
|
Total Number of
Shares Purchased
|
Average Price Paid
per Share
|
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans or
Programs
|
Maximum Number
(or Approximate
Dollar Value) of
Shares that may yet
be purchased
under the Plans or
Program
|
||||||||||||
October
|
8,741,182 | (1) | 7.94 | 8,741,182 | (1) | - | ||||||||||
November
|
- | - | - | - | ||||||||||||
December
|
- | - | - | - |
(1) Of
the 8,741,182 shares purchased, 2,709,261 shares were repurchased from
stockholders who elected to convert their shares to cash in connection with the
business combination. In connection with the business combination, we entered
into forward contracts to purchase 6,031,921 of the shares of common stock sold
in the initial public offering in privately negotiated transactions from
stockholders who would otherwise have voted against the business
combination, for an aggregate purchase price of
$48,138,840.
35
ITEM
6.
|
SELECTED
HISTORICAL FINANCIAL DATA
|
We
are a “smaller reporting company” as defined by Regulations S-K and as such, are
not required to provide the information contained in this Item pursuant to
Regulation S-K.
ITEM 7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
The
following discussion should be read in conjunction with our consolidated
financial statements and the notes thereto included elsewhere in this Annual
Report.
Overview
We are a
luxury destination club that sells club memberships offering members reservation
rights to use our vacation properties, subject to the rules of the club member’s
Club Membership Agreement. Our properties are located in various resort
locations throughout the world.
On
September 15, 2009, we consummated the acquisition of certain of the assets,
liabilities, properties and rights thereto of Private Escapes, in exchange for
ownership units in our subsidiary Ultimate Escapes Holdings. The operating
results of Private Escapes are included in our consolidated financial statements
from September 16, 2009. On October 29, 2009, we consummated the reverse merger
with Ultimate Escapes Holdings.
The
following discussion of financial condition and results of operations does not
include the operating results of Secure America Acquisition Corporation (as we
were named prior to the consummation of the reverse merger) prior to October 30,
2009.
We expect
that our financial performance will improve in 2010 and 2011 as a result of the
combination of the Ultimate Escapes Holdings and Private Escapes’ businesses,
the utilization of current excess capacity and the arrangements with various
hotels and resorts coming into effect in 2010, as well as anticipated
improvements in worldwide economic conditions generally.
We had
1,214 members and 826 members as of December 31, 2009, and 2008,
respectively.
Critical
Accounting Policies
Our
financial statements and the notes to our financial statements contain
information that is pertinent to management’s discussion and analysis. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities. Management bases its estimates
on historical experience and on various other assumptions that are believed to
be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. On a continual basis, management
reviews its estimates utilizing currently available information, changes in
facts and circumstances, historical experience and reasonable assumptions. After
such reviews, and if deemed appropriate, those estimates are adjusted
accordingly. Actual results may vary from these estimates and assumptions under
different and/or future circumstances. Management considers an accounting
estimate to be critical if:
•
|
it
requires assumptions to be made that were uncertain at the time the
estimate was made; and
|
36
•
|
changes
in the estimate, or the use of different estimating methods that could
have been selected, could have a material impact on our results of
operations or financial
condition.
|
The
following critical accounting policies have been identified that affect the more
significant judgments and estimates used in the preparation of our financial
statements. We believe that the following are some of the more critical judgment
areas in the application of our accounting policies that affect our financial
condition and results of operations. The following critical accounting policies
are not intended to be a comprehensive list of all of our accounting policies or
estimates.
Use of
Estimates - The preparation of consolidated financial statements in
conformity with accounting principles generally accepted in the United States of
America requires us to make certain estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the consolidated financial statements. The
reported amounts of revenues and expenses during the reporting period may be
affected by the estimates and assumptions we are required to make. Estimates
that are critical to our accompanying consolidated financial statements arise
from our belief that (1) we will be able to raise and/or generate sufficient
cash to continue as a going concern, (2) our estimates of the expected lives of
the club memberships from which we derive our revenues and on which we base our
revenue recognition are reasonable, (3) all long-lived assets are recoverable,
and (4) our estimates of the cost of our stock-based compensation plans are
reasonable. Estimates and assumptions are reviewed periodically and the effects
of revisions are reflected in the period that they are determined to be
necessary. It is at least reasonably possible that our estimates could change in
the near term with respect to these matters.
Revenue
Recognition - We derive our revenue from the club memberships we sell,
which allow the club members to use the club properties owned or leased by us.
Different levels of club membership provide access to different properties
and/or increased usage of the properties. Club members pay a one-time club
membership fee (which includes a non-refundable initiation fee), together with
annual dues. Club members sometimes pay additional fees or charges related to
their use of specific properties or club services. Club members may upgrade
their level of membership at any time by paying additional upgrade fees and
annual dues. The terms of each club membership is set out in a Club Membership
Agreement.
Club
members who resign may receive a partial redemption of their membership fee. We
provide assistance to club members who resign by using commercially reasonable
efforts to resell a resigned club members’ membership, and upon such resale, the
resigning club member generally receives 80% of the proceeds of sale and we
retain the remainder as a transfer fee. In the event we are unable to resell a
resigning club members’ membership after an agreed period of time, we have
certain arrangements with such club members to provide a partial redemption of
their membership fee (excluding the initiation fee), based on a sliding scale
that declines to zero over a 10 year period.
We
amortize the non-refundable initiation fee over the expected life of the club
membership, currently estimated as 10 years. The remaining portion of the club
membership fee, which is included in membership deposits-redemption assurance
program in our consolidated balance sheet, is amortized over a 10 year period
using the straight line method. Management believes that, based on their
knowledge of the industry and our competitors, our own extrapolated experience,
and practices in similar membership organizations, that period reasonably
reflects the expected life of the club memberships, and is consistent with any
obligation we may have to provide a partial refund of the membership fee.
Members who joined under a previous plan (no longer offered) may receive a
refund of their membership fee (excluding the non-refundable initiation fee),
subject to the redemption procedures identified in their Club Membership
Agreements. These fees, which are included in membership deposits - other
programs in our consolidated balance sheet, are subject to refund should the
member resign and are not recognized in income.
37
Annual
club membership dues are billed in advance. Payment of these annual dues permits
the club member to continue to make reservations and use the club properties
during their membership year and the annual dues are recognized in income on a
straight-line basis over the 12 month period to which they relate. Revenue from
ancillary charges and other services provided by us to club members when using
club properties is recognized at the time of sale.
Impairment of
Long-Lived Assets and Goodwill - We analyze our long-lived assets,
including property and equipment and intangible assets, in accordance with
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) 360 “Property, Plant
and Equipment” annually and when events and circumstances might indicate
that the assets may not be recoverable. If the undiscounted net cash flows are
less than the assets’ carrying amounts, we record an impairment based on the
excess of the assets’ carrying value over fair value. Fair value is determined
based on discounted cash flow models, quoted market values and third-party
appraisals. We evaluate our real estate assets on a combined basis, as future
cash flows include club membership sales and dues that are not identifiable to
individual properties. Estimates of future cash flows are based on internal
projections over the expected useful lives of the assets and include cash flows
associated with future maintenance and replacement costs, but exclude cash flows
associated with future capital expenditures that would increase the assets’
useful lives. Our management believes there is no impairment as of December 31,
2009.
Goodwill
consists of the excess of the purchase price paid for Private Escapes over the
fair value of the identifiable assets and liabilities acquired. Goodwill is not
amortized, but is tested for impairment, at least annually, by applying the
recognition and measurement provisions of FASB ASC 350-20 “Goodwill”, which compares the
carrying amount of the asset with its fair value. If impairment of carrying
value based on the estimated fair value exists, we measure the impairment
through the use of projected discounted cash flows. We operate as a
single operating segment. We have not identified any components within our
single operating segment and thus have a single reporting unit for purposes of
our goodwill impairment test.
Stock-based
Compensation - As
described in our financial statements in “Note 13 — Equity
Compensation”, we previously had a stock-based compensation plan
utilizing equity units of our former parent company, Ultimate Resort, LLC. That plan was
discontinued on completion of the reverse merger on October 29, 2009, and as of
that date we adopted the 2009 Stock Option Plan, which provides for the issuance
of options to acquire up to 1,200,000 shares of our common stock.
We
recognize compensation expense in an amount equal to the grant-date fair value
of the equity units or, following adoption of the 2009 Stock Option Plan, the
grant-date fair value of the common stock options. The estimated fair value of
these equity units and options, as of the date of grant, is recorded as
compensation cost over the vesting period.
Determining
the fair value of the equity units previously issued required making potentially
complex and subjective judgments. Our approach to valuation of the units, which
were granted to employees at no cost to them, was to estimate their fair value
based on the proceeds received by the parent company for other equity units with
broadly similar characteristics. There was inherent uncertainty in making these
estimates. During 2008 and 2009, we estimated the fair value at $30,000 per
unit. During 2008, there were 83 equity units that vested and at December 31,
2008, there were a further 235 equity units that had not yet vested. All of
these 235 equity units, together with 121 equity units issued in 2009, vested
immediately on completion of the reverse merger on October 29, 2009. We
recognized compensation expense of approximately $6.6 million in 2009, including
approximately $5 million as a result of the accelerated vesting of these equity
units upon consummation of the reverse merger.
38
Recent Accounting
Pronouncements
The
following Accounting Standards Codification Updates have been issued, or will
become effective, after the end of the period covered by this
discussion:
Pronouncement
|
Issued
|
Title
|
||
ASU
No. 2009-13
|
October
2009
|
Revenue
Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements – a
consensus of the FASB Emerging Issues Task Force
|
||
ASU
No. 2009-14
|
October
2009
|
Software
(Topic 985): Certain Revenue Arrangements That Include Software Elements—a
consensus of the FASB Emerging Issues Task Force
|
||
ASU
No. 2009-15
|
October
2009
|
Accounting
for Own-Share Lending Arrangements in Contemplation of Convertible Debt
Issuance or Other Financing
|
||
ASU
No. 2009-16
|
December
2009
|
Transfers
and Servicing (Topic 860): Accounting for Transfers and Financial
Assets.
|
||
ASU
No. 2009-17
|
December
2009
|
Consolidations
(Topic 810): Improvements to Financial Reporting by Enterprises
Involved with Variable Interest Entities
|
||
ASU
No. 2010-01
|
January
2010
|
Equity
(Topic 505): Accounting for Distributions to Shareholders with
Components of Stock and Cash – a consensus of the FASB Emerging Issues
Task Force
|
||
ASU
No. 2010-02
|
January
2010
|
Consolidation
(Topic 810): Accounting and Reporting for Decreases in
Ownership of a Subsidiary – a Scope Clarification
|
||
ASU
No. 2010-03
|
January
2010
|
Extractive
Activities – Oil and Gas (Topic 932): Oil and Gas Reserve Estimation and
Disclosures
|
||
ASU
No. 2010-04
|
January
2010
|
Accounting
for Various Topics: Technical Corrections to SEC
Paragraphs
|
||
ASU
No. 2010-05
|
January
2010
|
Compensation -
Stock Compensation (Topic718): Escrowed Share Arrangements and the
Presumption of Compensation
|
||
ASU
No. 2010-06
|
January
2010
|
Fair
Value Measurements and Disclosures (Topic 820): Improving Disclosures
about Fair Value Measurements
|
||
ASU
No. 2010-07
|
January
2010
|
Not-for-Profit
Entities (Topic 958): Not-for-Profit Entities - Mergers and
Acquisitions
|
||
ASU
No. 2010-08
|
February
2010
|
Technical
Corrections to Various Topics
|
||
ASU
No. 2010-09
|
February
2010
|
Subsequent
Events (Topic 855): Amendments to Certain Recognition and Disclosure
Requirements
|
||
ASU
No. 2010-10
|
February
2010
|
Consolidation
(Topic 810): Amendments for Certain Investment Funds
|
||
ASU
No. 2010-11
|
March 2010
|
Derivatives
and Hedging (Topic 815): Scope Exception Related to Embedded Credit
Derivatives
|
39
To the
extent appropriate, the guidance in the above Accounting Standards Codification
Updates is already
reflected in our consolidated financial statements and management does not
anticipate that these accounting pronouncements will have any future effect on
our consolidated financial statements.
At its
meeting on March 18, 2010, the FASB’s Emerging Issues Task Force reached a
consensus on five issues. The consensuses were ratified by the FASB
at its meeting on March 31, 2010, and the related Accounting Standards
Codification Updates to be issued will become authoritative accounting
guidance. None of the consensuses address issues that we expect to
have a material effect on our consolidated financial
statements.
40
Results
of Operations
The
following table sets forth our historical consolidated income statement data (in
thousands of dollars):
Year Ended
|
|
|||||||||||
December 31,
|
||||||||||||
2009
|
2008
|
%
Change
|
||||||||||
REVENUES
|
||||||||||||
Membership
– annual dues
|
$ | 14,938 | $ | 17,486 | -15 | % | ||||||
Membership
– upgrade fees
|
60 | 409 | -85 | % | ||||||||
Membership
– membership fees
|
7,052 | 3,650 | 93 | % | ||||||||
Membership
– assessment fees
|
12,144 | - | * | |||||||||
Other
revenue
|
2,817 | 996 | 183 | % | ||||||||
REVENUES
|
37,011 | 22,541 | 64 | % | ||||||||
OPERATING
EXPENSES:
|
||||||||||||
Property
operating costs
|
11,043 | 9,900 | 12 | % | ||||||||
Depreciation
and amortization
|
5,526 | 4,479 | 23 | % | ||||||||
Lease
costs
|
3,503 | 3,593 | -3 | % | ||||||||
Advertising
|
1,231 | 2,307 | -47 | % | ||||||||
Salaries
and contract labor (including $6,604 and $2,169 of non-cash stock-based
compensation)
|
11,753 | 9,419 | 25 | % | ||||||||
General
and administrative
|
3,513 | 5,601 | -37 | % | ||||||||
Loss
(gain) on sale of property and equipment
|
535 | (27 | ) | * | ||||||||
Loss
on impairment of assets held for sale
|
2,839 | - | * | |||||||||
Sales
commissions
|
479 | 1,032 | -54 | % | ||||||||
OPERATING
EXPENSES
|
40,422 | 36,304 | 11 | % | ||||||||
INCOME
(LOSS) FROM OPERATIONS
|
(3,411 | ) | (13,763 | ) | 75 | % | ||||||
OTHER
INCOME (EXPENSE):
|
||||||||||||
Interest
expense
|
(10,006 | ) | (9,717 | ) | 3 | % | ||||||
Interest
income
|
98 | 278 | -65 | % | ||||||||
Transaction
expenses
|
(384 | ) | - | * | ||||||||
RAP
exchange inducement
|
(714 | ) | - | * | ||||||||
Change
in contingent acquisition consideration
|
1,458 | - | * | |||||||||
OTHER
INCOME (EXPENSE) – Net
|
(9,548 | ) | (9,439 | ) | 1 | % | ||||||
INCOME
BEFORE INCOME TAXES
|
(12,959 | ) | (23,202 | ) | 44 | % | ||||||
BENEFIT
(PROVISION) FOR INCOME TAXES
|
(6 | ) | (20 | ) | -70 | % | ||||||
NET
LOSS
|
$ | (12,965 | ) | $ | (23,222 | ) | 44 | % |
* % change not
meaningful
41
Year
Ended December 31, 2009 compared with the Year Ended December 31, 2008 (in
thousands)
Revenues
Revenues
of $37,011 increased by $14,470, or 64%, during the year ended December 31,
2009, from $22,541 during the same period in 2008. The higher revenues in 2009
include a $12,144 assessment fee charged to members in 2009 that was not charged
in 2008. Membership annual dues were $14,938 in 2009, representing a
decrease of $2,548, or 15% from annual dues of $17,486 in 2008, primarily
because of early dues renewal programs offered in 2008 and not offered in 2009,
which accelerated revenues into 2008. Other revenue was $2,817 in
2009, representing an increase of $1,821, or 183% compared with $996 in 2008 due
to the cross reservation program fees in 2009 charged to Private Escapes for
allowing their members to stay at our properties. This
cross-reservation program ended effective September 15, 2009, when we acquired
Private Escapes.
Operating
Expenses
Operating
expenses were $40,422 in 2009, representing an increase of $4,117, or 11%, from
operating costs of $36,305 in 2008. Property operating costs
increased $1,143 in 2009 from 2008 primarily due to the cross reservation
program fees in 2009 charged by Private Escapes for allowing our members to stay
at their properties prior to the September 15, 2009 acquisition of certain of
their assets and liabilities. Depreciation and
amortization increased by $1,047 to $5,526 in 2009, from $4,479 in
2008 reflecting the acquisition of Private Escape properties in September
2009. Advertising costs decreased $1,076 in 2009 from 2008 due to a
revised marketing strategy to target member referrals and other qualified leads
produced as a result of a joint marketing agreement with Private Escapes that
began in the second half of 2008. Salary costs increased by $2,334 in
2009 compared with 2008, primarily as a result of increased stock-based
compensation expense, primarily as a result of the accelerated vesting of equity
units in connection with the reverse merger with SAAC, offset by staffing
reductions and labor cost savings of which had been implemented in late
2008. General and administrative costs decreased in 2009 compared
with 2008 by $2,088 due primarily to reductions in credit card fees of $1,445,
insurance costs of $300, travel costs of $216, and office lease costs of
$41. In 2009, we incurred a net loss of $535 on the sale
of certain properties and recognized an impairment loss of $2,839
related to certain properties held for sale, compared with a $27 net gain on the
sale of certain properties in 2008. The assets held for sale
were chosen because of low occupancy by club members or because we determined
that we had excess inventory. Impairment was calculated by comparing
the carrying value on the books with the expected net proceeds of the
sale. Sales commissions decreased $553 in 2009 compared with 2008 due
to lower sales volumes in 2009.
Income (Loss)
Before Other Income (Expense)
As a
result of the above, our loss before other income (expense) improved by $10,353,
or 75%, to a loss of $3,411 for 2009, from a loss of $13,764 in
2008.
Other Income
(Expense)
Interest
expense increased to $10,006 for 2009, from $9,717 in 2008, due to the
additional acquisition debt in the September 2009 purchase of Private
Escapes. Interest income decreased by $180 to $98 in 2009 from $278
in 2008 due to lower interest-bearing money market cash balances in 2009 than
2008.
In
connection with the consummation of the reverse merger in October 2009, we
incurred $384 of transaction-related expenses.
In
connection with the reverse merger in October 2009, we offered our members the
opportunity to convert their outstanding Redemption Assurance Program (RAP)
balance to our common stock. We subsequently issued $8,963 of common stock in
connection with the conversion of $8,249 of the members’ RAP balance to common
stock and recognized $714 as an inducement expense.
42
As of
December 31, 2009, we recognized a gain of $1,458 related to the outstanding
contingent consideration for our September 15, 2009 acquisition of the business
of Private Escapes, as a result of both a change in the estimate of the
contingent consideration payable and a decrease since the acquisition date in
the fair value of our common stock, in which the consideration is
payable.
Liquidity
and Capital Resources (in thousands)
Historically,
our primary sources of cash have been cash flows from equity capital, club
membership fees, annual dues, bank borrowings and term loans. Cash has been used
for real estate purchase transactions, repayment of long term debt, purchases of
equipment and working capital to support our growth. In 2009, a one time
assessment fee was levied on our membership base. In 2010, annual revenues from
dues are expected to increase as a result of a cost of living increase in the
dues charged and the anticipated high renewal rate of members. Membership fees
and upgrade fees are subject to the health of the economy and are less
predictable. We do not intend to levy an assessment fee in 2010 unless the
majority of members vote in favor of any proposed assessment. We intend to seek
to raise more equity in 2010. We also plan to sell excess properties in our
portfolio, the proceeds of which will primarily be used to repay debt. We have
plans to spread out the collection of annual dues more evenly throughout the
year.
Cash and
cash equivalents, consisting primarily of deposits with financial institutions
and credit card holdbacks, but excluding $4,343 of restricted cash, was $2,747
at December 31, 2009, compared with $966 at December 31, 2008. The increase of
$1,781 was largely attributable to the club member assessment program initiated
and implemented in the first five months of 2009.
We
anticipate being able to meet our projected internal growth and operating needs,
including capital expenditures, and expect to meet the cash requirements of our
contractual obligations for at least the next 12 months if we are successful in
executing our plans to increase our capital resources. Planned capital
expenditure projects include approximately $513 for the complete renovation of
our seven Trump Tower units in New York.
We
incurred net losses of $12,965 and $23,222 during the years ended December 31,
2009 and 2008, respectively. As of December 31, 2009, our current liabilities,
excluding $12,600 of deferred annual membership dues that we expect to recognize
in income in 2010, were $31,164, which exceeded our current assets of $6,710,
excluding restricted cash of $4,343, by $24,454. In addition, although we have
completed the acquisition of certain assets and liabilities of Private Escapes,
refinanced our credit facility with CapitalSource and completed the reverse
merger, we may not be able to meet certain covenants under the CapitalSource
credit facility in the future. We have also experienced a decrease in new
membership sales and existing member upgrades over the last six months of 2008
and throughout 2009.
The above
factors, among others, indicate that we may encounter a liquidity event in the
future which may cause us to be in default of our loan covenants. We are taking
steps to increase cash flow in order to cover 2010 operational expenses,
including, without limitation, the sale of selected club properties, and closely
monitoring and reducing operating expenses wherever possible.
Total
current and long term debt outstanding at December 31, 2009 was $123,279
compared with $96,765 outstanding at December 31, 2008. The
debt outstanding at December 31, 2009 is primarily the amount
outstanding under our CapitalSource credit facility of $98,982, a shareholder
note payable of $10,000, various mortgages aggregating $13,590, as discussed
below, and a non-mortgage notes totaling $707.
43
CapitalSource
Revolving Credit Facility
Our
amended and restated loan and security agreement with CapitalSource, entered
into on September 15, 2009, provides for borrowings up to the lesser of a
defined maximum amount or a defined borrowing base amount. The maximum amount
available is $110 million through December 31, 2009, $108 million from January
1, 2010 through June 30, 2010, $105 million from July 1, 2010 through December
31, 2010 and $100 million from January 1, 2011 to the maturity date of April 30,
2011. The borrowing base amount is a percentage of the appraised value of all
owned property encumbered by a mortgage in favor of CapitalSource. Through March
31, 2010, that percentage was 75%, from April 1, 2010 through December 31, 2010
it is 70% and from January 1, 2011 it is 65%. We are currently in negotiations
with CapitalSource to extend the dates by which time we have to meet these
percentage requirements.
Interest
under the loan agreement is calculated on the actual days elapsed and the basis
of a 360 day year and is payable monthly at the three-month LIBOR (approximately
0.25% at January 1, 2010) plus 5% per annum, subject to a floor of 8.75%. An
exit fee of $1.65 million is due on maturity or earlier if the loan is
terminated for any reason. The maturity date may be extended at our request for
two additional one year periods, provided there is no default under the loan
agreement and on payment of an extension fee of 0.25% of the then maximum loan
amount of $100 million. Except for payments required on the sale of a mortgaged
property, no principal payments are due until maturity on April 30, 2011, except
required cash payments of $2 million on December 31, 2009, $3 million prior to
June 30, 2010 (which have both been paid as of March 31, 2010) and $5 million
prior to December 31, 2010. As described above, we are currently in negotiations
with CapitalSource which may require us to increase the repayment obligations
due by June 30, 2010 and December 31, 2010. If we exercise one or both of the
extension options, cash payments are required of $5 million on each of June 30,
2011, December 31, 2011, June 30, 2012 and December 31, 2012. We may voluntarily
prepay any part of the loan at any time but may terminate the loan agreement
only by providing 30 days written notice and prepaying outstanding amounts in
full.
We are
required to meet certain covenants as defined in the loan agreement,
including:
•
|
Maintain
either (1) a restricted cash balance of not less than six months debt
service, or (2) a debt service coverage ratio of 1.25 to 1.00, based on
the ratio of Adjusted EBITDA for the immediately preceding 12 calendar
months, to debt service (excluding balloon maturities of indebtedness) on
a consolidated basis for the immediately preceding 12 calendar months. On
March 16, 2010, CapitalSource agreed to reduce the restricted cash balance
interest reserve by approximately $1,500,000, to be replenished in equal
installments at the end of June, September, and December
2010.
|
•
|
Remain
in compliance at all times with applicable requirements as to the ratio of
the number of properties to club members or “equivalent club members”, as
set forth in the applicable club membership
plans;
|
•
|
Maintain
a leverage ratio between debt and consolidated tangible net worth of no
more than 3.5:1;
|
•
|
For
the years ending December 31, 2009 and 2010, the consolidated net loss
must not exceed $10 million and $5 million, respectively, and for the year
ending December 31, 2011 and each succeeding year, the consolidated net
income must not be less than $1 (net loss is adjusted in each year
for the non-refundable portion of new member initiation fees not yet
recognized in income and for non-cash stock-based compensation expensed in
2009); and
|
•
|
The
debt ratio (aggregate mortgage financing to the aggregate appraised value
for all owned Property) on a consolidated basis must not exceed
80%.
|
44
In
addition to various covenants, the CapitalSource loan agreement contains
customary events of default that would permit CapitalSource to accelerate
repayment of amounts outstanding, including failure to pay any amounts
outstanding under the loan agreement when due, insolvency, judgment or
liquidation, failure to pay other borrowed money in excess of $500,000, failure
to comply with the terms and conditions of the loan agreement, suspension of the
sale of club memberships, termination of any club or club membership plan,
failure to pay (without CapitalSource’s consent) any amounts due to a resigning
club member in accordance with the terms of his or her club membership agreement
and a change in our management (as defined in the loan agreement).
Note
Payable to Shareholder
On April
30, 2007, Ultimate Resort Holdings issued a $10 million note payable to JDI,
which at the time was a minority owner of Ultimate Resort Holdings and is now a
minority owner of Ultimate Escapes Holdings. The obligations of Ultimate Resort
Holdings under this note were subsequently assigned to Ultimate Escapes
Holdings, when it assumed the Ultimate Resort Holdings operations, as discussed
in Note 2 to our consolidated financial statements. On October 29, 2009, JDI
assigned its interest in the note, as lender, to Ultimate Resort Holdings. The
financial terms of the note remained unchanged. At the same time, Ultimate
Resort, the majority owner of Ultimate Resort Holdings, acquired from JDI the
minority interest in Ultimate Resort Holdings held by JDI. In consideration for
the acquisition of the minority interest and the transfer, as lender, to
Ultimate Resort Holdings of the note, JDI received 3,123,797 ownership units of
Ultimate Escapes Holdings.
The note
has a ten year term, with interest payable quarterly at 5% per annum and no
principal payments are due until maturity on April 30, 2017. The note, which is
subordinate to the revolving loan from CapitalSource, is collateralized by a
second security interest in our assets and in certain real
property.
Other
Mortgage Loans
At
December 31, 2009, we have other mortgage loans, aggregating $13,590, which we
acquired when Ultimate Escapes Holdings acquired certain assets and liabilities
of Private Escapes. These mortgages are held by a number of mortgage
providers and individuals and carry interest rates ranging from 3.4% to 15.0%.
Certain of the mortgages are due within twelve months and, where possible, we
are seeking to extend or renew these mortgages.
Included
in these mortgage loans is $234 of the remaining outstanding principal balance
of $936 related to a $3.75 million loan from Kederike, LLC, an entity in which
Richard Keith, our Chairman, is a 50% owner. The original loan proceeds were
used to pay a portion of the purchase price for the acquisition of four
properties. Ultimate Escapes Holdings assumed $234 of the remaining outstanding
principal balance when it acquired Private Escapes. The remainder of the
outstanding principal balance of $702 was assumed by an entity controlled by Mr.
Keith. Interest accrues on the loan at a rate equal to 1.5% above the interest
rate applicable to the primary bank loan financing the original acquisition of
the properties. The maturity date of the loan was October 15, 2009;
however, the parties have negotiated an extension of the maturity date until
June 30, 2010 on substantially the same terms.
45
Year
Ended December 31, 2009 Compared with the Year Ended December 31, 2008 (in
thousands)
Operating
Activities
Net cash
used by operating activities during the year ended December 31, 2009 was
$(2,851), compared with net cash provided of $1,163 for the same period in
2008. This decrease in cash from operating activities of $4,014 when
comparing the two periods was benefited by a $10,257 decrease in net loss, from
$(23,222) for the year ended December 31, 2008 to $(12,965) for the year ended
December 31, 2009. Cash usage when comparing the two periods was
impacted $18,608 by the change in membership fees and dues not yet recognized,
which was related to the acquisition of Private Escape memberships. Other
working capital changes for the year ended December 31, 2009 compared with
the same period in 2008 were $2,335 less reduction in restricted cash, $3,784
more in member receivables, and $1,973 increase in accounts payable and $714 for
the RAP exchange inducement expense.
Investing
Activities
Net cash
of $3,100 was provided by investing activities during the year ended December
31, 2009 compared with $1,041 for the same period in 2008, an increase of
$2,059. There were no acquisitions of properties during the year
ended December 31, 2009 and limited capital expenditures of $495
compared with $1,959 for the same period in 2008.
Financing
Activities
Net cash
provided by financing activities was $1,532 during the year ended December 31,
2009, a change of $10,915 compared with cash used in financing activities of
$9,383 for the year ended December 31, 2008. The material
source of cash from financing was provided by the reverse merger with Ultimate
Escapes Holdings.
Off-Balance
Sheet Arrangements
We do not
have any off-balance sheet arrangements.
Unaudited
Operating Results using Adjusted GAAP Revenue Recognition and Adjusted EBITDA
(in thousands)
We use an
adjusted revenue calculation as an integral part of our internal financial
management reporting and planning process, based on adjusted GAAP revenue
recognition. For this purpose, the non-refundable club membership initiation fee
is recognized over the first 18 months of membership, with the remaining club
membership fee amortized over ten years, rather than the full amount of the club
membership fee (including the non-refundable portion) being recognized over the
ten-year expected life of the club membership, as is reflected in
our consolidated financial statements. Club members cannot resign within
the first 18 months of membership. Because the club member initiation fee
is non-refundable, we believe that treating such non-refundable initiation fee
as earned over that 18 month minimum membership contract period better reflects
the current performance of our business and the actual contractual terms of our
club membership plan.
We also
measure performance based on Adjusted EBITDA, which is the metric used to
determine the UE owners earn out units as described in detail in Item 13,
“Operating Agreement of Ultimate Escapes Holdings”. Adjusted EBITDA
with respect to any period, means, as determined in accordance with GAAP, the
difference between our revenues (plus the non-refundable portion of membership
fees to the extent such membership fees are not included in revenue pursuant to
GAAP) and our expenses, on a consolidated basis for such period, plus the sum of
(i) interest expense, (ii) income tax expense, (iii) depreciation expense and
(iv) amortization expense but (v) excluding all non-cash compensation related to
our 2009 Stock Option Plan and our previous employee stock-based compensation
plan.
46
GAAP
Financial
Information
|
Adjusted GAAP
Revenue
Recognition
|
|||||||
(in thousands)
|
||||||||
Total
Revenues
|
$ | 37,011 | $ | 37,011 | ||||
Add:
|
||||||||
Non-GAAP
revenue accretion
|
2,130 | |||||||
Adjusted
Non-GAAP Revenue
|
$ | 39,141 |
GAAP
Financial
Information
|
Adjusted
EBITDA
|
|||||||
(in
thousands)
|
||||||||
Net
Loss
|
$ | (12,965 | ) | $ | (12,965 | ) | ||
Add:
|
||||||||
Non-GAAP
revenue accretion
|
2,130 | |||||||
Non-cash
stock-based compensation
|
6,604 | |||||||
Adjusted
loss
|
(12,965 | ) | (4,231 | ) | ||||
Add:
|
||||||||
Interest
expense
|
10,006 | 10,006 | ||||||
Taxes
|
- | - | ||||||
Depreciation
and amortization (1)
|
8,365 | 8,365 | ||||||
Amortization
of loan costs
|
1,296 | 1,296 | ||||||
EBITDA
|
$ | 6,702 | ||||||
Adjusted
EBITDA
|
$ | 15,436 |
(1)
|
Depreciation
includes the impairment charge on assets held for
sale.
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
We are a “smaller reporting company” as
defined by Regulations S-K and as such, are not required to provide the
information contained in this item pursuant to
Regulation S-K.
47
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY
DATA
|
Our
consolidated financial statements are set forth in a separate section of this
report. See Part IV, Item 15 of this report.
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
Not
applicable.
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
Evaluation
of Disclosure Controls
Our
management, including our principal executive officer and principal financial
officer, concluded an evaluation of the effectiveness of our disclosure controls
and procedures as of December 31, 2009. Our evaluation tested controls and
other procedures designed to ensure that information required to be disclosed by
us in the reports that we file or submit under the Securities Exchange Act of
1934, as amended, or the Exchange Act, is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms. Based
on our evaluation, as of December 31, 2009, our management, including our
principal executive officer and principal financial officer, concluded that our
disclosure controls and procedures were effective.
Changes
in Internal Control Over Financial Reporting
There
were no changes in our internal control over financial reporting during our most
recently completed fiscal quarter that have materially affected or are
reasonably likely to materially affect our internal control over financial
reporting.
Management’s
Report on Internal Control Over Financial Reporting
We were
previously a blank check company formed with the objective of completing a
business combination with one or more operating businesses. On October 29,
2009, we completed a business combination with Ultimate Escapes Holdings,
in the form of a reverse acquisition, and we were renamed Ultimate Escapes,
Inc.
Prior to
the business combination, Ultimate Escapes Holdings was a private company.
As a result of the consummation of the business combination with Ultimate
Escapes Holdings late in the fiscal year, management was unable to conduct an
assessment of the internal control over financial reporting of Ultimate Escapes
Holdings and its subsidiaries during the period between the date of the business
combination and the end of the fiscal year. In addition, management
considered the assets, liabilities, and operations of our company to be
insignificant when compared to the consolidated entity.
Accordingly, in reliance on guidance issued by the SEC, we have
excluded management's report on internal control over financial reporting from
this annual report.
ITEM 9B.
|
OTHER
INFORMATION
|
Not
applicable.
48
PART
III
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
|
Our
directors and executive officers, and their ages as of March 31, 2010, are set
forth below:
Name
|
Age
|
Position
|
||
James
M. Tousignant
|
49
|
President,
Chief Executive Officer and Class C Director
|
||
Richard
Keith
|
54
|
Chairman
and Class B Director
|
||
Philip
Callaghan
|
57
|
Chief
Financial Officer and Secretary
|
||
Robert
Glinka
|
53
|
Chief
Operating Officer
|
||
Ted
Curtis
|
56
|
Chief
Sales and Marketing Officer
|
||
Gregg
Amonette
|
57
|
Senior
Vice President, Business Development
|
||
Thomas
D’Ambrosio
|
53
|
Senior
Vice President, Chief Technology Officer
|
||
C.
Thomas McMillen
|
57
|
Class
C Director
|
||
Mark
A. Frantz
|
41
|
Class
B Director
|
||
Stephen
Griessel
|
50
|
Class
A Director
|
The Class
A, Class B and Class C directors will stand for re-election at the 2010, 2011
and 2012 annual meetings of our stockholders, respectively.
James M.
Tousignant has served as our President, Chief Executive Officer and Class
C Director since October 2009. Prior to that, Mr. Tousignant served as the
Founder, President, Chief Executive Officer and Director of Ultimate Resort from
May 2004. Prior to founding Ultimate Resort in May 2004, Mr. Tousignant was most
recently managing director at Thomson Financial and Morgan Stanley (NYSE: MS),
where he was responsible for global sales and business development. From April
1993 to September 2000, Mr. Tousignant was the co-founder and president of
Multex.com, Inc. (formerly NASDAQ: MLTX), a global provider of online financial
information services, and was responsible for managing a rapidly growing global
company with thousands of customers, 500 employees and revenues of $100 million
worldwide. He was also active in raising more than $50 million in private
venture capital at Multex, managing four acquisitions, and overseeing the
company’s successful $40 million initial public offering in 1999. Mr. Tousignant
started his first company, Mirror Images Software, Inc., as a senior at
Rensselaer Polytechnic Institute (RPI). Mr. Tousignant attended RPI from 1978 to
1982, majoring in Management with a minor in Computer Science.
Richard
Keith has served as our Chairman and Class B Director since October 2009.
In April 1990, Mr. Keith started AppleOne Employment Services of Colorado. In
five years, Mr. Keith sold the company to Corestaff Services and co-founded a
second start-up company, Center Partners, Inc., a call center business. In
October 1999, Center Partners was sold to the London-based WPP Group. In 2003,
Mr. Keith founded Private Escapes Destination Clubs and created Private Escapes
Premiere, and he served as Chief Executive Officer of Private Escapes
Destination Clubs from 2004 until September 2009. In August 2004, Mr. Keith and
his team launched Private Escapes Platinum, and Private Escapes Pinnacle
followed in August 2006. Mr. Keith attended Bates College.
49
Philip
Callaghan has served as our Chief Financial Officer and Secretary since
October 2009. Prior to that, Mr. Callaghan served as Ultimate Escapes Holdings’
Chief Financial Officer since July 2004. From September 2002 to June 2004, Mr.
Callaghan was Chief Financial Officer of the Global Sales Account Management
team for the Thomson Corporation. He served as Chief Financial Officer of
eNews.Com, Inc. a subsidiary of Barnes and Noble (NYSE: BKS), from January 2000
through June 2002. From December 1996 through September 1999, he served as Chief
Financial Officer for Multex.com, Inc. (formerly NASDAQ: MLTX) during which time
the company went public. Mr. Callaghan has also served as Chief Financial
Officer of Graff Pay Per View, a distributor of programming to the cable and
satellite industries, as Managing Director of Media Computer Systems Limited, a
software developer for the television industry, and as Finance Director for MTV
Europe, the cable television programmer. Mr. Callaghan was admitted as a Fellow
of the Institute of Chartered Accountants of England and Wales in 1982, received
a Bachelor of Science in Pure Physics, from University College London and holds
dual nationality in the United States and United Kingdom.
Robert S.
Glinka has served as our Chief Operating Officer since January 2010. From
November 2009 until January 2010, Mr. Glinka served as a consultant to us. From
October 2008 until October 2009, Mr. Glinka served as Chief Executive Officer of
Areus Holdings, LLC, a startup privately held business whose concentration was
in the hotel segment of the hospitality industry. From 2005 through 2008, Mr.
Glinka served in a variety of capacities with Celebrity Resorts, a privately
held vacation ownership company. Mr. Glinka’s roles during this time ranged from
Executive Director of Acquisitions & Development to Chief Development
Officer. From 2003 to 2005, Mr. Glinka served as both a consultant and Vice
President of Development for The Sol Melia Vacation Club and was a member of the
startup team for this international venture. From 1998 to 2003, Mr. Glinka
served in several capacities with Fairfield Resorts and with the Cendant
Corporation following the 2001 acquisition of Fairfield by Cendant. During this
time, Mr. Glinka served as Vice President of Planning, Senior Vice President of
Planning & Development and as Executive Vice President of Business
Development. From 1978 to 1998, Mr. Glinka worked for The Walt Disney Company,
serving in a variety of capacities within functional areas such as Accounting,
Financial Planning, Business Development and Operations Planning. Mr. Glinka
holds a Bachelor of Science in Business Administration from Western New England
College in Springfield, Massachusetts and a Master of Business Administration
from the Roy E. Crummer Graduate School of Business. Mr. Glinka is a member of
Beta Gamma Sigma, the prestigious international honor society which recognizes
business excellence.
Ted Curtis
has served as our Chief Sales and Marketing Officer since January 2010. From
November 2009 until January 2010, Mr. Curtis served as a consultant to us. From
August 2004 to April 2007 and from June 2008 to December 2009, Mr. Curtis
provided sales and marketing services to privately held vacation ownership
companies with operations throughout the United States, Caribbean, Middle East
and North Africa. In addition, since June 2008 Mr. Curtis has served as
President and Chief Operating Officer, and as a member of the board of
directors, of Freedom Environmental Services, Inc., a publicly-traded wastewater
management company. Mr. Curtis also served as Senior Vice President of Sales and
Marketing for Celebrity Resorts from May of 2007 through May of 2008. From 2003
to 2004, Mr. Curtis served as Senior Vice President of Sales and Marketing for
Trendwest Resorts, a subsidiary of the Cendant Corporation, with direct
operating responsibility for 2,000 employees, annual revenue generation of $550
million and full P&L performance. From 1997 to 2003, Mr. Curtis held the
positions of Managing Director and Vice President at Hilton Grand Vacations
Company, a subsidiary of the Hilton Hotel Corporation where he also served as a
Member of the Executive Committee. From 1994 through 1996, Mr. Curtis was a
Director at Marriott Vacation Club responsible for restructuring and growing the
offsite sales channel. Prior to that Mr. Curtis, in partnership with Robert
Trent Jones, Sr., developed the national award winning Ipswich Country Club in
Massachusetts and held other senior sales and marketing positions with regional
developers in the northeastern U.S. Mr. Curtis received a Bachelor of Science in
Finance from the University of Vermont.
50
Gregg
Amonette has served as our Senior Vice President of Business Development
since October 2009. Prior that, Mr. Amonette has served as Senior Vice President
of Business Development for Ultimate Escapes Holdings since July 2006, and has
25 years experience as a corporate officer, sales executive, and marketing
executive. Mr. Amonette joined Ultimate Escapes Holdings in July 2006 as head of
Business Development and is responsible for creating strategic partnerships with
resort developers, hotel groups and marketing companies. From January 2004 to
June 2006, Mr. Amonette served as Director of Marketing for SNL Financial, LC, a
provider of sector-based business information. From August 1996 to March 2003,
Mr. Amonette held various executive roles at Multex, Inc. (formerly NASDAQ:
MLTX) a leading distributor of sellside research and data to buyside
institutions. Mr. Amonette served as Executive Vice President, Global Product
Groups, and corporate officer of Multex until it was acquired by Reuters, PLC
(now Thomson Reuters; NYSE: TRI) in March 2003. From December 1994 to July 1996,
he was Vice President and General Manager, North America of Micrognosis, the
trading room technology division of CSK Corporation in Japan. From December 1984
to December 1994, Mr. Amonette held various sales management positions at the
Brokerage Services Division of Automatic Data Processing, Inc. (NYSE: ADP)
including Vice President of Retail Sales. Mr. Amonette received a Bachelor of
Arts from Washington & Lee University.
Thomas
D’Ambrosio has served as our Senior Vice President and Chief Technology
Officer since October 2009. Prior to that, Mr. D’Ambrosio served as Senior Vice
President and Chief Technology Officer for Ultimate Escapes Holdings since
October 2005. Mr. D’Ambrosio began his employment with Ultimate Escapes Holdings
in October 2005. From January 2005 to October 2005, Mr. D’Ambrosio was working
on developing a private business venture. From March 2003 through December 2004,
Mr. D’Ambrosio served as the Chief Information Officer for Reuters Research, a
division of Reuters PLC (now Thomson Reuters, NYSE: TRI) formed with the
acquisition of Multex.com, Inc. (formally NASDAQ: MLTX). From March 1992 to
March 2003, Mr. D’Ambrosio served as Chief Information Officer and Chief
Security Officer for Multex.com. From March 1989 to March 1992, Mr. D’Ambrosio
served as Director of Advanced Systems Development for Automatic Data Processing
(NYSE: ADP). Mr. D’Ambrosio received a Bachelor of Science in Business
Information Systems and an Associate of Science degree in Computer Technology.
Mr. D’Ambrosio is a veteran, having served as a member of the United States Air
Force.
C. Thomas
McMillen has served as a Class C Director since October 2009. Prior to
that, Mr. McMillen served as our Chairman and Co-Chief Executive Officer since
our inception and has over 20 years of experience in government, finance and
acquisitions. From December 2004 until January 2007, he served as the Chairman
and, from January 2007 until August 2008, he served as the Vice Chairman, of
Fortress America Acquisition Corporation (now Fortress International Group,
Inc.; NASDAQ: FIGI). Mr. McMillen has also served, since August 2005, as the
Chief Executive Officer and Chairman of the board of directors, and from August
2005 to March 2007 served as the President, of Homeland Security Capital
Corporation (OTC: HOMS), a consolidator of homeland security companies that
provides capital and management advice for developing companies. Since March 12,
2010, Mr. McMillen has been the sole member and manager of NVT License Holdings,
LLC, a Delaware limited liability company, which is the indirect parent and
controlling entity of several other limited liability companies which hold the
Federal Communications Commission licenses for eight full power and three low
power television stations in eight different television markets. In 2003, Mr.
McMillen co-founded Global Secure Corp., a homeland security company providing
integrated products and services for critical incident responders, and served as
its Chief Executive Officer from March 2003 until February 2004. From February
2004 until February 2005, Mr. McMillen served as a consultant to Global Secure
Corp. In addition, from October 2004 to July 2005, he served as a Chairman of
the board of directors of Global Defense Corporation, a development stage
company focused on acquiring companies in critical infrastructure security. From
December 2002 to February 2004, Mr. McMillen served as Vice Chairman and
Director of Sky Capital Enterprises, Inc., a venture firm, and until February
2005 served as a consultant. From March 2003 to February 2004, Mr. McMillen
served as Chairman of Sky Capital Holdings, Ltd, Sky Capital Enterprises’ London
stock exchange-listed brokerage affiliate. In addition, Mr. McMillen is a
founder and has been Chief Executive Officer and Chairman of Washington Capital
Advisors, LLC, a merchant bank, since 2003. He also served as Chairman of TPF
Capital, Washington Capital Advisors, LLC’s predecessor company, from June 2001
through December 2002. Mr. McMillen has also been an independent consultant
throughout his career. From November 1994 through February 1999, Mr. McMillen
served as the Founder, Chief Executive Officer and Director of Complete Wellness
Centers, Inc. (OTC: CMWCO), a medical multi-disciplinary clinic management
company. Mr. McMillen was appointed by President Clinton to Co-Chair the
President’s Council on Physical Fitness and Sports from 1993 to 1997. From 1987
through 1993, he served three consecutive terms in the United States House of
Representatives from the 4th
Congressional District of Maryland. Prior to that, Mr. McMillen played 11 years
in the National Basketball Association. Since October 2009, Mr. McMillen has
served on the board of directors of the Foxhall Global Trends Fund (formerly
known as the Shepherd Fund), a series of Dominion Funds, Inc. Mr. McMillen
serves on the Board of Regents of the University of Maryland System. Mr.
McMillen received a Bachelor of Science in chemistry from the University of
Maryland and a Bachelor of Arts and a Master of Arts from Oxford University as a
Rhodes Scholar.
51
Mark A.
Frantz has served as a Class B Director since October 2009, and was a
Special Advisor to our board of directors since inception Mr. Frantz founded
BlueDelta Capital Partners in October 2009, and was a General Partner at
RedShift Ventures from July 2006 to September 2009, and since then he has held
the position of Venture Parter at RedShift. Mr. Frantz currently serves on the
board of directors of RedShift Ventures’ portfolio companies Intelliworks,
Telarix and TerraGo Technologies. Mr. Frantz also serves on the board of
directors at ODIN Technologies and the Northern Virginia Technology Council
(NVTC). Mr. Frantz has also been an investor/advisor to New Media Strategies
(acquired by Meredith Corp., NYSE: MDP), Sourcefire (NASDAQ: FIRE) and Luna
Innovations (NASDAQ: LUNA). From March to July 2006, Mr. Frantz was the Managing
General Partner of In-Q-Tel, the strategic venture capital affiliate of the U.S.
Intelligence Community. From January 2001 to March 2006, Mr. Frantz was with
Carlyle Venture Partners, where he worked with Blackboard (NASDAQ: BBBB),
Imagitas (acquired by Pitney Bowes, NYSE: PBI), ISR Solutions (acquired by
Stanley Works, NYSE: SWK), and Secure Elements (acquired by Fortinet, NASDAQ:
FTNT). Mr. Frantz joined Carlyle from Redleaf and prior to Redleaf, he was the
Associate to the Senior Chairman of investment bank Alex. Brown (now Deutsche
Bank Alex. Brown, NYSE: DB). He also served as the Associate Director in his
last position at The White House Office of Intergovernmental Affairs under
President George H. W. Bush from December 1990 to January 1993 and as the
economic and technology policy advisor to Pennsylvania Governor Tom Ridge from
January 1995 to 1997. He holds a Bachelor of Arts from Allegheny College and
Juris Doctor and Master of Business Administration from the University of
Pittsburgh.
Stephen
Griessel has served as our Class A Director since October 2009. He was
the Chief Executive Officer of American Community Properties Trust (NYSEA: APO),
a public real estate investment trust, from October 2008 until its sale in
December 2009. Mr. Griessel previously served as the Managing Director of RCI
Southern Africa for nine years, from 1989 to 1998, and was a founding
shareholder and Chief Executive Officer of Tourvest, until recently a publicly
traded multi-faceted tourism company in Southern Africa, from 1997 to 2001.
Prior to his work for American Community Properties Trust, Mr. Griessel was
Executive Vice President of The Ginn Company, a developer of large scale
residential resort properties throughout the United States and the Caribbean,
from May 2004 to April 2007. Mr. Griessel received a Bachelor of Commerce and
Master of Building Science from the University of Witwatersrand in Johannesburg,
South Africa.
Independence
of Directors
As a
result of our securities being listed on the NYSE Amex until February 2010, we
adhere to the rules of that exchange in determining whether a director is
independent. The NYSE Amex requires that a majority of the board must be
composed of “independent directors,” which is defined generally as a person
other than an officer or employee of the company or its subsidiaries or any
other individual having a relationship, which, in the opinion of the company’s
board of directors would interfere with the director’s exercise of independent
judgment in carrying out the responsibilities of a director. Consistent with
these considerations, our board of directors has affirmatively determined that
C. Thomas McMillen, Mark A. Frantz and Stephen Griessel are independent
directors.
52
Audit
Committee
Our audit
committee consists of Messrs. McMillen, Frantz and Griessel with Mr. McMillen
serving as chairman. Each is an independent director under the NYSE Amex listing
standards. The audit committee’s duties, which are specified in our Audit
Committee Charter, include, but are not limited to:
·
|
reviewing
and discussing with management and the independent auditor the annual
audited financial statements, and recommending to the board whether the
audited financial statements should be included in our annual
report;
|
·
|
reviewing
significant accounting and reporting issues, including complex or unusual
transactions and highly judgmental areas and recent professional and
regulatory pronouncements and understanding their impact on the financial
statements;
|
·
|
overseeing
and ensuring the independence of the independent
auditor;
|
·
|
verifying
the rotation of the audit partners having primary responsibility for the
audit and the audit partner responsible for reviewing the audit as
required by law;
|
·
|
reviewing
and approving all related-party
transactions;
|
·
|
pre-approving
all audit services and permitted non-audit services to be performed by our
independent auditor;
|
·
|
reviewing
the performance of the independent auditor and appointing or terminating
the independent auditor;
|
·
|
Understanding
the scope of internal and external auditors’ review of internal control
over financial reporting and obtaining reports on significant findings and
recommendations, together with management’s response;
and
|
·
|
establishing
procedures for the receipt, retention and treatment of complaints received
by us regarding accounting, internal accounting controls or auditing
matters.
|
Our audit
committee will at all times be composed exclusively of “independent directors”
who are “financially literate” as defined under the NYSE Amex listing standards.
The NYSE Amex listing standards define “financially literate” as being able to
read and understand fundamental financial statements, including a company’s
balance sheet, income statement and cash flow statement.
In
addition, our board of directors has determined that Mr. McMillen satisfies the
definition of financial sophistication and also qualifies as an “audit committee
financial expert,” as defined under rules and regulations of the Securities and
Exchange Commission.
Compensation
Committee
Our
compensation committee consists of Messrs. McMillen, Frantz and Griessel as its
members, with Mr. Frantz serving as chairman. The purpose of the
compensation committee is to review and approve compensation paid to our
officers and directors and to administer our incentive compensation plans,
including our 2009 Stock Option Plan and any other plans that may be adopted in
the future, including authority to make and modify awards under such
plans.
Nominating
Committee
Our
nominating committee consists of Messrs. McMillen, Frantz and Griessel, with Mr.
Griessel, serving as chairman. During the period commencing with the closing of
the reverse merger and ending with the 2012 annual meeting, the nominees for our
board of directors will be determined pursuant to the terms of the voting
agreement described below, a copy of which was filed as an exhibit to our Form
8-K filed on November 4, 2009.
53
Director
Nominees
In
connection with the reverse merger, on October 29, 2009, the founders of Secure
American Acquisition Corporation (“SAAC”), Ultimate Resort Holdings and Ultimate
Escapes Holdings entered into a voting agreement, pursuant to which our board of
directors is set at six directors, and the SAAC founders or their respective
affiliates have the right to nominate two individuals for appointment to our
board of directors and Ultimate Resort Holdings or its affiliates have the right
to nominate four individuals for appointment to our board of directors. Both of
the nominees of the SAAC founders and two of the four nominees of Ultimate
Resort Holdings must be independent pursuant to the Securities and Exchange
Commission and the NYSE Amex rules and regulations. The SAAC founders caused
their two nominees to be appointed to the board of directors immediately prior
to the reverse merger, and Ultimate Resort Holdings caused three out of its four
nominees to be appointed to the board of directors immediately prior to the
reverse merger. There is one vacancy on the board of directors, which will be
filled at a later date. Messrs. McMillen and Frantz were appointed to
the board of directors upon nomination by the SAAC founders, and Messrs.
Tousignant, Keith and Griessel were appointed to the board of directors upon
nomination by Ultimate Resort Holdings.
Our
nominating committee is responsible for overseeing the selection of persons to
be nominated to serve on our board of directors. Our nominating committee will
consider persons identified by our stockholders, management, investment bankers
and others. The guidelines for selecting nominees, which are specified in the
nominating committee charter, provide that, generally, persons to be nominated
should have certain basic personal and professional qualities in order to
properly discharge their fiduciary duties to stockholders, provide effective
oversight of our management and monitor our adherence to principles of sound
corporate governance. The nominating committee will evaluate each individual in
the context of the board as a whole, with the objective of recommending a group
of persons that can best implement our business plan, perpetuate our business
and represent stockholder interests. The nominating committee may require
certain skills or attributes, such as financial or accounting experience, to
meet specific board needs that arise from time to time. The nominating committee
will not distinguish among nominees recommended by stockholders and other
persons. There has been no material changes to the procedures by
which security holders may recommend nominees to our board
directors.
The
guidelines for selecting nominees provide that our nominating committee will
consider and evaluate candidates based on, among other factors, the following
criteria:
•
|
Independence
under the rules of the NYSE Amex;
|
•
|
Achievement
in one or more fields of business, professional, governmental, community,
scientific or educational endeavor;
|
•
|
Sound
judgment derived from management or policy-making
experience;
|
•
|
Knowledge
of major issues facing public companies of a size and operational scope
similar to our company;
|
•
|
Moral
and ethical character; and
|
•
|
Ability
to commit the required time necessary to discharge the duties of board
membership.
|
The
traits identified with respect to the current directors as qualifications to
serve on our board of directors include:
James
M. Tousignant
|
·
|
Ability
to bring an insider’s perspective in board discussions about the business
and strategic direction of our company as our Chief Executive Officer;
and
|
·
|
Extensive
leadership experience and substantial understanding of company management
and operations, which he has gained building and managing a number of
different companies.
|
54
Richard
Keith
|
·
|
Extensive
leadership experience and substantial understanding of company management
and operations, which he has gained building and managing a number of
different companies; and
|
·
|
Extensive
experience and association with the luxury destination club
industry.
|
|
C.
Thomas McMillen
|
·
|
Qualification
as “audit committee financial expert”; and
|
·
|
Extensive
leadership experience and substantial understanding of company management
and operations, which he has gained building and managing a number of
different companies.
|
|
Mark
A. Frantz
|
·
|
Extensive
experience as an advisor and a member of the board of a number of
different companies.
|
Stephen
Griessel
|
· |
Extensive
experience and association with the tourism and resort
industry.
|
Code
of Conduct and Ethics
We have
adopted a code of conduct and ethics applicable to our directors and officers in
accordance with applicable federal securities laws and the rules of the NYSE
Amex. A copy of the Code of Conduct and Ethics is publicly available on our
website at www.ultimateescapes.com.
In addition, we will provide a copy of the Code of Conduct and Ethics without
charge to any stockholders requesting a copy in writing from our General Counsel
at our corporate headquarters.
Communication
with the Board of Directors
Our
stockholders and other interested parties may send written communications
directly to the board of directors or to specified individual directors,
including the Chairman or any non-management directors, by sending such
communications to our corporate headquarters. Such communications will be
reviewed by our legal counsel and, depending on the content, will
be:
|
•
|
forwarded
to the addressees or distributed at the next scheduled board
meeting;
|
|
•
|
if
they relate to financial or accounting matters, forwarded to the audit
committee or distributed at the next scheduled audit committee
meeting;
|
|
•
|
if
they relate to executive officer compensation matters, forwarded to the
compensation committee or discussed at the next scheduled compensation
committee meeting;
|
|
•
|
if
they relate to the recommendation of the nomination of an individual,
forwarded to the nominating committee or discussed at the next scheduled
nominating committee meeting; or
|
|
•
|
if
they relate to our operations, forwarded to the appropriate officers of
our company, and the response or other handling of such communications
reported to the board of directors at the next scheduled board
meeting.
|
Section
16(A) Beneficial Ownership Reporting Compliance
Section 16(a)
of the Exchange Act requires our directors, officers, and persons that own more
than 10% of a registered class of our equity securities to file reports of
ownership and changes in ownership with the SEC. Our officers, directors and 10%
stockholders are required by SEC regulations to furnish us with copies of all
Section 16(a) forms they file. We prepare Section 16(a) forms on
behalf of our directors and officers based on the information provided by
them.
55
Based
solely on review of this information and written representations from certain
reporting persons, we believe that, during the 2009 fiscal year, no reporting
person failed to file the forms required by Section 16(a) of the Exchange Act on
a timely basis, except for (i) a Form 3 for Nisswa Fixed Income Master Fund Ltd.
to report its holdings after it became a 10% owner on October 29, 2009 that was
reported on November 19, 2009, (ii) a Form 3 for Nisswa Acquisition Master Fund
Ltd. to report its holdings after it became a 10% owner on October 29, 2009 that
was reported on November 19, 2009, (iii) a Form 4 for Stephen Griessel to report
the acquisition of options that occurred on November 18, 2009 that was reported
on December 8, 2009, (iv) a Form 4 for C. Thomas McMillen to report the
acquisition of options that occurred on November 18, 2009 that was reported on
December 7, 2009, (v) a Form 4 for Mark A. Frantz to report the acquisition of
options that occurred on November 18, 2009 that was reported on December 4,
2009, (vi) a Form 4 for Nisswa Fixed Income Master Fund Ltd. to report the sale
of warrants that occurred on October 30, 2009 that was reported on November 19,
2009, (vii) a Form 4 for Nisswa Acquisition Master Fund Ltd. to report the sale
of warrants that occurred on October 30, 2009 that was reported on November 19,
2009, (viii) a Form 4 for C. Thomas McMillen to report the disposition of shares
of common stock pursuant to Rule 16b-3(e) that occurred on October 29, 2009 that
was reported on November 3, 2009, (ix) a Form 4 for SAAH to report the
disposition of shares of common stock pursuant to Rule 16b-3(e) that occurred on
October 29, 2009 that was reported on November 3, 2009 and (x) a Form 4 for
Thomas V. D'Ambrosio to report the acquisition and exercise of an option that
occurred on October 29, 2009 that was reported on November 3, 2009.
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
Director
Compensation and Other Information
Our board
of directors adopted a compensation plan for independent directors of the board
(the “Director Compensation Plan”), following the recommendation to do so by the
compensation committee of our board. According to the Director Compensation
Plan, our independent directors will be paid $40,000 annually, payable in
quarterly installments. Each independent director serving as the chair of the
audit committee, the compensation committee or the nominating committee will be
paid an additional $10,000 (in the case of the audit committee) or $5,000 (in
the case of the compensation and nominating committees) per year. We will
reimburse the independent directors for reasonable travel and other expenses in
connection with attending meetings of the board. Additionally, each independent
director can use our properties for a total of 14 days each calendar year,
subject to certain restrictions set forth in the Director Compensation Plan. The
Director Compensation Plan also provides for the grant of options under our 2009
Stock Option Plan to purchase our common stock at an exercise price of either
the par value of our common stock or the closing price of our common stock on
the date of grant. These options were granted upon the adoption of the Director
Compensation Plan in November 2009. Additional options may be awarded on an
annual basis in the discretion of our board of directors.
Pursuant
to the Director Compensation Plan, effective as of December 1, 2009, Mr.
McMillen was appointed as non-executive Vice Chairman of our board of directors.
For such service, Mr. McMillen will be paid $60,000 in cash per annum, payable
in arrears in equal installments on our payroll schedule, and will receive
$60,000 worth of options under our 2009 Stock Option Plan to purchase common
stock with an exercise price of $0.0001 per share, issuable in equal quarterly
installments in arrears (with the first grant to occur on February 28, 2010).
The stock issued upon exercise of the options will have “piggyback” registration
rights.
56
The
following table shows the compensation earned by our non-employee directors in
2009:
Name
|
Fees Earned
or
Paid in Cash
($)
|
Option
Awards
($) (1)(2)
|
Total
($)
|
|||||||||
C.
Thomas McMillen
|
17,500 | 11,667 | 29,167 | |||||||||
Mark
A. Frantz
|
11,250 | 11,667 | 22,917 | |||||||||
Steve
Griessel
|
11,250 | 11,667 | 22,917 |
(1)
|
Amounts
reported represent the aggregate grant date fair value computed in
accordance with FASB ASC 718.
|
(2)
|
As
of December 31, 2009, the number of aggregate shares underlying
outstanding option awards held by our non-employee directors is as
follows:
|
Name
|
Option
Awards
Outstanding
|
|||
C.
Thomas McMillen
|
17,809
|
|||
Mark
A. Frantz
|
17,809
|
|||
Steve
Griessel
|
17,809
|
Summary
Compensation Table
The
following table shows, for the years ended December 31, 2009 and 2008, the
compensation paid to or earned by our chief executive officer and the two other
most highly compensated executive officers of Ultimate Escapes in 2009, who we
refer to collectively as our named executive officers.
Name and Principal
Position(1)
|
Year
|
Salary
$
|
Stock
Awards (2)
$
|
Option
Awards(2)
$
|
Total
$
|
|||||||||||||
James
M. Tousignant, President
|
2009
|
316,154 | 3,000,000 | 793 | 3,316,947 | |||||||||||||
and
Chief Executive Officer
|
2008
|
425,769 | 925,000 | — | 1,350,769 | |||||||||||||
Philip
Callaghan, Chief Financial
|
2009
|
261,057 | 1,050,000 | 793 | 1,311,850 | |||||||||||||
Officer
and Secretary
|
2008
|
355,192 | 356,250 | — | 711,442 | |||||||||||||
Richard
Keith, Chairman(3)
|
2009
|
334,616 | — | 793 | 335,409 | |||||||||||||
2008
|
374,152 | — | — | 374,152 |
(1)
|
Includes
compensation paid by Ultimate Escapes Holdings prior to the consummation
of the reverse merger on October 29, 2009. No named executive officer was
a participant in a defined benefit or deferred compensation
plan.
|
57
(2)
|
Amounts
reported represent the aggregate grant date fair value computed in
accordance with FASB ASC 718. See Note 13 to the consolidated financial
statements included herein for the year ended December 31, 2009 for
details as to the assumptions used to determine the fair value of the
stock and option awards.
|
(3)
|
Includes
compensation paid by Private Escapes prior to September 15,
2009.
|
Outstanding
Equity Awards at Fiscal Year End 2009
None of
the named executive officers held outstanding equity awards at December 31,
2009.
Employment
Agreements
We
entered into employment agreements with each of James M. Tousignant, Richard
Keith and Philip Callaghan, effective as of October 29, 2009.
James
Tousignant Employment Agreement
Mr.
Tousignant’s employment agreement with us provides for an annual base salary of
$450,000 and will increase each year of the term by 10%. In addition, Mr.
Tousignant is eligible to receive an annual bonus each year of the term of at
least 10% and at most 100% of his base salary, determined at the sole discretion
of the board of directors and based on such factors as the board of directors
establishes. Mr. Tousignant is also eligible to receive a pro rata bonus amount
for the portion of the year he was employed should his employment terminate
other than for Cause (as defined in the employment agreement). In addition, Mr.
Tousignant is entitled to additional benefits, including reimbursement of
business expenses, paid vacation, a $25,000 per year car allowance, continuation
of certain Ultimate Escapes luxury destination club memberships and
participation in other company benefits, plans, or programs that may be
available to other senior executives from time to time. The employment agreement
also entitles Mr. Tousignant to certain equity incentives, in an amount yet to
be determined by the compensation committee but which will vest ratably in three
equal annual installments commencing on the first anniversary of the initial
grant date(s) thereof, and may be further accelerated or forfeited as set forth
in the equity agreement that the parties will enter into in connection with the
employment agreement.
The
employment agreement has an initial term beginning on October 29, 2009, and
ending on October 29, 2012, unless sooner terminated by the parties in
accordance with the terms of the employment agreement, or extended for
successive one-year terms, unless either party gives written notice within 90
days prior to the end of the term that such party desires not to renew the
employment agreement.
The
employment agreement permits the parties to terminate the agreement at any time
for any reason. Should the employment agreement terminate because of the
expiration of the agreement term, for Cause or due to the voluntary resignation
by Mr. Tousignant without Good Reason (as those terms are defined in the
employment agreement), then the employment agreement entitles Mr. Tousignant to
the compensation and benefits, including payment for accrued but untaken
vacation days, otherwise payable to him through the last day of his employment
(his “Accrued Obligations”). However, should we terminate Mr. Tousignant’s
employment without Cause, or should the agreement terminate due to Mr.
Tousignant’s death or disability, or should Mr. Tousignant resign his employment
for Good Reason, then, subject to the execution of a release by Mr. Tousignant,
the employment agreement will entitle Mr. Tousignant to his Accrued Obligations
and his annual base salary then in effect for a period of twelve months on a
regular payroll basis, and continued coverage under, and contributions towards,
Mr. Tousignant’s health care, dental, disability and life insurance benefits on
the same basis as immediately prior to the date of termination, for twelve
months from the last day of Mr. Tousignant’s employment; subject to certain
exceptions, including that we are relieved of our obligation to provide
continued benefit coverage should Mr. Tousignant become covered by an equivalent
benefit from another source.
58
The
employment agreement requires us to indemnify Mr. Tousignant to the same extent
we indemnify our officers and directors under our charter and bylaws, including
maintaining Directors and Officers insurance.
The
employment agreement includes a confidentiality provision prohibiting Mr.
Tousignant from misappropriating our confidential and proprietary information.
The employment agreement includes a non-solicitation provision prohibiting Mr.
Tousignant from soliciting our employees and customers for a period of (i) one
year from the date of his termination or (ii) 30 months from the closing date of
the reverse merger, whichever is longer. The employment agreement prohibits Mr.
Tousignant from competing with us, including any company providing luxury
destination club vacation opportunities or the ownership and/or operation of a
business of providing luxury destination club vacation opportunities for a
period of (a) one year from the date of his termination or (b) 30 months from
the closing date of the reverse merger, whichever is longer.
Richard
Keith Employment Agreement
Mr.
Keith’s employment agreement with us provides for an annual base salary of
$375,000. In addition, Mr. Keith is eligible to receive an annual bonus
determined at the sole discretion of the board of directors and based on such
factors as the board of directors establishes. Mr. Keith is also eligible to
receive a pro rata
bonus amount for the portion of the year he was employed should his employment
terminate other than for Cause (as defined in the employment agreement). In
addition, Mr. Keith is entitled to additional benefits, including reimbursement
of business expenses, paid vacation, and participation in other company
benefits, plans, or programs that may be available to our other senior
executives from time to time. The employment agreement also provides that Mr.
Keith is eligible to receive certain equity incentives, in an amount and with a
vesting schedule to be determined by our board of directors, and may be further
accelerated or forfeited as set forth in the equity agreement that the parties
may enter into in connection with the employment agreement.
The
employment agreement has an initial term beginning on October 29, 2009, and
ending on October 29, 2010, unless sooner terminated by the parties in
accordance with the terms of the employment agreement, or extended for
successive one-year terms, unless either the executive or we give written notice
within 60 days prior to the end of the term that such party desires not to renew
the employment agreement.
The
employment agreement permits the parties to terminate the agreement at any time
for any reason. Should the employment agreement terminate because of the
expiration of the agreement term, for Cause, or due to the voluntary resignation
by Mr. Keith without Good Reason (as those terms are defined in the employment
agreement), then the employment agreement entitles Mr. Keith to the compensation
and benefits, including payment for accrued but untaken vacation days, otherwise
payable to him through the last day of his employment (his “Accrued
Obligations”). However, should we terminate Mr. Keith’s employment without
Cause, or should the agreement terminate due to Mr. Keith’s death or disability,
or should Mr. Keith resign his employment for Good Reason, then, subject to the
execution of a release by Mr. Keith, the employment agreement will entitle Mr.
Keith to his Accrued Obligations and his annual base salary then in effect for a
period of six months on a regular payroll basis, and continued coverage under,
and contributions towards, Mr. Keith’s health care, dental, disability and life
insurance benefits on the same basis as immediately prior to the date of
termination, for six months from the last day of Mr. Keith’s employment; subject
to certain exceptions, including that we are relieved of our obligation to
provide continued benefit coverage should Mr. Keith become covered by an
equivalent benefit from another source.
The
employment agreement requires us to indemnify Mr. Keith to the same extent as we
indemnify our officers and directors under our charter and bylaws, including
maintaining Directors and Officers insurance.
59
The
employment agreement includes a confidentiality provision prohibiting Mr. Keith
from misappropriating our confidential and proprietary information. The
employment agreement includes a non-solicitation provision prohibiting Mr. Keith
from soliciting our employees and customers for a period of (i) one year from
the date of his termination or (ii) 30 months from the closing date of the
reverse merger, whichever is longer. The employment agreement prohibits Mr.
Keith from competing with us, including any company providing luxury destination
club vacation opportunities or the ownership and/or operation of a business of
providing luxury destination club vacation opportunities for a period of (a) one
year from the date of his termination or (b) 30 months from the closing date of
the reverse merger, whichever is longer.
Philip
Callaghan Employment Agreement
Mr.
Callaghan’s employment agreement with us provides for an annual base salary of
$375,000. In addition, Mr. Callaghan is eligible to receive an annual bonus
determined at the sole discretion of the board of directors and based on such
factors as the board of directors establishes. Mr. Callaghan is also eligible to
receive a pro rata bonus amount for the portion of the year he was employed
should his employment terminate other than for Cause (as defined in the
employment agreement). In addition, Mr. Callaghan is entitled to additional
benefits, including reimbursement of business expenses, paid vacation, and
participation in other company benefits, plans, or programs that may be
available to other senior executives from time to time. The employment agreement
also provides that Mr. Callaghan is eligible to receive certain equity
incentives, in an amount and with a vesting schedule to be determined by the our
board of directors, and may be further accelerated or forfeited as set forth in
the equity agreement that the parties may enter into in connection with the
employment agreement.
The
employment agreement has an initial term beginning on October 29, 2009, and
ending on October 29, 2010, unless sooner terminated by the parties in
accordance with the terms of the employment agreement, or extended for
successive one-year terms, unless either party gives written notice within 60
days prior to the end of the term that such party desires not to renew the
employment agreement.
The
employment agreement permits the parties to terminate the agreement at any time
for any reason. Should the employment agreement terminate because of the
expiration of the agreement term, for Cause, or due to the voluntary resignation
by Mr. Callaghan without Good Reason (as those terms are defined in the
employment agreement), then the employment agreement entitles Mr. Callaghan to
the compensation and benefits, including payment for accrued but untaken
vacation days, otherwise payable to him through the last day of his employment
(his “Accrued Obligations”). However, should we terminate Mr. Callaghan’s
employment without Cause, or should the agreement terminate due to Mr.
Callaghan’s death or disability, or should Mr. Callaghan resign his employment
for Good Reason, then, subject to the execution of a release by Mr. Callaghan,
the employment agreement will entitle Mr. Callaghan to his Accrued Obligations
and his annual base salary then in effect for a period of six months on a
regular payroll basis, and continued coverage under, and contributions towards,
Mr. Callaghan’s health care, dental, disability and life insurance benefits on
the same basis as immediately prior to the date of termination, for six months
from the last day of Mr. Callaghan’s employment; subject to certain exceptions,
including that we are relieved of our obligation to provide continued benefit
coverage should Mr. Callaghan become covered by an equivalent benefit from
another source.
The
employment agreement requires us to indemnify Mr. Callaghan to the same extent
we indemnify our officers and directors under our charter and bylaws, including
maintaining Directors and Officers insurance.
The
employment agreement includes a confidentiality provision prohibiting Mr.
Callaghan from misappropriating our confidential and proprietary information.
The employment agreement includes a non-solicitation provision prohibiting Mr.
Callaghan from soliciting our employees and customers for a period of (i) one
year from the date of his termination or (ii) 30 months from the closing date of
the reverse merger, whichever is longer. The employment agreement prohibits Mr.
Callaghan from competing with us, including any company providing luxury
destination club vacation opportunities or the ownership and/or operation of a
business of providing luxury destination club vacation opportunities for a
period of (a) one year from the date of his termination or (b) 30 months from
the closing date of the reverse merger, whichever is longer.
60
2009
Stock Option Plan
In
October 2009, our stockholders approved the adoption of the 2009 Stock Option
Plan. The Plan provides for the issuance of a maximum of 1,200,000 shares of
common stock in connection with the grant of options to our employees, directors
and consultants. As of December 31, 3009, options to purchase a total of 53,427
shares of our common stock, at a weighted average exercise price of $5.65, were
outstanding under the Plan, and 1,137,773 shares of common stock remained
available for issuance pursuant to future option grants under the
Plan.
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
|
The
following table sets forth information known to us regarding the beneficial
ownership of our common stock as of March 31, 2010 by:
|
•
|
each
person known by us to be the beneficial owner of more than 5% of the
outstanding shares of the our common stock on March 31,
2010;
|
|
•
|
each
of our current named executive officers and directors;
and
|
|
•
|
all
of our executive officers and directors as a
group.
|
Unless
otherwise indicated, we believe that all persons named in the table below have
sole voting and investment power with respect to all shares of common stock
beneficially owned by them.
Beneficial
ownership is determined in accordance with the rules of the SEC, and is based on
a total of 2,517,793 shares of our common stock outstanding as of March 31,
2010. In computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of common stock subject to options,
warrants or rights held by that person that are currently exercisable or
exercisable, convertible or issuable within 60 days of March 31, 2010, are
deemed outstanding. Such shares, however, are not deemed outstanding for the
purpose of computing the percentage ownership of any other person. Information
in the following table (i) does not reflect beneficial ownership of any shares
of our common stock into which earn-out units which may be issued pursuant to
the Operating Agreement may be exchanged and (ii) assumes that none of the
escrowed indemnification units are forfeited by the UE Owners.
Name and Address of Beneficial Owner(1)
|
Number of
Shares
Beneficially
Owned
|
Approximate
Percentage of
Outstanding
Common
Stock
|
||||||
Executive
officers and directors:
|
||||||||
James
M. Tousignant(2)
|
3,875,333 | 60.8 | % | |||||
Richard
Keith(3)
|
574,407 | 18.6 | % | |||||
Philip
Callaghan(4)
|
1,100 | * | ||||||
C.
Thomas McMillen(5)
|
1,363,947 | 36.8 | % | |||||
Mark
Frantz
|
2,518 | * | ||||||
Stephen
Griessel(6)
|
— | * | ||||||
All
officers and directors as a group (10 individuals)(2)(3)(4)(5)(6)
|
5,821,703 | 71.5 | % | |||||
Other
5% Stockholders:
|
||||||||
Ultimate
Resort Holdings, LLC(8)
|
3,858,571 | 60.5 | % | |||||
JDI
Ultimate, L.L.C.(9)
|
3,123,797 | 55.4 | % | |||||
Private
Escapes Holdings, LLC(10)
|
574,307 | 18.6 | % | |||||
Secure
America Acquisition Holdings, LLC(11)
|
2,372,082 | 51.6 | % | |||||
Brian
Taylor(12)
|
1,661,450 | 39.8 | % |
61
*
|
Less
than 1%
|
(1)
|
Unless
otherwise indicated, the primary business address of each beneficial owner
is 3501 West Vine Street, Suite 225, Kissimmee, Florida
34741.
|
(2)
|
Reflects
the ownership by Mr. Tousignant of 16,762 shares of common stock and
3,858,571 shares of common stock into which 3,858,571 ownership units in
Ultimate Escapes Holdings may be exchanged, all of which units are owned
by Ultimate Resort Holdings. Mr. Tousignant is a member of the board of
managers of Ultimate Resort Holdings. Mr. Tousignant also holds a majority
of the voting rights in, is a principal of the manager of, and owns a
43.8% interest in, Ultimate Resort which is the sole owner of Ultimate
Resort Holdings. Accordingly, Mr. Tousignant may be deemed to beneficially
own all of the 3,858,571 shares of common stock into which the 3,858,571
ownership units in Ultimate Escapes Holdings owned by Ultimate Resort
Holdings may be exchanged. See footnote (8). Mr. Tousignant disclaims
beneficial ownership of all such shares, except to the extent of his
pecuniary interest therein.
|
(3)
|
Reflects
the ownership by Mr. Keith of 100 shares of common stock and 574,307
shares of common stock into which 574,307 ownership units in Ultimate
Escapes Holdings may be exchanged, all of which units are owned by PE
Holdings. Mr. Keith is the managing member of, and owns a 75% interest in,
PE Holdings. Accordingly, Mr. Keith may be deemed to beneficially own all
of the 574,307 shares of common stock into which the 574,307 ownership
units in Ultimate Escapes Holdings owned by PE Holdings may be exchanged.
See footnote (10). Mr. Keith disclaims beneficial ownership of all such
shares, except to the extent of his pecuniary interest therein. Mr.
Keith’s primary business address is 145 East Mountain Avenue, Fort
Collins, Colorado 80524.
|
(4)
|
Excludes
shares of common stock into which ownership units in Ultimate Escapes
Holdings which are owned by Ultimate Resort Holdings may be exchanged. Mr.
Callaghan has a minority interest in Ultimate Resort, which is the sole
owner of Ultimate Resort Holdings.
|
(5)
|
Mr.
McMillen owns 57.5% of the ownership interests of Secure America
Acquisition Holdings, LLC, which includes 12,117 shares deemed to be
beneficially owned by Mr. McMillen through his 29.6% ownership in Homeland
Security Capital Corporation. The number of shares beneficially owned
includes 1,193,487 shares issuable upon exercise of warrants held by
Secure America Acquisition Holdings, LLC. See footnote (11). Mr.
McMillen’s primary business address is 1005 North Glebe Road, Suite 550,
Arlington, Virginia 22201.
|
(6)
|
Excludes
shares of common stock into which ownership units in Ultimate Escapes
Holdings which are owned by Ultimate Resort Holdings may be exchanged. Mr.
Griessel has a minority interest in Ultimate Resort, which is the sole
owner of Ultimate Resort Holdings. Mr. Griessel’s primary business address
is 222 Smallwood Village Center, Waldorf, Maryland
20602.
|
(7)
|
Also
excludes shares of common stock into which ownership units in Ultimate
Escapes Holdings which are owned by Ultimate Resort Holdings may be
exchanged. Messrs. Amonette and D’Ambrosio each has a minority interest in
Ultimate Resort, which is the sole owner of Ultimate Resort
Holdings.
|
(8)
|
Reflects
the ownership by Ultimate Resort Holdings of 3,858,571 shares of common
stock into which 3,858,571 ownership units in Ultimate Escapes Holdings
which are owned by Ultimate Resort Holdings may be exchanged. Ultimate
Resort is the sole owner of Ultimate Resort Holdings. Accordingly,
Ultimate Resort may be deemed to beneficially own all of the 3,858,571
shares of common stock into which the 3,858,571 ownership units in
Ultimate Escapes Holdings owned by Ultimate Resort Holdings may be
exchanged. Ultimate Resort disclaims beneficial ownership of all such
shares, except to the extent of its pecuniary interest
therein.
|
62
(9)
|
Reflects
the ownership by JDI of 3,123,797 shares of common stock into which
3,123,797 ownership units in Ultimate Escapes Holdings which are owned by
JDI may be exchanged. JDI’s primary business address is 813 North Elston
Avenue, Chicago, Illinois 60622.
|
(10)
|
Reflects
the ownership by PE Holdings of 574,307 shares of common stock into which
574,307 ownership units in Ultimate Escapes Holdings which are owned by PE
Holdings may be exchanged. PE Holdings’ primary business address is 145
East Mountain Avenue, Fort Collins, Colorado
80524.
|
(11)
|
Secure
America Acquisition Holdings, LLC is the record holder of 297,082 shares
of our common stock and warrants to purchase an aggregate of 2,075,000
shares of our common stock. Secure America Acquisition Holdings, LLC
serves solely as a holding company with respect to our securities and has
no operations. The membership interests of Secure America Acquisition
Holdings, LLC are held as follows: C. Thomas McMillen (49.94%); Harvey L.
Weiss (13.67%); Homeland Security Capital Corporation (13.77%); S. Kent
Rockwell (10.59%); Michael Brigante (3.51%); James Maurer (2.22%); Philip
A. McNeill (4.24%); Brian Griffin (1.06%) and Secure America Holdings, LLC
(1%). Under the terms of a proxy agreement with the managing member,
Secure America Holdings, LLC, Messrs. McNeill and Rockwell share voting
and investment power with respect to all 297,082 shares of common stock
held by Secure America Acquisition Holdings, LLC, and thus each may be
deemed to beneficially own all such shares, although each of Messrs.
McNeill and Rockwell disclaim beneficial ownership of such shares except
to the extent of their respective pecuniary
interests.
|
(12)
|
Reflects
shares of common stock issuable upon exercise of warrants beneficially
owned by Brian Taylor, Nisswa Acquisition Master Fund, Ltd. (“Master
Fund”), Nisswa Fixed Income Master Fund Ltd. (“Fixed Income Fund”), and/or
Pine River Capital Management L.P., the investment manager of Fixed Income
Fund (the “Investment Manager”), based on a Schedule 13D filed by such
persons on November 19, 2009. The address of these reporting persons is
601 Carlson Parkway, Suite 330, Minnetonka, Minnesota
55305.
|
Equity
Compensation Plan Information
The
following table sets forth certain information as of the end of the most
recently completed fiscal year with respect to compensation plans (including
individual compensation arrangements) under which our equity securities are
authorized for issuance.
Number of Securities
|
Weighted Average
|
|||||||||||
to be Issued Upon
|
Exercise Price of
|
Number of
|
||||||||||
Exercise of Outstanding
|
Outstanding
|
Securities
|
||||||||||
Options, Warrants
|
Options, Warrants
|
Remaining Available
|
||||||||||
Plan Category
|
and Rights
|
and Rights
|
for Future Issuance
|
|||||||||
Equity
compensation plans approved by security holders
|
53,427 | 5.65 | 1,137,773 | |||||||||
Equity
compensation plans not approved by security holders
|
- | - | - |
63
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
|
Review
and Approval of Transactions with Related Persons
Our audit
committee, pursuant to its written charter, is responsible for reviewing and
approving all transactions or arrangements in which we were or will be a
participant in which any director, executive officer, holder of 5% or more of
any class of our capital stock or any member of the immediate family of any of
the foregoing persons had or will have a direct or indirect material interest.
The audit committee will consider all relevant factors when determining whether
to approve a related party transaction, including whether the related party
transaction is on terms no less favorable than terms generally available to an
unaffiliated third party under the same or similar circumstances and the extent
of the related party’s interest in the transaction. No director may participate
in the approval of any transaction in which he is a related party, but that
director is required to provide the audit committee with all material
information concerning the transaction. Additionally, we require each of our
directors and executive officers to complete a directors’ and officers’
questionnaire on an annual basis that elicits information about related party
transactions. These procedures are intended to determine whether any such
related party transaction impairs the independence of a director or presents a
conflict of interest on the part of a director, employee or
officer.
Transactions
with Related Persons
Other
than the transactions described under the heading “Executive Compensation” (or
with respect to which such information is omitted in accordance with SEC
regulations) and the transactions described below, since January 1, 2008, there
have not been, and there is not currently proposed, any transaction or series of
similar transactions to which we were or will be a participant in which the
amount involved exceeded or will exceed the lesser of (i) $120,000 or (ii) one
percent of the average of our company’s total assets at year end for the last
two completed fiscal years, and in which any director, executive officer, holder
of 5% or more of any class of our capital stock or any member of the immediate
family of any of the foregoing persons had or will have a direct or indirect
material interest.
Founder
Shares
In May
2007, we issued an aggregate of 2,500,000 shares of our common stock to SAAH
(our principal initial stockholder and an entity controlled by Philip A. McNeill
and S. Kent Rockwell, members of our board of directors prior to the reverse
merger and certain other members of our management prior to the reverse merger)
for a total purchase price of $25,000. At the closing of the reverse merger, the
2,500,000 shares of common stock issued to SAAH were reduced to 314,705 shares
pursuant to the terms of the Contribution Agreement.
Reverse
Merger
On
October 29, 2009, we consummated the reverse merger with Ultimate Escapes
Holdings. Pursuant to the terms of the Contribution Agreement, we received
1,232,601 ownership units of Ultimate Escapes Holdings, in consideration for
contributing $9.8 million to Ultimate Escapes Holdings. The UE Owners retained
the remaining 7,556,675 ownership units of Ultimate Escapes Holdings, which,
under the terms of the Operating Agreement, may be converted by the UE Owners on
a one-to-one basis into shares of our common stock. Of such retained units,
717,884 units were deposited into escrow at the closing of the reverse merger to
secure the indemnification obligations of the UE Owners to us in connection with
the reverse merger, pursuant to an escrow and indemnification agreement.
Additionally, the UE Owners are eligible to receive up to an aggregate of
7,000,000 additional ownership units of Ultimate Escapes Holdings, convertible
on a one-to-one basis into shares of our common stock, upon the achievement by
Ultimate Escapes Holdings of certain Adjusted EBITDA milestones, as set forth in
the Operating Agreement. For each ownership unit of Ultimate Escapes Holdings
issued to the UE Owners, James T. Tousignant, in his capacity as the Owner
Representative, also received one share of our Series A Voting Preferred Stock.
At any time that any UE Owner exchanges ownership units of Ultimate Escapes
Holdings for shares of our common stock, a like number of shares of Series A
Voting Preferred Stock will be canceled. Upon consummation of the reverse
merger, Ultimate Escapes Holdings became our subsidiary, and the business and
assets of Ultimate Escapes Holdings and its subsidiaries are our only
operations. In connection with the reverse merger, we entered into the
employment agreements described in Item 10 - Executive
Compensation.
64
Operating
Agreement of Ultimate Escapes Holdings
In
connection with the reverse merger, on October 29, 2009, we, Ultimate Escapes
Holdings, Ultimate Resort Holdings, JDI and PE Holdings entered into the
Operating Agreement, which provides for the management of Ultimate Escapes
Holdings after the consummation of the reverse merger. Under the terms of the
Operating Agreement, the board of managers of Ultimate Escapes Holdings will
mirror the board of directors of our company at all times during which the
voting agreement as described below is in effect.
Pursuant
to the Operating Agreement, the UE Owners will have the right to receive, in the
aggregate, the following amount of additional Ultimate Escapes Holdings’
ownership units, in proportion to their respective earn-out sharing percentages,
subject to the conditions described below:
|
•
|
Up
to 3,000,000 earn-out units will be issued if Ultimate Escapes Holdings’
Adjusted EBITDA (as defined below) for fiscal 2010 or fiscal 2011 is
greater than $23 million, as
follows:
|
If
Adjusted EBITDA for fiscal 2010 or fiscal 2011 is equal to or greater than $27
million, an aggregate of 3,000,000 earn-out units will be issued;
or
If
Adjusted EBITDA for fiscal 2010 is greater than $23 million but less than $27
million, the number of earn-out units to be issued shall equal a corresponding
proportionate percentage of the 3,000,000 earn-out units equal to the Adjusted
EBITDA earned for the applicable year in excess of $23,000,000 divided by
$4,000,000.
|
•
|
Up
to 4,000,000 earn-out units will be issued if Ultimate Escapes Holdings’
Adjusted EBITDA for fiscal 2011 or fiscal 2012 is greater than $32
million, as follows:
|
If
Adjusted EBITDA for fiscal 2011 or fiscal 2012 is equal to or greater than $45
million, an aggregate of 4,000,000 earn-out units will be issued;
or
If
Adjusted EBITDA for fiscal 2011 is greater than $32 million but less than $45
million, the number of earn-out units to be issued shall equal a corresponding
proportionate percentage of the 4,000,000 earn-out units equal to the Adjusted
EBITDA earned for the applicable year in excess of $32,000,000 divided by
$13,000,000.
“Adjusted
EBITDA,” with respect to any period, means, as determined in accordance with
GAAP, the difference between our revenues (plus the non-refundable portion of
membership fees to the extent such membership fees are not included in revenue
pursuant to GAAP) and our expenses, on a consolidated basis for such period,
plus the sum of (i) interest expense, (ii) income tax expense, (iii)
depreciation expense and (iv) amortization expense but (v) excluding all
non-cash compensation related to our 2009 Stock Option Plan.
The UE
Owners also have the right to exchange each of their Ultimate Escapes Holdings’
ownership units, including all earn-out units received, if any, at any time for
shares of our common stock. However, we may, in our sole discretion, elect to
make a cash payment to holders of ownership units in lieu of issuing common
stock. The exchange ratio for any ownership units so converted into shares of
our common stock will be one-for-one.
65
Voting
Agreement
Also in
connection with the reverse merger, on October 29, 2009, the SAAC founders,
Ultimate Resort Holdings and Ultimate Escapes Holdings entered into a voting
agreement, pursuant to which, until October 28, 2012, our board of directors is
set at six directors, and the SAAC founders or their respective affiliates have
the right to nominate two individuals for appointment to our board of directors
following the and Ultimate Resort Holdings or its affiliates have the
right to nominate four individuals for appointment to our board of directors
following the reverse merger. Both of the nominees of the SAAC founders and two
of the nominees of Ultimate Resort Holdings must be independent pursuant to the
Securities and Exchange Commission and the NYSE Amex rules and regulations. The
SAAC founders caused their nominees to be appointed to the board of directors
immediately prior to the reverse merger, and Ultimate Resort Holdings caused
three out of its four nominees to be appointed to the board of directors
immediately prior to the reverse merger. There is one vacancy on the board of
directors, which will be filled at a later date.
Secure
America Acquisition Holdings Voting Agreement
On
November 11, 2009, Ultimate Escapes Holdings, Ultimate Resort Holdings, SAAH and
certain direct or indirect owners of SAAH, including Mr. McMillen, entered into
a voting agreement pursuant to which, among other things, SAAH granted to
Ultimate Resort Holdings a proxy to vote the shares of our common stock owned by
SAAH or its direct or indirect owners until November 11, 2010. Also pursuant to
this voting agreement, we agreed to repay certain advances previously made by
certain members of SAAH to us, in the aggregate amount of $225,000 plus interest
at the rate of 6% through payment in full on January 31, 2010. We also agreed to
provide to SAAH, for the benefit of certain SAAH members (including Mr.
McMillen) use of an Elite
Club platinum membership for a period of three years.
Indemnification
Escrow
Also on
October 29, 2009, we, Ultimate Escapes Holdings, the Owner Representative and
SunTrust Banks, Inc., as escrow agent, entered into an indemnification and
escrow agreement, which provides that the covenants, agreements and
representations and warranties of a party made in or pursuant to the
Contribution Agreement shall survive the closing of the reverse merger until the
earlier of (i) the fifteenth day after the date we file with the SEC our Annual
Report on Form 10-K for the year ending December 31, 2010 or (ii) April 15,
2011; provided, however, that certain of the representations and warranties will
survive until the expiration of the applicable statutes of limitation for claims
thereunder; and provided, further that certain of the representations and
warranties, designated as the “Fundamental Representations,” shall survive for
six years after the closing of the reverse merger. Each of us, on the one hand,
and the UE Owners, jointly and severally, on the other hand (each of which is
referred to as a party and for the purpose of this description of the
indemnification provisions, the “indemnifying party”), have agreed to indemnify
and hold the other parties (the “indemnified party,” which expression shall
include its affiliates, and its or their successors and assigns and respective
directors, officers, employees and agents), harmless from and against any
liability, claim (including claims by third parties), demand, judgment, loss,
cost, damage, or expense whatsoever (including reasonable attorneys’,
consultants’ and other professional fees and disbursements of every kind, nature
and description), which are referred to collectively herein as the “Damages”,
that arise from (i) any breach of any representation or warranty of such
indemnifying party contained in the Contribution Agreement and (ii) any fraud or
intentional misconduct committed by the indemnifying party.
66
At the
closing of the reverse merger, the UE Owners deposited into escrow a total of
717,884 ownership units of Ultimate Escapes Holdings (the “Escrowed
Indemnification Units”). The Escrowed Indemnification Units will be used to
satisfy indemnification claims pursuant to the terms of the Indemnification and
Escrow Agreement. No amount shall be payable to an indemnified party unless and
until the aggregate amount of all indemnifiable Damages otherwise payable to all
indemnified parties exceeds $600,000, in which event the amount payable shall
only be the amount in excess of $600,000. Moreover, the indemnification
obligations of the UE Owners shall not in any event exceed 10% of the Retained
Units (as defined in the Operating Agreement); provided that, with respect to
any Damages based on breach of the Fundamental Representations or on fraud or
intentional misconduct, the aggregate liability for Damages shall be 25% of the
Retained Units; and provided, further, that, in no event shall the aggregate
liability for Damages exceed 25% of the Retained Units.
In
addition, a portion of the earn-out payable under the Operating Agreement equal
to 15% of the Retained Units is subject to set-off for any claim for Damages
that the SAAC indemnified parties have against the UE Owners, including, without
limitation, any claim for Damages which is based on a breach of a Fundamental
Representation or on fraud or intentional misconduct. This right of set-off is
in addition to, and not in lieu of, the indemnification rights discussed above,
however, the parties have agreed that we shall first look to any units held in
escrow prior to attempting to set-off any amounts from future earn-out
payments.
The
Escrowed Indemnification Units will be released from escrow on the earlier to
occur of: (i) the fifteenth day after the date we file our Annual Report on Form
10-K for the year ending December 31, 2010 with the SEC, and (ii) April 15,
2011, less that portion of the units applied in satisfaction of or reserved with
respect to escrow claims. With respect to any escrow claims properly and timely
delivered pursuant to the Indemnification and Escrow Agreement that remain
unresolved at the time of the release of Escrowed Indemnification Units, a
portion of the Escrowed Indemnification Units shall remain in escrow until such
claims are resolved, at which time the remaining Escrowed Indemnification Units
shall be promptly returned to the UE Owners.
Private
Escapes Contribution Agreement
On
September 15, 2009, pursuant to the terms of an amended and restated
contribution agreement among Ultimate Escapes Holdings, PE Holdings and the
other parties thereto, PE Holdings, an entity controlled by Mr. Keith,
contributed various assets, liabilities, properties, and rights to Ultimate
Escapes Holdings in exchange for an 8% ownership interest in Ultimate Escapes
Holdings. The assets contributed to Ultimate Escapes Holdings at the closing of
the contribution agreement included 49 real properties, the Private Escapes
destination clubs and the majority of Private Escapes’ destination club
memberships. This contribution was consummated through assignments of ownership
interests in subsidiaries of PE Holdings and various direct transfers of assets
to Ultimate Escapes Holdings and its subsidiaries.
Real
Property Leases
Our
corporate headquarters at 3501 W. Vine Street, Suite 225, Kissimmee, Florida
34741, is leased from La Mirada Plaza, LLC, an affiliate of Mr. Tousignant, at a
rate of $11,650 per month pursuant to a lease that commenced in March 2005 and
expires on October 31, 2010.
Private
Escapes Financing Arrangements
Private
Escapes Pinnacle, LLC, a subsidiary of PE Holdings, borrowed $3.75 million from
Kederike, LLC (“Kederike”), an entity in which Mr. Keith is a 50% owner,
pursuant to a loan agreement dated June 1, 2006, as subsequently amended. The
loan proceeds were used to pay a portion of the purchase price for the
acquisition of four properties. Interest accrues on the loan at a rate equal to
1.5 percentage points over the interest rate applicable to the primary bank loan
financing the acquisition of the properties. Upon the consummation of the
acquisition of certain assets and liabilities of PE Holdings Private Escapes by
Ultimate Escapes Holdings on September 15, 2009, Ultimate Escapes Holdings
acquired one of these four properties and assumed liability for $234,000 of the
$936,000 outstanding principal balance of the loan related to that property; the
remaining three properties, and the remainder of the loan balance, were retained
and assumed by an entity controlled by Mr. Keith. The maturity date of the loan
was October 15, 2009; however, the parties have renegotiated an extension of the
maturity date until June 30, 2010 on substantially the same
terms.
67
During
2007, Mr. Keith purchased seven properties which he leased to Private Escapes
and Private Escapes assumed liability for the mortgage, but for which he
remained liable as a guarantor for the mortgage, for a monthly payment equal to
the amount of the mortgage payments. During 2008, all but one of these
properties were purchased from Mr. Keith, at the original acquisition cost, by
subsidiaries of Private Escapes. Mr. Keith continues to own the remaining
property. The total lease payments made to Mr. Keith under these lease
arrangements were $345,849 in 2008 and $202,505 in 2009. As part of the
September 15, 2009 acquisition of certain assets and liabilities of Private
Escapes by Ultimate Escapes Holdings, Ultimate Escapes Holdings acquired four of
these properties. Two of the remaining properties continue to be owned by PE
Holdings, an entity controlled by Mr. Keith, and Mr. Keith continues to own one
property. Ultimate Escapes Holdings has negotiated new leases with PE Holdings
and Mr. Keith for two of the three remaining properties. These leases expired on
March 31, 2010 and provide for a monthly rental rate equal to the monthly
carrying cost of each property, which is approximately $17,000 per month per
property.
Mr. Keith
has executed a personal guaranty of mortgages for certain properties owned by
subsidiaries of PE Holdings, which subsidiaries or properties were acquired by
Ultimate Escapes Holdings. As of December 31, 2009, the aggregate original loan
amounts of the mortgages guaranteed by Mr. Keith were approximately $7.4
million.
Prior to
Ultimate Escapes Holdings’ acquisition of certain assets and liabilities of
Private Escapes, a subsidiary of Private Escapes was a minority member in Villa
Bugambilia, LLC, an entity which owns a property located in Mexico on which a
condominium is being constructed. Mr. Keith currently owns a majority interest
in, and is the managing member of Villa Bugambilia. Upon the closing of Ultimate
Escapes Holdings’ acquisition of certain assets and liabilities of Private
Escapes, Mr. Keith contributed a portion of his ownership interest (5%) in Villa
Bugambilia to Ultimate Escapes Holdings, such that Mr. Keith and Ultimate
Escapes Holdings have ownership interests of 71.2% and 15%,
respectively.
Mr. Keith
borrowed $505,001 from PE Holdings in March 2008. Mr. Keith repaid $250,000 of
the principal amount of the loan in November 2008. Upon the closing of Ultimate
Escapes Holdings’ acquisition of certain assets and liabilities of PE Holdings,
Ultimate Escapes Holdings received a 5% equity interest in Villa Bugamabilia,
and the balance of the loan amount was forgiven. No interest was paid on the
loan.
Registration
Rights
Our
founders holding a majority of the outstanding 314,705 shares held by our
founders are entitled to demand that we register these shares pursuant to an
agreement dated October 23, 2007. The holders of the majority of these shares
may elect to exercise these registration rights at any time commencing on the
date on which their shares are released from escrow (one year after the
consummation of the reverse merger). In addition, these stockholders have
certain “piggyback” registration rights with respect to registration statements
filed by us subsequent to the date on which these shares of common stock are
released from escrow.
The
holders of the majority of our sponsor warrants or underlying shares are
entitled to demand that we register these securities pursuant to the
registration rights agreement referred to above. The holders of the majority of
these securities may elect to exercise these registration rights with respect to
such securities at any time. In addition, these holders will have certain
“piggyback” registration rights with respect to registration statements filed
subsequent to such date.
68
In
connection with the reverse merger, on October 29, 2009, we entered into a
registration rights agreement with the UE Owners, pursuant to which the UE
Owners are entitled to registration rights, subject to certain limitations, with
respect to shares of our common stock for which their ownership units of
Ultimate Escapes Holdings may be exchanged. We have agreed, as soon as possible
after the closing date of the reverse merger but in no event later than eight
months from the closing date, to file a registration statement covering the
shares of our common stock for which their ownership units of Ultimate Escapes
Holdings may be exchanged. In addition, the UE Owners will have certain
“piggyback” registration rights on registration statements filed by us. We will
bear the expenses incurred in connection with the filing of any such
registration statements.
Administrative
Services
Prior to
the reverse merger, we did not own any real estate or other physical property,
and maintained our executive offices at 1005 North Glebe Road, Suite 550,
Arlington, Virginia 22201. The cost for this space was included in the $7,500
per-month fee Homeland Security Capital Corporation charged us for general and
administrative services pursuant to a letter agreement between us and Homeland
Security Capital Corporation, an affiliate of Mr. McMillen.
Ultimate
Resort Holdings Shareholder Loan
On April
30, 2007, Ultimate Resort Holdings issued a $10 million note payable to JDI,
which at the time was a minority owner of Ultimate Resort Holdings and is now a
minority owner of Ultimate Escapes Holdings. The obligations of Ultimate
Resort Holdings under this note were subsequently assigned to Ultimate Escapes
Holdings, when it assumed the Ultimate Resort Holdings operations, as discussed
in Note 2 to our consolidated financial statements. On October 29, 2009, JDI
assigned its interest in the note, as lender, to Ultimate Resort Holdings.
The financial terms of the note remained unchanged. At the same
time, Ultimate Resort, the majority owner of Ultimate Resort Holdings, acquired
from JDI the minority interest in Ultimate Resort Holdings held by JDI. In
consideration for the acquisition of the minority interest and the transfer, as
lender, to Ultimate Resort Holdings of the note, JDI received 3,123,797
ownership units of Ultimate Escapes Holdings.
The note
has a ten year term, with interest payable quarterly at 5% per annum and no
principal payments are due until maturity on April 30, 2017. The note, which is
subordinate to the revolving loan from CapitalSource, is collateralized by a
second security interest in our assets and in certain real
property.
ITEM 14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
The
aggregate fees billed to us by Kingery & Crouse for their audit of our
consolidated financial statements for the fiscal year ended December 31, 2009
are as follows:
2009
|
||||
Audit
Fees (1)
|
$
|
200
|
||
Audit-Related
Fees (2)
|
70
|
|||
Tax
Fees (3)
|
-
|
|||
All
Other Fees
|
-
|
|||
Total
|
$
|
270
|
69
(1)
|
Audit
Fees consist of fees incurred for the audits of our annual financial
statements and the review of our interim financial
statements.
|
(2)
|
Audit-Related
Fees consist of fees incurred for assurance and related services that are
reasonably related to the performance of the audit or review of our
financial statements and are not reported under the category “Audit
Fees.”
|
(3)
|
Tax
Fees consist of fees incurred for tax compliance, tax advice, and tax
planning.
|
The
charter of our audit committee provides that the duties and responsibilities of
our audit committee include the pre-approval of all audit, audit-related, tax,
and other services permitted by law or applicable SEC regulations (including fee
and cost ranges) to be performed by our independent registered public accounting
firm. Any pre-approved services that will involve fees or costs exceeding
pre-approved levels will also require specific pre-approval by the audit
committee. The audit committee will not approve any non-audit services
prohibited by applicable SEC regulations or any services in connection with a
transaction initially recommended by the independent registered public
accounting firm, the purpose of which may be tax avoidance and the tax treatment
of which may not be supported by the Internal Revenue Code and related
regulations. All audit-related fees, tax fees and other fees set forth in
the above tables have been approved by the audit committee.
To the
extent deemed appropriate, the audit committee may delegate pre-approval
authority to the Chairman of the audit committee or any one or more other
members of the audit committee provided that any member of the audit committee
who has exercised any such delegation must report any such pre-approval decision
to the audit committee at its next scheduled meeting. The audit committee will
not delegate to management the pre-approval of services to be performed by the
independent registered public accounting firm.
Our audit
committee requires that our independent registered public accounting firm, in
conjunction with our chief financial officer, be responsible for seeking
pre-approval for providing services to us and that any request for pre-approval
must inform the audit committee about each service to be provided and must
provide detail as to the particular service to be provided.
PART
IV
ITEM 15.
|
EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
|
(a)
Documents filed as part
of this report:
Consolidated
Financial Statements
All other
financial schedules are not required or are inappropriate and, therefore, have
been omitted.
(b)
Exhibits
The
accompanying exhibit is incorporated by reference into this Item
15(b).
70
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on the 15th day of April,
2010.
ULTIMATE
ESCAPES, INC.
|
||
By:
|
/s/ James M. Tousignant | |
James
M. Tousignant,
Chief
Executive
Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons in the capacities and on the dates
indicated:
Signature
|
Title
|
Date
|
||
/s/
James M. Tousignant
|
President,
Chief Executive Officer and Director
|
|||
James
M. Tousignant
|
(Principal
Executive Officer)
|
April
15, 2010
|
||
/s/
Richard Keith
|
||||
Richard
Keith
|
Chairman
and Director
|
April
15, 2010
|
||
/s/
Philip Callaghan
|
Chief
Financial Officer and Secretary
|
|||
Philip
Callaghan
|
(Principal
Financial and Accounting Officer)
|
April
15, 2010
|
||
/s/
C. Thomas McMillen
|
||||
C.
Thomas McMillen
|
Director
|
April
15, 2010
|
||
/s/
Mark A. Frantz
|
||||
Mark
A. Frantz
|
Director
|
April
15, 2010
|
||
/s/
Steve Griessel
|
||||
Steve
Griessel
|
Director
|
April
15,
2010
|
71
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
Page
|
|
Report
of Independent Registered Certified Public Accounting
Firm.
|
73
|
Consolidated
Balance Sheets as of December 31, 2009 and 2008.
|
74
|
Consolidated
Statements of Operations for the years ended December 31, 2009 and
2008.
|
75
|
Consolidated
Statement of Stockholders’ Equity (Deficit) for the years ended December
31, 2009 and 2008.
|
76
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2009 and
2008.
|
77
|
Notes
to Consolidated Financial Statements.
|
78
|
72
REPORT OF INDEPENDENT
REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM
To
the Board of Directors of Ultimate Escapes, Inc.:
We
have audited the accompanying consolidated balance sheets of Ultimate Escapes,
Inc. (the “Company”), as of December 31, 2009 and 2008, and the related
consolidated statements of operations, changes in stockholders’ equity (deficit)
and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of the Company as of
December 31, 2009 and 2008, and the consolidated results of its operations and
its cash flows for the years then ended, in conformity with accounting
principles generally accepted in the United States of America.
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 3 to such
financial statements, the Company has suffered recurring losses from operations
and has ongoing requirements for additional capital investment. These factors
raise substantial doubt about the Company’s ability to continue as a going
concern. Management’s plans in regard to these matters are also described in
Note 3. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/
Kingery & Crouse
|
Certified
Public Accountants
|
Tampa,
FL
|
April
15, 2010
|
2801 WEST
BUSCH BOULEVARD, SUITE 200, TAMPA, FLORIDA 33618
PHONE:
813.874.1280 ■ FAX: 813.874.1292 ■ WWW.TAMPACPA.COM
73
ULTIMATE
ESCAPES, INC.
CONSOLIDATED
BALANCE SHEETS
December
31,
|
||||||||
2009
|
2008
|
|||||||
(In
thousands, except share data)
|
||||||||
ASSETS
|
||||||||
CURRENT
ASSETS:
|
||||||||
Cash
and cash equivalents
|
$ | 2,747 | $ | 966 | ||||
Restricted
cash
|
4,343 | 5,765 | ||||||
Membership
receivables – net
|
3,264 | 639 | ||||||
Prepaid
expenses and other current assets
|
699 | 486 | ||||||
TOTAL
CURRENT ASSETS
|
11,053 | 7,856 | ||||||
PROPERTY
AND EQUIPMENT – net
|
151,397 | 120,314 | ||||||
OTHER
ASSETS:
|
||||||||
Properties
held for sale
|
6,067 | - | ||||||
Deferred
loan costs, net of amortization
|
2,896 | 3,209 | ||||||
Deposits
|
217 | 119 | ||||||
Goodwill
|
8,473 | - | ||||||
Intangible
assets, net
|
27,117 | - | ||||||
Other
assets
|
396 | - | ||||||
TOTAL
OTHER ASSETS
|
45,166 | 3,328 | ||||||
TOTAL
ASSETS
|
$ | 207,616 | $ | 131,498 | ||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
||||||||
CURRENT
LIABILITIES:
|
||||||||
Term
loan
|
$ | - | $ | 378 | ||||
Revolving
loan
|
14,503 | - | ||||||
Accounts
payable
|
1,762 | 1,429 | ||||||
Accrued
liabilities
|
5,126 | 3,217 | ||||||
Mortgage
and other loans
|
3,773 | - | ||||||
Accrued
distributions
|
963 | 599 | ||||||
Membership
deposits to be refunded
|
5,037 | 1,277 | ||||||
Membership
annual dues not yet recognized
|
12,600 | 9,873 | ||||||
TOTAL
CURRENT LIABILITIES
|
43,764 | 16,773 | ||||||
OTHER
LIABILITIES:
|
||||||||
Revolving
loan
|
84,479 | 86,387 | ||||||
Mortgage
and other loans
|
10,524 | - | ||||||
Note
payable to shareholder
|
10,000 | 10,000 | ||||||
Membership
initiation fees not yet recognized
|
15,785 | 10,069 | ||||||
Membership
deposits – redemption assurance program
|
47,046 | 21,241 | ||||||
Membership
deposits – other programs
|
19,004 | 23,955 | ||||||
TOTAL
OTHER LIABILITIES
|
186,838 | 151,652 | ||||||
TOTAL
LIABILITIES
|
230,602 | 168,425 | ||||||
COMMITMENTS
AND CONTINGENCIES (NOTES 3 AND 15)
|
||||||||
ULTIMATE
ESCAPES’ STOCKHOLDERS’ EQUITY (DEFICIT)
|
||||||||
Preferred
Stock, $0.0001 par value; 20,000,000 shares authorized, Preferred Series A
– 14,556,675 shares authorized, 7,556,675 shares issued and outstanding,
$1 liquidation value
|
1 | - | ||||||
Common
Stock, $0.0001 par value; 50,000,000 shares authorized, 1,582,323 shares
issued and outstanding
|
1 | - | ||||||
Stock
subscription receivable – Redemption Assurance Exchange
Program
|
8,963 | - | ||||||
Additional
paid-in capital
|
37,793 | 20,922 | ||||||
Accumulated
deficit
|
(70,814 | ) | (57,849 | ) | ||||
ULTIMATE
ESCAPES’ STOCKHOLDERS’ EQUITY (DEFICIT)
|
(24,056 | ) | (36,927 | ) | ||||
NON-CONTROLLING
INTERESTS
|
1,070 | - | ||||||
TOTAL
STOCKHOLDERS’ EQUITY
|
(22,986 | ) | (36,927 | ) | ||||
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
$ | 207,616 | $ | 131,498 |
See notes
to consolidated financial statements.
74
ULTIMATE
ESCAPES, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(In
thousands, except share and per share amounts)
Year Ended
December 31,
|
||||||||
2009
|
2008
|
|||||||
REVENUES
|
||||||||
Membership
– membership fees
|
$ | 7,052 | $ | 3,650 | ||||
Membership
– annual dues
|
14,938 | 17,486 | ||||||
Membership
– upgrade fees
|
60 | 409 | ||||||
Membership
– assessment
|
12,144 | - | ||||||
Other
revenue
|
2,817 | 996 | ||||||
REVENUES
|
37,011 | 22,541 | ||||||
OPERATING
EXPENSES:
|
||||||||
Property
operating costs
|
11,043 | 9,900 | ||||||
Depreciation
and amortization
|
5,526 | 4,479 | ||||||
Lease
costs
|
3,503 | 3,593 | ||||||
Advertising
|
1,231 | 2,307 | ||||||
Salaries
and contract labor (including $6,604 and $2,169 of non-cash stock-based
compensation)
|
11,753 | 9,419 | ||||||
General
and administrative
|
3,513 | 5,601 | ||||||
Sales
commissions
|
479 | 1,032 | ||||||
Loss
(gain) on sale of property and equipment
|
535 | (27 | ) | |||||
Loss
on impairment of assets held for sale
|
2,839 | - | ||||||
OPERATING
EXPENSES
|
40,422 | 36,304 | ||||||
INCOME
(LOSS) BEFORE OTHER INCOME (EXPENSE)
|
(3,411 | ) | (13,763 | ) | ||||
OTHER
INCOME (EXPENSE):
|
||||||||
Interest
expense
|
(10,006 | ) | (9,717 | ) | ||||
Interest
income
|
98 | 278 | ||||||
Transaction
expenses
|
(384 | ) | - | |||||
RAP
exchange inducement
|
(714 | ) | - | |||||
Change
in contingent consideration – acquisition
|
1,458 | - | ||||||
OTHER
EXPENSE – net
|
(9,548 | ) | (9,439 | ) | ||||
INCOME
BEFORE INCOME TAXES
|
$ | (12,959 | ) | $ | (23,202 | ) | ||
BENEFIT
(PROVISION) FOR INCOME TAX
|
(6 | ) | (20 | ) | ||||
NET
LOSS
|
$ | (12,965 | ) | $ | (23,222 | ) | ||
Weighted
average shares outstanding – basic and diluted
|
1,580,000 | 1,573,523 | ||||||
(Loss)
per share – basic and diluted
|
$ | (8.21 | ) | $ | (14.76 | ) |
See notes to consolidated financial statements.
75
ULTIMATE
ESCAPES, INC.
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
(In
thousands, except share amounts)
Common
Stock
|
Preferred Stock
|
Additional
Paid-In
|
Stock
Subscription
|
Accumulated
|
||||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Receivable
|
Deficit
|
Total
|
|||||||||||||||||||||||||
Balance
– December 31, 2007
|
- | $ | - | - | $ | - | $ | 18,845 | $ | - | $ | (34,627 | ) | $ | (15,782 | ) | ||||||||||||||||
Capital
contributions
|
- | - | - | - | 30 | - | - | 30 | ||||||||||||||||||||||||
Distributions
|
- | - | - | - | (477 | ) | - | - | (477 | ) | ||||||||||||||||||||||
Distributions
re-invested
|
- | - | - | - | 355 | - | - | 355 | ||||||||||||||||||||||||
Capital
contribution – employee compensation
|
- | - | - | - | 2,169 | - | - | 2,169 | ||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | (23,222 | ) | (23,222 | ) | ||||||||||||||||||||||
Balance
– December 31, 2008
|
- | - | - | - | 20,922 | - | (57,849 | ) | (36,927 | ) | ||||||||||||||||||||||
Acquisition
of Private Escapes
|
- | - | - | - | 4,560 | - | - | 4,560 | ||||||||||||||||||||||||
Shares
issued for cash in reverse merger acquisition
|
1,573,523 | 1 | 7,556,675 | 1 | 9,787 | - | - | 9,789 | ||||||||||||||||||||||||
Payment
of equity funding costs related to shares issued in reverse
merger
|
- | - | - | - | (3,683 | ) | - | - | (3,683 | ) | ||||||||||||||||||||||
Capital
contribution – employee compensation
|
- | - | - | - | 6,569 | - | - | 6,569 | ||||||||||||||||||||||||
Distributions
|
- | - | - | - | (398 | ) | - | - | (398 | ) | ||||||||||||||||||||||
1,128,806
shares to be issued under Redemption Assurance Exchange
Program
|
- | - | - | - | - | 8,963 | - | 8,963 | ||||||||||||||||||||||||
Stock-based
compensation expense
|
- | - | - | - | 35 | - | - | 35 | ||||||||||||||||||||||||
Employee
stock options exercised
|
8,800 | - | - | - | 1 | - | - | 1 | ||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | (12,965 | ) | (12,965 | ) | ||||||||||||||||||||||
Balance
– December 31, 2009
|
1,582,323 | $ | 1 | 7,556,675 | $ | 1 | $ | 37,793 | $ | 8,963 | $ | (70,814 | ) | $ | (24,056 | ) |
See notes to consolidated financial statements.
76
ULTIMATE
ESCAPES, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In
thousands)
For the Years Ended
|
||||||||
December 31,
|
||||||||
2009
|
2008
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net
loss
|
$ | (12,965 | ) | $ | (23,222 | ) | ||
Adjustments
to reconcile net loss to net cash provided by operating
activities:
|
||||||||
Depreciation
and amortization
|
5,526 | 4,479 | ||||||
Provision
for bad debts
|
271 | 8 | ||||||
Amortization
of deferred loan costs
|
1,296 | 1,105 | ||||||
Employee
stock-based compensation
|
6,604 | 2,169 | ||||||
Loss/(gain)
on sale of property and equipment
|
535 | (27 | ) | |||||
Loss
on impairment of assets held for sale
|
2,839 | - | ||||||
RAP
exchange inducement
|
714 | - | ||||||
Cash
flows from changes in:
|
||||||||
Restricted
cash
|
1,422 | 3,757 | ||||||
Membership
receivables
|
(3,932 | ) | (148 | ) | ||||
Prepaid
expenses and other current assets
|
25 | 490 | ||||||
Accounts
payable
|
(1,397 | ) | 576 | |||||
Accrued
liabilities
|
1,661 | (244 | ) | |||||
Membership
fees and dues not yet recognized
|
(6,387 | ) | 12,221 | |||||
Net
cash flows provided by (used in) operating activities
|
(3,788 | ) | 1,164 | |||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Purchases
of property and equipment
|
(495 | ) | (1,959 | ) | ||||
Proceeds
from sale of property and equipment
|
4,583 | 2,559 | ||||||
Net
change in deposits
|
(51 | ) | 441 | |||||
Net
cash provided by (used in) investing activities
|
4,037 | 1,041 | ||||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Principal
borrowings of long-term debt
|
1,398 | 2,350 | ||||||
Principal
repayments on long-term debt
|
(5,277 | ) | (10,893 | ) | ||||
Loan
costs
|
(661 | ) | (100 | ) | ||||
Re-purchase
of equity warrants
|
- | (750 | ) | |||||
Issuance
of shares in reverse merger
|
9,789 | - | ||||||
Payment
of equity funding costs related to shares issued in reverse
merger
|
(3,683 | ) | - | |||||
Owners
– distributions paid
|
(34 | ) | 10 | |||||
Net
cash provided by (used in) financing activities
|
1,532 | (9,383 | ) | |||||
NET
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
|
1,781 | (7,178 | ) | |||||
CASH
AND CASH EQUIVALENTS – Beginning of year
|
966 | 8,144 | ||||||
CASH
AND CASH EQUIVALENTS – End of year
|
$ | 2,747 | $ | 966 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION AND NON-CASH INVESTING AND FINANCING
ACTIVITIES:
|
||||||||
Cash
paid for interest
|
$ | 9,165 | $ | 9,528 | ||||
Class
B and BB distributions re-invested
|
- | 375 | ||||||
Exit
fee accrued on revolving loan
|
225 | - | ||||||
Financed
acquisitions of properties
|
31,044 | 13,571 | ||||||
Borrowings
for acquisitions of properties
|
31,044 | 10,871 | ||||||
Issuance
of membership interests for acquisitions of properties
|
- | 2,700 | ||||||
Acquisition
of Private Escapes
|
4,560 | - | ||||||
Shares
to be issued under Redemption Assurance Exchange Program
|
8,963 | - |
See notes to consolidated financial statements.
77
ULTIMATE
ESCAPES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(In
thousands, except share and per share amounts)
As Of and
For the Years Ended December 31, 2009 and 2008
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business –
Ultimate Escapes, Inc, formerly known as Secure America Acquisition. (the
“Company” or “we”, “our” or “us”) is a Delaware corporation and for accounting
purposes is the successor entity to Ultimate Resort Holdings, LLC (see Note
2). We operate as a luxury destination club that sells club memberships
offering the members reservation rights to use our vacation properties, subject
to the rules of the club member’s Club Membership Agreement. Our
properties are located in various resort destinations, including the Caribbean,
Mexico, France, England and throughout the USA.
Principles of
Consolidation – The consolidated financial statements include the
accounts of the Company and its subsidiaries, which own the individual club
properties. All intercompany balances and transactions have been eliminated in
consolidation.
Use of
Estimates – The preparation of consolidated financial statements in
conformity with accounting principles generally accepted in the United States of
America requires us to make certain estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the consolidated financial statements. The
reported amounts of revenues and expenses during the reporting period may be
affected by the estimates and assumptions we are required to make. Estimates
that are critical to the accompanying consolidated financial statements arise
from our belief that (1) we will be able to raise and/or generate sufficient
cash to continue as a going concern (2) all long-lived assets are recoverable,
and (3) our estimates of the expected lives of the club memberships from which
we derive our revenues and on which we base our revenue recognition are
reasonable. Estimates and assumptions are reviewed periodically and the
effects of revisions are reflected in the period that they are determined to be
necessary. It is at least reasonably possible that our estimates could change in
the near term with respect to these matters.
Accounting
Pronouncements — In June 2009, the Financial Accounting Standards Board
(‘‘FASB’’) issued a statement establishing the FASB Accounting Standards
Codification™ (the “FASB ASC" or the “Codification"). The Codification became
the single source of authoritative U.S. generally accepted accounting principles
(‘‘US GAAP’’) recognized by the FASB to be applied by non-governmental entities.
Rules and interpretive releases of the United States Securities and Exchange
Commission under authority of federal securities laws are also sources of
authoritative US GAAP for SEC registrants. The Codification did not change
existing US GAAP but incorporated existing accounting and reporting standards
into a new topical structure with a new referencing system. Authoritative
standards included in the Codification are designated by their Accounting
Standards Codification (‘‘ASC’’) topical reference, and new standards will be
designated as Accounting Standards Updates (‘‘ASU’’), with a year and assigned
sequence number. We have updated our references to US GAAP to reflect the
Codification.
Memberships and
Revenue Recognition – We derive our revenue from the club memberships we
sell, which allow the members to use the club properties owned or leased by
us. Different levels of membership provide access to different properties
and/or increased usage of the properties. Members pay a one-time
membership fee (which includes a non-refundable initiation fee), together with
annual dues. Members sometimes pay additional fees or charges related to
their use of specific properties or club services. Members may upgrade
their level of membership at any time by paying additional upgrade fees and
annual dues. The terms of each membership is set out in a Club Membership
Agreement.
Members
who resign may receive a partial refund of their membership fee (excluding the
non-refundable initiation fee). For members who resign, we may provide
assistance to them with the re-sale of their membership (which re-sale is
subject to our approval), in which case the resigning member receives 80% of the
proceeds of sale and we retain the remainder. We also provide our members
with a redemption assurance program that provides a partial refund of their
membership fee (excluding the initiation fee), based on a sliding scale that
declines to zero over a ten year period.
78
The
non-refundable initiation fee and the remaining portion of the membership fee
are both recognized as revenue over ten years using the straight-line
method. Management believes that, based on our knowledge of the industry
and our competitors, our own extrapolated experience, and practices in similar
membership organizations, that period reasonably reflects the expected life of
the memberships, and is consistent with any obligation we may have to provide a
partial refund of a portion of the membership fee.
Annual
membership dues are billed in advance; payment of these annual dues permits the
club member to continue to use the club properties during their membership year
and the annual dues are recognized in income on a straight-line basis over the
12 month period to which they relate. Revenue from ancillary charges and
other services provided by us to club members when using club properties is
recognized at the time of sale.
Membership Dues
Not Yet Recognized – represents members’ annual dues that have been
billed to members but not yet recognized as revenue.
Membership
Initiation Fees Not Yet Recognized – represents members’ nonrefundable
initiation fees, which are being recognized as revenue over the estimated life
of the membership of ten years, using the straight-line method.
Membership
Assessment– In January 2009, we made a one-time non-refundable assessment
fee to all club members in order to raise working capital for 2009. The
assessment, which was based on the amount of the members’ annual dues paid in
2008, was payable in four equal monthly installments beginning in January 2009
and was recognized in income ratably in 2009. Members that elected not to
pay their required assessment were placed on suspended status and were not able
to use the Club’s properties until they paid their assessment and any
outstanding annual dues. Members who paid their assessment received
certain benefits, including an increase in the redemption amount of their
membership to be refunded if they subsequently resign, as well as additional
accommodation privileges at club properties for the next three years. In
August 2009, we reactivated the suspended members, including reinstating any
unused days and reservation rights in effect at the time of suspension and began
allowing reactivated members to make new club reservations, provided their
annual dues were paid when due. If a reactivated member subsequently
resigns, any portion of their initial membership fee to be refunded to them
under their Club Membership Agreement will be reduced by the amount of the
special assessment fee plus interest at 10% per annum.
Membership
Deposits To Be Refunded – Members may resign from the club after 18
months and receive a partial refund of their membership fee subject to the
redemption procedures identified in the Club Membership Agreements. At December
31, 2009 and 2008, the Company had 1,214 and 922 active members,
respectively. In addition, at December 31, 2009 and 2008, there were 46
and 11 members, respectively, who had resigned. The redemption assurance
obligation (as described below) to these resigned members at December 31, 2009
and 2008 was $5,037 and $1,277, respectively, and is refundable to the
respective members within the next 12-18 months in accordance with their Club
Membership Agreements.
Membership
Deposits – Redemption Assurance Program – The Club Membership Agreements
provide members with a redemption assurance program that provides a partial
refund of their membership fee (excluding the initiation fee), based on a
sliding scale that declines to zero over a ten year period. As the obligation to
refund the membership fee declines, the appropriate portion of the membership
fee that is no longer refundable is recognized in income in accordance with our
estimate of the life of the membership. The Membership Deposits – Redemption
Assurance Program balance represents the membership fees that are still
potentially subject to refund.
Membership
Deposits – Redemption Assurance Exchange Program – As described in Note
14, in connection with the reverse merger described in Note 2 below, Ultimate
Escapes Holdings offered to its club members who met certain eligibility
requirements an opportunity to elect to convert, at $7.94 per share, all or a
portion of their redemption value under the Redemption Assurance Program into
shares of our common stock, to be issued following the consummation of the
reverse merger. On January 5, 2010, we issued an aggregate of 887,505 shares of
our common stock to certain of those club members who had elected to convert all
or portion of their redemption value under the Redemption Assurance Exchange
Program into shares of common stock and in April 2010, we issued an additional
241,301 shares of our common stock to the remaining club members who
participated in the Program. The shares issued under the Redemption
Assurance Exchange Program are treated as a reduction in the future obligations
of the company to participating members. The participating club members are
obligated to pay annual dues in order to continue to use club properties. At
December 31, 2009, the fair value of the shares issued of $8,963 has been
recorded as a stock subscription receivable, the outstanding membership deposits
– redemption assurance program has been reduced by the amount converted of
$8,249 and the difference of $714 has been recognized as an inducement
expense.
79
Membership
Deposits – Other Programs – Members who joined under a previous plan (no
longer offered) may receive a refund of their membership fee (excluding the
non-refundable initiation fee), subject to the redemption procedures identified
in their Club Membership Agreements. The Membership Deposits – Other Programs
balance represents the membership fees received under this previous program.
These fees are subject to refund should the member resign and are not recognized
in income.
Membership
Receivables – Membership receivables principally represent amounts due
for annual membership dues and ancillary charges incurred by members while using
the club properties.We typically bill members for annual dues two months prior
to their membership anniversary date. If a member with an amount due
terminates their membership, we have the right to deduct unpaid receivables from
that member's refundable membership deposit. If the refundable
membership deposit is not enough to cover the member's receivable balance and
all other means of collection have been exhausted, the unpaid amount is written
off against the allowance. At December 31, 2009 and 2008, the allowance
for doubtful accounts amounted to approximately $273 and $2,
respectively.
Cash and Cash
Equivalents – Cash and cash equivalents consists primarily of deposits
with financial institutions, which may, at times, exceed federally insured
limits and credit card holdbacks. We consider all highly liquid investments with
original maturities of three months or less to be cash equivalents.
Restricted
Cash – Restricted cash represents six months of estimated interest
payments under our revolving loan agreement (see Note 7). Use of these
proceeds is generally limited to the payment of interest on the loans.
However, we are permitted for a limited period of time and subject to certain
limitations as provided in the loan agreement, to use a portion of the
restricted cash to fund operating expenses. Subsequent to December 31,
2008, our lender approved the use of $1,700 from the restricted cash account to
pay operating expenses. This amount was required to be repaid before April
30, 2009. As discussed in Note 7, we had not fully refunded this advance
and did not meet the additional restricted cash requirements required by the
loan agreement as of January 31, 2009. On September 2, 2009, we received a
temporary waiver from the lender in connection with our transaction with Private
Escapes (see Note 2). On September 15, 2009, we negotiated an amended loan
agreement with the lender that reduced our restricted cash obligations to six
months estimated interest payments and cured the default. On March 16, 2010, the
lender agreed to reduce the restricted cash balance interest reserve by
approximately $1,500, to be replenished in equal installments at the end of
June, September, and December 2010.
Property and
Equipment – Property and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization are
calculated using accelerated methods over the estimated useful lives of the
respective assets, which range from 1 to 39 years. Leasehold improvements
are amortized over the lesser of the lease term or the estimated useful lives of
the leased assets. Repairs and maintenance are charged to operations as
incurred and renovations and improvements are capitalized. We classify a
property as held for sale if we commit to a plan to sell a property within one
year and actively market the property in its current condition for a price that
is reasonable in comparison to its estimated fair value. Properties held for
sale are stated at the lower of depreciated cost or estimated fair value less
expected disposition costs. Properties are not depreciated while they are
classified as held-for-sale.
Intangible Assets
and Goodwill— Intangible assets acquired as part of a business
combination are accounted for in accordance with FASB ASC 805 ‘‘Business Combinations’’ and
are recognized apart from goodwill if the intangible asset arises from
contractual or other legal rights or the asset is capable of being separated
from the acquired business. Our intangible assets represent the member list
acquired from Private Escapes and the target names in Private Escapes lead
generation data base. We amortize identifiable intangible assets over their
contractual or estimated useful lives using the straight-line method. Estimated
useful lives are determined primarily based on forecasted cash flows, which
includes estimates for the revenues, expenses and member attrition associated
with the assets, and are as follows:
Member
list
|
10
years
|
Lead
database
|
7.5
years
|
80
Goodwill
consists of the excess of the purchase price paid for Private Escapes over the
fair value of the identifiable assets and liabilities acquired. Goodwill is not
amortized, but is tested for impairment, at least annually, by applying the
recognition and measurement provisions of FASB ASC 350-20 ‘‘Goodwill’’, which compares
the carrying amount of the asset with its fair value. If impairment of carrying
value based on the estimated fair value exists, we measure the impairment
through the use of projected discounted cash flows. We operate as a single
operating segment. We have not identified any components within our single
operating segment and thus have a single reporting unit for purposes of our
goodwill impairment test.
Impairment of
Long-Lived Assets — We analyze our long-lived assets, including property
and equipment and intangible assets, in accordance with FASB ASC 360 ‘‘Property, Plant, and
Equipment’’ annually and when events and circumstances indicate that the
assets may not be recoverable. If the undiscounted net cash flows are less than
the asset’s carrying amount, we record an impairment based on the excess of the
asset’s carrying value over fair value. Fair value is determined based on
discounted cash flow models, quoted market values and third-party appraisals. We
evaluate our real estate assets on a combined basis, as future cash flows
include club membership sales and dues that are not identifiable to individual
properties. Estimates of future cash flows are based on internal projections
over the expected useful lives of the assets and include cash flows associated
with future maintenance and replacement costs, but exclude cash flows associated
with future capital expenditures that would increase the assets’ useful lives.
Management believes there is no impairment as of December 31, 2008 and December
31, 2009.
Deferred Loan
Costs – Deferred loan costs, consisting of commitment and other fees, the
cost of warrants issued to a lender and a loan exit fee (see Note 7), are
included in Other Assets and are amortized to interest expense using the
straight-line method over the life of the applicable loan.
December 31, 2009
|
December 31, 2008
|
|||||||
Deferred
loan costs
|
$ | 6,009 | $ | 5,032 | ||||
Less:
accumulated amortization
|
3,113 | 1,823 | ||||||
$ | 2,896 | $ | 3,209 | |||||
Amortization
expense for the period
|
$ | 1,296 | $ | 1,105 |
Future
amortization of these deferred costs is expected to be as follows:
Year
Ending December 31,
|
||||
2010
|
$ | 1,702 | ||
2011
|
642 | |||
2012
|
105 | |||
2013
|
103 | |||
2014
|
103 | |||
Thereafter
|
241 | |||
$ | 2,896 |
81
Non-controlling
interests — Certain of our club properties are held in single-purpose
subsidiaries and two of these subsidiaries are not wholly-owned by us. Private
Escapes Platinum Abaco, LLC is owned 60% by us and 40% by a third party and
Private Escapes Platinum Breckenridge, LLC is owned 85% by us and 15% by a third
party. The ownership interest of these third parties in the original cost of
these properties is reflected as non-controlling interests in the accompanying
consolidated balance sheets. The operating agreements between us and these
minority owners provide that substantially all expenses pertaining to
maintenance or preservation of the properties are to be paid by us. Although the
Private Escapes Platinum Breckenridge, LLC agreement provides that we have the
right to request reimbursement of the minority owner’s proportionate share of
property taxes and insurance, it has not been our policy to do so. No allocation
of losses to the minority owners has been given effect to in the accompanying
consolidated statements of operations and, accordingly, the balance of these
non-controlling interests in the accompanying consolidated balance sheets
continues to reflect these third parties share of the original cost of the
properties. The minority owners in Private Escapes Platinum Abaco, LLC have the
right to require us to purchase their 40% ownership interest for an amount equal
to their proportionate share of the property’s fair value. At December 31, 2009,
their pro rata share of the estimated fair value of the property did not exceed
the carrying value of their redeemable, non-controlling interest.
Basic and Diluted
Income (Loss) Per Share –
Basic net loss per share is computed by dividing net loss attributable to common
shareholders by the weighted average number of shares of common stock
outstanding during the period. During the years ended December 31, 2009 and
2008, we reported net loss per share and we have excluded all outstanding stock
options from the calculation of diluted net loss per share, as their effect
would be anti-dilutive. As a result, basic and diluted loss per share were
equivalent. The number of common shares issuable on assumed exercise of
options but which were excluded from the computations of earnings per share was
53,427.
Advertising
Costs – The costs of advertising are expensed as incurred. For the
years ended December 31, 2009 and 2008, advertising costs were $1,231 and
$2,307, respectively.
Financial
Instruments and Concentrations of Credit Risk— Financial instruments, as
defined in FASB ASC 825 ‘‘Financial Instruments,’’
consist of cash, evidence of ownership in an entity and contracts that both (1)
impose on one entity a contractual obligation to deliver cash or another
financial instrument to a second entity, or to exchange other financial
instruments on potentially unfavorable terms with the second entity, and (2)
conveys to that second entity a contractual right (a) to receive cash or another
financial instrument from the first entity or (b) to exchange other financial
instruments on potentially favorable terms with the first entity. Our financial
instruments consist primarily of cash and cash equivalents, restricted cash,
accounts receivable, accounts payable, accrued liabilities and credit
facilities. The carrying values of these financial instruments approximate their
respective fair values due to their short-term nature.
Financial
instruments that potentially subject us to significant concentrations of credit
risk consist primarily of cash and cash equivalents, restricted cash and
membership receivables. We frequently maintain cash balances in excess of
federally insured limits. We have not experienced any losses in such
accounts. Concentrations of credit risk with respect to membership
receivables are limited due to the number of members comprising our customer
base and their dispersion across the United States of America. We perform
a credit evaluation of our customers’ financial condition and have not incurred
any significant credit related losses.
Fair Value
Measurements— FASB ASC 820 ‘‘Fair Value Measurements’’
defines fair value, establishes a methodology for measuring fair value, and
expands the required disclosure for fair value measurements.
FASB ASC
825-10-25 ‘‘Financial
Instruments — Recognition’’ permits entities to choose to measure many
financial instruments and certain other items at fair value. We have not elected
the fair value measurement option for any of our financial assets or
liabilities.
FASB ASC
820 ‘‘Determining the Fair
Value of a Financial Asset When the Market for That Asset Is Not Active’’
clarifies the application of fair value in inactive markets and allows
for the use of management’s internal assumptions about future cash flows with
appropriately risk-adjusted discount rates when relevant observable market data
does not exist. The objective of FASB ASC 820 has not changed and continues to
be the determination of the price that would be received in an orderly
transaction that is not a forced liquidation or distressed sale at the
measurement date.
At
December 31, 2008, we did not have any items to be measured at fair value. At
December 31, 2009, the outstanding contingent consideration related to our
September 15, 2009 acquisition of Private Escapes (discussed in Note 2) was
measured at fair value using primarily level three inputs (unobservable) and
will be re-measured at each subsequent reporting date.
82
Recent Accounting
Pronouncements – The following Accounting Standards Codification Updates
have been issued, or will become effective, after the end of the period covered
by these financial statements:
Pronouncement
|
Issued
|
Title
|
||
ASU
No. 2009-13
|
October
2009
|
Revenue
Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements – a
consensus of the FASB Emerging Issues Task Force
|
||
ASU
No. 2009-14
|
October
2009
|
Software
(Topic 985): Certain Revenue Arrangements That Include Software Elements—a
consensus of the FASB Emerging Issues Task Force
|
||
ASU
No. 2009-15
|
October
2009
|
Accounting
for Own-Share Lending Arrangements in Contemplation of Convertible Debt
Issuance or Other Financing
|
||
ASU
No. 2009-16
|
December
2009
|
Transfers
and Servicing (Topic 860): Accounting for Transfers and Financial
Assets.
|
||
ASU
No. 2009-17
|
December
2009
|
Consolidations
(Topic 810): Improvements to Financial Reporting by Enterprises
Involved with Variable Interest Entities
|
||
ASU
No. 2010-01
|
January
2010
|
Equity
(Topic 505): Accounting for Distributions to Shareholders with
Components of Stock and Cash – a consensus of the FASB Emerging Issues
Task Force
|
||
ASU
No. 2010-02
|
January
2010
|
Consolidation
(Topic 810): Accounting and Reporting for Decreases in Ownership of
a Subsidiary – a Scope Clarification
|
||
ASU
No. 2012-03
|
January
2010
|
Extractive
Activities – Oil and Gas (Topic 932): Oil and Gas Reserve Estimation and
Disclosures
|
||
ASU
No. 2010-04
|
January
2010
|
Accounting
for Various Topics: Technical Corrections to SEC
Paragraphs
|
||
ASU
No. 2010-05
|
January
2010
|
Compensation
- Stock Compensation (Topic718): Escrowed Share Arrangements and the
Presumption of Compensation
|
||
ASU
No. 2010-06
|
January
2010
|
Fair
Value Measurements and Disclosures (Topic 820): Improving Disclosures
about Fair Value
Measurements
|
83
ASU
No. 2010-07
|
January
2010
|
Not-for-Profit
Entities (Topic 958): Not-for-Profit Entities – Mergers and
Acquisitions
|
||
ASU
No. 2010-08
|
February
2010
|
Technical
Corrections to Various Topics
|
||
ASU
No. 2010-09
|
February
2010
|
Subsequent
Events (Topic 855): Amendments to Certain Recognition and Disclosure
Requirements
|
||
ASU
No. 2010-10
|
February
2010
|
Consolidation
(Topic 810): Amendments for Certain Investment Funds
|
||
ASU
No. 2010-11
|
March
2010
|
Derivatives
and Hedging (Topic 815): Scope Exception Related to Embedded Credit
Derivatives
|
To the
extent appropriate, the guidance in the above Accounting Standards Codification
Updates is already reflected in our consolidated financial statements and
management does not anticipate that these accounting pronouncements will have
any future effect on our consolidated financial statements.
At its
meeting on March 18, 2010, the FASB’s Emerging Issues Task Force reached a
consensus on five issues. The consensuses were ratified by the FASB at its
meeting on March 31, 2010, and the related Accounting Standards Codification
Updates to be issued will become authoritative accounting guidance. None
of the consensuses address issues that we expect to have a material effect on
our consolidated financial statements.
NOTE
2 – HISTORY AND ORGANIZATION
Background
Prior to
October 29, 2009, the operations of our operating subsidiary, Ultimate Escapes
Holdings, LLC (“Ultimate Escapes Holdings”), were conducted under an Operating
Agreement dated April 30, 2007 between Ultimate Resort, LLC (‘‘Ultimate
Resort’’) and JDI Ultimate L.L.C. (‘‘JDI’’). The Operating Agreement was amended
from time to time and, as discussed further below, was amended and restated in
its entirety on October 29, 2009.
Prior to
the formalization of the Operating Agreement on April 30, 2007, our operations
were conducted by Ultimate Resort and from that date until September 15, 2009,
our operations were conducted by Ultimate Resort Holdings, LLC, an entity owned
by Ultimate Resort (83.67%) and JDI (16.33%).
On
September 15, 2009, Ultimate Resort Holdings contributed all of its assets,
liabilities and business operations to Ultimate Escapes Holdings, which was
previously a non-operating wholly-owned subsidiary of Ultimate Resort Holdings.
The contribution of the assets and liabilities of Ultimate Resort Holdings was
accounted for as a transaction between entities under common control, with no
change in the basis of the assets and liabilities. For accounting purposes, in
accordance with FASB ASC 225-10-S99, our financial position and results of
operations for periods prior to September 15, 2009 reflect the assets,
liabilities and results of operations previously conducted by Ultimate Resort
Holdings and, for periods prior to April 30, 2007, by Ultimate Resort. Ultimate
Resort had also issued warrants in connection with Ultimate Resort Holdings’
debt financing and equity units in connection with its employee compensation. In
accordance with FASB ASC 225-10-S99, these warrant and employee compensation
transactions (see Notes 7 and 13), are also included in our consolidated
financial statements. Ultimate Resort was required to make distributions to
holders of its Class B and Class BB equity units and those distributions are
also reflected in these consolidated financial statements.
84
In May
2008, Ultimate Resort Holdings entered into a contribution agreement and a
marketing cooperation agreement with another unrelated luxury destination club,
Private Escapes Destination Clubs (‘‘Private Escapes’’). Under the marketing
cooperation agreement, we jointly market our respective Club Memberships under
the ‘‘Ultimate Escapes’’ brand. On September 15, 2009, contemporaneously with
the contribution to Ultimate Escapes Holdings by Ultimate Resort Holdings of all
its assets, liabilities and operations, Private Escapes contributed certain of
its club properties, club members and other assets to Ultimate Escapes Holdings
in exchange for an 8% minority equity interest in Ultimate Escapes Holdings. The
contribution of assets by Private Escapes was accounted for under the
acquisition method of accounting in accordance with FASB ASC 805 ‘‘Business Combinations’’ as
discussed below.
Reverse
Merger with Ultimate Escapes Holdings
On July
21, 2009, Ultimate Escapes Holdings and Ultimate Resort Holdings’ managing
member signed a Letter of Intent with us (then named Secure America Acquisition
Corporation (‘‘SAAC’’), a special purpose acquisition corporation, under which
it was expected that Ultimate Escapes Holdings would enter into a business
combination with SAAC. A definitive agreement was signed on September 2, 2009
and, after approval and certain other actions by SAAC’s stockholders and warrant
holders, the transaction closed on October 29, 2009. The business combination
with SAAC was accounted for as a reverse merger, whereby Ultimate Escapes
Holdings is the continuing entity for financial reporting purposes and is
deemed, for accounting purposes, to be the acquirer of SAAC. In accordance with
the applicable accounting guidance for accounting for the business combination
as a reverse merger, Ultimate Escapes Holdings is deemed to have undergone a
recapitalization, whereby Ultimate Escapes Holdings is deemed to have issued
equity units to SAAC’s common equity holders. Accordingly, although SAAC, as
Ultimate Escapes Holdings’ parent company (now named Ultimate Escapes, Inc.),
was deemed to have legally acquired Ultimate Escapes Holdings, in accordance
with the applicable accounting guidance for accounting for the business
combination as a reverse merger, Ultimate Escapes Holdings is the surviving
entity for accounting purposes and Ultimate Escapes Holdings’ assets and
liabilities will continue to be recorded at their historical carrying amounts
(subject to the recording of Private Escapes assets and liabilities at fair
value, as a result of the acquisition of those assets by us), with no additional
goodwill or other intangible assets recorded as a result of the accounting
merger with SAAC.
In
accordance with the April 30, 2007 Operating Agreement, both Ultimate Resort and
JDI had made certain capital contributions to Ultimate Resort Holdings. JDI had
also made a $10,000 loan to Ultimate Resort Holdings and, in connection with the
transfer to Ultimate Escapes Holdings of Ultimate Resort Holdings’ assets,
liabilities and operations, Ultimate Escapes Holdings assumed the obligations of
Ultimate Resort Holdings related to this loan (see Note 9). With effect from
October 29, 2009, the rights of JDI as lender under the loan were assigned by
JDI to Ultimate Resort Holdings. In addition, Ultimate Resort Holdings
re-purchased the minority ownership interest in itself held by JDI, in exchange
for the transfer to JDI of 3,123,797 ownership units in Ultimate Escapes
Holdings.
On
October 29, 2009, Ultimate Escapes Holdings, SAAC, Ultimate Resort Holdings, JDI
and Private Escapes entered into an Amended and Restated Operating Agreement,
which provides for the management of Ultimate Escapes Holdings’ operations
following the business combination with SAAC. After the consummation of the
business combination on October 29, 2009, SAAC changed its name to Ultimate
Escapes, Inc. Under the terms of the Amended and Restated Operating Agreement,
the board of managers of Ultimate Escapes Holdings will mirror the board of
directors of Ultimate Escapes, Inc.
At the
closing of the transaction with SAAC on October 29, 2009, SAAC contributed
$9,787 to Ultimate Escapes Holdings in exchange for 1,232,601 ownership units in
Ultimate Escapes Holdings and Ultimate Escapes Holdings issued 377,834 units to
Ultimate Resort Holdings to compensate it for certain tax liabilities incurred
in connection with the SAAC transaction. In addition, Ultimate Escapes Holdings
issued 6,604,534 and 574,307 ownership units (an aggregate of 7,178,841) to
Ultimate Resort Holdings, and Private Escapes, respectively, of which 3,123,797
were transferred by Ultimate Resort Holdings to JDI, as described above.
Ultimate Resort Holdings, Private Escapes Holdings LLC and JDI are collectively
referred to as the “UE Owners”. Following the SAAC transaction, our subsidiary
Ultimate Escapes Holdings has the following ownership units
outstanding:
Owner
|
Units
|
Share of Losses
|
||||||
Ultimate
Resort Holdings LLC
|
3,858,571 | 56.13 | % | |||||
Private
Escapes Holdings LLC
|
574,307 | 8.00 | % | |||||
JDI
Ultimate L.L.C.
|
3,123,797 | 35.87 | % | |||||
Ultimate
Escapes, Inc. (f/k/a SAAC)
|
1,232,601 | 0 | % | |||||
8,789,276 | 100 | % |
85
The UE
Owners have the right, exercisable at any time, to exchange, on a one-for-one
basis, each of their ownership units, including all earn-out units received, if
any, as described below, for shares of our common stock. However, we may, in our
sole discretion, elect to make a cash payment to holders of ownership units in
lieu of issuing common stock. For each ownership unit issued to the UE
Owners in connection with the consummation of the reverse merger, the UE Owners
received one share of our Series A Voting Preferred Stock (all of which shares
of Series A Voting Preferred Stock were issued in the name of Mr. Tousignant, as
Owner Representative). At any time that any UE Owner exchanges ownership units
for shares of our common stock, a like number of shares of Series A Voting
Preferred Stock will be canceled. For each earn-out unit received by the
UE Owners, as described below, the UE Owners will also receive one share of our
Series A Voting Preferred Stock.
Pursuant
to the Amended and Restated Operating Agreement, the UE Owners have the right to
receive, in the aggregate, the following additional ownership units, in
proportion to their respective Earn-Out Sharing Percentages (as such term is
defined in the Operating Agreement), subject to the conditions described
below:
|
Up
to 3,000,000 earn-out units will be issued if Ultimate Escapes Holdings
Adjusted EBITDA for fiscal 2010 or fiscal 2011 is greater than $23
million, as follows:
|
-
|
If
Adjusted EBITDA for fiscal 2010 or fiscal 2011 is equal to or greater than
$27 million, an aggregate of 3,000,000 earn-out units will be issued;
or
|
-
|
If
Adjusted EBITDA for fiscal 2010 is greater than $23 million but less than
$27 million, the number of earn-out units to be issued shall equal a
corresponding proportionate percentage of the 3,000,000 earn-out
units equal to (a) Adjusted EBITDA earned for the applicable year in
excess of $23,000,000 divided by (b)
$4,000,000.
|
|
Up
to 4,000,000 earn-out units will be issued if Ultimate Escapes Holdings
Adjusted EBITDA for fiscal 2011 or fiscal 2012 is greater than $32
million, as follows:
|
-
|
If
Adjusted EBITDA for fiscal 2011 or fiscal 2012 is equal to or greater than
$45 million, an aggregate of 4,000,000 earn-out units will be issued;
or
|
-
|
If
Adjusted EBITDA for fiscal 2011 is greater than $32 million but less than
$45 million, the number of earn-out units to be issued shall equal a
corresponding proportionate percentage of the 4,000,000 earn-out units
equal to (a) Adjusted EBITDA earned for the applicable year in excess of
$32,000,000 divided by (b)
$13,000,000.
|
“Adjusted
EBITDA,” with respect to any period, means, as determined in accordance with
GAAP, the difference between our revenues (plus the non-refundable portion of
membership fees to the extent such membership fees are not included in revenue
pursuant to GAAP) and our expenses, on a consolidated basis for such period,
plus the sum of (i) interest expense, (ii) income tax expense, (iii)
depreciation expense and (iv) amortization expense but (v) excluding all
non-cash compensation related to our 2009 Stock Option Plan.
Indemnification
Escrow
Also on
October 29, 2009, we, Ultimate Escapes Holdings, the Owner Representative and
SunTrust Banks, Inc., as escrow agent, entered into an indemnification and
escrow agreement, which provides that the covenants, agreements and
representations and warranties in the Contribution Agreement shall survive the
closing of the reverse merger until the earlier of (i) the fifteenth day after
the date we file with the SEC our Annual Report on Form 10-K for the year ending
December 31, 2010 or (ii) April 15, 2011; provided, however, that certain of the
representations and warranties will survive until the expiration of the
applicable statutes of limitation for claims thereunder; and provided, further
that certain of the representations and warranties, designated as the
‘‘Fundamental Representations,’’ shall survive for six years after the closing
of the reverse merger. Each of us, on the one hand, and the UE Owners, jointly
and severally, on the other hand, have agreed to indemnify and hold the other
parties harmless from and against any liability, claim (including claims by
third parties), demand, judgment, loss, cost, damage, or expense whatsoever,
which are referred to collectively herein as the ‘‘Damages’’, that arise from
(i) any breach of any representation or warranty of such indemnifying party
contained in the Contribution Agreement and (ii) any fraud or intentional
misconduct committed by the indemnifying party.
86
At the
closing of the reverse merger, the UE Owners deposited into escrow a total of
717,884 ownership units of Ultimate Escapes Holdings (the ‘‘Escrowed
Indemnification Units’’) to be used to satisfy indemnification claims pursuant
to the terms of the Indemnification and Escrow Agreement. No amount shall be
payable to an indemnified party unless and until the aggregate amount of all
indemnifiable Damages otherwise payable to all indemnified parties exceeds
$600,000, in which event the amount payable shall only be the amount in excess
of $600. Moreover, the indemnification obligations of the UE Owners shall not in
any event exceed 10% of the Retained Units (as defined in the Operating
Agreement); provided that, with respect to any Damages based on breach of the
Fundamental Representations or on fraud or intentional misconduct, the aggregate
liability for Damages shall be 25% of the Retained Units; and provided, further,
that, in no event shall the aggregate liability for Damages exceed 25% of the
Retained Units.
In
addition, a portion of the earn-out payable under the Operating Agreement equal
to 15% of the Retained Units is subject to set-off for any claim for Damages
that the SAAC indemnified parties have against the UE Owners, including, without
limitation, any claim for Damages which is based on a breach of a Fundamental
Representation or on fraud or intentional misconduct. This right of set-off is
in addition to, and not in lieu of, the indemnification rights discussed above,
however, the parties have agreed that we shall first look to any units held in
escrow prior to attempting to set-off any amounts from future earn-out
payments.
The
Escrowed Indemnification Units will be released from escrow on the earlier to
occur of: (i) the fifteenth day after the date we file our Annual Report on Form
10-K for the year ending December 31, 2010 with the SEC, and (ii) April 15,
2011, less that portion of the units applied in satisfaction of or reserved with
respect to escrow claims. With respect to any escrow claims properly and timely
delivered pursuant to the Indemnification and Escrow Agreement that remain
unresolved at the time of the release of Escrowed Indemnification Units, a
portion of the Escrowed Indemnification Units shall remain in escrow until such
claims are resolved, at which time the remaining Escrowed Indemnification Units
shall be promptly returned to the UE Owners.
Acquisition
of Assets and Liabilities of Private Escapes
The
valuation of the assets and liabilities of Private Escapes acquired on September
15, 2009, is summarized below.
FASB ASC
805 requires, among other things, that most assets acquired and liabilities
assumed be recognized at their fair values as of the acquisition date. In
addition, FASB ASC 805 establishes that the consideration transferred, including
the fair value of any contingent consideration arrangements and any equity or
assets exchanged, are measured at the closing date of the merger at the
then-current market price.
Purchase
consideration is as follows (in thousands):
Fair
value of equity issued (1)
|
$
|
4,560
|
||
Fair
value of contingent consideration (2)
|
2,000
|
|||
Purchase
Price
|
$
|
6,560
|
(1)
|
Based
upon our adjusted closing share price of $7.94 per share and Private
Escapes beneficial ownership of 8% of the 7,178,841 shares issuable by us
to the UE Owners upon conversion of their
units.
|
(2)
|
An
estimate was made for the 8% of the contingent consideration arrangement
which could result in issuance of up to 7,000,000 earn-out units that are
convertible into shares of our common stock if certain performance targets
are achieved. The fair value estimate includes management's preliminary
assumptions of the probability of achievement of performance targets. The
estimates and assumptions are subject to
change.
|
87
The fair
value estimate for the issuance of additional shares of our common stock if certain performance
targets are achieved under the first and second earn-outs was calculated using a
weighted average analysis using various performance target scenarios for each of
the earn-outs separately and the probability those target scenarios would be
achieved based on internal projections for sale of new club memberships and
upgrades, expected synergies from combining operations, and historical trends in
the Company's performance. The estimated fair value of $2,000 was calculated by
multiplying the estimated number of shares that could be potentially earned per
the weighted average analysis (approximately 3,139,000 shares) by the Private
Escapes equity ownership in Ultimate Escapes Holdings, 8%, and by our closing share price ($7.94).
The
aggregate range of contingent consideration is as follows (dollars in
thousands):
Range of Additional
|
Range of
|
Weighted
|
||||||||
Ownership % (1)
|
Fair Values
|
Average Value
|
||||||||
Performance
targets
|
0 -
400,000 shares
|
$
|
0 - $3,176
|
$
|
2,000
|
(1)
|
The
range of additional ownership percentage was calculated using management
assumptions. Management believes that the upper end of the maximum range
of additional ownership (560,000 shares) is not
attainable.
|
Under the
acquisition method of accounting, the assets acquired and liabilities assumed
have been recorded as of September 15, 2009, primarily at their respective fair
values. FASB ASC 820 “Fair Value Measurements” defines the term “fair
value” and sets forth the valuation requirements for any asset or liability
measured at fair value, expands related disclosure requirements and specifies a
hierarchy of valuation techniques based on the nature of the inputs used to
develop the fair value measures. Fair value is defined in FASB ASC 820 as “the
price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date.”
This is an exit price concept for the valuation of the asset or liability. In
addition, market participants are assumed to be buyers and sellers in the
principal (or the most advantageous) market for the asset or liability. Fair
value measurements for an asset assume the highest and best use by these market
participants. As a result of these standards, the Company may be required to
record assets which are not intended to be used or sold and/or to value assets
at fair value measures that do not reflect the Company's intended use of those
assets. Many of these fair value measurements can be highly subjective and it is
also possible that other professionals, applying reasonable judgment to the same
facts and circumstances, could develop and support a range of alternative
estimated amounts.
Based
upon the Company's valuation, the allocation of the purchase price consideration
was as follows (in thousands):
Purchase
Price
|
$ | 6,560 | ||
Assets
acquired and liabilities assumed:
|
||||
Assets:
|
||||
Property
and equipment
|
$ | 49,200 | ||
Current
assets
|
459 | |||
Goodwill
(1)
|
8,473 | |||
Identifiable
intangible assets (2)
|
28,054 | |||
Other
assets
|
288 | |||
Total
Assets
|
$ | 86,474 | ||
Liabilities:
|
||||
Debt
|
$ | 28,753 | ||
Other
liabilities (3)
|
51,161 | |||
Total
Liabilities
|
$ | 79,914 |
88
(1)
|
Goodwill
represents the expected synergies from combining our operations and
Private Escapes, as well as intangible assets that do not qualify for
separate recognition. We expect that the entire amount of goodwill
recorded will be deductible for tax purposes. We did not record a deferred
tax asset as the Company's historical losses make it currently more likely
than not that the asset would not be realizable. Goodwill will be
evaluated for impairment at least annually. We expect that we will have a
single reporting unit for purposes of our goodwill impairment
test.
|
(2)
|
Based
on management's experience in acquiring new club members' including the
related marketing and sales cost to identify qualified club members,
Private Escapes has two significant assets not recorded on its balance
sheet that are key to the acquisition. They are the cost avoided to
acquire the approximately 400 Private Escapes club members and the
approximately 49,000 target names in their lead generation data base. Our
historical cost to acquire a new club member is approximately $40,000 per
club member, primarily in advertisements, promotional events, and sales
commissions. An intangible asset for $15,800 has been reflected in the
balance sheet for this asset. We value the cost to acquire the leads in
the lead generation database at $250 per lead, based on the current cost
of a general lead from our major lead source. An intangible asset of
$12,254 has been reflected in the balance sheet for the lead generation
database.
|
(3)
|
Our
liability arising from or relating to any redemption obligations for the
Private Escapes former members was capped at $46,000. A provision for
approximately $7,400 has been made for certain members who have still to
agree to sign our membership agreements. Those members are being solicited
and encouraged to sign the membership agreements and we believe a
significant number will do so in due
course.
|
The
contribution of Private Escapes' assets occurred on September 15, 2009, and
the accompanying statements of operations include revenue and earnings of
Private Escapes from that date.
The
following unaudited pro forma financial information for the year ended December
31, 2009 and, 2008 includes the historical and pro forma effects of the
September 15, 2009 acquisition of the business and certain assets of Private
Escapes, as if the acquisition had taken place on January 1, 2008.
|
For the Year Ended
|
|||||||
December, 31
2009
|
December 31,
2008
|
|||||||
Revenues
|
$ | 43,274 | $ | 31,576 | ||||
Net
Loss
|
(15,390 | ) | (36,665 | ) | ||||
Net
Loss per share (1)
|
(1.83 | ) | (4.36 | ) |
(1) Based
on pro forma shares outstanding of 8,412,314 post merger with SAAC which
includes conversion of all units.
On
September 15, 2009, in connection with the contribution to Ultimate Escapes
Holdings of the assets and liabilities of Ultimate Resort Holdings, described
above, Ultimate Escapes Holdings and Private Escapes entered into a Consolidated
Amended and Restated Loan and Security Agreement with CapitalSource (the “New
Loan Agreement”). The New Loan Agreement replaces and supersedes the previous
April 30, 2007 Loan Agreement with CapitalSource and is discussed in Note
7.
89
NOTE
3 – LIQUIDITY
Our
consolidated financial statements are prepared using accounting principles
generally accepted in the United States of America applicable to a going
concern, which contemplate the realization of assets and liquidation of
liabilities in the normal course of business. As shown in the accompanying
consolidated financial statements, the Company incurred net losses of $12,965
and $23,222 during the years ended December 31, 2009, and 2008, respectively. As
of December 31, 2009 and December 31, 2008, the Company's current liabilities
exceed its current assets by approximately $33 million and $9 million,
respectively. In addition, although we have completed the refinancing of our
CapitalSource revolving loan facility (Note 2), we may not be able to meet
certain covenants under the revolving loan agreement in the future (see Note 7).
We have also experienced a decrease in new membership sales and existing member
upgrades over the last six months of 2008 and throughout 2009.
The above
factors, among others, indicate that we may encounter a liquidity event which
may cause us to be in default of our loan covenants. Our management has taken
steps to increase cash flow in order to cover 2010 operational expenses through,
if necessary, the sale of selected club properties, and closely monitoring and
reducing operating expenses. In addition, the Company is actively seeking to
raise additional working capital.
The items
discussed above raise substantial doubts about our ability to continue as a
going concern. The financial statements do not include any adjustments relating
to the recoverability and reclassification of recorded asset amounts or the
amounts and classification of liabilities that might be necessary, should we be
unable to continue as a going concern.
NOTE
4 - PROPERTY ACQUISITIONS
Effective
May 1, 2007, we acquired certain properties from a company in bankruptcy for
total consideration of approximately $105,000, which was financed by $95,000 of
long-term debt from CapitalSource (see Notes 7 and 8) and a $10,000 note
from JDI (see Note 8). The purchase price was allocated to the assets acquired,
consisting entirely of property and equipment, based on their relative fair
values at the date of acquisition.
Effective
February 16, 2008, we acquired six properties from an unrelated luxury
destination club for approximately $15,100. The purchase price was
financed by borrowings under our loan agreements and the issuance of nine
corporate memberships and was allocated to the assets acquired, consisting
entirely of property and equipment, based on their relative fair values at the
date of acquisition.
Effective
September 15, 2009, we acquired 47 properties, 1 yacht and other property and
equipment from Private Escapes for $49,200, as described in Note 2.
NOTE
5 - PROPERTY AND EQUIPMENT
As of
December 31, 2009 and December 31, 2008, we operated a total of 141 and 84 club
properties, respectively, located in various resort destinations. Of these
properties, 104 and 59, respectively, are owned, and 37 and 25 are leased. The
owned properties provide the borrowing base for our CapitalSource revolving loan
(see Note 7).
At
December 31, 2009 and 2008, property and equipment consists of the
following:
2009
|
2008
|
|||||||
Land,
club properties, and improvements
|
$
|
152,649
|
$
|
117,741
|
||||
Furniture
and fixtures at club properties
|
9,868
|
9,709
|
||||||
Office
equipment
|
446
|
243
|
||||||
162,963
|
127,693
|
|||||||
Less
accumulated depreciation
|
11,566
|
7,379
|
||||||
$
|
151,397
|
$
|
120,314
|
90
Properties
held for sale were $6,067 as of December 31, 2009. Impairments recognized
on properties held for sale for the year ended December 31, 2009 was
$2,839. There were no properties held for sale as of December 31, 2008 or
impairments recognized on properties held for sale for the year ended December
31, 2008. Depreciation expense was $4,589 and $4,479 for the years ending
December 31, 2009 and 2008, respectively.
NOTE
6 - GOODWILL AND INTANGIBLE ASSETS
At
December 31, 2009, we had goodwill of $8,473 related to our acquisition of
certain assets and liabilities of Private Escapes. We did not have any
goodwill at December 31, 2008.
The
following table summarizes our intangible assets as of December 31, 2009.
We did not have any intangible assets as of December 31, 2008.
|
Member List
|
Lead
Database
|
Total
|
|||||||||
Balance,
December 31, 2008
|
$ | - | $ | - | $ | - | ||||||
Additions
|
15,800 | 12,254 | 28,054 | |||||||||
Amortization
|
(460 | ) | (477 | ) | (937 | ) | ||||||
Balance,
December 31, 2009
|
15,340 | 11,777 | 27,117 | |||||||||
Weighted-average
remaining amortization period in years
|
9.7 | 7.2 |
As of
December 31, 2009, we estimate future amortization expense of intangible assets
for the next five years to be:
2010
|
$ |
3,214
|
||
2011
|
3,214
|
|||
2012
|
3,214
|
|||
2013
|
3,214
|
|||
2014
|
3,214
|
|||
16,070
|
||||
Thereafter
|
11,047
|
|||
$
|
27,117
|
NOTE 7
- REVOLVING LOAN
On April
30, 2007, we entered into a Loan and Security Agreement (the “Loan Agreement”)
with CapitalSource Finance LLC, which provided for both a revolving loan
(discussed below) and a term loan (see Note 8). The Loan Agreement was
amended on October 15, 2007 and was further amended on February 14, 2008.
The loan was collateralized by substantially all of our assets and was
guaranteed by Ultimate Resort. On September 15, 2009, we entered into a
new Consolidated Amended and Restated Loan and Security Agreement with
CapitalSource (the “New Loan Agreement”), which is also discussed
below.
91
Prior
Loan Agreement
The Loan
Agreement, as subsequently amended, provided for borrowings up to a defined
borrowing base amount. At December 31, 2008, $86,387 was outstanding under
the revolving loan. At December 31, 2009, $98,982 was outstanding under
the New Loan Agreement. The outstanding balance at December 31, 2008
represents the maximum permitted at that date under the then borrowing base
formula. On and after March 31, 2009, the borrowing base was an amount equal to
the lesser of (i) $90,000 or (ii) 65% of the appraised value of all owned
property encumbered by a mortgage in favor of the lenders. At December 31,
2008, the appraised value of such property was $127,290.
Interest
was payable monthly at the three-month LIBOR (0.60% at December 31, 2009 and
1.90% at December 31, 2008) plus 5%, with a floor of 8.75% per annum which we
have been at during substantially all of 2009 and 2008. An exit fee of
$1,425,000 was due on maturity or earlier if the loan is terminated for any
reason. The fee is included in deferred loan costs and was amortized to interest
expense over the term of the loan. No principal payments were due until maturity
on April 30, 2011.
We were
required to meet certain covenants as defined in the Loan Agreement,
including:
(1) (a)
maintaining a restricted cash balance of not less than 75% of annual debt
service on the revolving and term loans, or (b) maintaining a debt service
coverage ratio of 1.25 to 1.00, based on the ratio of (a) EBITDA for the
immediately preceding three calendar months, to (b) debt service (excluding
balloon maturities of indebtedness) on a consolidated basis for the immediately
preceding three calendar months.
(2) If we
achieved less than 75% of projected gross sales of club membership interests for
the fiscal year ended December 31, 2008, as set out in the Loan Agreement, we
were required to deposit an additional one month's annual debt service on or
before January 31, 2009. This requirement was not met and the additional
deposit was required. As discussed below, the additional deposit required
by January 31, 2009 was not made and, accordingly, as of that date, the loan was
in default. Thereafter, we were required to deposit an additional one month's
annual debt service (i) on or before April 30, 2009, unless we had achieved at
least 75% of projected gross sales of club memberships as set out in the Loan
Agreement for the fiscal quarter ended March 31, 2009, and (ii) on or before
July 31, 2009, unless we had achieved at least 75% of projected gross sales of
club memberships for the fiscal quarter ended December 31, 2009. The
projected gross sales targets for the quarters ended March 31, 2009 and December
31, 2009 were not met; however, the additional deposits required by the loan
agreement were not made.
(3)
Remain in compliance at all times with applicable requirements as to ratio of
the number of properties to club members or "equivalent members", as set forth
in the applicable Club Membership Plans.
(4) For
the period beginning May 1, 2007, and ended April 30, 2008, the consolidated net
income (loss) must not exceed ($25,000). For the period beginning May 1, 2008,
and ended April 30, 2009, the consolidated net income (loss) must not exceed
($18,000). For the period beginning May 1, 2009, and ending April 30, 2010, the
consolidated net income (loss) must be not less than $1.
(5) The
debt ratio (aggregate mortgage financing to the aggregate appraised value for
all owned Property) on a consolidated basis must not exceed 80%.
The Loan
Agreement required us to maintain a restricted cash balance equivalent to
approximately nine months of interest payments due on the loan. Although
the use of these funds was generally limited to the payment of interest on the
loans, we were permitted, for a limited
period of time and subject to certain limitations as provided in the Loan
Agreement, use a portion of the restricted cash to fund operating
expenses. Subsequent to December 31, 2008, CapitalSource approved the use
of $1,700 from the restricted cash account to pay operating expenses, to be
repaid prior to April 30, 2009. The Company repaid $700 but the balance had not
been repaid and, as discussed above, the Company had also not increased the
restricted cash account as required by the Loan Agreement. On July 10,
2009, we received a notice of default from CapitalSource. In connection
with our proposed re-organization and business combination (see Note 2), we
expected that CapitalSource would continue to be our primary lender and on
September 2, 2009, we received a waiver from CapitalSource. As discussed
below, on September 15, 2009, we entered into a New Loan Agreement with
CapitalSource which cured our default under the previous Loan
Agreement.
In
connection with the Loan Agreement, we paid CapitalSource an initial commitment
fee of $950 and also paid other fees and expenses aggregating $775. These fees,
together with the exit fee of $1,425,000 required on maturity or earlier
repayment of the loan and the $750 cost of the warrants described below, were
deferred and were being amortized over the term of the Loan
Agreement.
92
In
connection with the Loan Agreement, on April 30, 2007, Ultimate Resort issued to
CapitalSource a Warrant to purchase 43 Class C equity units of Ultimate Resort,
at an exercise price of $11,627.91 per unit (aggregate proceeds on exercise of
$500), exercisable at any time prior to the later of April 30, 2017 or five
years after the irrevocable payment in full in cash of all of the obligations
and termination of the Loan Agreement. Prior to its redemption described
below, the Warrant permitted the holder to execute a cashless exercise, thus
permitting net settlement. As a result, in accordance with FASB ASC
815 “Derivatives and Hedging”, the Warrant is a derivative instrument.
Because the Warrant permitted CapitalSource
to require Ultimate Resort to re-purchase the Warrant or the underlying Class C
equity units, in certain circumstances, including an event of default or a
change in control, the Warrant did not meet the criteria of FASB ASC 815-40
“Contracts in Entity’s Own Stock”. The issuance of the Warrant by Ultimate
Resort on our behalf was recognized as a capital contribution to us by Ultimate
Resort and classified as a derivative instrument, at its estimated fair
value. On May 23, 2008, CapitalSource agreed to cancel the Warrant in
exchange for a payment of $750. The Class C equity units are issued to employees
and others for services provided. In estimating the fair value of the Warrant at
the time it was issued, we compared the exercise price of the Warrant with the
amount ($30) at which the Class D common equity units of Ultimate Resort, which
have broadly similar characteristics, were sold during 2007. Based on that
amount, the intrinsic value of the warrant at the time it was issued was $790.
We concluded that the amount of $750,000 at which the Warrant was re-purchased
was not materially different from its intrinsic value and that its fair value at
the time it was issued would not be materially different from its intrinsic
value. Accordingly, the Warrant was valued at $750,000, which was recorded
as deferred loan costs and was being amortized over the life of the
loan.
New
Loan Agreement
On
September 15, 2009, in connection with the contribution to us of the assets and
liabilities of Ultimate Resort Holdings (see Note 2), we, together with Private
Escapes, entered into a the New Loan
Agreement with CapitalSource. The New Loan Agreement replaces and
supersedes our previous April 30, 2007 Loan Agreement with CapitalSource
discussed above.
The New
Loan Agreement provides for borrowings up to the lesser of a defined maximum
amount or a defined borrowing base amount. The maximum amount available was
$110,000 through December 31, 2009, and is $108,000 from January 1, 2010 through
June 30, 2010, $105,000 from July 1, 2010 through December 31, 2010 and $100,000
from January 1, 2011 to the maturity date of April 30, 2011. The borrowing base
amount is a percentage of the appraised value of all owned property encumbered
by a mortgage in favor of CapitalSource. Through March 31, 2010, that percentage
was 75%, from April 1, 2010 through December 31, 2010 it is 70% and from January
1, 2011 it is 65%. We are currently in negotiations with CaptialSource to extend
the dates by which time we have to meet these percentage obligations. At
December 31, 2009, $98,982 was outstanding under the New Loan
Agreement.
Interest
is calculated on the actual days elapsed and the basis of a 360 day year and is
payable monthly at the three-month LIBOR (0.25% at December 31, 2009) plus 5%
per annum, with a floor of 8.75%. An exit fee of $1,650 is due on maturity
or earlier if the loan is terminated for any reason. The maturity date may be
extended at our request for two additional one year periods, provided we are not
in default under the New Loan Agreement and on payment of an extension fee of
0.25% of the then maximum loan amount of $100,000. Except for payments required
on the sale of a mortgaged property, no principal payments are due until
maturity on April 30, 2011, except that we are required to make a cash payment
of $2,000 on December 31, 2009, a cash payment of $3,000 on June 30, 2010 and a
cash payment of $5,000 on December 31, 2010. As of March 31, 2010,
the necessary repayments due before June 30, 2010 have both been made. As
described above, we are currently in negotiations with CapitalSource which may
require us to increase the repayment obligations due by June 30, 2010 and
December 31, 2010. If we exercise one or both of the extension options, we
are required to make cash payments of $5,000 on June 30, 2011, $5,000 on
December 31, 2011, $5,000 on June 30, 2012 and $5,000 on December 31, 2012. We
may voluntarily prepay any part of the loan at any time but may terminate the
New Loan Agreement only by providing 30 days written notice and prepaying
outstanding amounts in full.
93
We are
required to meet certain covenants as defined in the New Loan Agreement,
including:
(1)
Maintain either (a) a restricted cash balance of not less than six months debt
service (as defined), or (b) a debt service coverage ratio of 1.25 to 1.00,
based on the ratio of (a) Adjusted EBITDA for the immediately preceding 12
calendar months, to (b) debt service (excluding balloon maturities of
indebtedness) on a consolidated basis for the immediately preceding 12 calendar
months. On March 16, 2010, CapitalSource agreed to reduce the interest
reserve by $1,500 to be replenished in equal installments at the end of June,
September, and December 2010.
(2)
Maintain a leverage ratio between debt (as defined and with certain exclusions)
and consolidated tangible net worth of no more than 3.5:1.
(3)
Remain in compliance at all times with applicable requirements as to ratio of
the number of properties to club members or “equivalent members”, as set forth
in the applicable Club Membership Plans.
(4)
For the years ending December 31, 2009 and 2010, the consolidated net loss must
not exceed $10,000 and $5,000, respectively, and for the year ending December
31, 2011 and each succeeding year, the consolidated net income must be not less
than $1 (net loss is adjusted in each year for the non-refundable portion of new
member initiation fees not yet recognized in income and for non-cash stock-based
compensation expensed in 2009).
(5)
The debt ratio (aggregate mortgage financing to the aggregate appraised value
for all owned Property) on a consolidated basis must not exceed
80%.
In
addition to various covenants, the New Loan Agreement contains customary events
of default that would permit CapitalSource to accelerate repayment of amounts
outstanding, including failure to pay any amounts outstanding under the New Loan
Agreement when due, insolvency, judgment or liquidation, failure to pay other
borrowed money in excess of $500, failure to comply with the terms and
conditions of the New Loan Agreement, suspension of the sale of club
memberships, termination of any club or club membership plan, failure to pay
(without their consent) any amounts due to a resigning Club Member in accordance
with the terms of their Club Membership Agreement and a change in management (as
defined).
The table
below describes our revolving loan, mortgages, and other notes, and schedule of
maturities as of December 31, 2009. See note 10 for further description of
mortgage and other loans.
Total
|
Current
|
Long
Term
|
||||||||||
Note
payable to CapitalSource, bearing interest at three-month LIBOR (0.25% at
December 31, 2009) plus 5% per annum, with a floor of 8.75%, with
principal and interest payments, maturing on May 4, 2013.
|
$ | 98,982 | $ | 14,503 | $ | 84,479 | ||||||
Note
payable to JDI Ultimate, L.L.C., bearing interest at 5%, with interest
only payments, maturing April 30, 2017 (see Note 9).
|
10,000 | - | 10,000 | |||||||||
Various
loans with interest rates ranging from 3.375% to 15.0%, maturing January
1, 2010 through September 1, 2037 (see Note 10).
|
14,297 | 3,773 | 10,524 | |||||||||
Total
|
$ | 123,279 | $ | 18,276 | $ | 105,003 |
Principal
repayments are as follows, for the years ending December
31:
|
||||
2010
|
$ | 18,276 | ||
2011
|
86,482 | |||
2012
|
485 | |||
2013
|
117 | |||
2014
|
108 | |||
Thereafter
|
17,811 | |||
Total
|
$ | 123,279 |
94
NOTE
8 - TERM LOAN
On April
30, 2007, as part of the Loan Agreement described in Note 7, we also entered
into a $10,000 term loan agreement with CapitalSource. The loan was
collateralized by substantially all our assets and guaranteed by our then
majority owner, Ultimate Resort. Interest was payable monthly at 16% per
annum. We were originally required to repay at least $4,000 of the
outstanding principal balance by October 31, 2007, and to have paid all amounts
due under the term loan on or before April 30, 2008. On February 14, 2008, the
agreement was amended to require only that we repay the term loan (including all
accrued interest) on or before December 31, 2008. The loan, including all
accrued interest, was repaid in full on January 12, 2009.
NOTE
9 – NOTE PAYABLE TO SHAREHOLDER
On April
30, 2007, we issued a $10,000 note payable to JDI (see Note 2). Interest is
payable quarterly at 5% per annum and no principal payments are due until
maturity on April 30, 2017. The note, which is subordinate to the revolving and
term loans from CapitalSource, is collateralized by a second security interest
in certain real property. As described in Note 2, on October 28, 2009, JDI
assigned the note to Ultimate Resort Holdings. In connection with the
original loan from JDI, we paid fees and expenses aggregating $1,032. These fees
have been deferred and are being amortized over the 10 year term of the
note.
NOTE
10 - MORTGAGE AND OTHER LOANS
We have
10 loans that have either matured or will mature within the next twelve
months. The current portion of these loans is $3,773 at December 31,
2009. These loans are collateralized by various properties and bear
interest rates ranging from 6% to 15%. The notes mature at various dates
through 2010. For those notes that matured before year end, the company is
in negotiations to renew.
Included
in these current loans is $234 for the remaining outstanding principal balance
of $936 related to a $3.75 million loan from Kederike, LLC, an entity in which
Richard Keith, our Chairman, is a 50% owner. Upon the consummation of the
transaction with Private Escapes on September 15, 2009, we assumed this related
party liability for $234, the remainder was assumed by an entity controlled by
Mr. Keith. The maturity date of the loan was October 15, 2009; however,
the parties have renegotiated an extension of the maturity date until June 30,
2010 on substantially the same terms.
We
currently have 13 long term loans with an outstanding balance of $10,524.
These loans are collateralized by various properties and bear interest rates
ranging from 3.375% to 13.5%. The notes mature at various dates ranging
from August 2011 through January 2038.
NOTE
11 - ACCRUED LIABILITIES
At
December 31, 2009 and 2008, accrued liabilities consist of the
following:
2009
|
2008
|
|||||||
Payroll
|
$
|
317
|
$
|
54
|
||||
Interest
|
841
|
787
|
||||||
Loan
agreement exit fee
|
1,650
|
1,425
|
||||||
Property
taxes
|
458
|
531
|
||||||
Marketing,
consulting, credit fees, and other expenses
|
1,318
|
420
|
||||||
Contingent
consideration – Private Escapes acquisition
|
542
|
-
|
||||||
$
|
5,126
|
$
|
3,217
|
95
At
December 31, 2009, we re-measured the contingent consideration, as discussed in
Note 2, to fair value. The estimated fair value of the contingent
consideration as of December 31, 2009 was $542. As such, we recorded a
gain of $1,458 in Other Income in the Consolidated Statement of
Operations. The estimated fair value of $542 was calculated by multiplying
the estimated number of shares that could be potentially earned per the weighted
average analysis (approximately 1,831,000 shares) by the Private Escapes equity
ownership in Ultimate Escapes Holdings of 8%, and by our closing share price at
December 31, 2009 ($3.70).
The
aggregate range of contingent consideration at December 31, 2009 is as follows
(dollars in thousands):
Range of Additional
|
Range of
|
Weighted
|
||||||||
Ownership % (1)
|
Fair Values
|
Average Value
|
||||||||
Performance
targets
|
0 -
200,000 shares
|
$
|
0 - $740
|
$
|
542
|
NOTE
12 - ACCRUED DISTRIBUTIONS
Prior to
the reverse merger, Ultimate Resort was required to make distributions to
holders of its Class B and Class BB equity units and those distributions were
accrued and charged to its capital account as shown below. The
distribution requirement ceased when the reverse merger was completed on October
29, 2009. We do not expect that we will be required to make a cash
settlement of these accrued distributions in 2010.
Accrued
|
||||
Distributions
|
||||
Balance
– December 31, 2007
|
497 | |||
Distributions
accrued
|
477 | |||
Distributions
re-invested
|
(375 | ) | ||
Balance
– December 31, 2008
|
599 | |||
Distributions
accrued
|
398 | |||
Distributions
paid
|
(34 | ) | ||
Balance
– December 31, 2009
|
$ | 963 |
NOTE
13 - EQUITY COMPENSATION
Prior
Compensation Plan
Beginning
in 2004, Ultimate Resort granted incentive rights to certain key employees to
acquire Class C equity units of Ultimate Resort, subject to minimum vesting
periods, at no cost to the employee. The rights generally vested 100%
after four years, although for certain grants the rights vested at 25% per annum
for four years. Until the rights had vested, the employees were not entitled to
any benefit associated with the ownership of the Class C equity units. As of
December 31, 2008, a total of 345 Class C equity units had been granted to
employees, including 125 equity units
granted in 2008, of which 110 equity units
had fully vested. During 2009, rights to an additional 121 Class C equity
units of Ultimate Resort were granted.
96
We
accounted for the issuance of these equity
units in accordance with FASB ASC 718, Compensation – Stock
Compensation. This statement requires us to recognize compensation
expense in an amount equal to the grant-date fair value of the units. In
estimating the fair value of the Class C equity units at the time they were
granted, management compared the likely fair value of the equity units with the amount at which the Class
B, BB and D equity units of Ultimate Resort, which have broadly similar
characteristics, were sold. Based on that comparison, management concluded that
a reasonable estimate of the fair value of the Class C equity units in 2004 and 2005 was $10,000, for
rights granted in 2006 and 2007 was $20,000, and for those granted in 2008 and
later was $30,000 per unit. The estimated fair value of these units, as of the
date of grant, was recognized as compensation cost over the vesting period and
recorded as a capital contribution to us by Ultimate Resort. On completion of
the reverse merger transaction with SAAC described in Note 2, all equity units that had not previously vested
immediately became fully vested and we recognized all compensation expense
previously not recognized. No further equity
units will be issued under this plan.
Based on
the estimated fair values of the Class C units, we recorded employee
compensation expense and a capital contribution by Ultimate Resort, over the
vesting period of the units, as follows:
Expense Not
|
||||
Yet Recognized
|
||||
Outstanding
– December 31, 2007
|
1,357
|
|||
Fair
value of 125 equity units
granted
|
3,750
|
|||
Expense
recognized
|
(2,168
|
)
|
||
Outstanding
– December 31, 2008
|
2,939
|
|||
Fair
value of 121 equity units
granted
|
3,630
|
|||
Expense
recognized
|
(6,569
|
)
|
||
Outstanding
– December 31, 2009
|
$
|
-
|
2009 Stock Option
Plan
At the
special meeting of our stockholders held on October 28, 2009, the Company’s
stockholders approved the adoption of the 2009 Stock Option Plan (the “Plan”).
The purpose of the Plan is to provide an additional incentive to attract and
retain qualified personnel who provide services and upon whose efforts and
judgment the success of the company is largely dependent. In furtherance of this
purpose, the Plan authorizes the granting of incentive or nonqualified stock
options to purchase common stock to persons selected by the administrators of
the Plan from the class of all regular employees of the company, including
officers who are regular employees, directors and
consultants.
The Plan
provides that it shall be administered by the board of directors or by a
committee appointed by the board (the
“Committee”), which shall be composed of two or more directors all of
whom shall be “outside directors” (as defined in the Plan). The Committee or the
Board in its sole discretion determines the persons to be awarded the options,
the number of shares subject thereto and the exercise price and other terms
thereof.
If any
option granted under the Plan should expire or terminate for any reason other
than having been exercised in full, the shares subject to that option will again
be available for purposes of the Plan.
The
expiration date of an option under
the Incentive Plan will be determined by the Committee or the board at the time
of grant, but in no event may such an option be exercisable after 10 years from
the date of grant. An option may be exercised at any time or from time to time
or only after a period of time in installments, as the Committee or the board
determines. The Committee or the board may in its sole discretion accelerate the
date on which any option may be exercised. Each outstanding option granted under
the Plan may become immediately fully exercisable in the event of certain
transactions, including certain changes in control of the Company, certain
mergers and reorganizations, and certain dispositions of substantially all of
our assets, if so provided in the applicable
option agreement.
97
Unless
otherwise provided in the applicable option
agreement, the unexercised portion of any option granted under the Plan shall
automatically be terminated (a) three months after the date on which the
optionee’s employment is terminated for any reason other than (i) Cause (as
defined in the Plan), (ii) mental or physical disability, or (iii) death; (b)
immediately upon the termination of the optionee’s employment for Cause; (c) one
year after the date on which the optionee’s employment is terminated by reason
of mental or physical disability; or (d) one year after the date on which the
optionee’s employment is terminated by reason of optionee’s death, or if later,
three months after the date of optionee’s death if death occurs during the one
year period following the termination of the optionee’s employment by reason of
mental or physical disability.
The Plan
will expire on August 31, 2019, and any option outstanding on such date will
remain outstanding until it expires or is exercised.
The Plan
provides for the issuance of a maximum of 1,200,000 shares of our common
stock in connection with the grant of options. On October 29, 2009, we
granted to our employees a total of 8,800
options with an exercise price of $0.01, all of which were immediately
exercised. In 2009, we also granted to our non-employee directors a total of 8,862 and 44,565 options with exercise
prices of $0.001 and $6.77, respectively representing the par value of the underlying common
stock and, the market price on the grant date, respectively. As of December 31, 2009, none
of those options had been exercised. As of March 31, 2010, options to
purchase a total of 62,227 shares of common stock had been issued and 1,137,773
shares remain available for issuance.
We
account for the issuance of the options in accordance with FASB ASC 718, Compensation – Stock
Compensation. This statement requires us to recognize compensation
expense in an amount equal to the grant-date fair value of the Options. In
estimating the fair value of the Options at the time they were granted, we used
the Black-Scholes option model. This model is affected by our stock price
on the date of the grant as well as assumptions regarding a number of highly
complex and subjective variables. These variables include the expected
term of the option, expected risk-free rates of return, and the expected
volatility of our common stock, each of which is more fully described
below. The assumptions for expected term and expected volatility are the
two assumptions that significantly affect the grant date fair
value.
Expected Term: We apply
FASB ASC 718-10-S99 which allows use of the “short cut” method which assumes
exercise of the option at the midpoint between vesting and expiry.
Risk-free Interest
Rate: We base the risk-free interest rate on the implied yield at
the grant date of the U.S. Treasury zero-coupon issue with an equivalent term to
the stock-based award being valued. Where the expected term of a
stock-based award does not correspond with the term for which a zero coupon
interest rate is quoted, we estimate the rate based on the rates for the nearest
available maturities.
Expected Stock Price Volatility:
Because of the limited trading history of our common stock, we base our
estimate of volatility on the volatility of entities considered by management to
be comparable. Management chose companies similar in terms of the nature
of their operations, risk, size, and other appropriate metrics.
Dividend Yield: We do not
expect to pay any dividends and accordingly we apply a dividend yield rate of
0%.
98
The fair
value of stock option awards granted during the years ended December 31, 2009
was estimated as of the grant date using a Black-Scholes model with the
following weighted average assumptions:
2009
|
||||
Expected
term (in years)
|
5
Years
|
|||
Risk-free
interest rate
|
2.21 | % | ||
Expected
volatility
|
53 | % | ||
Dividend
yield
|
0 | % | ||
Weighted
average fair value per share at grant date
|
$ | 3.37 |
The
status of our stock options and stock awards are summarized as
follows:
Number
of
Shares
|
Weighted
Average
Exercise
Price
|
|||||||
Outstanding
at December 31, 2008
|
0 | 0 | ||||||
Granted
|
62,227 | $ | 3.37 | |||||
Exercised
|
(8,800 | ) | $ | 0.01 | ||||
Canceled
|
0 | 0 | ||||||
Outstanding
at December 31, 2009
|
53,427 | $ | 3.93 | |||||
Exercisable
at December 31, 2009
|
0 | 0 |
The
following table summarizes information about our options outstanding at December
31, 2009:
Options Outstanding, Expected to
Vest
|
Options Exercisable
|
|||||||||||||||||||
Exercise
Price ($)
|
Number
Outstanding
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
Weighted
Average
Exercise
Price
|
Number
Exercisable
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
Weighted
Average
Exercise
Price
|
||||||||||||||
$3.37
|
44,565 |
10
|
$ | 3.37 | 0 |
N/A
|
N/A
|
|||||||||||||
$6.77
|
8,862 |
10
|
$ | 6.77 | 0 |
N/A
|
N/A
|
|||||||||||||
$3.93
|
53,427 |
10
|
$ | 3.93 | 0 |
As of
December 31, 2009, the aggregate intrinsic value of all stock options
outstanding and expected to vest was approximately $15 and the aggregate
intrinsic value of currently exercisable stock options was zero. The
intrinsic value of each option is the difference between the fair market value
of our common stock and the exercise price of the option to the extent it is
in-the-money. Aggregate intrinsic value represents the value that would
have been received by the holders of in-the-money options had they exercised
their options on the last trading day of the year and sold the underlying shares
at the closing stock price on such day. The intrinsic value calculation is
based on the $3.70 closing stock price of our common stock on December 31,
2009, the last trading day of 2009. The total number of in-the-money
options outstanding but not yet exercisable as of December 31, 2009 was
44,565.
The total
intrinsic value of options exercised during the year ended December 31, 2009 was
$70. Intrinsic value of exercised shares is the total value of such shares
on the date of exercise less the cash received from the option holder to
exercise the options. The total cash proceeds received from the exercise
of stock options was eighty-eight dollars for the year ended December 31,
2009.
99
The total
fair value of options granted during the year ended December 31, 2009 was
$210. The total fair value of option shares vested during the year
ended December 31, 2009 was $70.
Stock
compensation cost recognized for the years ended December 31, 2009 and 2008,
including expense recognized under the Prior Compensation Plan described above,
was $6,604 and $2,169, respectively. We will only recognize a tax benefit from
windfall tax deductions for stock-based awards in additional paid-in capital if
an incremental tax benefit is realized after all other tax attributes currently
available have been utilized. As of December 31, 2009, there was
approximately $175 of total unrecognized stock-based compensation cost, net of
expected forfeitures, related to unvested stock options granted under the
Amended Plan. This cost is expected to be recognized in 2010.
NOTE
14 – CAPITAL STOCK
General
Our
authorized capital stock consists of 300,000,000 shares of common stock, $0.0001
par value, and 20,000,000 shares of preferred stock, $0.0001 par
value.
Units
Each unit
issued in SAAC’s initial public offering
consisted of one share of common stock and one warrant. Each warrant
entitles the holder to purchase one share of common stock. The units began
trading on the NYSE Amex on October 23, 2007, and ceased trading on October 30,
2009. Our common stock and warrants comprising the units began separate
trading on January 18, 2008. Our common stock and warrants now trade on the OTC
Bulletin Board under the symbols ULEI and ULEI.WT, respectively. Prior to
October 23, 2007 and January 18, 2008, there was no established public trading
market for our units or for our common stock and warrants,
respectively.
Common
Stock
Holders
of common stock are entitled to one vote per share on matters submitted to a
vote of stockholders. Holders of common stock do not have cumulative voting
rights. Holders of common stock are entitled to receive dividends as may be
declared from time to time by our board of directors out of funds legally
available for the payment of dividends, subject to the preferences that apply to
any outstanding preferred stock. Upon our liquidation, dissolution or winding
up, the holders of common stock are entitled to share ratably in all assets
remaining after payment of liabilities and after giving effect to the
liquidation preference of any outstanding preferred stock. The common stock has
no preemptive or conversion rights and no additional subscription rights. There
are no redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and non-assessable. We have
not paid any dividends to date on our common stock.
As of
December 31, 2009, there were 1,582,323 shares of common stock outstanding.
Subsequent to December 31, 2009, 1,128,806
shares were issued to club members under the Redemption Assurance Exchange
Program, described below and in Note 1. In addition, 31,298 shares were issued
for services received in connection with the reverse merger with SAAC and 64,015
shares have been or will be issued for consulting services.
Preferred
Stock
The
Company was initially authorized to issue 1,000,000 shares of preferred stock
with such designations, voting and other rights and preferences as may be
determined from time to time by the board of directors. Under the Company’s
Second Amended and Restated Certificate of Incorporation, as filed with the
Secretary of State of the State of Delaware on October 29, 2009, the Company is
authorized to issue 20,000,000 shares of preferred stock with such designations,
voting and other rights and preferences as may be determined from time to time
by the board of directors.
100
On
October 29, 2009 the Company filed with the Secretary of State of Delaware a
Certificate of Designation of Series A Preferred Stock (the ‘‘Certificate of
Designation’’) designating 14,556,675 shares of its authorized preferred stock
as Series A Preferred Voting Stock (the ‘‘Series A Preferred Voting Stock’’).
The Certificate of Designation was approved by the Company’s board of directors.
The Series A Preferred Voting Stock is entitled to one vote per share and to
vote as a single class with the common stock on all matters. In addition, the
holders of Series A Preferred Voting Stock have a separate right to vote as a
single class on (a) amendments to the Second Amended and Restated Certificate of
Incorporation that effect a division or combination of the Company’s common
stock unless such amendment proportionately divides or combines the Series A
Preferred Voting Stock, (b) the declaration of any dividend or distribution on
the Company’s common stock (other than in connection with a dissolution and
liquidation) on shares of the Company’s common stock unless a proportionate
dividend or distribution is declared on the Series A Preferred Voting Stock and
(c) a division or subdivision of the Series A Preferred Voting Stock into a
greater number of shares of Series A Preferred Voting Stock or a combination or
consolidation of the Series A Preferred Voting Stock.
The
Series A Preferred Voting Stock is not entitled to receive any liquidation
preference. In the event of the Company’s liquidation, the holders of the Series
A Preferred Voting Stock are only entitled to receive $0.001 per share, plus any
accrued but unpaid dividends thereon, if any, pari passu with the holders of
shares of the Company’s common stock, and nothing more. The shares of Series A
Preferred Voting Stock are subject to transfer restrictions intended to cause
such shares to be transferred only together with exchangeable units of Ultimate
Escapes Holdings. The holders of Series A Preferred Voting Stock have no
conversion, preemptive or other subscription rights and there are no sinking
fund provisions applicable to the Series A Preferred Voting Stock.
For each
ownership unit of Ultimate Escapes Holdings issued to the UE Owners in
connection with the consummation of the reverse merger on October 29, 2009, the
UE Owners received one share of Series A Voting Preferred Stock (all of which
shares of Series A Voting Preferred Stock were issued in the name of Mr.
Tousignant, as Owner Representative). At any time that any UE Owner exchanges
ownership units of Ultimate Escapes for shares of the Company’s common stock, a
like number of shares of Series A Voting Preferred Stock will be
canceled.
Common
Stock Warrants
As of
December 31, 2009, there were warrants to purchase a total of 12,075,000 shares
of our common stock outstanding.
Public
Stockholder Warrants
On
October 29, 2007, as part of its initial public
offering of units, SAAC sold 10,000,000 warrants to purchase one share of
common stock at an exercise price of $5.25, exercisable commencing on the later
of the completion of a business combination or 12 months from the date of the
offering and expiring four years from the date of the offering. The Company
could redeem the warrants, at a price of $.01 per warrant, upon 30 days’ notice,
in the event that the last sale price of the common stock was at least $11.50
per share for any 20 trading days within a 30 trading day period ending on the
third day prior to the date on which notice of redemption is given.
At the
special meeting of warrant holders held on October 28, 2009 in connection with
the reverse merger, a majority of the warrant holders approved amendments to the
warrants that increased the exercise price to $8.80 per share, increased the
last reported sale price of the common stock at which the Company may require
redemption of the warrants to $15.05 per share, and extended the expiration date
of the warrants to four years from the closing date of the reverse merger. These
warrant amendments became effective upon the closing of the reverse merger on
October 29, 2009.
101
The
Company is only required to use its best efforts to maintain the effectiveness
of the registration statement covering the warrants. The Company will not be
obligated to deliver securities, and there are no contractual penalties for
failure to deliver securities, if a registration statement is not effective at
the time of exercise of the warrants. Additionally, in the event that a
registration statement is not effective at the time of exercise, the holder of
such warrant is not entitled to exercise such warrant and in no event (whether
in the case of a registration statement not being effective or otherwise) will
the Company be required to net cash settle the warrant exercise. Consequently,
the warrants may expire unexercised and unredeemed. The exercise price and
number of shares of common stock issuable on exercise of the warrants may be
adjusted in certain circumstances including in the event of a stock dividend, or
our recapitalization, reorganization, merger or consolidation. However, the
warrants will not be adjusted for issuances of common stock at a price below
their exercise price.
Founder
Warrants
Secure
America Acquisition Holdings, LLC, the principal initial stockholder of SAAC, purchased a total of 2,075,000 warrants
(‘‘Founder Warrants’’) at $1.00 per Warrant (for an aggregate purchase price of
$2,075,000) privately from SAAC. This
purchase took place simultaneously with the consummation of the Company’s initial public offering of units. The Founder
Warrants are identical to the warrants sold in the Offering, except that (i) the
Founder Warrants are not subject to redemption, (ii) the Founder Warrants may be
exercised on a cashless basis while the warrants included in the units sold in
the offering cannot be exercised on a cashless basis, (iii) upon an exercise of
the Founder Warrants, the holders of the Founder Warrants may receive
unregistered shares of our common stock, and (iv) subject to certain limited
exceptions, the Founder Warrants were not transferable until they were released
from escrow, as described below, which would only be after the consummation of
the reverse merger.
Exercising
warrants on a ‘‘cashless basis’’ means that, in lieu of paying the aggregate
exercise price for the shares of common stock being purchased upon exercise of
the warrant in cash, the holder forfeits a number of shares issuable upon
exercise of the warrant with a market value equal to such aggregate exercise
price. Accordingly, the Company will not receive additional proceeds to the
extent the Founder Warrants are exercised on a cashless basis. Warrants
included in the units sold in the offering are not exercisable on a cashless
basis and the exercise price with respect to these warrants will be paid
directly to the Company.
Secure
America Acquisition Holdings, LLC and its permitted transferees are entitled to
registration rights with respect to the Founder Warrants and the shares of
common stock issuable upon exercise of the Founder Warrants pursuant to the
terms of an agreement dated October 23, 2007, which rights are described
below.
Registration
Rights
The
holders of 314,705 issued and outstanding founder common shares, the Founder
Warrants, and the shares of common stock issuable upon exercise of the Founder
Warrants are entitled to registration rights pursuant to a Registration Rights
Agreement, dated as of October 23, 2007. The holders of these securities are
entitled to make up to two demands at any time after the date on which their
shares or warrants, as applicable, are released from escrow, which is one year
after the consummation of the reverse merger and 60 days after the consummation
of the reverse merger, respectively, that we register the initial shares, the
Founder Warrants and the shares of common stock issuable upon exercise of such
Founder Warrants and also have ‘‘piggy-back’’ registration rights to participate
in other registrations filed subsequent to such date. We will bear the expenses
incurred in connection with any such registration statements other than
underwriting discounts or commissions for securities not sold by us. The
Registration Rights Agreement requires us to effect registration on a
best-efforts basis and does not provide for any explicit penalties in the event
we are not able to effect registration on a timely basis.
In
connection with the reverse merger, on October 29, 2009, we entered into a
Registration Rights Agreement with the UE Owners, pursuant to which the UE
Owners are entitled to registration rights, subject to certain limitations, with
respect to shares of our common stock for which their ownership units of
Ultimate Escapes Holdings may be exchanged. We agreed to file as soon as
possible after the closing date of the reverse merger but in no event later than
June 29, 2010, a registration statement covering the shares of our common stock
for which their ownership units of Ultimate Escapes Holdings may be exchanged.
In addition, the UE Owners have certain ‘‘piggyback’’ registration rights on
registration statements filed by us.
102
None of
our Registration Rights Agreements provide for registration delay payments in
the event that we do not file the required registration statement by the
prescribed date.
Redemption
Assurance Exchange Program
In
connection with the reverse merger, Ultimate Escapes Holdings offered to its
club members who met certain eligibility requirements an opportunity to elect to
convert all or a portion of their redemption value under the Redemption
Assurance Program (see Note 1) into shares of our common stock, to be issued
following the consummation of the reverse merger. A club member’s redemption
value under the redemption assurance program is a guaranteed amount of the
member’s initial membership fees that we are obligated to refund in accordance
with specified procedures if the member resigns from the club within a defined
period.
Eligible
club members who elected to participate in the Redemption Assurance Exchange
Program were entitled, following the consummation of the reverse merger, to
convert up to the full amount of their redemption value into that number of
shares of our common stock determined by dividing the redemption value which
they elected to convert by $7.94. All shares of common stock issued pursuant to
this program are restricted securities, and are subject to a lock-up agreement,
whereby 25% of the shares issued to each club member will be released from the
lock-up every six months following the consummation of the reverse merger. We
agreed to use commercially reasonable efforts to cause a resale registration
statement to be filed following the consummation of the reverse merger, covering
50% of the total number of shares of common stock issued pursuant to the
program, otherwise such shares will only be eligible to be resold one year after
the consummation of the reverse merger in accordance with rules applicable to
“shell” companies.
Only
accredited investors were eligible to participate in the Redemption Assurance
Exchange Program, and the issuance of the shares of common stock pursuant to the
program was intended to be exempt from the registration requirements of the
Securities Act of 1933, as amended, pursuant to Section 4(2) of such Act and
Rule 506 of Regulation D promulgated under such Act. In addition, in order to
participate, a club member must have owned shares of our common stock on October
25, 2009, and must have continued to hold such shares for at least 30 days after
the closing of the reverse merger. The maximum amount of a club member’s
redemption value which a club member could elect to convert into shares of our
common stock pursuant to the program was the dollar amount (at $7.94 per share)
of all shares of our common stock the club member owned on October 25,
2009.
On
January 5, 2010, we issued an aggregate of 887,505 shares of our common stock to
certain of those club members who had elected to convert all or portion of their
redemption value under the Redemption Assurance Exchange Program into shares of
common stock and in April 2010 we issued an additional 241,301 shares of our
common stock to the remaining club members who participated in the
Program. The fair value of the shares issued of $8,963 exceeded the
redemption value converted of $8,249 and as of December 31, 2009 we recognized
an inducement of $714.
Voting
Agreement
Also in
connection with the reverse merger, on October 29, 2009, the SAAC founders,
Ultimate Resort Holdings and Ultimate Escapes Holdings entered into a voting
agreement, pursuant to which, until October 28, 2012, our board of directors is
set at six directors, and the SAAC founders or their respective affiliates have
the right to nominate two individuals for appointment to our board of directors
following the reverse merger and Ultimate Resort Holdings or its affiliates have
the right to nominate four individuals for appointment to our board of directors
following the reverse merger. Both of the nominees of the SAAC founders and two
of the nominees of Ultimate Resort Holdings must be independent pursuant to the
Securities and Exchange Commission and the NYSE Amex rules and regulations. The
SAAC founders caused their nominees to be appointed to the board of directors
immediately prior to the reverse merger, and Ultimate Resort Holdings caused
three out of its four nominees to be appointed to the board of directors
immediately prior to the reverse merger. There is one vacancy on the board of
directors, which will be filled at a later date.
103
Secure
America Acquisition Holdings Voting Agreement
On
November 11, 2009, Ultimate Escapes Holdings, Ultimate Resort Holdings, Secure
America Acquisition Holdings, LLC (‘‘SAAH’’) and certain direct or indirect
owners of SAAH, including Mr. McMillen, entered into a voting agreement pursuant
to which, among other things, SAAH granted to Ultimate Resort Holdings a proxy
to vote the shares of our common stock owned by SAAH or its direct or indirect
owners until November 11, 2010. Also pursuant to this voting agreement, we
agreed to repay certain advances previously made by certain members of SAAH to
us, in the aggregate amount of $225 plus interest at the rate of 6% through
payment in full on January 31, 2010. We also agreed to provide to SAAH, for the
benefit of certain SAAH members (including Mr. McMillen) use of an Elite Club platinum
membership for a period of three years.
NOTE
15 - COMMITMENTS AND CONTINGENCIES
Leases –
At December 31, 2009 and December 31, 2008, we leased 37 and 25 club properties,
respectively, as well as certain office space under various operating
leases. The leases are non-cancelable and expire on various dates through
December 2010. Some of the leases have various renewal and fair
market value purchase options and one of the leases is with an entity controlled
by a related party. This lease has a five year term and expires in
October 2010. Total rent expense for the properties we lease for
years ended December 31, 2009 and 2008 was approximately $3,503 and $3,593,
respectively, of which approximately $244 and $170, respectively, was
paid to the entity controlled by the related party.
At
December 31, 2009, future minimum lease payments required under the
non-cancelable operating leases are as follows:
2010
|
$
|
2,952
|
||
2011
|
466
|
|||
2012
|
188
|
|||
$
|
3,606
|
Employment
Agreements – We are obligated under employment agreements with our Chief
Executive Officer, James M. Tousignant, our Chairman Richard Keith, and our
Chief Financial Officer, Philip Callaghan.
The
employment agreement for Mr. Tousignant has an initial term of three years, from
October 29, 2009. The agreement is subject to automatic renewals for 12 month
periods upon the expiration of the initial term, unless otherwise terminated in
writing by either party 90 days before the end of the current term. The
employment agreement provides to Mr. Tousignant an initial annual salary of
$450, which is subject to periodic adjustments of no less than 10% annually. Mr.
Tousignant also receives a performance-based bonus as additional cash
compensation. In addition, Mr. Tousignant is entitled to participate in all
employee benefit plans including medical and other benefits and 20 days annual
vacation. If we terminate Mr. Tousignant without cause, we will be required
to pay severance to Mr. Tousignant in an amount equal to twelve months
compensation and the prorated amount of bonuses Mr. Tousignant would have
otherwise earned during the current fiscal year. The employment agreement also
entitles Mr. Tousignant to certain equity incentives, in an amount yet to be
determined by the Compensation Committee but which will vest ratably in three
equal annual installments commencing on the first anniversary of the initial
grant date(s) thereof, and may be further accelerated or forfeited as set forth
in the equity agreement that the parties will enter into in connection with the
employment agreement. Such equity incentives have not yet been
determined.
Mr. Keith
has an agreement which has an initial term of one year, from October 29, 2009.
The agreement is subject to automatic renewals for 12 month periods upon the
expiration of the initial term, unless otherwise terminated in writing by either
party 90 days before the end of the current term. The employment agreement
provides to Mr. Keith an initial annual salary of $375. Mr. Keith may also
receive a performance-based bonus as additional cash compensation. In addition,
Mr. Keith is entitled to participate in all employee benefit plans including
medical and other benefits and 20 days annual vacation. If we terminate Mr.
Keith without cause, we will be required to pay severance to Mr. Keith in an
amount equal to six months compensation and the prorated amount of bonuses Mr.
Keith would have otherwise earned during the current fiscal
year.
104
Mr.
Callaghan has an agreement which has an initial term of one year, from October
29, 2009. The agreement is subject to automatic renewals for 12 month periods
upon the expiration of the initial term, unless otherwise terminated in writing
by either party 90 days before the end of the current term. The employment
agreement provides to Mr. Callaghan an initial annual salary of $375. Mr.
Callaghan may also receive a performance-based bonus as additional cash
compensation. In addition, Mr. Callaghan is entitled to participate in all
employee benefit plans including medical and other benefits and 20 days annual
vacation. If we terminate Mr. Callaghan without cause, we will be required
to pay severance to Mr. Callaghan in an amount equal to six months compensation
and the prorated amount of bonuses Mr. Callaghan would have otherwise earned
during the current fiscal year.
Hotel Rooms and
Marketing Agreement – On July 9, 2007, we entered into an agreement with
an entity under which we were required to pay a one-time non-refundable joining
fee of $50. The agreement also requires us to pay an annual sales and
marketing fee of $100 and the pre-purchase of a number of hotel rooms and suites
at various luxury hotels worldwide for a specified nightly fee. The
agreement terminates on December 31, 2010; however, it will automatically be
extended for one year increments unless either party gives written notice of
termination. We can terminate the agreement at any time without cause
by paying an early termination fee of $75. Subsequent to year end,
the agreement was amended, without payment, to reduce the annual sales and
marketing fee to $60.
Reciprocity
Program and Membership Sales Agreement – In
May 2008, we entered into a five year Reciprocity Program and Membership Sales
Marketing Agreement with a developer and seller of luxury fractional and
whole-ownership real properties in Cabo San Lucas, Mexico. This
agreement provides revenue to us through an annual program fee paid for each
participating fractional or whole-ownership affiliate club member, as well as a
per customer transaction fee. In accordance with the agreement, we
received a $200 credit from the developer which can be used for either future
purchase of fractional or whole ownership in the development, rental of property
in the development, purchase of club memberships in the yacht club, or charges
for use of the amenities. At December 31, 2008 and December 31, 2009,
this credit has not been applied. In addition, during 2008, we
received the program fee of $100, which is being amortized over the term of the
agreement.
During
October 2008, we entered into a similar agreement with another developer of
fractional properties in St. John and St. Barth in the
Caribbean. During 2008, we received one third of the program fee of
$100 which is being amortized over the term of the agreement.
Litigation
– We are involved in claims and litigation in the ordinary course of
business. In our opinion, such claims and litigation will not have a
material effect upon our financial position or results of
operations.
Earn-Out
Units - As
described in Note 2, the UE Owners may receive up to an additional 7,000,000
Earn Out ownership units if Ultimate Escapes Holdings meets certain Adjusted
EBITDA targets in each of the years ending December 31, 2010, 2001 and
2012.
NOTE
16 - OTHER RELATED PARTY TRANSACTIONS
During
2008, we paid a monthly management fee of $5 to an affiliated entity of James M.
Tousignant, our President and Chief Executive Officer and a member of our board
of directors. In addition, during 2008, we made a $40 advance to the
affiliated entity, which was non-interest bearing and due on
demand. The amount was repaid in 2009.
On April
30, 2007, we entered into an advisory board member agreement with a related
party. We are required to pay a monthly advisory fee of $8 to the
individual with an annual increase of 5%. The agreement terminates
upon written notice by us due to a breach of agreement, or if the advisor no
longer owns an interest in Ultimate Resort. During 2008, the
agreement was modified to waive the advisory fee in exchange for the right to
use our properties for additional days.
105
NOTE
17 - SEGMENT AND GEOGRAPHICAL INFORMATION
We operate in a single business
segment. Less than 5% of our revenue is derived from club members who
reside outside the United States. Geographic information related to
the net book value of our property and equipment at December 31, 2009 and
December 31, 2008 is as follows:
2009
|
2008
|
|||||||
United
States
|
$ | 80,164 | $ | 62,715 | ||||
Bahamas
|
9,024 | 8,544 | ||||||
Mexico
|
30,977 | 27,914 | ||||||
Nevis
|
19,269 | 19,736 | ||||||
St.
Thomas (USVI)
|
1,359 | 1,405 | ||||||
Tortola
(BVI)
|
683 | - | ||||||
Dominican
Republic
|
2,494 | - | ||||||
Turks
& Caicos
|
3,694 | - | ||||||
Belize
|
697 | - | ||||||
Italy
|
3,036 | - | ||||||
Total
net book value
|
$ | 151,397 | $ | 120,314 |
NOTE 18 – INCOME TAXES
Income Taxes – The
provision for income taxes is the tax payable or refundable for the period, plus
or minus the change during the period, in deferred tax assets and
liabilities. Our deferred tax assets and liabilities are recognized
to reflect the estimated future tax effects, calculated at currently effective
tax rates, of future deductible or taxable amounts attributable to events that
have been recognized on a cumulative basis in the financial statements. In
assessing the realizability of deferred tax assets, management considers whether
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets
is dependent upon the generation of future taxable income during the periods in
which temporary differences representing net future deductible amounts become
deductible. If in the future we determine that it is more likely than
not that we will be able to realize our net deferred tax asset in excess of
our net recorded amount, an adjustment to increase the net deferred tax asset
would increase income in such period. If in the future we were to
determine that we would not be able to realize all or part of our net recorded
deferred tax asset, an adjustment to decrease the net deferred tax asset would
be charged to income in such period. We are required to consider and
weight all available evidence, both positive and negative, including our
performance, the market environment in which we operate, and expectations of
future profits when determining whether a valuation allowance is
required. Generally, greater weight is required to be placed on
objectively verifiable evidence when making this assessment, in particular on
recent historical operating results.
We
evaluate each of our tax positions at the end of each period and determined that
no significant uncertainties existed as of December 31, 2009. We file
income tax returns in the U.S. federal jurisdiction and various state
jurisdictions. There have been no audits of our tax returns since
inception and all periods remain open to tax examination.
106
The
provision (benefit) for income taxes consists of the following:
Year Ended
December 31,
2009
|
||||
Current:
|
||||
Federal
|
$ | (6 | ) | |
State
|
- | |||
Deferred:
|
||||
Federal
|
(5,544 | ) | ||
State
|
(910 | ) | ||
Valuation
allowance
|
6,454 | |||
$ | (6 | ) |
Deferred
tax assets result primarily from book-to-tax timing differences in the allowance
for doubtful accounts, transaction expenses, non-refundable initiation fees
which are amortized for book purposes and recognized immediately for tax
purposes, differences in the amortization lives of intangibles between book and
tax and the amortization of goodwill for tax purposes only.
The table
below reconciles the expected statutory federal income tax to the actual income
tax provision (benefit):
Year Ended
December 31,
2009
|
||||
Income
tax benefit, computed at 34 percent of pretax loss
|
$ | (4,408 | ) | |
State
income taxes
|
- | |||
Increase
in valuation allowance
|
6,454 | |||
Permanent
differences
|
(2,052 | ) | ||
Actual
income tax provision (benefit)
|
$ | (6 | ) |
The tax
effect of temporary differences that give rise to the net deferred tax asset is
as follows:
December 31,
2009
|
||||
Deferred
tax asset:
|
||||
Allowance
for doubtful accounts
|
$ | 107 | ||
Capitalized
transaction expenses
|
147 | |||
Amortization
of intangibles
|
44 | |||
Deferred
non-refundable initiation fees
|
6,156 | |||
6,454 | ||||
Valuation
allowance
|
(6,454 | ) | ||
- | ||||
Deferred
tax liability
|
- | |||
Net
deferred tax asset (liability)
|
$ | - |
Uncertainties
that may affect the utilization of our tax attributes include future operating
results, tax law changes, and rulings by taxing authorities regarding whether
certain transactions are taxable or deductible.
As
described above, during 2009 we concluded that a valuation allowance was
required against all of the net deferred tax asset, and recorded a valuation
allowance of $6,454 with a corresponding charge to income tax
expense.
We
adopted the guidance in FASB ASC 740, which prescribes the accounting for and
disclosure of uncertainty in income tax positions. This guidance
specifies a recognition threshold that must be met before any part of the
benefit of a tax position can be recognized in the financial statements,
specifies measurement criteria and provides guidance for classification and
disclosure. We were not required to record an adjustment to our
financial statements upon this adoption.
107
EXHIBIT
INDEX
3.1
|
Second
Amended and Restated Certificate of Incorporation(1)
|
|
3.2
|
Certificate
of Designation of Series A Preferred Stock(1)
|
|
3.3
|
Bylaws(2)
|
|
4.1
|
Amendment
No. 1 to Warrant Agreement, by and between the Company and Continental
Stock Transfer & Trust Company, dated as of October 29, 2009(1)
|
|
4.2
|
Specimen
common stock certificate(1)
|
|
4.3
|
Specimen
warrant certificate(1)
|
|
4.4
|
Amended
and Restated Founder Warrant Purchase Agreement, dated October 12, 2007,
between the Company and Secure America Acquisition Holdings, LLC(5)
|
|
4.5
|
Form
of Warrant Agreement between Continental Stock Transfer and Trust Company
and the Company(5)
|
|
10.1
|
Amended
and Restated Operating Agreement, by and among Ultimate Escapes Holdings,
LLC, the Company, Ultimate Resort Holdings, LLC and Private Escapes
Holdings, LLC, dated as of October 29, 2009(1)
|
|
10.2
|
Voting
Agreement, by and among Secure America Acquisition Holdings, LLC, S. Kent
Rockwell, Asa Hutchinson, Philip A. McNeil, Brian C. Griffin, Mark A.
Frantz, Ultimate Resort Holdings, LLC and Private Escapes Holdings, LLC,
dated as of October 29, 2009(1)
|
|
10.3
|
Indemnification
and Escrow Agreement, by and among the Company, Ultimate Escapes Holdings,
LLC, the Owner Representative and SunTrust Banks, Inc. as escrow agent,
dated as of October 29, 2009(1)
|
|
10.4
|
Registration
Rights Agreement, by and among the Company and each of the investors set
forth therein, dated as of October 29, 2009(1)
|
|
10.5
|
Employment
Agreement, by and between the Company and James M. Tousignant, dated as of
October 29, 2009(1)
|
|
10.6
|
Employment
Agreement, by and between the Company and Richard Keith, dated as of
October 29, 2009(1)
|
|
10.7
|
Employment
Agreement, by and between the Company and Philip Callaghan, dated as of
October 29, 2009(1)
|
|
10.8
|
2009
Stock Option Plan(1)
|
|
10.9
|
Lease
Agreement between La Mirada Plaza, LLC and Ultimate Resort, LLC dated
November 1, 2005 as modified by Amendment No. 1 to Lease dated May 1,
2006, as assigned by Ultimate Resort, LLC to the Company pursuant to
Assignment and Assumption of Lease Agreement dated October 29, 2009(1)
|
|
10.10
|
Consolidated
Amended and Restated Loan and Security Agreement, dated as of September
15, 2009, among each borrower signatory thereto, CapitalSource Finance
LLC, CapitalSource Bahamas LLC and the lenders party thereto, as modified
by that certain First Amendment to Consolidated Amended and Restated Loan
and Security Agreement and Limited Waiver dated as of October 29,
2009(1)
|
|
10.11
|
Second
Mortgage Note among JDI Ultimate, L.L.C. and the borrowers listed therein
dated April 30, 2007, as assigned by JDI Ultimate, L.L.C. to Ultimate
Resort Holdings, LLC pursuant to the terms of that certain Assignment and
Assumption of Loan dated as of October 29, 2009(1)
|
|
10.12
|
Third
Amended and Restated Contribution Agreement among Private Escapes
Holdings, LLC (“PE”), Ultimate Escapes and Ultimate Resort Holdings, LLC
(“URH”) dated as of July 21, 2009 as amended by that certain Amendment No.
1 to Third Amended and Restated Contribution Agreement among PE, Ultimate
Escapes and URH effective as of August 13, 2009(1)
|
|
10.13
|
Loan
Agreement between Private Escapes Pinnacle, LLC and Kederike, LLC, dated
as of June 1, 2006, and First Amendment thereto dated November 13, 2006,
Second Amendment thereto dated December 21, 2007, Third Amendment thereto
dated March 31, 2008 and Fourth Amendment thereto dated March 2009(1)
|
108
10.14
|
Compensation
Plan for Independent Directors of the Board of Directors of the
Registrant(4)
|
|
10.15
|
Letter
Agreement among the Company, SunTrust Robinson Humphrey and C. Thomas
McMillen(2)
|
|
10.16
|
Letter
Agreement among the Company, SunTrust Robinson Humphrey and Harvey L.
Weiss(2)
|
|
10.17
|
Letter
Agreement among the Company, SunTrust Robinson Humphrey and Asa
Hutchinson(2)
|
|
10.18
|
Letter
Agreement among the Company, SunTrust Robinson Humphrey and Philip A.
McNeill(2)
|
|
10.19
|
Letter
Agreement among the Company, SunTrust Robinson Humphrey and S. Kent
Rockwell(2)
|
|
10.20
|
Letter
Agreement among the Company, SunTrust Robinson Humphrey and Brian C.
Griffin(2)
|
|
10.21
|
Letter
Agreement among the Company, SunTrust Robinson Humphrey and Mark A.
Frantz(2)
|
|
10.22
|
Letter
Agreement among the Company, SunTrust Robinson Humphrey and James A.
Maurer(2)
|
|
10.23
|
Letter
Agreement among the Company, SunTrust Robinson Humphrey and Secure America
Acquisition Holdings, LLC(2)
|
|
10.24
|
Form
of Investment Management Trust Agreement between Continental Stock
Transfer & Trust Company and the Registrant(5)
|
|
10.25
|
Form
of Stock Escrow Agreement by and among the Registrant, Continental Stock
Transfer & Trust Company and the stockholders set forth therein(2)
|
|
10.26
|
Form
of Services Agreement between Homeland Security Capital Corporation and
the Registrant(2)
|
|
10.27
|
Amended
and Restated Promissory Note, dated October 12, 2007 issued to Fortress
America Acquisition Holdings, LLC(2)
|
|
10.28
|
Proxy
Voting Agreement by and between Philip A. McNeill and Harvey L. Weiss(3)
|
|
10.29
|
Proxy
Voting Agreement by and between C. Thomas McMillen and S. Kent
Rockwell(3)
|
|
10.30
|
Registration
Rights Agreement among the Company and its founders(2)
|
|
10.31*
|
Fifth
Amendment to Loan Documents between Private Escapes Pinnacle, LLC and
Kederike, LLC, dated as of March 22, 2010
|
|
21.1*
|
List
of Subsidiaries of the Company
|
|
31.1*
|
Certification
of Chief Executive Officer pursuant to Rules 13a-14 and 15d-14 promulgated
under the Securities Exchange Act of 1934.
|
|
31.2*
|
Certification
of Chief Financial Officer pursuant to Rules 13a-14 and 15d-14 promulgated
under the Securities Exchange Act of 1934.
|
|
32.1*
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
32.2*
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
*
|
filed
herewith
|
(1)
|
Previously
filed as an Exhibit to the Form 8-K, filed on November 4,
2009.
|
(2)
|
Previously
filed as an Exhibit to Amendment No. 1 to the Form S-1, filed on August 8,
2007.
|
(3)
|
Previously
filed as an Exhibit to Amendment No. 3 to the Form S-1, filed on October
3, 2007.
|
(4)
|
Previously
filed as an Exhibit to the Form 8-K, filed on November 24,
2009.
|
(5)
|
Previously
filed as an Exhibit to Amendment No. 4 to the Form S-1, filed on October
12, 2007.
|
(6)
|
Previously
filed as an Exhibit to Amendment No. 2 to the Form S-1, filed on February
11, 2010.
|
109