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.
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.
