DC4MS

Tanner & Haley Resorts CEO Resigns

By MICHAEL CORKERY

August 15, 2006

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Rob McGrath, a pioneer of the "destination club" industry, resigned as chief executive officer of Tanner & Haley Resorts Tuesday, less than one month after the 62 corporate entities operating under that trade name filed for bankruptcy protection.

Mr. McGrath, a former trader at J.P. Morgan Chase & Co. and Nomura Holdings Inc., started the first destination club in 1998, offering a unique way for the wealthy to vacation. The company's chief restructuring officer, Holly Etlin, said in a statement emailed to members Tuesday night that, "Rob concluded that he could best enable the company he founded to successfully complete its financial reorganization by stepping down. We thank him for making this personally difficult decision."

Over the years, Tanner & Haley attracted top corporate executives, entrepreneurs, real-estate developers and other high net-worth individuals. For deposits that started at about $85,000 and went up to $1.3 million for more recent offerings -- in addition to annual dues and nightly fees -- members of the Tanner & Haley clubs could stay in luxury homes around the world.

But in recent months, the company ran into severe financial problems and on July 23 filed for protection under Chapter 11 of the bankruptcy law in federal court in Bridgeport, Conn., revealing a $64 million operating loss in 2005.

As unsecured creditors in the bankruptcy filing, many of the 874 members fear they could lose most of their membership deposits. The deposits had been refundable under certain conditions, but Tanner & Haley stopped returning deposits shortly before the bankruptcy filing.

Also Tuesday, U.S. bankruptcy judge Alan Shiff approved a $12.2 million company credit arrangement that will allow it to continue to meet certain expenses. In her statement, Ms. Etlin said since the bankruptcy filing, members have taken 500 "retreats" to Tanner & Haley destinations and have booked nearly 200 new retreats. "These numbers are very encouraging," she said.

The bankruptcy filing sparked many questions from members who say they agreed to join because they believed the money was being used to purchase real estate. But the filing listed $308 million of "member deposit and other liabilities" and the company says it owned only $130 million in real estate assets.

Tanner & Haley blamed some of its problems on the high costs of leasing properties where it didn't own enough homes to accommodate all of its members' vacation requests.

The destination clubs are more akin to a country club than a time share. Destination club members don't own any real estate, just the right to access dozens of high-end homes in places such as Vail, Colorado and Nevis in the West Indies. The time share industry sells portions of time at a particular resort or set of resorts, and in many cases buyers own deeded interest in the time-share properties, which they can resell.

Mr. McGrath's early success sparked many competitors. There are now more than 20 such destination clubs. Critics say the industry needs tighter regulation.