<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 8, 1996
REGISTRATION NO. 333-06027
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 3 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
SIGNATURE RESORTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
MARYLAND 6552 95-4582157
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
911 WILSHIRE BOULEVARD, SUITE 2250
LOS ANGELES, CALIFORNIA 90017
(213) 622-2211
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
STEVEN C. KENNINGER
CHIEF OPERATING OFFICER
SIGNATURE RESORTS, INC.
911 WILSHIRE BOULEVARD, SUITE 2250
LOS ANGELES, CALIFORNIA 90017
(213) 622-2211
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
<TABLE>
<S> <C>
EDWARD SONNENSCHEIN, JR., ESQ. PETER T. HEALY, ESQ.
LATHAM & WATKINS O'MELVENY & MYERS LLP
633 W. FIFTH STREET 275 BATTERY STREET
SUITE 4000 EMBARCADERO CENTER WEST
LOS ANGELES, CALIFORNIA 90071 SAN FRANCISCO, CALIFORNIA 94111
(213) 485-1234 (415) 984-8700
</TABLE>
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
---------------
If any of the securities on this form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434 of
the Securities Act of 1933, please check the following box. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SECTION 8(a), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
SIGNATURE RESORTS, INC.
CROSS-REFERENCE SHEET
PURSUANT TO RULE 404(a) AND ITEM 501(b) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING IN
FORM S-1 REGISTRATION
STATEMENT PROSPECTUS CAPTION
-------------------------- ------------------
<C> <S> <C>
1. Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus... Facing Page; Cross-Reference Sheet; Outside
Front Cover Page of Prospectus
2. Inside Front and Outside
Back Cover Pages of Pro-
spectus.................... Inside Front and Outside Back Cover Pages of
Prospectus
3. Summary Information, Risk
Factors and Ratio of Earn-
ings to Fixed Charges...... Summary; Risk Factors; Selected Combined
Historical and Pro Forma Financial
Information
4. Use of Proceeds............. Summary; Use of Proceeds; Consolidated
Capitalization; Management's Discussion and
Analysis of Financial Condition and Results
of Operations
5. Determination of Offering
Price...................... Outside Front Cover Page; Underwriting
6. Dilution.................... Dilution
7. Selling Security Holders.... Not Applicable
8. Plan of Distribution........ Outside Front Cover Page; Underwriting
9. Description of Securities to
be Registered.............. Summary; Description of Capital Stock
10. Interests of Named Experts
and Counsel................ Experts; Legal Matters
11. Information with Respect to
the Registrant............. Outside and Inside Front Cover Pages of
Prospectus; Summary; Risk Factors; Use of
Proceeds; Consolidated Capitalization;
Selected Combined Historical Financial
Information; Selected Combined Pro Forma
Financial Information; Shares Eligible for
Future Sale; Dividend Policy; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management; Certain Relationships
and Related Transactions; Principal
Stockholders; Combined Financial Statements
of Signature Resorts, Inc.
12. Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities................ Management
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED AUGUST 8, 1996
5,250,000 SHARES
[LOGO]
SIGNATURE RESORTS, INC.
COMMON STOCK
All of the shares of Common Stock, $0.01 par value ("Common Stock"), of
Signature Resorts, Inc., a Maryland corporation (the "Company"), offered hereby
(the "Offering") are being sold by the Company. Prior to the Offering, there
has been no public market for the Common Stock of the Company. It is currently
estimated that the initial public offering price will be between $14.00 and
$16.00 per share of Common Stock. See "Underwriting" for a discussion of
factors considered in determining the initial public offering price. The Common
Stock has been approved for quotation on the Nasdaq National Market, subject to
notice of issuance, under the symbol "SIGR."
SEE "RISK FACTORS" COMMENCING ON PAGE 12 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to
Public Discount (1) Company (2)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share (3)......................... $ $ $
Total................................. $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 787,500 additional shares of Common Stock solely to cover over-
allotments, if any. If the Underwriters exercise this option in full, the
Price to Public will total $ , the Underwriting Discount will total
$ and the Proceeds to Company will total $ . See
"Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein, when, as and if delivered and accepted by the Underwriters and subject
to their right to reject any order in whole or in part. It is expected that the
delivery of the certificates representing such shares will be made against
payment therefor at the office of Montgomery Securities on or about ,
1996.
-----------
MONTGOMERY SECURITIES GOLDMAN, SACHS & CO.
, 1996
<PAGE>
The following photos and charts are depicted:
Map Map of U.S. denoting Signature Resorts Locations and Logos
- --- corresponding to each of the three brands utilized by the company
Photo 1 San Luis Bay Inn - Avila Beach, California
- ------- Picture denotes ocean perspective of the resort and adjacent golf
course
Photo 2 Royal Palm Beach Club - St. Maarten, Netherlands, Antilles
- ------- Balcony perspective view of Royal Palm pool and swim up palapa bar
Photo 3 Royal Palm Beach Club - St. Maarten, Netherlands, Antilles
- ------- Aerial shot of beach front of Royal Palm Beach Club
Photo 4 Embassy Vacation Resort Poipu Point - Maui, Hawaii
- ------- Aerial shot looking over pool with view of beach front of Embassy
Vacation Resort Poipu Point
Photo 5 Embassy Vacation Resort Poipu Point - Maui, Hawaii
- ------- Interior view of resort looking out over balcony at ocean
Photo 6 Cypress Pointe - Lake Buena Vista, Florida
- ------- Angle frontal shot of one resort structure at Cypress Pointe - Lake
Buena Vista, Florida
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, ON THE OPEN MARKET
OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
EMBASSY VACATION RESORTS(SM) IS A SERVICE MARK OF THE PROMUS HOTEL
CORPORATION. WESTIN HOTELS & RESORTS(SM) IS A SERVICE MARK OF THE WESTIN HOTEL
COMPANY.
2
<PAGE>
SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial data, including
the financial statements and notes thereto, included elsewhere in this
Prospectus. Except as otherwise noted, all information in this Prospectus (i)
assumes no exercise of the Underwriters' over-allotment option, (ii) gives
effect to the consummation of the Consolidation Transactions (as defined
herein), which will occur immediately prior to the consummation of the
Offering, and (iii) assumes that the initial public offering price per share
will be $15 per share. Unless the context otherwise indicates, the "Company"
means Signature Resorts, Inc. following the consummation of the Consolidation
Transactions and includes its corporate and partnership predecessors.
THE COMPANY
Signature Resorts, Inc. is one of the largest developers and operators of
timeshare resorts in North America, based on number of resorts in sales. The
Company is devoted exclusively to timeshare operations and directly or through
wholly-owned affiliates owns eight timeshare resorts, including one under
construction, and a ninth resort in which the Company holds a partial interest
(the "Existing Resorts"). The Existing Resorts are located in a variety of
popular resort destinations including Hilton Head Island, South Carolina;
Koloa, Kauai, Hawaii; the Orlando, Florida area (two resorts); St. Maarten,
Netherlands Antilles (two resorts); Branson, Missouri; South Lake Tahoe,
California; and Avila Beach, California. The Company's principal operations
currently consist of (i) acquiring, developing and operating timeshare resorts,
(ii) marketing and selling timeshare interests in its resorts, which typically
entitle the buyer to use a fully-furnished vacation residence, generally for a
one-week period each year ("Vacation Intervals") and (iii) providing financing
for the purchase of Vacation Intervals at its resorts.
The Company believes that, based on published industry data, it is the only
developer and operator of timeshare resorts in North America that will offer
Vacation Intervals in each of the three principal price segments of the market
(value, upscale (characterized by high quality accommodations and service) and
luxury (characterized by elegant accommodations and personalized service)). The
Company expects that its resorts will operate in the following three general
categories, each differentiated by price range, brand affiliation and quality
of accommodations:
. NON-BRANDED RESORTS. Vacation Intervals at the Company's six non-branded
resorts, which are not affiliated with any hotel chain, generally sell
for $6,000 to $15,000 and are targeted to buyers with annual incomes
ranging from $35,000 to $80,000. The Company believes its non-branded
resorts offer buyers an economical alternative to branded timeshare
resorts (such as Embassy Vacation Resorts and Westin Vacation Club
resorts) or traditional vacation lodging alternatives.
. EMBASSY VACATION RESORTS. Vacation Intervals at the Company's three
Embassy Vacation Resorts generally sell for $12,000 to $20,000 and are
targeted to buyers with annual incomes ranging from $60,000 to $150,000.
Embassy Vacation Resorts are designed to provide timeshare
accommodations that offer the high quality and value that is represented
by the more than 120 Embassy Suites hotels throughout North America.
. WESTIN VACATION CLUB RESORTS. Through its recent agreement with Westin
Hotels & Resorts ("Westin"), the Company has the exclusive right for a
five-year period to jointly acquire, develop and market with Westin
"four-star" and "five-star" timeshare resorts located in North America,
Mexico and the Caribbean (the "Westin Agreement"). The Company
anticipates that Vacation Intervals at Westin Vacation Club resorts
generally will sell for $16,000 to $25,000 and will be targeted to
buyers with annual incomes ranging from $80,000 to $250,000. The Westin
Agreement represents Westin's entry into the timeshare market.
The Company sells its Vacation Intervals through sales personnel located at
each of its Existing Resorts and at off-site sales centers. In addition, the
Company's resorts participate in the Vacation Interval exchange network
operated by Resort Condominiums International, Inc. ("RCI"), the world's
largest Vacation Interval
3
<PAGE>
exchange organization with more than two million Vacation Interval owners as
members. Membership in RCI entitles Vacation Interval owners to exchange their
annual Vacation Intervals for occupancy at any of the approximately 2,900 other
resorts participating in the RCI network. According to the American Resort
Development Association ("ARDA"), a non-profit industry organization, the
ability to exchange Vacation Intervals is cited by buyers as a primary reason
for purchasing a Vacation Interval.
According to ARDA, during the fifteen year period ending in 1994 (the most
recent year for which statistics are available), the total annual sales volume
for the timeshare industry increased from $490 million in 1980 to $4.76 billion
in 1994. A year-by-year presentation of annual Vacation Interval sales volume
is detailed under "Business--The Timeshare Industry--The Market." The Company
believes that, based on ARDA reports, the timeshare industry has benefited
recently from increased consumer acceptance of the timeshare concept resulting
from effective governmental regulation of the industry, the entry into the
industry by national lodging and hospitality companies and increased vacation
flexibility resulting from the growth of Vacation Interval exchange networks.
The Company expects the timeshare industry to continue to grow as consumer
awareness of the timeshare industry increases and as the so-called "baby boom
generation" enters the 40-55 year age bracket, the age group which purchased
the most Vacation Intervals in 1994.
For the twelve month period ended June 30, 1996, the Company sold 6,128
Vacation Intervals at the Existing Resorts, compared to 2,869 and 5,219 for the
same periods ended in 1994 and 1995, respectively. Total revenue from Vacation
Interval sales at the Existing Resorts for the same periods increased from
$30.9 million in 1994 to $50.6 million in 1995 to $74.8 million in 1996. As of
June 30, 1996, the Company had an existing inventory of 21,142 Vacation
Intervals at the Existing Resorts, and the Company is in the process of
developing or has current plans to develop an additional 66,069 Vacation
Intervals on land which the Company owns or has an option to acquire at the
Existing Resorts. The Company anticipates that the existing inventory at each
of its Existing Resorts (except the Company's Hilton Head Island resort),
including the planned expansion at these resorts, will provide sufficient
inventory for between three and ten years of Vacation Interval sales at such
resorts.
The Company has historically provided financing for approximately 85% of its
Vacation Interval buyers. Buyers who finance through the Company typically are
required to make a down payment of at least 10% of the Vacation Interval's
sales price and pay the balance of the purchase price over a period of one to
ten years. The Company typically borrows against its loans to Vacation Interval
buyers with borrowings from third-party lending institutions. At June 30, 1996,
the Company had a portfolio of approximately 12,000 loans to Vacation Interval
buyers amounting to approximately $90 million. The loans had a weighted average
maturity of approximately seven years and a weighted average interest rate of
15.0% compared to a weighted average cost of funds of 10.25% on the Company's
borrowings secured by such customer loans. As of June 30, 1996, approximately
8.3% of such consumer loans were considered by the Company to be delinquent
(past due by 60 or more days) and the Company has completed or commenced
foreclosure or deed-in-lieu of foreclosure on approximately 2.4% of its
consumer loans. The Company also provides resort management and maintenance
services at its non-branded resorts for which it receives fees paid by the
homeowners associations at its resorts. Pursuant to management agreements
between the Company and the Vacation Interval owners, the Company generally has
sole responsibility and exclusive authority for the day-to-day operation of
certain of its resorts, including administrative services, procurement of
inventories and supplies and promotion and publicity.
The Company's objective is to become North America's leading developer and
operator of timeshare resorts. To meet this objective, the Company intends to
(i) acquire, convert and develop additional resorts to be operated as Embassy
Vacation Resorts, Westin Vacation Club resorts and non-branded resorts,
capitalizing on the acquisition and marketing opportunities to be provided
through its relationships with Promus Hotels Corporation ("Promus"), Westin and
selected financial institutions, (ii) increase sales and financings of Vacation
Intervals at the Existing Resorts through broader-based marketing efforts and
in certain instances through the construction of additional Vacation Interval
inventory, (iii) improve operating margins by consolidating administrative
functions, reducing borrowing costs and reducing its sales and marketing
expenses as a percentage
4
<PAGE>
of revenues and (iv) acquire additional Vacation Interval inventory, management
contracts, Vacation Interval mortgage portfolios, and properties or other
timeshare-related assets that may be integrated into the Company's operations.
To implement its growth strategy, the Company intends to pursue resort
acquisitions and developments in a number of selected destination vacation
markets that are subject to barriers to entry, concentrating on the California
and Hawaii markets in which the Company's founders have extensive acquisition
and development experience. The Company intends to rely on cash generated from
operations, proceeds of the Offering and funds available under its existing
lines of credit to fund its development activities at the Existing Resorts and
to rely primarily on financing arrangements to be obtained in the future to
fund its acquisition activities. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
The Company has established strategic agreements and relationships with
certain lodging companies and financial institutions, including the following:
. The Company is currently the only licensee and operator of Embassy
Vacation Resorts. The Company presently operates two Embassy Vacation
Resorts, has commenced construction on a third and is evaluating
additional properties which could be operated as Embassy Vacation
Resorts, but has not committed to any additional properties at this
time. In addition, Promus recently announced the creation of a new
timeshare division to expand its Embassy Vacation Resort timeshare
operations which the Company believes will provide it with growth
opportunities in the future.
. The Company, through the Westin Agreement, has the exclusive right for
five years to jointly acquire, develop and market with Westin Vacation
Intervals at "four-star" and "five-star" Westin-affiliated resorts. The
Company and Westin are evaluating a number of hotels currently operated
as Westin Hotels which could include or be expanded to include
facilities operated as Westin Vacation Club resorts, however the Company
has not committed to any such properties at this time.
. The Company has relationships with selected financial institutions which
control significant real estate portfolios and has acquired three of the
Existing Resorts from such institutions. The Company expects that these
relationships will continue to permit the Company to acquire resort
properties at attractive prices. The Company currently is evaluating the
acquisition of a number of properties currently owned or controlled by
such financial institutions, but has not committed to any additional
properties at this time.
The Company will use the proceeds of this Offering primarily to repay
outstanding indebtedness related to the Existing Resorts. See "Use of
Proceeds."
5
<PAGE>
THE RESORTS
The following table sets forth certain information as of June 30, 1996
regarding each of the Existing Resorts, including location, date acquired by
the Company, the number of existing and planned units at each Existing Resort,
the number of Vacation Intervals sold at each Existing Resort since its
acquisition or development by the Company and the number of Vacation Intervals
sold in 1995, the average sales price of Vacation Intervals sold at each
Existing Resort in 1995 and the number of Vacation Intervals available for sale
at each Existing Resort currently and giving effect to planned expansion. The
exact number of units and Vacation Intervals ultimately constructed at each
Existing Resort may differ from the following estimates based on future land
planning and site layout considerations.
<TABLE>
<CAPTION>
VACATION VACATION
UNITS AT RESORT INTERVALS SOLD AVERAGE INTERVALS AT RESORT
--------------- ----------------- SALES ---------------------
DATE PRICE IN CURRENT PLANNED
RESORT LOCATION ACQUIRED(A) CURRENT PLANNED TOTAL 1995 1995 INVENTORY EXPANSION
------ -------- ----------- ------- ------- ------- ------ -------- --------- ---------
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C>
NON-BRANDED RESORTS:
CYPRESS Lake Buena November 1992 184 500(b) 7,786 1,824 $10,734 1,598 16,116(b)
POINTE Vista, Florida
RESORT
PLANTATION Branson, July 1993 98 400(c) 3,842 1,094 9,519 1,156 16,218(c)
AT FALL Missouri
CREEK
ROYAL DUNES Hilton Head Island, April 1994 40 55(d) 1,319 577 10,862 721 765(d)
RESORT South Carolina
ROYAL PALM St. Maarten, Netherlands July 1995 140 140(e) 622 272 8,124 2,171 0(e)
BEACH CLUB Antilles
FLAMINGO St. Maarten, Netherlands August 1995 172 247(f) 342 104 6,885 2,665 3,900(f)
BEACH CLUB Antilles
SAN LUIS BAY Avila Beach, California June 1996 68 130(g) 20(h) (h) (h) 1,010(i) 3,162(g)
RESORT
EMBASSY VACATION RESORTS:
POIPU Koloa, Kauai, Hawaii November 1994 219 219(k) 852 281 19,074 10,317(k) 0
POINT(J)
GRAND BEACH Orlando, Florida January 1995 72 370(l) 2,168 1,523 13,063 1,504 15,198(l)
LAKE TAHOE South Lake May 1996(m) 0 210(n) (o) (o) (o) (o) 10,710(n)
Tahoe, California
--- ----- ------- ------ ------ ------
TOTAL............................................... 993 2,271 16,951 5,675 21,142 66,069
=== ===== ======= ====== ====== ======
</TABLE>
- --------
(a) The dates listed represent the date of acquisition or, if later, the date
of completion of development of the applicable resort by the Company. The
Embassy Vacation Resort Poipu Point was acquired by the Company in November
1994 as a traditional hotel. As units at the Embassy Vacation Resort Poipu
Point are sold as Vacation Intervals, the Company no longer rents such
units on a nightly basis.
(b) Includes 40 units, which will accommodate 2,040 Vacation Intervals, that
are currently under construction and scheduled for completion in September
1996. Also includes an additional estimated 276 units, which will
accommodate an additional estimated 14,076 Vacation Intervals, which the
Company plans to construct on land which it owns at the Cypress Pointe
Resort and for which all necessary governmental approvals and permits
(except building permits) have been obtained. Should the Company elect to
construct a higher percentage of three bedroom units, rather than its
current planned mix of one, two and three bedroom units, the actual number
of planned units and Vacation Intervals will be lower than is indicated
above.
(c) Includes 16 units, which will accommodate an additional 816 Vacation
Intervals, on which the Company commenced construction in June 1996 and for
which all necessary governmental approvals and permits have been received
by the Company. Also includes an additional estimated 286 units, which will
accommodate an additional estimated 14,586 Vacation Intervals, which the
Company plans to construct on land which it owns or is currently subject to
a contract to purchase at the Plantation at Fall Creek.
(d) Includes 15 units, which will accommodate 765 Vacation Intervals,
construction of which is planned to begin in either the fourth quarter of
1996 or the first quarter of 1997 and for which all necessary governmental
approvals and permits have been received by the Company.
6
<PAGE>
(e) The Company has not committed to any expansion of the Royal Palm Beach
Club. The Company is considering the acquisition of additional land
adjacent to the Royal Palm Beach Club for the addition of an estimated 60
units, which will accommodate an estimated 3,060 Vacation Intervals, but
has yet to enter into an agreement with respect to such additional land or
to obtain the necessary governmental approvals and permits for such
expansion.
(f) In May 1996 the Company acquired a five-acre parcel of land adjacent to the
Flamingo Beach Club on which the Company plans to develop an estimated 75
units which will accommodate an estimated 3,900 Vacation Intervals. The
Company is in the process of seeking to obtain the necessary governmental
approvals and permits for such proposed expansion.
(g) Includes 62 units, which will accommodate an estimated 3,162 Vacation
Intervals, for which all necessary discretionary governmental approvals and
permits have been received by the Company. The Company has not yet applied
for or obtained the required building permit to construct such additional
units. The Company plans to commence construction of the first 31 units in
September 1996. In addition, the Company is considering the acquisition of
additional land near the San Luis Bay Resort for the addition of an
estimated 100 units which will accommodate an estimated 5,100 Vacation
Intervals, but has yet to enter into an agreement with respect to such land
or to obtain the necessary governmental approvals and permits for such
proposed expansion.
(h) The Company commenced sales of Vacation Intervals at the San Luis Bay
Resort in June 1996.
(i) The Company in June 1996 acquired approximately 130 Vacation Intervals at
the San Luis Bay Resort out of the bankruptcy estate of Glen Ivy Resorts,
Inc. In addition, the Company acquired promissory notes in default that are
secured by approximately 900 Vacation Intervals. The Company intends to
foreclose upon and acquire clear title to such Vacation Intervals and
intends to complete such foreclosure procedures (or deed-in-lieu
procedures) in approximately four months following acquisition of the
resort.
(j) The Company owns, directly or indirectly, 100% of the partnership interests
in the managing general partner of Poipu Resort Partners L.P., a Hawaii
limited partnership ("Poipu Partnership"), the partnership which owns the
Embassy Vacation Resort Poipu Point. The managing general partner holds a
0.5% partnership interest for purposes of distributions, profits and
losses. The Company also holds, directly or indirectly, a 29.93% limited
partnership interest in the Poipu Partnership for purposes of
distributions, profits and losses, for a total partnership interest of
30.43%. In addition, following repayment of any outstanding partner loans,
the Company, directly or indirectly, is entitled to receive a 10% per annum
return on the Founders' and certain former limited partners' initial
capital investment of approximately $4.6 million in the Poipu Partnership.
After payment of such preferred return and the return of approximately $4.6
million of capital to the Company, directly or indirectly, on a pari passu
basis with the other general partner in the partnership, the Company,
directly or indirectly, is entitled to receive approximately 50% of the net
profits of the Poipu Partnership. In the event certain internal rates of
return specified in the Poipu Partnership Agreement are achieved, the
Company, directly or indirectly, is entitled to receive approximately 55%
of the net profits of the Poipu Partnership.
(k) Includes 191 units that the Company currently rents on a nightly basis that
have not yet been sold as Vacation Intervals.
(l) Includes 30 units, which will accommodate 1,530 Vacation Intervals, that
are currently under construction and scheduled for completion in September
1996. Also includes at least 24 units, which will accommodate an additional
1,224 Vacation Intervals, on which the Company plans to commence
construction in the fourth quarter of 1996 and for which all necessary
discretionary governmental approvals and permits (excluding building
permits which have not yet been applied for by the Company) have been
received by the Company. The Company has also received all necessary
discretionary governmental approvals and permits to construct an additional
estimated 228 units on land which it owns at the Embassy Vacation Resort
Grand Beach, which will accommodate an additional estimated 11,628 Vacation
Intervals (excluding building permits which have not yet been applied for
by the Company). The Company plans to apply for and obtain these building
permits on a building-by-building basis.
(m) Construction began on the first 62 units at the Embassy Vacation Resort
Lake Tahoe in May 1996. Twenty-seven units, which will accommodate 1,377
Vacation Intervals, are scheduled for completion in January 1997 and 35
units, which will accommodate 1,785 Vacation Intervals, are scheduled for
completion in March 1997.
(n) Includes 62 units, which will accommodate 3,162 Vacation Intervals, on
which construction began in May 1996 and for which all necessary
discretionary governmental approvals and permits have been received by the
Company. Twenty-seven units, which will accommodate 1,377 Vacation
Intervals, are scheduled for completion in January 1997 and 35 units, which
will accommodate 1,785 Vacation Intervals, are scheduled for completion in
March 1997. Of this total, the Company is obligated to convey four Vacation
Intervals to the former owners of the land on which the Embassy Vacation
Resort Lake Tahoe is being developed. Such conveyance will be made upon
completion of the first phase of development. The Company has also received
all necessary discretionary governmental approvals and permits to construct
an additional estimated 148 units (excluding building permits which have
not yet been applied for by the Company and which will be applied for and
obtained on a phase-by-phase basis) on land that it owns at the Embassy
Vacation Resort Lake Tahoe, which will accommodate an estimated 7,548
Vacation Intervals, and, subject to market demand, currently plans to
construct 40 of such units commencing in May of each year from 1997 through
1999 and the remaining 28 units commencing in May 2000.
(o) The Company commenced sales of Vacation Intervals at the Embassy Vacation
Resort Lake Tahoe in June 1996, although the Company will not be able to
close any of such sales until the completion of the first units, currently
scheduled to occur in January 1997.
7
<PAGE>
THE CONSOLIDATION TRANSACTIONS AND CORPORATE BACKGROUND
The Company's Existing Resorts currently are owned and operated by individual
limited partnerships or limited liability companies (the "Property
Partnerships"), each affiliated with the Company's founding stockholders, Osamu
"Sam" Kaneko, Andrew J. Gessow and Steven C. Kenninger (sometimes referred to
herein as the "Founders"). The Property Partnerships consist of Grand Beach
Resort, L.P., a Georgia limited partnership (Embassy Vacation Resort Grand
Beach); AKGI-Flamingo C.V., a Netherlands Antilles limited partnership
(Flamingo Beach Club); AKGI-Royal Palm C.V., a Netherlands Antilles limited
partnership (Royal Palm Beach Club); Port Royal Resort, L.P., a South Carolina
limited partnership (Royal Dunes Resort); an approximately 30% interest in
Poipu Resort Partners, L.P., a Hawaii limited partnership (Embassy Vacation
Resort Poipu Point); Fall Creek Resort, L.P., a Georgia limited partnership
(Plantation at Fall Creek); Cypress Pointe Resort, L.P., a Delaware limited
partnership (Cypress Pointe Resort); Lake Tahoe Resort Partners, LLC, a
California limited liability company (Embassy Vacation Resort Lake Tahoe); and
San Luis Resort Partners, LLC, a Georgia limited liability company (San Luis
Bay Resort). Affiliates of the Founders currently are the sole general partners
or the sole members of each of the Property Partnerships. Each of the Property
Partnerships (other than the Embassy Vacation Resort Poipu Beach) which will
remain in existence following the Consolidation Transactions and the Offering
will be wholly owned by the Company.
The Company's timeshare resort acquisition and development business commenced
in 1992 to take advantage of the unique real estate development, financing and
travel industry expertise of the Founders. Mr. Kaneko, who is a Japanese
national and was educated in the United States, has more than 24 years of
experience in resort real estate acquisition and development. Prior to forming
the Company, Mr. Kaneko co-founded KOAR Group, Inc. ("KOAR"), a Los Angeles-
based real estate acquisition and development company, with Mr. Kenninger in
1985 and was previously the executive vice-president of the Hawaii-based United
States operations of a Japanese publicly-traded real estate developer. Mr.
Kenninger, a former business attorney for the seven years prior to co-founding
KOAR, has had overall responsibility for the development, acquisition,
licensing, branding and legal operations of the Company since 1993. Affiliates
of KOAR developed and currently own the Embassy Suites hotels located at Lake
Tahoe, downtown Chicago, the Seattle/Tacoma airport, Walnut Creek (Bay Area),
California and the Los Angeles International Airport. In May 1996, Promus
presented its Rose Awards to three of the Embassy Suites hotels affiliated with
KOAR and scored two of such hotels in the top three hotels of the over 100
properties contained in the Embassy Suites system in 1995. Promus annually
presents Rose Awards to a select few hotels judged to be the best in the chain
based on an equally weighted composite score of property performance in a
market, results of guest satisfaction surveys and product quality assessments
performed by Promus. KOAR's Embassy Suites hotels are managed for KOAR by
Promus. Through its affiliation with the Embassy Suites hotel division of
Promus, the Company became the first and is currently the only licensee and
operator of Embassy Vacation Resorts. Prior to forming the Company, Mr. Gessow
in 1990 formed Argosy Group, Inc. ("Argosy"), a Woodside, California based real
estate acquisition and development company and was previously president of both
the Florida and west coast offices of Trammell Crow Residential Services, a
real estate development company. See "Management--Directors and Executive
Officers."
Upon consummation of the Consolidation Transactions described below, the
partnership and limited liability company interests in each of the Property
Partnerships, certain of the stock of certain other corporations affiliated
therewith held by "accredited investors" (as defined pursuant to Regulation D
under the Securities Act) and certain debt obligations of the Property
Partnerships and affiliates (and, as a result, ownership of each of the
Existing Resorts) will be directly or indirectly transferred to the Company and
in exchange the holders of such partnership interests and certain of such stock
will receive shares of Common Stock in the Company. Holders of any such
partnership interests who are not "accredited investors" will receive cash at a
price commensurate with the value received by the accredited investors to be
determined prior to the Consent Solicitation. The Consolidation Transactions
will be consummated concurrently with, and are conditioned upon, the closing of
the Offering. All financial and share information presented in this Prospectus
assumes the consummation of the Consolidation Transactions and reflects the
issuance of an aggregate of 11,354,705 shares of Common Stock to the holders of
partnership interests in the Property Partnerships and to certain stockholders
of certain other corporations affiliated with the Company (the "Affiliated
Companies"). The Affiliated Companies include
8
<PAGE>
Argosy/KOAR Group, Inc., Resort Management International, Inc., Resort
Marketing International, Inc., RMI-Royal Palm C.V.o.a., RMI-Flamingo C.V.o.a.,
AK-St. Maarten, LLC, Premier Resort Management, Inc., Resort Telephone & Cable
of Orlando, Inc., Kabushiki Gaisha Kei, LLC, Vacation Ownership Marketing
Company and Vacation Resort Marketing of Missouri, Inc., each of which are
controlled by the Founders and currently provide administrative, utility,
management and/or marketing services to certain of the Property Partnerships.
Signature Resorts, Inc. was incorporated in Maryland in May 1996 by the
Founders to effect the Consolidation Transactions and the Offering. Pursuant to
a Private Placement Memorandum dated as of May 28, 1996, the Company solicited
and received on or before June 13, 1996 the consent and agreement of the
ultimate owners of interests in the Property Partnerships, the stockholders of
the Affiliated Companies and the holders of certain debt obligations to
exchange their partnership interests or shares in, and obligations of, the
Property Partnerships or Affiliated Companies (or their direct or indirect
interests in the owners thereof), as applicable, for shares of Common Stock in
the Company (the "Consent Solicitation"). Such exchange will occur
simultaneously with the closing of the Offering and is conditioned upon certain
timing constraints with respect to the Offering. The Consent Solicitation and
exchange of direct and indirect interests in, and obligations of, the Property
Partnerships and the Affiliate Companies, as applicable, for shares of Common
Stock in the Company are referred to herein as the "Consolidation
Transactions." Certain direct and indirect holders of interests in, and
obligations of, certain Property Partnerships will upon consummation of the
Consolidation Transactions receive shares of Common Stock in the Company equal
to a predetermined dollar value based on agreement between the Company and such
holders as set forth in the Private Placement Memorandum for the Consent
Solicitation. The balance of the shares of Common Stock issued in the
Consolidation Transactions will be issued to the holders of interests in the
remaining Property Partnerships and to the holders of interests in the
Affiliated Companies, which are comprised solely of the Founders or their
affiliates. Following consummation of the Consolidation Transactions and the
Offering, the ultimate owners of interests in the Property Partnerships and
stockholders of the Affiliated Companies will in the aggregate own
approximately 68.4% of the outstanding Common Stock in the Company, with
approximately 45.0% of the outstanding Common Stock of the Company being held
by the Founders, or affiliates thereof (in each case, based on the mid-point of
the estimated pricing range of the Common Stock in the Offering). For
additional information regarding the Property Partnerships and the Affiliated
Companies as well as the Consolidation Transactions and resulting effect
thereof, see "Consolidation Transactions," "Principal Stockholders" and
"Certain Relationships and Related Transactions."
The Company's principal executive offices are currently located at 911
Wilshire Boulevard, Suite 2250, Los Angeles, California 90017, and its
telephone number is (213) 622-2211. In September 1996, the Company will
relocate its principal executive offices to 5940 Century Boulevard, Suite 210,
Los Angeles, California 90045, and its telephone number will be (310) 417-5020.
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered by the Company........ 5,250,000 shares(1)
Common Stock to be outstanding after
the Offering.............................. 16,604,705 shares(1)(2)
Use of proceeds............................ To repay outstanding
indebtedness, to fund the cash
portion of the Consolidation
Transactions and for working
capital and other general
corporate purposes.
Nasdaq National Market symbol.............. "SIGR"
</TABLE>
- --------
(1) Assumes no exercise of the Underwriters' over-allotment option. See
"Underwriting."
(2) Includes 11,354,705 shares of Common Stock issued in connection with the
Consolidation Transactions. See "The Consolidation Transactions." Does not
include 1,750,000 shares of Common Stock reserved for issuance pursuant to
the Company's 1996 Equity Participation Plan (as defined) and 500,000
shares of Common Stock reserved for issuance pursuant to the Company's
Employee Stock Purchase Plan (as defined). See "Management--Executive
Compensation."
9
<PAGE>
SUMMARY COMBINED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
(DOLLAR AMOUNTS IN THOUSANDS)
The following table sets forth: (i) combined historical financial information
of the Company, which includes each of the Property Partnerships and Affiliated
Companies, and (ii) pro forma financial information of the Company after giving
effect to the consummation of the Consolidation Transactions and the Offering
and the application of the net proceeds therefrom. Such information should be
read in conjunction with the selected combined historical and pro forma
financial information of the Company, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the combined financial
statements for the Company and the notes thereto which are contained elsewhere
in this Prospectus. Due to seasonality, other market factors and additions to
the number of the Company's resorts, the combined historical and pro forma
results for the six months ended June 30, 1995 and 1996 are not necessarily
indicative of results for a full year.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA(4)
----------------------------------------------------------- -------------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED
YEAR ENDED DECEMBER 31, JUNE 30, ENDED JUNE 30,
------------------------------------- -------------------- DECEMBER 31, ------------------
1992 1993 1994 1995 1995 1996 1995 1995 1996
------- -------- -------- -------- -------- ---------- ------------ ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenue:
Vacation Interval
sales................. $11,328 $ 22,238 $ 40,269 $ 59,071 $ 28,799 $ 28,754 $59,071 $28,799 $ 28,754
Interest............... 402 1,825 3,683 6,929 2,921 4,202 6,929 2,921 4,202
Other.................. 115 373 338 6,608 640 5,975 6,928 800 6,135
------- -------- -------- -------- -------- ---------- ------- ------- ----------
Total revenue.......... 11,845 24,436 44,290 72,608 32,360 38,931 72,928 32,520 39,091
Costs and operating
expenses:
Vacation Interval cost
of sales.............. 2,999 5,708 12,394 15,650 8,260 6,803 15,586 8,228 6,774
Advertising, sales and
marketing............. 4,734 10,809 18,745 28,488 14,247 14,730 28,488 14,247 14,730
Loan portfolio
Interest expense--
treasury............. 168 674 1,629 3,586 1,585 2,491 -- -- 839
Other................. 50 208 851 1,189 437 659 1,074 368 619
Provisions for
doubtful accounts.... 555 619 923 1,787 921 688 1,787 921 688
General and
administrative
Resort-level.......... 665 2,346 2,864 4,947 1,443 3,019 4,947 1,443 3,019
Corporate............. 375 877 874 1,607 653 1,604 1,607 653 1,604
Depreciation and
amortization.......... 209 384 489 1,675 742 1,109 1,830 742 1,401
Interest expense--
other................. -- 518 959 476 183 1,347 -- -- --
Equity loss on
investment in joint
venture............... -- -- 271 1,649 1,018 63 1,649 1,018 63
------- -------- -------- -------- -------- ---------- ------- ------- ----------
Total costs and
operating expenses.... 9,755 22,143 39,999 61,054 29,489 32,513 56,968 27,620 29,737
------- -------- -------- -------- -------- ---------- ------- ------- ----------
Pre-tax income.......... 2,090 2,293 4,291 11,554 2,871 6,418 15,960 4,900 9,354
Provision for taxes.... -- -- -- 641 -- 53 6,087 1,857 3,325
------- -------- -------- -------- -------- ---------- ------- ------- ----------
Net income.............. $ 2,090 $ 2,293 $ 4,291 $ 10,913 $ 2,871 $ 6,365 $ 9,873 $ 3,043 $ 6,029
======= ======== ======== ======== ======== ========== ======= ======= ==========
Pro forma net income(1). $ 1,301 $ 1,414 $ 2,674 $ 7,206 $ 1,787 $ 3,983
Pro forma net income per
share(1)............... -- -- -- -- -- $ .35 -- -- $ .35
Pro forma weighted
average shares
outstanding............ -- -- -- -- -- 11,354,705 -- -- 16,604,705
OTHER DATA:
EBITDA(2)............... $ 2,467 $ 3,869 $ 7,368 $ 17,291 $ 5,381 $ 11,365
Cash flows provided by
(used in)
Operating activities... (6,166) (3,262) (10,964) 5,460 14,063 (17,294)
Investing activities... (51) (10,776) (24,940) (40,075) (24,404) (11,206)
Financing activities... 5,146 15,341 36,134 37,102 11,627 28,366
Number of Existing
Resorts at period end.. 1 3 4 7 5 9
Number of Vacation
Intervals sold(3)...... 1,284 2,442 4,482 5,675 2,615 3,069
Numbers of Vacation
Intervals in
inventory(3)........... 1,164 1,233 2,401 9,917 2,040 21,142
Average price of
Vacation Intervals
sold(3)................ $ 8,822 $ 9,106 $ 8,985 $ 11,353 $ 11,013 $ 13,040
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------
ACTUAL AS ADJUSTED(5)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA (AT END OF PERIOD):
Cash, including cash in escrow.......................... $ 5,367 $ 12,278
Total assets............................................ 175,641 190,296
Long-term debt.......................................... 110,050 57,579
Stockholders' equity.................................... 47,890 109,319
</TABLE>
10
<PAGE>
- --------
(1) Reflects the effect on historical statement of operations data, assuming
the combined Company had been treated as a C corporation rather than as
individual limited partnerships and limited liability companies for federal
income tax purposes.
(2) As shown below, EBITDA represents net income before interest expense,
income taxes and depreciation and amortization. EBITDA is presented because
it is a widely accepted financial indicator of a company's ability to
service and/or incur indebtedness. However, EBITDA should not be construed
as an alternative to net income as a measure of the Company's operating
results or to operating cash flow as a measure of liquidity. The following
table reconciles EBITDA to net income:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31 JUNE 30
---------------------------- --------------
1992 1993 1994 1995 1995 1996
------ ------ ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Net income................... $2,090 $2,293 $4,291 $10,913 $2,871 $ 6,365
Interest expense--treasury... 168 674 1,629 3,586 1,585 2,491
Interest expense--other...... -- 518 959 476 183 1,347
Taxes........................ -- -- -- 641 -- 53
Depreciation and
amortization................ 209 384 489 1,675 742 1,109
------ ------ ------ ------- ------ -------
EBITDA....................... $2,467 $3,869 $7,368 $17,291 $5,381 $11,365
====== ====== ====== ======= ====== =======
</TABLE>
(3) Includes the effect of sales or inventory at the Company's non-consolidated
resort.
(4) Reflects the effect on historical statement of operations data, assuming
the issuance of Common Stock offered hereby, the retirement of $52.5
million of debt, the elimination of interest expense related to the debt
retired, and the treatment of the combined Company as a C corporation as
described in (1) above.
(5) Adjusted to give effect to (i) the sale of 5,250,000 shares of Common Stock
offered hereby at an estimated offering price of $15.00 per share less the
underwriting discount and the payment by the Company of the estimated
offering expenses, (ii) the retirement of $52.5 million of debt and (iii)
the treatment of the combined Company as a C corporation resulting in a
deferred tax liability of $5.7 million at June 30, 1996.
11
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following risk factors should be carefully considered in evaluating the
Company and its business before purchasing any of the shares of Common Stock
offered hereby. The Company cautions the reader that this list of risk factors
may not be exhaustive.
ACQUISITION STRATEGY AND RISKS RELATED TO RAPID GROWTH
A principal component of the Company's strategy is to continue to grow by
acquiring additional resorts. The Company's future growth and financial
success will depend upon a number of factors, including its ability to
identify attractive resort acquisition opportunities, consummate the
acquisitions of such resorts on favorable terms, convert such resorts to use
as timeshare resorts and profitably sell Vacation Intervals at such resorts.
There can be no assurance that the Company will be successful with respect to
such factors. The Company's ability to execute its growth strategy depends to
a significant degree on the existence of attractive resort acquisition
opportunities (which, in the past, have included completed or nearly completed
resort properties), its ability both to consummate acquisitions on favorable
terms and to obtain additional debt and equity capital and to fund such
acquisitions and any necessary conversion and marketing expenditures.
Currently, there are numerous potential buyers of resort real estate which are
better capitalized than the Company competing to acquire resort properties
which the Company may consider attractive resort acquisition opportunities.
There can be no assurance that the Company will be able to compete against
such other buyers successfully or that the Company will be successful in
consummating any such future financing transactions or equity offerings on
terms favorable to the Company. The Company's ability to obtain and repay any
indebtedness at maturity may depend on refinancing, which could be adversely
affected if the Company cannot effect the sale of additional debt or equity
through public offerings or private placements on terms favorable to the
Company. Factors which could affect the Company's access to the capital
markets, or the cost of such capital, include changes in interest rates,
general economic conditions, the perception in the capital markets of the
timeshare industry and the Company's business, results of operations,
leverage, financial condition and business prospects. In addition, an
important part of the Company's growth strategy is to acquire and develop
Westin Vacation Club resorts through the Westin Agreement. See "Business--
Westin Vacation Club Resorts." Westin has not previously been active in the
timeshare market and may not devote the corporate resources to such projects
at levels which will make the projects successful. Moreover, there can be no
assurance that Promus will elect to continue licensing the Embassy Vacation
Resort name to the Company with respect to possible future resorts.
BENEFITS TO FOUNDERS AND OTHER PERSONS; REPAYMENT OF INDEBTEDNESS OWED TO
FOUNDERS AND AFFILIATES
The Founders and the Company's other executive officers and directors will
realize benefits from the formation of the Company, the Consolidation
Transactions and the Offering that will not generally be received by other
persons participating in such transactions. Such benefits may include the
repayment by the Company of indebtedness owed to such individuals, the
acquisition of shares of Common Stock in the Consolidation Transactions and
retention under employment agreements. Thus, the Founders, other executive
officers and directors may have interests that conflict with the interests of
others participating in the Consolidation Transactions and with the interests
of persons acquiring Common Stock in the Offering. Messrs. Kaneko, Gessow and
Kenninger, or affiliates thereof, will receive 2,821,798, 3,210,599 and
1,447,930 shares of Common Stock in the Consolidation Transactions (the number
of such shares in each case being based on the mid-point of the estimated
pricing range of the Common Stock in the Offering), respectively, and will
receive approximately $6.3 million, $6.6 million and $3.2 million,
respectively, of the net proceeds of the Offering for the repayment of debt
owed by the Company to affiliates of the Founders substantially all of which
will be used by the Founders to repay third-party obligations and to pay tax
liabilities. As a result of the repayment of such third party obligations, the
Founders will be released from certain pledges of interests in various of the
Property Partnerships securing repayment of such debt. In addition, each of
the Founders will be party to an employment agreement with the Company that
will provide for a base salary of $280,000 per annum and will provide for the
grant to each of the Founders of options to purchase 150,000 shares of Common
Stock, vesting in three equal installments
12
<PAGE>
over three years. James E. Noyes, a director and Executive Vice President of
the Company, is a party to an employment agreement with the Company that
provides for an initial base salary and bonus of $400,000 per annum and
provides for the grant of options to purchase 375,000 shares of Common Stock.
Charles C. Frey, Genevieve Giannoni and Timothy D. Levin, the Company's Chief
Financial Officer and Treasurer, Senior Vice President of Operations and Vice
President--Architecture, respectively, will receive 5,600, 2,800 and 4,058
shares of Common Stock in the Consolidation Transactions, respectively, and
each will receive options to purchase 150,000, 150,000 and 10,000 shares of
Common Stock, respectively. In addition, upon consummation of the
Consolidation Transactions and the Offering, affiliates of Joshua S. Friedman,
a proposed director of the Company, may be deemed to beneficially own
2,220,936 shares of Common Stock, and approximately $13.1 million of the net
proceeds of the Offering will be used to repay indebtedness owed by the
Company to affiliates of Mr. Friedman and to pay related fees. See "Certain
Relationships and Related Transactions--Repayment of Affiliated Debt,"
"Principal Stockholders," "Consolidation Transactions" and "Management--
Employment Agreements."
RISKS OF DEVELOPMENT AND CONSTRUCTION ACTIVITIES
The Company intends to actively continue development, construction,
redevelopment/conversion and expansion of timeshare resorts. There can be no
assurance that the Company will complete development and/or conversion of the
Lake Tahoe and Avila Beach resorts currently under development, complete the
expansion projects currently under development at the Company's Cypress
Pointe, Plantation at Fall Creek and Embassy Vacation Resort Grand Beach
resorts, undertake the additional expansion plans set forth in "Business--
Description of the Company's Resorts" or undertake to develop other resorts or
complete such development if undertaken. Risks associated with the Company's
development, construction and redevelopment/conversion activities, including
activities relating to the Lake Tahoe and Avila Beach resorts, and expansion
activities, including activities relating to the Cypress Pointe, Plantation at
Fall Creek and Embassy Vacation Resort Grand Beach resorts, may include the
risks that: acquisition and/or development opportunities may be abandoned;
construction costs of a property may exceed original estimates, possibly
making the resort uneconomical or unprofitable; sales of Vacation Intervals at
a newly completed property may not be sufficient to make the property
profitable; financing may not be available on favorable terms for development
of, or the continued sales of Vacation Intervals at, a property; and
construction may not be completed on schedule, resulting in decreased revenues
and increased interest expense. In addition, the Company's construction
activities typically are performed by third-party contractors, the timing,
quality and completion of which cannot be controlled by the Company.
Nevertheless, construction claims may be asserted against the Company for
construction defects and such claims may give rise to liabilities. New
development activities, regardless of whether or not they are ultimately
successful, typically require a substantial portion of management's time and
attention. Development activities are also subject to risks relating to the
inability to obtain, or delays in obtaining, all necessary zoning, land-use,
building, occupancy and other required governmental permits and
authorizations, the ability of the Company to coordinate construction
activities with the process of obtaining such permits and authorizations, and
the ability of the Company to obtain the financing necessary to complete the
necessary acquisition, construction, and/or conversion work. Upon the closing
of the Offering, the Company will not have the financing available to complete
all of its planned expansion as set forth in "Business--Description of the
Company's Resorts." The ability of the Company to expand its business to
include new resorts will in part depend upon the availability of suitable
properties at reasonable prices and the availability of financing for the
acquisition and development of such properties. In addition, certain states
and local laws may impose liability on property developers with respect to
construction defects, discovered or repairs made by future owners of such
property. Pursuant to such laws, future owners may recover from the Company
amounts in connection with any repairs made to the developed property. See
"Business--Business Strategy" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
RISK OF INCREASING LEVERAGE; RESTRICTIVE COVENANTS
Future development by the Company at its Existing Resorts will be financed
with indebtedness obtained pursuant to the Company's existing credit
facilities or credit facilities obtained by the Company in the future. The
agreements with respect to such facilities do contain or in the future could
contain restrictive covenants, possibly including covenants limiting capital
expenditures, incurrence of debt and sales of assets and
13
<PAGE>
requiring the Company to achieve certain financial ratios, some of which could
become more restrictive over time. Subsequent acquisition activities will be
financed primarily by new financing arrangements. The Company's pro forma
indebtedness as well as the indebtedness to be incurred under such facilities
will be secured by mortgages on the Company's resort properties as well as
other assets of the Company. Among other consequences, the leverage of the
Company and such restrictive covenants and other terms of the Company's debt
instruments could impair the Company's ability to obtain additional financing
in the future, to make acquisitions and to take advantage of significant
business opportunities that may arise. In addition, the Company's leverage may
increase its vulnerability to adverse general economic and timeshare industry
conditions and to increased competitive pressures.
RISKS ASSOCIATED WITH PARTNERSHIP INVESTMENT IN POIPU PARTNERSHIP
The Embassy Vacation Resort Poipu Point is owned by a partnership consisting
of the Company and a third party. Property ownership through a partnership
involves additional risks, including requirements of partner consents for
major decisions (including approval of budgets), capital contributions and
entry into material agreements. If the Company and its partner are unable to
agree on major decisions, either partner may elect to invoke a buy/sell right,
which could require the Company to either sell its interest in the Embassy
Vacation Resort Poipu Point or to buy out the interest of its partner at a
time when the Company is not prepared to do so. In addition, under certain
circumstances, the other partner can require the Company to purchase such
partner's interest or sell its interest to the partner. If a dispute arises
under this partnership, an adverse resolution could have a material adverse
effect on the operations of the Company. In addition, as a general partner,
the Company will be subject to certain fiduciary obligations which may
obligate it to act in a manner which is not necessarily in the best interest
of the Company.
LIMITED OPERATING HISTORY; CONSOLIDATION TRANSACTIONS
The Company has been recently formed in order to effectuate the
Consolidation Transactions and the Offering. Although predecessors of the
Company have operating history in the timeshare and hospitality industries,
the Company has no operating history as an integrated entity with respect to
the Existing Resorts or experience operating as a public company, which could
have an adverse impact on the Company's operations and future profitability.
The Company has chosen to conduct its management operations (i) in two
locations in California primarily with respect to acquisition, development and
finance, (ii) in Chicago, Illinois primarily with respect to sales and
marketing and (iii) in Orlando, Florida primarily with respect to accounting,
treasury and property management operations. However, as the Company grows and
diversifies into additional geographic markets, no assurance can be given as
to management's ability to efficiently manage operations and control functions
without a centrally located management team. The Company's Existing Resorts
are currently owned by the Property Partnerships and are being transferred
directly or indirectly to the Company pursuant to the Consolidation
Transactions. The Consolidation Transactions involve consents of certain
constituent partners, members or shareholders in each entity owning the
Existing Resorts. This process involves more risk than if each Existing Resort
was previously owned by the Company or acquired by the Company concurrently
with the Offering. There can be no assurance that partners, members or
shareholders could not bring a claim against the Company as a result of such
Consolidation Transactions, and one individual has threatened to bring a
claim. See "Business--Insurance; Legal Proceedings." If a partner, member or
shareholder brings a successful claim against the Company, the Company's
earnings could be adversely affected.
LACK OF APPRAISALS; NO ASSURANCE AS TO VALUE
No independent valuations or appraisals were obtained in connection with the
Consolidation Transactions or the Offering. Accordingly, there can be no
assurance that the price paid by the Company to holders who received their
shares of Common Stock as a result of the Offering will not exceed the
proportionate value of the Existing Resorts and other assets acquired by the
Company. The valuation of the Company has been determined based upon a variety
of factors discussed under "The Consolidation Transactions" and "Underwriting"
and not solely on an asset by asset valuation based on historical cost or
current market value and, therefore, may exceed values that could be obtained
from a liquidation of the Company or of the individual Existing Resorts or
assets owned by the Company.
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GENERAL ECONOMIC CONDITIONS; CONCENTRATION IN TIMESHARE INDUSTRY
Any downturn in economic conditions or any price increases (e.g., airfares)
related to the travel and tourism industry could depress discretionary
consumer spending and have a material adverse effect on the Company's
business. Any such economic conditions, including recession, may also
adversely affect the future availability of attractive financing rates for the
Company or its customers and may materially adversely affect the Company's
business. Furthermore, adverse changes in general economic conditions may
adversely affect the collectibility of the Company's loans to Vacation
Interval buyers. Because the Company's operations are conducted solely within
the timeshare industry, any adverse changes affecting the timeshare industry
such as an oversupply of timeshare units, a reduction in demand for timeshare
units, changes in travel and vacation patterns, changes in governmental
regulations of the timeshare industry and increases in construction costs or
taxes, as well as negative publicity for the timeshare industry, could have a
material adverse effect on the Company's operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
RISKS ASSOCIATED WITH CUSTOMER FINANCING
The Company offers financing to the buyers of Vacation Intervals at the
Company's resorts who make a down payment generally equal to at least 10% of
the purchase price. This financing generally bears interest at fixed rates and
is collateralized by a first mortgage on the underlying Vacation Interval. The
Company has entered into agreements with lenders for the financing of these
customer receivables. These agreements provide an aggregate of up to
approximately $175 million of available financing to the Company bearing
interest at variable rates tied to either the prime rate or LIBOR, of which
the Company currently has approximately $120 million of additional borrowing
availability. Under these arrangements, the Company pledges as security
promissory notes to these lenders, who typically lend the Company 80% to 90%
of the principal amount of such notes. Payments under these promissory notes
are made by the buyer/borrowers directly to a payment processing center and
such payments are credited against the Company's outstanding balance with the
respective lenders. The Company does not presently have binding agreements to
extend the terms of such financing or for any replacement financing, and there
can be no assurance that alternative or additional arrangements can be made on
terms that are satisfactory to the Company. Accordingly, future sales of
Vacation Intervals may be limited by both the availability of funds to finance
the initial negative cash flow that results from sales that are financed by
the Company and by reduced demand which may result if the Company is unable to
provide financing through unaffiliated lenders to buyers of Vacation
Intervals. If the Company is required to sell its customer receivables to
lenders, discounts from the face value of such receivables may be required by
such lenders, if lenders are available at all. At June 30, 1996, the Company
had a portfolio of approximately 12,000 loans to Vacation Interval buyers
amounting to approximately $90 million. The loans had a weighted average
maturity of approximately seven years and a weighted average cost of funds of
15.0%. At such date, the Company had borrowings secured by such loans of
approximately $61.5 million, which borrowings bear interest at variable rates
with a weighted average of 10.25%. As of June 30, 1996, approximately 8.3% of
such consumer loans were considered by the Company to be delinquent (past due
by 60 or more days) and the Company has completed or commenced foreclosure or
deed-in-lieu of foreclosure on approximately 2.4% of its consumer loans. The
Company has historically derived income from its financing activities.
However, because the Company's borrowings bear interest at variable rates and
the Company's loans to buyers of Vacation Intervals bear interest at fixed
rates, the Company bears the risk of increases in interest rates with respect
to the loans it has from its lenders. To the extent interest rates on the
Company's borrowings decrease, the Company faces an increased risk that
customers will pre-pay their loans and reduce the Company's income from
financing activities. See "Business--Customer Financing."
RISKS OF HEDGING ACTIVITIES
To manage risks associated with the Company's borrowings bearing interest at
variable rates, the Company expects from time to time to purchase interest
rate caps, interest rate swaps or similar instruments. The nature and quantity
of the hedging transactions for the variable rate debt will be determined by
the management of the Company based on various factors, including market
conditions, and there have been no limitations placed on management's use of
certain instruments in such hedging transactions. No assurance can be given
that any such hedging transactions will offset the risks of changes in
interest rates, or that the costs associated with hedging activities will not
increase the Company's operating costs.
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RISKS ASSOCIATED WITH CUSTOMER DEFAULT
The Company bears the risk of defaults by buyers who financed the purchase
of their Vacation Intervals. If a buyer of a Vacation Interval defaults on the
loan made by the Company to finance the purchase of such Vacation Interval
during the early part of the repayment schedule the Company generally must
take back the mortgage with respect to such Vacation Interval and replace it
with a performing mortgage. In connection with the Company taking back any
such Vacation Interval, the associated marketing costs other than certain
sales commissions will not have been recovered by the Company and they must be
incurred again after their Vacation Interval has been returned to the
Company's inventory for resale (commissions paid in connection with the sale
of Vacation Intervals may be recoverable from the Company's sales personnel
and from independent contractors upon default in accordance with contractual
arrangements with the Company, depending upon the amount of time that has
elapsed between the sale and the default and the number of payments made prior
to such default). Although private mortgage insurance or its equivalent is
available to cover Vacation Intervals, the Company has never purchased such
insurance. In addition, although the Company in many cases may have recourse
against Vacation Interval buyers, sales personnel and independent contractors
for the purchase price paid and for commissions paid, respectively, no
assurance can be given that the Vacation Interval purchase price or any
commissions will be fully or partially recovered in the event of buyer
defaults under such financing arrangements. The Company purchased defaulted
mortgage notes with respect to 900 Vacation Intervals at the San Luis Bay
Resort on which the Company is in the process of foreclosing. The Company will
be subject to the costs and delays associated with such foreclosure process.
See "Business--Customer Financing."
COMPETITION
The Company is subject to significant competition at each of its resorts
from other entities engaged in the business of resort development, sales and
operation, including interval ownership, condominiums, hotels and motels. Many
of the world's most recognized lodging, hospitality and entertainment
companies have begun to develop and sell Vacation Intervals in resort
properties. Although the Company currently is the sole licensee of Embassy
Vacation Resorts from Promus and the Company recently obtained the exclusive
development rights to Westin Vacation Clubs from Westin pursuant to the Westin
Agreement, other major companies that now operate or are developing or
planning to develop Vacation Interval resorts include Marriott Ownership
Resorts ("Marriott"), The Walt Disney Company ("Disney"), Hilton Hotels
Corporation ("Hilton"), Hyatt Corporation ("Hyatt"), Four Seasons Hotels &
Resorts ("Four Seasons") and Inter-Continental Hotels and Resorts ("Inter-
Continental"). Many of these entities possess significantly greater financial,
marketing, personnel and other resources than those of the Company and may be
able to grow at a more rapid rate or more profitably as a result. In addition,
there can be no assurance that Promus will not grant other entities a license
to develop Embassy Vacation Resorts or that Promus will not exercise its
rights to terminate the Embassy Vacation Resort licenses. In the second
quarter of 1996, the Company experienced increased competition in the Orlando,
Florida market which reduced sales at the Existing Resorts located in the
Orlando area.
In the event that the Westin Agreement becomes the subject of dispute
between the parties thereto, it is possible that the Company's interest in
pursuing acquisition and development opportunities at "four-star" and "five-
star" resorts could be barred pending the final resolution of such dispute.
Additionally, at the expiration or early termination of the Westin Agreement,
Westin could become a direct competitor with the Company in the timeshare
resort business, including in the markets most attractive to the Company. See
"--Westin Agreement" and "Business--Description of Resorts--Westin Vacation
Club Resorts." In addition, the five Embassy Suites hotels owned or controlled
by affiliates of the Founders, which will not be owned by the Company, may
compete with certain of the Company's timeshare resorts; however, the Company
anticipates that such five Embassy Suites hotels could be a significant source
of lead generation for its marketing activities. Subject to the covenants not
to compete (as described herein), the Founders could acquire resort and other
hotel properties that could compete with the Company's timeshare business. See
"Management--Employment Agreements; Covenants Not To Compete."
DEPENDENCE ON VACATION INTERVAL EXCHANGE NETWORKS; RISK OF INABILITY TO
QUALIFY RESORTS
The attractiveness of Vacation Interval ownership is enhanced significantly
by the availability of exchange networks that allow Vacation Interval owners
to exchange in a particular year the occupancy right in their
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Vacation Interval for an occupancy right in another participating network
resort. According to the ARDA, the ability to exchange Vacation Intervals was
cited by buyers as a primary reason for purchasing a Vacation Interval.
Several companies, including RCI, provide broad-based Vacation Interval
exchange services, and the Company's Existing Resorts are currently qualified
for participation in the RCI exchange network. However, no assurance can be
given that the Company will continue to be able to qualify its Existing
Resorts, or will be able to qualify its future resorts, for participation in
the RCI network or any other exchange network. Moreover, if such exchange
networks cease to function effectively, or if the Company's resorts are not
accepted as exchanges for other desirable resorts, the Company's sales of
Vacation Intervals could be materially adversely effected. See "Business--
Participation in Vacation Interval Exchange Networks."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a large extent upon the experience and
abilities of the Founders, who will serve as the Company's Chief Executive
Officer, President and Chief Operating Officer. The loss of the services of
any one of these individuals could have a material adverse effect on the
Company, its operations and its business prospects. See "Management--
Employment Agreements." The Company's success is also dependent upon its
ability to attract and maintain qualified development, acquisition, marketing,
management, administrative and sales personnel for which there is keen
competition among the Company's competitors. In addition, the cost of
retaining such key personnel could escalate over time. There can be no
assurance that the Company will be successful in attracting and/or retaining
such personnel.
Pursuant to the Poipu Partnership Agreement, the Company may be removed as
managing general partner if, under certain circumstances, two of the three
Founders (Osamu Kaneko, Andrew J. Gessow and Steven C. Kenninger) are no
longer officers of the Company. In addition, the Poipu Partnership Agreement
provides that certain of the Founders will be actively involved in the
management of the Embassy Vacation Resort at Poipu Point.
SEASONALITY AND VARIABILITY OF QUARTERLY RESULTS
The Company has historically experienced and expects to continue to
experience seasonal fluctuations in its gross revenues and net income from the
sale of Vacation Intervals. This seasonality may cause significant variations
in quarterly operating results. If sales of Vacation Intervals are below
seasonal norms during a particular period, the Company's annual operating
results could be materially adversely affected. In addition, the combination
of (i) the possible delay in generating revenue after the acquisition by the
Company of additional resorts prior to the commencement of Vacation Interval
sales and (ii) the expenses associated with start-up unit or room-rental
operations, interest expense, amoritization and depreciation expenses from
such acquisitions may materially adversely impact earnings. Furthermore,
earnings may be impacted by the timing of the completion and development of
future resorts, and the potential impact of weather or other natural disasters
at the Company's resort locations (e.g., hurricanes in Hawaii and St. Maarten
and earthquakes in California). Additional material variability in operating
results may occur. See "--Natural Disasters; Uninsured Loss" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
REGULATION OF MARKETING AND SALES OF VACATION INTERVALS; OTHER LAWS
The Company's marketing and sales of Vacation Intervals and other operations
are subject to extensive regulation by the federal government and the states
and foreign jurisdictions in which the Existing Resorts are located and in
which Vacation Intervals are marketed and sold. On a federal level, the
Federal Trade Commission has taken the most active regulatory role through the
Federal Trade Commission Act, which prohibits unfair or deceptive acts or
competition in interstate commerce. Other federal legislation to which the
Company is or may be subject appears in the Truth-in-Lending Act and
Regulation Z, the Equal Opportunity Credit Act and Regulation B, the
Interstate Land Sales Full Disclosure Act, Real Estate Standards Practices
Act, Telephone Consumer Protection Act, Telemarketing and Consumer Fraud and
Abuse Prevention Act, Fair Housing Act and the Civil Rights Acts of 1964 and
1968. In addition, many states have adopted specific laws and regulations
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regarding the sale of interval ownership programs. The laws of most states,
including, Florida, South Carolina and Hawaii, require the Company to file
with a designated state authority for its approval a detailed offering
statement describing the Company and all material aspects of the project and
sale of Vacation Intervals. The laws of California require the Company to file
numerous documents and supporting information with the California Department
of Real Estate, the agency responsible for the regulation of Vacation
Intervals. When the California Department of Real Estate determines that a
project has complied with California law, it will issue a public report for
the project. The Company is required to deliver an offering statement or
public report to all prospective purchasers of a Vacation Interval, together
with certain additional information concerning the terms of the purchase. The
laws of Illinois, Florida and Hawaii impose similar requirements. Laws in each
state where the Company sells Vacation Intervals generally grant the purchaser
of a Vacation Interval the right to cancel a contract of purchase at any time
within a period ranging from three to fifteen calendar days following the
earlier of the date the contract was signed or the date the purchaser has
received the last of the documents required to be provided by the Company.
Most states have other laws which regulate the Company's activities, such as
real estate licensure; seller's of travel licensure; anti-fraud laws;
telemarketing laws; price, gift and sweepstakes laws; and labor laws. The
Company believes that it is in material compliance with all federal, state,
local and foreign laws and regulations to which it is currently subject.
However, no assurance can be given that the cost of qualifying under Vacation
Interval ownership regulations in all jurisdictions in which the Company
desires to conduct sales will not be significant or that the Company is in
fact in compliance with all applicable federal, state, local and foreign laws
and regulations. Any failure to comply with applicable laws or regulations
could have a material adverse effect on the Company. See "Business--
Governmental Regulation."
In addition, certain state and local laws may impose liability on property
developers with respect to construction defects discovered or repairs made by
future owners of such property. Pursuant to such laws, future owners may
recover from the Company amounts in connection with the repairs made to the
developed property.
POSSIBLE ENVIRONMENTAL LIABILITIES
Under various federal, state and local laws, ordinances and regulations, the
owner of real property generally is liable for the costs of removal or
remediation of certain hazardous or toxic substances located on or in, or
emanating from, such property, as well as related costs of investigation and
property damage. Such laws often impose such liability without regard to
whether the owner knew of, or was responsible for, the presence of such
hazardous or toxic substances. The presence of such substances, or the failure
to properly remediate such substances, may adversely affect the owner's
ability to sell or lease a property or to borrow using such real property as
collateral. Other federal and state laws require the removal or encapsulation
of asbestos-containing material when such material is in poor condition or in
the event of construction, demolition, remodeling or renovation. Other
statutes may require the removal of underground storage tanks. Noncompliance
with these and other environmental, health or safety requirements may result
in the need to cease or alter operations at a property. As of the date of the
Prospectus, Phase I environmental reports (which typically involve inspection
without soil sampling or ground water analysis) have been prepared by
independent environmental consultants for each Existing Resort. In connection
with the acquisition and development of the Embassy Vacation Resort Lake Tahoe
and the San Luis Bay Resort, the independent environmental consultants have
identified several areas of environmental concern. The areas of concern at the
Embassy Vacation Resort Lake Tahoe relate to possible contamination that
originated on the resort site due to prior uses and to contamination that may
migrate onto the resort site from upgradient sources. California regulatory
agencies have been monitoring the resort site and have required or are in the
process of requiring the responsible parties (presently excluding the Company)
to effect remediation action. The Company has been indemnified by certain of
such responsible parties for certain costs and expenses in connection with
contamination at the Embassy Vacation Resort Lake Tahoe (including Chevron
(USA), Inc.) and does not anticipate incurring material costs in connection
therewith; however, there is no assurance that the indemnitor(s) will meet
their obligations in a complete and timely manner. In addition, the Company's
San Luis Bay Resort is located in an area of Avila Beach, California which has
experienced underground contamination resulting from leaking pipes at a nearby
oil refinery. California regulatory agencies have required the installation of
groundwater monitoring wells on the beach near the resort site, and no demand
or claim in connection with such contamination has been made on the Company,
however, there is no assurance
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that claims will not be asserted against the Company with respect to this
environmental condition. The Company is not aware of any environmental
liability that would have a material adverse effect on the Company's business,
assets or results of operations. No assurance, however, can be given that
these reports reveal all environmental liabilities or that no prior owner
created any material environmental condition not known to the Company.
Certain environmental laws impose liability on a previous owner of property
to the extent that hazardous or toxic substances were present during the prior
ownership period. A transfer of the property does not relieve an owner of such
liability. Thus, the Company may have liability with respect to properties
previously sold by its predecessors.
The Company believes that it is in compliance in all material respects with
all federal, state and local ordinances and regulations regarding hazardous or
toxic substances and, except as described above with respect to the Embassy
Vacation Resort Lake Tahoe and the San Luis Bay Resort, the Company has not
been notified by any governmental authority or third party of any non-
compliance, liability or other claim in connection with any of its present or
former properties. See "Business--Environmental Matters."
COSTS OF COMPLIANCE WITH LAWS GOVERNING ACCESSIBILITY OF FACILITIES TO
DISABLED PERSONS
A number of state and federal laws, including the Fair Housing Act and the
Americans with Disabilities Act (the "ADA"), impose requirements related to
access and use by disabled persons on a variety of public accommodations and
facilities. These requirements did not become effective until after January 1,
1991. Although the Company believes that its Existing Resorts are
substantially in compliance with laws governing the accessibility of its
facilities to disabled persons, the Company may incur additional costs of
complying with such laws. Additional legislation may impose further burdens or
restriction on property owners (including homeowner associations at the
Existing Resorts) with respect to access by disabled persons. The ultimate
amount of the cost of compliance with such legislation is not currently
ascertainable, and, while such costs are not expected to have a material
effect on the Company, such costs could be substantial. Limitations or
restrictions on the completion of certain renovations may limit application of
the Company's growth strategy in certain instances or reduce profit margins on
the Company's operations. If a homeowner association at an Existing Resort
were required to make significant improvements as a result of non-compliance
with the ADA, Vacation Interval owners may default on their mortgages and/or
cease making required homeowner association assessment payments. The Company
is not aware of any non-compliance with the ADA, the Fair Housing Act or
similar laws that management believes would have a material adverse effect on
the Company's business, assets or results of operations.
NATURAL DISASTERS; UNINSURED LOSS
In 1992, prior to the Company's purchase of an interest in the Embassy
Vacation Resort Poipu Point, the resort was substantially destroyed by
Hurricane Iniki. The resort was rebuilt with insurance proceeds before the
Company acquired its interest in the resort, but could suffer similar damage
in the future. In September 1995 and July 1996, the Company's St. Maarten
resorts were damaged by hurricanes and could suffer similar damage in the
future. In addition, the Company's other resorts located in Hawaii and Florida
may be subject to hurricanes and damaged as a result thereof. The Company's
resorts located in California and Hawaii may be subject to damage resulting
from earthquakes. There are certain types of losses (such as losses arising
from acts of war) that are not generally insured because they are either
uninsurable or not economically insurable and for which the Company does not
have insurance coverage. Should an uninsured loss or a loss in excess of
insured limits occur, the Company could lose its capital invested in a resort,
as well as the anticipated future revenues from such resort and would continue
to be obligated on any mortgage indebtedness or other obligations related to
the property. Any such loss could have a material adverse effect on the
Company. See "Business--Insurance, Legal Proceedings."
EFFECTIVE VOTING CONTROL BY EXISTING STOCKHOLDERS; WESTIN DIRECTOR DESIGNATION
Upon closing of the Offering and the Consolidation Transactions, the
Founders will hold substantial amounts of shares of Common Stock (Messrs.
Kaneko, Gessow and Kenninger will hold 17.0%, 19.3% and
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8.7%, respectively) which may allow them, collectively, to exert substantial
influence over the election of directors and the management and affairs of the
Company. Accordingly, if such persons vote their shares of Common Stock in the
same manner, they will have sufficient voting power, in general, to determine
the outcome of various matters submitted to the stockholders for approval,
including mergers, consolidations and the sale of substantially all of the
Company's assets. Pursuant to the Westin Agreement, during the term thereof
Westin generally will have the right to designate one member of the Company's
Board of Directors, irrespective of its share ownership in the Company. See
"Principal Stockholders," "Description of Capital Stock" and "Business--Westin
Vacation Club Resorts." Such control may result in decisions which are not in
the best interest of the Company. In addition, under certain circumstances, in
the event that the Founders collectively own less than 75% of the shares of
Common Stock owned by them immediately following the closing of the Offering
and the consummation of the Consolidation Transactions, and the Common Stock
they own thereafter is less than 75% of the market value of the Common Stock
issued to them in the Offering, then the Company's partner in the Poipu
Partnership will be entitled to require the Company to either dispose of its
interest or purchase such partner's interest in the Poipu Partnership pursuant
to the terms and conditions of the partnership agreement.
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF MARYLAND LAW AND THE COMPANY'S
CHARTER AND BYLAWS
Certain provisions of the Company's articles of incorporation (the
"Charter") and bylaws (the "Bylaws"), as well as Maryland corporate law, may
be deemed to have anti-takeover effects and may delay, defer or prevent a
takeover attempt that a stockholder might consider to be in the stockholder's
best interest. For example, such provisions may (i) deter tender offers for
Common Stock, which offers may be beneficial to stockholders or (ii) deter
purchases of large blocks of Common Stock, thereby limiting the opportunity
for stockholders to receive a premium for their Common Stock over then-
prevailing market prices. These provisions include the following:
Preferred Shares. The Charter authorizes the Board of Directors to issue
Preferred Stock in one or more classes and to establish the preferences and
rights (including the right to vote and the right to convert into Common
Stock) of any class of Preferred Stock issued. No Preferred Stock will be
issued or outstanding as of the closing of the Offering. See "Description of
Capital Stock--Preferred Stock."
Staggered Board. The Board of Directors of the Company will have three
classes of directors. The terms of the first, second and third classes will
expire in 1997, 1998 and 1999, respectively. Directors for each class will be
chosen for a three-year term upon the expiration of the term of the current
class, beginning in 1997. The affirmative vote of two-thirds of the
outstanding Common Stock is required to remove a director.
Maryland Business Combination Statute. Under the Maryland General
Corporation Law ("MGCL"), certain "business combinations" (including the
issuance of equity securities) between a Maryland corporation and any person
who owns, directly or indirectly, 10% or more of the voting power of the
corporation's shares of capital stock (an "Interested Stockholder") must be
approved by a supermajority (i.e., 80%) of voting shares. In addition, an
Interested Stockholder may not engage in a business combination for five years
following the date he or she became an Interested Stockholder.
Maryland Control Share Acquisition. Maryland law provides that "Control
Shares" of a corporation acquired in a "Control Share Acquisition" have no
voting rights except to the extent approved by a vote of two-thirds of the
votes eligible under the statute to be cast on the matter. "Control Shares"
are voting shares of beneficial interest which, if aggregated with all other
such shares of beneficial interest previously acquired by the acquiror, would
entitle the acquiror directly or indirectly to exercise voting power in
electing directors within one of the following ranges of voting power: (i)
one-fifth or more but less than one-third, (ii) one-third or more but less
than a majority or (iii) a majority of all voting power. Control Shares do not
include shares of beneficial interest the acquiring person is then entitled to
vote as a result of having previously obtained stockholder approval. A
"Control Share Acquisition" means the acquisition of Control Shares, subject
to certain exceptions.
If voting rights are not approved at a meeting of stockholders then, subject
to certain conditions and limitations, the issuer may redeem any or all of the
Control Shares (except those for which voting rights have
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previously been approved) for fair value. If voting rights for Control Shares
are approved at a stockholders meeting and the acquiror becomes entitled to
vote a majority of the shares of beneficial interest entitled to vote, all
other stockholders may exercise appraisal rights. See "Certain Provisions of
Maryland Law and of the Company's Charter and Bylaws."
SHARES ELIGIBLE FOR FUTURE SALE
Upon closing of the Offering, all the shares of Common Stock offered hereby
will be eligible for public sale without restriction. Holders who received
their shares of Common Stock as a result of the Consolidation Transactions
hold their shares subject to the limitations of Rule 144 of the Securities Act
("Rule 144"). Such holders who received their shares of Common Stock as a
result of the Consolidation Transactions have been granted certain
registration rights pursuant to which the Company has agreed to file and cause
to become effective within six months of the Offering, a shelf registration
statement with the Commission for the purpose of registering the sale of such
shares of Common Stock. Future sales of substantial amounts of Common Stock,
or the potential for such sales, could adversely affect prevailing market
prices. See "Shares Eligible for Future Sale" and "Underwriting."
IMMEDIATE AND SUBSTANTIAL DILUTION; NO ANTICIPATED DIVIDENDS
Purchasers of Common Stock in the Offering will experience immediate
dilution in net tangible book value per share of Common Stock of $9.00 from
the initial public offering price per share. See "Dilution." In addition, the
Company does not anticipate that it will pay any dividends on its Common Stock
in the foreseeable future. See "Dividend Policy."
RISK OF TAX RE-CLASSIFICATION OF INDEPENDENT CONTRACTORS AND RESULTING TAX
LIABILITY; COST OF COMPLIANCE WITH APPLICABLE LAWS
The Company sells Vacation Intervals at its Existing Resorts through
independent sales agents. Such independent sales agents provide services to
the Company under contract and, the Company believes, are not employees of the
Company. Accordingly, the Company does not withhold payroll taxes from the
amounts paid to such independent contractors. Although the Internal Revenue
Service has made inquiries regarding the Company's classification of its sales
agents at its Branson, Missouri resort, no formal action has been taken and
the Company has requested that the inquiry be closed. In the event the
Internal Revenue Service or any state or local taxing authority were to
successfully classify such independent sales agents as employees of the
Company, rather than as independent contractors, and hold the Company liable
for back payroll taxes, such reclassification may have a material adverse
effect on the Company.
Additionally, from time to time, potential buyers of Vacation Intervals
assert claims with applicable regulatory agencies against Vacation Interval
salespersons for unlawful sales practices. Such claims could have adverse
implications for the Company in negative public relations and potential
litigation and regulatory sanctions.
LIMITED RESALE MARKET FOR VACATION INTERVALS
The Company sells the Vacation Intervals to buyers for leisure and not
investment purposes. The Company believes, based on experience at its Existing
Resorts, that the market for resale of Vacation Intervals by the buyers is
presently limited, and that any resales of Vacation Intervals are typically at
prices substantially less than the original purchase price. These factors may
make ownership of Vacation Intervals less attractive to prospective buyers,
and attempts by buyers to resell their Vacation Intervals will compete with
sales of Vacation Intervals by the Company. In addition, the market price of
Vacation Intervals sold by the Company at a given resort or by its competitors
in the market in which each resort is located could be depressed by a
substantial number of Vacation Intervals offered for resale.
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RISKS RELATED TO OPERATIONS IN ST. MAARTEN, NETHERLAND ANTILLES
Two of the Existing Resorts are located in St. Maarten, Netherland Antilles
in the Caribbean, both of which were acquired by the Company in a foreclosure
sale. There are a number of ongoing disputes with owners who owned units at
the Flamingo Beach Club, including certain claims respecting their obligations
to pay for annual maintenance expenses or whether there are certain
entitlements to guaranteed returns. If such claims are adversely determined
against the Company, such determination may have a material adverse impact on
the operation of this property.
In addition, a portion of the Company's Royal Palm Beach Club resort located
in St. Maarten, Netherlands Antilles, is operated by the Company pursuant to a
long-term ground lease that expires in 2050 and the types of assurance, such
as estoppel certificates, which would be provided in the United States, are
not available. Although the Company is unaware of any circumstances that could
cause the early termination of such ground lease before its scheduled
expiration date, any such early termination or cancellation of the ground
lease could have an adverse effect on the Company's operations. In addition,
title insurance is not available in the Netherlands Antilles. Accordingly, the
titles to the Company's real property and ground lease with respect to the
Flamingo Beach Club and Royal Palm Beach Club resorts are not insured, may be
subject to challenge, and, if successfully challenged, could result in
additional costs to operate these facilities.
POTENTIAL CONFLICTS OF INTEREST
Because affiliates of Messrs. Kaneko and Kenninger have operations in the
lodging industry other than those with respect to the development and
operation of timeshare resorts, potential conflicts of interest exist.
Affiliates of KOAR, which are owned by Messrs. Kaneko and Kenninger, have
developed and currently act as the managing general partner of partnerships
which own five hotels that are franchised as Embassy Suites hotels (one of
which, the Embassy Suites Lake Tahoe, is located in a market served by the
Company) and a residential condominium project overlooking the ocean in Long
Beach, California (a market which the Company is pursuing). Messrs. Kaneko and
Kenninger will continue to devote a portion of their time to KOAR's hotel
business and to meeting their duties and responsibilities to their investors
existing prior to the Consolidation Transactions and the Offering. In
addition, the Founders are currently pursuing the acquisition of one property
in California. Upon its acquisition the Founders intend to convert such
property to timeshare. Additionally, notwithstanding their covenants not to
compete, the Founders have the right to pursue certain other activities which
could divert their time and attention from the Company's business and result
in conflicts with the Company's business. See "Management--Employment
Agreements--Covenants Not To Compete," and "Business--Future Acquisitions."
RISKS RELATED TO WESTIN AGREEMENT; LIMITED CONTROL OF RESORTS AND TERMINATION
The Westin Agreement may involve certain additional risks to the Company's
future operations. The Westin Agreement imposes certain restrictions on the
Company's ability to develop certain timeshare resorts in conjunction with
hotel operators other than Westin. Generally, the Company is required, subject
to certain exceptions involving Embassy Vacation Resorts and Promus, to submit
for Westin's consideration any "four star" or "five star" development
opportunity that the Company has determined to pursue. In the event Westin
determines not to proceed with the Company to develop such resort, the Company
would be free only to develop the resort as a "non-branded" property or as a
property branded as an Embassy Vacation Resort or in conjunction with other
upscale operators, but excluding specified operators of luxury hotels and
resorts. In addition, all resorts acquired or developed pursuant to the Westin
Agreement will be owned by partnerships, limited liability companies or
similar entities in which each of Westin and the Company will own a 50% equity
interest and have an equal voice in management. Accordingly, the Company will
not be able to control such resorts or the applicable entities. In addition,
the Westin Agreement will be terminable by either party if certain thresholds
relating to development or acquisitions of resorts are not met, in the event
of certain changes in management of Westin or the Company or in the event of
an acquisition or merger of either party. See "Effective Voting Control of
Existing Stockholders; Westin Director Designation."
22
<PAGE>
ABSENCE OF PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
There has been no prior public market for the Company's Common Stock.
Although the Common Stock has been approved for quotation on the Nasdaq
National Market, subject to notice of issuance, there can be no assurance that
a viable public market for the Common Stock will develop or be sustained after
the Offering or that purchasers of the Common Stock will be able to resell
their Common Stock at prices equal to or greater than the initial public
offering price. The initial public offering price will be determined by
negotiations among the Company and the representatives of the Underwriters and
may not be indicative of the prices that may prevail in the public market
after the Offering is completed. Numerous factors, including announcements of
fluctuations in the Company's or its competitors' operating results and market
conditions for hospitality and timeshare industry stocks in general, could
have a significant impact on the future price of the Common Stock. In
addition, the stock market in recent years has experienced significant price
and volume fluctuations that often have been unrelated or disproportionate to
the operating performance of companies. These broad fluctuations may adversely
affect the market price of the Common Stock. See "Underwriting."
23
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 5,250,000 shares of
Common Stock offered by the Company hereby at an estimated initial public
offering price of $15.00 per share, after deducting underwriting discounts and
estimated expenses of the Offering, are estimated to be $71.2 million ($82.2
million if the Underwriters' over-allotment option is exercised in full). The
Company intends to use approximately $56.6 of the estimated net proceeds to
repay outstanding indebtedness and accrued interest and approximately $7.3
million to fund the cash paid to third parties in the Consolidation
Transactions. Of such $56.6 million of the estimated net proceeds to be used
to repay outstanding indebtedness and accrued interest (i) Messrs. Kaneko,
Gessow and Kenninger, or their affiliates, will receive approximately $6.3
million, $6.6 million and $3.2 million, respectively, in repayment of
indebtedness owed by the Company, substantially all of which will be used by
them to repay third-party obligations and to pay tax liabilities and
(ii) affiliates of Mr. Friedman, a proposed director of the Company, will
receive approximately $13.1 million thereof in repayment of indebtedness owed
by the Company. See "Certain Relationships and Related Transactions--Repayment
of Affiliated Debt." The balance of the estimated net proceeds of
approximately $7.3 million is intended to be used for working capital and
other general corporate purposes. Pending any such additional uses, the
Company will invest the excess proceeds in commercial paper, bankers'
acceptances, other short-term investment-grade securities and money-market
accounts. As of the date of the Prospectus, the Company has not entered into
any agreement to acquire or develop additional resorts.
Indebtedness to be repaid out of the net proceeds from the Offering bears
interest at rates currently ranging between approximately 10.0% and 18.0% per
annum and matures at various times over the next five years. Indebtedness to
be repaid that was incurred within the last year was incurred for acquisitions
and development of timeshare resorts and for general corporate purposes. None
of the proceeds from the Offering will be used to pay any delinquent
indebtedness.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock and does not anticipate paying cash dividends on its Common Stock in the
foreseeable future. The Company currently intends to retain future earnings to
finance its operations and fund the growth of its business. Any payment of
future dividends will be at the discretion of the Board of Directors of the
Company and will depend upon, among other things, the Company's earnings,
financial condition, capital requirements, level of indebtedness, contractual
restrictions in respect of the payment of dividends and other factors that the
Company's Board of Directors deems relevant.
24
<PAGE>
CONSOLIDATED CAPITALIZATION
The following table sets forth, as of March 31, 1996, the debt and total
consolidated capitalization of the Company on an actual basis and as adjusted
to give effect to the sale of Common Stock offered hereby and the application
of the estimated net proceeds to the Company therefrom. This table should be
read in conjunction with the historical financial statements of the Company
and the related notes thereto included elsewhere in this Prospectus. See "Use
of Proceeds" and "Selected Combined Historical and Pro Forma Financial
Information."
<TABLE>
<CAPTION>
AS OF JUNE 30,
1996
-----------------
AS
ACTUAL ADJUSTED
-------- --------
(UNAUDITED)
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Debt:
Notes payable to financial institutions(1)................. $ 89,718 $ 57,579
Notes payable to related parties........................... 20,332 --
-------- --------
Total debt............................................... 110,050 57,579
Stockholder's equity:
Common Stock, $0.01 par value; 16,604,705 shares issued and
outstanding(2)............................................ -- 166
Additional paid-in capital................................. -- 105,253
Retained earnings.......................................... -- 3,900
-------- --------
Total stockholders' equity................................. 47,890 109,319
-------- --------
Total capitalization..................................... $157,940 $166,898
======== ========
</TABLE>
- --------
(1) Includes notes collateralized by notes receivable.
(2) Does not include an aggregate of 1,750,000 shares of Common Stock reserved
for issuance pursuant to the Company's 1996 Equity Participation Plan,
500,000 shares of Common Stock reserved for issuance pursuant to the
Employee Stock Purchase Plan and 787,500 shares of Common Stock which the
Underwriters may purchase pursuant to their over-allotment option. See
"Management--Executive Compensation" and "Underwriting."
25
<PAGE>
DILUTION
The net tangible book value of the Company at June 30, 1996 was
approximately $43.4 million, or $3.82 per share of Common Stock. Net tangible
book value per share represents the Company's total tangible assets less its
total liabilities, divided by the total number of outstanding shares of Common
Stock. After giving effect to the sale of 5,250,000 shares of Common Stock
offered by the Company hereby and the application of the estimated net
proceeds therefrom, the pro forma net tangible book value of the Company at
June 30, 1996, would have been approximately $104.9 million or $6.32 per share
of Common Stock. This represents an immediate increase in such net tangible
book value of $2.50 per share to the existing stockholders of the Company and
an immediate dilution in net tangible book value of $8.68 per share to
purchasers of Common Stock in the Offering. The following table illustrates
this dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share (at mid-point
of estimated pricing range)................................... $15.00
Net tangible book value per share before the Offering........ $3.82
Increase per share attributable to new investors............. 2.50
-----
Pro forma net tangible book value per share after the Offering. 6.32
------
Dilution per share to new investors............................ $ 8.68
======
</TABLE>
The following table sets forth, as of June 30, 1996, after giving effect to
the Consolidation Transactions and the Offering, the number of shares of
Common Stock purchased, the total consideration paid therefor and the average
price paid per share by the existing stockholders of the Company and the
purchasers of Common Stock in the Offering, respectively. The following table
does not give effect to an aggregate of 1,750,000 shares of Common Stock
reserved for issuance pursuant to the Company's 1996 Equity Participation Plan
and 500,000 shares reserved for issuance pursuant to the Employee Stock
Purchase Plan, and does not include 787,500 shares of Common Stock which the
Underwriters may purchase pursuant to their over-allotment option. See
"Management--Executive Compensation" and "Underwriting."
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)... 11,354,705 68.4% $18,735,263 19.2% $ 1.65
New investors(2)........... 5,250,000 31.6 78,750,000 80.8 $15.00
---------- ----- ----------- -----
Total.................... 16,604,705 100.0% $97,485,263 100.0%
========== ===== =========== =====
</TABLE>
- --------
(1) Existing stockholders of the Company who received shares of Common Stock
pursuant to the Consolidation Transactions.
(2) Purchasers of Common Stock in the Offering.
26
<PAGE>
SELECTED COMBINED HISTORICAL FINANCIAL INFORMATION
(DOLLAR AMOUNTS IN THOUSANDS)
The selected combined historical financial information set forth in the
table below at or for the twelve month periods ended December 31, 1993, 1994
and 1995 have been derived from, and are qualified by reference to, the
combined financial statements of the Company which have been audited by Ernst
& Young LLP, independent accountants for the Company. The information
presented for 1992 was derived from the Company's records. The following
selected combined historical financial information at or for the six month
periods ended June 30, 1995 and June 30, 1996 has been derived from unaudited
financial statements that, in the opinion of management of the Company,
reflects all adjustments, consisting of normal recurring adjustments,
necessary to present fairly the financial information for such periods and as
of such date. The combined historical results for the six months ended June
30, 1995 and June 30, 1996 are not necessarily indicative of results for a
full year. The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the combined financial information for the Company and the
notes thereto which are contained elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------- ------------------
1992 1993 1994 1995 1995 1996
------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenue:
Vacation Interval
sales................ $11,328 $ 22,238 $ 40,269 $ 59,071 $ 28,799 $ 28,754
Interest ............. 402 1,825 3,683 6,929 2,921 4,202
Other ................ 115 373 338 6,608 640 5,975
------- -------- -------- -------- -------- --------
Total revenue......... 11,845 24,436 44,290 72,608 32,360 38,931
Costs and operating
expenses:
Vacation Interval cost
of sales............. 2,999 5,708 12,394 15,650 8,260 6,803
Advertising, sales and
marketing............ 4,734 10,809 18,745 28,488 14,247 14,730
Loan portfolio
Interest expense--
treasury............. 168 674 1,629 3,586 1,585 2,491
Other................. 50 208 851 1,189 437 659
Provision for doubtful
accounts............. 555 619 923 1,787 921 688
General and
administrative
Resort-level.......... 665 2,346 2,864 4,947 1,443 3,019
Corporate............. 375 877 874 1,607 653 1,604
Depreciation and
amortization......... 209 384 489 1,675 742 1,109
Interest expense--
other................ -- 518 959 476 183 1,347
Equity loss on
investment in joint
venture.............. -- -- 271 1,649 1,018 63
------- -------- -------- -------- -------- --------
Total costs and
operating expenses... 9,755 22,143 39,999 61,054 29,489 32,513
Pre-tax income.......... 2,090 2,293 4,291 11,554 2,871 6,418
Provision for taxes... -- -- -- 641 -- 53
------- -------- -------- -------- -------- --------
Net Income.............. $ 2,090 $ 2,293 $ 4,291 $ 10,913 $ 2,871 $ 6,365
======= ======== ======== ======== ======== ========
CASH FLOW DATA:
EBITDA(1)............... $ 2,467 $ 3,869 $ 7,368 $ 17,291 $ 5,381 $ 11,365
Cash flow provided by
(used in):
Operating activities.. (6,166) (3,262) (10,964) 5,460 14,063 (17,294)
Investing activities.. (51) (10,776) (24,940) (40,075) (24,404) (11,206)
Financing activities.. 5,146 15,341 36,134 37,102 11,627 28,366
OPERATING DATA:
Number of Existing
Resorts at period end.. 1 3 4 7 5 9
Number of Vacation
Intervals sold(2)...... 1,284 2,442 4,482 5,675 2,615 3,069
Number of Vacation
Intervals in
inventory(2)........... 1,164 1,233 2,401 9,917 2,040 21,142
Average price of
Vacation Intervals
sold(2)................ $ 8,822 $ 9,106 $ 8,985 $ 11,353 $ 11,013 $ 13,040
BALANCE SHEET DATA (AT
END OF PERIOD):
Cash, including cash in
escrow................. $ 850 $ 2,567 $ 4,282 $ 6,288 $ 4,190 $ 5,367
Total assets............ 18,739 38,230 82,454 141,241 103,744 175,641
Long-term debt.......... 9,696 22,931 44,415 84,738 56,334 110,050
Equity.................. 7,439 11,838 30,780 38,470 33,359 47,890
</TABLE>
27
<PAGE>
- --------
(1) As shown below, EBITDA represents net income before interest expense,
income taxes and depreciation and amortization. EBITDA is presented
because it is a widely accepted financial indicator of a company's ability
to service and/or incur indebtedness. However, EBITDA should not be
construed as an alternative to net income as a measure of the Company's
operating results or to operating cash flow as a measure of liquidity. The
following table reconciles EBITDA to net income:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31 JUNE 30
---------------------------- --------------
1992 1993 1994 1995 1995 1996
------ ------ ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Net income................... $2,090 $2,293 $4,291 $10,913 $2,871 $ 6,365
Interest expense--treasury... 168 674 1,629 3,586 1,585 2,491
Interest expense--other...... -- 518 959 476 183 1,347
Taxes........................ -- -- -- 641 -- 53
Depreciation and
amortization................ 209 384 489 1,675 742 1,109
------ ------ ------ ------- ------ -------
EBITDA....................... $2,467 $3,869 $7,368 $17,291 $5,381 $11,365
====== ====== ====== ======= ====== =======
</TABLE>
(2)Includes the effect of sales or inventory at the Company's non-consolidated
resort.
28
<PAGE>
SELECTED COMBINED PRO FORMA FINANCIAL INFORMATION
The selected combined pro forma statements of operations data set forth
below for the year ended December 31, 1995 and for the six month periods ended
June 30, 1995 and June 30, 1996 all give effect to the Consolidation
Transactions and the Offering as if each had occurred at the beginning of the
period. The pro forma adjustments are based upon currently available
information and certain assumptions that management of the Company believes
are reasonable under current circumstances.
SELECTED COMBINED PRO FORMA STATEMENT OF OPERATIONS DATA
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------------------
PRO FORMA
ACTUAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenue
Vacation Interval sales................. $ 59,071 $ -- $ 59,071
Interest income......................... 6,929 -- 6,929
Other income............................ 6,608 320 (1) 6,928
---------- --------- ----------
Total revenue........................... 72,608 320 72,928
Costs and Operating Expenses:
Vacation Interval cost of sales......... 15,650 (64)(2) 15,586
Advertising, sales and marketing........ 28,488 -- 28,488
Loan portfolio
Interest expense--treasury............ 3,586 (3,586)(2) --
Other................................. 1,189 (115)(2) 1,074
Provision for doubtful accounts....... 1,787 -- 1,787
General and administrative
Resort-level.......................... 4,947 -- 4,947
Corporate............................. 1,607 -- 1,607
Depreciation and amortization........... 1,675 155 (3) 1,830
Interest expense--other................. 476 (476)(2) --
Equity loss on investment in joint
venture................................ 1,649 -- 1,649
---------- --------- ----------
Total costs and operating expenses...... 61,054 (4,086) 56,968
---------- --------- ----------
Pre-tax income............................ 11,554 4,406 15,960
Provision for taxes..................... 641 5,446 (4) 6,087
---------- --------- ----------
Net income................................ $ 10,913 $ (1,040) $ 9,873
========== ========= ==========
Pro forma net income per common share..... $ 0.96 -- $ 0.59
Pro forma weighted average common shares
outstanding.............................. 11,354,705 5,250,000 (5) 16,604,705
</TABLE>
- --------
(1) Reflects increase in interest income due to the purchase of loans from
certain combining interests of $2.7 million relating to loans made by such
combining interests to the joint venture. The loans carry interest at 12%
per annum.
(2) Reflects the following: (i) the elimination or reduction of interest
expense due to the expected retirement of $52.5 million of debt; (ii) the
reduction of Vacation Interval cost of sales due to the reduction of
capitalized interest related to the retirement of debt and (iii) the
elimination of financing fees on advances not required as a result of the
debt retirement. The average interest rate on the debt retired was 10.65%.
(3) Reflects the increase of goodwill amortization on the purchase of a joint
venture interest.
(4) Reflects the effect on 1995 historical statement of operations data of
(1)-(3) above and assumes the combined Company had been treated as a C
corporation rather than as individual limited partnerships and limited
liability companies for federal income tax purposes.
(5) Reflects the Offering of 5,250,000 shares of Common Stock.
29
<PAGE>
SELECTED COMBINED PRO FORMA STATEMENTS OF OPERATIONS DATA
SIX MONTHS ENDED JUNE 30, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, 1995(6) JUNE 30, 1996
------------------------------------ ------------------------------------
PRO FORMA PRO FORMA
ACTUAL ADJUSTMENTS PRO FORMA ACTUAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenue
Vacation Interval
sales................ $ 28,799 $ -- $ 28,799 $ 28,754 $ -- $ 28,754
Interest income....... 2,921 -- 2,921 4,202 -- 4,202
Other income.......... 640 160 (1) 800 5,975 160 (1) 6,135
---------- --------- ---------- ---------- --------- ----------
Total revenue......... 32,360 160 32,520 38,931 160 39,091
Costs and Operating
Expenses:
Vacation Interval cost
of sales............. 8,260 (32)(2) 8,228 6,803 (29)(2) 6,774
Advertising, sales and
marketing............ 14,247 -- 14,247 14,730 -- 14,730
Loan portfolio
Interest expense--
treasury........... 1,585 (1,585)(2) -- 2,491 (1,652)(2) 839
Other............... 437 (69)(2) 368 659 (40)(2) 619
Provision for
doubtful accounts.. 921 -- 921 688 -- 688
General and
administrative
Resort-level........ 1,443 -- 1,443 3,019 -- 3,019
Corporate........... 653 -- 653 1,604 -- 1,604
Depreciation and
amortization......... 742 -- 742 1,109 292 (3) 1,401
Interest expense--
other................ 183 (183)(2) -- 1,347 (1,347)(2) --
Equity loss on
investment in joint
venture.............. 1,018 -- 1,018 63 -- 63
---------- --------- ---------- ---------- --------- ----------
Total costs and
operating expenses... 29,489 (1,869) 27,620 32,513 (2,776) 29,737
---------- --------- ---------- ---------- --------- ----------
Pre-tax income.......... 2,871 2,029 4,900 6,418 2,936 9,354
Provision for taxes. -- 1,857 (4) 1,857 53 3,272 (4) 3,325
---------- --------- ---------- ---------- --------- ----------
Net income.............. $ 2,871 $ 172 $ 3,043 $ 6,365 $ (336) $ 6,029
========== ========= ========== ========== ========= ==========
Pro forma net income per
common share........... $ .25 -- $ .18 $ .56 -- $ .36
Pro forma weighted
average common shares
outstanding............ 11,354,705 5,250,000(5) 16,604,705 11,354,705 5,250,000 (5) 16,604,705
</TABLE>
- -------
(1) Reflects increase in interest income due to the purchase of loans from
certain combining interests of $2.7 million relating to loans made by such
combining interests to the joint venture. The loans carry interest at 12%
per annum.
(2) Reflects the following: (i) the elimination or reduction of interest
expense due to the expected retirement of $52.5 million of debt; (ii) the
reduction of Vacation Interval cost of sales due to the reduction of
capitalized interest related to the retirement of debt and (iii) the
elimination of financing fees on advances not required as a result of the
debt retirement. The average interest rate on the debt retired was 10.65%.
(3) Reflects the increase of goodwill amortization on the purchase of a joint
venture interest.
(4) Reflects the effects on historical statements of operations data of (1)-
(3) above and assumes the combined Company had been treated as a C
corporation rather than as individual limited partnerships and limited
liability companies for federal income tax purposes.
(5) Reflects the Offering of 5,250,000 shares of Common Stock.
(6) Properties acquired subsequent to January 1, 1995 are assumed to have been
acquired as of January 1, 1995, some of which were not operating until
subsequent to January 1, 1995.
30
<PAGE>
The selected combined pro forma balance sheet data set forth below at June
30, 1996 all give effect to the Consolidation Transactions and the Offering as
if each had occurred on June 30, 1996. The pro forma adjustments are based
upon currently available information and certain assumptions that management
of the Company believes are reasonable under current circumstances.
SELECTED COMBINED PRO FORMA BALANCE SHEET
JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------------------
PRO FORMA AS
ACTUAL ADJUSTMENTS(1) ADJUSTED
-------- -------------- --------
<S> <C> <C> <C>
ASSETS:
Cash.................................... $ 4,208 $ 71,250 (2) $ 11,119
(2,668)(3)
(9,200)(4)
(52,471)(5)
Escrow.................................. 1,159 1,159
Mortgages receivable.................... 76,959 76,959
Due from affiliates..................... 3,039 3,039
Other receivables, net.................. 5,292 5,292
Notes receivable from related parties... 2,668 (3) 2,668
Prepaid expenses and other assets....... 1,904 1,904
Investment in joint venture............. 2,582 5,076 (6) 7,658
Real estate and development costs....... 73,705 73,705
Property and equipment.................. 2,332 2,332
Intangible assets....................... 4,461 4,461
-------- --------
$175,641 $190,296
======== ========
LIABILITIES AND EQUITY:
Accounts payable........................ $ 8,153 $ 8,153
Accrued liabilities..................... 8,717 8,717
Due to affiliates....................... 831 831
Deferred taxes.......................... 5,697 (7) 5,697
Notes payable to financial institutions. 89,718 (32,139)(5) 57,579
Notes payable to related parties........ 20,332 (20,332)(5) --
-------- --------
127,751 80,977
Equity.................................. 47,890 71,250 (2)
(9,200)(4)
5,076 (6)
(5,697)(7) 109,319
-------- --------
$175,641 $190,296
======== ========
</TABLE>
- -------
(1) The Consolidation Transactions have been accounted for at historical cost
as the Company is comprised of affiliates which are under common control.
(2) Reflects the proceeds of the Offering of 5,250,000 shares of Common Stock
($78,750) net of related expenses ($7,500).
(3) Reflects the purchase of loans from certain combining interests ($2,668)
relating to loans made by such combining interests to the joint venture.
(4) Reflects the acquisition of equity interests ($9,200).
(5) Reflects the repayment of notes payable to financial institutions
($32,139) and notes payable to related parties ($20,332).
(6) Reflects the purchase of joint venture interest ($5,076).
(7) Represents the establishment of deferred taxes for the difference between
the book and tax basis of assets and liabilities at June 30, 1996
($5,697).
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Signature Resorts, Inc. was formed in May 1996 to combine the ownership of
the Existing Resorts and the timeshare acquisition and development business of
the Company's predecessors. The Company generates revenues from the sale and
financing of timeshare interests in resorts, which typically entitle the buyer
to the use of a fully-furnished vacation resort in perpetuity, generally for a
one-week period each year. The Company generates additional revenues from room
rental operations, rentals of Vacation Intervals in Company inventory and from
fees associated with managing the timeshare resorts.
The Company recognizes sales of Vacation Intervals on an accrual basis after
a binding sales contract has been executed between the Company and the
proposed buyer, a 10% minimum down payment has been received, the rescission
period has expired, construction is substantially complete, and certain
minimum sales levels are achieved. If all the criteria are met, even in
instances where construction is not substantially complete, revenues are
recognized on the percentage-of-completion basis. Costs associated with the
acquisition and development of timeshare resorts, including carrying costs
such as interest and taxes, are capitalized as real estate and development
costs and allocated as Vacation Interval cost of sales as the respective
revenue is recognized. The Company's investment in the Embassy Vacation Resort
Poipu Point is accounted for using the equity method and reflected on the
balance sheet as "Investment in joint venture" and on the income statement as
"Equity loss on investment in joint venture."
Results of Operations
The following discussion of the results of operations relates to entities
comprising the Company on a combined historical basis. The results of
operations only reflect operations of entities in existence for each
respective reporting year. The following table sets forth certain operating
information for the entities comprising the Company.
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------- ----------------
1993 1994 1995 1995 1996
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
AS A PERCENTAGE OF TOTAL
REVENUES
Vacation Interval sales....... 91.0% 90.9% 81.4% 89.0% 73.9%
Interest...................... 7.5% 8.3% 9.5% 9.0% 10.8%
Other......................... 1.5% 0.8% 9.1% 2.0% 15.3%
-------- -------- -------- ------- -------
Total Revenues.............. 100.0% 100.0% 100.0% 100.0% 100.0%
======== ======== ======== ======= =======
AS A PERCENTAGE OF VACATION
INTERVAL SALES
Vacation Interval cost of
sales........................ 25.7% 30.8% 26.5% 28.7% 23.7%
Advertising, sales and
marketing.................... 48.6% 46.5% 48.2% 49.5% 51.2%
AS A PERCENTAGE OF INTEREST
INCOME
Loan Portfolio:
Interest expense--treasury.. 36.9% 44.2% 51.8% 54.3% 59.3%
Other expenses.............. 11.4% 23.1% 17.2% 15.0% 15.7%
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------- ----------------
1993 1994 1995 1995 1996
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF TOTAL REVENUES
Provision for doubtful accounts.. 2.5% 2.1% 2.5% 2.8% 1.8%
General and administrative....... 13.2% 8.4% 9.0% 6.5% 11.9%
Depreciation and amortization.... 1.6% 1.1% 2.3% 2.3% 2.8%
Interest expense--other.......... 2.1% 2.2% 0.7% 0.6% 3.5%
Equity loss on investment in
joint venture................... -- 0.6% 2.3% 3.1% 0.2%
------- ------- -------- ------- -------
Total costs and operating
expenses...................... 90.6% 90.3% 84.1% 91.1% 83.5%
======= ======= ======== ======= =======
SELECTED OPERATING DATA:
Vacation Intervals sold at non-
consolidated resorts(1)......... -- -- 281 -- 571
Vacation Intervals sold at
consolidated resorts(2)......... 2,442 4,482 5,394 2,615 2,498
Vacation Intervals sold at all
resorts(3)...................... 2,442 4,482 5,675 2,615 3,069
Average sales price per Vacation
Interval at consolidated
resorts(4)...................... $ 9,106 $ 8,985 $ 10,953 $11,013 $11,511
Average sales price per Vacation
Interval at
non-consolidated resorts(5)..... -- -- $ 19,074 -- $19,728
Number of Vacation Intervals in
inventory at
year-end(6)..................... 1,233 2,401 9,917 2,040 21,142
</TABLE>
- --------
(1) Reflects Vacation Intervals sold at the Embassy Vacation Resort Poipu
Point.
(2) Reflects Vacation Intervals sold at consolidated resorts (Cypress Pointe
Resort, Plantation at Fall Creek, Royal Dunes Resort, Royal Palm Beach
Club, Flamingo Beach Club, and San Luis Bay Resort).
(3) Reflects Vacation Intervals sold at consolidated and non-consolidated
resorts.
(4) Reflects average price achieved on sales of Vacation Intervals at
consolidated resorts.
(5) Reflects Vacation Interval inventory at non-consolidated resorts.
(6) Reflects Vacation Interval inventory at consolidated resorts and non-
consolidated resorts.
Comparison of the six months ended June 30, 1996 to six months ended June
30, 1995. For the six months ended June 30, 1996 the Company achieved total
revenue of $38.9 million compared to $32.3 million for the six months ended
June 30, 1995, an increase of $6.6 million or 20%. This increase was primarily
due to a 44% increase in interest revenue and a $5.3 million increase in other
revenue. Interest revenue primarily grew due to a $21.9 million increase in
mortgage receivables, which grew from $57.7 million as of June 30, 1995 to
$79.6 million as of June 30, 1996, an increase of 38%. Other revenue increased
due to the realization of a $1.7 million gain related to the repayment of note
receivable obtained in connection with the purchase of the Flamingo Beach
Club, $1.4 million in revenues from a mortgage receivables portfolio acquired
with the two St. Maarten properties, and a $1.7 million increase in rental
revenue. The number of intervals sold at the Existing Resorts increased 17.4%
from 2,615 for the six months ended June 30, 1995 to 3,069 for the same period
in 1996. The average price of intervals sold at the Existing Resorts,
including the Embassy Vacation Resort Poipu Point, grew from $11,013 to
$13,040, an increase of 18.4%. Vacation Interval sales, which reflects
revenues at consolidated resorts, was flat at $28.8 million for the first six
months of both 1995 and 1996. Vacation Interval sales at the Existing Resorts,
including Embassy Vacation Resort Poipu Point, grew from $28.8 million to
$40.0 million, an increase of 39%. The number of Vacation Intervals sold at
the consolidated resorts decreased 4.4% from 2,615 to 2,498, while the average
price per Vacation Interval sold at the consolidated resorts increased from
$11,013 to $11,511. Management attributes the decrease in the number of
Vacation Intervals sold at the consolidated resorts to (i) its decision made
during the fourth quarter of 1995, to reduce sales by ceasing active marketing
efforts at the Royal Dunes Resort to preserve inventory until the resort can
be marketed through a nearby Westin Resort as contemplated by the Westin
Agreement in order to increase Vacation Interval sales prices and reduce
marketing costs; and (ii) the Company's strategic decision, made at the end of
1995 in response to competitive pressures, to transition its marketing efforts
at the Embassy Vacation Resort Grand Beach and Cypress Pointe Resort from
predominantly externally generated tours to predominantly internally generated
tours
33
<PAGE>
which resulted in temporarily lower Vacation Interval sales volume at such
resorts and (iii) increased competition in Orlando, Florida.
While operating costs increased from $29.5 million for the six months ended
June 30, 1995 to $32.5 million for the six months ended June 30, 1996, an
increase of 10%, as a percentage of revenues operating costs decreased from 91%
in 1995 to 84% in 1996. Relative decreases in interval cost of sales,
advertising sales and
marketing costs, provision for doubtful accounts, and equity in loss in joint
venture as a percentage of revenues more than offset relative increases in
interest expense-treasury, general and administrative, depreciation and
amortization, other expenses, and interest expense-other. The Company was able
to purchase and develop intervals at a relative discount to historical
acquisition costs, reducing the unit cost of each vacation interval sold on
average. This is reflected in a proportionate decrease in cost of vacation
intervals sold from 29% of interval sales in 1995 to 24% of interval sales in
1996. Advertising, sales and marketing costs decreased as a percentage of total
revenues from 44% to 38%, while as a percentage of interval sales, advertising
sales and marketing increased from 50% in 1995 to 51% in 1996. This was
primarily the result of the allocation of advertising, sales and marketing
costs over a lower number of intervals sold at consolidated resorts and
additional costs relating to research and development associated with national
marketing strategies.
Loan portfolio expenses consisting of interest expense, other expenses and
provision for doubtful accounts increased from $2.9 million for the six months
ended June 30, 1995 to $3.8 million for the same period during 1996, an
increase of 31%. This increase reflects the 63% increase in mortgage payables
due to interval sales growth and acquisitions of resorts made by the Company in
1996.
General and administrative expenses increased from $2.1 million for the first
six months of 1995 to $4.6 million for the first six months of 1996. The
increase in general and administrative expenses was the result of increased
salary expenses and overhead due to the acquisition of additional resorts and
growth in the size of the Company.
Depreciation and amortization increased from $0.7 million for the six months
ended June 30, 1995 to $1.1 million for the same period in 1996. This increase
was the result of additional capital expenditures and intangible assets.
Equity loss on investment in joint venture decreased from $1.0 million for
the six months ended June 30, 1995 to $0.1 million for the six months ended
June 30, 1996 due to the initiation of Vacation Interval sales at the Embassy
Vacation Resort Poipu Point during the third quarter of 1995 and higher
occupancy at the hotel. For the six months ended June 30, 1996, 571 intervals
were sold at the Embassy Vacation Resort Poipu Point at an average price of
$19,728.
Pre-tax net income increased 124% to $6.4 million, or 16% of total revenues
for the six months ended June 30, 1996.
Comparison of the year ended December 31, 1995 to year ended December 31,
1994. For the year ended December 31, 1995 the Company achieved total revenue
of $72.6 million compared to $44.3 million for the year ended December 31,
1994, an increase of $28.3 million or 64%. Total revenue grew due to a 47%
increase in Vacation Interval sales from $40.3 million to $59.1 million, an 86%
increase in interest income from $3.7 million to $6.9 million, and a $6.3
million increase in resort operations and other income. The commencement of
sales of Vacation Intervals at Royal Palm, Flamingo Beach Club, and Embassy
Vacation Resort Grand Beach drove Vacation Interval sales volume from 4,482
sold in 1994 to 5,394 sold in 1995, an increase of 20%. These higher volumes,
combined with price growth, drove the 47% increase in Vacation Interval sales
revenue. Interest income increased due to a $34.9 million increase in mortgage
receivables, which grew from $33.4 million at the end of 1994 to $68.3 million
at the end of 1995, an increase of 104%. Other income increased $6.3 million
from $0.3 million in 1994 to $6.6 million in 1995. This increase was the result
of rental income at the resorts increasing from $0.2 million to $1.3 million
from 1994 to 1995, and the acquisition of a $6.5 million mortgage receivable
portfolio acquired with the two St. Maarten resorts on which the Company earned
$2.2 million. In addition, the Company accrued $2.0 million of business
interruption insurance claims to compensate for loss revenues and profits
related to damages sustained from Hurricane Luis at the two St. Maarten
resorts.
34
<PAGE>
While operating costs increased from $40.0 million for the year ended
December 31, 1994 to $61.1 million for the year ended December 31, 1995, an
increase of 53%, as a percentage of revenues operating costs decreased from
90.3% in 1994 to 84.1% in 1995. Relative decreases in Vacation Interval cost of
sales and other expenses, as a percentage of revenues were offset by relative
increases in interest expense-treasury, provision for doubtful accounts,
depreciation and amortization and equity loss on investment in joint venture.
The Company was able to purchase and construct Vacation Intervals at a relative
discount to historical development costs, reducing the unit cost on average of
each Vacation Interval sold. This is reflected in a proportionate decrease in
cost of Vacation Intervals sold from 30.8% of Vacation Interval sales in 1994
to 26.5% of Vacation Interval sales in 1995. Although advertising, sales and
marketing costs decreased as a percentage of total revenues from 42.3% to
39.2%, these costs increased as a percentage of Vacation Interval sales from
46.5% in 1994 to 48.2% in 1995. This was primarily the result of $2.0 million
in expenses in 1995 relating to research and development associated with
national marketing strategies and programs related to "branded" and "non-
branded" resorts. Excluding these expenses, advertising, sales and marketing
costs in 1995 were 44.8% of Vacation Interval sales, slightly less than in
1994.
Loan portfolio expenses consisting of interest expense, other expenses and
provision for doubtful accounts increased from $3.4 million in total in 1994 to
$6.6 million in total in 1995, an increase of 94%. This increase reflects the
104% increase in mortgage receivables due to interval sales growth and
acquisitions of resorts made by the Company in 1995.
General and administrative expenses increased 75% from $3.7 million in 1994
to $6.6 million in 1995. The increase in general and administrative expenses
was the result of increased salary expenses and overhead due to the acquisition
of additional resorts and growth in the size of the Company. Relative to
revenues, general and administrative expenses were slightly higher in 1995 at
9.0% of revenues versus 8.4% of revenues in 1994.
Depreciation and amortization increased from $0.5 million in 1994 to $1.7
million in 1995, reflecting increased depreciation resulting from an increase
in capital expenditures of $1.8 million and acquisitions resulting in a $2.0
million increase in intangible assets.
The Company made its investment in the Embassy Vacation Resort Poipu Point
during the last quarter of 1994. The Embassy Vacation Resort Poipu Point has
experienced losses associated with the start-up operations of the related
resort, which is being converted to timeshare. Equity loss on joint venture
increased from $0.3 million in 1994 to $1.6 million in 1995 reflecting a full
year's operations at the resort in 1995.
Pre-tax net income increased 170% to $11.6 million, or 15.9% of total
revenue, in 1995 from $4.3 million, or 9.7% of total revenues, in 1994.
Comparison of the year ended December 31, 1994 to year ended December 31,
1993. For the year ended December 31, 1994 the Company generated total revenue
of $44.3 million compared to $24.4 million in 1993, an increase of 82%. This
increase was due to an 82% growth in Vacation Interval sales revenues from
$22.2 million in 1993 to $40.3 million in 1994. The first full year of sales at
the Plantation at Fall Creek Resort and the addition of the Royal Dunes Resort
drove higher volume Vacation Interval sales from 2,442 Vacation Intervals sold
in 1993 to 4,482 Vacation Intervals sold in 1994. This volume growth of 91%
more than offset the 5.2% decrease in the average price of Vacation Intervals
sold to drive the 84% increase in Vacation Interval sales revenues. Interest
income increased due to a $16.0 million increase in mortgage receivables from
$17.4 million at the end of 1993 to $33.4 million at the end of 1994, an
increase of 92%.
Operating costs increased from $22.1 million for the year ended December 31,
1993 to $40.0 million for the year ended December 31, 1993, an increase of 81%.
However, as a percentage of revenues, operating costs decreased slightly from
90.6% in 1993 to 90.3% in 1994. Increases in interval cost of sales as a
percentage of revenue from 23.4% in 1993 to 28.0% in 1994 were more than offset
by decreases in other operating costs. From 1993 to 1994, advertising, sales
and marketing decreased from 44.2% of revenues to 42.3% of revenues, general
and administrative decreased from 13.2% of revenues to 8.4% of revenues, and
depreciation and amortization decreased from 1.6% of revenues to 1.1% of
revenues. Vacation Interval cost of sales increased as a percentage of revenues
due to relatively higher Vacation Interval cost associated with the first year
of operations at Royal Dunes. Advertising, sales and marketing costs decreased
as a percentage of Vacation Interval sales from 48.6%
35
<PAGE>
in 1993 to 46.5% in 1994. This reflects increased Vacation Interval sales
volume at Cypress Pointe, which increased from 1,784 Vacation Intervals in 1993
to 2,061 Vacation Intervals in 1994. Although decreasing in terms of a
percentage of revenue, due to expansion in the administrative costs necessary
to support a growing business, general and administrative expenses increased in
absolute terms from $3.2 million in 1993 to $3.7 in 1994, a 16.0% increase.
Depreciation and amortization was approximately consistent between 1993 and
1994 at $0.4 million and $0.5 million respectively reflecting capital
expenditures of $0.2 million, and the recording of intangibles at Grand Beach
in late 1994 with no related amortization. Equity loss on investment in joint
venture of $0.2 million in 1994 reflects the Company's share of losses
associated with the start-up operations at the Embassy Vacation Resort Poipu
Point.
Loan portfolio expenses consisting of interest expense, loan portfolio and
provision for doubtful accounts increased from $1.5 million in 1993 to $3.4
million in 1994, an increase of 127%. This reflects the increase in Vacation
Intervals sold in 1994 and a relative increase in borrowings made by the
Company secured by interval inventory. While loan portfolio expenses were
consistent as a percentage of total revenue, interest expense treasury
increased from 36.9% of interest income to 44.2%. Provision for doubtful
accounts decreased slightly from 2.5% of revenues to 2.1% of revenues. Other
loan portfolio expenses increased from $0.2 million in 1993 (0.9% of revenues)
to $0.9 million in 1994 (1.9% of revenues) reflecting additional costs from
portfolio management services started in 1994.
Pre-tax net income increased 87% from $2.3 million in 1993 to $4.3 million in
1994.
Liquidity and Capital Resources
The Company generates cash for operations from the sale of Vacation
Intervals, the financing of the sales of Vacation Intervals, the rental of
unsold Vacation Interval units, and the receipt of management fees. With
respect to the sale of Vacation Intervals, the Company generates cash for
operations from the receipt of down payments from customers acquiring Vacation
Intervals, and the hypothecation of mortgage receivables from purchasers equal
to 85% to 90% of the amount borrowed by such purchasers. The Company generates
cash related to the financing of Vacation Interval sales on the difference
between the interest charged on the mortgage receivables, which averaged 15.0%
in 1995, and the interest paid on the notes payable secured by such mortgage
receivables.
During the six months ended June 30, 1996 and 1995, respectively, and the
years ended December 31, 1995, 1994, and 1993 cashflow provided by operating
activities was ($17.3 million), $14.1 million, $5.5 million, ($11.0 million)
and $3.3 million, respectively. While net income was higher for the six months
ended June 30, 1996 when compared to the same period in 1995, cash generated
from operating activities decreased due to increases in real estate and
development activities. Cash generated from operating activities was higher for
the year ended December 31, 1995 when compared to the same period in the prior
year primarily due to higher net income, decreases in the amount spent on
acquisition and development activities, and increases in payables outstanding
at the end of 1995 when compared to at the end of 1994. Cash generated from
operating activities was lower for the year ended December 31, 1994 when
compared to the same period in the prior year primarily due to accelerated
acquisition and development activities during the year of 1994 when compared to
the prior year.
Net cash provided by investing activities for the six months ended June 30,
1996, and 1995 and the years ended December 31, 1995, 1994 and 1993 was ($11.2)
million, ($24.4) million, ($40.1) million, ($24.9) million, and ($10.8)
million, respectively. For the six months ended June 30, 1995, the change in
net mortgage receivables was higher than in the comparable period in 1996 due
to higher sales of Vacation Intervals. In addition, the Company incurred
additional organizational costs relating to the opening of the Embassy Vacation
Resort Grand Beach in the first quarter of 1995 which resulted in the booking
of the related organizational costs. Net cash used by investing activities was
higher for the year ended December 31, 1995 when compared to the same period in
1994 principally due to increases in mortgage receivables which resulted from
both higher sales of Vacation Intervals and the purchase of a mortgage
receivable portfolio with a book value of approximately $7.0 million related to
the St. Maarten properties. Net cash used by investing activities was higher
for the year ended December 31, 1994 when compared to the same period in the
prior year due to both expenditures for the
36
<PAGE>
investment in Embassy Vacation Resort Poipu Point and increases in the mortgage
receivables portfolio which resulted from higher Vacation Interval sales in
1994.
For the six months ended June 30, 1996 and 1995, and for the years ended
December 31, 1995, 1994 and 1993, net cash provided by financing activities was
$28.4 million, $11.6 million, $37.1 million, $36.1 million and $15.3 million,
respectively. These net cash figures were affected by the Company's increased
borrowings secured by mortgage receivables to fund operations and increased
payments on these borrowings due to amortizations on a larger portfolio. In
addition, year to year net cash provided by investing activities fluctuates as
a result of borrowing activities for acquisition and development, and from
equity investments as a result of resort acquisitions.
The Company requires funds to finance the future acquisition and development
of timeshare resorts and properties and to finance customer purchases of
Vacation Intervals. Such capital has been provided by secured financings on
Vacation Interval inventory, secured financings on mortgage receivables,
partner loans generally funded by third party lenders and capital
contributions. As of June 30, 1996, the Company had $30.5 million outstanding
under its notes payable secured by Vacation Interval inventory, and $61.5
million outstanding under its notes payable secured by mortgage receivables.
Upon consummation of the Offering, and the application of proceeds therefrom,
the Company anticipates that the majority of notes payable secured by Vacation
Interval inventory will be paid down. In order to finance anticipated
development costs at Existing Resorts, the Company intends to rely on cash from
operations and borrowing capacity available on existing credit facilities.
Over the next twelve months, the Company anticipates spending $38.0 million
for expansion and development activities at the Existing Resorts. The Company
plans to fund these expenditures with the net proceeds of the Offering (after
paydown of debt and purchase of partnership interests), $53.1 million in
available capacity on lines of credit (after the application of the Offering
proceeds) and cash generated from operations.
The Company intends to pursue a growth-oriented strategy. From time to time,
the Company may acquire, among other things, additional timeshare properties,
resorts and completed Vacation Intervals; land upon which additional timeshare
resorts may be built; management contracts (which may from time to time require
capital expenditures by the Company); loan portfolios of Vacation Interval
mortgages; portfolios which include properties or assets which may be
integrated into the Company's operations; and operating companies providing or
possessing management, sales, marketing, development, administration and/or
other expertise with respect to the Company's operations in the timeshare
industry.
The Company has entered into the Westin Agreement whereby the Company will
jointly develop with Westin the newly developed Westin Vacation Clubs concept.
See "Business--Westin Vacation Club Resorts." Currently, the Company is
evaluating several properties for potential acquisition and development, but
currently has no contracts or capital commitments relating to hotels pursuant
to the Westin Agreement.
The Company is currently evaluating the acquisition of several resort
properties to be branded as an Embassy Vacation Resort and several development
opportunities to be developed as an Embassy Vacation Resort, but currently has
no contracts or capital commitments relating to any potential Embassy Vacation
Resorts. The Company is also currently evaluating the acquisition of several
resort properties and of completed Vacation Intervals to be non-branded
timeshare resorts or inventory, but currently has no contracts or capital
commitments relating to any such potential property or inventory acquisitions.
In addition, the Company is currently evaluating several asset and operating
company acquisitions to integrate into or to expand the operations of the
Company, but currently has no contracts or capital commitments relating to any
such potential asset or operating company acquisitions.
In the future, the Company may negotiate additional credit facilities, or
issue corporate debt or equity securities. Any debt incurred or issued by the
Company may be secured or unsecured, fixed or variable rate interest and may be
subject to such terms as management deems prudent.
The Company believes that, with respect to its current operations, the net
proceeds to the Company from the Offering, together with cash generated from
operations and future borrowings, will be sufficient to meet the Company's
working capital and capital expenditure needs for the near future. However,
depending upon
conditions in the capital and other financial markets and other factors, the
Company may from time to time consider the issuance of debt or other
securities, the proceeds of which would be used to finance acquisitions, to
refinance debt or for other general corporate purposes. The Company believes
that the Company's properties are adequately covered by insurance. See
"Business--Insurance; Legal Proceedings."
37
<PAGE>
BUSINESS
OVERVIEW
The Company is one of the largest developers and operators of timeshare
resorts in North America, based on number of resorts in sales. The Company is
devoted exclusively to timeshare operations and directly or through wholly-
owned affiliates owns eight timeshare resorts, including one under
construction, and a ninth resort with respect to which the Company holds a
partial interest. The Company's Existing Resorts are located in a variety of
popular resort destinations including Hilton Head Island, South Carolina;
Poipu Beach, Kauai, Hawaii; the Orlando, Florida area (two resorts);
St. Maarten, Netherlands Antilles (two resorts); Branson, Missouri; South Lake
Tahoe, California and Avila Beach, California. The Company's principal
operations currently consist of (i) acquiring, developing and operating
timeshare resorts, (ii) marketing and selling Vacation Intervals at its
resorts and (iii) providing financing for the purchase of Vacation Intervals
at its resorts.
For the twelve month period ended June 30, 1996, the Company sold 6,128
Vacation Intervals at the Existing Resorts, compared to 2,869 and 5,219 for
the same periods ended in 1994 and 1995, respectively. Total revenue from
Vacation Interval sales at the Existing Resorts for the same periods increased
from $30.9 million in 1994 to $50.6 million in 1995 to $74.8 million in 1996.
As of June 30, 1996, there was an existing inventory of 21,142 Vacation
Intervals at the Existing Resorts, and the Company is in the process of
developing or has current plans to develop an additional 66,069 Vacation
Intervals on land which the Company owns or has an option to acquire at the
Existing Resorts. The Company anticipates that the existing inventory at its
Existing Resorts (except the Company's Hilton Head Island resort), including
the planned expansion at these resorts, will provide sufficient inventory for
between three and ten years of Vacation Interval sales at such resorts.
THE TIMESHARE INDUSTRY
The Market. The resort component of the leisure industry primarily is
serviced by two separate alternatives for overnight accommodations: commercial
lodging establishments and timeshare or "vacation ownership" resorts.
Commercial lodging consists of hotels and motels in which a room is rented on
a nightly, weekly or monthly basis for the duration of the visit and is
supplemented by rentals of privately-owned condominium units or homes. For
many vacationers, particularly those with families, a lengthy stay at a
quality commercial lodging establishment can be very expensive, and the space
provided to the guest relative to the cost (without renting multiple rooms) is
not economical for vacationers. In addition, room rates and availability at
such establishments are subject to change periodically. Timeshare presents an
economical alternative to commercial lodging for vacationers.
According to the ARDA, the timeshare industry experienced a record year in
1994 (the most recent year for which statistics are available) with 384,000
new owners purchasing 560,000 Vacation Intervals with a sales volume of $4.76
billion. First introduced in Europe in the mid-1960s, ownership of Vacation
Intervals has been one of the fastest growing segments of the hospitality
industry over the past two decades. As shown in the following charts,
according to the ARDA the worldwide timeshare industry has expanded
significantly since 1980 both in Vacation Interval sales volume and number of
Vacation Interval owners.
38
<PAGE>
<TABLE>
<CAPTION>
[The following table is represented as a bar graph.]
Dollar Volume of Vacation Interval Sales
(in billions)
<S> <C> <C>
1 1980 0.49
2 1981 0.965
3 1982 1.165
4 1983 1.34
5 1984 1.735
6 1985 1.58
7 1986 1.61
8 1987 1.94
9 1988 2.39
10 1989 2.97
11 1990 3.24
12 1991 3.74
13 1992 4.25
14 1993 4.505
15 1994 4.76
</TABLE>
<TABLE>
<CAPTION>
[The following table is represented as a bar graph.]
Number of Vacation Intervals Owners
(in millions)
<S> <C> <C>
1 1980 0.155
2 1981 0.220
3 1982 0.335
4 1983 0.470
5 1984 0.620
6 1985 0.805
7 1986 0.970
8 1987 1.125
9 1988 1.310
10 1989 1.530
11 1990 1.800
12 1991 2.070
13 1992 2.363
14 1993 2.760
15 1994 3.144
</TABLE>
Source: American Resort Development Association, The 1995 Worldwide Timeshare
Industry.
39
<PAGE>
The Company believes that, based on published industry data, the following
factors have contributed to the increased acceptance of the timeshare concept
among the general public and the substantial growth of the timeshare industry
over the past 15 years:
. Increased consumer confidence resulting from consumer protection
regulation of the timeshare industry and the entrance of brand name
national lodging companies to the industry;
. Increased flexibility of timeshare ownership due to the growth of
exchange organizations such as RCI;
. Improvement in the quality of both the facilities themselves and the
management of available timeshare resorts;
. Increased consumer awareness of the value and benefits of timeshare
ownership, including the cost savings relative to other lodging
alternatives; and
. Improved availability of financing for purchasers of Vacation Intervals.
The timeshare industry traditionally has been highly fragmented and
dominated by a very large number of local and regional resort developers and
operators, each with small resort portfolios generally of differing quality.
The Company believes that one of the most significant factors contributing to
the current success of the timeshare industry is the entry into the market of
some of the world's major lodging, hospitality and entertainment companies.
Such major companies which now operate or are developing Vacation Interval
resorts include Marriott, Disney, Hilton, Hyatt, Four Seasons and Inter-
Continental, as well as Promus and Westin. Unlike the Company, however, the
timeshare operations of each of Marriott, Disney, Hilton, Hyatt, Four Seasons
and Inter-Continental comprise only a small portion of such companies' overall
operations. Moreover, brand name lodging companies are believed by the Company
to have less than ten percent of the worldwide Vacation Interval market in
1994.
Of the Company's major brand name lodging company competitors, the Company
believes that, based on industry consultant reports: (i) Marriott entered the
timeshare market in 1985, currently sells Vacation Intervals at seven resorts
which it also owns and operates (Kauai, Hawaii; Palm Desert, California; Park
City, Utah; Breckenridge, Colorado; Williamsburg, Virginia; Hilton Head
Island, South Carolina; and Orlando, Florida) and directly competes with the
Company's Poipu Point, Hilton Head Island and Orlando area resorts;
(ii) Disney entered the market in 1991, currently sells Vacation Intervals at
three resorts which it also owns and operates (Lake Buena Vista and Vero
Beach, Florida; and Hilton Head Island, South Carolina) and directly competes
with the Company's Orlando area and Hilton Head Island resorts; (iii) Hilton
entered the market in 1993, currently sells Vacation Intervals at two resorts
which it owns and operates (Las Vegas, Nevada; and Orlando, Florida) and
directly competes with the Company's Orlando area resorts; (iv) Hyatt entered
the market in 1995, owns and operates one resort in Key West, Florida but does
not directly compete in any of the Company's existing markets (although Hyatt
has announced an intention to develop a timeshare resort in Orlando); (v) Four
Seasons is developing its first timeshare resort in Carlsbad, California but
does not currently directly compete in any of the Company's existing markets
and is not in sales of Vacation Intervals at any resorts; and (vi) Inter-
Continental announced its entry into the timeshare market in 1996, but has yet
to announce any specific projects and is not yet in sales of Vacation
Intervals at any resorts. See "--Competition."
The Economics. The Company believes that national lodging and hospitality
companies are attracted to the timeshare concept because of the industry's
relatively low product cost and high profit margins and the recognition that
Vacation Intervals provide an attractive alternative to the traditional hotel-
based vacation and allow the hotel companies to leverage their brands into
additional resort markets where demand exists for accommodations beyond
traditional hotels.
The Consumer. According to information compiled by the ARDA for the year
ended December 31, 1994, the prime market for Vacation Intervals is customers
in the 40-55 year age range who are reaching the peak of
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their earning power and are rapidly gaining more leisure time. The median age
of a Vacation Interval buyer at the time of purchase is 46. The median annual
household income of current Vacation Interval owners in the United States is
approximately $63,000, with approximately 35% of all Vacation Interval owners
having annual household income greater than $75,000 and approximately 17% of
such owners having annual household income greater than $100,000. Despite the
growth in the timeshare industry as of December 31, 1994, Vacation Interval
ownership has achieved only an approximate 3.0% market penetration among
United States households with income above $35,000 per year and 3.9% market
penetration among United States households with income above $50,000 per year.
According to the ARDA study, the three primary reasons cited by consumers
for purchasing a Vacation Interval are (i) the ability to exchange the
Vacation Interval for accommodations at other resorts through exchange
networks such as RCI (cited by 82% of Vacation Interval purchasers), (ii) the
money savings over traditional resort vacations (cited by 61% of purchasers)
and (iii) the quality and appeal of the resort at which they purchased a
Vacation Interval (cited by 54% of purchasers). According to the ARDA study,
Vacation Interval buyers have a high rate of repeat purchases: approximately
41% of all Vacation Interval owners own more than one interval representing
approximately 65% of the industry inventory and approximately 51% of all
owners who bought their first Vacation Interval before 1985 have since
purchased a second Vacation Interval. In addition, customer satisfaction
increases with length of ownership, age, income, multiple location ownership
and accessibility to Vacation Interval exchange networks.
The Company believes it is well positioned to take advantage of these
demographics trends because of the quality of its resorts and locations, its
program to allow buyers to exchange intervals at several of the Company's
resorts and its membership in RCI. The Company expects the timeshare industry
to continue to grow as the baby-boom generation enters the 40-55 year age
bracket, the age group which purchased the most Vacation Intervals in 1994.
BUSINESS STRATEGY
The Company's objective is to become North America's leading developer and
operator of timeshare resorts. To meet this objective, the Company intends to
(i) acquire, convert and develop additional resorts to be operated as Embassy
Vacation Resorts, Westin Vacation Club resorts and non-branded resorts,
capitalizing on the acquisition and marketing opportunities to be provided as
a result of its relationships with Promus, Westin, selected financial
institutions and its position in certain markets and the timeshare industry
generally, (ii) increase sales and financings of Vacation Intervals at the
Existing Resorts through broader-based marketing efforts and in certain
instances through the construction of additional Vacation Interval inventory,
(iii) improve operating margins by consolidating administrative functions,
reducing borrowing costs and reducing its sales and marketing expenses as a
percentage of revenues and (iv) acquire additional Vacation Interval
inventory; management contracts, Vacation Interval mortgage portfolios, and
properties or other timeshare-related assets that may be integrated into the
Company's operations. The key elements of the Company's strategy are described
below.
Acquisition and Development of New Resorts. The Company intends to acquire
and develop additional resorts to be operated as branded Embassy Vacation
Resorts, Westin Vacation Club resorts and as non-branded resorts. To implement
its growth strategy, the Company intends to pursue acquisitions and
developments in a number of vacation markets, concentrating on the California
and Hawaii markets in which the Company has experience and that are subject to
barriers to entry as a result of land availability and local land use
regulations. The Company believes that its relationships with Promus, Westin
and selected financial institutions that control resort properties located in
Hawaii and California will provide it with acquisition, development and hotel-
to-timeshare conversion opportunities and will allow it to take advantage of
currently favorable market opportunities to acquire resort and condominium
properties to be operated as timeshare resorts. Since the inception of the
resort acquisition and development business by the Company's predecessor in
1992, the Company believes it has been able to purchase hotel, condominium and
resort properties and/or entitled land at less than either their initial
development cost or replacement cost and remodel or convert such properties
for sale
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and use as timeshare resorts. In addition to acquiring existing resort and
hotel-to-timeshare conversion properties, the Company also seeks to develop
resorts located in destinations where it discerns a strong demand, which the
Company anticipates will enable it to achieve attractive rates of return.
The Company considers the potential acquisition or development of timeshare
resorts in locations based on existing timeshare competition in the area as
well as existing overall demand for accommodations. In evaluating whether to
acquire, convert or develop a timeshare resort in a particular location, the
Company analyzes relevant demographic, economic and financial data.
Specifically, the Company considers the following factors, among others, in
determining the viability of a potential new timeshare resort in a particular
location: (i) supply/demand ratio for the purchase of Vacation Intervals in
the relevant market and for Vacation Interval exchanges into the relevant
market by other Vacation Interval owners, (ii) the market's growth as a
vacation destination, (iii) the ease of converting a hotel or condominium
property into a timeshare resort from a regulatory and construction point of
view, (iv) the availability of additional land at the property for potential
future development and expansion, (v) competitive accommodation alternatives
in the market, (vi) uniqueness of location, and (vii) barriers to entry that
would tend to limit competition. The Company's San Luis Bay Resort, which it
acquired in June 1996 from the bankruptcy estate of Glen Ivy Resorts, Inc., is
one example of the Company's implementation of its acquisition strategy in the
California market. The Company is in the process of improving the amenities
offered at the resort and expanding the resort by adding additional one and
two bedroom timeshare units. The Company believes that its Embassy Vacation
Resort Lake Tahoe, which is currently under development in South Lake Tahoe,
California, is only the second significant new resort to be constructed in
South Lake Tahoe during the past twenty years (the first being KOAR's
development and opening in 1991 of the $70 million, 400 suite Embassy Suites
hotel in South Lake Tahoe) and is an example of the Company's growth through
development strategy in a market with relatively significant barriers to
entry. See "--Acquisition Process."
The Company believes that its relationships with Promus and Westin will
provide it with attractive acquisition, conversion, development and marketing
opportunities and uniquely position the Company to offer Vacation Intervals at
a variety of attractive resort destinations to multiple demographic groups in
the timeshare market. Capitalizing on two of its Founders' relationship with
Promus as a developer and owner of Embassy Suites hotels, in 1994 the Company
and Promus established Embassy Vacation Resorts, and the Company is currently
the only licensee of the Embassy Vacation Resorts name. However, the Company
has no ownership of or rights to the "Embassy Vacation Resorts" name or
servicemark, both of which are owned exclusively by Promus, except as set
forth in the Company's license agreements with Promus with respect to the
Company's Embassy Vacation Resorts. Through the Westin Agreement, the Company
has the exclusive right, subject to the terms of the Westin Agreement, to
jointly acquire, develop and market with Westin "four-star" and "five-star"
Westin-affiliated timeshare resorts in North America, Mexico and the
Caribbean. The Company's rights also cover the conversion of Westin hotels to
timeshare resorts. In addition, pursuant to the Westin Agreement, it is
expected that Westin will provide the Company with lead generation assistance
and marketing support and Promus currently provides such assistance at Embassy
Vacation Resorts. The five KOAR-owned Embassy Suites hotels also provide lead
generation assistance and support to the Company with respect to the marketing
of the Company's resorts. The Company's relationships with Promus and Westin
also provide it with a competitive advantage in the timeshare industry by
allowing it to offer two separate branded products in both the upscale and
luxury market segments. The Company believes that brand affiliation is
becoming an important characteristic in the timeshare industry as it provides
the consumer an important element of reliability and image in a fragmented
industry. Through its Embassy Vacation Resorts and Westin Vacation Club
resorts the Company believes it will be able to provide Vacation Interval
buyers with quality and consistency in their timeshare purchases. In addition,
through its non-branded resorts the Company will be able to appeal to the
value-conscious consumer who seeks the best value for his or her money and
does not seek affiliation with brand-name lodging companies.
Sales and Expansion at Existing Resorts. The Company intends to continue
sales of Vacation Intervals at the Existing Resorts by adding Vacation
Interval inventory through the construction of new development units and by
broadening marketing efforts. The Company believes is well positioned to
expand sales of Vacation Intervals at its Existing Resorts as a result of its
existing supply of Vacation Intervals in inventory as well as
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<PAGE>
planned expansion. The Company currently has existing inventory of 21,874
Vacation Intervals and currently is in the process of developing, or has plans
to develop, units to accommodate an additional 66,069 Vacation Intervals at
its Existing Resorts, including construction in progress for 10,710 Vacation
Intervals at the Embassy Vacation Resort Lake Tahoe, the addition of
approximately 3,162 Vacation Intervals at the San Luis Bay Resort and current
construction of units which will add 2,040 Vacation Intervals at the Cypress
Pointe Resort, 1,632 Vacation Intervals at the Plantation at Fall Creek and
1,530 Vacation Intervals at the Embassy Vacation Resort Grand Beach. See "--
Description of the Company's Resorts."
Based on information received from the Company's customers and sales agents,
the Company believes that in addition to basic quality, expanded resort
amenities and larger, multi-purpose units, current and potential buyers want
enhanced flexibility in scheduling their vacations, a broader distribution of
quality exchange locations and the availability of other value-priced
services. As a major developer and operator of timeshare resorts in North
America, the Company believes that it has acquired skill and expertise both in
the development and operation of timeshare resorts and in the marketing and
sales of Vacation Intervals and that it has acquired the breadth of resorts
which give it a competitive advantage among Vacation Interval purchasers.
Improvement of Operating Margins. As the Company grows, management believes
it will be able to reduce operating costs as a percentage of revenues by
consolidating administrative functions and reducing borrowing costs by virtue
of its consolidated operations. The Company believes that its larger number of
resorts relative to its competitors will provide it with additional revenue
opportunities and economies of scale which will allow it the potential for
significant cost savings. Benefitting from economies of scale both internally
and through its relationships with Promus and Westin, the Company plans to
centralize many of the administrative functions currently performed at
individual resorts, such as accounting, reservations and marketing, resulting
in a reduction in labor costs throughout the Company's Existing Resorts. The
Company believes that increased efficiency, reduction in on-site
administrative requirements and a multi-resort management system will reduce
operating costs and allow the Company to experience increased margins by
spreading operating and corporate overhead costs over a larger revenue base.
In addition, operating margins at a resort tend to improve over time as a
greater percentage of Vacation Intervals are sold, resulting in lower selling,
marketing and advertising expenses. The Company believes that it will reduce
sales and marketing expenses as a result of the lead generation assistance
provided or to be provided by Westin and Promus (including marketing and lead
generation assistance from KOAR's five Embassy Suites hotels) and by targeting
potential buyers through Westin and Embassy Suites hotels.
Acquisition of Timeshare Assets, Management Contracts and Operating
Companies. As a result of the Company's relationships in the timeshare and
financial communities, the size and geographic diversity of its portfolio of
properties and position in the timeshare industry, the Company has access to a
variety of acquisition opportunities related to the Company's business. The
Company's business strategy includes pursuing growth by expanding or
supplementing the Company's existing timeshare business through acquisitions.
The Company believes that its record of acquiring resort properties gives the
Company credibility and, the Company's status as a public company may make the
acquisition by the Company of businesses or operations more attractive to
potential sellers. The Company believes that these collective factors will
help the Company acquire attractive assets, operations and companies in the
fragmented timeshare industry. Acquisitions which the Company may consider
include acquiring additional Vacation Intervals as inventory, management
contracts, Vacation Interval mortgage portfolios and properties or other
timeshare-related assets which may be integrated into the Company's
operations.
DESCRIPTION OF THE COMPANY'S RESORTS
The Company believes that, based on published industry data, it is the only
developer and operator of timeshare resorts in North America that will offer
Vacation Intervals in each of the three principal price segments of the market
(value, upscale (characterized by high quality accommodations and service) and
luxury (characterized by elegant accommodations and personalized service)).
Since the inception of the timeshare
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<PAGE>
development and acquisition business of the Company's predecessors, the
Company has developed or acquired eight resorts, including one under
construction, and a ninth resort in which the Company holds a partial
interest, located in a variety of popular resort destinations including Lake
Buena Vista (Orlando area), Florida (developed in 1992); Branson, Missouri
(developed in 1993); Hilton Head Island, South Carolina (developed in 1994);
Koloa, Hawaii (acquired in 1994 and in which the Company holds an
approximately 30% interest); Orlando, Florida (developed in 1995); two resorts
located in St. Maarten, Netherlands Antilles (each acquired in 1995); Avila
Beach, California (acquired in 1996); and South Lake Tahoe, California
(currently under construction). The Company expects that its resorts will
operate in the following three general categories, each differentiated by
price range, brand affiliation and quality of accommodations:
. NON-BRANDED RESORTS. Vacation Intervals at the Company's six non-branded
resorts, which are not affiliated with any hotel chain, generally sell
for $6,000 to $15,000 and are targeted to buyers with annual incomes
ranging from $35,000 to $80,000. The Company believes its non-branded
resorts offer buyers an economical alternative to branded timeshare
resorts (such as Embassy Vacation Resorts and Westin Vacation Club
resorts) or traditional vacation lodging alternatives. Each of the
Company's non-branded resorts has been awarded the Gold Crown Resort
Designation by RCI, the highest rating in the RCI system.
. EMBASSY VACATION RESORTS. Vacation Intervals at the Company's three
Embassy Vacation Resorts generally sell for $12,000 to $20,000 and are
targeted to buyers with annual incomes ranging from $60,000 to $150,000.
Embassy Vacation Resorts are designed to provide timeshare
accommodations that offer the high quality and value that is represented
by the more than 120 Embassy Suites hotels throughout North America.
. WESTIN VACATION CLUB RESORTS. Through the Westin Agreement, the Company
has the exclusive right for a five-year period to jointly acquire,
develop and market with Westin "four-star" and "five-star" timeshare
resorts located in North America, Mexico and the Caribbean. The Company
anticipates that Vacation Intervals at Westin Vacation Club resorts
generally will sell for $16,000 to $25,000 and will be targeted to
buyers with annual incomes ranging from $80,000 to $250,000.
Innovation in the design and quality of the resorts developed by the
Company, as well as the branded product image of its Embassy Vacation Resorts
and Westin Vacation Club resorts, has and will continue to result in
differentiation of the Company's resorts from those of its competitors. The
Company believes feedback from its Vacation Interval owners and property
management enhances the Company's product acquisition, development and design
process. The resorts designed and developed by the Company have been
recognized by major industry groups and publications for excellence in
architectural and landscape design and overall development quality. Each of
the Company's resorts that are operational has been designated a "Gold Crown"
resort by RCI, an award RCI reserves for the top 14% of its participating
resorts.
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The following table sets forth certain information as of June 30, 1996
regarding each of the Existing Resorts, including location, date acquired by
the Company, the number of existing and planned units at each Existing Resort,
the number of Vacation Intervals sold at each Existing Resort since its
acquisition or development by the Company and the number of Vacation Intervals
sold in 1995, the average sales price of Vacation Intervals sold at each
Existing Resort in 1995 and the number of Vacation Intervals available for
sale at each Existing Resort currently and giving effect to planned expansion.
The exact number of units and Vacation Intervals ultimately constructed at
each Existing Resort, as well as the future financial impact of these Vacation
Intervals on the Company, may differ from estimates based on future land
planning and site layout considerations.
<TABLE>
<CAPTION>
VACATION VACATION INTERVALS
UNITS AT RESORT INTERVALS SOLD AVERAGE AT RESORT
--------------- ----------------- SALES ---------------------
DATE PRICE IN CURRENT PLANNED
RESORT LOCATION ACQUIRED(A) CURRENT PLANNED TOTAL 1995 1995 INVENTORY EXPANSION
------ -------- ----------- ------- ------- ------- ------ -------- --------- ---------
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C>
NON-BRANDED RESORTS:
CYPRESS Lake Buena Vista, November 1992 184 500(b) 7,786 1,824 $10,734 1,598 16,116(b)
POINTE Florida
RESORT
PLANTATION Branson, Missouri July 1993 98 400(c) 3,842 1,094 9,519 1,156 16,218(c)
AT FALL
CREEK
ROYAL DUNES Hilton Head Island, April 1994 40 55(d) 1,319 577 10,862 721 765(d)
RESORT South Carolina
ROYAL PALM St. Maarten, Netherlands July 1995 140 140(e) 622 272 8,124 2,171 0(e)
BEACH CLUB Antilles
FLAMINGO St. Maarten, Netherlands August 1995 172 247(f) 342 104 6,885 2,665 3,900(f)
BEACH CLUB Antilles
SAN LUIS BAY Avila Beach, California June 1996 68 130(g) 20(h) (h) (h) 1,010(i) 3,162(g)
RESORT
EMBASSY VACATION RESORTS:
POIPU Koloa, Kauai, Hawaii November 1994 219 219(k) 852 281 19,074 10,317(k) 0
POINT(J)
GRAND BEACH Orlando, Florida January 1995 72 370(l) 2,168 1,523 13,063 1,504 15,198(l)
LAKE TAHOE South Lake Tahoe, May 1996(m) 0 210(n) (o) (o) (o) (o) 10,710(n)
California
--- ----- ------- ------ ------ ------
TOTAL ......................................... 993 2,271 16,951 5,675 21,142 66,069
=== ===== ======= ====== ====== ======
</TABLE>
- --------
(a) The dates listed represent the date of acquisition or, if later, the date
of completion of development of the applicable resort by the Company. The
Embassy Vacation Resort Poipu Point was acquired by the Company in
November 1994 as a traditional hotel. As units at the Embassy Vacation
Resort Poipu Point are sold as Vacation Intervals, the Company no longer
rents such units on a nightly basis.
(b) Includes 40 units, which will accommodate 2,040 Vacation Intervals, that
are currently under construction and scheduled for completion in September
1996. Also includes an additional estimated 276 units, which will
accommodate an additional estimated 14,076 Vacation Intervals, which the
Company plans to construct on land which it owns at the Cypress Pointe
Resort and for which all necessary governmental approvals and permits
(except building permits) have been obtained. Should the Company elect to
construct a higher percentage of three bedroom units, rather than its
current planned mix of one, two and three bedroom units, the actual number
of planned units and Vacation Intervals will be lower than is indicated
above.
(c) Includes 16 units, which will accommodate an additional 816 Vacation
Intervals, on which the Company commenced construction in June 1996 and
for which all necessary governmental approvals and permits have been
received by the Company. Also includes an additional estimated 286 units,
which will accommodate an additional estimated 14,586 Vacation Intervals,
which the Company plans to construct on land which it owns or is currently
subject to a contract to purchase at the Plantation at Fall Creek.
(d) Includes 15 units, which will accommodate 765 Vacation Intervals,
construction of which is planned to begin in either the fourth quarter of
1996 or the first quarter of 1997 for which all necessary governmental
approvals and permits have been received by the Company.
(e) The Company has not committed to any expansion of the Royal Palm Beach
Club. The Company is considering the acquisition of additional land
adjacent to the Royal Palm Beach Club for the addition of an estimated 60
units, which will accommodate an estimated
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3,060 Vacation Intervals, but has yet to enter into an agreement with
respect to such additional land or to obtain the necessary permits for such
expansion.
(f) In May 1996 the Company acquired a five-acre parcel of land adjacent to
the Flamingo Beach Club on which the Company plans to develop an estimated
75 units which will accommodate an estimated 3,900 Vacation Intervals. The
Company is in the process of seeking to obtain the necessary governmental
approvals and permits for such proposed expansion.
(g) Includes 62 units, which will accommodate an estimated 3,162 Vacation
Intervals, for which all necessary discretionary governmental approvals
and permits have been received by the Company. The Company has not yet
applied for or obtained the required building permits to construct such
additional units. The Company plans to commence construction of the first
31 units in September 1996. In addition, the Company is considering the
acquisition of additional land near the San Luis Bay Resort for the
addition of an estimated 100 units which will accommodate an estimated
5,100 Vacation Intervals, but has yet to enter into an agreement with
respect to such land or to obtain the necessary governmental approvals and
permits for such proposed expansion.
(h) The Company commenced sales of Vacation Intervals at the San Luis Bay
Resort in June 1996.
(i) The Company in June 1996 acquired approximately 130 Vacation Intervals at
the San Luis Bay Resort out of the bankruptcy estate of Glen Ivy Resorts,
Inc. In addition, the Company acquired promissory notes in default that
are secured by approximately 900 Vacation Intervals. The Company intends
to foreclose upon and acquire clear title to such Vacation Intervals and
intends to complete such foreclosure procedures (or deed-in-lieu
procedures) in approximately four months following acquisition of the
resort.
(j) The Company owns, directly or indirectly, 100% of the partnership
interests in the managing general partner of Poipu Resort Partners L.P., a
Hawaii limited partnership ("Poipu Partnership"), the partnership which
owns the Embassy Vacation Resort Poipu Point. The managing general partner
holds a 0.5% partnership interest for purposes of distributions, profits
and losses. The Company also holds, directly or indirectly, a 29.93%
limited partnership interest in the Poipu Partnership for purposes of
distributions, profits and losses, for a total partnership interest of
30.43%. In addition, following repayment of any outstanding partner loans,
the Company, directly or indirectly, is entitled to receive a 10% per
annum return on the Founders' and certain former limited partners' initial
capital investment of approximately $4.6 million in the Poipu Partnership.
After payment of such preferred return and the return of approximately
$4.6 million of capital to the Company, directly or indirectly, on a pari
passu basis with the other general partner in the partnership, the
Company, directly or indirectly, is entitled to receive approximately 50%
of the net profits of the Poipu Partnership. In the event certain internal
rates of return specified in the Poipu Partnership Agreement are achieved,
the Company, directly or indirectly, is entitled to receive approximately
55% of the net profits of the Poipu Partnership.
(k) Includes 191 units that the Company currently rents on a nightly basis
that have not yet been sold as Vacation Intervals.
(l) Includes 30 units, which will accommodate 1,530 Vacation Intervals, that
are currently under construction and scheduled for completion in September
1996. Also includes at least 24 units, which will accommodate an
additional 1,224 Vacation Intervals, on which the Company plans to
commence construction in the fourth quarter of 1996 and for which all
necessary discretionary governmental approvals and permits (excluding
building permits which have not yet been applied for by the Company) have
been received by the Company. The Company has also received all necessary
discretionary governmental approvals and permits to construct an
additional estimated 228 units on land which it owns at the Embassy
Vacation Resort Grand Beach, which will accommodate an additional
estimated 11,628 Vacation Intervals, (excluding building permits which
have not yet been applied for by the Company). The Company plans to apply
for and obtain these building permits on a building-by-building basis.
(m) Construction began on the first 62 units at the Embassy Vacation Resort
Lake Tahoe in May 1996. Twenty-seven units, which will accommodate 1,377
Vacation Intervals, are scheduled for completion in January 1997 and 35
units, which will accommodate 1,785 Vacation Intervals, are scheduled for
completion in March 1997.
(n) Includes 62 units, which will accommodate 3,162 Vacation Intervals, on
which construction began in May 1996 and for which all necessary
discretionary governmental approvals and permits have been received by the
Company. Twenty-seven units, which will accommodate 1,377 Vacation
Intervals, are scheduled for completion in January 1997 and 35 units,
which will accommodate 1,785 Vacation Intervals, are scheduled for
completion in March 1997. Of this total, the Company is obligated to
convey four Vacation Intervals to the former owners of the land on which
the Embassy Vacation Resort Lake Tahoe is being developed. Such conveyance
will be made upon completion of the first phase of development. The
Company has also received all necessary discretionary governmental
approvals and permits to construct an additional estimated 148 units
(excluding building permits which have not yet been applied for by the
Company and which will be applied for and obtained on a phase-by-phase
basis) on land that it owns at the Embassy Vacation Resort Lake Tahoe,
which will accommodate an estimated 7,548 Vacation Intervals, and, subject
to market demand, currently plans to construct 40 of such units commencing
in May of each year from 1997 through 1999 and the remaining 28 units
commencing in May 2000.
(o) The Company commenced sales of Vacation Intervals at the Embassy Vacation
Resort Lake Tahoe in June 1996, although the Company will not be able to
close any of such sales until the completion of the first units, currently
scheduled to occur in January 1997.
NON-BRANDED RESORTS
The Cypress Pointe Resort. Cypress Pointe Resort, the Company's first
timeshare resort, opened in November 1992 and is located in Lake Buena Vista,
Florida, approximately one-half mile from the entrance of Walt Disney World
and is an approximately 10 minute drive from all major Orlando attractions.
The resort is being developed in two phases. Phase I sits on 9.7 acres of land
and consists of nine buildings, eight of which currently are complete. Phase
II sits on 12.5 acres of land and will consist of seven buildings, the first
of which was completed in April 1996.
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<PAGE>
Styled with a Caribbean theme, upon completion of the nine buildings, Phase
I will contain 192 three bedroom 1,460 square foot units. Each unit
comfortably accommodates up to eight people with its two large master
bedrooms, three bathrooms, living room with sleeper sofa, and full kitchen.
The three bedroom units in Phase I also offer a jacuzzi tub, a roman tub,
three color televisions (including one 460 screen), a video cassette player, a
complete stereo system, a washer/dryer and elegant interior details such as
nine-foot ceilings, crown moldings, interior ceiling fans, imported ceramic
tile, oversized sliding-glass doors and rattan and pine furnishings. With the
completion of Phase II, the resort will be equipped with three pools including
a 4,000 gallon heated pool with a volcano, two spas, two poolside cafes, two
tennis courts, a sand volleyball court, a basketball court, an exercise
facility, a kiddie pool, a gift shop, a lakeside gazebo, a shuffleboard court,
a picnic area and a video arcade. The resort also contains a full children's
playground and a new 17,000 square foot clubhouse.
Upon completion of Phases I and II, the resort will contain approximately
500 units. Upon completion of seven buildings in Phase II, Phase II will
contain a total of approximately 308 units consisting of one, two and three
bedroom units of up to 1,850 square feet and accommodating up to ten people.
Phase I consists of 168 existing units, with 24 units scheduled to be built
upon the completion of Phase II.
The resort currently contains 9,384 total Vacation Intervals of which 1,598
remained for sale as of June 30, 1996. Vacation Intervals at the Cypress
Pointe Resort are currently priced from $6,000 to $16,000 for one-week
Vacation Intervals, 1,824 of which were sold in 1995. Vacation Intervals at
the resort can be exchanged for Vacation Intervals at other locations through
RCI, which awarded the resort its Gold Crown Resort Designation. The resort
won the ARDA National Award for its overall owner package in 1993.
The Plantation at Fall Creek. The Plantation at Fall Creek, which opened in
March 1993, is located on the shores of Lake Taneycomo, a fishing lake near
the heart of Branson, Missouri, the capital of country music theaters. The
resort currently contains 98 units each consisting of 2 bedrooms and 2 baths
and up to 1,417 square feet, built in a country style on approximately 130
acres of land. The Company currently plans to continue to expand the resort to
accommodate a total of 400 units. Each unit features two large master
bedrooms/baths, queen sized sofa-sleeper, full kitchen, three color
televisions, video cassette player, washer/dryer, cherry wood furnishings,
ceiling fans and jacuzzi or roman tub. The resort is equipped with 4 swimming
pools, a fishing dock, a shuffleboard court, a game room, a children's
playground, a health club, a tennis court, a miniature golf course, a sand
volleyball court, barbecue areas and a basketball court.
As of June 30, 1996, the resort contained 4,488 total Vacation Intervals of
which 1,156 remained for sale. Vacation Intervals at the Plantation at Fall
Creek are currently priced from $7,295 to $10,295 for one-week Vacation
Intervals, 1,094 of which were sold in 1995. Vacation Intervals at the resort
can be exchanged for Vacation Intervals at other locations through RCI, which
awarded the resort its Gold Crown Resort Designation.
The Royal Dunes Resort at Port Royal Plantation. The Royal Dunes Resort at
Port Royal Plantation opened in April 1994 and is located in Port Royal
Plantation on Hilton Head Island, South Carolina, only 400 yards from the
beach. The resort presently contains 40 units consisting of three bedrooms and
three bath units and upon completion scheduled for March 1997, will be
expanded to include a total of 55 units. The units can comfortably accommodate
eight people in their 1,460 square feet of living area with two master suites
with private bath, one guest bedroom with bath, a living room with a sofa
sleeper, a full kitchen and an outside deck. Each unit features a jacuzzi tub,
a roman tub, a washer/dryer, four color televisions, a video cassette player,
an entertainment center and elegant interior details such as nine-foot
ceilings, crown moldings, interior ceiling fans and rattan and pine
furnishings. The resort offers a heated swimming pool, outdoor whirlpool spa,
kiddie pool, sand volleyball court, barbecue grill and picnic area. The Royal
Dunes is conveniently located for golf, tennis, fishing, shopping, boating,
biking and croquet and adjacent to Royal Dunes is the Westin Hotel and Resort
at Port Royal, Hilton Head Island.
The resort currently contains 2,040 total Vacation Intervals of which 721
remained for sale as of June 30, 1996. Vacation Intervals at the Royal Dunes
are currently priced from $8,250 to $13,250 for one-week Vacation
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Intervals, 577 of which were sold in 1995. Vacation Intervals at the resort
can be exchanged for Vacation Intervals at other locations through RCI, which
awarded the resort its Gold Crown Resort Designation.
The Royal Palm Beach Club. The Royal Palm Beach Club, originally opened in
1990 and acquired by the Company in July 1995, is located at Simpson Bay in
St. Maarten, Netherlands Antilles. Located approximately one mile from the
island's major airport and ten minutes from local shopping and dining, the
resort is surrounded by the Caribbean on three sides. The resort contains 140
units consisting either of two bedrooms, two baths or three bedrooms, three
baths. Each unit is equipped with a full kitchen, complete with microwave and
dishwasher, color television, VCR and private lanai. The resort is equipped
with a private beach, an overflowing style pool located on the beach, a large
sun deck and a picnic area with barbecue grills. The Royal Palm Beach Club is
also conveniently located for water sports, boating, health club workouts and
tennis, and is located adjacent to a retail center, including an outdoor cafe,
dance clubs, market, hair salon, gift shop, mini-market and restaurants. Each
unit at the resort, as well as the resort grounds and common areas, recently
received a complete renovation in connection with repairs following the
September 1995 hurricane which damaged the resort.
The resort currently contains 7,280 total Vacation Intervals of which 2,171
remained for sale as of June 30, 1996. Units at the Royal Palm Beach Club, are
currently priced from $9,450 to $12,900 for one-week Vacation Intervals, 272
of which were sold by the Company in 1995. Vacation Intervals at the resort
can be exchanged for Vacation Intervals at other locations through RCI, which
awarded the resort its Gold Crown Resort Designation and through Interval
International ("II"), the other major exchange company in the industry, which
awarded the resort a "five-star" designation, the highest quality level in the
II system.
The Flamingo Beach Club. The Flamingo Beach Club, originally opened in
January 1991 and acquired by the Company in July 1995, is located on "the
Point" of the Pelican Key Peninsula in St. Maarten, Netherlands Antilles,
directly on the beach of the Caribbean. The resort is located approximately
two miles from the island's major airport and is within walking distance of
shopping and dining facilities. The resort is surrounded by the Caribbean
Ocean on three sides and contains 172 units consisting of beachfront studio
and one bedroom, one bath units. Each unit is equipped with two color
televisions, a video cassette player, air conditioning, a balcony suitable for
outside dining and a fully equipped kitchen complete with microwave oven and
dishwasher. The resort features water sports, a beach palapa bar and grill, a
mini-market, tennis facilities and a beach house bar. Each unit at the resort,
as well as the resort grounds and common areas, recently received a complete
renovation in connection with repairs following the September 1995 hurricanes
which damaged the resort.
The resort currently contains 8,994 total Vacation Intervals of which 2,665
remained for sale as of June 30, 1996. Vacation Intervals at the Flamingo
Beach Club are currently priced from $6,500 to $8,900 for one-week Vacation
Intervals, 104 of which were sold in 1995. Vacation Intervals at the resort
can be exchanged for Vacation Intervals at other locations through RCI, which
awarded the resort its Gold Crown Resort Designation.
The San Luis Bay Resort. The San Luis Bay Resort, located on 16 oceanview
acres in Avila Beach, California, near San Luis Obispo, was originally opened
in 1969 as a hotel club and in June 1996 was acquired by the Company from the
bankruptcy estate of Glen Ivy Resorts, Inc., which had converted the property
to a timeshare resort in 1989. The resort is adjacent to a championship golf
course and is well located for visiting local wineries and historical
attractions. At present, a total of 68 studio and one bedroom units are
completed at the resort. The Company currently intends to commence
construction of the phase I addition of 30 units in September 1996. Upon
completion of the addition, units will be available in one and two bedroom
configurations (some with lock-off capability) and will offer a king size bed,
a queen size sofa sleeper, a porch, a full kitchen, two color televisions, a
video cassette player and a stereo. The phase II addition of 32 units is
scheduled to commence construction in fall 1997. The resort features a
swimming pool, a spa, four tennis courts, exercise facilities, a full service
salon, a video game room, a basketball court and a barbecue area. The resort
is also well located for windsurfing, boating, fishing and surfing.
The Company's inventory at the resort contains 1,010 available Vacation
Intervals (including Vacation Intervals which the Company is in the process of
acquiring through foreclosure). Vacation Intervals at the San
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Luis Bay Inn are currently priced from $8,500 to $16,000 for one-week Vacation
Intervals. Vacation Intervals at the resort can be exchanged for Vacation
Intervals at other locations through RCI.
EMBASSY VACATION RESORTS
The Embassy Vacation Resort Grand Beach. The Embassy Vacation Resort Grand
Beach opened in January 1995 and is located along nearly 2,000 feet of the
south shore of Lake Bryan, a 450-acre spring-fed lake in Lake Buena Vista,
Florida. The 1920's Florida architectural style resort sits on 18 acres and
upon its projected completion by the year 2000 will offer approximately 370
units in 14 four and five story buildings. Despite the resort's remote, lake
front ambiance, it is only minutes from International Drive which provides
access to Orlando, Florida's major attractions. All current units offer three
bedrooms and three bathrooms with approximately 1,550 square feet of living
area, including a large screened-in deck and a full-size, well-equipped
kitchen. With two master suites, a third bedroom, and a sleeper sofa in the
living room, units can comfortably accommodate four couples. Each unit
features air-conditioning, a whirlpool tub, a washer/dryer, three cable
televisions, a video cassette player, a stereo and elegant interior details
such as nine-foot ceilings, crown molding, wooden venetian blinds, imported
ceramic tile and slate flooring. Upon full completion, the Company expects
that the resort will include 5,000 square feet of sand beaches, four gazebo-
covered docks that stretch out over Lake Bryan and easy access to water
skiing, jetskiing, parasailing, sailboating, wind surfing and fishing on Lake
Bryan. The Grand Beach resort will provide two outdoor pools, two spas, two
kiddie pools, two lighted tennis courts, sand volleyball courts, shuffleboard
courts, a putting green, a children's playground, barbecue and picnic areas
and a fitness complex with two clubhouses containing exercise rooms, kitchens
and a video arcade. In 1995, the resort was featured in both RCI Perspective
Magazine and Resort Development and Operations Magazine.
The resort currently contains 3,672 total Vacation Intervals of which 1,504
remained for sale as of June 30, 1996. Vacation Intervals at the Embassy
Vacation Resort Grand Beach are currently priced from $12,500 to $14,000 for
one-week Vacation Intervals, 1,523 of which were sold in 1995. Vacation
Intervals at the resort can be exchanged for Vacation Intervals at other
locations through RCI, which awarded the resort its Gold Crown Resort
Designation.
The Embassy Vacation Resort Poipu Point. The Embassy Vacation Resort Poipu
Point was reconstructed in 1993 after being substantially destroyed by
Hurricane Iniki and was acquired by the Company in November 1994. The resort
is located at the most southern point on the Poipu Sun Coast of Kauai, Hawaii,
offering a natural, open setting in an architectural style designed to blend
with the land. The resort spans 10 buildings on 22 acres with a total of 219
units. The units, one of which has one bedroom and one bathroom, 216 of which
have two bedrooms and two bathrooms and 2 of which have three bedrooms and
three bathrooms, range in size from 1,363 to 2,629 square feet. Each unit
either overlooks the ocean or one of the many gardens maintained on the
grounds. All units feature air-conditioning, two telephones with voice mail,
two cable televisions, video cassette player, stereo, washer/dryer, whirlpool
tub, full kitchen and a spacious lanai. Units can accommodate up to six people
and are appointed with designer furnishings, custom fabrics, and custom-
designed ceramic tile. The resort is equipped with a spectacular lagoon-like
freshwater swimming pool with a sandy beach entry and its own beach,
waterfalls, fish ponds, lush garden walkways, a kiddie pool and a health club
with weight and aerobic equipment, two hydrospas, sauna and steamroom. The
property is adjacent to a large sandy beach and is well located for scuba
diving, wind surfing, golf, tennis, surfing, horseback riding, fishing,
boating and exploring the island's rain forests, fern grottos and waterfalls.
The resort currently contains 11,169 total Vacation Intervals of which
10,317 remained for sale as of June 30, 1996. Units at the Embassy Vacation
Resort Poipu Point are currently priced from $13,700 (one bedroom) to $25,600
(three bedrooms) for one-week Vacation Intervals, 281 of which were sold in
1995. Vacation Intervals at the resort can be exchanged for Vacation Intervals
at other locations through RCI, which featured the resort in RCI Perspective
Magazine in 1995 and awarded it the RCI, Gold Crown Resort Designation.
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The Embassy Vacation Resort Lake Tahoe. Construction on the Embassy Vacation
Resort Lake Tahoe began in May 1996. The resort is located in South Lake
Tahoe, California, and is situated on nine acres near the shores of Lake Tahoe
adjoining the Lake Tahoe Marina in one of the world's most beautiful resort
areas. The architectural design of the resort connotes the rustic elegance
known as "Old Tahoe." Approximately one mile from the casinos and 1/2 mile
from the base lift of Heavenly Ski Resort, upon completion the resort will
contain 210 two bedroom/two bath units offering lake and mountain views. The
resort will feature a restaurant, an indoor/outdoor heated swimming pool, a
spa, a sunning deck, lakefront activities, bike rentals, ski valet, sundry
shop, convenience store and delicatessen.
Upon completion, the Company expects that the resort will contain units for
10,710 total Vacation Intervals. It is expected that Vacation Intervals at the
Embassy Vacation Resort Lake Tahoe will be initially priced from $17,000 to
$25,000 for one-week Vacation Intervals. RCI has indicated that Vacation
Intervals at the resort may be exchanged for Vacation Intervals at other
locations through RCI.
WESTIN VACATION CLUB RESORTS
The Company and Westin have entered into the Westin Agreement pursuant to
which the Company has acquired the exclusive right to jointly acquire, develop
and sell with Westin "four-star" and "five-star" Westin Vacation Club resorts
in North America, Mexico and the Caribbean for a five year term expiring May
3, 2001. Pursuant to the Westin Agreement, each of the Company and Westin will
own a 50% equity interest in such resorts and have an equal voice in their
management. The primary focus of the Westin Agreement is (i) developing
vacation ownership villas surrounding existing Westin hotel resort properties
and (ii) acquiring or developing hotels which can be operated under the Westin
hotel brand while at the same time being converted to vacation ownership
properties. Pursuant to the Westin Agreement, each of the Company and Westin
has agreed that, subject to certain exceptions, including certain Embassy
Vacation Resort acquisition and development opportunities, it will present to
the other party all "four-star" and "five-star" hotel and resort acquisition
and development opportunities (e.g., properties that are flagged by brands
such as Disney, Marriott, Omni, Ritz Carlton, Four Seasons/Regent, Inter-
Continental and Meridien) that it has determined to pursue and such other
party has a right of first refusal to determine whether to jointly develop
such opportunities with the other party subject to the foregoing exclusions.
Pursuant to the Westin Agreement, Westin and the Company will form a separate
partnership, limited liability company or similar entity to develop and
operate each Westin Vacation Club resort, of which Westin and the Company
shall be co-general partners or co-managers, as applicable. Each of the
Company and Westin will contribute 50% of the equity needed to develop and
operate each Westin Vacation Club resort. Pursuant to the Westin Agreement,
Westin has the right to manage all Westin Vacation Club resorts and the
Company and Westin will share the profits from such management activity. In
addition, Westin will promote the Westin Vacation Club concept by utilizing
its customer base for sales and marketing programs, arranging for on-site
sales desks and other in-house marketing programs, in exchange for which the
Company has agreed to reimburse Westin predetermined marketing and advertising
costs incurred by Westin. Under certain circumstances, either party may
terminate the Westin Agreement upon failure to reach specified development
goals. See "Risk Factors--Westin Agreement."
Pursuant to the Westin Agreement, the Company has agreed to make available
to Westin one voting seat on the Company's Board of Directors and has agreed
to use maximum reasonable efforts to cause the nomination and election of
Westin's designee. Westin has agreed to make available to the Company one non-
voting seat on its Board of Directors which will be filled by one of the
Founders. Following any public offering of equity securities by Westin, the
Company's seat on Westin's board will become a voting seat, entitled to all
reciprocal provisions granted by the Company to Westin. See "Risk Factors--
Effective Voting Control by Existing Stockholders; Westin Director
Designation."
SALES AND MARKETING
As one of the leading developers and operators of timeshare resorts in North
America, the Company believes that it has acquired the skill and expertise in
the development, management and operation of timeshare
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resorts and in the marketing of Vacation Intervals. The Company's primary
means of selling Vacation Intervals is through on-site salesforces at each of
its Existing Resorts. A variety of marketing programs are employed to generate
prospects for these sales efforts, which include targeted mailings, overnight
mini-vacation packages, certificate programs, seminars and various
destination-specific local marketing efforts. Additionally, incentive premiums
are offered to guests to encourage resort tours, in the form of entertainment
tickets, hotel stays, gift certificates or free meals. The Company's sales
process is tailored to each prospective buyer based upon the marketing program
that brought the prospective buyer to the resort for a sales presentation.
Prospective target customers are identified through various means of
profiling, and either include or will include Westin and Embassy Suites hotel
guests and current owners of timeshare. Cross-marketing targets current owners
of intervals at the Company's existing resorts, both to sell additional
intervals at the owner's home resort, or to sell an interval at another of the
Company's resorts. The Company also sells Vacation Intervals through off-site
sales centers.
The Company seeks to attract potential Vacation Interval buyers at its
Embassy Vacation Resorts by targeting past and present Embassy Suites' hotel
guests with in-hotel marketing and direct marketing programs. These marketing
efforts offer this target audience of Embassy Suites hotel guests value priced
vacation packages which include resort tours and the opportunity to purchase
complete vacations, including accommodations, airfare and other vacation
components such as car rental. Additionally, the Company has the ability to
generate resort tours through Embassy Suites' central reservation system (and
through the five KOAR-owned Embassy Suites hotels) by offering a premium for a
resort tour at the time a consumer books an Embassy Suites hotel in the
vicinity of an Embassy Vacation Resort property. The Company believes its
access to the Embassy Suites customer base allows it to generate Vacation
Interval sales from these prospective customers at a lower cost than through
other lead generation methods. Because a high percentage of such customers
already have a preference for the Embassy brand, the Company believes it
achieves relatively high sales closing percentages among these customers.
Pursuant to the Westin Agreement, the Company intends to use similar marketing
strategies at its Westin Vacation Club resorts. The Company's six non-branded
resorts also provide it the opportunity to cross-market customers among
resorts and give owners and prospective buyers the ability to visit and own
Vacation Intervals in multiple destinations. These cross-marketing programs
may also help to create a meaningful identity for the non-branded properties.
The Company has created its Owners Advantage Club which allows buyers
special privileges for exchange and rental at the Company's resorts.
CUSTOMER FINANCING
A typical Vacation Interval entitles the buyer to a one-week per year stay
at one of the Company's resorts and ranges in price from approximately $4,000
to $8,000 for a studio residence to approximately $12,000 to $26,000 for a
three bedroom residence. The Company offers financing to the purchasers of
Vacation Intervals in the Company's resort properties who make a down payment
generally equal to at least 10% of the purchase price. This financing
generally bears interest at fixed rates and is collateralized by a first
mortgage on the underlying Vacation Interval. A portion of the proceeds of
such financing is used to obtain releases of the Vacation Interval unit from
any underlying debt. The Company has entered into agreements with lenders for
the financing of customer receivables. These agreements provide an aggregate
of up to approximately $135 million of available financing to the Company
bearing interest at variable rates tied to either the prime rate or LIBOR of
which the Company currently has approximately $80 million of additional
borrowing capacity available. Under these arrangements, the Company pledges as
security qualified purchaser promissory notes to these lenders, who typically
lend the Company 80% to 90% of the principal amount of such notes. Payments
under these promissory notes are made by the purchaser borrowers directly to a
payment processing center and such payments are credited against the Company's
outstanding balance with the respective lenders. The Company does not
presently have binding agreements to extend the terms of such financing or for
any replacement financing, and there can be no assurance that alternative or
additional arrangements can be made on terms that are satisfactory to the
Company. Accordingly, future sales of Vacation Intervals may be limited by
both the availability of funds to
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finance the initial negative cash flow that results from sales that are
financed by the Company and by reduced demand which may result if the Company
is unable to provide financing to purchasers of Vacation Intervals. If the
Company is required to sell its customer receivables, discounts from the face
value of such receivables may be required by buyers, if buyers are available
at all.
At June 30, 1996, the Company had a portfolio of approximately 1,200 loans
to Vacation Interval buyers amounting to approximately $90 million. The loans
had a weighted average maturity of approximately seven years and a weighted
average cost of funds of 15.0%. At such date the Company had borrowings
secured by such loans of approximately $61.5 million, which borrowings bear
interest at variable rates with a weighted average of 10.25%. As of June 30,
1996, approximately 8.3% of such consumer loans were considered by the Company
to be delinquent (past due by 60 or more days) and the Company has completed
or commenced foreclosure or deed-in-lieu of foreclosure on approximately 2.4%
of its consumer loans. The Company has historically derived income from its
financing activities. However, because the Company's borrowings bear interest
at variable rates and the Company's loans to purchasers of Vacation Intervals
bear interest at fixed rates, the Company bears the risk of increases in
interest rates with respect to the loans it has from its lenders. The Company
intends to continue to engage in interest rate hedging activities from time to
time in order to reduce the risk and impact of increases in interest rates
with respect to such loans, but there can be no assurance that any such
hedging activity will be adequate at any time to fully protect the Company
from any adverse changes in interest rates. See "Risk Factors--Risk of Hedging
Activities."
The Company also bears the risk of purchaser default. The Company's practice
has been to continue to accrue interest on its loans to purchasers of Vacation
Intervals until such loans are deemed to be uncollectible, at which point it
expenses the interest accrued on such loan, commences foreclosure proceedings
and, upon obtaining title, returns the Vacation Interval to the Company's
inventory for resale. The Company closely monitors its loan accounts and
determines whether to foreclose on a case-by-case basis. See "Risk Factors--
Risks Associated with Customer Financing" and "--Risks Associated with
Customer Default."
ACQUISITION PROCESS
The Company obtains information with respect to resort acquisition
opportunities through interaction by the Company's management team with resort
operators, real estate brokers, lodging companies or financial institutions
with which the Company has established business relationships. From time to
time the Company is also contacted by lenders and property owners who are
aware of the Company's development, management, operations and sales expertise
with respect to Vacation Interval properties.
The Company has expertise in all areas of resort development including, but
not limited to, architecture, construction, finance, management, operations
and sales. With relatively little lead time and with minimal outside
consultant expense, the Company is able to analyze potential acquisition and
development opportunities. After completing an analysis of the prospective
market and the general parameters of the property or the site, the Company
generates a conceptual design to determine the extent of physical construction
or renovation that can occur on the site in accordance with the requirements
of the local governing agencies. For most properties, the predominant factors
in determining the physical design of the site include density of units,
maximum construction height, land coverage and parking requirements. Following
the preparation of such a conceptual design, the Company analyzes other
aspects of the development process, such as construction cost and phasing, to
match the projected sales flow in the relevant market. At this stage of
analysis, the Company undertakes to compare sales, construction cost and
phasing, debt and equity structure, cash flow, financing and overall project
cost to the acquisition cost. The Company's procedures when considering a
potential acquisition are set forth below.
Economic and Demographic Analysis. To evaluate the primary economic and
demographic indicators for the resort area, the Company considers the
following factors, among others, in determining the viability of a potential
new timeshare resort in a particular location: (i) supply/demand ratio for
Vacation Intervals in the relevant market, (ii) the market's growth as a
vacation destination, (iii) the ease of converting a hotel or
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condominium property into a timeshare resort, (iv) the availability of
additional land at the property for future development and expansion, (v)
competitive accommodation alternatives in the market, (vi) uniqueness of
location, and (vii) barriers to entry that would limit competition. The
Company examines the competitive environment in which the proposed resort is
located and all existing or to-be-developed resorts. In addition, information
respecting characteristics, amenities and financial information at competitive
resorts is collected and organized. This information is used to assess the
potential to increase revenues at the resort by making capital improvements.
Pro Forma Operating Budget. The Company develops a comprehensive pro forma
budget for the resort, utilizing available financial information in addition
to the other information collected from a variety of sources. The estimated
sales of units are examined, including the management fees associated with
such unit. Finally, the potential for overall capital appreciation of the
resort is reviewed, including the prospects for liquidity through sale or
refinancing of the resort.
Environmental and Legal Review. In conjunction with each prospective
acquisition or development, the Company conducts real estate and legal due
diligence on the property. This due diligence includes an environmental
investigation and report by a reputable environmental consulting firm similar
to that undertaken and prepared in connection with the Offering, including
tests on identified underground storage tanks. If recommended by the
environmental consulting firm, additional testing is generally conducted. The
Company also obtains a land survey of the property and inspection reports from
licensed engineers or contractors on the physical condition of the resort. In
addition, the Company conducts customary real estate due diligence, including
review of title documents, operating leases and contracts, zoning, and
governmental permits and licenses and a determination of whether the property
is in compliance with applicable laws.
OTHER OPERATIONS
Room Rental Operations. In order to generate additional revenue at certain
of the Existing Resorts that have an excess inventory of Vacation Intervals,
the Company rents units with respect to such unsold or unused Vacation
Intervals for use as a hotel. The Company offers these unoccupied units both
through direct consumer sales, travel agents or package vacation wholesalers.
In addition to providing the Company with supplemental revenue, the Company
believes its room-rental operations provide it with a good source of lead
generation for the sale of Vacation Intervals. As part of the management
services provided by the Company to Vacation Interval owners, the Company
receives a fee for services provided to rent an owner's Vacation Interval in
the event the owner is unable to use or exchange the Vacation Interval. In
addition, the Embassy Vacation Resort Poipu Point was acquired in November
1994 as a traditional hotel with the intention of converting the resort to
timeshare. Until such time as a unit at the resort is sold as Vacation
Intervals, the Company continues to rent such unit on a nightly basis. In the
future, other acquired resorts may be operated in this fashion during the
start-up of Vacation Interval sales. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Resort Management. The Company's Existing Resorts are (i) generally managed
by the Company itself pursuant to management agreements with homeowner
associations with respect to each of the Company's non-branded resorts, (ii)
managed by Promus pursuant to management agreements with the Company with
respect to the Company's Grand Beach and Lake Tahoe Embassy Vacation Resorts,
or (iii) managed by Aston Hotels & Resorts ("Aston") with respect to the
Embassy Vacation Resort Poipu Point.
At each of the Company's non-branded resorts, the Company enters into a
management agreement with an association comprised of owners of vacation
interests at the resort to provide for management and maintenance of the
resort. Pursuant to each such management agreement the Company is paid a
monthly management fee equal to 10% to 12% of monthly assessment fees.
Pursuant to each management agreement the Company has sole responsibility and
exclusive authority for all activities necessary for the day-to-day operation
of the non-branded resorts, including administrative services, procurement of
inventories and supplies and promotion and publicity. With respect to each
resort the Company also obtains comprehensive and general public liability
insurance, all-risk property insurance, business interruption insurance and
such other insurance as is customarily
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obtained for similar properties. See "Business--Insurance; Legal Proceedings."
The Company also provides all managerial and other employees necessary for the
non-branded resorts, including review of the operation and maintenance of the
resorts, preparation of reports, budgets and projections, employee training,
and the provision of certain in-house legal services. At the Company's Grand
Beach and Lake Tahoe Embassy Vacation Resorts, Promus provides (or will
provide with respect to Lake Tahoe), and at the Embassy Vacation Resort Poipu
Point, Aston provides management and maintenance services to the Company
pursuant to a management agreement and assumes responsibility of such day-to-
day operation of the Embassy Vacation Resorts.
PARTICIPATION IN VACATION INTERVAL EXCHANGE NETWORKS
The Company believes that its Vacation Intervals are made more attractive by
the Company's participation in Vacation Interval exchange networks operated by
RCI and II with respect to the Royal Palm Beach Club. In a recent 1995 study
sponsored by the Alliance for Timeshare Excellence and ARDA, the exchange
opportunity was cited by purchasers of Vacation Intervals as one of the most
significant factors in determining whether to purchase a Vacation Interval.
Membership in RCI allows the Company's customers to exchange in a particular
year their occupancy right in the unit in which they own a Vacation Interval
for an occupancy right at the same time or a different time in another
participating resort, based upon availability and the payment of a variable
exchange fee. A member may exchange his Vacation Interval for an occupancy
right in another participating resort by listing his Vacation Interval as
available with the exchange organization and by requesting occupancy at
another participating resort, indicating the particular resort or geographic
area to which the member desires to travel, the size of the unit desired and
the period during which occupancy is desired. RCI assigns a rating to each
listed Vacation Interval, based upon a number of factors, including the
location and size of the unit, the quality of the resort and the period during
which the Vacation Interval is available, and attempts to satisfy the exchange
request by providing an occupancy right in another Vacation Interval with a
similar rating. If RCI is unable to meet the member's initial request, it
suggests alternative resorts based on availability.
Founded in 1974, RCI has grown to be the world's largest Vacation Interval
exchange organization, which has a total of more than 2,900 participating
resort facilities and over 2.0 million members worldwide. During 1995 RCI
processed over 1.5 million Vacation Interval exchanges. The cost of the annual
membership fee in RCI, which typically is at the option and expense of the
owner of the Vacation Interval, is $65 per year. RCI has assigned high ratings
to the Vacation Intervals in the Company's resort properties which are
operational, and such Vacation Intervals have in the past been exchanged for
Vacation Intervals at other highly-rated member resorts. During 1995,
approximately 97% of all exchange requests were fulfilled by RCI, and
approximately 58% of all exchange requests are confirmed on the day of the
request. According to RCI, its members in the United States engage in an
average of 25.7 personal travel days per year and an average of 6.2 domestic
trips per year with an average duration of 4.2 days.
FUTURE ACQUISITIONS
The Company intends to expand its timeshare business by acquiring or
developing resorts located in attractive resort destinations, including Hawaii
and California, and is in the process of evaluating strategic acquisitions in
a variety of locations. Such future acquisition and development of resorts
could have a substantial and material impact on the Company's operations and
prospects. The Company currently is evaluating possible acquisitions of
resorts and development opportunities located in San Diego, California, the
greater Los Angeles, California area, on the Hawaiian islands of Hawaii, Maui
and Oahu, the Caribbean and in various Westin resorts throughout North
America. The Company has not entered into any definitive acquisition agreement
with respect to any such resort or development opportunity and there can be no
assurance that such an agreement will be negotiated or that any such
acquisition will be consummated. In addition, the Company has also explored
the acquisition of and may consider acquiring existing management companies,
timeshare developers and marketers, loan portfolios or other industry related
operations or assets in the fragmented timeshare development, marketing,
finance and management industry. See "Management--Employment Agreements" and
"Certain Relationships and Related Transactions--Founders' Other Business
Interests."
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COMPETITION
Although major lodging and hospitality companies such as Marriott, Disney,
Hilton, Hyatt, Four Seasons and Inter-Continental, as well as Promus and
Westin, have established or declared an intention to establish timeshare
operations in the past decade, the industry remains highly fragmented, with a
vast majority of North America's approximately 2,000 timeshare resorts being
owned and operated by smaller, regional companies. Of the Company's major
brand name lodging company competitors, the Company believes, based on
published industry data and reports, that Marriott currently sells Vacation
Intervals at seven resorts which it also owns and operates (Kauai, Hawaii;
Palm Desert, California; Park City, Utah; Breckenridge, Colorado;
Williamsburg, Virginia; Hilton Head Island, South Carolina; and Orlando,
Florida) and directly competes with the Company's Poipu Point, Hilton Head
Island and Orlando area resorts; Disney currently sells Vacation Intervals at
three resorts which it also owns and operates (Lake Buena Vista and Vero
Beach, Florida; and Hilton Head Island, South Carolina) and directly competes
with the Company's Orlando area and Hilton Head Island resorts; Hilton
currently sells Vacation Intervals at two resorts which it also owns and
operates (Las Vegas, Nevada; and Orlando, Florida) and directly competes with
the Company's Orlando area resorts; Hyatt owns and operates one resort in Key
West, Florida but does not directly compete in any of the Company's existing
markets (although Hyatt has announced an intention to develop a timeshare
resort in Orlando, Florida); Four Seasons currently is developing its first
timeshare resort in Carlsbad, California but is not yet in sales of Vacation
Intervals at any resorts; and Inter-Continental announced its entry into the
timeshare market in 1996, but has yet to announce any specific projects and is
not yet in sales of Vacation Intervals at any resorts. Many of these entities
possess significantly greater financial, marketing, personnel and other
resources than those of the Company and may be able to grow at a more rapid
rate as result.
The Company also competes with companies with unbranded resorts such as
Westgate, Vistana and Vacation Break, each of which competes with the
Company's Orlando area resorts, and Fairfield, which competes with the
Company's Orlando area and Branson resorts. The Company believes, based on
published industry data and reports, that its experience and exclusive focus
on the timeshare industry, together with its portfolio of resorts located in a
wide range of resort destinations and at a variety of price points,
distinguish it from each of its competitors and that the Company is uniquely
positioned for future growth.
GOVERNMENTAL REGULATION
General. The Company's Vacation Interval marketing and sales are subject to
extensive regulations by the federal government and the states and foreign
jurisdictions in which its resort properties are located and in which Vacation
Intervals are marketed and sold. On a federal level, the Federal Trade
Commission has taken the most active regularity role through the Federal Trade
Commission Act, which prohibits unfair or deceptive acts or competition in
interstate commerce. Other federal legislation to which the Company is or may
be subject appears on the truth-in-lending Act and Regulation Z, the Equal
Credit Opportunity Act and Regulation B, the Interstate and Land Sales Full
Disclosure Act, Real Estate Standards Practices Act, Telephone Consumer
Protection Act, Telemarketing and Consumer Fraud and Abuse Prevention Act,
Fair Housing Act and the Civil Rights Act of 1964 and 1968. In addition, many
states have adopted specific laws and regulations regarding the sale of
interval ownerships programs. The laws of most states, including Florida,
South Carolina and Hawaii require the Company to file with a designated state
authority for its approval a detailed offering statement describing the
Company and all material aspects of the project and sale of Vacation
Intervals. The laws of California require the Company to file numerous
documents and supporting information with the California Department of Real
Estate, the agency responsible for the regulation of Vacation Intervals. When
the California Department of Real Estate determines that a project has
complied with California law, it will issue a public report for the project.
The Company is required to deliver an offering statement or public report to
all prospective purchaser of a Vacation Interval, together with certain
additional information concerning the terms of the purchase. The laws of
Illinois, Florida and Hawaii impose similar requirements. Laws in each state
where the Company sells Vacation Intervals generally grant the purchaser of a
Vacation Interval the right to cancel a contract of purchase at any time
within a period ranging from three to 15 calendar days following the earlier
of the date the contract was signed or the date the purchaser has received the
last of the documents required to be provided by the Company.
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Most states have other laws which regulate the Company's activities such as
real estate licensure; sellers of travel licensure; anti-fraud laws;
telemarketing laws; price gift and sweepstakes laws; and labor laws. The
Company believes that it is in material compliance with all federal, state,
local and foreign laws and regulations to which it is currently or may be
subject. However, no assurance can be given that the cost of qualifying under
interval ownership regulations in all jurisdictions in which the Company
desires to conduct sales will not be significant. Any failure to comply with
applicable laws or regulations could have material adverse effect on the
Company. See "Risk Factors--Regulation of Sales of Vacation Intervals."
Environmental Matters. Under various federal, state and local environmental
laws, ordinances and regulations, a current or previous owner or operator of
real estate may be required to investigate and clean up hazardous or toxic
substances or petroleum product releases at such property, and may be held
liable to a governmental entity or to third parties for property damage and
for investigation and clean-up costs incurred by such parties in connection
with the contamination. Such laws typically impose clean-up responsibility and
liability without regard to whether the owner knew of or caused the presence
of the contaminants, and the liability under such laws has been interpreted to
be joint and several unless the harm is divisible and there is a reasonable
basis for allocation of responsibility. The cost of investigation, remediation
or removal of such substances may be substantial, and the presence of such
substances, or the failure to properly remediate the contamination on such
property, may adversely affect the owner's ability to sell or rent such
property or to borrow using such property as collateral. Persons who arrange
for the disposal or treatment of hazardous or toxic substances at a disposal
or treatment facility also may be liable for the costs of removal or
remediation of a release of hazardous or toxic substances at such disposal or
treatment facility, whether or not such facility is owned or operated by such
person. In addition, some environmental laws create a lien on the contaminated
site in favor of the government for damages and costs it incurs in connection
with the contamination. Finally, the owner of a site may be subject to common
law claims by third parties based on damages and costs resulting from
environmental contamination emanating from a site. In connection with its
ownership and operation of its properties, the Company may be potentially
liable for such costs.
Certain Federal, state and local laws, regulations and ordinances govern the
removal, encapsulation or disturbance of asbestos-containing materials
("ACMs") when such materials are in poor condition or in the event of
construction, remodeling, renovation or demolition of a building. Such laws
may impose liability for release of ACMs and may provide for third parties to
seek recovery from owners or operators of real properties for personal injury
associated with ACMs. In connection with its ownership and operation of its
properties, the Company may be potentially liable for such costs.
In addition, recent studies have linked radon, a naturally-occurring
substance, to increased risks of lung cancer. While there are currently no
state or federal requirements regarding the monitoring for, presence of, or
exposure to, radon in indoor air, the EPA and the Surgeon General recommend
testing residences for the presence of radon in indoor air, and the EPA
further recommends that concentrations of radon in indoor air be limited to
less than 4 picocuries per liter of air (Pci/L) (the "Recommended Action
Level"). The presence of radon in concentrations equal to or greater than the
Recommended Action Level in one or more of the Company's properties may
adversely affect the Company's ability to sell Vacation Intervals at such
properties and the market value of such property. Recently-enacted federal
legislation will eventually require the Company to disclose to potential
purchasers of Vacation Intervals at the Company's resorts that were
constructed prior to 1978 any known lead-paint hazards and will impose treble
damages for failure to so notify.
Electric transmission lines are located in the vicinity of the Company's
properties. Electric transmission lines are one of many sources of electro-
magnetic fields ("EMFs") to which people may be exposed. Research into
potential health impacts associated with exposure to EMFs has produced
inconclusive results. Notwithstanding the lack of conclusive scientific
evidence, some states now regulate the strength of electric and magnetic
fields emanating from electric transmission lines, while others have required
transmission facilities to measure for levels of EMFs. In addition, the
Company understands that lawsuits have, on occasion, been filed (primarily
against electric utilities) alleging personal injuries resulting from exposure
as well as fear of adverse health effects. In addition, fear of adverse health
effects from transmission lines has been a factor considered in
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determining property values in obtaining financing and in condemnation
proceedings in eminent domain brought by power companies seeking to construct
transmission lines. Therefore, there is a potential for the value of a
property to be adversely affected as a result of its proximity to a
transmission line and for the Company to be exposed to damage claims by
persons exposed to EMFs.
The Company has conducted Phase I assessments at each of its Existing
Resorts in order to identify potential environmental concerns. These Phase I
assessments have been carried out in accordance with accepted industry
practices and consisted of non-invasive investigations of environmental
conditions at the properties, including a preliminary investigation of the
sites and identification of publicly known conditions concerning properties in
the vicinity of the sites, physical site inspections, review of aerial
photographs and relevant governmental records where readily available,
interviews with knowledgeable parties, investigation for the presence of above
ground and underground storage tanks presently or formerly at the sites, a
visual inspection of potential lead-based paint and suspect friable ACMs where
appropriate, a radon survey, and the preparation and issuance of written
reports. The Company's assessments of its properties have not revealed any
environmental liability that the Company believes would have a material
adverse effect on the Company's business, assets or results of operations, nor
is the Company aware of any such material environmental liability.
Nevertheless, it is possible that the Company's assessments do not reveal all
environmental liabilities or that there are material environmental liabilities
of which the Company is unaware. The Company does not believe that compliance
with applicable environmental laws or regulations will have a material adverse
effect on the Company or its financial condition or results of operations.
In connection with the acquisition and development of the Embassy Vacation
Resort Lake Tahoe and the San Luis Bay Resort, the Company's environmental
consultant has identified several areas of environmental concern. The areas of
concern at the Embassy Vacation Resort Lake Tahoe relate to possible
contamination that originated on the resort site due to prior uses and to
contamination that may migrate onto the resort site from upgradient sources.
California regulatory agencies have been monitoring the resort site and have
required or is in the process of requiring the responsible parties (presently
excluding the Company) to effect remediation action. The Company has been
indemnified by certain of the responsible parties for certain costs and
expenses in connection with contamination at the Embassy Vacation Resort Lake
Tahoe (including Chevron (USA), Inc.) and does not anticipate incurring
material costs in connection therewith, however, there is no assurance that
the indemnitor(s) will meet their obligations in a complete and timely manner.
In addition, the Company's San Luis Bay Resort is located in an area of Avila
Beach, California which has experienced underground contamination resulting
from leaking pipes at a nearby oil refinery. California regulatory agencies
have required the installation of groundwater monitoring wells on the beach
near the resort site, and no demand or claim in connection with such
contamination has been made on the Company, however, there is no assurance
that claims will not be asserted against the Company with respect to this
environmental condition.
The Company believes that its properties are in compliance in all material
respects with all federal, state and local laws, ordinances and regulations
regarding hazardous or toxic substances. Except as described above with
respect to the Embassy Vacation Resort Lake Tahoe and the San Luis Bay Resort,
the Company has not been notified by any governmental authority or any third
party, and is not otherwise aware, of any material noncompliance, liability or
claim relating to hazardous or toxic substances or petroleum products in
connection with any of its present properties.
Other Regulations. Under various state and federal laws governing housing
and places of public accommodation the Company is required to meet certain
requirements related to access and use by disabled persons. Many of these
requirements did not take effect until after January 1, 1991. Although
management of the Company believes that its facilities are substantially in
compliance with present requirements of such laws, and the Company may incur
additional costs of compliance. Additional legislation may impose further
burdens or restriction on owners with respect to access by disabled persons.
The ultimate amount of the cost of compliance with such legislation is not
currently ascertainable, and, while such costs are not expected to have a
material effect on the Company, such costs could be substantial. Limitations
or restrictions on the completion of certain renovations may limit application
of the Company's growth strategy in certain instances or reduce profit margins
on the Company's operations.
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EMPLOYEES
As of April 30, 1996, the Company employed approximately 670 full-time
employees. The Company believes that its employee relations are good. Except
for certain employees located in the St. Maarten, Netherland Antilles
properties, none of the Company's employees is represented by a labor union.
The Company sells Vacation Intervals at its resorts through independent sales
agents. Such independent sales agents provide services to the Company under
contract and are not employees of the Company. See "Risk Factors--Risk of Tax
Re-Classification of Independent Contractors and Resulting Tax Liability; Cost
of Compliance with Applicable Laws."
INSURANCE; LEGAL PROCEEDINGS
The Company carries comprehensive liability, fire, hurricane, storm,
earthquake and business interruption insurance with respect to the Company's
resorts, with policy specifications, insured limits and deductibles
customarily carried for similar properties which the Company believes are
adequate. In September 1995 and July 1996, the Company's St. Maarten resorts
were damaged by a hurricane. With respect to such damage, the Company has
recovered amounts from its insurance carriers sufficient to cover 100% of the
property damage losses and is in the process of recovering amounts for
business interruption. The Company has agreed to provide approximately 2,700
replacement weeks to owners who were unable to use their Vacation Interval as
a result of such hurricane. Such provision of replacement Vacation Intervals
will have the short term effect of reducing the number of Vacation Intervals
available for sale or alternative rental as hotel rooms at the St. Maarten
resorts. Additionally, the St. Maarten resorts sustained relatively minor
damage in 1996 as the result of Hurricane Bertha; management estimates that
such damage is less than the applicable insurance deductibles and,
accordingly, the expense to repair the damage will be borne by the Company.
There are, however, certain types of losses (such as losses arising from acts
of war) that are not generally insured because they are either uninsurable or
not economically insurable. Should an uninsured loss or a loss in excess of
insured limits occur, the Company could lose its capital invested in a resort,
as well as the anticipated future revenues from such resort and would continue
to be obligated on any mortgage indebtedness or other obligations related to
the property. Any such loss could have a material adverse effect on the
Company. See "Risk Factors--Natural Disasters; Uninsured Loss."
The Company and the Founders are involved in a dispute with an individual
who is a former employee of KOAR Group, Inc. with whom two of the Founders and
affiliates of the Company were previously engaged in litigation from November
1994 through June 1995 (when such litigation was settled). Such individual is
an assignee of certain distributions of two of the Property Partnerships and a
10% shareholder of one of the Affiliated Companies. Although the Company
believed it had no obligation to do so, the Company offered such person the
opportunity to participate in the Consolidation Transactions following
determination that such person was an "accredited investor" within the meaning
of Regulation D under the Securities Act. The Company's offer was not timely
accepted and therefore such person will retain his assignee interests. Such
person has threatened litigation against the Company and the Founders relating
to his rights to participate in the Consolidation Transactions, the valuation
of his interests, the timing of the Company's offer and allegations that the
Company acted in bad faith. The Company believes that any such litigation
would be without merit and intends to vigorously defend any such litigation.
The Company is currently subject to litigation and claims respecting
employment, tort, contract, construction and commissions, disputes, among
others. In the judgment of management, none of such lawsuits or claims against
the Company is likely to have a material adverse effect on the Company or its
business.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning each person
who is a director or executive officer of the Company or upon the consummation
of the Offering will become a director of the Company. In addition, the
Company will add one additional Independent Director to its Board of Directors
concurrently with or following the consummation of the Offering.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Osamu Kaneko 48 Chairman of the Board and Chief Executive Officer
Andrew J. Gessow 39 Director and President
Steven C. Kenninger 43 Director, Chief Operating Officer and Secretary
James E. Noyes 49 Director and Executive Vice President
Charles C. Frey 40 Chief Financial Officer and Treasurer
Genevieve Giannoni 33 Senior Vice President of Operations
Timothy D. Levin 39 Vice President--Architecture
Juergen Bartels 55 Proposed Director
Sanford R. Climan 40 Proposed Director
Joshua S. Friedman 40 Proposed Director
W. Leo Kiely III 49 Proposed Director
</TABLE>
OSAMU KANEKO has served as Director, Chairman of the Board and Chief
Executive Officer of the Company since its inception. Mr. Kaneko was born in
Tokyo, Japan and received his B.A. degree from Indiana State University in
1971. From 1974 to 1986 Mr. Kaneko was the Executive Vice President of
Hasegawa Komuten (USA) Inc., the American subsidiary of Hasegawa Komuten Ltd.,
a large Japanese development company based in Tokyo. In this capacity, Mr.
Kaneko was responsible for the development of over $500 million of income
producing properties in Hawaii including approximately 2,000 resort
condominiums and three resort hotels. Mr. Kaneko co-founded KOAR with Mr.
Kenninger in 1985, which over the following seven years developed and acquired
over $400 million in commercial and hospitality properties, including five
Embassy Suites hotels. Pursuant to the Westin Agreement, Mr. Kaneko serves as
the Founder's designee on the Board of Directors of Westin Hotels & Resorts.
ANDREW J. GESSOW has served as Director and President of the Company since
its inception. Mr. Gessow founded Argosy Group Inc. in 1990 and served as
President since inception. Mr. Gessow served as a Partner with Trammell Crow
Company from 1987 to 1990, and was President of Trammell Crow Residential
Services, Florida and West Coast, and Founder and President of NuMarket Cable.
From 1981 through 1987, Mr. Gessow was Founder and President of Travel, Inc.
and Home Search, Inc. which he co-founded with Citicorp Venture Capital. Mr.
Gessow received his B.B.A. degree in Finance from Emory University in 1978 and
a M.B.A. degree from Harvard Business School in 1980.
STEVEN C. KENNINGER has served as Director, Chief Operating Officer and
Secretary of the Company since its inception. Mr. Kenninger co-founded KOAR
with Mr. Kaneko in 1985 and served as its President. Mr. Kenninger was a
practicing attorney at Paul, Hastings, Janofsky & Walker, Los Angeles,
California from 1977 through 1981 and at Riordan & McKinzie, Los Angeles,
California from 1981 through 1985, where he was a partner. Mr. Kenninger
graduated with highest distinction from Purdue University with a B.S. degree
in Mechanical Engineering in 1974, and received a J.D. degree from Stanford
Law School in 1977. Mr. Kenninger is a licensed real estate broker in
California and has been a member of the State Bar of California since 1977.
JAMES E. NOYES has served as Director and Executive Vice President of the
Company since June 1996 and has overall responsibility for the daily operation
of the Company's sales, marketing and resort/hotel management divisions. Prior
to joining the Company, from 1989 through June 1996 Mr. Noyes served as
President of The Trase Miller Group, the parent company of MTI Vacations,
Inc., with interests in vacation packaging, travel technology and specialized
teleservices, and has served in various executive positions in the
organization since
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1980. Mr. Noyes served in various executive positions for the Golf Division of
Wilson Sporting Goods from 1976 to 1980. Mr. Noyes was named as one of the
travel industry's Top 25 Most Influential Executives in 1995 by Tour and
Travel News. Mr. Noyes is a director of Premier Yachts, Ltd., Seadog, Inc. and
Preview Media, Inc. Mr. Noyes received a B.A. degree in 1970 from Dartmouth
College and received a M.B.A. degree in 1974 from Stanford Business School.
CHARLES C. FREY has served as Chief Financial Officer and Treasurer of the
Company since July 1996 and prior thereto had served as Senior Vice President
of Administration and Treasurer of the Company and its predecessor since 1992
and has overall responsibility for accounting, operating systems and resort
administration. Prior to joining the Company, Mr. Frey was Vice President and
Chief Financial Officer of Trammell Crow Residential Services-Florida from
1986 to 1992 where his responsibilities included control and administration of
real estate tax, insurance and payroll for over 65 residential communities.
Mr. Frey is a Certified Public Accountant, is a licensed real estate broker in
Florida and received a B.S. degree in Accounting and Economics from the
Indiana University of Pennsylvania in 1977.
GENEVIEVE GIANNONI has served as Senior Vice President of Operations of the
Company since 1995 and has overall responsibility for operations at all of the
Company's resorts. Ms. Giannoni joined Argosy in May 1992 as Director of
Marketing and became a Vice President of the Company's predecessor in 1993.
Prior to joining Argosy, Ms. Giannoni was a marketing director at Trammell
Crow Residential Services-Florida from 1987 to 1992 where her responsibilities
included marketing new residential communities. Ms. Giannoni is a licensed
real estate agent in Florida. She received her B.A. degree from Rollins
College in 1985 and graduated from the Crummer Management Program at Rollins
College in 1990.
TIMOTHY D. LEVIN has served as Vice President--Architecture of the Company
since its inception and of the Company's predecessor since December 1995. From
1989 through December 1995, Mr. Levin was the President of Sevelex
Consultants, Inc., a project management and design consulting firm affiliated
with Messrs. Kaneko and Kenninger. Prior thereto, Mr. Levin was the senior
design and production manager at Carl Wahlquist AIA Architects, Inc. from 1983
through 1988 and was instrumental in the design and construction of more than
ten Embassy Suites Hotels nationwide. Mr. Levin is a member of the American
Institute of Architects. Mr. Levin received his Bachelor of Architecture
degree from Southern California Institute of Architecture in 1986. Mr. Levin
has been a licensed General Contractor in the State of California since 1980.
JUERGEN BARTELS has consented to become a Director of the Company upon the
consummation of the Offering. Mr. Bartels has been Chairman and Chief
Executive Officer of Westin Hotels & Resorts since May 1995. From 1983 through
April 1995, Mr. Bartels was President and Chief Executive Officer of Carlson
Hospitality Group, Inc. ("Carlson"), where he directed Carlson's Radisson
Hotels International, Radisson Seven Seas Cruises and several restaurant
companies, including the T.G.I. Friday's chain. Prior to joining Carlson,
Mr. Bartels held executive positions with Holiday Inn and Ramada and was the
founder of Ramada Renaissance Hotels.
SANFORD R. CLIMAN has consented to become a Director of the Company upon the
consummation of the Offering. Mr. Climan has been Executive Vice President of
MCA Inc. ("MCA") since October 1995. Prior to joining MCA, Mr. Climan was a
member of the senior executive team at Creative Artists Agency, Inc. ("CAA"),
a leading literary and talent agency, from June 1986 to September 1995. At
CAA, Mr. Climan participated in a range of corporate advisory activities,
including mergers and acquisitions, and financial restructurings. From 1979 to
1986, Mr. Climan held various positions in the entertainment industry. Mr.
Climan also serves as a director of PointCast Inc. Mr. Climan received a B.A.
degree from Harvard College in 1977, a M.B.A. degree from Harvard Business
School in 1979 and a Master of Science in Health Policy and Management from
the Harvard School of Public Health in 1979.
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JOSHUA S. FRIEDMAN has consented to become a Director of the Company upon
the consummation of the Offering. Mr. Friedman is a founder of Canyon Partners
Incorporated, a private merchant banking firm and an affiliate of Canpartners
Incorporated, and has been a Managing Partner of Canyon Partners Incorporated
since its inception in 1990. From 1984 through 1990, Mr. Friedman was
Executive Vice President and Co-Director, Capital Markets of Drexel Burnham
Lambert Incorporated. Mr. Friedman also serves as a director of Yale
International, Inc., a publicly traded diversified industrial company, and
several privately held companies and charitable organizations. Mr. Friedman
received a B.A. degree from Harvard College in 1976, a M.A. degree from Oxford
University in 1978, a J.D. degree from Harvard Law School in 1982 and a M.B.A.
degree from Harvard Business School in 1982.
W. LEO KIELY III has consented to become a Director of the Company upon the
consummation of the Offering. Mr. Kiely has been President and Chief Operating
Officer of Coors Brewing Company since 1993. From 1982 through 1993, Mr. Kiely
held various executive positions with Frito-Lay Inc. ("Frito-Lay"), a
subsidiary of PepsiCo, most recently serving as President of Frito-Lay's
Central Division since 1991. Prior to joining Frito-Lay, Mr. Kiely was
President of Ventura Coastal Corporation, a division of Seven-Up Corporation,
from 1979 through 1982 and prior thereto held various positions with the
Wilson Sporting Goods Company and with the Proctor & Gamble Company. Mr. Kiely
also serves as a director of Bell Sports, Inc. He is also on the advisory
boards of the National Association of Manufacturers and several educational
and charitable organizations. Mr. Kiely received a B.A. degree from Harvard
College in 1969 and a M.B.A. degree from the Wharton School of Business at the
University of Pennsylvania in 1971.
On August 5, 1996, an action was filed in California state court against
KEN/KOAR LAX Partners, L.P. (the "LAX Partnership"), the owner of the Embassy
Suites hotel located at Los Angeles International Airport, by the secured
lender on the hotel. The complaint seeks judicial foreclosure of the loan,
appointment of a receiver and certain other relief. On August 7, 1996, the
court set a hearing on a motion for the appointment of a receiver for August
26, 1996 and entered a temporary restraining order restricting certain actions
pending such hearing. It is possible that the court may appoint a receiver or
that a bankruptcy petition may be filed with respect to the LAX Partnership.
An affiliate of Messrs. Kaneko and Kenninger is the co-general partner of the
LAX Partnership, with an approximately 5% profits and capital interest
therein. The hotel is managed by Promus Hotels. The Company has no interest in
the hotel or the LAX Partnership.
COMMITTEES OF THE BOARD OF DIRECTORS
Executive Committee. Concurrently with the closing of the Offering, the
Board of Directors will establish an executive committee (the "Executive
Committee"), which will be granted such authority as may be determined from
time to time by a majority of the Board of Directors. The Company expects that
the Executive Committee will consist of the Founders and at least one
independent director. All actions by the Executive Committee will require the
unanimous vote of all of its members.
Audit Committee. Concurrently with the closing of the Offering, the Board of
Directors will establish an audit committee (the "Audit Committee"), which
will consist of two or more independent directors. The Audit Committee will be
established to make recommendations concerning the engagement of independent
public accountants, review with the independent public accountants the plans
and results of the audit engagement, approve professional services provided by
the independent public accountants, review the independence of the independent
public accountants, consider the range of audit and non-audit fees and review
the adequacy of the Company's internal accounting controls.
Compensation Committee. Concurrently with the closing of the Offering, the
Board of Directors will establish a compensation committee (the "Compensation
Committee"), which will consist of two or more non-employee or independent
directors to the extent required by Rule 16b-3 under the Exchange Act, to
determine compensation for the Company's senior executive officers, determine
awards under the Company's 1996 Equity Participation Plan and administer the
Company's Employee Stock Purchase Plan.
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The Board of Directors of the Company initially will not have a nominating
committee or any other committee. The membership of the committees of the Board
of Directors will be established after the closing of the Offering.
CLASSIFIED BOARD OF DIRECTORS
The Charter provides for the Company's Board of Directors to be divided into
three classes serving staggered terms so that directors' initial terms will
expire either at the 1997, 1998 or 1999 annual meeting of stockholders.
Starting with the 1997 annual meeting of stockholders, one class of directors
will be elected each year for three-year terms. The classification of directors
makes it more difficult for a significant stockholder to change the composition
of the Board of Directors in a relatively short period of time and,
accordingly, provides the Board of Directors and stockholders time to review
any proposal that a significant stockholder may make and to pursue alternative
courses of action which are fair to all the stockholders of the Company.
DIRECTOR COMPENSATION
The Company intends to pay its directors who are not officers of the Company
("Independent Directors") a fee of $1,000 per meeting of the Board of Directors
and any committee thereof (including telephonic meetings) for their services as
directors. In addition, the Company intends to grant options to purchase 15,000
shares of Common Stock at the initial public offering price to each such
Independent Director to vest in equal portions over a term of three years. Each
Independent Director who is still a member of the Board of Directors at the end
of the three year vesting period of the initial grant of options will receive a
grant of additional options to purchase 15,000 shares of Common Stock at the
fair market value of the Common Stock on the date of the grant, with such
options to vest over an additional three year period. In addition to such
option grants, the Independent Directors will be reimbursed for expenses of
attending each meeting of the Board of Directors. Officers of the Company who
are directors will not be paid any director fees but will be reimbursed for
expenses of attending meetings of the Board of Directors.
DIRECTORS AND OFFICERS INSURANCE
The Company has applied for a directors and officers liability insurance
policy with coverage typical for a public company such as the Company that will
become effective upon the effectiveness of the Registration Statement. The
directors and officers liability insurance policy insures (i) the officers and
directors of the Company from any claim arising out of an alleged wrongful act
by such person while acting as officers and directors of the Company, (ii) the
Company to the extent it has indemnified the officers and directors for such
loss and (iii) the Company for losses incurred in connection with claims made
against the Company for covered wrongful acts.
INDEMNIFICATION
The Charter provides for the indemnification of the Company's officers and
directors against certain liabilities to the fullest extent permitted under
applicable law. The Charter also provides that the directors and officers of
the Company be exculpated from monetary damages to the fullest extent permitted
under applicable law. It is the position of the Securities and Exchange
Commission that indemnification of directors and officers for liabilities
arising under the Securities Act is against public policy and unenforceable
pursuant to Section 14 of the Securities Act.
62
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table. The Company was incorporated as a Maryland
corporation in May 1996. Accordingly, the Company did not pay any cash
compensation to its executive officers for the year ended December 31, 1995.
The following table sets forth the annual base salary and other annual
compensation which the Company expects to pay in 1996 to the Company's chief
executive officer and each of the other four most highly compensated executive
officers whose cash compensation on an annualized basis is expected to exceed
$100,000 (salary and bonus) (the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------- ---------------
SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING
POSITION YEAR(1) SALARY BONUS(2) COMPENSATION(3) OPTIONS/SARS(4)
------------------ ------- -------- -------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Osamu Kaneko............ 1996 $280,000 $ -- $ 2,500 150,000
Chairman of the Board
and
Chief Executive Officer
Andrew J. Gessow........ 1996 280,000 -- 2,500 150,000
Director and President
Steven C. Kenninger..... 1996 280,000 -- 2,500 150,000
Director, Chief
Operating Officer and
Secretary
James E. Noyes.......... 1996 280,000 120,000 14,500 375,000
Director and Executive
Vice President
Charles C. Frey......... 1996 160,000 -- 14,500 150,000
Chief Financial Officer
and Treasurer
</TABLE>
- --------
(1) Amounts given are annualized projections for the year ending December 31,
1996.
(2) See "--Incentive Compensation Plan" and "--Employment Agreements" below
for a discussion of annual performance bonuses payable to key employees
and executive officers.
(3) Represents automobile lease payments and insurance premiums.
(4) Options to purchase an aggregate of 1,380,000 shares of Common Stock will
be granted to directors, executive officers and other employees of the
Company effective upon closing of the Offering. See "--1996 Equity
Participation Plan."
63
<PAGE>
Option Grants in 1996. The following table contains information concerning
the grant of stock options under the Company's 1996 Equity Participation Plan
expected to be made for the year ended December 31, 1996 to the Named
Executive Officers. The table also lists potential realizable values of such
options on the basis of assumed annual compounded stock appreciation rates of
5% and 10% over the life of the options which are set for a maximum of ten
years.
OPTION GRANTS IN 1996
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT
NUMBER OF ASSUMED ANNUAL
SECURITIES PERCENT OF RATES OF SHARE
UNDERLYING TOTAL OPTIONS EXERCISE PRICE APPRECIATION
OPTIONS GRANTED TO OR BASE FOR OPTION TERM(4)
GRANTED EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME (#)(1) FISCAL YEAR ($/SH) DATE(3) 5%($)(2) 10%($)(2)
- ---- ---------- ------------- -------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Osamu Kaneko............ 150,000 -- % $15(2) August 2006 $1,415 $ 3,586
Andrew J. Gessow........ 150,000 -- % $15(2) August 2006 $1,415 $ 3,586
Steven C. Kenninger..... 150,000 -- % $15(2) August 2006 $1,415 $ 3,586
James E. Noyes.......... 375,000 -- % $12 June 2006 $ 4,663 $ 10,090
Charles C. Frey......... 150,000 -- % $15(2) August 2006 $ 1,415 $ 3,586
</TABLE>
- --------
(1) The options granted to Messrs. Kaneko, Gessow, and Kenninger will vest in
three equal installments on the first, second, and third anniversaries of
the date of the grant. The options granted to Mr. Frey will vest with
respect to 75,000 shares upon the date of the grant, with the balance of
such shares vesting in five equal installments on the first, second,
third, fourth and fifth anniversaries of the grant. The options granted to
Mr. Noyes vested with respect to 75,000 shares on the date of the grant
and with respect to the remaining 300,000 shares will vest in forty-eight
equal installments at the end of each of the first forty-eight months that
Mr. Noyes is employed by the Company.
(2) Based on the estimated mid-point of the pricing range in the Offering of
$15.00 per share of Common Stock.
(3) The expiration date of the options will be ten years after the date of
grant.
(4) The potential realizable value (in thousands of dollars) is reported net
of the option price, but before income taxes associated with exercise.
These amounts represent assumed annual compounded rates of appreciation at
5% and 10% only from the date of grant to the expiration date of the
option.
INCENTIVE COMPENSATION PLAN
The Company plans to establish an incentive compensation plan for officers
and key employees of the Company after the closing of the Offering. This plan
will provide for payment of a cash bonus to participating officers and key
employees if certain performance objectives established for each individual
are achieved. Pursuant to such plan, each of Messrs. Kaneko, Gessow, and
Kenninger shall be entitled to receive a cash bonus of up to 100% of their
respective base compensation, respectively, upon the achievement by the
Company of specified targets of growth in earnings per share as determined by
the Compensation Committee. Pursuant to his employment agreement, Mr. Noyes
shall be entitled to receive a cash bonus of $30,000 per quarter for each
quarter that he is employed by the Company. The amount of the bonus to other
participating officers and key employees will be based on a formula to be
determined for each employee by the Compensation Committee, and is expected to
be based on growth in earnings per share and other factors.
1996 EQUITY PARTICIPATION PLAN
The Company has established an equity participation plan (the "1996 Equity
Participation Plan") to enable executive officers, other key employees,
Independent Directors and consultants of the Company to participate in the
ownership of the Company. The 1996 Equity Participation Plan is designed to
attract and retain executive officers, other key employees, Independent
Directors and consultants of the Company and to provide incentives to such
persons to maximize the Company's performance. The 1996 Equity Participation
Plan provides for the award to executive officers, other key employees,
Independent Directors and consultants of the Company of a
64
<PAGE>
broad variety of stock-based compensation alternatives such as nonqualified
stock options, incentive stock options, restricted stock and performance awards
and provides for the grant to executive officers, other key employees,
Independent Directors and consultants of nonqualified stock options. Awards
under the 1996 Equity Participation Plan may provide participants with rights
to acquire shares of Common Stock.
The 1996 Equity Participation Plan will be administered by the Compensation
Committee, which is authorized to select from among the eligible participants
the individuals to whom options, restricted stock purchase rights and
performance awards are to be granted and to determine the number of shares to
be subject thereto and the terms and conditions thereof. The members of the
Compensation Committee who are not affiliated with the Company will select from
among the eligible participants the individuals to whom nonqualified stock
options are to be granted, except as set forth below, and will determine the
number of shares to be subject thereto and the terms and conditions thereof.
The Compensation Committee is also authorized to adopt, amend and rescind rules
relating to the administration of the 1996 Equity Participation Plan.
Nonqualified stock options will provide for the right to purchase Common
Stock at a specified price which may be less than fair market value on the date
of grant (but not less than par value), and usually will become exercisable in
installments after the grant date. Nonqualified stock options may be granted
for any reasonable term.
Incentive stock options will be designed to comply with the provisions of the
Internal Revenue Code of 1986, as amended (the "Code") and will be subject to
restrictions contained in the Code, including exercise prices equal to at least
100% of fair market value of Common Stock on the grant date and a ten year
restriction on their term, but may be subsequently modified to disqualify them
from treatment as an incentive stock option.
Restricted stock may be sold to participants at various prices (but not below
par value) and made subject to such restrictions as may be determined by the
Compensation Committee. Restricted stock, typically, may be repurchased by the
Company at the original purchase price if the conditions or restrictions are
not met. In general, restricted stock may not be sold, or otherwise transferred
or hypothecated, until restrictions are removed or expire. Purchasers of
restricted stock, unlike recipients of options, will have voting rights and
will receive dividends prior to the time when the restrictions lapse.
Performance awards may be granted by the Compensation Committee on an
individual or group basis. Generally, these awards will be based upon specific
agreements and may be paid in cash or in Common Stock or in a combination of
cash and Common Stock. Performance awards may include "phantom" stock awards
that provide for payments based upon increases in the price of the Company's
Common Stock over a predetermined period. Performance awards may also include
bonuses which may be granted by the Compensation Committee on an individual or
group basis and which may be payable in cash or in Common Stock or in a
combination of cash and Common Stock.
Promptly after the closing of the Offering, the Company estimates that it
will issue to executive officers, other key employees, Independent Directors
and consultants of the Company options to purchase approximately 1,380,000
restricted shares of Common Stock pursuant to the 1996 Equity Participation
Plan. The term of each of such option will be ten years from the date of grant.
Except as otherwise described herein, each such option vests twenty percent per
year over five years and is exercisable at a price per share equal to the
initial price per share of Common Stock sold to the public in the Offering.
A maximum of 1,750,000 shares will be reserved for issuance under the 1996
Equity Participation Plan.
EMPLOYEE STOCK PURCHASE PLAN
The Company has established the Signature Resorts, Inc. Employee Stock
Purchase Plan (the "Employee Stock Purchase Plan") to assist employees of the
Company in acquiring a stock ownership interest in the Company and to encourage
them to remain in the employment of the Company. The Employee Stock Purchase
Plan
65
<PAGE>
is neither a qualified pension, profit sharing or stock bonus plan under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
nor an "employee benefit plan" subject to the provisions of the Employee
Retirement Income Security Act of 1974, as amended. The following discussion
is a general summary of the material U.S. federal income tax consequences to
U.S. participants in the Employee Stock Purchase Plan. The discussion is based
on the Code, regulations thereunder, rulings and decisions now in effect, all
of which are subject to change. The summary does not discuss all aspects of
federal income taxation that may be relevant to a particular participant in
light of such participant's personal investment circumstances.
The Employee Stock Purchase Plan is intended to meet the requirements of an
"employee stock purchase plan" under Section 423 of the Code. Neither the
grant of the right to purchase shares, nor the purchase of shares, under the
Employee Stock Purchase Plan has a federal income tax effect on employees or
the Company. Any United States tax liability to the employee and the tax
deductions to the Company are deferred until the employee sells the shares,
disposes of the shares by gift or dies. Under the Employee Stock Purchase
Plan, shares are generally purchased for 85% of the fair market value thereof,
as permitted by the Code.
In general, if shares are held for more than one year after they are
purchased and for more than two years from the beginning of the enrollment
period in which they are purchased or if the employee dies while owning the
shares, gain on the sale or other disposal of the shares constitutes ordinary
income to and employee (with no corresponding deduction to the Company) to the
extent of the lesser of (i) 15% of the fair market value of the shares at the
beginning of the enrollment period or (ii) the gain on sale of the amount by
which the market value of the shares on the date of sale, gift or death,
exceeds the purchase price. Any additional gain is capital gain. If the shares
are sold or disposed of within either or both of the holding periods, an
employee recognizes ordinary income (and the Company receives a corresponding
deduction subject to Section 162(m) of the Code) to the extent that the fair
market value of the shares at the date of exercise of the option exceeds the
option price. Any appreciation or depreciation after the date of purchase is
capital gain or loss.
A maximum of 500,000 shares of Common Stock will be reserved for issuance
under the Employee Stock Purchase Plan. The Employee Stock Purchase Plan will
be administered by the Compensation Committee.
401(K) PLAN
The Company intends to establish a qualified retirement plan, with a salary
deferral feature designed to qualify under Section 401 of the Code (the
"401(k) Plan"). The 401(k) Plan will permit the employees of the Company to
defer a portion of their compensation in accordance with the provisions of
Section 401(k) of the Code. The 401(k) Plan will allow participants to defer
up to ten percent of their eligible compensation on a pre-tax basis subject to
certain maximum amounts. Matching contributions may be made in amounts and at
times determined by the Company. The 401(k) Plan provides for Company matching
contributions in an amount equal to fifty-cents for each one dollar of
participant contributions up to a maximum of three percent of the
participant's salary per year. No other Company matching contributions are
contemplated at this time. Certain other statutory limitations with respect to
the Company's contribution under the 401(k) Plan also apply. Participants will
receive service credit for employment with the predecessors of the Company and
affiliates. Amounts contributed by the Company for a participant will vest
over five years and will be held in trust until distributed pursuant to the
terms of the 401(k) Plan.
Employees of the Company will be eligible to participate in the 401(k) Plan
if they meet certain requirements concerning minimum age and period of
credited service. All contributions to the 401(k) Plan will be invested in
accordance with participant elections among certain investment options.
Distributions from participant accounts will not be permitted before age 59
1/2, except in the event of death, disability, certain financial hardships or
termination of employment.
66
<PAGE>
EMPLOYMENT AGREEMENTS
Messrs. Kaneko, Gessow, Kenninger and Noyes have or will each enter into an
employment agreement with the Company for a term of two years. While such
agreements have not been entered into (except with respect to Mr. Noyes which
was entered into in June 1996), the terms and conditions of such agreements
are not expected to differ materially with respect to the following
provisions: The employment agreement for each of such executives is expected
to provide for an annual salary of $280,000 per year, with annual performance
bonuses determined by the independent directors in connection with the
achievement of performance criteria to be determined (except with respect to
Mr. Noyes, who will receive a quarterly bonus of $30,000 for each quarter he
is employed by the Company). In addition, each of Messrs. Kaneko, Gessow,
Kenninger and Noyes have or will receive options to purchase shares of Common
Stock as described in "--1996 Equity Participation Plan." In addition, each of
Messrs. Kaneko, Gessow and Kenninger shall receive severance payments equal to
base compensation and bonus at the most recent annual amount for the longer of
the balance of the employment term or two years upon the death, disability,
termination or resignation of such executive, unless such executive resigns
without "good cause" or unless the Company terminates such executive as a
result of gross negligence, willful misconduct, fraud or a material breach of
the employment agreement. Each such executive will have "good cause" to
terminate his employment with the Company in the event of any reduction in his
compensation or benefits, material breach or material default by the Company
under his employment agreement or following the merger or change in control of
the Company.
Covenants Not To Compete. The Founders and Mr. Noyes have agreed to devote
substantially full time to the business of the Company and not engage in any
competitive businesses. In particular, the Founders will not manage, consult
or participate in any way in any timeshare business or acquire any property
with the intent to convert the property to a timeshare operation, unless the
Independent Directors of the Company determine that such investment is in the
best interest of the Company. Such noncompetition provisions shall survive for
two years following any termination of employment. The Founders are not,
however, prohibited from acquiring hotels, including hotels which may compete
directly with properties of the Company. See "Certain Relationships and
Related Transactions--Founders' Other Business Interests."
67
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
FOUNDERS' OTHER BUSINESS INTERESTS
Affiliates of Messrs. Kaneko and Kenninger currently have managing general
partner or similar interests in entities which own investment properties which
the Company does not consider to be competitive with its timeshare business
(the "KOAR Interests"). These properties include a 225-unit condominium
project in Long Beach, California which is being marketed for whole share unit
sales or long-term residential use rather than vacation use (and with respect
to which the KOAR Interests currently own 74 of the total 225 units, the
balance having been sold to third parties); and several retail centers and a
proposed office development project. Messrs. Kaneko and Kenninger are also
currently the constituent general partners of a number of partnerships in
which they owe fiduciary duties to limited partners who invested over $80
million of equity therein (which partnerships include five Embassy Suites
hotels which are still owned by partnerships controlled by Affiliates of
Messrs. Kaneko and Kenninger (the "Prior Partnerships")). Messrs. Kaneko and
Kenninger are authorized by the Company to meet their duties and
responsibilities to the Prior Partnerships pursuant to the terms thereof,
including the sale, refinancing, restructuring and packaging of the Prior
Partnerships, and including with respect to the formation of public or private
entities for such purpose, including a public real estate investment trust
("REIT") for one or all of the Embassy Suites hotels in the Prior Partnerships
(provided, that Messrs. Kaneko and Kenninger agree not to serve as an officer
or employee of such REIT). Messrs. Kaneko and Kenninger agree to continue to
retain third party management companies to manage these properties (e.g.,
Promus Hotels manages all five Embassy Suites hotels), and to employ personnel
not employed by the Company to carry out the day-to-day responsibilities of
managing and overseeing these properties. However, Messrs. Kaneko and
Kenninger reserve the right to do what is reasonably necessary within these
constraints to carry out their duties and responsibilities to the Prior
Partnerships pursuant to the terms thereof. The Company does not believe that
such activities will detract materially from Messrs. Kaneko's and Kenninger's
services to the Company.
In addition, the Founders are currently pursuing the acquisition of one
property in California which may be converted to a timeshare property. The
Company will have the option, at its election (which the Company may exercise
at any time), to require the Founders to sell such property to the Company at
a price not exceeding 50% of the actual direct cost therein. Nevertheless,
there can be no assurance that the Company will exercise its option to acquire
any of such interest. The Founders have agreed that at the direction of the
Independent Directors and following a decision that the Company will not
acquire such property, the Founders will sell their interest in such property
or divest themselves of any controlling or managing interest in the property
within six months after receipt of a notice from the Company to do so, unless
the independent members of the Company's Board of Directors determine that any
such investment by or any such interest held by the Founders is in the best
interest of the Company. The covenants not to compete are intended to fully
protect the Company from Messrs. Kaneko, Gessow or Kenninger either competing
against the Company or being involved in the timeshare business without the
Company's consent. See "Business--Employment Agreements--Covenants Not To
Compete."
REPAYMENT OF AFFILIATED DEBT
Approximately $16.1 million of the net proceeds from the Offering will be
used to repay outstanding debt to affiliates of the Founders. Of the $16.1
million of the funds paid to the affiliates of the Founders, $15.7 million
will be used to pay off existing debt to third party financial institutions or
other third party financing sources or tax liabilities. The proceeds from the
loans were previously either invested in or loaned either to the Company or
its predecessors or to the Property Partnerships to acquire or develop the
Existing Resorts.
In addition, approximately $13.1 million of the net proceeds of the Offering
will be used to repay outstanding indebtedness owed to partnerships in which
an affiliate of Mr. Friedman, a proposed director of the Company, is a general
partner. Of such repayment, approximately $4.3 million will be repaid directly
to Mr. Friedman or his affiliates.
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<PAGE>
CONSOLIDATION TRANSACTIONS
The Company's Existing Resorts currently are owned and operated by the
Property Partnerships, each affiliated with the Founders. The Property
Partnerships consist of Grand Beach Resort, L.P., a Georgia limited
partnership (Embassy Vacation Resort Grand Beach); AKGI-Flamingo C.V., a
Netherlands Antilles limited partnership (Flamingo Beach Club); AKGI-Royal
Palm C.V., a Netherlands Antilles limited partnership (Royal Palm Beach Club);
Port Royal Resort, L.P., a South Carolina limited partnership (Royal Dunes
Resort); an approximately 30% interest in Poipu Resort Partners, L.P., a
Hawaii limited partnership (Embassy Vacation Resort Poipu Point); Fall Creek
Resort, L.P., a Georgia limited partnership (Plantation at Fall Creek);
Cypress Pointe Resort, L.P., a Delaware limited partnership (Cypress Pointe
Resort); Lake Tahoe Resort Partners, LLC, a California limited liability
company (Embassy Vacation Resort Lake Tahoe); and San Luis Resort Partners,
LLC, a Georgia limited liability company (San Luis Bay Resort). Affiliates of
the Founders currently are the sole general partners or the sole members of
each of the Property Partnerships. Each of the Property Partnerships (other
than the Embassy Vacation Resort Poipu Beach) which will remain in existence
following the Consolidation Transactions and the Offering will be wholly owned
by the Company.
Upon consummation of the Consolidation Transactions described below, the
partnership and limited liability company interests in each of the Property
Partnerships, certain of the stock of certain other corporations affiliated
therewith held by "accredited investors" (as defined pursuant to Regulation D
under the Securities Act) and certain debt obligations of the Property
Partnerships and affiliates (and, as a result, ownership of each of the
Existing Resorts) will be directly or indirectly transferred to the Company
and in exchange the holders of such partnership interests and certain of such
stock will receive shares of Common Stock in the Company. Holders of any such
partnership interests who are not "accredited investors" will receive cash at
a price commensurate with the value received by the accredited investors to be
determined prior to the Consent Solicitation. The Consolidation Transactions
will be consummated concurrently with, and are conditioned upon, the closing
of the Offering. All financial and share information presented in this
Prospectus assumes the consummation of the Consolidation Transactions and
reflects the issuance of an aggregate of 11,354,705 shares of Common Stock to
the holders of partnership interests in the Property Partnerships and to
certain stockholders of the Affiliated Companies. The Affiliated Companies
include Argosy/KOAR Group, Inc., Resort Management International, Inc., Resort
Marketing International, Inc., RMI-Royal Palm C.V.o.a., RMI-Flamingo C.V.o.a.,
AK-St. Maarten, LLC, Premier Resort Management, Inc., Resort Telephone & Cable
of Orlando, Inc., Kabushiki Gaisha Kei, LLC, Vacation Ownership Marketing
Company and Vacation Resort Marketing of Missouri, Inc., each of which are
controlled by the Founders and currently provide administrative, utility,
management and/or marketing services to certain of the Property Partnerships.
Signature Resorts, Inc. was incorporated in Maryland in May 1996 by the
Founders to effect the Consolidation Transactions and the Offering. Pursuant
to a Private Placement Memorandum dated as of May 28, 1996, the Company in the
Consent Solicitation solicited and received on or before June 13, 1996 the
consent and agreement of the ultimate owners of interests in the Property
Partnerships, the stockholders of the Affiliated Companies and the holders of
certain debt obligations to exchange their partnership interests or shares in,
and obligations of, the Property Partnerships or Affiliated Companies (or
their direct or indirect interests in the owners thereof), as applicable, for
shares of Common Stock in the Company. Such exchange will occur simultaneously
with the closing of the Offering and is conditioned upon certain timing
constraints with respect to the Offering. The Consent Solicitation and
exchange of direct and indirect interests in, and obligations of, the Property
Partnerships and the Affiliate Companies, as applicable, for shares of Common
Stock in the Company are referred to herein as the "Consolidation
Transactions." Direct and indirect holders of interests in, and obligations
of, certain Property Partnerships will upon consummation of the Consolidation
Transactions receive shares of Common Stock in the Company equal to a
predetermined dollar value based on agreement between the Company and such
holders as set forth in the Private Placement Memorandum for the Consent
Solicitation. The balance of the shares of Common Stock issued in the
Consolidation Transactions will be issued to the holders of interests in the
remaining Property Partnerships and to the holders of interests in the
Affiliated Companies, which are comprised solely of the Founders or their
affiliates. Following consummation of the Consolidation Transactions and the
Offering, the ultimate owners of interests in the Property Partnerships and
stockholders of the Affiliated Companies will, in the aggregate, own
approximately 68.4% of the outstanding Common Stock in
69
<PAGE>
the Company, with approximately 45.0% of the outstanding Common Stock in the
Company being held by the Founders, or affiliates thereof (in each case based
on the mid-point of the estimated pricing range of the Common Stock in the
Offering). For additional information regarding the Property Partnerships and
the Affiliated Companies as well as the Consolidation Transactions and
resulting effect thereof, see "Principal Stockholders" and "Certain
Relationships and Related Transactions."
The following sets forth certain information regarding the Property
Partnerships:
<TABLE>
<CAPTION>
EXECUTIVE
OFFICERS,
DIRECTORS AND
AFFILIATES
OWNERSHIP CYPRESS AKGI- AKGI- SAN LUIS
INTERESTS POINTE FALL CREEK PORT ROYAL GRAND BEACH FLAMINGO ROYAL PALM LAKE TAHOE BAY
------------- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Osamu Kaneko.... 5.00% 4.00% 30.73% 15.00% 40.00% 40.00% 40.00% 40.00%
Andrew J.
Gessow......... 17.50 14.00 24.71 14.00 40.00 40.00 40.00 40.00
Steven C.
Kenninger...... 2.50 2.00 13.20 7.90 20.00 20.00 20.00 20.00
Charles Frey.... 0.00 0.00 0.00 0.50 0.00 0.00 0.00 0.00
Timothy Levin... 0.00 0.00 0.86 0.50 0.00 0.00 0.00 0.00
Genevieve
Giannoni....... 0.00 0.00 0.00 0.25 0.00 0.00 0.00 0.00
Joshua
Friedman(1).... 22.50 17.13 0.00 0.00 0.00 0.00 0.00 0.00
Canpartners
Incorporated(1). 75.07 56.47 0.00 0.00 0.00 0.00 0.00 0.00
Approximate
Equity Value
Assigned....... $35,247,000 $11,030,000 $5,146,000 $22,621,000 $14,502,000(3) $29,004,000(3) $10,339,000(3) $6,092,000(3)
Book Value as of
December 31,
1995........... 13,954,127 2,596,710 3,235,750 12,575,459 747,434 3,127,322 N/A(2) N/A(2)
Debt Assumed as
of December 31,
1995........... 32,994,587 14,933,435 6,232,234 24,807,087 5,405,188 6,392,297 N/A N/A
</TABLE>
- -------
(1) Canpartners Incorporated is the sole general partner of limited
partnerships that hold the interests indicated. Joshua S. Friedman owns
his interests through these entities.
(2) The Embassy Vacation Resort Lake Tahoe and the San Luis Bay Resort were
acquired in May and June 1996, respectively. The value allocated by the
Company is the Company's costs to acquire the property.
(3) Wholly-owned by the Founders; accordingly, assigned values are estimated
solely for purposes of this table.
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PRINCIPAL STOCKHOLDERS
The information in the following table sets forth information regarding the
beneficial ownership of the Common Stock of the Company giving effect to the
consummation of the Consolidation Transactions, and as adjusted to reflect the
sale of shares offered hereby, with respect to (i) each person known by the
Company to beneficially owns 5% or more of the outstanding shares of Common
Stock, (ii) each person who is a director, proposed director or Named
Executive Officer of the Company and (iii) all directors, proposed directors
and executive officers of the Company as a group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THE OFFERING AFTER THE OFFERING
----------------------------- -----------------------
NAME AND ADDRESS OF
BENEFICIAL OWNER(1) SHARES PERCENTAGE SHARES PERCENTAGE
- ------------------- ------------- ------------ --------- ----------
<S> <C> <C> <C> <C>
Osamu Kaneko(2)(3)....... 2,821,798 24.9% 2,821,798 17.0%
Andrew J. Gessow(2)(4)... 3,210,599 28.3% 3,210,599 19.3%
Steven C.
Kenninger(2)(3)(5)...... 1,447,930 12.8% 1,447,930 8.7%
James E. Noyes........... 75,000(7) * 75,000(7) *
Charles C. Frey.......... 5,600 * 80,600(8) *
Genevieve Giannoni....... 2,800 * 77,800(8) *
Timothy D. Levin......... 4,058 * 6,058 *
Juergen Bartels.......... -- -- -- --
Sanford R. Climan........ -- -- 3,250 *
Joshua S. Friedman(6).... -- -- -- --
W. Leo Kiely, III........ -- -- -- --
Canpartners
Incorporated(6)......... 2,220,936 19.6% 2,220,936 13.4%
9665 Wilshire Boulevard
Suite 200
Beverly Hills,
California 90210
All directors, proposed
directors and executive
officers as a group (11
persons)(6)............. 7,567,785 66.7% 7,723,035 46.5%
</TABLE>
- --------
* Less than 1%
(1) Except as otherwise indicated, each beneficial owner has the sole power to
vote, as applicable, and to dispose of all shares of Common Stock owned by
such beneficial owner.
(2) The number of shares indicated to be acquired by each of the Founders in
the Consolidation Transactions is based upon the mid-point of the
estimated pricing range of the Common Stock in the Offering set forth on
the cover page of this Prospectus. To the extent the public offering price
is above the mid-point, the ultimate number of shares acquired by the
Founders will be greater than as set forth above; to the extent the public
offering price is below the mid-point, the number of shares acquired by
the Founders will be lower than as set forth above.
(3) The address of such person is 911 Wilshire Boulevard, Suite 2250, Los
Angeles, California 90017.
(4) The address of such person is 2934 Woodside Road, Woodside, California
94062.
(5) The shares indicated are held by Mr. Kenninger through trusts, pension
plans and profit sharing plans, under which Mr. Kenninger may be deemed to
have, or to share, beneficial ownership of such shares.
(6) Canpartners Incorporated ("Canyon") is the sole general partner of limited
partnerships that hold the shares indicated. Mr. Friedman (a proposed
director of the Company) and Mitchell R. Julis and R. Christian B. Evensen
are the sole shareholders and directors of Canyon and may be deemed to
share beneficial ownership of the shares shown as owned by Canyon. Such
persons disclaim beneficial ownership of such shares.
(7) Represents presently exercisable options to acquire shares of Common
Stock.
(8) Includes options to acquire 75,000 shares of Common Stock which are to be
granted upon the closing of the Offering and that will be exercisable
beginning within 60 days.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the closing of the Offering and the consummation of the Consolidation
Transactions, the authorized capital stock of the Company will consist of (i)
50,000,000 shares of Common Stock, par value $0.01 per share, 16,604,705
shares of which will be outstanding after the Offering and the Consolidation
Transactions and (ii) 25,000,000 shares of Preferred Stock, par value $0.01
per share, none of which will be outstanding after the Offering and the
Consolidation Transactions. The following summary description of the capital
stock of the Company is qualified in its entirety by reference to the Charter
and Bylaws of the Company, copies of which are filed as exhibits to the
Registration Statement of which this Prospectus is a part. See "Additional
Information."
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters voted on by stockholders, including elections of directors, and,
except as otherwise required by law or provided in any resolution adopted by
the Board of Directors with respect to any series of Preferred Stock
establishing the designation, powers, preferences and relative, participating,
option or other special rights and powers of such series of Preferred Stock,
the holders of shares of Common Stock exclusively possess all voting power.
The Charter does not provide for cumulative voting in the election of
directors. Subject to any preferential rights of any outstanding series of
Preferred Stock, the holders of Common Stock are entitled to such
distributions as may be declared from time to time by the Board of Directors
from funds available therefor, and upon liquidation are entitled to receive
pro rata all assets of the Company available for distribution to such holders.
All shares of Common Stock issued in the Offering will be fully paid and
nonassessable and the holders thereof will not have preemptive rights.
PREFERRED STOCK
Preferred Stock may be issued from time to time, in one or more classes, as
authorized by the Board of Directors. Prior to issuance of shares of each
class, the Board of Directors is required by the MGCL and the Company's
Charter to fix for each such class, the terms, preferences, conversion or
other rights, voting powers, restrictions, limitations as to dividends or
other distributions, qualifications and terms or conditions of redemption, as
are permitted by Maryland law. The Board of Directors could authorize the
issuance of Preferred Stock with terms and conditions which could have the
effect of discouraging a takeover or other transaction which holders of some,
or a majority, of the Company's outstanding shares might believe to be in
their best interests or in which holders of some, or a majority, of shares
might receive a premium for their shares over the market price of such shares.
No Preferred Stock will be outstanding following the closing of the Offering.
TRANSFER AGENT AND REGISTRAR
The Company has appointed Wells Fargo Bank as its transfer agent and
registrar.
72
<PAGE>
CERTAIN PROVISIONS OF MARYLAND LAW
AND OF THE COMPANY'S CHARTER AND BYLAWS
The following paragraphs summarize certain provisions of Maryland law and
the Company's Charter and Bylaws. The summary does not purport to be complete
and is subject to and qualified in its entirety by reference to the Company's
Charter and Bylaws, copies of which are exhibits to the Registration Statement
of which this Prospectus is a part, as described in "Additional Information,"
and to Maryland law.
CLASSIFICATION OF THE BOARD OF DIRECTORS
The Company's Charter provides that the number of directors of the Company
shall be established by the Bylaws but shall not be less than the minimum
number required by the MGCL, which in the case of the Company is three. The
Bylaws currently provide that the Board of Directors will consist of not fewer
than seven nor more than 13 members. Any vacancy on the Board of Directors
will be filled, at any regular meeting or at any special meeting called for
that purpose, by a majority of the remaining directors, except that a vacancy
resulting from an increase in the number of directors will be filled by a
majority of the entire board of directors. The Charter provides for a
staggered Board of Directors consisting of three classes as nearly equal in
size as practicable. One class will hold office initially for a term expiring
at the annual meeting of stockholders to be held in 1997, another class will
hold office initially for a term expiring at the annual meeting of
stockholders to be held in 1998 and another class will hold office initially
for a term expiring at the annual meeting of stockholders to be held in 1999.
As the term of each class expires, directors in that class will be elected for
a term of three years and until their successors are duly elected and qualify.
The Company believes that classification of the Board of Directors will help
to assure the continuity and stability of the Company's business strategies
and policies as determined by the Board of Directors.
The classified director provision could have the effect of making the
removal of incumbent directors more time-consuming and difficult, which could
discourage a third party from making a tender offer or otherwise attempting to
obtain control of the Company, even though such an attempt might be beneficial
to the Company and its stockholders. At least two annual meetings of
stockholders, instead of one, will generally be required to effect a change in
a majority of the Board of Directors. Thus, the classified board provision
could increase the likelihood that incumbent directors will retain their
positions. Holders of shares of Common Stock will have no right to cumulative
voting for the elections of directors. Consequently, at each annual meeting of
stockholders, the holders of a majority of outstanding shares of Common Stock
will be able to elect all of the successors of the class of directors whose
term expires at that meeting.
REMOVAL OF DIRECTORS
The Charter provides that a director may be removed with or without cause by
the affirmative vote of at least two-thirds of the votes entitled to be cast
in the election of directors, and by the vote required to elect a director,
the stockholders may fill a vacancy on the Board of Directors resulting from
removal. This provision, when coupled with the provision in the Bylaws
authorizing the Board of Directors to fill vacant directorships, could
preclude stockholders from removing incumbent directors except upon a
substantial affirmative vote and filling the vacancies created by such removal
with their own nominees.
BUSINESS COMBINATIONS
Under the MGCL, certain "Business Combinations" (including a merger,
consolidation, share exchange, or, in certain circumstances, an asset transfer
or issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns ten percent or more of the
voting power of the corporation's shares or an affiliate of the corporation
who, at any time within the two-year period prior to the date in question, was
the beneficial owner of ten percent or more of the voting power of the then-
outstanding voting stock of the corporation (an "Interested Stockholder") or
an affiliate thereof are prohibited for five years after the most recent date
on which the Interested Stockholder became an Interested Stockholder.
Thereafter, any
73
<PAGE>
such Business Combination must be recommended by the Board of Directors of
such corporation and approved by the affirmative vote of at least (i) 80% of
the votes entitled to be cast by holders of outstanding voting shares of the
corporation and (ii) 66 2/3% of the votes entitled to be cast by holders of
outstanding voting shares of the corporation other than shares held by the
Interested Stockholder with whom the Business Combination is to be effected,
unless, among other things, the corporation's stockholders receive a minimum
price (as defined in the MGCL) for their shares and the consideration is
received in cash or in the same form as previously paid by the Interested
Stockholder for its shares. These provisions of Maryland law do not apply,
however, to Business Combinations that are approved or exempted by the Board
of Directors of the corporation prior to the time that the Interested
Stockholder becomes an Interested Stockholder. The Board of Directors of the
Company has exempted from these provisions of the MGCL any Business
Combination involving the Executive Officers and certain persons and entities
affiliated therewith.
CONTROL SHARE ACQUISITIONS
The MGCL provides that "Control Shares" of a Maryland corporation acquired
in a "Control Share Acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the
matter, excluding shares of stock owned by the acquiror or by officers or
directors who are employees of the corporation. "Control Shares" are voting
shares of stock which, if aggregated with all other such shares of stock
previously acquired by such person, or in respect of which such person is able
to exercise or direct the exercise of voting power, would entitle the acquiror
to exercise voting power in electing directors within one of the following
ranges of voting power: (i) one-fifth or more but less than one-third, (ii)
one-third or more but less than a majority, or (iii) a majority of all voting
power. Control Shares do not include shares the acquiring person is then
entitled to voter as a result of having previously obtained stockholder
approval. A "Control Share Acquisition" means the acquisition of Control
Shares, subject to certain exceptions.
A person who has made or proposes to make a Control Share Acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the Board of Directors to call a special meeting of stockholders to
be held within 50 days of demand to consider the voting rights of the shares.
If no request for a meeting is made, the corporation may itself present the
question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute,
then, subject to certain conditions and limitations, the corporation may
redeem any or all of the Control Shares (except those for which voting rights
have previously been approved) for fair value determined, without regard to
the absence of voting rights for control shares, as of the date of the last
Control Share Acquisition or of any meeting of stockholders at which the
voting rights of such shares are considered and not approved. If voting rights
for Control Shares are approved at a stockholders meeting and the acquiror
becomes entitled to vote a majority of the shares entitled to vote, all other
stockholders may exercise appraisal rights. The fair value of the shares are
determined for purposes of such appraisal rights may not be less than the
highest price per share paid in the Control Share Acquisition, and certain
limitations and restrictions otherwise applicable to the exercise of
dissenters' rights do not apply in the context of a Control Share Acquisition.
The control share acquisition statute does not apply to shares acquired in a
merger, consolidation or share exchange if the corporation is a party to the
transaction, or to acquisitions approved or exempted by the Charter or Bylaws
of the corporation. The Company in its Bylaws has exempted from the Control
Share Acquisition statute the Executive Officers and certain persons and
entities affiliated therewith.
AMENDMENT TO THE COMPANY'S CHARTER AND BYLAWS
The Company's Charter, including its provisions on classification of the
Board of Directors and removal of directors, may be amended only by the
affirmative vote of the holders of at least 66 2/3% of the capital stock
entitled to vote. The Company's Bylaws may be amended by the affirmative vote
of holders of at least 66 2/3% of the capital stock entitled to vote on the
matter. Subject to the right of stockholders to adopt, alter and repeal the
Bylaws, the Board of Directors is authorized to adopt, alter or repeal the
Bylaws.
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<PAGE>
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The Bylaws of the Company provide that (i) with respect to an annual meeting
of stockholders, nominations of persons for election to the Board of Directors
and the proposal of business to be considered by stockholders may be made only
(a) pursuant to the Company's notice of the meeting, (b) by the Board of
Directors, or (c) by a stockholder who is entitled to vote at the meeting and
has complied with the advance notice procedures set forth in the Bylaws, and
(ii) with respect to special meetings of stockholders, only the business
specified in the Company's notice of meeting may be brought before the meeting
of stockholders, or provided that the Board of Directors has determined that
directors shall be elected at such meeting, nominations of persons for
election to the Board of Directors may be brought by a stockholder who is
entitled to vote at the meeting and has complied with the advance notice
provisions set forth in the Bylaws.
STOCKHOLDER MEETINGS AND ACTION BY WRITTEN CONSENT
In order for stockholders to call special meetings, the Bylaws require the
written request of holders of shares entitled to cast not less than 25% of all
votes entitled to be cast at such meeting. Such provisions do not, however,
affect the ability of stockholders to submit a proposal to the vote of all
stockholders of the Company in accordance with the Bylaws, which provide for
the additional notice requirements for stockholder nominations and proposals
at the annual meetings of stockholders as described above.
The Bylaws provide that any action required or permitted to be taken at a
meeting of stockholders may be taken without a meeting by unanimous written
consent, if such consent sets forth such action and is signed by each
stockholder entitled to vote on the matter and a written waiver of any right
to dissent is signed by each stockholders entitled to notice of the meeting
but not entitled to vote at it.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Charter limits the liability of the Company's directors and
officers to the Company and its stockholders to the fullest extent permitted
from time to time by Maryland law. Maryland law presently permits the
liability of directors and officers to a corporation or its stockholders for
money damages to be limited, except (i) to the extent that it is proved that
the director or officer actually received an improper benefit or profit, or
(ii) if a judgment or other final adjudication is entered in a preceding based
on a finding that the director's or officers' action, or failure to act, was
the result of active and deliberate dishonesty and was material to the cause
of action adjudicated in the proceeding. This provision does not limit the
ability of the Company or its stockholders to obtain other relief, such as an
injunction or rescission.
The Company's Charter and Bylaws require the Company to indemnify its
directors, offices and certain other parties to the fullest extent permitted
from time to time by Maryland law. The MGCL presently permits a corporation to
indemnity its directors, officers and certain other parties against judgments,
penalties, fines, settlements and reasonable expenses actually incurred by
them in connection with any proceeding to which they may be made a party by
reason of their service to the corporation, unless it is established that (i)
the act or omission of the indemnified party was material to the matter giving
rise to the proceeding, and (1) was committed in bad faith or (2) was the
result of active and deliberate dishonest; or (ii) the indemnified party
actually received an improper personal benefit in money, property or services;
or (iii) in the case of any criminal proceeding, the indemnified party had
reasonable cause to believe that the act or omission was unlawful.
Indemnification may be made against judgments, penalties, fines, settlements
and reasonable expenses actually incurred by the director or officer in
connection with the proceeding; provided, however, that if the proceeding is
one by or in the right of the corporation, indemnification may not be made
with respect to any proceeding in which the director or officer has been
adjudged to be liable to the corporation. In addition, a director or officer
may not be indemnified with respect to any proceeding charging improper
personal benefit to the director or officer in which the director or officer
was adjudged to be liable on the basis that personal benefit was improperly
received. The termination of any proceeding by conviction, or upon a plea of
nolo contendere or its equivalent, or an entry of any order of probation prior
to judgment, creates a rebuttable presumption that the director or officer did
not meet the requisite
75
<PAGE>
standard of conduct required for indemnification to be permitted. The Company
has applied for directors and officers insurance which will become effective
upon the effectiveness of the Registration Statement.
DISSOLUTION OF THE COMPANY
The dissolution of the Company must be approved by the affirmative vote of
holders of not less than a majority of all of the votes entitled to be cast on
the matter.
SHARES ELIGIBLE FOR FUTURE SALE
Upon closing of the Offering and the Consolidation Transactions, the Company
will have outstanding 16,604,705 shares of Common Stock. Of these shares, the
5,250,000 shares sold in the Offering plus any additional shares sold upon
exercise of the Underwriters' over-allotment option will be freely tradable in
the public market without restriction or further registration under the
Securities Act.
The remaining 11,354,705 outstanding shares of Common Stock were issued upon
consummation of the Consolidation Transactions and are "restricted securities"
as that term is defined under Rule 144 and may be sold only pursuant to
registration under the Securities Act or pursuant to an exemption therefrom,
such as that provided by Rule 144. In general, under Rule 144 as currently in
effect, if two years have elapsed since the later of the date of acquisition
of shares of Common Stock from the Company or the date of acquisition of
shares of Common Stock from any "affiliate" of the Company, as that term is
defined under the Securities Act, the acquiror or subsequent holder is
entitled to sell within any three-month period a number of shares of Common
Stock that do not exceed the greater of 1% of the then-outstanding shares of
Common Stock or the average weekly trading volume of shares of Common Stock on
all exchanges and reported through the automated quotation system of a
registered securities association during the four calendar weeks preceding the
date on which notice of the sale is filed with the Commission. Sales under
Rule 144 are also subject to certain restrictions on the manner of sales,
notice requirements and the availability of current public information about
the Company. If three years have elapsed since the date of acquisition of
shares of Common Stock from the Company or from any "affiliate" of the
Company, and the acquiror or subsequent holder thereof is deemed not to have
been an affiliate of the company at any time during the 90 days preceding a
sale, such person would be entitled to sell such shares of Common Stock in the
public market under Rule 144(i) without regard to the volume limitations,
manner of sale provisions, public information requirements or notice
requirements.
Each stockholder who received its shares of Common Stock as a result of the
Consolidation Transactions has agreed, with certain exceptions, not to offer,
sell, contract to sell or otherwise dispose (collectively "dispose") of any
Common Stock, for a period of 180 days after the closing of the Offering (one
year with respect to the Founders) without the prior written consent of
Montgomery Securities; one of such exceptions allows the Founders to pledge
between $30 million and $50 million of their Common Stock to secure a margin
loan in a maximum amount of $10 million and another exception allows the
Founders to pledge approximately $5.8 million of their Common Stock in
connection with their buyout of a former partner.
Pursuant to a Registration Rights Agreement (the "Registration Rights
Agreement") the Company has agreed to file and use its best efforts to have
declared effective within six months following the Offering, a shelf
registration statement with the Commission for the purpose of registering the
shares of Common Stock (the "Registrable Shares") issuable to holders of
restricted shares. The Company will use its best efforts to have the shelf
registration statement kept effective for a period of 18 months. Upon the
effectiveness of such shelf registration statement, and as provided in the
Registration Rights Agreement, the holders of the Registrable Shares will be
subject to the volume restrictions of Rule 144. The Company will bear the
expenses incident to the registration requirements of the Registrable Shares,
except that such expenses shall not include any underwriting discounts or
commissions, Securities and Exchange Commission or state securities
registration fees or transfer taxes relating to such shares.
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<PAGE>
Under the Registration Rights Agreement, the holders of the Registrable
Shares will also be entitled to include within any registration statement
under the Securities Act filed by the Company with respect to any underwritten
public offering of Common Stock (either of its own account or the account of
other security holders) at any time within three years following the Offering,
the shares of Registrable Shares held by such holders, subject to certain
conditions and restrictions. See "Underwriting." The existence of the
Registration Rights Agreement may adversely affect the terms upon which the
Company can obtain additional equity financing in the future.
The Company may require in its sole discretion that the Registrable Shares
be sold in block trades through underwriters or broker-dealers or that the
Registrable Shares be underwritten by investment banking firms selected by the
Company.
Prior to the Offering, there has been no public market for the Common Stock
and the effect, if any, that future market sales of Common Stock or the
availability of such Common Stock for sale will have on the market price of
the Common Stock prevailing from time to time cannot be predicted.
Nevertheless, sales of substantial amounts of Common Stock in the public
market (or the perception that such sales could occur) might adversely affect
market prices for the Common Stock.
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<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), represented by Montgomery
Securities and Goldman, Sachs & Co. (the "Representatives"), have severally
agreed, subject to the terms and conditions of the underwriting agreement (the
"Underwriting Agreement") by and among the Company and the Underwriters to
purchase from the Company the number of shares of Common Stock indicated below
opposite their respective names, at the initial public offering price less the
underwriting discount set forth on the cover page of this Prospectus. The
Underwriting Agreement provides that the obligations of the Underwriters are
subject to certain conditions precedent and that the Underwriters are
committed to purchase all of the shares of Common Stock if they purchase any.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
TO BE
UNDERWRITER PURCHASED
- ----------- ---------
<S> <C>
Montgomery Securities................................................
Goldman, Sachs & Co. ................................................
---------
Total........................................................ 5,250,000
=========
</TABLE>
The Underwriters, through the Representatives, have advised the Company that
the Underwriters propose initially to offer the shares of Common Stock to the
public at a public offering price set forth on the cover page of this
Prospectus. The Underwriters may allow selected dealers a concession of not
more than $ per share; the Underwriters may allow, and such dealers may
reallow, a concession of not more than $ per share to certain other
dealers. After the initial public offering, the public offering price and
other selling terms may be changed by the Representatives.
The Company has granted an option to the Underwriters, exercisable during a
30-day period after the date of this Prospectus, to purchase up to a maximum
of 787,500 additional shares of Common Stock to cover over-allotments, if any,
at the initial offering price less the underwriting discount. To the extent
that the Underwriters exercise this option, the Underwriters will be
committed, subject to certain conditions, to purchase such additional shares
in approximately the same proportion as set forth in the above table. The
Underwriters may purchase such shares only to cover over-allotments made in
connection with the Offering.
The Underwriting Agreement provides that the Company and the Founders will
indemnify the Underwriters against certain liabilities, including civil
liabilities under the Securities Act, or will contribute to payments the
Underwriters may be required to make in respect thereof.
The Company's officers, directors and the holders of the Registrable Shares
have agreed, with certain exceptions, that, for a period of 180 days from the
date of this Prospectus (one year with respect to the Founders), they will not
offer to sell, sell, contract to sell or otherwise sell or dispose of any
shares of their Common Stock or options or warrants to acquire shares of
Common Stock without the prior written consent of Montgomery Securities. One
of such exceptions allows the Founders to pledge between $30 million and $50
million of their Common Stock to secure a margin loan in a maximum amount of
$10 million or loans entered into by them, and another exception allows the
Founders to pledge approximately $5.8 million of their Common Stock in
connection with their buyout of a former partner. The Company has agreed not
to sell any shares of Common Stock for a period of 180 days from the date of
this Prospectus without the prior written consent of Montgomery Securities.
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<PAGE>
The Representatives have informed the Company that they do not intend to
confirm sales to accounts over which they exercise discretionary authority in
excess of 5% of the number of shares of Common Stock offered hereby.
Out of the 5,250,000 shares of Common Stock to be sold by the Company
pursuant to the Offering, the Underwriters have accepted the Company's request
to sell up to 5.4% of such shares at the public offering price set forth on
the cover page of the Prospectus to current and former partners of the
Founders (and their families), the Company's independent director nominees,
employees and independent contractors associated with each of the Company's
resorts and its affiliated companies, friends and supporters of the Company
(and their families) who have previously provided services or assistance to
the Property Partnerships, and other persons designated by the Company.
Pursuant to the Registration Rights Agreement, if holders of the Registrable
Securities elect to sell shares of Registrable Securities in a non-publicly
underwritten offering, the timing of sales and the volume sold shall be
managed in a manner consistent with the best interests of the Company.
Prior to this Offering, there has been no public trading market for the
Common Stock. Consequently, the initial public offering price will be
determined by negotiations among the Company and the Representatives of the
Underwriters. Among the factors to be considered in such negotiations will be
the history of, and the prospects for, the Company and the industry in which
it competes, an assessment of the Company's management, its past and present
earnings and the trend of such earnings, the prospects for future earnings of
the Company, the present state of the Company's development, the general
condition of securities markets at the time of the Offering and the market
price of publicly traded stocks of comparable companies in recent periods.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Latham & Watkins, Los Angeles, California. Matters of Maryland law
will be passed upon for the Company by Ballard, Spahr, Andrews & Ingersoll,
Baltimore, Maryland. Limited matters of California real estate law will be
passed upon for the Company by Paul, Hastings, Janofsky & Walker, Los Angeles,
California and limited matters of Florida real estate law will be passed upon
for the Company by Schreeder, Wheeler & Flint, Atlanta, Georgia. Certain
partners of Paul, Hastings, Janofsky & Walker, members of their families and
related persons following consummation of the Consolidation Transactions and
the Offering will own approximately 1% of the Common Stock of the Company.
Certain matters will be passed upon for the Underwriters by O'Melveny & Myers
LLP, San Francisco, California in reliance, as to matters of Maryland law, on
the opinion of Ballard, Spahr, Andrews & Ingersoll.
EXPERTS
The combined financial statements of Signature Resorts, Inc. at December 31,
1994 and 1995 and for each of the three years in the period ended December 31,
1995, appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports appearing elsewhere herein, which, as to the years 1993, 1994, and
1995, are based in part on the reports of Coopers & Lybrand LLP, independent
accountants. The information under the caption "Selected Combined Historical
Financial Information" for each of the three years in the period ended
December 31, 1995, included elsewhere herein, have been derived from combined
financial statements audited by Ernst & Young LLP, as set forth in their
report appearing elsewhere herein. The financial statements and the selected
combined historical financial information referred to above are included in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
The financial statements (not presented separately herein) of AKGI-Flamingo
C.V.o.a. and AKGI-Royal Palm C.V.o.a. at December 31, 1995 and for the year
then ended and of Cypress Pointe Resort, L.P. and Fall Creek Resort, L.P. at
December 31, 1994 and for each of the two years in the period ended December
31, 1994, have been audited by Coopers & Lybrand L.L.P., independent
accountants, as set forth in their reports appearing elsewhere herein, and are
included in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
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ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all
amendments, exhibits and schedules thereto, the "Registration Statement")
under the Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the
Registration Statement. For further information with respect to the Company
and the Common Stock offered hereby, reference is hereby made to such
Registration Statement and the exhibits and schedules thereto. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete and in each instance, reference is made
to the copy of such contract or document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. Copies of the Registration Statement may be obtained from the
Commission's principal office at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the following regional offices of the Commission: Seven World
Trade Center, New York, New York 10048 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such materials may be obtained
from the public reference section of the Commission at its Washington address
upon payment of the fees prescribed by the Commission or may be examined
without charge at the offices of the Commission.
The Company intends to furnish its stockholders with annual reports
containing combined financial statements audited by an independent public
accounting firm and quarterly reports for the first three quarters of each
fiscal year containing unaudited combined financial information.
80
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reports of Independent Auditors............................................ F-2
Financial Statements (Amounts as of June 30, 1995 and 1996
and for the six month periods then ended are unaudited)
Combined Balance Sheets at December 31, 1994 and 1995 and June 30, 1995
and 1996................................................................ F-7
Combined Statements of Income for each of the three years ended December
31, 1995 and for the six months ended June 30, 1995 and 1996............ F-8
Combined Statements of Equity for each of the three years ended December
31, 1995 and for the six months ended June 30, 1996..................... F-9
Combined Statements of Cash Flows for each of the three years ended
December 31, 1995 and for the six months ended June 30, 1995 and 1996... F-10
Notes to Combined Financial Statements..................................... F-11
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Stockholders
Signature Resorts, Inc.
We have audited the accompanying combined balance sheets of Signature
Resorts, Inc. and Combined Affiliates as of December 31, 1995 and 1994, and
the related combined statements of income, equity and cash flows for each of
the three years in the period ended December 31, 1995. The combined financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits. We did not audit the 1995 financial statements of AKGI-
Flamingo C.V.o.a. and AKGI-Royal Palm C.V.o.a., combined affiliates, which
statements reflect total assets of $15,672,000, as of December 31, 1995 and
total revenues of $6,777,000, for the year then ended. We did not audit the
1994 and 1993 financial statements of Cypress Pointe Resorts, L.P. and Fall
Creek Resort, L.P., combined affiliates, which statements reflect total assets
of $46,718,000 as of December 31, 1994, and total revenues of $36,964,000 and
$24,429,000, for the years ended December 31, 1994 and 1993. Those statements
were audited by other auditors whose reports have been furnished to us, and
our opinion, insofar as it relates to data included for AKGI-Flamingo C.V.o.a.
and AKGI-Royal Palm C.V.o.a. as of December 31, 1995 and for the year then
ended, and for Cypress Point Resorts, L.P. and Fall Creek Resort, L.P. as of
December 31, 1994 and 1993 and for the years then ended is based solely on the
reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the combined
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 and the reports of other auditors provide a reasonable basis for our
opinion.
In our opinion, based on our audits and the reports of other auditors, the
combined financial statements referred to above present fairly, in all
material respects, the combined financial position of Signature Resorts, Inc.
and Combined Affiliates at December 31, 1995 and 1994, and the combined
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Los Angeles, California
March 8, 1996
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners
Fall Creek Resort, L.P.
Branson, Missouri
We have audited the accompanying balance sheet of Fall Creek Resort, L.P. as
of December 31, 1994, and the related statements of income, partners' capital
(deficit), and cash flows for each of the two years in the period ended
December 31, 1994 (not presented separately herein). These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Fall Creek Resort, L.P. as
of December 31, 1994, and the results of its operations and its cash flows for
each of the two years in the period ended December 31, 1994, in conformity
with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Orlando, Florida
February 9, 1995
F-3
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners
Cypress Pointe Resorts, L.P.
Lake Buena Vista, Florida
We have audited the accompanying balance sheet of Cypress Pointe Resorts,
L.P. as of December 31, 1994, and the related statements of income, partners'
capital (deficit), and cash flows for each of the two years in the period
ended December 31, 1994 (not presented separately herein). These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cypress Pointe Resorts,
L.P. as of December 31, 1994, and the results of its operations and its cash
flows for each of the two years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Orlando, Florida
March 16, 1995
F-4
<PAGE>
To the Partners
of AKGI-Flamingo C.V.o.a.
Simpsonbay
St. Maarten, N.A.
INDEPENDENT AUDITORS' REPORT
INTRODUCTION
We have audited the accompanying balance sheet of AKGI-Flamingo C.V.o.a. as
of December 31, 1995, and the related statement of income, Partners' capital
and changes in financial position (not separately presented herein) for the
period May 23, 1995 to December 31, 1995. These financial statements are the
responsibility of the Partnerships' management. Our responsibility is to
express an opinion on these financial statements based on our audit.
SCOPE
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
OPINION
In our opinion, the financial statements give a true and fair view of the
financial position of the Partnership as of December 31, 1995 and of the
result for the period May 23, 1995 through December 31, 1995 in accordance
with generally accepted accounting principles.
Philipsburg, March 29, 1996
Coopers & Lybrand
F-5
<PAGE>
To the Partners
of AKGI-Royal Palm C.V.o.a.
Simpsonbay
St. Maarten, N.A.
INDEPENDENT AUDITORS' REPORT
INTRODUCTION
We have audited the balance sheet of AKGI-Royal Palm C.V.o.a. as of December
31, 1995, and the related statement of income, Partners' capital and changes
in financial position (not separately presented herein) for the period May 23,
1995 to December 31, 1995. These financial statements are the responsibility
of the Partnerships' management. Out responsibility is to express an opinion
on these financial statements based on our audit.
SCOPE
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
OPINION
In our opinion, the financial statements give a true and fair view of the
financial position of the Partnership as of December 31, 1995 and of the
result for the period May 23, 1995 through December 31, 1995 in accordance
with generally accepted accounting principles.
Philipsburg, April 9, 1996
Coopers & Lybrand
F-6
<PAGE>
SIGNATURE RESORTS, INC. AND COMBINED AFFILIATES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30
------------------------ -------------------------
1994 1995 1995 1996
----------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents... $ 1,854,572 $ 4,341,591 $ 3,140,087 $ 4,208,130
Cash in escrow.............. 2,427,190 1,945,856 1,049,712 1,158,606
Mortgages receivable, net of
an allowance of $1,570,886
and $2,433,361 at December
31, 1994 and 1995,
respectively, $2,459,252
and $2,714,498 at June 30,
1995 and 1996,
respectively............... 33,437,116 68,255,778 55,266,879 76,958,751
Due from affiliates......... -- 2,700,820 270,817 3,038,987
Other receivables, net...... 1,019,673 6,383,134 1,829,801 5,292,482
Notes receivable from
related parties............ -- -- -- --
Prepaid expenses and other
assets..................... 1,676,348 2,125,118 1,306,204 1,903,931
Investment in joint venture. 4,293,525 2,644,449 3,275,471 2,581,567
Real estate and development
costs...................... 33,452,751 46,757,151 31,938,689 73,705,265
Property and equipment, net. 437,092 1,863,579 1,650,661 2,331,919
Intangible assets, net...... 3,856,571 4,223,834 4,015,545 4,461,352
----------- ------------ ------------ ------------
Total assets................ $82,454,838 $141,241,310 $103,743,866 $175,640,990
=========== ============ ============ ============
LIABILITIES AND EQUITY
Accounts payable............ $ 1,190,072 $ 4,599,000 $ 735,200 $ 8,152,493
Accrued liabilities......... 5,931,911 12,010,938 13,103,371 8,717,443
Due to affiliates........... 138,245 1,422,098 213,249 831,220
Deferred income taxes....... -- -- -- --
Notes payable to financial
institutions............... 34,439,558 72,395,704 45,208,896 89,718,091
Notes payable to related
parties.................... 9,975,454 12,343,518 11,124,608 20,331,628
----------- ------------ ------------ ------------
Total liabilities........... 51,675,240 102,771,258 70,385,324 127,750,875
Commitment..................
Equity...................... 30,779,598 38,470,052 33,358,542 47,890,115
----------- ------------ ------------ ------------
Total liabilities and
equity..................... $82,454,838 $141,241,310 $103,743,866 $175,640,990
=========== ============ ============ ============
</TABLE>
See accompanying notes to the combined financial statements.
F-7
<PAGE>
SIGNATURE RESORTS, INC. AND COMBINED AFFILIATES
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31 ENDED JUNE 30
----------------------------------- -----------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Interval sales.......... $22,237,812 $40,269,401 $59,070,917 $28,798,744 $28,753,881
Interest income......... 1,825,483 3,683,302 6,928,862 2,920,778 4,201,915
Other income............ 372,697 337,487 6,607,999 639,958 5,975,052
----------- ----------- ----------- ----------- -----------
Total revenues.......... 24,435,992 44,290,190 72,607,778 32,359,480 38,930,848
COSTS AND OPERATING
EXPENSES
Interval cost of sales.. 5,707,542 12,393,647 15,649,805 8,260,182 6,802,918
Advertising, sales, and
marketing.............. 10,808,680 18,744,828 28,488,178 14,247,580 14,730,314
Loan portfolio:
Interest expense--
treasury............. 673,706 1,629,283 3,585,927 1,584,778 2,491,143
Other expenses........ 208,258 850,661 1,188,502 436,820 659,020
Provision for doubtful
accounts............. 618,650 923,129 1,786,811 920,508 688,132
General and
administrative:
Resort-level.......... 2,346,043 2,863,833 4,946,525 1,443,035 3,019,353
Corporate............. 877,134 874,137 1,607,413 653,114 1,603,718
Depreciation and
amortization........... 384,470 489,160 1,675,515 741,887 1,109,210
Interest expense--other. 518,612 958,628 475,693 182,771 1,346,615
Equity loss on
investment in joint
venture................ -- 271,475 1,649,076 1,018,054 62,882
----------- ----------- ----------- ----------- -----------
Total costs and
operating expenses..... 22,143,095 39,998,781 61,053,445 29,488,729 32,513,035
----------- ----------- ----------- ----------- -----------
Net income before taxes. 2,292,897 4,291,409 11,554,333 2,870,751 6,417,543
Income taxes............ -- -- 641,545 -- 53,287
----------- ----------- ----------- ----------- -----------
Net income.............. $ 2,292,897 $ 4,291,409 $10,912,788 $ 2,870,751 $ 6,364,256
=========== =========== =========== =========== ===========
PRO FORMA INCOME DATA
(UNAUDITED)
Net income before taxes. $ 2,292,897 $ 4,291,409 $11,554,333 $ 2,870,751 $ 6,417,543
Pro forma provision for
income taxes........... 878,966 1,617,913 4,348,822 1,084,120 2,434,358
----------- ----------- ----------- ----------- -----------
Pro forma net income.... $ 1,413,931 $ 2,673,496 $ 7,205,511 $ 1,786,631 $ 3,983,185
=========== =========== =========== =========== ===========
Pro forma net income per
common share........... -- -- $ 0.63 -- $ 0.35
Pro forma weighted
average common shares
outstanding............ -- -- 11,354,705 -- 11,354,705
</TABLE>
See accompanying notes to the combined financial statements.
F-8
<PAGE>
SIGNATURE RESORTS, INC. AND COMBINED AFFILIATES
COMBINED STATEMENTS OF EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
---------------
RETAINED MEMBERS'
EARNINGS EQUITY GENERAL LIMITED
SHARES AMOUNT (DEFICIT) (DEFICIT) PARTNERS PARTNERS TOTAL
------ -------- ---------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1993................... -- $ -- $ -- $ -- $ 77,124 $ 7,361,649 $ 7,438,773
Issuance of common
stock................. -- -- -- -- -- -- --
Contributions.......... -- -- -- -- 1,010 2,500,890 2,501,900
Distributions.......... -- -- -- -- (154,488) (240,890) (395,378)
Net income............. -- -- -- -- 17,269 2,275,628 2,292,897
--- -------- ---------- ----------- ---------- ----------- -----------
Balance at December 31,
1993................... -- -- -- -- (59,085) 11,897,277 11,838,192
Issuance of common
stock................. -- -- -- -- -- -- --
Contributions.......... -- -- -- -- 3,204,997 12,315,000 15,519,997
Distributions.......... -- -- -- -- -- (870,000) (870,000)
Net (loss) income...... -- -- (271,475) -- 183,363 4,379,521 4,291,409
--- -------- ---------- ----------- ---------- ----------- -----------
Balance at December 31,
1994................... -- -- (271,475) -- 3,329,275 27,721,798 30,779,598
Issuance of common
stock................. 200 22,000 -- -- -- -- 22,000
Contributions.......... -- 155,000 656,133 1,000 374,000 -- 1,186,133
Distributions.......... -- -- -- (2,438,000) (42,467) (1,950,000) (4,430,467)
Net income............. -- -- 2,050,680 1,004,385 515,536 7,342,187 10,912,788
--- -------- ---------- ----------- ---------- ----------- -----------
Balance at December 31,
1995................... 200 177,000 2,435,338 (1,432,615) 4,176,344 33,113,985 38,470,052
Issuance of common
stock................. -- -- -- -- -- -- --
Contributions.......... -- -- -- -- 3,444,307 -- 3,444,307
Distributions.......... -- -- -- (388,500) -- -- (388,500)
Net income............. -- -- 1,464,203 3,187,949 (73,613) 1,785,717 6,364,256
--- -------- ---------- ----------- ---------- ----------- -----------
Balance at June 30,
1996................... 200 $177,000 $3,899,541 $ 1,366,834 $7,547,038 $34,899,702 $47,890,115
=== ======== ========== =========== ========== =========== ===========
</TABLE>
See accompanying notes to the combined financial statements.
F-9
<PAGE>
SIGNATURE RESORTS, INC. AND COMBINED AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31 ENDED JUNE 30
---------------------------------------- --------------------------
1993 1994 1995 1995 1996
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income.............. $ 2,292,897 $ 4,291,409 $ 10,912,788 $ 2,870,751 $ 6,364,256
Adjustments to reconcile
net income to net cash
(used in) provided by
operating activities:
Depreciation and
amortization.......... 384,470 489,160 1,675,515 741,887 1,109,210
Provision for bad debt
expense............... 618,650 923,129 1,786,811 460,254 688,132
Equity loss on
investment in joint
venture............... -- 271,475 1,649,076 1,018,054 62,882
Changes in operating
assets and
liabilities:
Cash in escrow....... (413,591) (1,484,501) 481,334 1,377,478 787,250
Due from affiliates.. -- -- (2,700,820) (270,817) (338,167)
Prepaid expenses and
other assets........ (642,680) (1,033,668) (448,770) 370,144 221,187
Real estate and
development costs... (7,270,978) (17,671,125) (13,304,400) 1,514,062 (26,948,114)
Other receivables.... (87,870) (549,041) (5,363,461) (810,128) 1,090,652
Accounts payable..... 358,896 24,486 3,408,928 (454,872) 3,553,493
Accrued liabilities.. 1,451,996 3,682,475 6,079,027 7,171,460 (3,293,495)
Due to affiliates.... 45,730 92,515 1,283,853 75,004 (590,878)
------------ ------------ ------------ ------------ ------------
Net cash (used in)
provided by operating
activities............. (3,262,480) (10,963,686) 5,459,881 14,063,277 (17,293,592)
INVESTING ACTIVITIES
Expenditures for
investment in joint
venture................ -- (4,565,000) -- -- --
Expenditures for
property and equipment. (255,156) (221,248) (1,764,253) (1,646,354) (593,075)
Expenditures for
intangible assets...... (722,923) (3,146,546) (1,705,012) (468,076) (1,221,993)
Mortgages receivable.... (9,797,740) (17,007,472) (36,605,473) (22,290,017) (9,391,105)
------------ ------------ ------------ ------------ ------------
Net cash used in
investing activities... (10,775,819) (24,940,266) (40,074,738) (24,404,447) (11,206,173)
FINANCING ACTIVITIES
Proceeds from notes
payable................ 16,478,302 35,266,249 71,062,122 26,983,627 40,792,878
Payments on notes
payable................ (7,591,261) (16,358,188) (33,105,976) (16,214,289) (23,470,491)
Proceeds from notes
payable to related
parties................ 6,120,971 5,145,454 3,711,005 1,992,095 8,829,610
Payments on notes
payable to related
parties................ (1,773,209) (2,569,224) (1,342,941) (842,941) (841,500)
Equity contributions.... 2,501,900 15,519,997 1,208,133 621,312 3,444,307
Equity distributions.... (395,378) (870,000) (4,430,467) (913,119) (388,500)
------------ ------------ ------------ ------------ ------------
Net cash provided by
financing activities... 15,341,325 36,134,288 37,101,876 11,626,685 28,366,304
Net (decrease) increase
in cash and cash
equivalents............ 1,303,026 230,336 2,487,019 1,285,515 (133,461)
Cash and cash
equivalents, beginning
of period.............. 321,210 1,624,236 1,854,572 1,854,572 4,341,591
------------ ------------ ------------ ------------ ------------
Cash and cash
equivalents, end of
period................. $ 1,624,236 $ 1,854,572 $ 4,341,591 $ 3,140,087 $ 4,208,130
============ ============ ============ ============ ============
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION
Cash paid during the
period for interest.... $ 1,352,000 $ 3,646,117 $ 5,413,502 $ 2,843,039 $ 4,729,859
============ ============ ============ ============ ============
</TABLE>
See accompanying notes to the combined financial statements.
F-10
<PAGE>
SIGNATURE RESORTS, INC. AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. NATURE OF BUSINESS
Signature Resorts, Inc. and its combined affiliates (the Company) are
comprised of certain entities under common control. The Company generates
revenues from the sale and financing of timeshare interests in its resorts,
which typically entitle the owner to use a fully furnished vacation resort in
perpetuity, typically for a one-week period each year (each, a Vacation
Interval). The Company's principal operations consist of (1) developing and
acquiring vacation ownership resorts, (2) marketing and selling Vacation
Intervals at its resorts, (3) providing consumer financing for the purchase of
Vacation Intervals at its resorts, and (4) managing the operations of its
resorts. The entities comprising the combined Company consist of entities with
ownership interest in a resort property, entities providing services to a
resort property, and other entities not related to a particular resort
property. At December 31, 1995, the entities comprising the combined
affiliates are as follows:
<TABLE>
<CAPTION>
RESORT PROPERTY DATE ACQUIRED/OPENED
--------------- --------------------
<C> <S> <C>
Signature Resorts, Inc.
Cypress Pointe Resorts, L.P. Cypress Pointe Resort November 1992
Vacation Ownership Marketing Company Cypress Pointe Resort November 1992
Fall Creek Resort, L.P. Plantation at Fall Creek July 1993
Vacation Resort Marketing of Missouri,
Inc. Plantation at Fall Creek July 1993
Port Royal Resort, L.P. Royal Dunes Resort April 1994
Grand Beach Resort, Limited Embassy Vacation Resort
Partnership Grand Beach January 1995
Resort Marketing International-- Embassy Vacation Resort
Orlando Grand Beach January 1995
AKGI-Royal Palm, C.V.o.a. Royal Palm Beach Club July 1995
AKGI-Flamingo, C.V.o.a. Flamingo Beach Club August 1995
Premier Resort Management, Inc.
Resort Telephone & Cable of Orlando,
Inc.
USA Vacation Investors, L.P.
Kabushiki Gaisha Kei, LLC
Argosy/KOAR Group, Inc.
</TABLE>
For the year ended December 31, 1994, AKGI-Royal Palm, C.V.o.a., AKGI-
Flamingo, C.V.o.a., Premier Resort Management, Inc., Resort Telephone & Cable
of Orlando, Inc., USA Vacation Investors, L.P., Argosy/KOAR Group, Inc. and
Kabushiki Gaisha Kei, LLC had not been formed and, accordingly, did not form
part of the combined 1994 financial statements. For the year ended December
31, 1993, Grand Beach Resort, Limited Partnership, and Vacation Resort
Marketing of Missouri, Inc. had not been formed and, accordingly, did not form
part of the combined 1993 financial statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination
The combined financial statements include the accounts of Signature Resorts,
Inc. and the companies listed in Note 1, which are wholly-owned by common
interests. All significant intercompany transactions and balances have been
eliminated from these combined financial statements.
Quarterly Financial Statements
The unaudited quarterly combined financial statements at June 30, 1995 and
1996 and for the six months ended June 30, 1995 and 1996 do not include all
disclosures provided in the annual combined financial statements. These
quarterly statements should be read in conjunction with the accompanying
annual audited combined financial statements and the footnotes thereto.
Results for the 1996 quarterly period are not necessarily
F-11
<PAGE>
SIGNATURE RESORTS, INC. AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
indicative of the results to be expected for the year ending December 31,
1996. However, the accompanying quarterly financial statements reflect all
adjustments which are, in the opinion of management, of a normal and recurring
nature necessary for a fair presentation of the financial position and results
of operations of the Company. Unless otherwise stated, all information
subsequent to December 31, 1995 is unaudited.
Cash and Cash Equivalents
Cash and cash equivalents consist of all highly liquid investments purchased
with an original maturity of three months or less. Cash and cash equivalents
consist of cash and money market funds.
Cash in Escrow
Cash in escrow is restricted cash consisting of deposits received on sales
of Vacation Intervals that are held in escrow until a certificate of occupancy
is obtained or the legal recission period has expired.
Real Estate and Development Costs
Real estate is valued at the lower of cost or net realizable value.
Development costs include both hard and soft construction costs and together
with real estate costs are allocated to Vacation Intervals based upon their
relative sales values. Interest, taxes, and other carrying costs incurred
during the construction period are capitalized. The amount of interest
capitalized during 1994 and 1995 was $2,040,544 and $2,088,382, respectively.
In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company adopted Statement 121
in the first quarter of 1996 and there has been no material impact on the
Company's operations or financial position.
Property and Equipment
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful life of 3 to 7 years.
Depreciation and amortization expense related to property and equipment was
$25,562, $59,710 and $337,765 in 1993, 1994, and 1995, respectively. For the
six months ended June 30, 1995 and 1996, depreciation and amortization expense
was $432,785 and $124,735, respectively.
Intangible Assets
Start-up costs and organizational costs incurred in connection with the
formation of the Company have been capitalized and are being amortized on a
straight-line basis over a period of one year. Start-up costs relate to costs
incurred to develop a marketing program prior to receiving regulatory approval
to market the related property.
Financing and loan origination fees incurred in connection with obtaining
funding for the Company have been capitalized and are being amortized on a
straight-line basis over the life of the respective loans.
Revenue Recognition
The Company recognizes sales of Vacation Intervals on an accrual basis after
a binding sales contract has been executed, a 10% minimum down payment has
been received, the recision period has expired, construction is substantially
complete, and certain minimum sales levels have been achieved. If all the
criteria are met except that construction is not substantially complete, then
revenues are recognized on the percentage-of-completion
F-12
<PAGE>
SIGNATURE RESORTS, INC. AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(cost to cost) basis. For sales that do not qualify for either accrual or
percentage-of-completion accounting, all revenue is deferred using the deposit
method.
Revenues from resort management and maintenance services are recognized on
an accrual basis as earned.
Income Taxes
The Company and its combined affiliates include entities taxed as regular
corporations at the corporate level, as S corporations taxable at the
shareholder level, or as partnerships taxable at the partner level.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. ACCOUNTS RECEIVABLE
The Company has accrued insurance claims as a result of hurricane damage to
the Royal Palm and Flamingo properties in St. Maarten of $3.8 million at
December 31, 1995. The receivable consists of property insurance claims of
$1.8 million and business interruption insurance claims of $2 million. The
Company has submitted additional claims above the $2.0 million accrued for
business interruption insurance and is in negotiations regarding these claims.
4. MORTGAGES RECEIVABLE
The Company provides financing to the purchasers of Vacation Intervals which
are collateralized by their interest in such Vacation Intervals. The mortgages
receivable bear interest at the time of issuance of between 12% and 17% and
remain fixed over the term of the loan, which is seven to ten years. The
weighted average rate of interest on outstanding mortgages receivable is 15%.
At December 31, 1994 and 1995, mortgages in the amount of $823,251 and
$1,796,060, respectively, are noninterest bearing. These mortgages have not
been discounted as management has determined that the effect would not be
material on the combined financial statements.
Additionally, the Company has accrued interest receivable related to
mortgages receivable of $415,127 and $860,776 at December 31, 1994 and 1995,
respectively, and $552,768 and $1,065,114 at June 30, 1995 and June 30, 1996,
respectively. The accrued interest receivable at December 31, 1995 and June
30, 1996 is net of an allowance for doubtful accounts of $151,201 and
$200,891, respectively.
The following schedule reflects the principal maturities of mortgages
receivable:
<TABLE>
<S> <C>
Year ended December 31:
1996...................................................... $ 6,347,717
1997...................................................... 7,230,664
1998...................................................... 8,422,516
1999...................................................... 9,778,920
2000...................................................... 11,315,961
Thereafter................................................ 27,593,361
-----------
Total principal maturities of mortgages receivable........ 70,689,139
Less allowance for doubtful accounts...................... (2,433,361)
-----------
Net principal maturities of mortgages receivable.......... $68,255,778
===========
</TABLE>
The Company considers all mortgages receivable past due more than 60 days to
be delinquent. At December 31, 1995, $4,670,000 of mortgages receivable were
delinquent.
At December 31, 1995, the Company estimated that $1,560,000 of additional
costs would be incurred related to Vacation Intervals sold or Vacation
Intervals currently available for sale. Obligations related to such
improvements are insignificant.
F-13
<PAGE>
SIGNATURE RESORTS, INC. AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The activity in the mortgages receivable allowance for doubtful accounts is
as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
----------------------
1994 1995 1995 1996
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Balance, beginning of the peri-
od............................ $ 798,441 $1,570,886 $1,570,886 $2,433,361
Provision...................... 923,129 1,786,811 920,508 668,132
Receivables charged off........ (150,684) (924,336) (32,142) (406,995)
---------- ---------- ---------- ----------
Balance, end of the period..... $1,570,886 $2,433,361 $2,459,252 $2,714,498
========== ========== ========== ==========
</TABLE>
5. REAL ESTATE AND DEVELOPMENT COSTS
Real estate and development costs and accumulated cost of sales consist of
the following:
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30
-------------------------- --------------------------
1994 1995 1995 1996
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Land.................... $ 18,102,052 $ 19,734,459 $ 18,252,019 $ 21,293,881
Development costs, ex-
cluding capitalized
interest............... 33,718,050 57,969,594 39,368,099 88,801,956
Capitalized interest.... 2,730,363 5,300,400 4,279,538 6,471,875
------------ ------------ ------------ ------------
Total real estate and
development costs...... 54,550,465 83,004,453 61,899,656 116,567,712
Less accumulated cost of
sales.................. (21,097,714) (36,247,302) (29,960,967) (42,862,447)
------------ ------------ ------------ ------------
Net real estate and de-
velopment costs........ $ 33,452,751 $ 46,757,151 $ 31,938,689 $ 73,705,265
============ ============ ============ ============
</TABLE>
F-14
<PAGE>
SIGNATURE RESORTS, INC. AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
6. INVESTMENT IN JOINT VENTURE
The Company is the managing general partner of the Poipu Partnership, the
partnership which directly owns the Embassy Vacation Resort at Poipu Point, a
venture that acquired a 219 unit condominium project situated on 22 acres of
oceanfront land at Koloa, Kauai, Hawaii (the "Property"). The sole purpose of
the venture is to hold the Property for sale in phases as Vacation Intervals
while generating revenues from transient rentals as the Vacation Intervals are
being sold. As managing general partner, the Company holds a 0.5% partnership
interest for purposes of distributions, profits and losses. The Company is
also a limited partner of the Poipu Partnership and holds a 29.93% partnership
interest for purposes of distributions, profits and losses, for a total
partnership interest of 30.43%. In addition, following repayment of any
outstanding partner loans, the Company is entitled to receive a 10% per annum
return on the Founders' and certain former limited partners' initial capital
investment of approximately $4.6 million in the Poipu Partnership. After
payment of such preferred return and the return of approximately $4.6 million
of capital to the Company on a pari passu basis with the other partner in the
partnership, the Company is entitled to receive approximately 50% of the net
profits of the Poipu Partnership. In the event certain internal rates of
return specified under the partnership agreement are achieved, the Company is
entitled to receive approximately 55% of the net profits of the Poipu
Partnership.
Summarized financial information as of December 31 relating to the Company's
investment is as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Mortgages receivable........................................ $ -- $ 3,474
Timeshare inventory......................................... -- 3,248
Net property and equipment.................................. 42,188 39,287
Total assets................................................ 45,553 50,696
Notes payable............................................... 30,300 35,494
Advances from partners...................................... -- 4,000
Partners' capital........................................... 14,108 8,688
Revenues.................................................... 491 10,119
Net loss.................................................... 892 5,419
</TABLE>
7. INTANGIBLE ASSETS
Intangible assets and accumulated amortization consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30
----------------------- ------------------------
1994 1995 1995 1996
---------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Organizational costs........ $3,200,510 $ 3,884,581 $ 3,384,338 $ 4,332,426
Start-up costs.............. 538,364 713,319 672,837 1,170,173
Loan origination fees....... 349,380 522,378 499,380 522,378
Financing fees.............. 698,229 1,444,242 894,413 1,517,914
---------- ----------- ----------- -----------
Total intangible assets..... 4,786,483 6,564,520 5,450,968 7,542,891
Less accumulated
amortization............... (929,912) (2,340,686) (1,435,423) (3,081,539)
---------- ----------- ----------- -----------
Net intangible assets....... $3,856,571 $ 4,223,834 $ 4,015,545 $ 4,461,352
========== =========== =========== ===========
</TABLE>
Amortization expense related to intangible assets was $358,908, $429,450,
and $1,337,750 in 1993, 1994 and 1995, respectively. For the six months ended
June 30, 1995 and 1996, amortization expense was $309,102 and $984,475,
respectively.
F-15
<PAGE>
SIGNATURE RESORTS, INC. AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
8. NOTES PAYABLE
Notes payable to financial institutions consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30
----------------------- -----------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Construction loans payable not
to exceed $53 million in the
aggregate, interest payable
monthly at prime plus 2%
(10.5% and 10.65% at December
31, 1994 and 1995,
respectively, and 11% and
10.25% at June 30, 1995 and
1996, respectively),
principal and all accrued
interest due on dates ranging
from February 1996 to May
1998, collateralized by
substantially all the assets
of the certain combined
entities..................... $ 4,573,849 $ 9,267,391 $ 4,540,795 $13,573,841
Construction and acquisition
loan payable, due October
31,1998 with interest payable
monthly at LIBOR plus 4.25%
(9.94% at December 31, 1995
and 10.38% and 9.75% at June
30, 1995 and 1996,
respectively), secured by
land, improvements and
timeshare interests.......... -- 1,897,716 619,034 2,418,228
Revolving lines of credit not
to exceed $145 million in the
aggregate (limited by
eligible collateral), with
interest payable monthly at
rates ranging from prime plus
2% to prime plus 3%
(10.5% to 11.5% and 10.65% to
11.65% at December 31, 1994
and 1995, respectively, and
11% to 12% and 10.25% to
11.25% at June 30, 1995 and
1996, respectively), payable
in monthly installments of
principal and interest equal
to 100% of all proceeds of
the receivables collateral
collected during the month
but not less than the accrued
interest, with any remaining
principal due seven to ten
years after the date of the
last advance related to
mortgages receivable,
collateralized by specific
mortgages receivable......... 19,357,724 37,858,352 26,132,002 44,555,029
Revolving line of credit of
$10 million, collateralized
by certain mortgages
receivable with interest
payable at LIBOR plus 4.25%
(9.94% at
December 31, 1995 and 10.38%
and 9.75% at June 30, 1995
and 1996, respectively),
payable in monthly
installments of principal and
interest equal to 100% of all
proceeds of the receivables
collateral collected during
the month but not less than
the accrued interest, with
any remaining principal due
October 31, 2003............. -- 1,571,070 3,218,000 3,064,278
</TABLE>
F-16
<PAGE>
SIGNATURE RESORTS, INC. AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30
----------------------- -----------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revolving line of credit of
$15 million, with interest
payable at prime plus 2.5%
(11% and 11.5% at
December 31, 1994 and June
30, 1995, respectively), and
prime plus 2% (10.65% and
10.75% at December 31, 1995
and June 30, 1996,
respectively), secured by
specific mortgages
receivable, due ten years
after the date on which the
last advance related to the
mortgages receivable is made. $ 2,287,245 $ 4,058,306 $ 4,079,688 $ 3,655,013
Revolving line of credit of
$6.0 million, with interest
payable at prime plus 3%
(11.65% and 11.25% at
December 31, 1995 and June
30, 1996, respectively),
maturing seven years after
the date of the last advance,
secured by mortgages
receivable................... -- 3,873,513 -- 3,249,659
Working capital loan payable,
due September 30, 1995, with
interest payable monthly at
prime plus 2.5% (11% and
11.5% at December 31, 1994
and June 30, 1995,
respectively), secured by
time-share interests and with
total borrowings allowable of
$2,425,000................... 1,046,080 -- -- --
Working capital notes payable
of $5.5 million, with
interest payable at rates
ranging from prime plus 2% to
prime plus 2.5%, (10.65% to
11.15% at December 31, 1995),
due on dates ranging from
July 1997 to November 1997,
collateralized by certain
mortgage receivables......... -- 521,397 -- --
Acquisition loans payable of
$9.85 million, with interest
payable at prime plus 3%
(11.65% and 11.25% at
December 31, 1995 and June
30, 1996, respectively), due
on dates ranging from January
1998 to April 1998, payable
with a portion of the
proceeds received on the sale
of Vacation Intervals,
collateralized by specific
mortgages receivable......... -- 5,998,283 -- 7,012,650
Acquisition/construction loan
payable of $9 million, with
interest payable at prime
plus 2% (10.25% at June 30,
1996), due by June 13, 1999,
payable with a portion of the
proceeds received on the sale
of Vacation Intervals........ -- -- -- 2,576,545
Land loan payable of $2.3
million, $1.8 million with
interest payable at 18% and
$0.5 million at a 0% interest
rate, payable with a portion
of the proceeds received on
the sale of Vacation
Intervals.................... -- -- -- 2,300,000
Land purchase obligation at
the Fall Creek Plantation
property (see note 9 for
further discussion).......... -- 1,500,000 -- 714,535
Noninterest bearing purchase
money mortgage note, payable
in annual installments of $2
million with final payment
due November 5, 1997, net of
a discount of $825,340 and
$411,577 at December 31, 1994
and 1995, respectively....... 7,174,660 5,588,423 6,500,000 5,000,000
Other notes payable........... -- 261,253 119,377 1,598,313
----------- ----------- ----------- -----------
Total notes payable........... $34,439,558 $72,395,704 $45,208,896 $89,718,091
=========== =========== =========== ===========
</TABLE>
F-17
<PAGE>
SIGNATURE RESORTS, INC. AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Under the terms of the revolving lines of credit agreements, the Company may
borrow from 85% to 90% of the balances of the pledged mortgages receivable. Of
the aggregate of $97 million borrowings available under these certain
agreements, the borrowing capacity expires seven to ten years after the date
on which the last advance related to mortgages receivable was executed.
Of the aggregate of $25 million available in construction loans payable,
$2.1 million of availability expires on February 28, 1996, $5.9 million
expires on March 31, 1996, $2.8 million expires on January 31, 1997,
$8.0 million expires January 14, 1998, $6.2 million expires on May 9, 1998,
and $28 million expires on April 30, 2000.
The loans contain certain covenants, the most restrictive of which requires
certain of the combined affiliates to maintain a minimum net worth, as defined
in the related loan agreement. In addition, the loan agreements contain
certain covenants restricting distributions to partners and additional
borrowings. At December 31, 1995, $18.4 million of equity was specifically
restricted from payment of distributions.
At December 31, 1995, contractual maturities of mortgages and other notes
payable over the next five years and thereafter, excluding first mortgage
notes payable and revolving lines of credit totaling $54,859,524 as these
amounts are payable based on established release prices or from excess cash
flows related to certain timesharing week sales, are as follows:
<TABLE>
<CAPTION>
Due in fiscal year
<S> <C>
1996....................................................... $ 8,906,686
1997....................................................... 4,886,527
1998....................................................... 3,655,080
1999....................................................... 29,129
2000....................................................... 32,227
Thereafter................................................. 26,531
-----------
$17,536,180
===========
</TABLE>
9. LAND PURCHASE AGREEMENT AND RELATED DEBT
The Company has entered into an agreement to purchase approximately 140
acres of land (the Property) at its Fall Creek Resort in Branson, Missouri,
upon which it intends to construct Vacation Intervals. The property is to be
acquired in four phases in four separate closings at a total purchase price of
$6 million. The first closing has occurred with the Company acquiring the land
for its first stage of development for $2 million. The second closing will
occur upon the settlement of a noninterest bearing land purchase obligation of
$1.5 million which will be paid as units are sold. The Company has the right
but not the obligation to acquire the other two phases under similar land
purchase obligations totaling $2.5 million.
10. RELATED-PARTY TRANSACTIONS
The Company has accrued $652,164 and $1,418,022 as a receivable and payable,
respectively, at December 31, 1995 with the condominium associations of the
various resorts. The related party payable to the condominium associations at
December 31, 1995 included $1,029,900 of a special assessment fee charged to
the Company. At December 31, 1994, the Company had accrued a payable of
$138,245 to the various condominium associations of the resorts. At June 30,
1995 and 1996, the Company has accrued a receivable of $26,641 and $1,682,437
and a payable of $158,445 and $815,536, respectively.
The Company has recorded a receivable of $1,153,829 and $120,697 from AKGI
Ski Run and AKGI San Luis Bay, properties to be acquired by the Company,
respectively, at December 31, 1995 for start-up costs at the properties
incurred by the Company.
F-18
<PAGE>
SIGNATURE RESORTS, INC. AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
In May of 1996 the Company purchased the land at Lake Tahoe (AKGI Ski Run)
for $8,715,382. The Company also purchased 1,018 Vacation Intervals, land and
defaulted promissory notes of the San Luis Bay Inn for $2,854,000 in June
1996.
Included in due from affiliates at December 31, 1995 and June 30, 1996 is
approximately $310,000 and $1,356,600 respectively, relating to expenses paid
on behalf of related parties to be subsequently reimbursed.
The Company also made payments of $925,122 and $295,011 during the twelve
months ended December 31, 1994 and 1995, respectively, to Sevelex Consultants,
Inc., an affiliate of the Company, for construction consulting and expense
reimbursement. For the six months ended June 30, 1995 and 1996, payments of
$261,782 and $-0-, respectively, were made to Sevelex Consultants, Inc.
Notes payable to related parties consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30
---------------------- -----------------------
1994 1995 1995 1996
---------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Notes payable to CPI
Securities, L.P., an affiliate
of a limited partner, with
interest at 10%, payable
monthly and the entire
principal balance and all
accrued interest due on
January 4, 1995............... $ 182,513 $ -- $ -- $ --
Notes payable to CPI
Securities, L.P., an affiliate
of a limited partner, with
interest at 12%, payable
monthly and the entire
principal balance and all
accrued interest due on
December 31, 1996 [see (a)
below]........................ 2,722,250 2,722,250 2,722,250 3,277,800
Notes payable to Grace
Investments, Ltd. one of the
limited partners, with
interest at 12% payable
monthly, due on December 31,
1996 [see (a) below].......... 1,666,650 1,666,650 1,666,650 2,222,200
Notes payable to Dickstein &
Company, L.P., a limited
partner, with interest payable
monthly at 12%, due on
December 31, 1996 [see (a)
below]........................ 1,111,100 1,111,100 1,111,100 --
Notes payable to certain
employees, investors, and
partners, with monthly
principal payments of
$100,000, plus interest at
12%, with additional interest
of $325 per interval sold..... 4,000,000 2,900,000 3,500,000 2,300,000
Acquisition loan payable with
interest payable at 12%, due
on December 31, 1996.......... -- 1,495,000 -- 1,495,000
Notes payable to partners, with
interest accrued at 16%,
payable on demand............. -- 2,157,018 2,124,608 2,167,751
Notes payable to partners, with
interest payable monthly at
18%, any unpaid interest and
all principal due by June 30,
1997.......................... -- -- -- 8,500,000
Other.......................... 292,941 291,500 -- 368,877
---------- ----------- ----------- -----------
Total notes payable to related
parties....................... $9,975,454 $12,343,518 $11,124,608 $20,331,628
========== =========== =========== ===========
</TABLE>
F-19
<PAGE>
SIGNATURE RESORTS, INC. AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(a) On January 1, 1996, the notes were amended to require interest at 13%
payable monthly. On March 1, 1996, CPI and Grace each assumed 50% of the
note payable to Dickstein. Minimum principal payments required under the
amendments are as follows:
<TABLE>
<CAPTION>
LENDER
---------------------
CPI GRACE
---------- ----------
<S> <C> <C>
1997............................................... $ 596,000 $ 404,000
1998............................................... 1,192,000 808,000
1999............................................... 1,489,800 1,010,200
---------- ----------
$3,277,800 $2,222,200
========== ==========
</TABLE>
Additional principal payments are required based on annual cash flows in
excess of projected amounts.
Beginning on the earlier of January 1, 1997 or the date of sale of the five
thousand one hundred and first (5,101) Vacation Interval sold, additional
interest is due to each lender for each Vacation Interval or alternate year
Vacation Interval sold. The amount due for each Vacation Interval sold is $150
and $101 to CPI and Grace, respectively.
Aggregate maturities of notes payable to related parties in the next five
years are as follows:
<TABLE>
<S> <C>
1996......................................................... $ 6,143,518
1997......................................................... 3,200,000
1998......................................................... 3,000,000
-----------
$12,343,518
===========
</TABLE>
11. COMMITMENT
The Company entered into a license agreement in April 1994 with Embassy
Vacation Resorts, a division of Embassy Suites, Inc. (ESI), to franchise the
Grand Beach property. The license allows the resort to be operated and
marketed as an "Embassy Vacation Resort." It provides for ESI to be paid a
percentage of net sales of the Embassy Vacation Resort property. Additional
terms are stated in the related license agreement.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments, requires that the Company disclose estimated
fair values for its financial instruments. The following methods and
assumptions were used by the Company in estimating its fair value disclosures
for financial instruments:
Cash and cash equivalents and cash in escrow: The carrying amount reported
in the balance sheet for cash and cash equivalents and cash in escrow
approximates its fair value.
Mortgages receivable: The carrying amount reported in the balance sheet for
mortgages receivable approximates its fair value because the weighted average
interest rate on the portfolio of mortgages receivable approximates current
interest rates to be received on similar current mortgages receivable.
Notes payable and notes payable to related parties: The carrying amount
reported in the balance sheet for notes payable approximates its fair value
because the interest rates on these instruments approximate current interest
rates charged on similar current borrowings.
F-20
<PAGE>
SIGNATURE RESORTS, INC. AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments at December 31:
<TABLE>
<CAPTION>
1994 1995
----------------------- -----------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash and cash equivalents... $ 1,854,572 $ 1,854,572 $ 4,341,591 $ 4,341,591
Cash in escrow.............. 2,427,190 2,427,190 1,945,856 1,945,856
Mortgages receivable........ 33,437,116 33,437,116 68,255,778 68,255,778
Notes payable............... 34,439,558 34,439,558 72,395,704 72,395,704
Notes payable to related
parties.................... 9,975,454 9,975,454 12,343,518 12,343,518
</TABLE>
13. OTHER INCOME
Other income for the year ended December 31, 1995 primarily consists of
business interruption insurance proceeds of $2,000,000, income from purchased
mortgages receivable of $2,180,000, rental income of $1,293,000 and management
fees of $841,000. Included in other income for the six months ended June 30,
1996 is $2,067,056 of income from purchased mortgages receivable, $828,651 of
rental income and $517,901 of management fees.
14. PRO FORMA DISCLOSURES (UNAUDITED)
The Company has a pending public offering for the sale of common stock (the
"Offering"). Upon consummation of the Offering, the Company will be subject to
federal, state and foreign income taxes from the effective date of the sale of
the common stock. In addition, the Company will be required to provide a
deferred tax liability for cumulative temporary differences between financial
reporting and tax reporting by recording a provision for such deferred taxes
in its statement of income for the period following the effective date of the
Offering. Such deferred taxes will be based on the cumulative temporary
differences at the date of restructuring.
The unaudited pro forma provision for income taxes represents the estimated
income taxes that would have been reported had the Company filed federal,
state and foreign income tax returns as a regular corporation. The following
summarizes the unaudited pro forma provision for income taxes:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31 JUNE 30
------------------------------- ---------------------
1993 1994 1995 1995 1996
-------- ---------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal............... $405,552 $ 361,290 $ 1,579,424 $ 636,360 $1,199,789
States................ 41,148 -- 4,934 -- 87,708
Foreign............... -- -- 662,288 -- 68,270
-------- ---------- ----------- ---------- ----------
446,700 361,290 2,246,646 636,360 1,355,767
Deferred:
Federal............... 346,393 1,018,602 1,476,865 288,265 825,588
States................ 85,873 238,021 633,808 159,495 267,986
Foreign............... -- -- (8,497) -- (14,983)
-------- ---------- ----------- ---------- ----------
432,266 1,256,623 2,102,176 447,760 1,078,591
-------- ---------- ----------- ---------- ----------
Unaudited pro forma
provision for income
taxes.................. $878,966 $1,617,913 $ 4,348,822 $1,084,120 $2,434,358
======== ========== =========== ========== ==========
</TABLE>
F-21
<PAGE>
SIGNATURE RESORTS, INC. AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The reconciliation between the unaudited pro forma statutory provision for
income taxes and the unaudited pro forma actual provision for income taxes is
shown as follows for the year ended December 31:
<TABLE>
<CAPTION>
1993 1994 1995
-------- ---------- ----------
<S> <C> <C> <C>
Income tax at federal statutory rate...... $779,585 $1,459,079 $3,928,474
State tax, net of federal benefit......... 97,521 156,862 422,336
Foreign tax, net of federal benefit....... -- -- (8,497)
Nondeductible expenses.................... 1,860 1,972 6,509
-------- ---------- ----------
Unaudited pro forma provision for income
taxes.................................... $878,966 $1,617,913 $4,348,822
======== ========== ==========
</TABLE>
Deferred income taxes reflect the net tax affects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
components of the pro forma net deferred tax liabilities were as follows for
the year ended December 31:
<TABLE>
<CAPTION>
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Deferred tax assets:
Book over tax depreciation....... $ -- $ -- $ 28,142
Book over tax amortization....... 16,870 -- 218,340
Allowance for doubtful accounts.. 258,859 621,128 1,355,617
Gain on foreclosure.............. -- -- 203,716
Start-up costs................... 96,794 96,794 96,794
Net operating loss carryforward.. -- 1,048,417 --
Federal benefit of state deferred
tax............................. 67,830 148,712 364,207
Foreign tax credit carryover..... -- -- 632,007
Minimum tax credit carryover..... 561,679 922,969 2,502,393
----------- ----------- -----------
Total deferred tax assets.......... 1,002,032 2,838,020 5,401,216
Deferred tax liabilities:
Tax over book depreciation....... (20,374) (29,334) --
Tax over book amortization....... -- (40,033) --
Installment sales................ (1,771,627) (4,124,917) (8,586,188)
Marketing and commissions........ (18,443) (456,322) (568,394)
Deferred sales................... -- (281,931) (82,903)
Interest capitalization, net of
recovery........................ -- 56,688 (453,097)
Other............................ 14,141 (13,065) 127,799
----------- ----------- -----------
Total deferred tax liabilities..... (1,796,303) (4,888,914) (9,562,783)
----------- ----------- -----------
Pro forma net deferred tax
liabilities....................... $ (794,271) $(2,050,894) $(4,161,567)
=========== =========== ===========
</TABLE>
Additionally, certain of the Company's combined affiliates include foreign
corporations which are taxed at a regular rate of 45%. The Company has filed a
request for a tax holiday for AKGI-Royal Palm C.V.o.a. This request has been
verbally approved by the Chairman of the Tax Facility which effectively
reduces the tax to 2%. This 2% tax liability rate will be in effect up to and
including the fiscal year 1997. Generally, a foreign tax credit is allowed for
any taxes paid on foreign income up to the amount of U.S. tax.
F-22
<PAGE>
The following photos and charts are depicted:
Photo 7 Plantation at Fall Creek - Branson, Missouri
- ------- Photo of exterior resort structure from parking area of Plantation at
Fall Creek - Branson, Missouri
Photo 8 Photo of riverboat near plantation at Fall Creek - Branson, Missouri
- -------
Photo 9 Flamingo Beach Club - St. Maarten, Netherlands, Antilles
- ------- Interior photo from living room at kitchen and balcony --
overlooking ocean
Photo 10 Flamingo Beach Club - St. Maarten, Netherlands, Antilles
- -------- Beach perspective photo of resort set against ocean
Photo 11 Embassy Vacation Resort Grand Beach - Orlando, Florida
- -------- Balcony perspective photo overlooking water
Photo 12 Embassy Vacation Resort Grand Beach - Orlando, Florida
- -------- Pier perspective photo of resort set adjacent to water
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or by any of the
Underwriters. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any security other than the registered
securities to which this Prospectus relates or any offer to any person in any
jurisdiction where such an offer would be unlawful. Neither the delivery of
this Prospectus nor any sale made hereunder shall, under any circumstances,
create any implication that the information herein is correct as of any time
subsequent to the date hereof.
------------------
TABLE OF CONTENTS
------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 12
Use of Proceeds........................................................... 24
Dividend Policy........................................................... 24
Consolidated Capitalization............................................... 25
Dilution.................................................................. 26
Selected Combined Historical Financial Information........................ 27
Selected Combined Pro Forma Financial Information......................... 29
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 32
Business.................................................................. 38
Management................................................................ 59
Certain Relationships and Related Transactions............................ 68
Consolidation Transactions................................................ 69
Principal Stockholders.................................................... 71
Description of Capital Stock.............................................. 72
Certain Provisions of Maryland Law and of the Company's Charter and
Bylaws................................................................... 73
Shares Eligible for Future Sale........................................... 76
Underwriting.............................................................. 78
Legal Matters............................................................. 79
Experts................................................................... 79
Additional Information.................................................... 80
Index to Combined Financial Statements.................................... F-1
</TABLE>
Until , 1996 all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be required
to deliver a Prospectus. This is in addition to the obligation of dealers to
deliver a Prospectus when acting as underwriters and with respect to their
unsold allotment or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5,250,000 SHARES
[LOGO]
SIGNATURE RESORTS, INC.
COMMON STOCK
---------------
PROSPECTUS
---------------
MONTGOMERY SECURITIES
GOLDMAN, SACHS & CO.
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated costs and expenses, other than
underwriting discounts and commissions, in connection with the sale and
distribution of the shares of Common Stock being registered hereby.
<TABLE>
<S> <C>
Commission Registration Fee...................................... $31,229
NASD filing fee.................................................. 9,557
Accounting fees and expenses..................................... *
Blue Sky fees and expenses....................................... *
Legal fees and expenses.......................................... *
Printing and engraving expenses.................................. *
Transfer Agent fees.............................................. *
Miscellaneous expenses........................................... *
-------
TOTAL.......................................................... $ *
=======
</TABLE>
- --------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is a Maryland corporation. Section 2-418 of the Maryland General
Corporation Law empowers the Company to indemnify, subject to the standards
set forth therein, any person who is a party in any action in connection with
any action, suit or proceeding brought or threatened by reason of the fact
that the person was a director, officer, employee or agent of such company, or
is or was serving as such with respect to another entity at the request of
such company. The Maryland General Corporation Law also provides that the
Company may purchase insurance on behalf of any such director, officer,
employee or agent.
The Company's Charter and Bylaws provide in effect for the indemnification
by the Company of each director and officer of the Company to the fullest
extent permitted by applicable law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In connection with the Consolidation Transactions in June 1996, investors in
the Property Partnerships and the Affiliated Entities agreed to contribute
their interests in such entities to the Company in return for the issuance of
11,354,705 shares of the Company's common stock, $.01 par value. Such
securities were issued by the Company in reliance upon an exemption from the
registration requirements of the Securities Act provided by Section 4(2)
thereof.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
A list of exhibits filed with this Registration Statement on Form S-1 is set
forth in the Index to Exhibits on page E-1, and is incorporated herein by
reference.
(b) Financial Statement Schedules
None. Schedules are omitted because of the absence of the conditions under
which they are required or because the information required by such omitted
schedules is set forth in the financial statements or the notes thereto.
II-1
<PAGE>
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrants pursuant to the foregoing provisions, or otherwise, the
registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrants of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrants will, unless
in the opinion of their counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by them is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(b) The registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(c) The registrant hereby undertakes to provide to the underwriter at the
closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Signature Resorts, Inc. has duly caused this Amendment No. 3 to Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Los Angeles, State of California, on August 8,
1996.
SIGNATURE RESORTS, INC.
By: /s/ Andrew J. Gessow
-----------------------------------
Name: Andrew J. Gessow
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman of the Board and August 7, 1996
____________________________________ Chief Executive Officer
Osamu Kaneko (Principal Executive
Officer)
/s/ Andrew J. Gessow Director and President August 7, 1996
____________________________________
Andrew J. Gessow
* Director, Chief Operating August 7, 1996
____________________________________ Officer and Secretary
Steven C. Kenninger
/s/ Charles C. Frey Chief Financial Officer and August 7, 1996
____________________________________ Treasurer (Principal
Charles C. Frey Financial and Accounting
Officer)
* Executive Vice President and August 7, 1996
____________________________________ Director
James E. Noyes
* Director August 7, 1996
____________________________________
Juergen Bartels
* Director August 7, 1996
____________________________________
Sanford R. Climan
* Director August 7, 1996
____________________________________
Joshua S. Friedman
* Director August 7, 1996
____________________________________
W. Leo Kiely III
* Power of Attorney by
/s/ Andrew J. Gessow
____________________________________
Andrew J. Gessow
President
</TABLE>
II-3
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
1.1 Form of Underwriting Agreement among Signature Resorts, Inc.,
Montgomery Securities and Goldman, Sachs & Co. dated as of
, 1996+
3.1 Charter of Signature Resorts, Inc.+
3.2 Bylaws of Signature Resorts, Inc.+
4.1 Form of Stock Certificate of Signature Resorts, Inc.+
5.1 Form of Opinion of Ballard, Spahr, Andrews & Ingersoll
regarding the validity of the Common Stock being registered
(including consent)+
10.1 Form of Registration Rights Agreement among Signature Resorts,
Inc. and the persons named therein+
10.2.1 Form of Employment Agreements between Signature Resorts, Inc.
and each of Osamu Kaneko, Andrew J. Gessow and Steven C.
Kenninger+
10.2.2 Employment Agreement between Signature Resorts, Inc. and James
E. Noyes+
10.3 1996 Equity Participation Plan of Signature Resorts, Inc.+
10.4 Agreement of Limited Partnership of Pointe Resort Partners,
L.P. (subsequently renamed Poipu Resort Partners L.P.) dated
October 11, 1994+
10.5 Signature Resorts, Inc. Employee Stock Purchase Plan+
10.6 Agreement between W&S Hotel L.L.C. and Argosy/KOAR Group, Inc.
dated as of May 3, 1996
21.1 Subsidiaries of Signature Resorts, Inc.+
23.1 Consent of Ballard, Spahr, Andrews & Ingersoll (included as
part of Exhibit 5.1)+
23.2 Consent of Ernst & Young LLP
23.3 Consents of Coopers & Lybrand LLP
23.4 Consent of Director Nominee Juergen Bartels+
23.5 Consent of Director Nominee Joshua S. Friedman+
23.6 Consent of Director Nominee Sanford R. Climan+
23.7 Consent of Director Nominee W. Leo Kiely, III+
24.1 Power of Attorney+
</TABLE>
- --------
* to be filed by amendment
+ previously filed
<PAGE>
EXHIBIT 10.6
AGREEMENT BETWEEN
W&S HOTEL L.L.C. & ARGOSY/KOAR GROUP, INC.
May 3, 1996
This shall constitute a binding agreement (the "Agreement") between W&S
Hotel L.L.C., a Delaware limited liability company (in which funds managed by
affiliates of The Goldman Sachs Group L.P. and Starwood Capital Group L.P. are
members) ("Westin"), and Argosy/KOAR Group, Inc., a Georgia corporation, with
respect to the exclusive right of W&S Hotel L.L.C. or Westin Hotel Company
("Westin") and a public company to be formed by the principals of Argosy/KOAR,
Inc. (which public company, for the purposes of this Agreement, shall be
referred to herein as "AKGI") to co-develop Westin Vacation Clubs for the term
of a definitive joint venture agreement to be negotiated by the parties
immediately after the execution hereof (the "Joint Venture Agreement"). W&S
Hotel L.L.C. or Westin may, at its option, designate another entity controlled
by The Goldman Sachs Group L.P. and Starwood Capital Group L.P. or their
affiliates or multiple investor funds managed by affiliates of The Goldman
Sachs Group L.P. and Starwood Capital Group L.P. to make the investments and
developments contemplated by this Agreement. This Agreement sets forth the
substance of the Joint Venture Agreement as follows:
1. TRANSACTION.
a. Board Representation. Westin will make one non-voting board seat
available to AKGI, and the holder(s) thereof will be entitled to attend all
Westin board meetings (as determined by the Westin board) and receive all non-
confidential information and one set of directors' fees and other compensation
given to board members. Any of Sam Kaneko, Jody Gessow and Steve Kenninger may
interchangeably hold such board seat. AKGI will make one voting board seat
available to Westin/Goldman/Starwood, and Westin shall receive, in respect of
such voting board seat, director's fees and other compensation and
reimbursement of expenses received by the other voting members of the AKGI
board. The holder of such board seat shall be entitled to bring to all of the
non-confidential portions of each AKGI board meeting (as determined by the
AKGI board) such advisors as he deems appropriate. Westin's board member on
the AKGI board will be Juergen Bartels, and in the event Mr. Bartels shall no
longer serve on, or not be nominated to serve on, the AKGI Board of Directors,
Westin shall have the right to designate a successor to Mr. Bartels, which
successor shall be subject to the reasonable approval of the AKGI Board of
Directors. AKGI agrees to use its maximum reasonable efforts to cause Mr.
Bartels or such other person designated by Westin to be nominated and elected
to the AKGI Board of Directors, including nominating such person in the
management slate of nominees to the AKGI Board of Directors, and the
management slate of nominees for any election shall not include more nominees
to the AKGI Board of Directors than there are directors to be elected at such
election. AKGI's board members will stand for election as provided for by the
by-laws and applicable federal and state law. When Westin goes public,
reciprocal provisions in favor of AKGI shall apply.
b. Exclusive Westin Vacation Club Partners. Subject to the terms and
conditions of the Joint Venture Agreement, AKGI and Westin (on a project by
project basis) shall jointly acquire, develop and sell Westin Vacation Club
projects in North America, Mexico and the Caribbean over a five-year period
with the primary focus of (i) developing vacation ownerships villas
surrounding existing Westin hotel resort properties and (ii) acquiring or
developing hotels which can be operated under the Westin hotel brand while at
the same time being converted to vacation ownership properties (such as an all
suite hotel). Each Westin Vacation Club developed by the parties under the
Joint Venture Agreement will be operated under the Westin name without the
payment of a license, franchise, reservation or fee but subject to a 1.9%
marketing and advertising fee on all revenue for transient hotel use (e.g., 1-
800, telephone and personal calls, calls to the property, walk-ups, etc.),
plus reimbursement to Westin and its affiliates and to unrelated third parties
for all marketing and reservation related expenses without a markup or profit
to Westin (e.g., reservation message unit charges, Westin Premier assessments
and travel agent commissions), but no fee shall be paid on revenue generated
through the marketing
<PAGE>
and sale of the properties for timeshares (e.g., mini-vac and timeshare in-
house and OPC marketing programs). Notwithstanding anything contained herein
to the contrary, Westin may develop timeshare and other properties that are
branded with any lower end "sub-brand" of Westin that does not constitute a
Four Star or higher brand and that does not use an "A" list brand or a "B"
list brand. In the event that Westin determines to develop such "sub-brand" of
Westin, Westin shall promptly notify AKGI of such decision and will consult
with AKGI with respect to the development of such "sub-brand."
2. AKGI GENERATED FOUR STAR ACQUISITION/DEVELOPMENT OPPORTUNITIES.
Subject to the exceptions set forth below, AKGI will present to Westin for
its consideration any Four Star (including Four Star "casino only" brands such
as Harrahs, Mirage, Excalibur, etc.) or "B" list acquisition or development
vacation ownership opportunity that AKGI has determined would be worth
pursuing. Westin will have a reasonable amount of time to evaluate the
opportunity and either commit to proceeding or pass on such opportunity (which
it may do in its sole discretion). Notwithstanding the foregoing, AKGI shall
not be required to present any opportunity relating to a casino in Las Vegas
that will have a Four Star "casino only" brand. If Westin elects not to
proceed with an opportunity, AKGI will be free to develop such properties as
unbranded or branded with its own name, as Embassy Vacation Resort, as a "B"
brand (e.g. Sheraton, Hilton, Wyndham, Renaissance, Doubletree, Crowne Plaza,
all "casino only" brands, etc.) or a "C" brand hotel (e.g. Holiday Inn,
Wyndham Court, and brands owned by HFS or Promus on the date of this Agreement
(other than Harrahs)) but may not develop (i) any property having an "A" brand
name (including any casino having an "A" list brand, wherever located) or (ii)
any property having a "B" brand name (including any casino having a "B" list
brand, wherever located) unless Westin "passes" on such property.
a. Definition of Four Star Resort. A "Four Star" resort or brand shall
include (i) any property which is generally recognized by the hotel rating
industry as a Four Star or higher property (e.g., properties that are flagged
by brands such as Disney, Marriott, Omni, Hyatt, Ritz Carlton, Four
Seasons/Regent, Fairmont, Intercontinental, Nikko, Loews and Meridian and Four
Star "casino only" brands (" "A' brands")) but specifically excluding lower
end "sub-brands" of such flags (e.g., Marriott Courtyard, etc.), which AKGI
shall have the right to use on three star or lower properties, and (ii) any
property which Westin is willing to flag as a "Westin".
b. Exceptions. Notwithstanding the foregoing, AKGI will be free to pursue
(a) Four Star properties currently flagged by Embassy (e.g., Kaanapali), (b)
Lake Tahoe (to be flagged by Embassy) and Grand Beach, (c) any other future
Four Star opportunity with Embassy if the AKGI board believes in its best
judgment that the opportunity would not otherwise be available to AKGI if the
product is not branded as an Embassy Vacation Resort and/or combination
Embassy hotel and resort (e.g., in the event that the property is brought to
AKGI by an Embassy related party (e.g., FELCOR) or through Promus with another
developer).
c. Carve-out for Westin opportunities. AKGI will use reasonable efforts to
negotiate management and other agreements without restrictions on the right of
the parties to develop Westin Vacation Clubs under this Agreement or under the
Joint Venture Agreement.
3. WESTIN GENERATED WESTIN VACATION CLUB OPPORTUNITIES.
Westin will present to AKGI for its consideration any and all Westin
Vacation Club opportunities (other than opportunities relating to a "sub-
brand" of Westin that Westin has notified AKGI of in accordance with this
Agreement) that Westin has determined would be worth pursuing. AKGI will have
a reasonable amount of time to evaluate the opportunity and either commit to
proceeding or pass on such opportunity (which it may do in its sole
discretion). If AKGI elects not to proceed with an opportunity, Westin will be
free to develop such properties as a Westin Vacation Club Resort without
participation by AKGI. The prohibitions contained herein shall apply only
during the term of the Joint Venture Agreement. Westin will use reasonable
efforts to negotiate management and other agreements without restrictions on
the right of the parties to develop Westin Vacation Clubs under this Agreement
or under the Joint Venture Agreement.
2
<PAGE>
4. AKGI RIGHT TO DEVELOP OR ACQUIRE NON-FOUR STAR RESORTS AND ALL HOTELS.
Notwithstanding anything to the contrary set forth in this Agreement, AKGI
shall have (i) the absolute right to develop or acquire any below-Four Star
timeshare resort as branded or non-branded timeshare resorts so long as such
timeshare resort does not have an "A" brand name or, unless Westin has passed
on such timeshare resort, a "B" brand name and (ii) the absolute right to
acquire any non-vacation ownership hotel or other property (whether Four Star
or not).
5. TERMINATION OF AGREEMENT.
Either party shall have the right to terminate the Joint Venture Agreement
after 3 months notice to the other party and such party's failure to cure
within such 3 month period (or, if such breach or default is capable of being
cured, such party's commencement to cure within such 3 month period and
continuing diligence to cure thereafter until cured) for the following:
a. Material Adverse Change. A material adverse change occurs in the
financial condition of either AKGI or Westin's business (e.g., which would
threaten the long term financial viability of such entity) as determined by
arbitration.
b. Performance Clause.
(i) Either party may terminate the Joint Venture Agreement if the
terminating party presented 3 consecutive proposed Westin opportunities or
5 such opportunities in three years which were "passed" (as defined below)
by the other party.
(ii) The parties have not acquired, commenced construction on, or entered
into a binding contract to acquire, operate, market or commence
construction on at least five Westin Vacation Clubs (whether originated by
AKGI or Westin) within three years after the date of this Agreement.
A party shall be deemed to have "passed" on a proposed Westin Opportunity
if the terms and conditions thereof were set forth in writing (and
accompanied by information which would be considered sufficient for the
purpose of submitting the same to W&S Hotel L.L.C.'s Board of Directors)
and the other party failed to indicate its election to go forward with the
transaction within 15 days thereafter; provided, however, a party shall not
be deemed to have "passed" on a deal if it notifies the other party within
such time that it was not electing to go forward due to (i) a radius clause
prohibiting such party's involvement in such deal that was set forth in a
management or other agreement executed prior to the date of this Agreement,
(ii) force majeure, and (iii) such potential Westin Opportunity being
located outside of the continental United States. In addition, Westin shall
not be deemed to have "passed" on a deal if Westin determines that such
Westin Opportunity is of a standard that is less than a Four Star standard,
but, as contemplated by Section 2, AKGI may develop any such property as
long as such property is unbranded or branded with its own name, as an
Embassy Vacation Resort or with a "B" or "C" brand name. If Westin,
notwithstanding its reasonable efforts, enters into a new agreement after
the date hereof which does contain a radius restriction, and AKGI presents
a potential Westin Opportunity in an area encumbered by such radius
restriction, the first such potential Westin Opportunity in such area shall
constitute a "pass" made by Westin while any further opportunities within
the applicable radius restriction shall not. If AKGI, notwithstanding its
reasonable efforts, enters into a new agreement after the date hereof which
contains a radius restriction and Westin presents a potential Westin
Opportunity in an area encumbered by such radius restriction, the first
such potential Westin Opportunity in such area shall constitute a "pass"
made by AKGI while any further opportunities within the applicable radius
restriction shall not.
c. Key Man Clause. Westin shall have the right to terminate the Joint
Venture Agreement if, after the 6 month period referred to below, all three
of Sam Kaneko, Jody Gessow and Steve Kenninger are no longer associated
with AKGI. AKGI shall have the right to terminate the Joint Venture
Agreement if all three of Juergen Bartels, Fred Kleissner and Richard
Mahoney are no longer associated with Westin. Either party shall have the
right to "substitute" senior executives for the named individuals within
six months after their termination of employment unless the substitute is
reasonably unacceptable to the other party (e.g., if the substitute
executive is "anti timeshare").
3
<PAGE>
d. Merger or other Major Transaction. In the event of a merger between
AKGI or Westin, on the one hand, and any third party, on the other hand, or
any acquisition by a third party of greater than 50% of the shares of
either AKGI or Westin, whichever of AKGI or Westin is a party to such
transaction may terminate this Agreement or the Joint Venture Agreement
upon written notice delivered within sixty (60) days of consummation of
such transaction. In the event of the execution of a letter of intent or
definitive agreement relating to a merger between AKGI with, or the
acquisition (other than in connection with a public offering) of more than
50% of the outstanding shares of AKGI by, a company which owns a Four Star
hotel brand which does not agree to cease management, franchising,
acquisition and development of incremental hotels, Westin may, at its
option upon written notice delivered within sixty (60) days after the
execution of such letter of intent or definitive agreement, terminate this
Agreement or the Joint Venture Agreement, in which event (i) Westin will
become the sole general partner of all partnerships through which Westin
Opportunities that are located on or adjacent to Westin hotels are pursued
and (ii) AKGI will become the sole general partner of all partnerships
through which Westin Opportunities that are not located on or adjacent to
Westin hotels are pursued. In the event of the execution of a letter of
intent or definitive agreement relating to a merger between Westin with, or
the acquisition (other than in connection with a public offering) of more
than 50% of the outstanding shares of Westin by, a company which is in the
timeshare business and which does not agree to cease management, sales,
acquisition and development of incremental timeshare properties outside of
the Joint Venture Agreement, AKGI may, at its option upon written notice
delivered within sixty (60) days after the execution of such letter of
intent or definitive agreement, terminate this Agreement or the Joint
Venture Agreement, in which event (i) Westin will become the sole general
partner of all partnerships through which Westin Opportunities that are
located on or adjacent to Westin hotels are pursued and (ii) AKGI will
become the sole general partner of all partnerships through which Westin
Opportunities that are not located on or adjacent to Westin hotels are
pursued.
6. AKGI'S OBLIGATION TO MARKET WESTIN HOTELS.
If so directed by Westin, AKGI will use its reasonable efforts (at no cost
to AKGI) to promote Westin Hotels on a non-exclusive basis (e.g., AKGI may
promote Embassy Suites hotels as well) at its non-branded properties so long
as owners of intervals derive benefits in connection therewith (e.g., a
discount or Westin gold card for AKGI owners that entitled them to discounts).
7. WESTIN'S MARKETING OBLIGATIONS TO AKGI IN CONNECTION WITH WESTIN VACATION
CLUBS.
The detailed terms and conditions of the marketing assistance and support
which Westin will provide to AKGI in connection with the lead generation to
and the marketing and sale of Westin Vacation Club resorts (both with respect
to transient room sales and interval sales) will be set forth in the Joint
Venture Agreement but will include the requirement that Westin actively
promote the Westin Vacation Club concept, utilize customer base to promote and
sell the Westin Vacation Club concept at its hotels and other marketing
programs, provide AKGI with access to guest lists, and, if permitted by the
owner of the relevant property, arrange for on-site desks and in-house
marketing programs at no profit to Westin. Both parties agree, subject to
applicable federal securities laws and such other exceptions as may be agreed
to by the parties, to keep all information provided to the other under this
Agreement or the Joint Venture Agreement confidential. Westin agrees to use
its reasonable best efforts to obtain the permission of owners of hotels to
have on-site desks and in-house marketing programs available, and any amounts
expended by Westin in obtaining such permission should be borne 50/50 by
Westin and AKGI.
8. PROPERTY SPECIFIC PARTNERSHIPS.
The parties will form a separate partnership, limited liability company or
similar entity for each development or acquisition opportunity proposed by
either Westin or AKGI to be a Westin Vacation Club (each, a "Westin
Opportunity") that the parties agree to jointly pursue as such under this
Agreement or the Joint Venture Agreement. In connection therewith, the parties
agree as follows:
a. Joint General Partners. Westin and AKGI shall be co-general partners
or managers of any partnership, limited liability company or similar entity
formed to pursue a Westin Opportunity. The terms
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and conditions of each general partner or manager duties and
responsibilities will be set forth in a proforma draft partnership or
limited liability company or similar agreement attached to the Joint
Venture Agreement.
b. 50/50. Each party shall contribute 50% of all equity needed to develop
each Westin Opportunity (which may be contributed from each such party's
own funds or funds raised from third parties who, at the election of the
party raising the capital, may or may not be constituent partners in each
deal but in any event any such partner will not have any voting or
foreclosure rights).
c. Joint Effort to Arrange Necessary Debt. For any Westin Opportunity,
AKGI and Westin agree to use commercially reasonable efforts to work
together to cause a third party to provide any necessary or desirable
financing for the proposed project on the best possible terms.
d. Miscellaneous. The agreements for each such partnership or limited
liability company will provide that (i) until such time as either of the
parties (with or without constituent partners) own less that 45% (and the
other party owns the balance of the equity in a particular partnership,
each decision of the Partnership must be by mutual consent (and, after such
time, the party with the controlling interest in the partnership will have
the right to make all such decisions), (ii) in the event one partner fails
to fund its prorata share of a duly approved capital call, the other
partner may fund the amount of such shortfall by means of a non-
subordinated loan that will accrue interest at a rate of 15% per annum that
must be repaid before any equity distributions may be made to any of the
partners; and (iii) neither of the partners may transfer any of its equity
interests (other than to an affiliate) for an agreed upon period of time
and that both parties will agree upon tag-along and rights of first refusal
after any such period.
9. VACATION RESORT DEALS TO BE DONE OUTSIDE AKGI OR WESTIN.
In the event that the public company which is formed by the principals of
AKGI is unable to invest in a particular Westin Opportunity (e.g., in the
event doing so would adversely affect the financial performance or the market
value or the feasibility of a project within the public company), the
principals or their designees may (if they are permitted to do so under the
terms and conditions provided by the AKGI board) create an entity to act as
the general partner in the joint venture formed for that particular
transaction. In the event that Westin becomes a public company and it is
unable to invest in a particular Westin Opportunity (e.g., in the event doing
so would adversely affect the financial performance or the market value or the
feasibility of a project within the public company), W&S Hotel L.L.C. or its
members, or any designee of any of them, may create an entity to act as the
general partner in the joint venture formed for that particular transaction.
10. MANAGEMENT OF WESTIN VACATION CLUBS.
a. During Sell Out. Westin will have the right to manage Westin Vacation
Club resorts during sell out unless otherwise mutually agreed by the parties
(e.g., AKGI's board demonstrates to the reasonable satisfaction of Westin that
not allowing another party to manage the project during sell out (in lieu of
Westin management itself) would be adverse to the project (e.g., Aston Resorts
in Hawaii with respect to a property where that relationship is most
advantageous for marketing purposes)). In any project which is managed by
Westin, Westin will be paid a market management fee and the parties will share
all amounts in excess of the party's reasonable costs in connection therewith.
b. After Sell Out. After the intervals have all been sold in a Westin
Vacation Club, AKGI shall use its reasonable best efforts to cause Westin to
be appointed as manager of the Resort, so long as it can do so on a cost
effective basis. In such event, Westin and AKGI would share on a 50/50 basis
the management fee "profit" from any Westin Vacation Club project.
11. MANAGEMENT OF NON-WESTIN VACATION RESORTS.
The management of AKGI non-Westin vacation resorts will be outside the scope
of the Joint Venture Agreement. AKGI shall have the right to engage any
manager to manage its non-Westin vacation resorts.
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12. AGREEMENT TO ACT IN GOOD FAITH.
The parties acknowledge and agree that each will act in good faith and use
its reasonable efforts to amicably negotiate to each party's mutual
satisfaction the definitive joint venture agreement and resolve any
ambiguities, disputes or issues which arise in connection therewith.
13. EFFECTIVE DATE OF AGREEMENT.
The effective date of the Joint Venture Agreement shall be the date of this
Agreement (i.e., the parties shall immediately begin to discuss possible
Westin Opportunities).
Argosy/KOAR Group, Inc.,
a Georgia corporation
By: /s/ Steven C. Kenninger
_____________________________
Its Executive Vice President
W&S Hotel L.L.C.
By: /s/ Stuart Rothenberg
_____________________________
Its
By:_____________________________
Its
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EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts," under
the caption "Summary Combined Historical and Pro Forma Financial Information"
and to the use of our report dated March 8, 1996, in Amendment No. 3 to the
Registration Statement (Form S-1 No. 333-06027) and related Prospectus of
Signature Resorts, Inc. dated August 8, 1996.
Ernst & Young LLP
Los Angeles, California
August 7, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-1 (File
No. 333-06027) of our reports dated February 9, 1995 and March 16, 1995 on our
audits of the financial statements of Fall Creek Resort, L.P. and Cypress
Pointe Resort, L.P., respectively, as of December 31, 1994 and for each of the
two years in the period then ended (not presented separately in this
Registration Statement). We also consent to the reference to our firm under
the caption "Experts" in the Registration Statement.
Coopers & Lybrand
Orlando, Florida
August 7, 1996
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-1 (File
No. 333-06027) of our reports dated March 29, 1996 and April 9, 1996 on our
audits of the financial statements of AKGI Flamingo C.V.o.a. and AKGI Royal
Palm C.V.o.a., respectively, as of December 31, 1995 and for the period May 23,
1995 through December 31, 1995 (not presented separately in this Registration
Statement). We also consent to the reference to our firm under the caption
"Experts" in the Registration Statement.
Coopers & Lybrand
Philipsburg, St. Maarten
August 7, 1996