<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 20, 1996
REGISTRATION NO. 333-16339
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
REGISTRATION STATEMENT
ON
FORM S-4
UNDER
THE SECURITIES ACT OF 1933
----------------
SIGNATURE RESORTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
MARYLAND 95-4582157
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>
6552
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER)
----------------
5933 WEST CENTURY BOULEVARD, SUITE 210
LOS ANGELES, CALIFORNIA 90045
(310) 348-1000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ANDREW D. HUTTON, ESQ.,
VICE PRESIDENT AND GENERAL COUNSEL
SIGNATURE RESORTS, INC.
5933 WEST CENTURY BOULEVARD, SUITE 210
LOS ANGELES, CALIFORNIA 90045
(310) 348-1000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
----------------
COPY TO:
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<S> <C>
EDWARD H. BROWN, ESQ. THOMAS J. MORGAN, ESQ.
SCHREEDER, WHEELER & FLINT, LLP GALLAGHER & KENNEDY, P.A.
1600 CANDLER BUILDING 2600 NORTH CENTRAL AVENUE
127 PEACHTREE STREET, N.E. PHOENIX, ARIZONA 85004-3020
ATLANTA, GEORGIA 30303-1845
</TABLE>
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective and all other
conditions to the merger of AVCOM International, Inc. and Signature Resorts,
Inc. pursuant to an Agreement and Plan of Merger, dated as of September 22,
1996, described in the enclosed Proxy Statement/Prospectus have been satisfied
or waived.
----------------
IF THE SECURITIES BEING REGISTERED ON THIS FORM ARE BEING OFFERED IN
CONNECTION WITH THE FORMATION OF A HOLDING COMPANY AND THERE IS COMPLIANCE WITH
GENERAL INSTRUCTION G, CHECK THE FOLLOWING BOX: [_]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
AVCOM INTERNATIONAL, INC.
561 HIGHWAY 179
SEDONA, ARIZONA 86336
December 20, 1996
Dear Shareholder:
This booklet contains the Notice of Meeting and Proxy Statement/Prospectus
for a Special Meeting of the Shareholders (the "SPECIAL MEETING") of AVCOM
International, Inc. ("AVCOM") to be held on January 10, 1997, commencing at
8:00 a.m., local time, at Poco Diablo Resort, 1736 Highway 179, Sedona,
Arizona 86336.
The purpose of the Special Meeting is to consider and vote upon the
Agreement and Plan of Merger as amended (as amended, the "MERGER AGREEMENT")
described in the accompanying Proxy Statement/Prospectus pursuant to which ASP
Acquisition Corp. ("ASP"), a subsidiary of Signature Resorts, Inc.
("SIGNATURE"), would be merged with and into AVCOM (the "MERGER"). If the
Merger Agreement is approved, each outstanding share of common stock of AVCOM
("AVCOM STOCK") will be converted into and exchanged for the right to receive
shares of common stock of Signature (the "SIGNATURE STOCK"). The accompanying
Proxy Statement/Prospectus includes a description of the terms and conditions
of the proposed Merger, a description of the business of the parties and their
respective subsidiaries, and information regarding management and certain
other information, including a description of the appraisal rights of
shareholders.
Notwithstanding the foregoing, ten percent (10%) of the aggregate shares of
Signature Stock to be received by the shareholders of AVCOM upon consummation
of the proposed Merger, will be held and made subject to an escrow established
as a procedure for the satisfaction of any claims by Signature for
indemnification pursuant to the Merger Agreement. See "THE PROPOSED MERGER--
Escrow Agreement and Indemnity" in the Proxy Statement/Prospectus.
YOUR BOARD OF DIRECTORS BELIEVES THAT THE MERGER IS FAIR TO, AND IS IN THE
BEST INTERESTS OF AVCOM AND ITS SHAREHOLDERS AND RECOMMENDS THAT YOU VOTE IN
FAVOR OF APPROVAL AND FOR ADOPTION OF THE MERGER AGREEMENT.
The affirmative vote of the holders of a majority of the outstanding AVCOM
Stock is required to approve the Merger Agreement. All of the directors and
executive officers of AVCOM, who, as of December 12, 1996, in the aggregate
beneficially owned approximately 38.2% of the outstanding shares of AVCOM
Stock, have indicated that they intend to vote in favor of approval and
adoption of the Merger Agreement. A form of proxy is enclosed, and you are
urged to complete, sign and return it to AVCOM as soon as possible in the
enclosed, stamped envelope. If you attend the Special Meeting you may revoke
your proxy at that time simply by requesting the right to vote in person.
Should you have any questions concerning the merger or the accompanying
Proxy Statement/Prospectus, or require any assistance in completing your proxy
card, please feel free to contact the undersigned at 561 Highway 179, Sedona,
Arizona 86336, (520) 282-1983.
Sincerely,
/s/ Gary L. Hughes
Gary L. Hughes
Chairman of the Board of Directors
<PAGE>
AVCOM INTERNATIONAL, INC.
561 HIGHWAY 179
SEDONA, ARIZONA 86336
---------------------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON JANUARY 10, 1997
---------------------------------------------
Notice is hereby given that a Special Meeting of Shareholders (the "SPECIAL
MEETING") of AVCOM International, Inc. ("AVCOM") will be held on January 10,
1997, commencing at 8:00 a.m., local time, at Poco Diablo Resort, 1736 Highway
179, Sedona, Arizona 86336, for the purpose of considering and voting upon:
(1) An Agreement and Plan of Merger as amended (as amended, the "MERGER
AGREEMENT") providing for the merger (the "MERGER") of ASP Acquisition
Corp. ("ASP"), a subsidiary of Signature Resorts, Inc. ("SIGNATURE")
with and into AVCOM, with the result being AVCOM becoming a wholly
owned subsidiary of Signature; and
(2) Such other business as may lawfully come before the meeting or any
adjournment thereof.
In connection with the Merger, each outstanding share of common stock of
AVCOM ("AVCOM STOCK") will be converted into the right to receive $5.00
(subject to adjustment) of Merger consideration to be delivered in the form of
shares of common stock of Signature ("SIGNATURE STOCK"). The initial
conversion ratio is .26 shares of Signature Stock for each share of AVCOM
Stock. The conversion ratio is subject to adjustments which could permit the
value of the Merger consideration to fluctuate between a maximum of $6.00 and
a minimum of $4.00 for each share of AVCOM Stock. In lieu of the issuance of
fractional shares of Signature Stock, there will be paid in cash an amount
(computed to the nearest cent) equal to the value of any fractional share. The
Merger Agreement and the Merger are described in detail in the accompanying
Proxy Statement/Prospectus. Notwithstanding the foregoing, ten percent (10%)
of the aggregate shares of Signature Stock to be received by the shareholders
of AVCOM, will be held and made subject to an escrow established as a
procedure for the satisfaction of any claims by Signature for indemnification
pursuant to the Merger Agreement. See "THE PROPOSED MERGER--Escrow Agreement
and Indemnity" in the Proxy Statement/Prospectus.
If the Merger is consummated, shareholders dissenting therefrom will be
entitled to be paid the "fair value" of their shares in cash, provided that
they shall have filed a written notice of intent to demand payment for their
shares before the vote of shareholders is taken thereon, have not voted their
shares in favor of the Merger and have complied with the further provisions of
Section 262 of the Delaware General Corporation Law, regarding the rights of
dissenting shareholders, all as more fully set forth under "THE PROPOSED
MERGER--Appraisal Rights of Shareholders" and in Appendix C to the attached
Proxy Statement/Prospectus.
The Board of Directors of AVCOM unanimously recommends that shareholders
vote FOR the approval and adoption of the Merger, the Merger Agreement, and
the transactions contemplated thereby.
Only shareholders of record at the close of business on December 12, 1996,
which the Board of Directors of AVCOM has fixed as the record date for the
Special Meeting, will be entitled to notice of and to vote at the Special
Meeting or any adjournment thereof. A complete list of such shareholders will
be available for examination at the offices of AVCOM in Sedona, Arizona,
during normal business hours by any AVCOM shareholder, for any purpose germane
to the Special Meeting, for a period of ten days prior to the Special Meeting.
<PAGE>
A form of proxy and a Proxy Statement/Prospectus are enclosed. The approval
of the Merger requires the affirmative vote of the holders of a majority of
the AVCOM Stock. To assure representation at the Special Meeting, you are
requested to sign, date and return the proxy promptly in the enclosed, stamped
envelope. If you attend the Special Meeting you may revoke your proxy at that
time simply by requesting the right to vote in person. Prior to the Special
Meeting you may withdraw a previously submitted proxy by notifying the
Secretary of AVCOM, in writing or by submitting an executed, later dated proxy
to AVCOM as more fully described under "INFORMATION REGARDING THE SPECIAL
MEETING."
By Order of the Board of Directors,
/s/ Gary L. Hughes
Gary L. Hughes, President
December 20, 1996
2
<PAGE>
PROXY STATEMENT/PROSPECTUS
AVCOM INTERNATIONAL, INC.
PROXY STATEMENT
FOR A SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY 10, 1997
-----------------------------
SIGNATURE RESORTS, INC.
PROSPECTUS
SHARES OF COMMON STOCK
-----------------------------
This Proxy Statement/Prospectus is being furnished to the shareholders of
AVCOM International, Inc., a Delaware corporation ("AVCOM") in connection with
the solicitation of proxies by the AVCOM Board of Directors for use at a
special meeting of shareholders to be held at 8:00 a.m., local time, on
January 10, 1997 (the "SPECIAL MEETING"). The purpose of the Special Meeting
is to consider and vote upon a proposal to approve an Agreement and Plan of
Merger, dated September 22, 1996 as amended November 15, 1996 and December 18,
1996 (as amended, the "MERGER AGREEMENT") by and among AVCOM and Signature
Resorts, Inc. ("SIGNATURE"), which when consummated will result in the merger
of ASP Acquisition Corp., a subsidiary of Signature ("ASP"), into AVCOM, with
AVCOM then becoming a wholly owned subsidiary of Signature (the "MERGER"). See
"SUMMARY--Terms of the Merger."
This Proxy Statement/Prospectus also serves as a prospectus of Signature
relating to up to 1,494,957 shares of Signature common stock, $.01 par value
(all shares of Signature common stock, including those to be delivered to
AVCOM shareholders, referred to herein as the "SIGNATURE STOCK") to be issued
to the shareholders of AVCOM upon consummation of the proposed Merger. Upon
consummation of the Merger, each outstanding share of AVCOM common stock (the
"AVCOM STOCK") (excluding treasury shares and shares held by shareholders who
perfect their appraisal rights) will be converted into the right to receive
$5.00 (subject to adjustment to a maximum of $6.00 or a minimum of $4.00 based
upon the market value of Signature Stock at the time of consummation of the
Merger), to be paid in the form of shares of Signature Stock. The value of
each share of Signature Stock, for the purposes of determining the number of
shares issuable upon conversion, will equal the mean average of the high and
low trading prices of Signature Stock as reported on the NASDAQ National
Market, for each of the ten consecutive days immediately preceding ten days
prior to the closing date of the Merger (the "CLOSING DATE"). The initial
conversion rate is .26 shares of Signature Stock for each share of AVCOM
Stock. This conversion rate is fixed unless the value of Signature Stock as of
the Closing Date is greater than $23.33, or less than $15.55, in which case
the conversion rate will be adjusted to insure that each share of AVCOM Stock
is converted into consideration of not more than $6.00, nor less than $4.00,
respectively, in shares of Signature Stock.
SEE "RISK FACTORS" COMMENCING ON PAGE 15 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHAREHOLDERS SHOULD CONSIDER PRIOR TO VOTING ON THE MERGER.
THE SHARES OF SIGNATURE STOCK TO BE RECEIVED IN THIS MERGER 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 PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Proxy Statement/Prospectus is December 20, 1996
<PAGE>
Signature Stock is traded and its quotations are reported on the National
Market System of the National Association of Securities Dealers Automated
Quotations System (the "NASDAQ NATIONAL MARKET") under the symbol "SIGR."
AVCOM Stock is traded on the over-the-counter market under the symbol "AVMI."
On December 16, 1996, the closing sale price for Signature Stock, as reported
on the NASDAQ National Market, was $35 7/8 per share and the closing bid price
per share for AVCOM Stock was $4 7/8.
The transaction is intended to qualify as a reorganization under Section 368
of the Internal Revenue Code of 1986, as amended (except to the extent of any
cash payments that AVCOM shareholders receive upon conversion of their shares
of AVCOM Stock or upon the exercise of any shareholder's appraisal rights).
See "SUMMARY--Federal Income Tax Consequences," and "CERTAIN FEDERAL INCOME
TAX CONSEQUENCES OF THE MERGER."
NO ASSURANCE CAN BE GIVEN THAT THE SIGNATURE STOCK VALUE WILL REFLECT THE
MARKET VALUE OF THE SHARES OF SIGNATURE STOCK ON THE DATE SUCH STOCK IS
RECEIVED BY A SHAREHOLDER OR AT ANY OTHER TIME. THE VALUE OF A SHARE OF
SIGNATURE STOCK RECEIVED BY A SHAREHOLDER MAY BE GREATER OR LESS THAN THE
SIGNATURE STOCK VALUE DUE TO NUMEROUS MARKET FORCES.
The Board of Directors of AVCOM (the "AVCOM BOARD") recommend that
shareholders vote FOR the approval and adoption of the Merger, the Merger
Agreement and the transactions contemplated thereby.
The information contained in this Proxy Statement/Prospectus with respect to
AVCOM has been supplied by AVCOM, and the information contained herein with
respect to Signature and ASP Acquisition Corp. has been supplied by Signature.
This Proxy Statement/Prospectus, the Notice of Special Meeting of
Shareholders and a form of proxy were first mailed to the shareholders of
AVCOM on or about December 20, 1996.
AVAILABLE INFORMATION
Signature is subject to the information and requirements of the Securities
and Exchange Act of 1934, as amended (the "EXCHANGE ACT") and, in accordance
therewith, files reports and other information with the Securities and
Exchange Commission ("COMMISSION"). Such reports and other information filed
by Signature with the Commission can be inspected and copied at the Public
Reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, DC 20549 and at the Commission's regional offices located at Seven
World Trade Center, 13th Floor, New York, NY 10048, and 500 West Madison
Street, Suite 1400, Chicago, IL 60661-2511. Copies of such materials can also
be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, DC 20549, at prescribed rates. The Commission also
maintains a Web Site that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission. The address of the Web Site is http://www.sec.gov.
Signature's Common Stock is quoted on the NASDAQ National Market (Symbol:
SIGR), and reports and other information concerning Signature can be inspected
at the National Association of Securities Dealers, Report Section, 1735 "K"
Street, N.W., Washington, D.C. 20006.
Signature has filed with the Commission a Registration Statement on Form S-4
(the "REGISTRATION STATEMENT") (of which this Proxy Statement/Prospectus is
part) under the Securities Act of 1933, as amended (the "SECURITIES ACT"),
with respect to the shares of Signature Stock which may be issued in
connection with the Merger. This Proxy Statement/Prospectus ("PROXY
STATEMENT/PROSPECTUS") does not contain all of the information set forth in
the Registration Statement and exhibits thereto covering the securities
offered hereby which has been filed by Signature with the Commission. As
permitted by the rules and regulations of the Commission, this Proxy
Statement/Prospectus omits certain information contained or incorporated by
reference
ii
<PAGE>
in the Registration Statement. Statements contained in this Proxy
Statement/Prospectus as to the contents of any contract or other document
filed as an exhibit to the Registration Statement are not necessarily complete
and in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement. For such further
information, reference is made to the Registration Statement.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATION OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/ PROSPECTUS IN
CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING OF SECURITIES MADE
HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY AVCOM OR SIGNATURE. NEITHER THE DE-
LIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF THE SECURI-
TIES OFFERED HEREBY SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT
THERE HAS NOT BEEN ANY CHANGE IN THE AFFAIRS OF AVCOM OR SIGNATURE SINCE THE
DATE HEREOF OR THAT THE INFORMATION SET FORTH HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF A PROXY IN ANY JURISDICTION IN WHICH, OR
TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OF AN
OFFER OR PROXY SOLICITATION.
EMBASSY VACATION RESORTSM IS A SERVICE MARK OF THE PROMUS HOTEL CORPORATION.
WESTIN HOTELS & RESORTSSM IS A SERVICE MARK OF THE WESTIN HOTEL COMPANY.
iii
<PAGE>
TABLE OF CONTENTS
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PAGE
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AVAILABLE INFORMATION..................................................... ii
INTRODUCTION.............................................................. 1
SUMMARY................................................................... 2
Business of Signature..................................................... 2
Recent Developments....................................................... 4
Business of AVCOM......................................................... 5
Terms of Merger........................................................... 6
Examples of Conversion Ratio.............................................. 6
Reasons for the Merger.................................................... 7
Escrow Agreement.......................................................... 10
The Special Meeting of Shareholders; Vote Required; Record Date........... 10
Appraisal Rights of AVCOM Shareholders.................................... 10
Federal Income Tax Consequences........................................... 10
Accounting Treatment...................................................... 11
Markets and Market Prices................................................. 11
Conditions, Termination and Termination Fee............................... 12
Effect of Merger on Shareholders.......................................... 12
Risk Factors.............................................................. 12
Regulatory Approvals...................................................... 13
Comparative Per Share Data (Unaudited).................................... 13
RISK FACTORS.............................................................. 15
Conversion Ratio.......................................................... 15
Escrow Agreement.......................................................... 15
Risks Related to the Merger............................................... 15
Acquisition Strategy and Risks Related to Rapid Growth.................... 17
Variability of Quarterly Results; Possible Volatility of Stock Price...... 17
Risk of Development and Construction Activities........................... 18
Risks of the St. John Acquisition......................................... 18
Risk of Increasing Leverage; Restrictive Covenants........................ 19
Limited Operating History................................................. 19
General Economic Conditions; Concentration in Timeshare Industry;
Geographic Concentration of Investments.................................. 19
Risks Associated with Customer Financing.................................. 20
Risks of Hedging Activities............................................... 20
Risks Associated with Customer Default.................................... 20
Competition............................................................... 21
Dependence on Vacation Interval Exchange Networks; Risk of Inability to
Qualify Resorts.......................................................... 22
Dependence on Key Personnel............................................... 22
Regulation of Marketing and Sales of Vacation Intervals; Other Laws....... 22
Possible Environmental Liabilities........................................ 23
Costs of Compliance with Laws Governing Accessibility of Facilities to
Disabled Persons......................................................... 24
Natural Disasters; Uninsured Loss......................................... 25
Effective Voting Control by Existing Shareholders; Westin Director
Designation.............................................................. 25
Dividend Policy........................................................... 25
Risk of Tax Re-Classification of Independent Contractors and Resulting Tax
Liability; Cost of Compliance with Applicable Laws....................... 26
Limited Resale Market for Vacation Intervals.............................. 26
Risks Related to Operations in St. Maarten, Netherlands Antilles.......... 26
Potential Conflicts of Interest........................................... 27
</TABLE>
iv
<PAGE>
TABLE OF CONTENTS--(CONTINUED)
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PAGE
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Risks Related to Westin Agreement; Limited Control of Resorts and
Termination.............................................................. 27
Risks Associated with Partnership Investment in Poipu Partnership......... 27
Anti-takeover Effect of Certain Provisions of Maryland Law and Signature's
Charter and Bylaws....................................................... 28
Shares Eligible for Future Sale........................................... 28
Potential Dilutive Effect of Signature Stock.............................. 29
Risk Associated with Proposed Offerings................................... 29
INFORMATION REGARDING THE SPECIAL MEETING................................. 30
Special Meeting........................................................... 30
Date, Time and Place...................................................... 30
Record Date; Vote Required................................................ 30
Voting and Revocation of Proxies.......................................... 30
Solicitation of Proxies................................................... 31
THE PROPOSED MERGER....................................................... 32
General Description of Merger............................................. 32
Escrow Agreement and Indemnity............................................ 34
Conditions of the Merger.................................................. 35
Accounting Treatment...................................................... 37
Signature Loan to AVCOM................................................... 37
Termination of Merger Agreement........................................... 37
Reasons for the Merger.................................................... 38
Background of the Merger.................................................. 41
Transaction Costs and Anticipated Financial Commitments................... 41
Management After the Merger............................................... 42
Conduct of Business of AVCOM Pending Closing.............................. 50
Certain Relationships and Related Transactions............................ 51
Resales of Stock After the Merger......................................... 53
Regulatory Approvals...................................................... 53
Appraisal Rights of Shareholders.......................................... 54
Surrender of Stock Certificates and Receipt of Merger Consideration....... 55
INFORMATION REGARDING SIGNATURE RESORTS, INC. ............................ 56
Corporate Background...................................................... 56
Business.................................................................. 56
Description of Signature's Resorts........................................ 62
Customer Financing........................................................ 71
Sales and Marketing....................................................... 72
Acquisition Process....................................................... 73
Other Operations.......................................................... 74
Vacation Interval Ownership............................................... 74
Participation in Vacation Interval Exchange Networks...................... 75
Future Acquisitions....................................................... 75
Competition............................................................... 76
Governmental Regulation................................................... 76
Employees................................................................. 79
Insurance, Legal Proceedings.............................................. 79
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 79
Principal Shareholders.................................................... 90
Description of Capital Stock.............................................. 92
Shares Eligible for Future Sale........................................... 93
</TABLE>
v
<PAGE>
TABLE OF CONTENTS--(CONTINUED)
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PAGE
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<S> <C>
Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure............................................................... 94
Trademarks and Signature Name............................................. 95
INFORMATION REGARDING AVCOM INTERNATIONAL, INC. .......................... 96
Business Overview......................................................... 96
Administrative and Operating Facilities................................... 96
Description of AVCOM's Resorts............................................ 96
Regulatory Matters........................................................ 98
Sales and Marketing....................................................... 99
Employees................................................................. 99
Legal Proceedings......................................................... 99
Management................................................................ 100
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 102
Principal Shareholders.................................................... 111
Description of Capital Stock.............................................. 112
SELECTED FINANCIAL DATA................................................... 114
Selected Financial Data of AVCOM International, Inc....................... 114
Selected Consolidated Historical Financial Information of Signature
Resorts, Inc............................................................. 116
PRO FORMA COMBINED FINANCIAL STATEMENTS (Unaudited)....................... 118
MARKET PRICE DATA......................................................... 128
Signature Resorts, Inc.................................................... 128
AVCOM International, Inc.................................................. 128
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER..................... 129
COMPARISON OF RIGHTS OF SHAREHOLDERS...................................... 130
Directors................................................................. 131
Removal of Directors...................................................... 131
Limitation on Personal Liability of Directors............................. 132
Indemnification of Officers and Directors and Advancement of Expenses..... 132
Shareholder Inspection; Action by Written Consent; Special Meetings....... 133
Cumulative Voting......................................................... 133
Dividends................................................................. 133
Amendment or Repeal of the Certificate of Incorporation and By-Laws....... 134
Advance Notice of Director Nominations and New Business................... 134
Restrictions on Business Combinations/Corporate Control................... 134
Control Share Acquisitions................................................ 135
Shareholder Vote for Mergers.............................................. 136
Dissenters' Rights in Mergers............................................. 136
EXPERTS................................................................... 136
LEGAL MATTERS............................................................. 136
OTHER MATTERS............................................................. 137
INDEX TO FINANCIAL STATEMENTS............................................. F-1
APPENDICES
Agreement and Plan of Merger as amended................................... A-1
Escrow Agreement.......................................................... B-1
Appraisal Rights--Section 262 of the Delaware General Corporation Law..... C-1
</TABLE>
vi
<PAGE>
INTRODUCTION
This Proxy Statement/Prospectus is furnished in connection with the
solicitation by the Board of Directors of AVCOM of proxies for use at the
Special Meeting of shareholders to be held on January 10, 1997 at the time and
place set forth in the accompanying Notices of Special Meeting and at any
adjournments thereof. The Special Meeting has been called for the purpose of
considering and acting upon the proposed Merger. Unless otherwise stated
herein, capitalized terms shall have the same meaning as defined in the Merger
Agreement.
HOLDERS OF AVCOM STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN THE
ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE POSTAGE PAID ENVELOPE
PROVIDED.
Any proxy given pursuant to this solicitation may be revoked at any time
before it is voted by so notifying the Secretary of AVCOM in writing or by
submitting an executed later dated proxy to: AVCOM International, Inc., by
mail: P. O. Box 1243, Sedona, Arizona 86339, or if in person: 561 Highway 179,
Sedona, Arizona 86336, Attention: Corporate Secretary, prior to the Special
Meeting or by appearance at the Special Meeting and requesting the right to
vote in person, without compliance with any other formalities. If the proxy is
properly signed and returned by a shareholder and is not revoked, it will be
voted at the Special Meeting in the manner specified therein. If no
instructions are indicated, such proxies will be voted FOR approval of the
Merger Agreement, and in the discretion of the proxy holder, as to any other
matter which may properly come before the Special Meeting. If necessary, the
proxy holder may vote in favor of a proposal to adjourn the Special Meeting in
order to permit further solicitation of proxies in the event there are not
sufficient votes to approve the proposal regarding the Merger Agreement at the
time of the Special Meeting.
Whether or not the Merger is consummated, all expenses of this solicitation,
including the cost of preparing, printing and mailing this Proxy
Statement/Prospectus (which will include fees and expenses of counsel and
accountants), will be paid by each party to the extent of their respective
expenses. In addition to solicitation by mail, directors, officers and regular
employees of AVCOM may solicit proxies by telephone, facsimile transmission,
telegram or personal meeting, for which they will receive no compensation in
addition to their regular compensation. D.F. King & Co., Inc. ("KING") has
also been retained to assist in the solicitation of proxies for the Special
Meeting. King will be compensated for its services. See "INFORMATION REGARDING
THE SPECIAL MEETING--Solicitation of Proxies."
As of December 12, 1996, AVCOM had authorized capital stock of 10,000,000
shares of common stock of which 5,274,636 shares were issued and outstanding,
including 12,000 shares held in treasury which will be canceled prior to the
Merger. AVCOM also has authorized 1,400,000 shares of preferred stock (the
"AVCOM PREFERRED"). As a condition to the consummation of the Merger, all
1,310,700 shares of the AVCOM Preferred were converted into AVCOM Stock at a
conversion rate of one share of AVCOM Stock for each share of AVCOM Preferred.
The conversion of the AVCOM Preferred into common shares was approved on
October 24, 1996. There are, in the aggregate, 750,000 shares of AVCOM Stock
reserved for issuance pursuant to an AVCOM stock option plan, of which stock
options for 300,000 shares of AVCOM Stock are outstanding. Options granted
outside of the AVCOM stock option plan to acquire an additional 100,000 shares
of AVCOM Stock are also outstanding. In addition, there is an option to
acquire 350,000 shares of AVCOM Stock, the validity of which is being
challenged by AVCOM. All valid options outstanding at the Closing Date to
acquire AVCOM Stock will be converted into the right to receive shares of
Signature Stock based upon the value of the option at the effective time of
the Merger, unless Signature elects, at its option, to convert an option into
an option to acquire Signature Stock. See "THE PROPOSED MERGER--General
Description of the Merger."
Only shareholders of record at the close of business on December 12, 1996,
which the Board of Directors of AVCOM has set as the record date for the
Special Meeting, are entitled to notice of and to vote at the Special Meeting
or any adjournments thereof.
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SUMMARY
The following is a summary of certain information contained in this Proxy
Statement/Prospectus, which is qualified in its entirety by reference to the
more detailed textual information and financial data set forth elsewhere in
this Proxy Statement/Prospectus (including the appendix items), and the
documents referenced herein. Unless the context otherwise indicates, references
to "Signature" and "AVCOM" includes their respective corporate and partnership
predecessors and wholly-owned subsidiaries and affiliates. This Proxy
Statement/Prospectus contains forward-looking statements which involve risks
and uncertainties. Signature's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."
BUSINESS OF SIGNATURE
Signature Resorts, Inc., is one of the largest developers and operators of
timeshare resorts in North America, based on the number of resorts in sales.
Signature is devoted exclusively to timeshare operations and owns eight
timeshare resorts currently in sales, which include one under construction, and
a ninth resort in sales in which Signature holds a partial interest (the
"EXISTING RESORTS"). The Existing Resorts are located in a variety of 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. In addition, in December 1996 Signature announced
plans for the acquisition and development of its tenth resort to be located in
St. John, U.S. Virgin Islands. Signature'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.
Signature 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)).
Signature's resorts operate in the following three general categories, each
differentiated by price range, brand affiliation and quality of accommodations:
. Non-Branded Resorts. Vacation Intervals at Signature'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. Signature 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. Vacation
Intervals at AVCOM resorts generally sell for $9,000 to $18,000 and are
targeted to buyers in the same non-branded market segment.
. Embassy Vacation Resorts. Vacation Intervals at Signature's three
Embassy Vacation Resorts generally sell for $14,000 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 more than 135 Embassy Suites hotels throughout North America.
. Westin Vacation Club Resorts. Through its agreement with Westin Hotels &
Resorts ("WESTIN"), Signature has the exclusive right through May 2001
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"). Signature anticipates that Vacation
Intervals at Westin Vacation Club resorts generally will sell for
$18,000 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. Signature and Westin recently
announced plans for the acquisition and development of the first Westin
Vacation Club resort to be located in St. John, U.S. Virgin Islands. See
"INFORMATION REGARDING SIGNATURE RESORTS, INC.--Description of
Signature's Resorts."
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For the twelve month period ended September 30, 1996, Signature sold 6,512
Vacation Intervals at the Existing Resorts, compared to 3,566 and 5,687 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
$36.6 million in 1994 to $57.2 million in 1995 to $84.2 million in 1996. The
number of Existing Resorts has increased during the same periods through
acquisitions and development from four in 1994 to seven in 1995 to nine in
1996.
Signature's Existing Resorts and the AVCOM Resorts participate in the
Vacation Interval exchange network operated by Resort Condominiums
International, Inc. ("RCI"), the world's largest Vacation Interval exchange
organization with more than two million Vacation Interval owners as members.
Participation in the RCI Network 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. In November 1996, HFS
Incorporated consummated its acquisition of RCI for a combination of cash and
securities. 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 ARDA statistics are available), the total Vacation
Interval sales volume for the timeshare industry increased from $490 million in
1980 to $4.6 billion in 1994. A year-by-year presentation of annual Vacation
Interval sales volume is detailed under "INFORMATION REGARDING SIGNATURE
RESORTS, INC.--Business--The Timeshare Industry--The Market." Based on industry
data, Signature believes that the total Vacation Interval sales volume for the
timeshare industry exceeded $5 billion in 1995. Signature believes that, based
on ARDA reports and other industry data, 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.
Signature expects the timeshare industry to continue to grow as consumer
awareness of the timeshare industry increases and as the baby boom generation
continues to enter the 40-55 year age bracket, the age group which purchased
the most Vacation Intervals in 1994.
Signature has historically provided financing for approximately 85% of its
Vacation Interval buyers. Buyers who finance through Signature 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. Signature typically borrows against its loans to Vacation Interval
buyers with borrowings from third-party lending institutions. At September 30,
1996, Signature had a portfolio of approximately 12,800 loans to Vacation
Interval buyers amounting to approximately $90.8 million with respect to
Signature's consolidated resorts (all of the Existing Resorts except the
Embassy Vacation Resort Poipu Point). Signature's consumer loans had a weighted
average maturity of approximately seven years and a weighted average interest
rate of 15% compared to a weighted average cost of funds of 10.25% on
Signature's borrowings secured by such customer loans. As of September 30,
1996, approximately 8.1% of Signature's consumer loans were considered by
Signature to be delinquent (past due by 60 or more days) and Signature has
completed or commenced foreclosure or deed-in-lieu of foreclosure on
approximately 2.5% of its consumer loans. Signature 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 Signature and the Vacation Interval owners,
Signature generally has sole responsibility and exclusive authority for the
day-to-day operation of its resorts, including administrative services,
procurement of inventories and supplies and promotion and publicity.
Signature's objective is to become North America's leading developer and
operator of timeshare resorts. To meet this objective, Signature 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 Hotel Corporation ("PROMUS") which is the
owner of the Embassy Suites brand, Westin and selected financial institutions,
(ii) increase sales and financings of Vacation Intervals at the Existing
Resorts through broader-based marketing
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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 Signature's operations. To implement its growth strategy,
Signature intends to pursue resort acquisitions and developments in a number of
resort markets that will complement Signature's operations, including the
California and Hawaii markets which are subject to barriers to entry and in
which Signature's founders, Messrs. Kaneko, Gessow and Kenninger (the
"FOUNDERS"), have extensive acquisition and development experience.
Signature has established strategic agreements and relationships with certain
lodging companies and financial institutions, including the following:
. Signature is currently the only licensee and operator of Embassy
Vacation Resorts. Signature presently operates two Embassy Vacation
Resorts and plans to complete the first phase of construction of a third
in February 1997. Signature is evaluating properties which could be
operated as Embassy Vacation Resorts and Promus has created a new
timeshare division to expand its Embassy Vacation Resort timeshare
operations.
. Signature, through the Westin Agreement, has the exclusive right through
May 2001 to jointly acquire, develop and market with Westin Vacation
Intervals at "four-star" and "five-star" Westin-affiliated resorts.
Signature and Westin recently announced plans for the acquisition and
development of the first Westin Vacation Club resort to be located in
St. John, U.S. Virgin Islands. See "INFORMATION REGARDING SIGNATURE
RESORTS, INC.--Description of Signature's Resorts--Westin Vacation Club
Resorts." In addition, Signature and Westin are evaluating the potential
acquisition of a number of other properties which may be operated as
Westin Vacation Club resorts.
. Signature has relationships with financial institutions which control
significant real estate portfolios and has acquired three of the
Existing Resorts from such institutions. Signature expects that these
relationships will continue to permit Signature to acquire resort
properties at attractive prices. Signature currently is evaluating the
acquisition of a number of properties currently owned or controlled by
such financial institutions.
Signature is a Maryland corporation incorporated in May 1996. Its executive
offices are located at 5933 West Century Boulevard, Suite 210, Los Angeles,
California 90045, and its telephone number is (310) 348-1000. ASP Acquisition
Corp. ("ASP") is a Delaware corporation incorporated in October 1996.
RECENT DEVELOPMENTS
Signature intends to pursue resort acquisitions and developments in a number
of vacation destinations that will complement Signature's operations. The
proposed Merger, as well as Signature's proposed acquisition and development of
the first Westin Vacation Club resort to be located in St. John, U.S. Virgin
Islands, which transactions were announced in the third and fourth quarter of
1996, respectively, are the result of Signature's growth strategy.
Development of First Westin Vacation Club Resort. In December 1996, Signature
and Westin announced plans to acquire and develop the first Westin Vacation
Club resort in St. John, U.S. Virgin Islands. The Westin Vacation Club at St.
John will involve a conversion of the existing Virgin Grand Villas condominium
development (the "ST. JOHN VILLAS"), located adjacent to the Great Cruz Bay
Resort Hotel (formerly known as the Hyatt Regency St. John) which will be
operated as a Westin Resort Hotel (the "ST. JOHN HOTEL"). Pursuant to the
purchase and sale agreement, Westin will acquire a 100% interest in the St.
John Hotel and Signature and Westin will form an entity owned 50% by each of
Signature and Westin (the "WESTIN PARTNERSHIP") to acquire
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the St. John Villas, consisting of 96 units, representing 4,163 remaining
unsold Vacation Intervals, which will be operated as the Westin Vacation Club
resort at St. John. Of the $10.5 million purchase price for the remaining
unsold Vacation Intervals at St. John Villas, each of Signature and Westin is
obligated to contribute approximately $2.5 million in cash, with the remaining
$5.5 million of the acquisition price to be paid by the Westin Partnership. In
addition, through the Westin Partnership, Signature will be obligated to
contribute 50% of the estimated additional $7.1 million necessary to complete
the conversion of the St. John Villas to a Westin Vacation Club resort.
The acquisition of the St. John resort is anticipated to close during the
first quarter of 1997 and commencement of Vacation Interval sales at the resort
is anticipated to begin by the fourth quarter of 1997. Located adjacent to the
beachfront hotel, the St. John Villas consist of 96 studio, one bedroom, two
bedroom and three bedroom units located on 12.3 hillside acres, of which 48
units are completed and ready for immediate occupancy. The additional 48 units
currently require construction of interior finishes and installation of
furniture, fixtures and equipment prior to occupancy. See "RISK FACTORS--Risk
of the St. John Acquisition."
Proposed Offerings by Signature. On December 20, 1996, Signature filed with
the Securities and Exchange Commission a registration statement with respect to
a proposed offering of (i) 3,000,000 additional Signature common stock (1.6
million shares proposed to be offered by Signature and 1.4 million shares
proposed to be offered by certain selling shareholders of Signature) and (ii)
$100 million in subordinated notes convertible into Signature common stock (in
each case, without giving effect to the underwriters' over-allotment option)
(collectively, the "PROPOSED OFFERINGS"). There are no assurances that the
registration statement with respect to the Proposed Offerings will become
effective, or, if so, that the Proposed Offerings will be consummated. The
Proposed Offerings are not conditioned upon one another and therefore one
offering may be consummated without the other offering being consummated. See
"RISK FACTORS--Risks Associated with Proposed Offerings."
BUSINESS OF AVCOM
AVCOM International, Inc. (referred to hereinafter with its subsidiaries as
"AVCOM") develops, markets and finances timeshare resort properties in Arizona,
California and Texas. In addition, AVCOM provides property management services
to the homeowners' association of each of its developed resorts and services or
monitors timeshare sales and receivables generated at its resorts. AVCOM's
operations are primarily conducted through its wholly-owned subsidiaries,
particularly All Seasons Resorts, Inc. ("ASR"), RPM Management, Inc. ("RPM
MANAGEMENT"), All Seasons Realty, Inc. ("ALL SEASONS REALTY") and All Seasons
Construction, Inc. ("AS CONSTRUCTION"). See "INFORMATION REGARDING AVCOM
INTERNATIONAL, INC.--Business."
AVCOM's timeshare resorts are typically comprised of furnished condominium-
style units, consisting of a two bedroom unit separable into two, one bedroom
suites. Timeshare ownership at AVCOM's resorts typically provides an owner with
the exclusive and perpetual right to use a vacation interval and are typically
sold in intervals of one or more weeks. Additionally, AVCOM generally includes
a one year membership in an international vacation interval exchange company
and a vacation travel club, together with various other amenities. A
homeowners' association, established at each AVCOM resort, manages the resort
and provides for ongoing maintenance, repairs and major replacements. In
addition to its primary sales of timeshare interests, AVCOM maintains an active
resale program at all of its resorts in order to remarket timeshare interests
for owners desiring to sell their interests and for AVCOM to sell its interests
reacquired due to trade-in or purchaser default. See "INFORMATION REGARDING
AVCOM INTERNATIONAL, INC.--Business."
AVCOM is a Delaware corporation incorporated in August 1993. Its executive
offices are located at 561 Highway 179, Sedona, Arizona 86336 and its telephone
number is (520) 282-1983.
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TERMS OF MERGER
General. The Merger Agreement provides that ASP, which has recently been
formed as a wholly-owned subsidiary of Signature for purposes of effecting this
Merger, shall be merged with and into AVCOM, which shall be the surviving
corporation in the Merger. Thereafter, AVCOM shall be a wholly-owned subsidiary
of Signature. At the time the Merger becomes effective, each outstanding share
of AVCOM Stock (excluding treasury shares and shares held by shareholders who
perfect their appraisal rights) shall be converted into the right to receive
shares of Signature Stock. If the Merger Agreement is approved at the Special
Meeting, all required governmental and other consents and approvals are
obtained, and all other conditions to the obligations of the parties to
consummate the Merger are either satisfied or waived (as permitted), the Merger
will be consummated. A copy of the Merger Agreement is set forth in Appendix A
to this Proxy Statement/Prospectus. See "THE PROPOSED MERGER--General
Description of Merger."
Loans to AVCOM. As part of the Merger, Signature has agreed to lend to AVCOM
up to $4.0 million, of which approximately $3.0 million has been lent as of the
date of this Proxy Statement/Prospectus, which has been used by AVCOM for
working capital purposes. See "THE PROPOSED MERGER--Signature Loan to AVCOM."
Conversion Ratio. The Merger Agreement provides that, at the effective time
of the Merger, each outstanding share of AVCOM Stock (excluding treasury shares
and shares held by shareholders who perfect their appraisal rights) shall be
converted into the right to receive shares of Signature Stock. The Merger
Agreement provides that each share of AVCOM Stock shall be converted into
consideration of $5.00 (subject to adjustment
to a maximum of $6.00 or a minimum of $4.00), based upon the market value of
Signature Stock at the time of the consummation of the Merger. The initial
conversion ratio of .26 shares of Signature Stock for each share of AVCOM Stock
is fixed unless the Conversion Share Value of a share of Signature Stock at the
effective time of the Merger exceeds $23.33 or is less than $15.55. In the
event that the Conversion Share Value of Signature Stock should exceed $23.33,
the conversion ratio shall then be adjusted so that a share of AVCOM Stock
would be converted into Merger consideration (in the form of Signature Stock)
of $6.00; while should the Conversion Share Value of Signature Stock be less
than $15.55, the conversion ratio shall then be adjusted so that a share of
AVCOM Stock would be converted into Merger consideration of $4.00. The final
conversion ratio will be based upon the Conversion Share Value of the Signature
Stock at the effective time of the Merger. The "CONVERSION SHARE VALUE" shall
be equal to the mean average of the high and low trading prices of Signature
Stock as reported on the NASDAQ National Market for each of the ten consecutive
days immediately preceding ten days prior to the Closing Date of the Merger.
EXAMPLES OF CONVERSION RATIO
So long as the Conversion Share Value of Signature Stock does not exceed
$23.33 or is not less than $15.55, the conversion ratio of .26 shares of
Signature Stock for each share of AVCOM Stock shall remain fixed. The
conversion ratio was based upon a value of $19.44 for a share of Signature
Stock as of the first business day immediately preceding the date that the
Merger Agreement was executed (being the average of the high and low trading
prices on such date). Consequently, should the Conversion Share Value of the
Signature Stock be $23.33 or more, the effective Merger consideration for a
share of AVCOM Stock shall be $6.00 per share ($23.33 X .26). Likewise, should
the Conversion Share Value of the Signature Stock be $15.55 or less, the
effective Merger consideration for each share of AVCOM Stock shall be $4.00 per
share ($15.55 X .26).
In the event that the Conversion Share Value of the Signature Stock should
be, for example, $30, then the conversion ratio would be adjusted from .26 to
.20 shares of Signature Stock for each share of AVCOM Stock in order to reduce
the effective Merger consideration for each share of AVCOM Stock to $6.00
($30.00 X .20). Likewise, in the event that the Conversion Share Value should
be $14 per share, the conversion ratio would be increased from .26 to .2857
shares of Signature Stock for each share of AVCOM Stock in order to increase
the effective Merger consideration per share of AVCOM Stock to $4.00 ($14.00 X
.2857).
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REASONS FOR THE MERGER
Joint Reasons for the Merger
Both the Board of Directors of AVCOM (the "AVCOM BOARD") and the Board of
Directors of Signature (the "SIGNATURE BOARD") believe that the Merger
represents a strategic combination of two companies in the timeshare resort
industry, offering enhanced opportunities to better service this market.
The Merger is viewed by both management teams as providing both short and
long-term potential benefits to shareholders resulting from economies of scale
and other operating synergies made possible by the Merger. Signature's
management expects a positive impact of the Merger in the future on its
earnings per share based upon the combined companies. Both AVCOM and Signature
believe the Merger to be an appropriate combination due to several factors,
including: (i) AVCOM's strength in the southwestern United States combines well
with Signature's broad presence in Florida, Missouri, California, South
Carolina, Hawaii and St. Maarten, Netherlands Antilles, (ii) the management
strengths of the two companies are generally complementary, allowing the
combined companies to benefit from an enhanced overall level of management
experience and operating leverage, and (iii) the similarity in development and
operation of the two companies should allow for a relatively smooth combination
of the two companies.
AVCOM Reasons for the Merger
In deciding to approve the Merger Agreement, the AVCOM Board considered many
factors, including, but not limited to, the terms of the Merger Agreement,
management's knowledge of the respective businesses of AVCOM and Signature, the
general financial circumstances of each respective company and current and
potential future cash flows, earnings and capital needs. Furthermore, the
Merger was considered by AVCOM's management in view of available alternatives,
and the AVCOM Board believes that the Merger could result in the following
strategic benefits:
. Access to Greater Financial Resources. Under the terms of the Merger
Agreement, Signature initially provided AVCOM a $2.5 million working
capital loan which allows it to satisfy certain current obligations and
continue its operations at current levels. Signature later agreed to
lend up to $4.0 million to AVCOM. If such working capital loan or a
similar loan had not been obtained, AVCOM may have been required to take
certain steps to operate within available cash flow. The Merger is also
expected to provide AVCOM with increased access to additional capital
that may not have otherwise been available. In order for AVCOM to
successfully complete the projects it has planned for development
through 1997, the majority of which are currently under construction,
significant new capital resources must be obtained. While AVCOM
traditionally has met its capital needs through various sources,
including cash flow from operations, private and bank lenders and debt
and equity financings, the AVCOM Board determined that these sources may
not be sufficient to meet AVCOM's capital needs in the future. The AVCOM
Board considered various methods to obtain additional capital, including
public and private debt and equity financings and private and bank
loans, and determined that while possible to obtain, there was no
assurance such capital could be obtained on a timely or on a cost-
effective basis. The AVCOM Board believes that the combined company will
have greater access to significant financial resources which could lower
its borrowing costs, particularly acquisition and construction borrowing
costs, and provide it capital, on a timely basis which is sufficient to
meet its current development schedules. The AVCOM Board believes that
lower borrowing costs should contribute overall to greater profitability
for its operations.
. Shareholder Value. The AVCOM Board considered the benefits that could
reasonably be expected to accrue to AVCOM shareholders from the Merger.
These benefits include the premium offered over both AVCOM's then-
current stock price or stock price unaffected by the acquisition
speculation and the likelihood of a higher stock price for Signature
Stock than would be achieved by AVCOM
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operating on an independent basis unaffected by acquisition speculation.
The AVCOM Board determined that a combination with Signature could
result in greater value to the shareholders of AVCOM than by either
remaining independent or merging or being acquired by another entity.
The AVCOM Board considered various factors in reaching this conclusion,
including the increased liquidity provided to shareholders, Signature's
overall performance historically and on a prospective basis, the
potential for interruption of its development and sales operations if
additional capital could not be obtained on a timely basis, and the
value of the consideration being paid. Specifically, the value of the
Merger consideration, between $4.00 and $6.00 per share, compared
favorably to the book value of a share of AVCOM common stock of $1.05 as
of June 30, 1996. Alternatives to the Merger considered by the AVCOM
Board included a merger with another developer with operations solely in
one state, public debt or equity offering, venture capital funding and a
leveraged buy-out by management. Upon consideration of these
alternatives, the AVCOM Board determined the Merger to have the highest
probability of allowing shareholders to maximize the value of their
AVCOM Stock.
. Enhanced Marketing Capabilities. The AVCOM Board believes that the
Merger will quickly enhance AVCOM's marketing capabilities through
increased presence in additional geographical markets, attraction to its
resorts due to national name brand recognition and exchange demand for
its Vacation Interval products. The AVCOM Board believes that it will
have greater cross-selling opportunities with the geographic diversity
of the sales centers of the combined companies and will benefit from
Signature's current customer base through cross-marketing its products
directly to such customers at lower costs. The AVCOM Board also believes
that the Merger will benefit its marketing capabilities by associating
AVCOM with the nationally recognized brand names of Westin Vacation Club
Resorts and Embassy Vacation Resorts. Additionally, the combined
resources of the companies will enhance the attractiveness of its
products for exchange purposes, both intra-company and through
international exchange companies.
. Obtain Shares of a More Liquid, Publicly Traded Company. Due to the
Signature Stock being listed on the NASDAQ National Market, the Merger
will be a means by which the AVCOM shareholders will be able to obtain
shares of a more liquid, publicly held company.
. Merge With a Leader in the Timeshare Industry. The AVCOM Board believes
that Signature is a leading developer and operator of timeshare resorts
and, as such, is well positioned for further growth and profitability in
the future. The AVCOM Board believes that its combination with Signature
will enhance its ability to acquire larger and potentially more
profitable resorts due to the anticipated greater capital resources and
greater sales volume generated from the joint marketing efforts.
. Improved Operating Practices. The AVCOM Board believes that the
combination of AVCOM's operations with Signature will create operating
synergies in that the companies can draw upon the operating experience
and knowledge of each such entity's operations which could result in
more efficient development, marketing and financing (both development
and consumer) business practices and in reduced general and
administrative overhead.
. Tax Ramifications. The Merger is expected to constitute a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of
1986, as amended, and, as a result, the AVCOM shareholders should
recognize no gain or loss upon the conversion of shares of AVCOM Stock
into shares of Signature Stock, except for gain or loss recognized in
receipt of cash in lieu of any fractional share interest in Signature
Stock. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER."
THE BOARD OF DIRECTORS OF AVCOM UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR
APPROVAL AND ADOPTION OF THE MERGER, THE MERGER AGREEMENT AND CONSUMMATION OF
THE TRANSACTIONS CONTEMPLATED THEREBY.
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Signature Reasons for the Merger
The Signature Board believes that the terms of the Merger are fair to, and in
the best interests of, Signature and its shareholders. Furthermore, the of
Signature Board believes that the Merger could result in the following
strategic benefits:
. Increased Presence in Southwestern United States. The Signature Board
believes that AVCOM maintains a strong presence in the Sedona, Arizona
market which should be enhanced by the development of its fifth resort,
The Ridge on Sedona Golf Resort. AVCOM is currently completing
development and selling of Vacation Intervals at its fourth Sedona
resort, Sedona Summit Resort, and will begin sales at The Ridge in the
spring of 1997. In addition to development in Sedona, AVCOM is
developing and pre-selling Vacation Intervals at the Scottsdale Villa
Mirage Resort in Scottsdale, Arizona. The Signature Board believes the
acquisition of AVCOM will give Signature a stronger presence in the
Southwest, complementing its existing presence in the Southeastern
United States and California. Vacation Intervals at All Seasons' resorts
generally sell for $9,000 to $18,000 and will be targeted to the same
market segment as Signature's non-branded resorts.
. Strategic Combination. The Signature Board believes that the Merger
represents a strategic combination of two companies in the timeshare
resort industry, offering enhanced opportunities to better service this
market. The Merger is viewed by both management teams as providing both
short and long-term potential benefits to shareholders resulting from
economies of scale and other operating synergies made possible by the
Merger. The Signature Board believes the Merger to be an appropriate
combination due to several factors, including: (i) AVCOM's strength in
the Southwestern United States combines well with Signature's presence
in Florida, Missouri, California, South Carolina, Hawaii and
St. Maarten, Netherlands Antilles and (ii) the management strengths of
the two companies are generally complementary, allowing the combined
company to benefit from an enhanced overall level of management
experience and operating leverage.
. Addition of New Development Opportunities. The Signature Board believes
that the Merger may allow Signature to enhance its sales potential by
adding AVCOM's six existing resorts in sales (plus one additional resort
under construction to begin in sales during 1997) to Signature's
existing portfolio of nine resorts in sales and the recently announced
Westin Vacation Club resort in St. John (for a total of 17 resorts in
sales by the end of 1997) from which the combined company will be able
to sell Vacation Intervals. In particular, the Signature Board believes
that the Merger may allow Signature to have greater access to customers
by way of AVCOM's strong sales and marketing organization in the
Southwestern United States, in addition to benefiting from AVCOM's
current base of approximately 15,000 Vacation Interval owners.
. Lower Cost of Borrowing. The Signature Board believes that the combined
company will have access to greater financial resources and lower
borrowing costs. The Signature Board believes that this lower cost of
borrowing may contribute to greater net income and lower development
costs for Signature going forward.
. Significant Operating Synergies. The Merger is expected to provide
Signature certain administrative benefits and opportunities for cost
reductions, including reductions resulting from employee redundancies.
AVCOM has certain development, sales and marketing expertise that may
enable Signature to function more efficiently. The Signature Board
believes that beyond cost savings and efficiencies there is also a long
term potential benefit to shareholders from leveraging the operating
experiences of both management teams to improve operations of resorts
and, thereby, increasing the profitability of the combined entity.
9
<PAGE>
ESCROW AGREEMENT
In order to establish a procedure for the satisfaction of any claims by
Signature for indemnification pursuant to the Merger Agreement, the parties to
the Merger Agreement agreed that 10% of the aggregate shares of Signature Stock
to be received by AVCOM shareholders upon consummation of the Merger, will be
held for a period of time. The parties have further agreed that the mechanism
for holding such shares shall be subject to and governed by the Escrow
Agreement described herein. See "THE PROPOSED MERGER--Escrow Agreement and
Indemnity."
THE SPECIAL MEETING OF SHAREHOLDERS; VOTE REQUIRED; RECORD DATE
The Special Meeting of AVCOM shareholders will be held on January 10, 1997,
at 8:00 a.m., local time, at Poco Diablo Resort, 1736 Highway 179, Sedona,
Arizona 86336. Approval by the AVCOM shareholders of the Merger Agreement
requires the affirmative vote of the holders of a majority of the issued and
outstanding shares of AVCOM Stock. Only holders of record of AVCOM Stock at the
close of business on December 12, 1996 (the "RECORD DATE"), will be entitled to
notice of, and to vote at, the Special Meeting. At the record date, there were
5,274,636 shares of AVCOM Stock outstanding, of which 2,016,450 shares
(excluding unexercised options to acquire AVCOM stock) were owned beneficially
by directors and executive officers of AVCOM and their affiliates or
approximately 38.2% of the shares entitled to vote at the Special Meeting. All
directors and the executive officers and the affiliates have indicated their
intention to vote their shares for the approval of the Merger Agreement.
ALL OF THE DIRECTORS OF AVCOM PRESENT AT THE DIRECTORS MEETING HELD TO
CONSIDER THE MERGER CAREFULLY CONSIDERED AND UNANIMOUSLY APPROVED THE TERMS OF
THE MERGER AGREEMENT AS BEING IN THE BEST INTEREST OF AVCOM AND ITS
SHAREHOLDERS. THE AVCOM BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
PROPOSAL TO APPROVE AND ADOPT THE MERGER, THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY.
APPRAISAL RIGHTS OF AVCOM SHAREHOLDERS
AVCOM shareholders have the right under Delaware General Corporation Law to
seek an appraisal of their shares of AVCOM Stock. Any deviation by an AVCOM
shareholder from the requirements of the Delaware General Corporation Law may
result in forfeiture of such rights. See "THE PROPOSED MERGER--Appraisal Rights
of Shareholders."
FEDERAL INCOME TAX CONSEQUENCES
The Merger has been structured with the intent to permit qualification as a
reorganization under Section 368 of the Internal Revenue Code of 1986, as
amended. Provided that the Merger qualifies as a reorganization thereunder,
AVCOM shareholders who exchange shares of AVCOM Stock for shares of Signature
Stock will recognize gain, if any, up to but not in excess of any cash received
in the Merger as a result of payment for fractional shares. The shareholders
should be aware that no tax ruling from the Internal Revenue Service has been
sought in connection with the Merger. Depending upon AVCOM shareholders'
intentions and the number of shares of Signature Stock, in the aggregate,
actually sold by AVCOM shareholders following the Merger, it is possible that
the Merger could be treated as a taxable transaction by the Internal Revenue
Service, and in which event all AVCOM shareholders would recognize gain, if
any, to the extent the fair market value of shares of the Signature Stock plus
the cash received in lieu of fractional shares in the Merger exceeded a
shareholder's basis in the shares of AVCOM Stock surrendered in exchange
therefor. HOLDERS OF SHARES OF AVCOM STOCK SHOULD CONSULT WITH THEIR OWN TAX
ADVISORS REGARDING THE TAX CONSEQUENCES OF THE MERGER TO THEM, INCLUDING THE
POSSIBILITY THAT THE SHARES OF THE SIGNATURE STOCK RECEIVED BY THEM WILL BE
TAXABLE TO THEM AS INDICATED ABOVE, AS WELL AS THE APPLICABILITY OF VARIOUS
STATE AND LOCAL TAX LAWS. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE
MERGER."
10
<PAGE>
ACCOUNTING TREATMENT
The Merger is expected to be accounted for as a "pooling-of-interests"
transaction in accordance with generally accepted accounting principles. In the
event that AVCOM shareholders holding more than 10% of the AVCOM Stock assert
their appraisal rights, the Merger will not qualify for pooling-of-interests
treatment. It is a condition to the Merger that the Merger be accounted for as
a "pooling-of-interests." Under this method of accounting, the recorded assets
and liabilities of Signature and AVCOM will be carried forward at their book
values to Signature after the Merger, income of Signature after the Merger will
include the income (or loss) of Signature and AVCOM for the entire fiscal year
in which the Merger occurs, and the reported income of Signature and AVCOM for
prior periods will be combined and restated as income of Signature after the
Merger. It is a condition to Signature's obligation to effect the Merger that
it receive an opinion from its independent public accountants, that the Merger
will qualify for a pooling-of-interests accounting treatment. See "THE PROPOSED
MERGER--Conditions of the Merger" and "THE PROPOSED MERGER--Accounting
Treatment." No assurance can be given, however, that Signature will waive the
foregoing condition and effect the Merger if pooling of interest accounting is
not available. Signature currently intends not to waive this condition. If such
condition is waived, the purchase method of accounting would be applicable.
Under the purchase method, the book value of AVCOM's assets would be increased
to their fair values, which could result in higher costs of sales, thereby
adversely affecting Signature's earnings. Additionally, the excess of the
purchase price over the fair value of AVCOM's assets would be amortized and
expensed, which could also adversely affect Signature's earnings.
MARKETS AND MARKET PRICES
Signature Resorts, Inc.
Signature Stock has been listed on the NASDAQ National Market ("NASDAQ
NATIONAL MARKET") under the symbol "SIGR" since its initial public offering
which was completed in August 1996. The following table sets forth the high and
low sales prices for Signature Stock as reported on NASDAQ National Market
since Signature's initial public offering.
<TABLE>
<CAPTION>
1996 HIGH LOW
---- ---- ----
<S> <C> <C>
Third Calendar Quarter (beginning August 15, 1996).......... $24 5/8 $13 5/8
Fourth Calendar Quarter (through December 16, 1996)......... $39 1/8 $25
</TABLE>
On September 20, 1996, the last trading day before announcement of the
execution of the Merger Agreement, the closing bid price of Signature Stock, as
reported on the NASDAQ National Market, was $20 1/4 per share.
Because the market price of Signature Stock is subject to fluctuation, the
market value of the shares of Signature Stock that AVCOM shareholders will
receive in the Merger may increase or decrease prior to the Merger. Holders of
shares of AVCOM Stock should obtain current market quotations for shares of
Signature Stock.
11
<PAGE>
AVCOM International, Inc
AVCOM Stock is traded over-the-counter market and its quotations are reported
on the OTC Bulletin Board Display under the symbol "AVMI." The following sets
forth the high and low per share bid price for AVCOM Stock:
<TABLE>
<CAPTION>
1994 HIGH LOW
---- ---- ---
<S> <C> <C>
Second Calendar Quarter (beginning April 11, 1994)........... 4 11/16 1 1/2
Third Calendar Quarter....................................... 3 3
Fourth Calendar Quarter...................................... 4 2 1/4
<CAPTION>
1995
----
<S> <C> <C>
First Calendar Quarter....................................... 3 5/8 2 3/4
Second Calendar Quarter...................................... 4 3 1/2
Third Calendar Quarter....................................... 4 3
Fourth Calendar Quarter...................................... 3 1/8 2 3/4
<CAPTION>
1996
----
<S> <C> <C>
First Calendar Quarter....................................... 3 2 1/8
Second Calendar Quarter...................................... 3 2 1/4
Third Calendar Quarter....................................... 4 3/4 2
Fourth Calendar Quarter (through December 16, 1996).......... 4 7/8 4 1/4
</TABLE>
On September 20, 1996, the last trading day before announcement of the
execution of the Merger Agreement, the last price of AVCOM Stock, as reported
on the over-the-counter market, was $3 7/8 per share.
CONDITIONS, TERMINATION AND TERMINATION FEE
The consummation of the Merger is subject to various conditions, which are
more fully set out herein. The conditions to closing include, but are not
limited to, completion of the due diligence investigation by Signature of
AVCOM, (ii) the conversion of all outstanding AVCOM Preferred into AVCOM Stock,
(iii) AVCOM shareholders holding less than 10% of the shares of AVCOM Stock
dissenting from the Merger, (iv) obtaining appropriate and necessary lenders'
consents and state agency approvals, and (v) receipt by Signature of a letter
from its accountants to the effect that the Merger will qualify for the pooling
of interest accounting treatment. See "THE PROPOSED MERGER--General Description
of the Merger." If the Merger Agreement is terminated by AVCOM under certain
circumstances, Signature would be required to pay AVCOM a fee of $900,000, plus
expenses incurred in connection with the transaction. If the Merger Agreement
is terminated by Signature under certain other circumstances, AVCOM would be
required to pay Signature a fee of $1,800,000, plus expenses incurred in
connection with the transaction. See "THE PROPOSED MERGER--Termination of
Merger Agreement."
EFFECT OF MERGER ON SHAREHOLDERS
The rights and privileges of holders of AVCOM Stock are governed by the
provisions of the Delaware General Corporate Law, while the rights and
privileges of holders of Signature Stock are governed by Maryland law. AVCOM
shareholders should review the discussion of a comparison of rights included in
this Proxy Statement/Prospectus under the headings. See "COMPARISON OF RIGHTS
OF SHAREHOLDERS."
RISK FACTORS
Certain Risk Factors that AVCOM shareholders should consider prior to voting
on the Merger are included herein under the heading "RISK FACTORS" beginning at
page 15 of this Proxy Statement/Prospectus.
12
<PAGE>
REGULATORY APPROVALS
The Merger is subject to regulatory approval of various state agencies which
monitor the sale of timeshare intervals. The fulfillment of any such approval
processes is a condition to the consummation of the Merger.
COMPARATIVE PER SHARE DATA (UNAUDITED)
Under the terms of the Merger Agreement, AVCOM shareholders will receive .26
shares of Signature Stock for each share of AVCOM Stock subject to adjustment
in the event the Conversion Share Value (as defined) of a share of Signature
Stock exceeds $23.33 per share or is less than $15.55. As stated in the Merger
Agreement, if the Conversion Share Value of a share of Signature Stock is less
than $15.55 per share, then Signature is not required to consummate the Merger.
The final conversion ratio will be based upon the Conversion Share Value of the
Signature Stock (as defined) at the Closing Date. Assuming a minimum Conversion
Share Value of Signature Stock of $15.55 per share and a maximum Conversion
Share Value of $37.25, a recent closing price, the conversion ratios would be
.26 and .16, respectively, and AVCOM shareholders would receive 1,371,405
shares and 843,942 shares, respectively, of Signature Stock.
The following table presents, on an unaudited basis, at the dates and for the
periods indicated (i) historical per share data for Signature and AVCOM, (ii)
pro forma combined per share data giving effect to the merger with AVCOM and
(iii) pro forma equivalent per share data for AVCOM Stock. The pro forma
financial data and equivalent per share data assume conversion ratios of .26
and .16 for AVCOM as discussed above.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
NINE MONTHS ENDED ---------------------------------
SEPTEMBER 30, 1996 1995 1994 1993
------------------ ----------- ---------- ----------
<S> <C> <C> <C> <C>
HISTORICAL DATA
Signature Resorts,
Inc.(a)
Weighted average
shares
outstanding........ 12,321,759 11,354,705 -- --
Earnings per
share(b)........... $ 0.54 $ 0.63 -- --
Book value per
share.............. $ 5.76 $ 3.39 -- --
Cash dividends per
share.............. -- -- -- --
AVCOM International,
Inc.
Weighted average
shares
outstanding........ 4,987,080 5,554,089 4,942,759 4,682,507
Earnings per share.. $ (0.41) $ 0.17 $ 0.16 $ 0.27(c)
Book value per
share.............. $ 0.55 $ 1.05 $ 0.59 $ 0.36
Cash dividends per
share.............. -- -- -- --
</TABLE>
- --------
(a) Historical information for Signature is presented on a pro forma basis,
assuming the shares issued in connection with the Initial Public Offering
and the Consolidation Transactions were outstanding since January 1, 1995.
Per share amounts prior to 1995 are not presented.
(b) Reflects the effects on earnings per share assuming Signature had been
treated as a C corporation rather than as individual limited partnerships
and limited liability companies for federal income tax purposes.
(c) Historical earnings per share for AVCOM for the year ended December 31,
1993 are presented on a pro forma basis and gives effect to the
reorganization, as if it occurred at the beginning of the period and is
based on income before income taxes, adjusted for cumulative and unpaid
dividends on convertible preferred stock and adjusted for a pro forma
income tax provision at the rate of forty percent, and on the outstanding
weighted average shares (less treasury stock), common stock equivalents and
convertible preferred stock.
13
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
NINE MONTHS ENDED ------------------------
SEPTEMBER 30, 1996 1995 1994 1993
------------------ ---------- ------ ------
<S> <C> <C> <C> <C>
PRO FORMA COMBINED DATA
Pro Forma combined at a
conversion ratio of .26
Weighted average shares
outstanding................... 18,886,241 18,763,610 -- --
Earnings per share............. $ 0.36 $ 0.57 -- --
Book value per share........... $ 5.54 -- -- --
Cash dividends per share....... -- -- -- --
Pro Forma combined at a
conversion ratio of .16
Weighted average shares
outstanding................... 18,338,778 18,236,147 -- --
Earnings per share............. $ 0.37 $ 0.59 -- --
Book value per share........... $ 5.70 -- -- --
Cash dividends per share....... -- -- -- --
PRO FORMA EQUIVALENT PER SHARE DATA
Equivalent AVCOM per share
amounts at a conversion ratio of
.26
Weighted average AVCOM shares
outstanding................... 4,987,080 5,554,089 -- --
Earnings per share............. $ 0.09 $ 0.15 -- --
Book value per share........... $ 1.44 -- -- --
Cash dividends per share....... -- -- -- --
Equivalent AVCOM per share
amounts at a conversion ratio of
.16
Weighted average AVCOM shares
outstanding................... 4,987,080 5,554,089 -- --
Earnings per share............. $ 0.06 $ 0.09 -- --
Book value per share........... $ 0.91 -- -- --
Cash dividends per share....... -- -- -- --
</TABLE>
14
<PAGE>
RISK FACTORS
In addition to the other information contained in this Proxy
Statement/Prospectus, the following risk factors should be considered
carefully by the holders of AVCOM Stock in connection with the matters to be
voted on at the Special Meeting. Signature and AVCOM caution the reader that
this list of risk factors may not be exhaustive.
Certain statements in this Proxy Statement/Prospectus that are not
historical fact constitute "forward- looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Discussions containing
such forward-looking statements may be found in the material set forth under
"Summary," "Information Regarding Signature Resorts, Inc." and "Information
Regarding AVCOM International, Inc.," as well as within the Proxy
Statement/Prospectus generally. In addition, when used in the Proxy
Statement/Prospectus the words "believes," "anticipates," "expects" and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to a number of risks and uncertainties. Actual results
could differ materially from those projected in the forward-looking statements
as a result of the risk factors set forth below and the matters set forth in
the Proxy Statement/Prospectus generally. Signature undertakes no obligation
to publicly release the result of any revisions to these forward-looking
statements that may be made to reflect any future events or circumstances.
CONVERSION RATIO
The conversion ratio was determined by the parties such that AVCOM
shareholders (and holders of options to acquire AVCOM Stock) would receive
merger consideration of $5.00 per share of AVCOM Stock (subject to
adjustment), payable in the form of Signature Stock, based upon the $19.44
price of Signature Stock immediately prior to the execution of the Merger
Agreement (which was the average price of the high and low trades on the first
business day preceding the execution of the Merger Agreement). Based upon such
$19.44 price of Signature Stock, a conversion ratio of .26 shares of Signature
Stock for each share of AVCOM Stock was agreed to among the parties ($19.44 X
.26 = $5.00). Pursuant to the Merger Agreement, the actual consideration to be
received at closing for each share of AVCOM Stock could be as high as $6.00
per share or as low as $4.00 per share, based upon the Conversion Share Value
of the Signature Stock at the Closing Date. The Conversion Share Value of the
Signature Stock for purposes of determining the conversion ratio will be equal
to the mean average of the high and low trading prices of Signature Stock as
reported on the NASDAQ National Market System for each of the ten consecutive
trading days immediately preceding ten days prior to the Closing Date. In the
event that the Conversion Share Value should exceed $23.33, the conversion
ratio shall be reduced so that the consideration being received for a share of
AVCOM Stock is $6.00. In the event that the Conversion Share Value shall be
less than $15.55, the conversion ratio shall be adjusted so that a share of
AVCOM Stock shall receive $4.00 per share in Merger consideration. All Merger
consideration shall be paid in the form of Signature Stock, with the exception
of cash to be paid for fractional shares. See "THE PROPOSED MERGER--General
Description of the Merger."
ESCROW AGREEMENT
In order to establish a procedure for the satisfaction of any claims by
Signature for indemnification pursuant to the Merger Agreement, ten percent of
the aggregate shares of Signature Stock to be received by AVCOM shareholders
upon consummation of the Merger will be deposited into escrow and governed by
the Escrow Agreement. The Signature Stock held in the escrow will be
deliverable to the AVCOM shareholders only upon termination of the Escrow
Agreement and satisfaction of the indemnification obligations contained in the
Merger Agreement. See "THE PROPOSED MERGER--Escrow Agreement and Indemnity."
RISKS RELATED TO THE MERGER
Uncertainty as to Future Financial Results. Signature believes that the
Merger with AVCOM will offer opportunities for long-term efficiencies in
operations that should positively affect future results of the combined
operations of Signature and AVCOM. However, the Merger may adversely affect
Signature's financial
15
<PAGE>
performance in 1997 and future years until such time as Signature is able to
realize the positive effect of such long-term efficiencies. In addition, the
combined companies will be more complex and diverse than Signature
individually, and the combination and continued operation of their distinct
business operations will present difficult challenges for Signature's
management due to the increased time and resources required in the management
effort. While management and the Board of Directors of Signature believe that
the combination can be effected in a manner which will realize the value of
the two companies, management has no experience in combinations of this size.
See "INFORMATION REGARDING SIGNATURE RESORTS, INC.--Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Following the Merger, in order to maintain and increase profitability, the
combined companies will need to successfully integrate and streamline
overlapping functions. Signature and AVCOM have different systems and
procedures in many operational areas which must be rationalized and
integrated. There can be no assurance that integration will be successfully
accomplished. The difficulties of such integration may be increased by the
necessity of coordinating geographically separate organizations. The
integration of certain operations following the Merger will require the
dedication of management resources which may temporarily distract attention
from the day-to-day business of the combined companies. Failure to effectively
accomplish the integration of the two companies' operations could have an
adverse effect on Signature's results of operations and financial condition.
Merger and Related Expenses. Transaction costs relating to the negotiation
of, preparation for, and consummation of the Merger and the anticipated
combination of certain operations of Signature and AVCOM will result in a one-
time charge to Signature's earnings of approximately $1,700,000 to $1,900,000
in the quarter in which the Merger is consummated (expected to be the first
quarter of 1997). This charge is expected to include the fees and expenses
payable to financial advisors, legal fees and other transaction expenses
related to the Merger. In addition, there can be no assurance that Signature
will not incur additional charges in subsequent quarters to reflect costs
associated with the Merger and the integration of Signature's and AVCOM's
operations. Additionally, transaction costs relating to the consummation of
the Merger and the anticipated combination of operations of Signature and
AVCOM, along with changes in AVCOM's accounting policies to conform to
Signature's and the write-down and write-off of certain AVCOM assets, will
result in a one-time charge to AVCOM's earnings of approximately $6 million to
$8 million. This charge is expected to include the estimated costs associated
with workforce reductions, contractual payment obligations and other
restructuring activities. While the exact timing of this charge cannot be
determined at this time, management anticipates that this charge to earnings
will be recorded primarily in the fourth quarter of 1996.
Shares Eligible for Public Sale. Sales of substantial amounts of Signature's
Stock in the public market after the consummation of the Merger could
adversely affect prevailing market prices. The shares of Common Stock (based
on current stock prices) to be issued in the Merger will be eligible for
immediate sale in the public market, subject to certain contractual
limitations and limitations under the Securities Act applicable to affiliates
of AVCOM.
Accounting Treatment. The Merger is expected to be accounted for by the
pooling-of-interests method of accounting. Under this method of accounting,
the recorded assets and liabilities of Signature and AVCOM will be carried
forward at their book values to Signature after the Merger, income of
Signature after the Merger will include the income (or loss) of Signature and
AVCOM for the entire fiscal year in which the Merger occurs, and the reported
income of Signature and AVCOM for prior periods will be combined and restated
as income of Signature after the Merger. It is a condition to Signature's
obligation to effect the Merger that it receive an opinion from its
independent public accountants, that the Merger will qualify for a pooling-of-
interests accounting treatment. In the event that holders of more than 10% of
the outstanding AVCOM Stock dissent to the Merger and perfect their appraisal
rights, the Merger will not qualify for pooling-of-interests treatment. See
"THE PROPOSED MERGER--Conditions of the Merger." No assurance can be given,
however, that Signature will waive the foregoing condition and effect the
Merger if pooling of interest accounting is not available. If pooling-of-
interests treatment is not available, the purchase method of accounting would
be applicable. Under the purchase method, the book value of AVCOM's assets
would be increased to their fair values, which could result in higher costs of
sales, thereby adversely affecting Signature's earnings. Additionally, the
excess of the
16
<PAGE>
purchase price over the fair value of AVCOM's assets would be amortized and
expensed, which could also adversely affect Signature's earnings.
ACQUISITION STRATEGY AND RISKS RELATED TO RAPID GROWTH
A principal component of Signature's strategy is to continue to grow by
acquiring additional resorts. Signature'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 Signature will be successful with respect to such factors.
Signature'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
Signature competing to acquire resort properties which Signature may consider
attractive resort acquisition opportunities. There can be no assurance that
Signature will be able to compete against such other buyers successfully or
that Signature will be successful in consummating any such future financing
transactions or equity offerings on terms favorable to Signature. Signature's
ability to obtain and repay any indebtedness at maturity may depend on
refinancing, which could be adversely affected if Signature cannot effect the
sale of additional debt or equity through public offerings or private
placements on terms favorable to Signature. Factors which could affect
Signature'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 Signature's business,
results of operations, leverage, financial condition and business prospects.
In addition, an important part of Signature's growth strategy is to acquire
and develop additional Embassy Vacation Resorts and Westin Vacation Club
resorts. See "INFORMATION REGARDING SIGNATURE RESORTS, INC.--Business." 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 Hotels Corporation
("PROMUS") will elect to continue licensing the Embassy Vacation Resort name
to Signature with respect to possible future resorts.
VARIABILITY OF QUARTERLY RESULTS; POSSIBLE VOLATILITY OF STOCK PRICE
Signature's 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 Signature's resort locations (e.g., hurricanes in Hawaii,
St. Maarten and St. John and earthquakes in California). Furthermore,
Signature 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, Signature'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 Signature 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, amortization and depreciation expenses from such
acquisitions may materially adversely impact earnings.
Due to the foregoing and other factors, Signature believes that its
quarterly and annual revenues, expenses and operating results could vary
significantly in the future and that period-to-period comparisons should not
be relied upon as indications of future performance. Because of the above
factors, it is possible that Signature's operating results will be below the
expectations of stock market analysts and investors, which could have a severe
adverse effect on the market value of Signature Stock. Furthermore, the market
price for Signature Stock has been subject to significant fluctuations.
Numerous factors, including announcements of fluctuations in Signature'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 Signature Stock. In addition, the stock
17
<PAGE>
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 market fluctuations may
adversely affect the market price of Signature Stock in future periods
including prior to the consummation of the Merger, and these market
fluctuations could affect the conversion ratio and adversely affect the number
of shares of Signature Stock to be received by the AVCOM shareholders in the
Merger. See "THE PROPOSED MERGER--General Description of the Merger."
RISK OF DEVELOPMENT AND CONSTRUCTION ACTIVITIES
Signature intends to actively continue development, construction,
redevelopment/conversion and expansion of timeshare resorts. There cn be no
assurance that Signature will complete development and/or conversion of the
Lake Tahoe and AVCOM's Scottsdale Villa Mirage Resort Villas on the Lake,
Sedona Summit Resort and The Ridge on Sedona Golf Resort currently under
development, complete the expansion projects currently under development at
Signature's Cypress Pointe, Plantation at Fall Creek and Embassy Vacation
Resort Grand Beach resorts and at AVCOM's Sedona Summit Resort, North Bay
Resort at Lake Arrowhead and Villas on the Lake resorts, undertake the
additional expansion plans set forth in "INFORMATION REGARDING SIGNATURE
RESORTS, INC.--Business" or undertake to develop other resorts or complete
such development if undertaken. Risks associated with Signature's development,
construction and redevelopment/conversion activities, including activities
relating to the Lake Tahoe and AVCOM's Scottsdale Villa Mirage Resort and
Villas on the lake and The Ridge on Sedona Golf Resort, and expansion
activities, including activities relating to the Cypress Pointe, Plantation at
Fall Creek and San Luis Bay, Flamingo Beach Club and Embassy Vacation Resort
Grand Beach resorts and at AVCOM's Sedona Summit Resort, and Villas on the
Lake resorts, may include the risks that: acquisition and/or development
opportunities may be abandoned; construction costs of a resort may exceed
original estimates, possibly making the resort uneconomical or unprofitable;
sales of Vacation Intervals at a newly completed resort 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
resort; and construction may not be completed on schedule, resulting in
decreased revenues and increased interest expense. In addition, Signature's
construction activities typically are performed by third-party contractors,
the timing, quality and completion of which cannot be controlled by Signature.
Nevertheless, construction claims may be asserted against Signature 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 Signature to coordinate construction activities
with the process of obtaining such permits and authorizations, and the ability
of Signature to obtain the financing necessary to complete the necessary
acquisition, construction, and/or conversion work. The ability of Signature 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 Signature amounts in connection with any repairs made to the
developed property. See "INFORMATION REGARDING SIGNATURE RESORTS, INC.--
Business" and "INFORMATION REGARDING SIGNATURE RESORTS, INC.--Management's
Discussion and Analysis of Financial Condition and Results of Operations."
RISKS OF THE ST. JOHN ACQUISITION
Although Signature and Westin have announced the signing of definitive
agreements for the acquisition of the St. John Villas and the St. John Hotel,
the closing of such acquisition is subject to the timely satisfaction of
certain conditions. Although Signature expects such acquisition to be
consummated during the first quarter 1997 and sales of Vacation Intervals to
begin at the resort by the fourth quarter of 1997, there can be no assurance
that such acquisition and commencement of timeshare sales will be consummated
in such time period, if at all.
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In the event that the closing of the St. John acquisition or the
commencement of timeshare sales is materially delayed or does not occur,
Signature could incur additional transaction and start-up costs, which may
result in an adverse effect on the results of Signature in 1997 or in future
years.
RISK OF INCREASING LEVERAGE; RESTRICTIVE COVENANTS
Future development by Signature at its Existing Resorts and the AVCOM
Resorts will be financed with indebtedness obtained pursuant to Signature's
existing credit facilities or credit facilities obtained by Signature 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
requiring Signature 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. Signature's indebtedness to
be incurred under such facilities will be secured by mortgages on Signature's
resort properties as well as other assets of Signature. Among other
consequences, the leverage of Signature and such restrictive covenants and
other terms of Signature's debt instruments could impair Signature'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,
Signature's leverage may increase its vulnerability to adverse general
economic and timeshare industry conditions and to increased competitive
pressures.
LIMITED OPERATING HISTORY
Although predecessors of Signature have operating history in the timeshare
and hospitality industries, Signature has only limited operating history as an
integrated entity with respect to the Existing Resorts and limited experience
operating as a public company, which could have an adverse impact on
Signature's operations and future profitability. Signature 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 with respect to marketing, (iii) in Orlando, Florida primarily with
respect to sales, accounting, treasury and property management operations and
(iv) following the Merger, in Sedona, Arizona, primarily with respect to sales
and marketing, accounting, and property management of Signature's and AVCOM's
western resorts. However, as Signature grows and diversifies into additional
geographic markets, including new markets as a result of the Merger with
AVCOM, no assurance can be given as to management's ability to efficiently
manage operations and control functions without a centrally located management
team.
GENERAL ECONOMIC CONDITIONS; CONCENTRATION IN TIMESHARE INDUSTRY; GEOGRAPHIC
CONCENTRATION OF INVESTMENTS
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 Signature's business.
Any such economic conditions, including recession, may also adversely affect
the future availability of attractive financing rates for Signature or its
customers and may materially adversely affect Signature's business.
Furthermore, adverse changes in general economic conditions may adversely
affect the collectibility of Signature's loans to Vacation Interval buyers.
Because Signature'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 Signature's operations. Additionally, two of the nine
Existing Resorts are located in each of California, Florida and St. Maarten,
and six of the ten AVCOM Resorts are located in Arizona and three are located
in California. The concentration of Signature's investments in California,
Florida, the Caribbean and Arizona could result in adverse events or
conditions which affect those areas in particular, such as economic recessions
and natural disasters, having a more significant negative effect on the
operations of Signature's resorts, than if Signature's investments were more
geographically diverse. See "INFORMATION REGARDING SIGNATURE RESORTS, INC.--
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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RISKS ASSOCIATED WITH CUSTOMER FINANCING
Signature offers financing to the buyers of Vacation Intervals at
Signature'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.
Signature has entered into agreements with lenders for the financing of these
customer receivables. These agreements provide an aggregate of up to
approximately $178 million of available financing to Signature bearing
interest at variable rates tied to either the prime rate or LIBOR, of which
Signature as of September 30, 1996, has approximately $116 million of
additional borrowing availability. Under these arrangements, Signature pledges
as security promissory notes to these lenders, who typically lend Signature
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 Signature's
outstanding balance with the respective lenders. Signature does not presently
have binding agreements to extend the terms of such existing financing or for
any replacement financing upon the expiration of such funding commitments
(which have varying borrowing periods ranging from 18 to 20 months after the
initial commitment date), and there can be no assurance that alternative or
additional arrangements can be made on terms that are satisfactory to
Signature. 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 Signature and by reduced demand which
may result if Signature is unable to provide financing through unaffiliated
lenders to buyers of Vacation Intervals. If Signature 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 September 30, 1996, Signature had a portfolio of approximately 12,791 loans
to Vacation Interval buyers amounting to approximately $90.8 million with
respect to Signature's consolidated resorts (all of the Existing Resorts
except the Embassy Vacation Resort Poipu Point). Signature's consumer loans
had a weighted average maturity of approximately seven years and a weighted
average cost of funds of 15%. At such date, Signature had borrowings secured
by such loans of approximately $62.2 million, which borrowings bear interest
at variable rates with a weighted average of 10.25%. As of September 30, 1996,
approximately 8.1% of Signature's consumer loans were considered by Signature
to be delinquent (past due by 60 or more days) and Signature has completed or
commenced foreclosure or deed-in-lieu of foreclosure on approximately 2.5% of
its consumer loans. Signature has historically derived income from its
financing activities. However, because Signature's borrowings bear interest at
variable rates and Signature's loans to buyers of Vacation Intervals bear
interest at fixed rates, Signature bears the risk of increases in interest
rates with respect to the loans it has from its lenders. To the extent
interest rates on Signature's borrowings decrease, Signature faces an
increased risk that customers will pre-pay their loans and reduce Signature's
income from financing activities. See "INFORMATION REGARDING SIGNATURE
RESORTS, INC.--Customer Financing."
RISKS OF HEDGING ACTIVITIES
To manage risks associated with Signature's borrowings bearing interest at
variable rates, Signature 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 Signature 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
Signature's operating costs.
RISKS ASSOCIATED WITH CUSTOMER DEFAULT
Signature bears the risk of defaults by buyers who finance the purchase of
their Vacation Intervals. If a buyer of a Vacation Interval defaults on the
loan made by Signature to finance the purchase of such Vacation Interval
during the early part of the repayment schedule, Signature generally must take
back the mortgage with respect to such Vacation Interval and replace it with a
performing mortgage. In connection with Signature taking back any such
Vacation Interval, the associated marketing costs other than certain sales
commissions will not
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have been recovered by Signature and they must be incurred again after their
Vacation Interval has been returned to Signature's inventory for resale
(commissions paid in connection with the sale of Vacation Intervals may be
recoverable from Signature's sales personnel and from independent contractors
upon default in accordance with contractual arrangements with Signature,
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, Signature has never purchased such insurance. In addition, although
Signature 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.
Signature purchased defaulted mortgage notes with respect to 900 Vacation
Intervals at the San Luis Bay Resort on which Signature is in the process of
foreclosing. Signature will be subject to the costs and delays associated with
such foreclosure process and no assurance can be given that the value of the
underlying Vacation Intervals being foreclosed upon at the time of resale will
exceed the purchase price of the defaulted loans, taking into consideration
the costs of foreclosure and resale. Similarly, in March 1996, AVCOM purchased
defaulted mortgage notes with respect to 1,057 Vacation Intervals at the Tahoe
Seasons Resort on which AVCOM is in the process of foreclosing. AVCOM will be
subject to the costs and delays associated with such foreclosure process and
no assurance can be given that the value of the underlying Vacation Intervals
being foreclosed upon at the time of resale will exceed the purchase price of
the defaulted loans, taking into consideration the costs of foreclosure and
resale.
COMPETITION
Signature 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 Signature currently is the sole licensee of Embassy
Vacation Resorts from Promus and Signature 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 Signature and may be
able to grow at a more rapid rate or more profitably as a result. The Company
also competes with companies with non-branded resorts such as Westgate,
Vistana and Vacation Break. Vacation Break announced in November 1996 that it
had agreed to purchase the Berkley Group, another timeshare resort developer,
and following consummation of Vacation Break's acquisition of the Berkley
Group, such entity will possess greater resources as a consolidated entity.
Furthermore, 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 event that the Westin Agreement becomes the subject of dispute
between the parties thereto, it is possible that Signature's interest in
pursuing acquisition and development opportunities at "four-star" and "five-
star" resorts located in North America, Mexico and the Caribbean through May
2001 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 Signature in the timeshare resort
business, including in the markets most attractive to Signature. See
"INFORMATION REGARDING SIGNATURE RESORTS, INC.--Description of Signature's
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 Signature, may compete with certain of Signature's timeshare resorts;
however, Signature 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 Signature's
timeshare business. See "THE PROPOSED MERGER--Management After the Merger."
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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 Vacation
Interval for an occupancy right in another participating network resort.
Several companies, including RCI, provide broad-based Vacation Interval
exchange services, and Signature's Existing Resorts are currently qualified
for participation in the RCI exchange network. In November 1996, HFS
Incorporated consummated its acquisition of RCI.
No assurance can be given that Signature will continue to be able to qualify
its Existing Resorts or the AVCOM Resorts, or will be able to qualify its
future resorts, for participation in the RCI network or any other exchange
network. RCI is under no obligation to include the Existing Resorts or the
AVCOM Resorts in its exchange network. If such exchange networks cease to
function effectively, or if Signature's resorts are not accepted as exchanges
for other desirable resorts, Signature's sales of Vacation Intervals could be
materially adversely effected. See "INFORMATION REGARDING SIGNATURE RESORTS,
INC.--Business."
DEPENDENCE ON KEY PERSONNEL
Signature's success depends to a large extent upon the experience and
abilities of Osamu Kaneko, Andrew J. Gessow and Steven C. Kenninger, who will
serve as Signature's Chief Executive Officer, President and Chief Operating
Officer, respectively (the "FOUNDERS") as well as the abilities of James E.
Noyes and Michael A. Depatie, Signature's Executive Vice President, and
Executive Vice President and Chief Financial Officer, respectively. The loss
of the services of any one of these individuals could have a material adverse
effect on Signature, its operations and its business prospects. Signature'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 Signature's competitors.
In addition, the cost of retaining such key personnel could escalate over
time. There can be no assurance that Signature will be successful in
attracting and/or retaining such personnel.
Pursuant to the Poipu Partnership Agreement, Signature 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 Signature. In addition, the Poipu Partnership agreement
provides that certain of the Founders will be actively involved in the
management of the Embassy Vacation Resort Poipu Point.
REGULATION OF MARKETING AND SALES OF VACATION INTERVALS; OTHER LAWS
Signature'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
Signature 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
regarding the sale of interval ownership programs. The laws of most states,
including Florida, South Carolina and Hawaii, require Signature to file with a
designated state authority for its approval a detailed offering statement
describing Signature and all material aspects of the project and sale of
Vacation Intervals. The laws of California and Arizona require Signature to
file numerous documents and supporting information with their respective
Departments of Real Estate, the agencies responsible for the regulation of
Vacation Intervals. When such
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Departments determine that a project has complied with applicable law, they
will issue a public report for the project. Signature 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, Hawaii and Texas impose
similar requirements. Laws in each state where Signature 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 Signature. Most states have other laws which
regulate Signature'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. Signature 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 Signature desires to conduct sales will not be
significant or that Signature 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
Signature. See "INFORMATION REGARDING SIGNATURE RESORTS, INC.--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 Signature amounts in connection with the repairs made to the
developed property.
In connection with the resorts to be acquired in the Merger with AVCOM, the
California Department of Real Estate has conducted an audit with respect to
AVCOM timeshare operations at the Tahoe Beach & Ski Club and has informed
AVCOM of several discrepancies it claims to have discovered during such audit.
AVCOM has responded to the Department of Real Estate's request for additional
information and has been advised by the Department of Real Estate that it will
close its audit. In addition, the Arizona Department of Real Estate is
investigating AVCOM and its Scottsdale Villa Mirage and Sedona Summit Resorts
with respect to the alleged failure of John R. Stevens, AVCOM's Director of
Marketing and New Projects, to disclose certain events from his prior
development history in Colorado on timeshare registration applications filed
in Arizona and on certain other of AVCOM's timeshare-related activities. As a
result of the Arizona investigation, Mr. Stevens agreed to voluntarily resign
his position as an officer and director of AVCOM, and AVCOM and Mr. Stevens
are cooperating with the Arizona Department of Real Estate. AVCOM and Mr.
Stevens believe that they have satisfied all applicable requirements and the
Arizona Department of Real Estate has lifted its request for additional
disclosure regarding Mr. Stevens in public timeshare resorts filed in Arizona.
The Texas Real Estate Commission also has investigated AVCOM. Signature has
been advised by the Texas Real Estate Commission that based on information it
has gathered and Mr. Stevens' resignation as an officer of AVCOM's Texas
subsidiaries, the Texas Real Estate Commission will not take any action in
this matter. Upon consummation of the Merger with AVCOM, it is anticipated
that Mr. Stevens will be employed by a subsidiary of Signature.
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.
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As of the date of the Proxy Statement/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, the St. John Villas and for each AVCOM 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 soil
and water 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 Signature) to effect remediation action. Signature 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, Signature'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 Signature, however, there is no assurance that
claims will not be asserted against Signature with respect to this
environmental condition. In addition, while remodeling the Carson Building at
the Tahoe Beach & Ski Club, one of the AVCOM Resorts, AVCOM's contractor
informed AVCOM of the possible presence of asbestos containing materials.
AVCOM has given governmental and private notification to various agencies and
persons whom AVCOM determined, after consulting with counsel, should receive
notice. Civil and criminal penalties could be assessed in this matter,
however, it is the present belief of AVCOM, after conferring with counsel,
that such penalties are unlikely. Civil liability for personal injury is also
possible, but AVCOM's consultants do not believe that the asbestos posed a
substantial health hazard and that the environmental concern has been
remediated. The total additional cost to AVCOM for the asbestos remediation,
including all professional fees, was $325,000.
With the exception of the above mentioned resorts, Signature is not aware of
any environmental liability that would have a material adverse effect on
Signature'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
Signature.
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, Signature may have liability with respect to properties
previously sold by its predecessors.
Signature believes that it and AVCOM are 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,
Signature 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 "INFORMATION REGARDING SIGNATURE RESORTS,
INC.--Governmental Regulation--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 Signature believes that its Existing Resorts, and the AVCOM
Resorts are substantially in compliance with laws governing the accessibility
of its facilities to disabled persons, Signature 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
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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 Signature, such costs could be substantial. Limitations or
restrictions on the completion of certain renovations may limit application of
Signature's growth strategy in certain instances or reduce profit margins on
Signature's operations. If a homeowners' association at a resort was 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 homeowners' association assessment payments. Signature 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 Signature's
business, assets or results of operations.
NATURAL DISASTERS; UNINSURED LOSS
In 1992, prior to Signature'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
Signature acquired its interest in the resort, but could suffer similar damage
in the future. In September 1995 and July 1996, Signature's St. Maarten
resorts were damaged by hurricanes and could suffer similar damage in the
future. In addition, Signature's other resorts which are or will be located in
Hawaii, Florida and the Caribbean (including the St. John resort which was
damaged by Hurricane Marilyn in 1995) may be subject to hurricanes and damaged
as a result thereof. Signature'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 Signature does not have insurance coverage. Should an uninsured loss
or a loss in excess of insured limits occur, Signature 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 Signature. See "INFORMATION REGARDING SIGNATURE RESORTS,
INC.--Insurance, Legal Proceedings."
EFFECTIVE VOTING CONTROL BY EXISTING SHAREHOLDERS; WESTIN DIRECTOR DESIGNATION
The Founders hold substantial amounts of shares of Signature Stock (Messrs.
Kaneko, Gessow and Kenninger currently hold 15.3%, 17.6% and 7.9%,
respectively, (without giving effect to the Merger or the Proposed Offerings)
which may allow them, collectively, to exert substantial influence over the
election of directors and the management and affairs of Signature.
Accordingly, if such persons vote their shares of stock in the same manner,
they will have sufficient voting power, in general, to determine the outcome
of various matters submitted to the shareholders for approval, including
mergers, consolidations and the sale of substantially all of Signature's
assets. Pursuant to the Westin Agreement, during the term thereof Westin
generally will have the right to designate one member of the Signature Board,
irrespective of its share ownership in Signature. See "INFORMATION REGARDING
SIGNATURE RESORTS, INC.--Principal Shareholders," "INFORMATION REGARDING
SIGNATURE RESORTS, INC.--Description of Capital Stock" and "INFORMATION
REGARDING SIGNATURE RESORTS, INC.--Business." Such control may result in
decisions which are not in the best interest of Signature. In addition, under
certain circumstances, in the event that the Founders collectively own less
than 75% of the shares of Signature common stock owned by them immediately
following the closing of the Initial Public Offering and the consummation of
the Consolidation Transactions, and the Signature common stock they own
thereafter is less than 75% of the market value of the Signature common stock
issued to them in the Initial Public Offering, then Signature's partner in the
Poipu Partnership will be entitled to require Signature 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.
DIVIDEND POLICY
Signature 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. Signature currently intends to retain future earnings to
finance its operations and fund the growth of its business. Any payment of
future dividends will be in the
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discretion of the Signature Board and will depend upon, among other things,
Signature's earnings, financial condition, capital requirements, level of
indebtedness, contractual restrictions in respect of the payment of dividends
and other factors that the Signature Board deems relevant.
RISK OF TAX RE-CLASSIFICATION OF INDEPENDENT CONTRACTORS AND RESULTING TAX
LIABILITY; COST OF COMPLIANCE WITH APPLICABLE LAWS
Signature sells Vacation Intervals at its Existing Resorts and will sell
Vacation Intervals at the AVCOM Resorts through independent sales agents. Such
independent sales agents provide services to Signature under contract and,
Signature believes, are not employees of Signature. Accordingly, Signature
does not withhold payroll taxes from the amounts paid to such independent
contractors. Although the Internal Revenue Service has made inquiries
regarding Signature's classification of its sales agents at its Branson,
Missouri resort, no formal action has been taken and Signature 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 Signature, rather than as independent
contractors, and hold Signature liable for back payroll taxes, such
reclassification may have a material adverse effect on Signature.
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 Signature in negative public relations and potential
litigation and regulatory sanctions.
LIMITED RESALE MARKET FOR VACATION INTERVALS
Signature sells the Vacation Intervals to buyers for leisure and not
investment purposes. Signature believes, based on experience at its Existing
Resorts and AVCOM's Resorts, that the market for resale of Vacation Intervals
by 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 Signature. In addition, the
market price of Vacation Intervals sold by Signature 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.
RISKS RELATED TO OPERATIONS IN ST. MAARTEN, NETHERLANDS ANTILLES
Two of the Existing Resorts are located in St. Maarten, Netherlands
Antilles, both of which were acquired by Signature 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
Signature, such determination may have a material adverse impact on the
operation of this property.
In addition, a portion of Signature's Royal Palm Beach Club resort located
in St. Maarten, Netherlands Antilles, is operated by Signature pursuant to a
long-term ground lease that expires in 2050 and the types of tenant
protections, such as estoppel certificates, which would be provided in the
United States, are not available. Although Signature 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 Signature's
operations. In addition, title insurance is not available in the Netherlands
Antilles. Accordingly, title to Signature'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 resorts.
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<PAGE>
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
Signature) and a residential condominium project overlooking the ocean in Long
Beach, California (a market which Signature may in the future pursue). 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 investors
in such entities existing prior to the Consolidation Transactions and the
Initial Public Offering.
Additionally, notwithstanding their covenants not to compete, the Founders
have the right to pursue certain activities which could divert their time and
attention from Signature's business and result in conflicts with Signature's
business. The Founders are evaluating the acquisition of hotel properties in
Hawaii, which at a future date may be converted to accommodate timeshare
operations. See "THE PROPOSED MERGER--Management After the Merger--Employment
Agreements, Covenants Not To Compete" and "INFORMATION REGARDING SIGNATURE
RESORTS, INC.--Future Acquisitions."
RISKS RELATED TO WESTIN AGREEMENT; LIMITED CONTROL OF RESORTS AND TERMINATION
The Westin Agreement may involve certain additional risks to Signature's
future operations. The Westin Agreement imposes certain restrictions on
Signature's ability to develop certain timeshare resorts in conjunction with
hotel operators other than Westin. Generally, Signature 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 Signature has determined to pursue. In the event Westin
determines not to proceed with Signature to develop such resort, Signature
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, resorts acquired or developed pursuant to the Westin
Agreement, including the St. John resort, will be owned by partnerships,
limited liability companies or similar entities in which each of Westin and
Signature will own a 50% equity interest and have an equal voice in
management. Accordingly, Signature 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 Signature or in the event of an acquisition or merger of either
party.
RISKS ASSOCIATED WITH PARTNERSHIP INVESTMENT IN POIPU PARTNERSHIP
The Embassy Vacation Resort Poipu Point is owned by a partnership consisting
of Signature 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 Signature and its partner are unable to
agree on major decisions, either partner may elect to invoke a buy/sell right,
which could require Signature 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 Signature is not prepared to do so. In addition, under certain
circumstances, the other partner can require Signature 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 Signature. In addition, as a general partner,
Signature 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
Signature. Signature may elect to purchase interests in future resorts through
similar partnership arrangements. See "--Risks Related to Westin Agreement;
Limited Control of Resorts and Termination."
27
<PAGE>
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF MARYLAND LAW AND SIGNATURE'S
CHARTER AND BYLAWS
Certain provisions of Signature'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 Signature Stock,
which offers may be beneficial to shareholders or (ii) deter purchases of
large blocks of Signature Stock, thereby limiting the opportunity for
shareholders to receive a premium for their Signature Stock over then-
prevailing market prices. These provisions include the following:
Preferred Shares. The Charter authorizes the Signature Board 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 Merger. See "INFORMATION
REGARDING SIGNATURE RESORTS, INC.--Description of Capital Stock."
Staggered Board. The Signature Board 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 shareholders 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 previously been
approved) for fair value. If voting rights for Control Shares are approved at
a shareholders meeting and the acquiror becomes entitled to vote a majority of
the shares of beneficial interest entitled to vote, all other shareholders may
exercise appraisal rights. See "COMPARISON RIGHTS OF SHAREHOLDERS."
SHARES ELIGIBLE FOR FUTURE SALE
Holders who received their shares of Signature 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 have been granted
certain registration rights pursuant to which Signature has agreed to file,
and use its best efforts to cause to become effective as soon as practicable
following February 17, 1997, a shelf registration statement with the
Commission for the purpose of registering the sale of such shares of Signature
Stock. Each stockholder who received shares of Signature Stock as a result of
the Consolidation Transactions has agreed, with certain exceptions, not to
offer, sell, contract to sell or otherwise dispose of any Signature Stock, for
a period of 180
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<PAGE>
days after the closing of the Initial Public Offering (one year with respect
to the Founders) without the prior written consent of Montgomery Securities
who acted as lead underwriter in the Initial Public Offering (which written
consent has been granted with respect to the Proposed Offerings); one of such
exceptions allows the Founders to pledge between $30 million and $50 million
of their Signature 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 Signature common stock in connection with their buyout
of a former partner. Future sales of substantial amounts of Signature Stock,
or the potential for such sales, could adversely affect prevailing market
prices.
Sales of substantial amounts of Signature Stock in the public market after
the consummation of the Merger could adversely affect prevailing market
prices. The shares of Signature Stock to be issued in the Merger will be
eligible for immediate sale in the public market, subject to certain
limitations under the Securities Act applicable to affiliates of AVCOM.
Additionally, there are (i) outstanding stock options to purchase 1,750,000
shares of Signature Stock which have been granted to executive officers, other
key employees, independent directors and a consultant of the Company under the
1996 Equity Participation Plan (less than 20% of which are presently
exercisable), and (ii) up to 500,000 shares of Signature Stock that may be
sold pursuant to Signature's Employee Stock Purchase Plan (none of which have
been sold to date).
POTENTIAL DILUTIVE EFFECT OF SIGNATURE STOCK
Although the Signature and AVCOM Boards believe that beneficial synergies
will result from the Merger, there can be no assurance that the combining of
the two companies' businesses, even if achieved in an efficient and effective
manner, will result in combined results of operations and financial conditions
superior to what would have been achieved by each company independently, or as
to the period of time required to achieve such result. Furthermore, the
issuance of Signature Stock in connection with the Merger may have a dilutive
effect on Signature's earnings per share. There can be no assurance that AVCOM
shareholders would not achieve greater returns on their investment if AVCOM
would remain an independent company.
RISK ASSOCIATED WITH PROPOSED OFFERINGS
Signature has filed a registration statement with the Securities and
Exchange Commission related to a proposed offering of (i) up to 3,000,000
shares of Signature Stock (including 1,400,000 shares for the account of
certain selling shareholders) and (ii) up to $100 million of notes convertible
into Signature Stock (in each case, without giving effect to the underwriters'
over-allotment option) (the "PROPOSED OFFERINGS"). There can be no assurances
that the Proposed Offerings will be consummated and, if so, on what terms. In
the event the Proposed Offerings are consummated it will result in a dilution
of share ownership for all holders of Signature Stock, including the AVCOM
shareholders acquiring Signature Stock in the Merger. The failure to
consummate the Proposed Offerings could have an adverse effect on Signature's
future growth and financial success. The Proposed Offerings are not
conditioned upon one another and therefore one offering may be consummated
without the other offering being consummated.
29
<PAGE>
INFORMATION REGARDING THE SPECIAL MEETING
SPECIAL MEETING
This Proxy Statement/Prospectus is being furnished to the holders of AVCOM
Stock in connection with the solicitation of proxies by the AVCOM Board for
use at a Special Meeting and the adjournments thereof at which the
shareholders of AVCOM will consider and vote upon a proposal to approve the
Merger Agreement and vote upon any other business which may properly be
brought before the Special Meeting or any adjournments thereof. Each copy of
this Proxy Statement/Prospectus which is being mailed or delivered to AVCOM
shareholders is accompanied by a proxy card and the Notice of Special Meeting
of Shareholders.
This Proxy Statement/Prospectus is being furnished by Signature to each
holder of AVCOM Stock as a prospectus in connection with the issuance by
Signature of shares of Signature stock upon the consummation of the Merger.
This Proxy Statement/Prospectus and the Notice of Special Meeting and proxy
card is being first mailed to shareholders of AVCOM on December 20, 1996.
DATE, TIME AND PLACE
The Special Meeting will be held at Poco Diablo Resort, 1736 Highway 179,
Sedona, Arizona 86336 on January 10, 1997 at 8:00 a.m., local time.
RECORD DATE; VOTE REQUIRED
The AVCOM Board has fixed the close of business on December 12, 1996, as the
record date for the termination of the shareholders of AVCOM entitled to
notice and to vote at the Special Meeting (the "RECORD DATE"). On the Record
Date there were 5,274,636 shares of AVCOM Stock outstanding entitled to vote
at the Special Meeting. Each share is entitled to one vote on each matter
properly brought before the Special Meeting. The affirmative vote of the
holders of at least a majority of outstanding shares of AVCOM Stock is
required to approve the Merger Agreement. As of the Record Date there were 162
holders of AVCOM Stock.
As of the Record Date, directors and executive officers of AVCOM and their
affiliates owned beneficially an aggregate 2,016,450 shares of AVCOM Stock
(excluding shares which may be received upon the exercise of stock options) or
approximately 38.2% of the outstanding shares entitled to vote at the Special
Meeting. All such directors and executive officers and their affiliates have
indicated their intention to vote their shares for the approval and adoption
of the Merger, the Merger Agreement and the transactions contemplated thereby
at the Special Meeting.
VOTING AND REVOCATION OF PROXIES
Shares of AVCOM Stock which are represented by proxy properly executed and
received prior to the vote at the Special Meeting will be voted at the Special
Meeting in the manner directed on the proxy card, unless such proxy is revoked
in advance of such vote. Any AVCOM shareholder who has given a proxy may
revoke such proxy at any time prior to its exercise at the Special Meeting by
(i) giving written notice of revocation bearing a later date than the proxy to
the secretary of AVCOM, (ii) properly submitting to AVCOM a duly executed
proxy card relating to the same shares bearing a later date, or (iii)
attending the Special Meeting and voting in person. Attendance at the Special
Meeting will not, in and of itself, revoke a proxy. All written notices of
revocation and other communications with respect to revocation of proxies by a
shareholder should be addressed as follows:
AVCOM International, Inc.
P. O. Box 1243
Sedona, Arizona 86339
or hand delivered to Mr. Doug Wills at 561 Highway 179, Sedona, Arizona 86339,
before the vote is taken at the Special Meeting.
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<PAGE>
AVCOM shareholders returning a blank executed proxy card will be deemed to
have approved the Merger Agreement, thereby waiving any appraisal rights they
may have. The AVCOM Board is not currently aware of any business to be brought
before the Special Meeting other than that described herein. If, however,
other matters are properly brought before the Special Meeting, or any
adjournments thereof, the persons appointed as proxies will have discretion to
vote the shares represented by duly executed proxies in accordance with their
discretion and judgment as to the best interest of AVCOM.
Shareholders should NOT send any stock certificates with the enclosed proxy
card. If the Merger is consummated, AVCOM shareholders will be sent a letter
of transmittal with instructions for surrendering their certificates
representing shares of AVCOM Stock.
SOLICITATION OF PROXIES
AVCOM will bear its own cost of soliciting proxies. Proxies will be
solicited by mail, but directors, officers and selected other employees of
AVCOM may also solicit proxies in person or by telephone or telegraph.
Directors, executive officers and other employees of AVCOM who solicit proxies
will not be specially compensated for such services. Brokerage firms,
nominees, fiduciaries and other custodians will be requested to forward
soliciting materials to beneficial owners and will be reimbursed for the
reasonable expenses incurred in sending proxy material to beneficial owners.
In addition, D.F. King & Co., Inc. ("King") has been retained to assist in the
solicitation of proxies for the Special Meeting. King will be paid the sum of
$6,000.00, plus expenses, for its services.
HOLDERS OF AVCOM STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN THE
ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED, POSTAGE
PREPAID ENVELOPE.
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<PAGE>
THE PROPOSED MERGER
The following information describes certain information pertaining to the
Merger. This description does not purport to be complete and is qualified in
its entirety by reference to the other information contained in this Proxy
Statement/Prospectus or the appendices hereto, including the Merger Agreement,
a copy of which is set forth in Appendix "A" to this Proxy
Statement/Prospectus and is incorporated herein by reference. All shareholders
are urged to read the appendices in their entirety.
GENERAL DESCRIPTION OF MERGER
Pursuant to the Merger Agreement, on the Closing Date, ASP Acquisition
Corp., a Delaware corporation and a wholly owned subsidiary of Signature, will
merge with and into AVCOM, a Delaware corporation. Upon consummation of the
Merger, each share of AVCOM Stock, except shares held in treasury and shares
owned by shareholders who have taken all required steps to exercise their
appraisal rights under Delaware law, will be converted into consideration of
$5.00, subject to adjustment to a maximum of $6.00 or a minimum of $4.00. The
consideration will consist of shares of Signature Stock. Signature will not be
required to issue more than $34.6 million nor less than $23.1 million in value
of its Common Stock at the closing of the Merger. The value of Signature Stock
for purposes of determining the number of shares issuable as the merger
consideration will be equal to the mean average of the high and low trading
prices of Signature Stock as reported on the NASDAQ National Market for each
of the ten consecutive trading days immediately preceding the ten days prior
to the Closing Date.
If stock options granted by AVCOM are outstanding as of the Closing Date and
converted into shares of Signature Stock, the holders thereof will receive
Merger consideration calculated on the basis of the number of shares
underlying options having the same exercise price multiplied by a fraction,
the denominator of which is $5.00 (subject to adjustment, as described below)
and the numerator of which is the excess of the denominator over the exercise
price of the underlying options. For example, if as of the Closing Date an
individual holds unexercised options to purchase 40 shares of AVCOM Stock at
an exercise price of $2.50 per share, the merger consideration to be paid to
the option holder by Signature would be calculated as follows: $2.50/$5.00 X
40 = 20 shares; and the options holder would receive in the Merger the per
share merger consideration with respect to the 20 shares. A similar
calculation would be made with respect to each additional group of options
held by the option holder which had an identical exercise price. In the
alternative, Signature may elect to convert AVCOM options into options to
acquire Signature Stock on substantially the same terms and conditions. In
such event, the number of shares of Signature Stock subject to such options
shall be determined by multiplying the number of shares subject to the AVCOM
Option by the Conversion Ratio, and the exercise price shall be determined by
dividing the exercise price for the AVCOM options by the Conversion Ratio. As
of December 12, 1996, there were outstanding options to purchase 400,000
shares of AVCOM Stock, all of which are held by employees of AVCOM. There was
also an option to acquire 350,000 shares claimed to be held by William C.
Needham, Jr., the validity of which is being disputed by AVCOM. All valid and
outstanding options will, as of the effective time of the Merger be converted
into the right to receive shares of Signature Stock in accordance with the
foregoing calculation. See "INFORMATION REGARDING AVCOM INTERNATIONAL, INC.--
Description of Capital Stock."
The Merger Agreement provides that the consideration of $5.00 per share of
AVCOM Stock to be received by AVCOM shareholders is subject to adjustment to a
maximum of $6.00 or a minimum of $4.00, based upon the Conversion Share Value
of the Signature Stock as of the Closing Date. As of the last trading day
immediately preceding the date of the execution of the Merger Agreement, the
average sale price of a share of Signature Stock was $19.44. The parties
agreed to a value of $5.00 per share for AVCOM Stock, yielding the initial
conversion ratio of .26. This initial conversion ratio is fixed, and will not
adjust, unless the market price of the Signature Stock as of the Closing Date
is in excess of $23.33, or less than $15.55. The "Conversion Share Value"
pursuant to the Merger Agreement of a share of Signature Stock shall be equal
to the mean average of the high and low trading prices of Signature Stock as
reported on the NASDAQ National Market System for each of the ten consecutive
trading days immediately preceding ten days prior to the Closing Date.
Consequently,
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<PAGE>
in the event that the Conversion Share Value should equal $23.33, the
effective Merger consideration received by a holder of a share of AVCOM Stock
would be $6.00 based upon the conversion ratio of .26. If the Conversion Share
Value is $15.55, a holder of a share of AVCOM Stock would receive Merger
consideration of $4.00, based upon the conversion ratio of .26. In the event,
however, that the Conversion Share Value should exceed $23.33, the conversion
ratio would be reduced so as to reduce the Merger consideration per share of
AVCOM Stock to $6.00. Likewise, should the Conversion Share Value be less than
$15.55, the conversion ratio would be increased so as to insure that a share
of AVCOM Stock would receive Merger consideration of $4.00.
The following chart indicates the value to be received by the shareholders
of AVCOM for each share of AVCOM Stock based upon various assumed Conversion
Share Values of Signature Stock:
<TABLE>
<CAPTION>
THEN EACH SHARE OF AVCOM
IF THE CONVERSION STOCK WOULD BE CONVERTED
SHARE VALUE INTO THE FOLLOWING
OF SIGNATURE NUMBER OF SHARES OF AND THE VALUE OF SIGNATURE
STOCK IS: SIGNATURE STOCK: STOCK TO BE RECEIVED IS:
----------------- ------------------------ --------------------------
<S> <C> <C>
$14.00............. .2857 $4.00
15.55............. .26 4.00
18.00............. .26 4.68
19.44............. .26 5.00
22.00............. .26 5.72
23.33............. .26 6.00
30.00............. .20 6.00
37.25............. .16 6.00
</TABLE>
No fractional shares of Signature Stock will be issued in the conversion,
but cash will be paid in lieu of such fractional shares. The shares of
Signature Stock to be issued pursuant to the Merger will be freely
transferable except by certain shareholders of AVCOM who are deemed to be
"affiliates" of AVCOM. The shares of Signature Stock issued to such affiliates
will be restricted in their transferability in accordance with the rules and
regulations promulgated by the Securities and Exchange Commission. See "THE
PROPOSED MERGER--Resales of Stock After the Merger."
As of December 12, 1996, the record date established by the AVCOM Board for
purposes of determining the shares entitled to vote at the Special Meeting,
there were 5,274,636 shares of AVCOM Stock outstanding, which includes the
recent conversion of 1,310,700 shares of AVCOM Preferred into the same number
of shares of common stock which was approved on October 24, 1996, and the
conversion of certain debt of AVCOM into 310,000 shares of common stock which
was completed on August 31, 1996. Valid options to acquire AVCOM Stock will
either convert into shares of Signature Stock upon the effectiveness of the
Merger or convert into options to acquire Signature Stock. There are, in the
aggregate, 750,000 shares of AVCOM Stock reserved for issuance pursuant to an
AVCOM stock option plan, of which stock options for 300,000 shares of AVCOM
Stock are outstanding. Options granted outside of the AVCOM stock option plan
to acquire an additional 100,000 shares of AVCOM Stock are also outstanding.
In addition, there is an option to acquire 350,000 shares of AVCOM Stock, the
validity of which is being challenged by AVCOM. Based upon the foregoing, it
is anticipated that at a conversion ratio of .26 share of Signature Stock for
each share of AVCOM Stock, Signature will issue not more than 1,494,957 shares
of Signature Stock in exchange for all outstanding shares of AVCOM Stock,
assuming that no options are converted in the Merger into shares of Signature
Stock. The exact number of shares, however, is indeterminable due to the fact
that the number of shares of Signature Stock delivered at the Closing Date may
vary in the event that the Conversion Share Value of Signature Stock is
greater than $23.33, or is less than $15.55. Signature also has the right,
pursuant to the Merger Agreement, to terminate the Merger Agreement if at any
time prior to the Closing Date the Conversion Share Value of Signature Stock
would be less than $15.55.
The aggregate amount of the Merger consideration to be received by AVCOM
shareholders is also subject to adjustment in the event that AVCOM incurs in
excess of $250,000 in fees and expenses with consultants, attorneys and
accountants and the like in connection with the Merger and the due diligence
conducted in regard to the Merger, unless a higher amount is agreed to by
Signature, such agreement not to be unreasonably withheld.
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<PAGE>
Adjustment also can occur if any amount is paid by AVCOM or a subsidiary of
AVCOM in excess of certain projected litigation expenses. Any adjustments
arising out of these provisions would be borne pro rata by all shares of AVCOM
Stock being converted in the Merger.
NO ASSURANCE CAN BE GIVEN THAT THE SIGNATURE CONVERSION SHARE VALUE WILL
REFLECT THE MARKET VALUE OF A SHARE OF SIGNATURE STOCK ON THE DATE SUCH STOCK
IS RECEIVED BY AN AVCOM SHAREHOLDER OR AT ANY OTHER TIME. THE VALUE OF A SHARE
OF SIGNATURE STOCK RECEIVED BY AN AVCOM SHAREHOLDER MAY BE GREATER OR LESS
THAN THE SIGNATURE CONVERSION SHARE VALUE DUE TO NUMEROUS MARKET FORCES
INCLUDING THE OPERATION OF THE CONVERSION FORMULA.
ESCROW AGREEMENT AND INDEMNITY
In order to establish a procedure for the satisfaction of any claims by
Signature for indemnification pursuant to the Merger Agreement, AVCOM has
agreed in the Merger Agreement that 10% of the aggregate shares of Signature
Stock to be received by AVCOM shareholders upon consummation of the Merger
will be deposited into escrow and governed by the Escrow Agreement. Pursuant
to the Escrow Agreement, all stock splits or dividends payable in stock or
other securities of Signature that are made by Signature with respect to the
escrowed shares, will be deposited into escrow and governed by the Escrow
Agreement. The escrowed shares and such stock or other dividends deposited in
escrow are collectively referred to herein as the "ESCROW DEPOSIT."
AVCOM, along with Gary L. Hughes and John R. Stevens, the Chief Executive
Officer and Director of Marketing and New Products of AVCOM, respectively, has
agreed to indemnify Signature from and against all expenses and damages
(including, without limitation, all related counsel and paralegal fees and
expenses) arising out of any breach of a representation or warranty made by
AVCOM in the Merger Agreement, any breach of the covenants or agreements made
by AVCOM in the Merger Agreement, or any inaccuracy in any certificate
delivered by AVCOM pursuant to the Merger Agreement. Signature shall have a
right, pursuant to the indemnification provisions, to be put in the same pre-
tax consolidated financial condition as it would have been in had each of the
representations and warranties of AVCOM been true and correct and had the
covenants and agreements of AVCOM been performed in full. The Merger Agreement
and the Escrow Agreement provide that the Escrow Deposit shall be held by
Signature for a period of one year following the Closing Date, unless there
remains any unresolved claim for indemnifiable damages in which event any
Escrow Deposit remaining after such claim shall have been satisfied shall be
returned to shareholders promptly after the time of satisfaction; provided,
however, that if any litigation or disputes disclosed in the Merger Agreement
has not been settled and dismissed with prejudice, the Escrow Deposit (or as
much as does not exceed Signature's claims with respect to such
indemnification) shall be held until the earlier of the settlement of all such
litigation or five years following the Closing Date. Partial releases of the
Escrow Deposit occur upon determination that the remaining Escrow Deposit
exceeds the estimated litigation exposure. No claim may be made by Signature
under the indemnification provisions of the Merger Agreement unless the amount
of the individual claim exceeds $25,000, or the aggregate of all claims made
from the Closing Date shall exceed $100,000. Once such limitations are met,
however, whether individually or in the aggregate, the entire claim shall be
subject to indemnification. This limitation provision does not provide for a
deductible and shall not apply, in any event that the claim arises out of
fraud or intentional or willful misconduct on the part of the breaching party.
In addition, pursuant to the Merger Agreement, Signature is indemnified for
any expenses, costs, deficiencies, liabilities and damages with respect to any
litigation or claims disclosed by AVCOM in an exhibit to the Merger Agreement
to the extent that such expenses, costs, deficiencies, liabilities and
damages, subsequent to September 22, 1996, exceed $1,000,000, in the
aggregate.
Pursuant to the Escrow Agreement, Gary L. Hughes and John R. Stevens are
designated as the "STOCKHOLDER REPRESENTATIVES." Any claims made under the
indemnification provisions upon the escrowed funds, shall be made by Signature
to the Escrow Agent and the Stockholder Representatives in a written notice (a
"CLAIM NOTICE"). The Escrow Deposit will be disbursed by the Escrow Agent to
Signature with respect to
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any claim on the escrowed funds following delivery of a Final Instruction to
the Escrow Agent (a "FINAL INSTRUCTION") in accordance with the following
procedures:
(a) If the Stockholder Representatives dispute either the validity,
amount or calculation of such claim from Escrow Deposit, the Stockholder
Representatives shall give written notice of such a dispute to Signature,
with a copy to the Escrow Agent, within 10 business days after the delivery
of the Claim Notice by Signature to the Stockholder Representatives. In
such circumstances, no final instruction may be given to the Escrow Agent
except as provided in (c) or (d) below.
(b) If the Stockholder Representatives fail to respond to the Claim
Notice within 10 business days after delivery to the Stockholder
Representatives and the Escrow Agent of the Claim Notice, or if the
Stockholder Representatives notify the Escrow Agent that there is no
dispute with respect to such claim, Signature shall have the right to
deliver to the Escrow Agent a Final Instruction, signed only by Signature,
with respect to such claim.
(c) If the Stockholder Representatives and Signature reach an agreement
with respect to the proper determination of such claim, the Stockholder
Representatives and Signature shall give to the Escrow Agent a Final
Instruction, signed by each of the Stockholder Representatives and
Signature, with respect to such claim.
(d) If an arbitration award pursuant to the terms of the Escrow Agreement
is entered with respect to such claim, either the Stockholder
Representatives or Signature shall have the right to deliver to the Escrow
Agent a Final Instruction with respect to such claim based on and in
compliance with such award, signed only by the Stockholder Representatives
or by Signature, as the case may be, and accompanied by a copy of such
award.
The Escrow Agent shall be Chicago Title Insurance Company (the "ESCROW
AGENT").
Following the Closing Date, each shareholder of AVCOM will be required to
surrender to ChaseMellon Shareholder Services, L.L.C., the transfer agent and
registrar for the Signature Stock who will serve as the exchange agent, the
certificate(s) representing the shares of AVCOM Stock converted pursuant to
the Merger prior to the issuance of the stock certificate evidencing the
shares of Signature Stock to which such shareholder is entitled. No fractional
shares of Signature Stock will be issued in the conversion, but cash will be
paid in lieu of such fractional shares.
The shares of Signature Stock to be issued pursuant to the Merger, other
than those deposited in the Escrow Deposit, will be freely transferable except
by certain shareholders of AVCOM who are deemed to be "affiliates" of AVCOM.
The shares of Signature Stock issued to such affiliates will be restricted in
their transferability in accordance with the Securities Exchange Act of 1934,
as amended (the "EXCHANGE ACT") and the rules and regulations promulgated
thereunder by the Securities and Exchange Commission. Shares of Signature
Stock will not be transferable while they remain in the Escrow Deposit. See
"--Resales of Stock After the Merger."
CONDITIONS OF THE MERGER
The respective obligations of Signature and AVCOM to consummate the Merger
are subject to the satisfaction or waiver of certain conditions, including the
following:
(a) All required governmental, regulatory and third party approvals,
consents and/or waiting periods shall have been obtained or shall have
expired;
(b) There shall be no injunction, restraining order or decree of any
nature of any court or governmental agency or body in effect that restrains
or prohibits the consummation of transactions contemplated by the Merger;
and
(c) The Merger Agreement is approved by the holders of a majority of the
outstanding shares of AVCOM Stock at the Special Meeting.
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<PAGE>
AVCOM's obligations to consummate the Merger are subject to the
satisfaction, unless waived, of certain other conditions, including the
following:
(a) The representations and warranties of Signature contained in the
Merger Agreement shall be true and correct in all material respects as of
the Closing Date, and Signature shall have performed and complied with all
covenants and agreements in all material respects and satisfied all
conditions required by the Merger Agreement to be performed or complied
with or satisfied by Signature at or prior to the Closing Date;
(b) Signature and its representatives shall have provided reasonable
cooperation to AVCOM's tax professionals and supplied information and
representations reasonably necessary in preparing a tax opinion to the
AVCOM shareholders with respect to the tax treatment of the Merger;
(c) AVCOM's lenders shall have consented to the Merger to the extent that
proceeding without such consent would allow any such lender to accelerate
its indebtedness; and
(d) Signature shall have made all required deliveries at closing,
including, but not limited to, necessary corporate certificates, employment
agreements for certain AVCOM personnel, and a legal opinion of counsel to
Signature in form and substance described in the Merger Agreement.
Signature's obligations to consummate the Merger are subject to the
satisfaction, unless waived, of certain other conditions, including the
following:
(a) The representations and warranties of AVCOM contained in the Merger
Agreement shall be true and correct in all material respects as of the
Closing Date, and AVCOM and each of its subsidiaries shall have performed
and complied with all the covenants and agreements in all material respects
and satisfied all of the conditions required by the Merger Agreement to be
performed or complied with or satisfied by it or them at, or prior to, the
Closing Date;
(b) AVCOM shareholders holding more than 10% of the AVCOM Stock shall not
have dissented or exercised appraisal rights under applicable law in
connection with the transactions contemplated by the Merger Agreement;
(c) Signature's lender shall have consented to the transactions
contemplated by the Merger Agreement, and such lender shall have received
such documents and instruments as it may reasonably require;
(d) Each person who is or may be an Affiliated Person of AVCOM shall have
entered into an agreement with Signature in the form customarily given in
similar transactions;
(e) Signature shall have received a letter, dated as of the Closing Date,
in a form and substance reasonably acceptable to Signature, from its
independent certified public accountants to the effect that the Merger
shall qualify for a pooling of interest accounting treatment;
(f) Signature shall have completed its due diligence investigation in
regard to AVCOM and shall have resolved to its full satisfaction any issue
which arises in the course of the investigation;
(g) The Conversion Share Value for a share of Signature Stock shall not
be less than $15.55, subject to appropriate adjustment;
(h) There shall not have occurred any material adverse change in the
assets, business, condition or prospects of AVCOM or any of its
subsidiaries;
(i) AVCOM shall have delivered such corporate certificates as may be
reasonably required in this type of transaction;
(j) AVCOM shall have delivered a legal opinion of its counsel, reasonably
satisfactory to Signature, regarding certain legal matters described in the
Merger Agreement;
(k) All outstanding shares of AVCOM Preferred shall have been converted
into shares of common stock of AVCOM; and
(l) AVCOM shall have delivered such other documents and instruments as
Signature may reasonably request in connection with the Merger.
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<PAGE>
ACCOUNTING TREATMENT
The Merger is expected to be accounted for as a "pooling-of-interests"
transaction in accordance with generally accepted accounting principles. In
the event that AVCOM shareholders holding more than 10% of the AVCOM Stock
assert their appraisal rights, the Merger will not qualify for pooling-of-
interests treatment. It is a condition to the Merger that the Merger be
accounted for as a "pooling-of-interests." Under this method of accounting,
the recorded assets and liabilities of Signature and AVCOM will be carried
forward at their book values to Signature after the Merger, income of
Signature after the Merger will include the income (or loss) of Signature and
AVCOM for the entire fiscal year in which the Merger occurs, and the reported
income of Signature and AVCOM for prior periods will be combined and restated
as income of Signature after the Merger. It is a condition to Signature's
obligation to effect the Merger that it receive an opinion from its
independent public accountants, that the Merger will qualify for a pooling-of-
interests accounting treatment. See "THE PROPOSED MERGER--Conditions of the
Merger." No assurance can be given, however, that Signature will waive the
foregoing condition and effect the Merger if pooling-of-interest accounting is
not available. Signature currently intends not to waive this condition. If
such condition is waived, the purchase method of accounting would be
applicable. Under the purchase method, the book value of AVCOM's assets would
be increased to their fair values, which could result in higher costs of
sales, thereby adversely affecting Signature's earnings. Additionally, the
excess of the purchase price over the fair value of AVCOM's assets would be
amortized and expensed, which could also adversely affect Signature's
earnings.
SIGNATURE LOAN TO AVCOM
In connection with the Merger Agreement Signature has agreed to lend to
AVCOM up to $4.0 million, of which $2.5 million had been lent as of September
30, 1996, and which was used by AVCOM for working capital purposes. The
proceeds of such loan will be used by AVCOM to fund, by way of illustration,
accounts payable, release fees due to construction lenders and payments of
assessments or subsidies to timeshare associations. Interest accrues at twelve
percent (12%) per annum. The loan is secured by (i) a second priority pledge
of approximately 38% of the AVCOM Stock, (ii) a negative pledge of all the ASR
common stock with an obligation to grant a security interest in the ASR stock
upon receipt of any applicable third party consents, (iii) an assignment of
(a) ASR's interest in Tunlii, L.L.C. and (b) ASR's rights to distributions
from the sale of property owned by Tunlii, L.L.C., (iv) an assignment of ASR's
right to acquire timeshare intervals at the Sedona Summit Resort, and (v) a
second priority deed of trust on ASR's interest in the Sedona Summit Resort.
The loan will be paid from the proceeds of sale of the Tunlii, L.L.C. property
and release prices paid from the sale of intervals at the Sedona Summit
Resort. The loan has been funded and has a maturity date of not later than
December 31, 1997 but can mature sooner if, e.g., Signature validly terminates
the Merger Agreement. Since September 30, 1996, Signature has loaned AVCOM an
additional $525,000, resulting in a total loan outstanding as of the date of
this Proxy Statement/Prospectus of approximately $3.0 million.
TERMINATION OF MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the Closing Date
by the mutual consent of the parties. In addition, either of the parties may
terminate the Merger Agreement in the event that the Merger has not been
consummated by June 30, 1997, or if any court of competent jurisdiction or
governmental body shall have issued an order, decree or ruling or taken any
other final action restraining, enjoining or otherwise prohibiting the Merger
with the acceptance and payment for the AVCOM Stock and such order, decree,
ruling or other action is or shall have become non-appealable. The Merger
Agreement may also be terminated by Signature for various other reasons,
including, but not limited to, the AVCOM Board materially modifying its
authorization, approval or recommendation with respect to the Merger, if any
party shall have commenced a tender offer for a majority of the outstanding
shares of AVCOM Stock at a price in excess of $5.00 per share, if Signature
shall not have resolved to its full satisfaction any issues arising in its due
diligence investigation, or if the Conversion Share Value shall at any time
subsequent to the date of the Merger Agreement be less than $15.55, subject to
appropriate adjustments. The Merger Agreement is also terminable by AVCOM for
certain events, including, but not limited to, the Signature Board having
materially modified its authorization or approval of the Merger.
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If the Merger is not consummated or the Merger Agreement is terminated by
Signature due to a change in control of AVCOM, a material breach of the Merger
Agreement by AVCOM, or certain events described in the Merger Agreement, AVCOM
shall be required to reimburse Signature for all expenses incurred, plus the
payment to Signature of a cancellation fee of $1,800,000, as liquidated
damages. In addition, Signature would have the right to acquire shares of
AVCOM Stock equal to 19.9% of the total outstanding AVCOM shares, on a fully-
diluted basis at an option price of $5.00 per share. If the Merger is not
consummated or the Merger Agreement is terminated by AVCOM pursuant to a
material breach by Signature, or in the event of a withdrawal or material
modification of approval by the Signature Board, then Signature shall
reimburse AVCOM for all expenses incurred, and shall pay to AVCOM a
cancellation fee of $900,000, as liquidated damages. The Merger Agreement,
including all material terms thereof, may be amended or modified in writing by
the parties at any time before or after the Special Meeting.
REASONS FOR THE MERGER
Joint Reasons for the Merger
Management of AVCOM and Signature believe that the Merger represents a
strategic combination of two companies in the timeshare resort industry,
offering enhanced opportunities to better service this market.
The Merger is viewed by both management teams as providing both short and
long-term potential benefits to shareholders resulting from economies of scale
and other operating synergies made possible by the Merger. Signature's
management expects a positive impact of the Merger in the future on its
earnings per share based upon the combined companies. Both AVCOM and Signature
believe the Merger to be an appropriate combination due to several factors,
including: (i) AVCOM's strength in the southwestern United States combines
well with Signature's broad presence in Florida, Missouri, California, South
Carolina, Hawaii and St. Maarten, Netherlands Antilles, (ii) the management
strengths of the two companies are generally complementary, allowing the
combined companies to benefit from an enhanced overall level of management
experience and operating leverage, and (iii) the similarity in development and
operation of the two companies should allow for a relatively smooth
combination of the two companies.
AVCOM Reasons for the Merger
In deciding to approve the Merger and Merger Agreement, the AVCOM Board
considered many factors, including but not limited to, the terms of the Merger
Agreement, management's knowledge of the respective businesses of AVCOM and
Signature, the general financial circumstances of each respective company and
current and potential future cash flows, earnings and capital needs.
Furthermore, the Merger was considered by AVCOM's management in view of
available alternatives, and AVCOM's management believes that the Merger could
result in the following strategic benefits:
. Access to Greater Financial Resources. Under the terms of the Merger
Agreement, Signature initially provided AVCOM a $2.5 million working
capital loan which allows it to satisfy certain current obligations and
continue its operations at current levels. Signature later agreed to
lend up to $4.0 million to AVCOM. If such working capital loan or a
similar loan had not been obtained, AVCOM may have been required to take
certain steps to operate within available cash flow. The Merger is also
expected to provide AVCOM with increased access to additional capital
that may not have otherwise been available. In order for AVCOM to
successfully complete the projects it has planned for development
through 1997, the majority of which are currently under construction,
significant new capital resources must be obtained. While AVCOM
traditionally has met its capital needs through various sources,
including cash flow from operations, private and bank lenders and debt
and equity financings, the AVCOM Board determined that these sources may
not be sufficient to meet AVCOM's capital needs in the future. The AVCOM
Board considered various methods to obtain
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additional capital, including public and private debt and equity
financings and private and bank loans, and determined that while
possible to obtain, there was no assurance such capital could be
obtained on a timely or on a cost-effective basis. The AVCOM Board
believes that the combined company will have greater access to
significant financial resources which could lower its borrowing costs,
particularly acquisition and construction borrowing costs, and provide
it capital, on a timely basis which is sufficient to meet its current
development schedules. The AVCOM Board believes that lower borrowing
costs should contribute overall to greater profitability for its
operations.
. Shareholder Value. The AVCOM Board considered the benefits that could
reasonably be expected to accrue to AVCOM shareholders from the Merger.
These benefits include the premium offered over both AVCOM's then-
current stock price or stock price unaffected by the acquisition
speculation and the likelihood of a higher stock price for Signature
Stock than would be achieved by AVCOM operating on an independent basis
unaffected by acquisition speculation. The AVCOM Board determined that a
combination with Signature could result in greater value to the
shareholders of AVCOM than by either remaining independent or merging or
being acquired by another entity. The AVCOM Board considered various
factors in reaching this conclusion, including the increased liquidity
provided to shareholders, Signature's overall performance historically
and on a prospective basis, the potential for interruption of its
development and sales operations if additional capital could not be
obtained on a timely basis, and the value of the consideration being
paid. Specifically, the value of the Merger consideration, between $4.00
and $6.00 per share, compared favorably to the book value of a share of
AVCOM common stock of $1.05 as of June 30, 1996. Alternatives to the
Merger considered by the AVCOM Board included a merger with another
developer with operations solely in one state, public debt or equity
offering, venture capital funding and a leveraged buy-out by management.
Upon consideration of these alternatives, the AVCOM Board determined the
Merger to have the highest probability of allowing shareholders to
maximize the value of their AVCOM Stock.
. Enhanced Marketing Capabilities. The AVCOM Board believes that the
Merger will quickly enhance AVCOM's marketing capabilities through
increased presence in additional geographical markets, attraction to its
resorts due to national name brand recognition and exchange demand for
its Vacation Interval products. The AVCOM Board believes that it will
have greater cross-selling opportunities with the geographic diversity
of the sales centers of the combined companies and will benefit from
Signature's current customer base through cross-marketing its products
directly to such customers at lower costs. The AVCOM Board also believes
that the Merger will benefit its marketing capabilities by associating
AVCOM with the nationally recognized brand names of Westin Vacation Club
Resorts and Embassy Vacation Resorts. Additionally, the combined
resources of the companies will enhance the attractiveness of its
products for exchange purposes, both intra-company and through
international exchange companies.
. Obtain Shares of a More Liquid, Publicly Traded Company. Due to the
Signature Stock being listed on the NASDAQ National Market System, the
Merger will be a means by which the AVCOM shareholders will be able to
obtain shares of a more liquid, publicly held company.
. Merge With a Leader in the Timeshare Industry. The AVCOM Board believes
that Signature is a leading developer and operator of timeshare resorts
and, as such, is well positioned for further growth and profitability in
the future. The AVCOM Board believes that its combination with Signature
will enhance its ability to acquire larger and potentially more
profitable resorts due to the anticipated greater capital resources and
greater sales volume generated from the joint marketing efforts.
. Improved Operating Practices. The AVCOM Board believes that the
combination of AVCOM's operations with Signature will create operating
synergies in that the companies can draw upon the operating experience
and knowledge of each such entity's operations which could result in
more efficient development, marketing and financing (both development
and consumer) business practices and in reduced general and
administrative overhead.
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. Tax Ramifications. The Merger is expected to constitute a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of
1986, as amended, and, as a result, the AVCOM shareholders should
recognize no gain or loss upon the conversion of shares of AVCOM Stock
into shares of Signature Stock, except for gain or loss recognized in
receipt of cash in lieu of any fractional share interest in Signature
Stock. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER."
THE BOARD OF DIRECTORS OF AVCOM UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR
APPROVAL AND ADOPTION OF THE MERGER, THE MERGER AGREEMENT AND CONSUMMATION OF
THE TRANSACTIONS CONTEMPLATED THEREBY.
Signature Reasons for the Merger
The Board of Trustees of Signature (the "SIGNATURE BOARD") believes that the
terms of the Merger are fair to, and in the best interests of, Signature and
its shareholders. Furthermore, the of Signature Board believes that the Merger
could result in the following strategic benefits:
. Increased Presence in Southwestern United States. The Signature Board
believes that AVCOM maintains a strong presence in the Sedona, Arizona
market which should be enhanced by the development of its fifth resort,
The Ridge on Sedona Golf Resort. AVCOM is currently completing
development and selling of Vacation Intervals at its fourth Sedona
resort, Sedona Summit Resort, and will begin sales at The Ridge in the
spring of 1997. In addition to development in Sedona, AVCOM is
developing and pre-selling Vacation Intervals at the Scottsdale Villa
Mirage Resort in Scottsdale, Arizona. The Signature Board believes the
acquisition of AVCOM will give Signature a stronger presence in the
Southwest, complementing its existing presence in the Southeastern
United States and California. Vacation Intervals at All Seasons' resorts
generally sell for $9,000 to $18,000 and will be targeted to the same
market segment as Signature's non-branded resorts.
. Strategic Combination. The Signature Board believes that the Merger
represents a strategic combination of two companies in the timeshare
resort industry, offering enhanced opportunities to better service this
market. The Merger is viewed by both management teams as providing both
short and long-term potential benefits to shareholders resulting from
economies of scale and other operating synergies made possible by the
Merger. The Signature Board believes the Merger to be an appropriate
combination due to several factors, including: (i) AVCOM's strength in
the Southwestern United States combines well with Signature's presence
in Florida, Missouri, California, South Carolina, Hawaii and
St. Maarten, Netherlands Antilles and (ii) the management strengths of
the two companies are generally complementary, allowing the combined
company to benefit from an enhanced overall level of management
experience and operating leverage.
. Addition of New Development Opportunities. The Signature Board believes
that the Merger may allow Signature to enhance its sales potential by
adding AVCOM's six existing resorts in sales (plus one additional resort
under construction to begin in sales during 1997) to Signature's
existing portfolio of nine resorts in sales and the recently announced
Westin Vacation Club resort in St. John (for a total of 17 resorts in
sales by the end of 1997) from which the combined company will be able
to sell Vacation Intervals. In particular, the Signature Board believes
that the Merger may allow Signature to have greater access to customers
by way of AVCOM's strong sales and marketing organization in the
Southwestern United States, in addition to benefiting from AVCOM's
current base of approximately 15,000 Vacation Interval owners.
. Lower Cost of Borrowing. The Signature Board believes that the combined
company will have access to greater financial resources and lower
borrowing costs. The Signature Board believes that this lower cost of
borrowing may contribute to greater net income and lower development
costs for Signature going forward.
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. Significant Operating Synergies. The Merger is expected to provide
Signature certain administrative benefits and opportunities for cost
reductions, including reductions resulting from employee redundancies.
AVCOM has certain development, sales and marketing expertise that may
enable Signature to function more efficiently. The Signature Board
believes that beyond cost savings and efficiencies there is also a long
term potential benefit to shareholders from leveraging the operating
experiences of both management teams to improve operations of resorts
and, thereby, increasing the profitability of the combined entity.
BACKGROUND OF THE MERGER
Material Contacts and Board Deliberations
On September 10, 1996, Andrew J. Gessow, President, and Steven C. Kenninger,
Chief Operating Officer, of Signature met with Gary L. Hughes, Chairman, John
R. Stevens, Director of Marketing and Robert M. Eckenroth, Chief Financial
Officer and a Director of AVCOM to discuss the possibility of forming a
relationship between the two companies' timeshare resort operations.
On September 17, 1996, Mr. Gessow, Mr. Kenninger, Mr. Hughes, Mr. Stevens,
Mr. Eckenroth and other members of Signature and AVCOM's senior management met
in Sedona, Arizona, and had further discussions regarding a strategic
alliance.
On September 18, 19, 20, 21 and 22, 1996, Mr. Gessow, Mr. Kenninger, Mr.
Hughes, Mr. Stevens and other members of AVCOM's and Signature's senior
management participated from time to time in meetings in San Francisco,
California to discuss the possible merger of the two companies.
At a September 20, 1996 meeting of the AVCOM Board, the proposal to enter
into a possible merger transaction with Signature was discussed extensively.
As a result of these discussions, AVCOM agreed to proceed with negotiations
with representatives of Signature.
On September 21 and 22, 1996, Signature and AVCOM's senior management met to
determine that a merger involving AVCOM and Signature would be strategically
sound from a business point of view if the parties involved could mutually
agree to acceptable terms for such merger.
On September 22, 1996, Mr. Hughes, Mr. Stevens and other members of AVCOM's
and Signature's senior management reconvened in San Francisco, California to
negotiate the terms for a Merger Agreement. At a meeting held on September 22,
1996, the Signature Board approved the Merger, the Merger Agreement and the
transactions contemplated thereby, and during a meeting held on September 22,
1996, the AVCOM Board approved and ratified the Merger, the Merger Agreement
and the transactions contemplated thereby. The Merger Agreement was executed
on September 22, 1996.
TRANSACTION COSTS AND ANTICIPATED FINANCIAL COMMITMENTS
Over the year following consummation of the Merger, Signature anticipates
required capital expenditures for expansion and development of certain AVCOM
Resorts (Sedona Summit Resort, The Ridge on Sedona Golf Resort, Scottsdale
Villa Mirage Resort and Villas on Lake Resort) to be approximately
$23.5 million. Signature may be required to expend additional amounts to fund
certain AVCOM guarantees relating to the North Bay Resort at Lake Arrowhead.
See "INFORMATION REGARDING AVCOM INTERNATIONAL, INC.--Description of AVCOM's
Resorts--Partially Owned Resorts." Signature plans to fund these expenditures
primarily with available capacity on credit facilities, cash generated from
operations or, if available, net proceeds of the Proposed Offerings.
Transaction costs relating to the negotiation of, preparation for, and
consummation of the Merger and the anticipated combination of certain
operations of Signature and AVCOM will result in a one-time charge to
Signature's earnings of approximately $1,700,000 to $1,900,000 in the quarter
in which the Merger is
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consummated (expected to be the first quarter of 1997). This charge is
expected to include the fees and expenses payable to financial advisors, legal
fees and other transaction expenses related to the Merger. In addition, there
can be no assurance that Signature will not incur additional charges in
subsequent quarters to reflect costs associated with the Merger and the
integration of Signature's and AVCOM's operations. Additionally, transaction
costs relating to the consummation of the Merger and the anticipated
combination of operations of Signature and AVCOM, along with changes in
AVCOM's accounting policies to conform to Signature's and the write-down and
write-off of certain AVCOM assets, will result in a one-time charge to AVCOM's
earnings of approximately $6 million to $8 million. This charge is expected to
include the estimated costs associated with workforce reductions, contractual
payment obligations and other restructuring activities. While the exact timing
of this charge cannot be determined at this time, management anticipates that
this charge to earnings will be recorded primarily in the fourth quarter of
1996.
MANAGEMENT AFTER THE MERGER
Directors and Executive Officers
The following table sets forth certain information concerning each person
who is a director or executive officer of Signature. Following consummation of
the Merger it is not anticipated that any current directors of AVCOM will
become members of the Signature Board. It is, however, anticipated that
certain officers of AVCOM will remain in their current positions.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Osamu Kaneko 49 Chairman of the Board and Chief Executive Officer
Andrew J. Gessow 39 Director and President
Steven C. Kenninger 44 Director, Chief Operating Officer and Secretary
James E. Noyes 50 Director and Executive Vice President
Executive Vice President and Chief Financial
Michael A. Depatie 39 Officer
Charles C. Frey 40 Senior Vice President and Treasurer
Genevieve Giannoni 33 Senior Vice President of Operations
Andrew D. Hutton 31 Vice President and General Counsel
Timothy D. Levin 40 Vice President-Architecture
Juergen Bartels 56 Director
Sanford R. Climan 40 Director
Joshua S. Friedman 40 Director
W. Leo Kiely III 49 Director
</TABLE>
OSAMU KANEKO has served as a Director, Chairman of the Board and Chief
Executive Officer of Signature since its inception. Mr. Kaneko, a Japanese
national, 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. 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 a Director and President of Signature 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
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<PAGE>
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 a Director, Chief Operating Officer and
Secretary of Signature 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 the law firm of Paul, Hastings, Janofsky & Walker, Los Angeles,
California from 1977 through 1981 and at the law firm of 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 a Director and Executive Vice President of
Signature since July 1996. Prior to joining Signature, 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 previously served as its Vice
President of Marketing and Sales since 1980. Mr. Noyes served in various
management positions for Wilson Sporting Goods from 1976 to 1980. Mr. Noyes is
a director of Premier Yachts, Ltd. and Preview Travel, Inc. and Ball
Horticulture, 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.
MICHAEL A. DEPATIE has served as Executive Vice President and Chief
Financial Officer of Signature commencing November 1996, and has served as a
consultant to Signature since September 10, 1996. Prior to joining Signature,
Mr. Depatie was Senior Vice President of Finance and Chief Financing Officer
of La Quinta Inns, Inc. from July 1992 to August 1996. From April 1989 through
June 1992, Mr. DePatie was co-founder and Senior Vice President of Finance of
Summerfield Hotel Corporation. From April 1988 through April 1989, Mr. Depatie
was founder and Managing General Partner of Pacwest Capital Partners. From
June 1984 through April 1988, Mr. Depatie served as Senior Vice President of
Finance and Development of The Residence Inn Company. Mr. Depatie received a
B.A. degree with highest honors from Michigan State University in 1979 and a
M.B.A. degree from Harvard Business School in 1983.
CHARLES C. FREY has served as Senior Vice President of Administration and
Treasurer of Signature since November 1996. Previously, he served as Chief
Financial Officer and Treasurer of Signature since July 1996 and prior thereto
had served as Senior Vice President of Administration and Treasurer of
Signature and its predecessor since 1992. Mr. Frey has overall responsibility
for accounting, operating systems and resort administration. Prior to joining
Signature, Mr. Frey was Vice President and Chief Financial Officer of Trammell
Crow Residential Services-Florida from 1986 to 1992. 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
Signature since 1995 and has overall responsibility for operations at all of
Signature's resorts. Ms. Giannoni joined Argosy in May 1992 as Director of
Marketing and became a Vice President of Signature's predecessor in 1993.
Prior to joining Argosy, Ms. Giannoni was a marketing director at Trammell
Crow Residential Services-Florida from 1987 to 1992. 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.
ANDREW D. HUTTON has served as Vice President and General Counsel of
Signature since October 1996. Prior to joining Signature, Mr. Hutton practiced
corporate securities and finance law with the law firm of Latham & Watkins,
located in Los Angeles, California. Mr. Hutton had been a practicing attorney
with Latham & Watkins since receiving a J.D. degree with honors from the
University of Minnesota Law School in 1991. Mr. Hutton received both B.S. and
B.A. degrees from the University of Kansas in 1988. Mr. Hutton has been a
member of the State Bar of California since 1991.
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TIMOTHY D. LEVIN has served as Vice President-Architecture of Signature
since its inception and of Signature'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. 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 served as a Director of Signature since August 1996. 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 served as a Director of Signature since August 1996.
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., a leading literary and talent agency,
from June 1986 to September 1995. 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.
JOSHUA S. FRIEDMAN has served as a Director of Signature since August 1996.
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 served as a Director of Signature since August 1996.
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. Prior to the hearing on August 26, the LAX Partnership
filed for protection under Chapter 11 of the United States Bankruptcy Code.
The Chapter 11 proceeding is pending and the LAX Partnership currently is
operating the hotel as debtor-in-possession. The LAX Partnership is
negotiating to sell a majority interest in the Embassy Suites hotel, and, in
connection therewith, has filed a motion seeking dismissal of the Chapter 11
proceeding effective concurrently with the closing of such transaction. An
affiliate of Messrs. Kaneko and Kenninger controls and is the co-general
partner of the LAX Partnership, with an approximately 5% profits and capital
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<PAGE>
interest therein. The hotel is managed by Promus Hotels. Signature has no
interest in the hotel or the LAX Partnership. Following the consummation of
the proposed sale, neither Mr. Kaneko nor Mr. Kenninger will hold any interest
in or obligations related to the hotel.
Committees of the Signature Board of Directors
Executive Committee. The Signature Board has established 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 Signature Board. The
Executive Committee consists of Messrs. Gessow, Kenninger and Friedman. All
actions by the Executive Committee require the unanimous vote of all of its
members.
Audit Committee. The Signature Board has established an audit committee (the
"AUDIT COMMITTEE"), which consists of Messrs. Bartels, Friedman and Kenninger.
The Audit Committee makes 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 Signature's internal accounting controls.
Compensation Committee. The Signature Board has established a compensation
committee (the "COMPENSATION COMMITTEE"), which consists of Messrs. Kiely and
Climan, to determine compensation for Signature's senior executive officers,
determine awards under Signature's 1996 Equity Participation Plan and
administer Signature's Employee Stock Purchase Plan.
The Signature Board does not have a nominating committee.
Classified Board of Directors
The Charter provides for the Signature Board 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 shareholders. Starting with
the 1997 annual meeting of shareholders, 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 Signature Board in a relatively short period of time and, accordingly,
provides the Signature Board and shareholders time to review any proposal that
a significant stockholder may make and to pursue alternative courses of action
which are fair to all the shareholders of Signature. Messrs. Kenninger,
Bartels and Noyes have been classified as Class I directors of Signature whose
initial terms will expire at the 1997 annual meeting of shareholders. Messrs.
Gessow, Friedman and Kiely have been classified as Class II directors whose
initial terms will expire at the 1998 annual meeting of shareholders.
Messrs. Kaneko and Climan have been classified as Class III directors whose
initial terms will expire at the 1999 annual meeting of shareholders.
Director Compensation
Signature pays its directors who are not officers of Signature ("INDEPENDENT
DIRECTORS") a fee of $1,000 per meeting of the Signature Board and any
committee thereof (including telephonic meetings) for their services as
directors. In addition, Signature has granted options to purchase 15,000
shares of common stock at $14.00 per share (the price per share in Signature's
initial public offering) 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 Signature Board 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
Signature Board. Officers of Signature who are directors will not be paid any
director fees but will be reimbursed for expenses of attending meetings of the
Signature Board.
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<PAGE>
Directors and Officers Insurance
Signature has purchased a directors and officers liability insurance policy
with coverage typical for a publicly traded company such as Signature. The
directors and officers liability insurance policy insures (i) the officers and
directors of Signature from any claim arising out of an alleged wrongful act
by such person while acting as officers and directors of Signature, (ii)
Signature to the extent it has indemnified the officers and directors for such
loss and (iii) Signature for losses incurred in connection with claims made
against Signature for covered wrongful acts.
Indemnification
Signature's Charter provides for the indemnification of Signature'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 Signature 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.
Executive Compensation
Summary Compensation Table. Signature was incorporated as a Maryland
corporation in May 1996. Accordingly, Signature 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 Signature expects to pay in 1996 to Signature'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. Kenniger...... 1996 280,000 -- 2,500 150,000
Director, Chief
Operating Officer
James E. Noyes.......... 1996 280,000 120,000 14,500 375,000
Director and Executive
Vice President
Michael A. Depatie...... 1996 280,000 -- 2,500 375,000
Executive Vice
President and
Chief Financial Officer
</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 1,750,000 shares of Common Stock have
been granted to directors, executive officers and other employees of
Signature pursuant to the 1996 Equity Participation Plan. See "--1996
Equity Participation Plan."
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<PAGE>
Option Grants in 1996. The following table contains information concerning
the grant of stock options under Signature'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.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED
ANNUAL RATES
OF SHARE
PRICE
APPRECIATION
FOR OPTION
INDIVIDUAL GRANTS TERM
------------------------------------------------ -------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS EXERCISE
UNDERLYING GRANTED TO OR BASE
OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED(1) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
---- ---------- ------------- -------- -------------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Osamu Kaneko............ 150,000 8.6% $14 August 2006 $1,321 $3,347
Andrew J. Gessow........ 150,000 8.6% $14 August 2006 $1,321 $3,347
Steven C. Kenninger..... 150,000 8.6% $14 August 2006 $1,321 $3,347
James E. Noyes.......... 375,000 21.4% $12 June 2006 $2,830 $7,172
Michael A. Depatie...... 110,000 6.3% $18.13 September 2006 $1,247 $3,148
Michael A. Depatie...... 265,000 15.1% $24.13 November 2006 $2,499 $6,296
</TABLE>
OPTION GRANTS IN 1996
- --------
(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. Depatie vested with
respect to 22,000 shares at $18.13 per share and with respect to 53,000
shares at $24.13 per share upon the date of the respective grant, with the
balance of such shares vesting in four equal annual installments beginning
on the first anniversary of the date of 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 48 equal
installments at the end of each of the first 48 months that Mr. Noyes is
employed by Signature.
(2) Signature estimates that during 1996 it will issue options to employees
and directors of Signature to purchase an aggregate of 1,750,000 shares of
Signature Stock.
(3) 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
Signature has established an incentive compensation plan for officers and
key employees of Signature. The plan provides 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, Kenninger and Depatie shall be entitled to receive a
cash bonus of up to 100% of their respective base compensation, respectively,
upon the achievement by Signature of specified targets of growth in revenues,
earnings per share and other key operating factors 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 Signature. 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
Signature has established an equity participation plan (the "1996 EQUITY
PARTICIPATION PLAN") to enable executive officers, other key employees,
Independent Directors and consultants of Signature to participate in the
ownership of Signature. The 1996 Equity Participation Plan is designed to
attract and retain executive officers, other key employees, Independent
Directors and consultants of Signature and to provide incentives to such
persons to maximize Signature's performance. The 1996 Equity Participation
Plan provides for the award to executive officers, other key employees,
Independent Directors and consultants of Signature of a broad variety of
stock-based compensation alternatives such as nonqualified stock options,
incentive stock options, restricted
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<PAGE>
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 Signature Stock.
The 1996 Equity Participation Plan is 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 Signature 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 Signature
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 Signature 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
Signature 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 Signature Stock. Performance awards may include "phantom" stock
awards that provide for payments based upon increases in the price of
Signature's 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 Signature
Stock or in a combination of cash and Signature Stock.
There are 1,750,000 shares of Signature Stock reserved for issuance pursuant
to the 1996 Equity Participation Plan. Signature estimates that in 1996 it
will issue to executive officers, other key employees, Independent Directors
and consultants of Signature options to purchase 1,750,000 restricted shares
of common stock pursuant to the 1996 Equity Participation Plan. In addition,
Signature currently intends to request Board of Directors and stockholder
approval to increase the authorized number of shares of Signature Stock
reserved for issuance pursuant to the 1996 Equity Participation Plan from
1,750,000 shares to approximately 2,575,000 shares, effective following
Signature's 1997 Annual Meeting of Shareholders.
Employee Stock Purchase Plan
Signature has established the Signature Resorts, Inc. Employee Stock
Purchase Plan (the "EMPLOYEE STOCK PURCHASE PLAN") to assist employees of
Signature in acquiring a stock ownership interest in Signature and to
encourage them to remain in the employment of Signature. The Employee Stock
Purchase Plan is neither a qualified pension, profit sharing or stock bonus
plan under Section 401(a) of the Code, nor an "employee benefit plan" subject
to the provisions of the Employee Retirement Income Security Act of 1974, as
amended. The
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<PAGE>
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
Signature. Any United States tax liability to the employee and the tax
deductions to Signature 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 an employee (with no corresponding deduction to Signature) 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 Signature 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 Signature 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
Signature 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 Signature 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 Signature. The 401(k) Plan provides for company matching
contributions, if determined by Signature to be made, 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 Signature's contribution under the 401(k) Plan
also apply. Participants will receive service credit for employment with the
predecessors of Signature and affiliates. Amounts contributed by Signature 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 Signature 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.
Employment Agreements
Messrs. Kaneko, Gessow, Kenninger, Noyes and Depatie have each entered into
an employment agreement with Signature for a term of two years. 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
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<PAGE>
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 Signature).
Messrs. Kaneko, Gessow, Kenninger, Noyes and Depatie have also received
options to purchase shares of Signature Stock pursuant to the 1996 Equity
Participation Plan. In addition, each of Messrs. Kaneko, Gessow, Kenninger,
Noyes and DePatie 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 Signature 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 Signature in the event of any reduction in his compensation or
benefits, material breach or material default by Signature under his
employment agreement or following the merger or change in control of
Signature.
Additionally, it is anticipated that upon the consummation of the Merger, a
subsidiary of Signature will employ Gary L. Hughes and John R. Stevens
pursuant to employment agreements to be executed by the parties. Pursuant to
such agreements, the term of employment shall be for a period of three years.
Signature may terminate their employment, with or without cause, at any time.
The initial base salary shall be $225,000 with increases and potential bonuses
and fringe benefits tied to performance and profitability. Messrs. Hughes and
Stevens will primarily perform duties related to the operation of AVCOM as a
wholly-owned subsidiary of the Signature.
Upon consummation of the Merger, Signature will also grant Messrs. Hughes
and Stevens options to purchase up to 100,000 shares of Signature Stock each,
200,000 shares in the aggregate, in consideration for their continued
employment. This option will vest and become exercisable in three annual
installments assuming continued employment. Options to purchase 100,000 of
such shares are contingent upon AVCOM achieving certain net income targets in
1997. In addition, Signature will also grant options to purchase up to 50,000
shares of Signature Stock to officers and employees of AVCOM (including,
possibly, Messrs. Hughes and Stevens) as designated by AVCOM. Such options
will be contingent upon AVCOM achieving certain net income targets in 1997.
All options will cease to be exercisable following a termination of
employment. The exercise price will be the fair market value of the stock on
the date of grant.
Covenants Not To Compete
Messrs. Kaneko, Gessow, Kenninger, Noyes and Depatie have agreed (and upon
commencement of their employment with Signature, Messrs. Hughes and Stevens
will also agree) to devote substantially full time to the business of
Signature and not engage in any competitive businesses. In particular, the
foregoing individuals are prohibited from managing, consulting or
participating in any way in any timeshare business or from acquiring any
property with the intent to convert the property to a timeshare operation,
unless the Independent Directors of Signature determine that such investment
is in the best interest of Signature. Such noncompetition provisions shall
survive for two years following any termination of employment. Such
individuals are not, however, prohibited from acquiring hotels, including
hotels which may compete directly with properties of Signature.
CONDUCT OF BUSINESS OF AVCOM PENDING CLOSING
AVCOM generally has agreed in the Merger Agreement, unless the prior consent
of Signature is obtained, and except as otherwise contemplated by the Merger
Agreement, to operate its business only in the ordinary course, to preserve
its business organizations and assets and to maintain its rights and
franchises and to take no action that would adversely affect either the
ability of either party to perform its covenants and agreements under the
Merger Agreement or the ability of either party to obtain any consents or
approvals pursuant to any contract, law, order or permit that are required for
the transactions contemplated in the Merger Agreement. In addition, the Merger
Agreement contains certain other restrictions applicable to the conduct of the
business of AVCOM prior to the consummation of the Merger, as described below.
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AVCOM has agreed in the Merger Agreement not to take certain actions
relating to the operations of its business pending consummation of the Merger
without the prior approval of Signature. These actions include, but are not
limited to: (a) borrowing any sums or entering into any financial guaranties
or otherwise incur any indebtedness or liability in excess of $10,000
individually or $50,000, in the aggregate; (b) sell, assign, transfer, lease,
mortgage, pledge or subject to lien, or otherwise encumber, any of its assets,
with the exception of interval sales made in the ordinary course of business;
(c) issue or sell any shares of capital stock or any other securities, or
warrants or options or other rights to acquire any shares of its capital stock
of any class; (d) directly or indirectly solicit or negotiate with respect to
any inquiries or proposals to merge or to sell the assets or beneficial
ownership of AVCOM or any Subsidiary; (e) enter into an employment, consulting
or similar agreement or authorize any compensation increase for any executive
officer, director or key employee of AVCOM or any Subsidiary; (f) declare, pay
or set aside for payment any dividend, distribution or return of capital in
respect to its capital stock or other equity securities or, directly or
indirectly, redeem, purchase or otherwise acquire any of its shares of capital
stock, options, warrants or securities convertible into equity securities; (g)
make or commit to make any capital expenditures in excess of $10,000
individually or $50,000 when aggregated with all such expenditures by AVCOM
and all subsidiaries during any 30 day period; or (h) otherwise enter into any
transaction or take other action not in the ordinary course of business.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Interest of Certain Persons in the Transaction
In considering whether to vote in favor of the Merger, a shareholder should
be aware that both Gary L. Hughes, the chairman of the AVCOM Board and Chief
Executive Officer, and John R. Stevens, the Director of Marketing for AVCOM,
will serve as Stockholder Representatives with respect to the Signature Stock
to be held pursuant to the Escrow Agreement. Further, Signature intends to
enter into Employment Agreements with Messrs. Hughes and Stevens to which they
will be employed by Signature after the Merger pursuant to employment
agreements and will each receive options to purchase up to 100,000 shares of
Signature Stock, 200,000 shares, in the aggregate, the exact number to be
based upon various factors, including job performance and operational results.
In addition, options to acquire up to 50,000 shares of Signature Stock will be
granted to certain employees of AVCOM who have not currently been identified,
including, possibly, Messrs. Hughes and Stevens.
Other than as described herein, no director or executive officer of
Signature or AVCOM, and no associate of such person, has any substantial
interest, direct or indirect, in the Merger, other than an interest arising
from the ownership of AVCOM Stock, in which case the director or officer
receives no extra or special benefit not shared on a pro rata basis by all
other holders of AVCOM Stock.
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
Signature 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
Signature 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
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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 Signature.
Payments to Affiliates
A total of $15.7 million of the net proceeds from Signature Initial Public
Offering were used to repay outstanding debt to affiliates of the Founders. Of
the $15.7 million of the funds paid to the affiliates of the Founders,
$15.3 million was used to pay off existing debt to third party financial
institutions or other third party financing sources or to pay tax liabilities.
The proceeds from the loans were previously either invested in or loaned
either to Signature or its predecessors or to acquire or develop the Existing
Resorts.
In addition, pursuant to the Consolidation Transactions, during the three
months ended September 30, 1996 Founders also received $2.3 million of
distributions from certain predecessor partnerships of Signature to fund
income tax obligations which had accrued through the date of the Offering and
with respect to whom no pre-Offering profits of Signature had been
distributed.
In addition, $12.2 million of the net proceeds of the Initial Public
Offering were used to repay outstanding indebtedness owed to partnerships in
which an affiliate of Mr. Friedman, a director of Signature, is a general
partner. Of such repayment, approximately $3.0 million was repaid directly to
Mr. Friedman or his affiliates.
Consolidation Transactions
Signature's Existing Resorts were previously owned and operated by the
Property Partnerships, each affiliated with the Founders. The "Property
Partnerships" consisted 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 were previously 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 remained in existence
following the Consolidation Transactions and the Initial Public Offering are
wholly owned by Signature.
As a result of the 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) have been directly or indirectly transferred to
Signature and in exchange the holders of such partnership interests and
certain of such stock will receive shares of Signature Stock. Holders of any
such partnership interests who are not "accredited investors" received cash at
a price commensurate with the value received by the accredited investors to be
determined prior to the Consent Solicitation. All financial and share
information presented in this Prospectus reflects the consummation of the
Consolidation Transactions and reflects the issuance of an aggregate of
11,354,705 shares of Signature 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
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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 previously provided 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 Initial Public
Offering. Pursuant to a Private Placement Memorandum dated as of May 28, 1996,
Signature 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 Signature Stock in Signature. Such exchange occurred
simultaneously with the closing of the Initial Public 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 Signature Stock in Signature are referred to herein as the
"Consolidation Transactions." Direct and indirect holders of interests in, and
obligations of, certain Property Partnerships received, upon consummation of
the Consolidation Transactions, shares of Signature Stock in Signature equal
to a predetermined dollar value based on agreement between Signature and such
holders as set forth in the Private Placement Memorandum for the Consent
Solicitation. The balance of the shares of Signature Stock issued in the
Consolidation Transactions were 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. As a result of the Consolidation Transactions and the Initial
Public Offering, the ultimate owners of interests in the Property Partnerships
and stockholders of the Affiliated Companies own, in the aggregate,
approximately 68.4% of the outstanding Signature Stock being held by the
Founders, or affiliates thereof. For additional information regarding the
Property Partnerships and the Affiliated Companies as well as the
Consolidation Transactions and resulting effect thereof, see "THE PROPOSED
MERGER--Certain Relationships and Related Transactions."
RESALES OF STOCK AFTER THE MERGER
The shares of Signature Stock issued in connection with the Merger will be
freely transferable under the Securities Act and the Exchange Act, except for
shares issued to any shareholder who may be deemed to be an "affiliate"
(generally including, without limitation, directors, certain executive
officers, and beneficial owners of 10% or more of any class of capital stock)
of AVCOM for purposes of Rule 145 under the Securities Act as of the date of
the Special Meeting or for purposes of applicable interpretations regarding
pooling of interest accounting treatment. Such affiliates may not sell their
shares of Signature Stock acquired in connection with the Merger except
pursuant to an effective Registration Statement under the Securities Act or
other applicable exemption from the registration requirements of the
Securities Act and, consistent with the Merger qualifying for pooling-of-
interests accounting treatment, until such time as financial results covering
at least thirty days of combined operations of the parties after the
consummation of the Merger have been published. Signature will place
restrictive legends on certificates representing Signature Stock issued to all
persons who are deemed to be "affiliates" of AVCOM under Rule 145. In
addition, AVCOM has agreed to use its reasonable efforts to cause each person
or entity that is an "affiliate" to enter into a written agreement in
substantially the form attached to the Merger Agreement relating to such
restrictions on sale or other transfer. Shares of Signature Stock deposited
under the Escrow Agreement may not be sold or transferred while they remain
subject to the Escrow Agreement. This Proxy Statement/Prospectus does not
cover resales of Signature Stock received by any person who may be deemed to
be an affiliate of AVCOM.
REGULATORY APPROVALS
The consummation of the transactions contemplated in the Merger Agreement
are conditioned upon all necessary regulatory approvals. The parties have
filed the appropriate applications for these approvals and presently
anticipate that such approval be obtained in a timely manner.
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APPRAISAL RIGHTS OF SHAREHOLDERS
If the Merger is consummated, a holder of record of AVCOM Stock on the date
of the making of a demand pursuant to the provisions of Section 262 of the
Delaware General Corporation Law ("GCL"), a copy of which is attached hereto
as Appendix C, who continuously holds such shares through the Closing Date,
who has otherwise complied with Section 262 and who has not voted in favor of
the Merger will be entitled to have his or her shares of AVCOM Stock appraised
by the Delaware Court of Chancery (the "Chancery Court") and entitled to
receive payment of the "fair value" of such shares at the Closing Date
(exclusive of any element of value arising from the accomplishment or
expectation of the Merger as determined by such court). Section 262 represents
the exclusive statutory remedy available under the Delaware GCL to holders of
AVCOM Stock who elect to seek appraisal of the fair value of their shares.
This Proxy Statement/Prospectus constitutes the notice to the holders of AVCOM
Stock that appraisal rights are available to them. Exercise of appraisal
rights may result in a judicial determination of a fair value less than or
more than the per share amount otherwise to be received in the Merger.
Each holder of AVCOM Stock electing to demand the appraisal of his or her
shares must deliver to AVCOM a written demand for appraisal prior to the
Special Meeting. Such written demand must reasonably inform AVCOM of the
identity of the shareholder of record and of such shareholder's intention to
demand the appraisal of his or her shares of AVCOM Stock. This written demand
is in addition to the requirement that the holder vote against approval of the
Merger Agreement or abstain from voting. Such written demand should be
addressed as follows: AVCOM International, Inc., P.O. Box 1243, Sedona,
Arizona 86339, or hand delivered to Mr. Doug Wills at 561 Highway 179, Sedona,
Arizona 86339. A vote against approval of the Merger Agreement or abstention
from such vote, by itself, will not constitute a demand for appraisal within
the meaning of Section 262.
Any holder of AVCOM Stock who has duly demanded appraisal in compliance with
Section 262 will not, after the Closing Date, be entitled to vote his or her
shares of AVCOM Stock for any purpose or receive payment of dividends or other
distributions on the shares, except for dividends or distributions payable to
such shareholder as of a date prior to the Closing Date.
A holder of AVCOM Stock will lose his or her right to appraisal if no
petition for appraisal is filed within 120 days after the Closing Date or if
the holder of AVCOM Stock effectively withdraws his or her demand for an
appraisal. In such case, all shares shall thereupon be deemed to have been
converted into and to have become exchangeable for, as of the Closing Date,
the right to receive the number of shares of Signature Stock in accordance
with the Merger Agreement as described in "THE PROPOSED MERGER--General
Description of the Merger" of this Proxy Statement/Prospectus. Inasmuch as
AVCOM has no obligation to file a petition for appraisal, and has no present
intention to do so, any holder of AVCOM Stock who desires such a petition to
be filed is advised to file it on a timely basis. Failure by a holder of AVCOM
Stock to follow precisely all of the steps required by Section 262 for
perfecting appraisal rights, including filing the petition, will result in the
loss of those rights.
In the event an appraisal proceeding is properly instituted, such proceeding
may not be dismissed as to any holder of AVCOM Stock who has established his
or her right of appraisal under the provisions of Section 262 without the
approval of the Chancery Court, and any such approval may be conditioned on
such terms as the Chancery Court deems just.
The foregoing is a summary of the rights of the holders of AVCOM Stock
seeking appraisal under the Delaware GCL, does not purport to be a complete
statement of the Delaware GCL and is qualified in its entirety by reference to
the applicable statutory provisions of Section 262.
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SURRENDER OF STOCK CERTIFICATES AND RECEIPT OF MERGER CONSIDERATION
Except for the shares of AVCOM Stock which are the subject of the exercise
of appraisal rights, on the Closing Date, each outstanding share of AVCOM
Stock will be converted into the number of shares of Signature Stock plus, if
applicable, cash as described above. Each holder of AVCOM Stock, upon
surrender of a stock certificate, will be entitled to receive a stock
certificate evidencing shares of Signature Stock (together with payment for
any fractional shares, if applicable) to which such shareholder is entitled.
As soon as practicable after the Closing Date, Exchange Agent will mail to
each former holder of AVCOM Stock notification of the consummation of the
Merger and instructions as to the procedure for the surrender of stock
certificates. The Exchange Agent will accept documentation acceptable to it in
lieu of lost or destroyed certificates and may also require the shareholder of
a lost or destroyed certificate to post an insurance bond acceptable to the
Exchange Agent.
No dividends or other distribution will be paid to a former shareholder of
AVCOM with respect to shares of Signature Stock until such shareholders'
certificate(s) representing AVCOM Stock are remitted to the Exchange Agent (or
documentation in lieu of a lost or destroyed certificate is delivered). Any
dividends declared between the Closing Date and the date of the surrender of
the AVCOM stock certificate(s) will be held by the Exchange Agent for the
benefit of the shareholder and will be paid to the shareholder, without
interest thereon, upon surrender of such stock certificate(s) (or
documentation in lieu thereof).
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INFORMATION REGARDING SIGNATURE RESORTS, INC.
CORPORATE BACKGROUND
Signature Resorts, Inc. was incorporated in Maryland in May 1996 by Osamu
"Sam" Kaneko, Andrew J. Gessow and Steven C. Kenninger to effect the
Consolidation Transactions and Signature's initial public offering, which were
consummated on August 20, 1996 (the "INITIAL PUBLIC OFFERING"). The exchange
of direct and indirect interests in, and obligations of, certain limited
partnerships, limited liability companies and other corporations affiliated
with the Founders for shares of Signature Stock are referred to herein as the
"CONSOLIDATION TRANSACTIONS."
Signature'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
Signature, 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. Prior to forming Signature, Mr. Gessow in 1990 formed one of the
predecessors of Signature, Argosy Group, Inc. ("ARGOSY"), a Woodside,
California based real estate acquisition and development company and, prior to
forming Argosy, was previously president of both the Florida and west coast
offices of Trammell Crow Residential Services, a real estate development
company. See "THE PROPOSED MERGER--Management After the Merger--Directors and
Executive Officers."
BUSINESS
Overview
Signature is one of the largest developers and operators of timeshare
resorts in North America, based on number of resorts in sales. Signature is
devoted exclusively to timeshare operations and owns eight timeshare resorts
currently in sales, which includes one under construction, and a ninth resort
in sales in which Signature holds a partial interest. Signature's 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. In
addition, in December 1996 Signature announced plans for the acquisition and
development of its tenth resort to be located in St. John, U.S. Virgin
Islands. Signature's principal operations currently consist of (i) acquiring,
developing and operating timeshare resorts, (ii) marketing and selling
timeshare interests at 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.
As part of its growth and acquisition strategy, Signature in September 1996
entered into the Merger Agreement to acquire AVCOM, the parent company of All
Seasons, a developer, marketer and operator of timeshare resorts in Arizona,
California and Texas. AVCOM currently operates nine resorts, which includes
two under construction, and a tenth resort in which AVCOM holds a partial
interest. Five of the AVCOM's Resorts are located in Sedona, Arizona, two are
located in South Lake Tahoe, California and one resort is located in each of
Lake Arrowhead, California, Lake Conroe (near Houston), Texas, and Scottsdale,
Arizona. AVCOM currently sells Vacation Intervals at six of its ten resorts,
sales at three resorts have been substantially completed and sales at one
resort have yet to commence. Signature anticipates that the Merger will be
consummated in the first quarter of 1997, assuming all conditions to closing
are timely satisfied. See "THE PROPOSED MERGER" and "RISK FACTORS--Risks
Related to the Merger."
For the twelve month period ended September 30, 1996, Signature sold 6,512
Vacation Intervals at the Existing Resorts, compared to 3,566 and 5,687 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 $36.6 million
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in 1994 to $57.2 million in 1995 to $84.2 million in 1996. The number of
Existing Resorts has increased during the same periods through acquisitions
and development from four in 1994, to seven in 1995, to nine in 1996. As of
September 30, 1996, Signature had an existing inventory of 22,509 Vacation
Intervals at the Existing Resorts, and Signature is in the process of
developing or has current plans to develop an additional 62,203 Vacation
Intervals on land which Signature owns or has an option to acquire at the
Existing Resorts. Signature anticipates that the existing inventory at its
Existing Resorts (except Signature'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.
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[DOLLAR VOLUME OF VACATION INTERVAL SALES]
[CHART APPEARS HERE]
[NUMBER OF VACATION INTERVAL OWNERS]
[CHART APPEARS HERE]
Source: American Resort Development Association, The 1995 Worldwide Timeshare
Industry.
Signature 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;
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. 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.
Signature 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 Signature, 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.
Of Signature's major brand name lodging company competitors, Signature
believes that, based on industry consultant reports: (i) Marriott entered the
timeshare market in 1985, currently sells Vacation Intervals at 10 resorts
which it also owns and operates (Kauai, Hawaii; Palm Desert, California; Park
City, Utah; Breckenridge, Colorado; Williamsburg, Virginia; Hilton Head
Island, South Carolina; Orlando, Florida; Marabella, Spain; Boston,
Massachusetts; and Ft. Lauderdale, Florida) and directly competes with
Signature'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 Signature'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 Signature'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 Signature'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 Signature'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.
The Economics. Signature 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 American Resort
Development Association ("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 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
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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.
Signature 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 Signature's
resorts and its participation in the RCI network. However, RCI is under no
obligation to continue to include the resorts or the AVCOM Resorts in its
exchange network. See "Risk Factors--Dependence on Vacation Interval Exchange
Networks; Risk of Inability to Qualify Resorts." Signature expects the
timeshare industry to continue to grow as the baby-boom generation continues
to enter the 40-55 year age bracket, the age group which purchased the most
Vacation Intervals in 1994.
Business Strategy
Signature's objective is to become North America's leading developer and
operator of timeshare resorts. To meet this objective, Signature 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
Signature's operations.
The Merger and the recently-announced proposed acquisition and development
of the first Westin Vacation Club resort to be located in St. John, U.S.
Virgin Islands, both of which transactions were announced in the third and
fourth quarters of 1996, respectively, are the result of Signature's growth
strategy. The key elements of Signature's strategy are described below.
Signature's Merger with AVCOM and the recently-announced proposed
acquisition and development of the first Westin Vacation Club resort to be
located in St. John, U.S. Virgin Islands, which transactions were announced in
the third and fourth quarters of 1996, respectively, are the result of
Signature's growth strategy. The key elements of Signature's strategy are
described below.
Acquisition and Development of New Resorts. Signature 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, Signature intends to pursue resort acquisitions and
developments in a number of vacation destinations that will complement
Signature's operations, including the California and Hawaii markets, which are
subject to barriers to entry and in which Signature's Founders have extensive
acquisition and development experience. Signature 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 by Signature's predecessor in 1992, Signature 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 and use as timeshare resorts. In
addition to acquiring existing resort and hotel-to-timeshare conversion
properties,
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Signature also seeks to develop resorts located in destinations where it
discerns a strong demand, which Signature anticipates will enable it to
achieve attractive rates of return.
Signature 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,
Signature analyzes relevant demographic, economic and financial data.
Specifically, Signature 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.
Signature believes that its relationships with Promus and Westin will
provide it with attractive acquisition, conversion, development and marketing
opportunities and uniquely position Signature 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 Signature
and Promus established Embassy Vacation Resorts, and Signature is currently
the only licensee of the Embassy Vacation Resorts name. However, Signature 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 Signature's license agreements with Promus with respect to
Signature's Embassy Vacation Resorts. Furthermore, Promus has created a new
timeshare division to expand its Embassy Vacation Resort timeshare operations.
Through the Westin Agreement, Signature has the exclusive right through May
2001, to jointly acquire, develop and market with Westin "four-star" and
"five-star" timeshare resorts located in North America, Mexico and the
Caribbean. Signature'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 Signature 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 Signature with respect to the marketing
of the Company's resorts.
Signature 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.
Signature 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 Signature
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 Signature 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 and AVCOM Resorts. Signature intends
to continue sales of Vacation Intervals at the Existing Resorts and the AVCOM
Resorts by adding Vacation Interval inventory through the construction of new
development units and by broadening marketing efforts. As of September 30,
1996, Signature had existing inventory of 22,509 Vacation Intervals at the
Existing Resorts and currently is in the process of developing, or has plans
to develop, units to accommodate an additional 84,235 Vacation Intervals at
the 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 816
Vacation Intervals at the Plantation at Fall Creek. See "INFORMATION REGARDING
SIGNATURE RESORTS, INC.--Description of Signature's Resorts." As of
September 30, 1996, AVCOM had existing inventory of 4,618 Vacation Intervals
and currently is in the process of developing, or has plans to develop, units
to accommodate an additional 19,584 Vacation Intervals at its resorts,
including construction in progress for
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8,568 Vacation Intervals at the Scottsdale Villa Mirage Resort and 6,120
Vacation Intervals at the Ridge on Sedona Golf Resort and the addition of
approximately 2,448 Vacation Intervals at Sedona Summit Resort, and 2,448
Vacation Intervals at the Villas on the Lake. See "INFORMATION REGARDING
SIGNATURE RESORTS, INC.--Description of Signature's Resorts."
Based on information received from Signature's customers and sales agents,
Signature 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, Signature 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 Signature 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. Signature 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, Signature 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 Signature's Existing Resorts.
Signature believes that increased efficiency, reduction in on-site
administrative requirements and a multi-resort management system will reduce
operating costs and allow Signature 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. Signature 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 Signature's relationships in the timeshare and
financial communities, the size and geographic diversity of its portfolio of
properties and position in the timeshare industry, Signature has access to a
variety of acquisition opportunities related to Signature's business.
Signature's business strategy includes pursuing growth by expanding or
supplementing Signature's existing timeshare business through acquisitions.
Signature believes that its record of acquiring resort properties gives
Signature credibility and, Signature's status as a public company may make the
acquisition by Signature of businesses or operations more attractive to
potential sellers. Signature believes that these collective factors will help
Signature acquire attractive assets, operations and companies in the
fragmented timeshare industry. Acquisitions which Signature may consider in
addition to those disclosed herein, 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 Signature's operations.
DESCRIPTION OF SIGNATURE'S RESORTS
Signature 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 development and acquisition business of
Signature's predecessors, Signature has developed or acquired eight timeshare
resorts currently in sales, which include one under construction, and a ninth
resort in sales in which Signature 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 Signature holds an approximately 30%
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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). Signature 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 Signature'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. Signature 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. Upon consummation
of the proposed Merger with AVCOM, Signature will acquire six additional
resorts currently in timeshare sales. Vacation Intervals at these AVCOM
resorts generally sell for $9,000 to $18,000 and are targeted to buyers
in the same non-branded market segment.
. EMBASSY VACATION RESORTS. Vacation Intervals at Signature's three
Embassy Vacation Resorts generally sell for $14,000 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 135 Embassy Suites hotels throughout North America.
. WESTIN VACATION CLUB RESORTS. Through the Westin Agreement Signature has
the exclusive right through May 2001 to jointly acquire, develop and
market with Westin "four-star" and "five-star" timeshare resorts located
in North America, Mexico and the Caribbean. Signature anticipates that
Vacation Intervals at Westin Vacation Club resorts generally will sell
for $18,000 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. Signature and
Westin recently announced plans for the acquisition and development of
the first Westin Vacation Club resort to be located in St. John, U.S.
Virgin Islands. See "--Westin Vacation Club Resorts."
Innovation in the design and quality of the resorts developed by Signature,
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 Signature's resorts from those of its competitors.
Signature believes feedback from its Vacation Interval owners and property
management enhances Signature's product acquisition, development and design
process. The resorts designed and developed by Signature have been recognized
by major industry groups and publications for excellence in architectural and
landscape design and overall development quality. Each of Signature's resorts
and nine of AVCOM's resorts have been designated a "Gold Crown" resort by RCI.
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The Resorts
The following table sets forth certain information as of September 30, 1996
regarding each of the Existing Resorts, the Westin Vacation Club at St. John
and the AVCOM Resorts to be acquired in the Merger, including location, date
acquired or to be acquired by Signature, the number of existing and total
potential units at the resort, and the number of Vacation Intervals currently
available for sale and occupancy and additional expansion potential. Of the 20
resorts set forth below, the Embassy Vacation Resort Poipu Point is partially
owned by Signature, the Western Vacation Club Resort at St. John will be
partially owned by Signature when acquired and the North Bay Resort at Lake
Arrowhead is partially owned by AVCOM. The exact number of units and Vacation
Intervals ultimately constructed may differ from the following estimates based
on future land planning and site layout considerations.
<TABLE>
<CAPTION>
VACATION
UNITS AT RESORT INTERVALS AT RESORT
----------------------- -------------------------
DATE ACQUIRED/ TOTAL CURRENT POTENTIAL
RESORT LOCATION TO BE ACQUIRED(A) CURRENT(B) POTENTIAL(C) INVENTORY(D) EXPANSION(E)
------ -------- ----------------- ---------- ------------ ------------ ------------
<C> <S> <C> <C> <C> <C> <C>
NON-BRANDED
RESORTS:
Cypress Pointe Lake Buena Vista, November 1992 224 500(f) 3,111 14,076(f)
Resort Florida
Plantation at Branson, Missouri July 1993 98 400(g) 690 15,402(g)
Fall Creek
Royal Dunes Hilton Head Island, April 1994 40 55(h) 641 765(h)
Resort South Carolina
Royal Palm Beach St. Maarten, Netherlands July 1995 140 140(i) 1,937 -- (i)
Club Antilles
Flamingo Beach St. Maarten, Netherlands August 1995 172 257(j) 2,584 4,420(j)
Club Antilles
San Luis Bay Avila Beach, California June 1996 68 130(k) 907(h) 3,162(k)
Resort
EMBASSY VACATION
RESORTS:
Poipu Point(m) Koloa, Kauai, Hawaii November 1994 219 219(n) 9,966(n) --
Grand Beach Orlando, Florida January 1995 102 370(o) 2,673 13,668(o)
Lake Tahoe South Lake Tahoe, May 1996 -- 210(p) -- 10,710(p)
California
WESTIN VACATION
CLUB:
St. John(q) St. John, U.S. Virgin First Quarter 1997 48 96(r) 1,715(r) 4,448(r)
Islands
AVCOM RESORTS:
Scottsdale Villa Scottsdale, Arizona First Quarter 1997 -- 168(s) -- 8,568(s)
Mirage Resort
The Ridge on Sedona, Arizona First Quarter 1997 -- 120(t) -- 6,120(t)
Sedona Golf
Resort
Sedona Springs Sedona, Arizona First Quarter 1997 40 40 62 --
Resort
Sedona Summit Sedona, Arizona First Quarter 1997 12 60(u) -- (u) 2,448(u)
Resort
Villas of Poco Sedona, Arizona First Quarter 1997 33 33 78 --
Diablo
Villas of Sedona Sedona, Arizona First Quarter 1997 40 40 104 --
North Bay Resort Lake Arrowhead, First Quarter 1997 13 13(v) 429 -- (v)
at Lake California
Arrowhead(q)
Tahoe Beach & South Lake Tahoe, First Quarter 1997 140 140 1,195 --
Ski Club California
Tahoe Seasons South Lake Tahoe, First Quarter 1997 21 21(w) 943(w) --
Resort California
Villas on the Lake Conroe, Texas First Quarter 1997 37 85(x) 1,807 2,448(x)
Lake
----- ----- ------ ------
TOTAL......................................................... 1,447 3,097 28,842 86,235
===== ===== ====== ======
</TABLE>
- -------
(a) The dates listed below with respect to the Existing Resorts represent the
date of acquisition or, if later, the date of completion of development of
the first phase of the resort by Signature and the dates listed below with
respect to the Westin Vacation Club at St. John and AVCOM Resorts
represent the anticipated closing dates of the pending acquisitions. See
"THE PROPOSED MERGER" and "INFORMATION REGARDING SIGNATURE RESORTS, INC.--
Description of Signature's Resorts--Westin Vacation Club Resorts."
(b) Current units at each resort represents only those units that have
received their certificate of occupancy as of September 30, 1996.
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(c) Total potential units at each resort includes, as of September 30, 1996,
(i) units which have received their certificate of occupancy, (ii) units
currently under development that have not yet received their certificate
of occupancy and (iii) units planned to be developed on land currently
owned by Signature or AVCOM.
(d) Current inventory of Vacation Intervals at each resort represents only
those unsold intervals that have received their certificate of occupancy
as of September 30, 1996.
(e) Potential expansion of Vacation Intervals at each resort includes, as of
September 30, 1996, (i) intervals currently under development that have
not yet received their certificate of occupancy and (ii) intervals planned
to be developed on land currently owned by Signature or AVCOM.
(f) Includes an estimated 276 units, which will accommodate an additional
estimated 14,076 Vacation Intervals, which Signature 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 Signature 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.
(g) Includes 16 units, which will accommodate an additional 816 Vacation
Intervals, on which Signature commenced construction in June 1996 and for
which all necessary discretionary governmental approvals and permits have
been received by Signature. Also, includes an additional estimated 286
units, which will accommodate an additional estimated 14,586 Vacation
Intervals, which Signature plans to construct on land which it owns or is
currently subject to a contract to purchase at the Plantation at
Fall Creek.
(h) Includes 15 units, which will accommodate 765 Vacation Intervals,
construction of which is planned to begin in the second quarter of 1997
and for which all necessary governmental approvals and permits have been
received by Signature.
(i) Signature has not committed to any expansion of the Royal Palm Beach Club.
Signature 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.
(j) In May 1996 the Company acquired a five-acre parcel of land adjacent to
the Flamingo Beach Club on which Signature plans to develop approximately
85 units which will accommodate an estimated 4,420 Vacation Intervals.
Signature is in the process of seeking to obtain the necessary
governmental approvals and permits for such proposed expansion.
(k) Includes 62 units, which will accommodate an estimated 3,162 Vacation
Intervals, for which all necessary governmental approvals and permits have
been received by Signature. Construction of the first 31 units began in
October 1996. In addition, Signature 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.
(l) Signature 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, Signature acquired promissory notes in default that are
secured by approximately 900 Vacation Intervals. Signature intends to
foreclose upon and acquire clear title to such Vacation Intervals and
intends to complete such foreclosure procedures (or deed-in-lieu
procedures) during the second quarter of 1997. These 900 Vacation
Intervals are included in the above table as Current Inventory.
(m) Signature acquired a 30.4% partnership interest in the Embassy Vacation
Resort Poipu Point in November 1994. Signature owns, directly or
indirectly, 100% of the partnership interests in one of the two co-
managing general partners 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 owned by
Signature holds a 0.5% partnership interest for purposes of distributions,
profits and losses. Signature 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,
Signature, 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 Signature, directly or indirectly, on a pari
passu basis with the other general partner in the partnership, Signature,
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,
Signature, directly or indirectly, is entitled to receive approximately
55% of the net profits of the Poipu Partnership.
(n) Includes 179 units that Signature currently rents on a nightly basis,
pending their sale as Vacation Intervals.
(o) Includes at least 24 units, which will accommodate an additional 1,224
Vacation Intervals, on which Signature commenced 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 Signature) have been received by Signature.
Signature has also received all necessary discretionary governmental
approvals and permits to construct an additional estimated 244 units on
land which it owns at the Embassy Vacation Resort Grand Beach, which will
accommodate an additional estimated 12,444 Vacation Intervals (excluding
building permits which have not yet been applied for by Signature).
Signature plans to apply for and obtain these building permits on a
building-by-building basis.
(p) 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
Signature. Twenty-seven units, which will accommodate 1,377 Vacation
Intervals, are scheduled for completion in February 1997 and 35 units,
which will accommodate 1,785 Vacation Intervals, are scheduled for
completion in March 1997. Of this total,
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Signature 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. Signature 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
Signature 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. Signature commenced sales of Vacation Intervals at
the Embassy Vacation Resort Lake Tahoe in June 1996, although Signature
will not be able to close any of such sales until the completion of the
first units. Signature currently is pre-selling Vacation Intervals at the
Embassy Vacation Resort Lake Tahoe prior to receipt of certificates of
occupancy.
(q) As described under "INFORMATION REGARDING SIGNATURE RESORTS, INC.--
Description of Signature's Resorts--Westin Vacation Club Resorts,"
Signature will own 50% of the entity which will acquire the unsold
Vacation Intervals at this resort. The acquisition is anticipated to close
during the first quarter of 1997 and commencement of Vacation Interval
sales is anticipated to begin by the fourth quarter of 1997.
(r) Includes 48 units, which will accommodate approximately 1,715 unsold
Vacation Intervals, which are ready for immediate occupancy. With respect
to such 48 units, 36 of such units have received all necessary
discretionary governmental approvals and permits necessary to commence
Vacation Interval sales and, upon closing of the pending acquisition,
Signature plans to file the necessary documentation to receive such
approvals with respect to the remaining 12 of such units. Also includes an
additional 48 units, which will accommodate an additional approximately
2,448 Vacation Intervals, which will require the installation of
utilities, furniture, fixtures and equipment and interior finishes before
occupancy. Upon closing of the pending acquisition, Signature currently
anticipates completing the renovation of such 48 additional units by the
fourth quarter of 1997. Upon closing of the pending acquisition, Signature
also will have acquired adjacent land at the St. John resort which will
accommodate the development of additional units. Signature has not yet
determined the amount of potential additional units which may be
constructed on such adjacent land or the timing of such potential
development. See "INFORMATION REGARDING SIGNATURE RESORTS, INC.--
Description of Signature's Resorts--Westin Vacation Resorts."
(s) Scottsdale Villa Mirage Resort is in the final stages of construction of
the 64 units which constitute Phase I of the resort. Such 64 units will
accommodate approximately 3,264 Vacation Intervals and are scheduled for
completion in January, 1997. The 40 units in Phase II, which will
accommodate approximately 2,040 Vacation Intervals, and the 64 units in
Phase III, which will accommodate approximately 3,264 Vacation Intervals,
are scheduled for completion in the first quarters of 1998 and 1999,
respectively. All necessary discretionary approvals and permits have been
received by AVCOM for the Scottsdale Villa Mirage Resort. AVCOM currently
is pre-selling Vacation Intervals at the Scottsdale Villa Mirage Resort
prior to receipt of certificates of occupancy.
(t) Construction began in December 1996 on The Ridge on Sedona Golf Resort,
which upon completion will consist of 120 units. The first 12 units, which
will accommodate approximately 612 Vacation Intervals, and clubhouse are
scheduled for completion in April 1997, for which all necessary
discretionary governmental approvals and permits have been received by
AVCOM. Governmental approvals and permits have not been received for the
additional planned 108 units, which will accommodate approximately 5,508
Vacation Intervals.
(u) The Sedona Summit Resort is being developed by an affiliated entity,
Sedona Summit Development, L.P. of which All Seasons, a wholly owned
subsidiary of AVCOM, is the sole general partner. Sales and construction
commenced in February 1996 and the Sedona Summit is in the final stages of
construction of the final 48 units, which will accommodate approximately
2,448 Vacation Intervals, at which point no further expansion is planned.
Construction of the final 48 units is scheduled for completion in the
second quarter of 1997. All necessary discretionary governmental approvals
and permits have been received by AVCOM. AVCOM currently is pre-selling
Vacation Intervals in the final 48 units at the Sedona Summit Resort prior
to receipt of certificates of occupancy. All Vacation Intervals at the
initial 12 units have been sold as of September 30, 1996.
(v) All Seasons owns 40% of Trion Capital Corporation, and has the power to
vote another 40% of Trion, the General Partner of Arrowhead Capital
Partners, L.P., the developer of North Bay Resort at Lake Arrowhead. The
General Partner is entitled to receive 1% of the profits of Arrowhead
Capital Partners, L.P., but under certain circumstances, is entitled to
receive substantially higher profits. All Seasons has an exclusive sales
and marketing contract for sales at North Bay, and is the property manager
of the resort. Although Arrowhead Capital Partners, L.P. owns undeveloped
land and buildings under construction at the North Bay Resort at Lake
Arrowhead, no definite expansion plans have been made.
(w) AVCOM purchased a portfolio of 1,057 defaulted consumer notes at the Tahoe
Seasons Resort in March 1996 which are secured by Vacation Intervals. Of
the notes purchased, 414 notes have been converted to inventory of which
114 Vacation Intervals have been sold and 41 of the notes have been
reaffirmed by the original buyers. AVCOM intends to foreclose on the
remaining notes and acquire clear title to the intervals. These remaining
602 notes are included in the above table as Current Inventory.
(x) Villas on the Lake consists of 37 existing units purchased in February
1996 currently in the final phase of renovation. Land included in the
initial purchase is able to accommodate construction of an additional 48
units, which will accommodate an additional approximately 2,448 Vacation
Intervals. The phase II construction start date has not yet been
determined. All necessary discretionary governmental approvals and permits
(excluding building permits which have not yet been applied for by AVCOM)
have been received by AVCOM.
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Non-Branded Resorts
The Cypress Pointe Resort. Cypress Pointe Resort, Signature'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
and second of which were completed in April and September 1996, respectively.
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 11,424 total Vacation Intervals of which 3,111
remained for sale as of September 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. Signature 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 September 30, 1996, the resort contained 4,998 total Vacation
Intervals of which 690 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 late 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.
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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 641
remained for sale as of September 30, 1996. Vacation Intervals at the Royal
Dunes are currently priced from $8,250 to $13,250 for one-week Vacation
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 Signature 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 1,937
remained for sale as of September 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 Signature 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, 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 Signature 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 8,944 total Vacation Intervals of which 2,584
remained for sale as of September 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 Signature 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
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the resort. Signature currently intends to commence construction of the phase
I addition of 30 units in the fourth quarter of 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 following the completion of phase I. 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.
Signature's inventory at the resort contains 907 available Vacation
Intervals (including 900 Vacation Intervals which Signature is in the process
of acquiring through foreclosure). Vacation Intervals at the San 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, Signature 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 5,202 total Vacation Intervals of which 2,673
remained for sale as of September 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 Signature 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
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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 9,966
remained for sale as of September 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.
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.
Signature plans to complete construction of the first phase of the resort in
February 1997. Upon completion of all planned phases, Signature expects that
the resort will contain units for 10,710 total Vacation Intervals. Vacation
Intervals at the Embassy Vacation Resort Lake Tahoe are 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
Signature and Westin have entered into the Westin Agreement pursuant to
which Signature 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 Signature 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 Signature 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 Signature will form a separate
partnership, limited liability company or similar entity to develop and
operate each Westin Vacation Club resort, of which Westin and Signature shall
be co-general partners or co-managers, as applicable. Each of Signature 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 Signature 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 Signature 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.
Pursuant to the Westin Agreement, Signature has agreed to make available to
Westin one voting seat on the Signature Board and has agreed to use maximum
reasonable efforts to cause the nomination and election of
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Westin's designee. Westin has agreed to make available to Signature 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,
Signature's seat on Westin's board will become a voting seat, entitled to all
reciprocal provisions granted by Signature to Westin. See "RISK FACTORS--
Effective Voting Control by Existing Shareholders; Westin Director
Designation."
In December 1996, Signature and Westin announced plans to acquire and
develop the first Westin Vacation Club resort in St. John, U.S. Virgin
Islands. The "four-star" Westin Vacation Club at St. John will involve a
conversion of the existing St. John Villas, located adjacent to the Great Cruz
Bay Resort Hotel (formerly known as the Hyatt Regency St. John) which will be
operated as the St. John Hotel. Pursuant to a purchase and sale agreement with
subsidiaries of Skopbank, a Finnish corporation, Westin will acquire a 100%
interest in the St. John Hotel and Signature and Westin will form the Westin
Partnership owned 50% by each of Signature and Westin to acquire an interest
in the 96 units at the St. John Villas, representing 4,163 Vacation Intervals
(the number of unsold Vacation Intervals remaining at the St. John Villas),
which will be operated as the Westin Vacation Club resort at St. John. Of the
$10.5 million purchase price for the remaining unsold Vacation Intervals at
St. John Villas, each of Signature and Westin is obligated to contribute
approximately $2.5 million in cash, with the remaining $5.5 million of the
acquisition price to be paid by the Westin Partnership. In addition, the
Westin Partnership will borrow approximately $7.1 million to complete the
conversion of the St. John Villas to a Westin Vacation Club resort.
The acquisition of the St. John resort is anticipated to close during the
first quarter of 1997 and commencement of Vacation Interval sales is
anticipated to begin by the fourth quarter of 1997. Located adjacent to the
beachfront hotel, the St. John Villas consist of 96 studio, one bedroom, two
bedroom and three bedroom units located on 12.3 hillside acres, of which 48
units are completed and ready for immediate occupancy. The additional 48 units
currently require construction of all interior finishes and installation of
furniture, fixtures and equipment prior to occupancy. The renovation, which
repaired damage sustained during Hurricane Marilyn in September 1995, has been
completed.
CUSTOMER FINANCING
A typical Vacation Interval entitles the buyer to a one-week per year stay
at one of Signature's resorts and ranges in price from approximately $6,000 to
$8,000 for a studio residence to approximately $14,000 to $26,000 for a three
bedroom residence. Signature offers financing to the purchasers of Vacation
Intervals in Signature'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. Signature has entered into agreements with lenders for the financing of
customer receivables. These agreements provide an aggregate of up to
approximately $178 million of available financing to Signature bearing
interest at variable rates tied to either the prime rate or LIBOR of which
Signature had, at September 30, 1996, approximately $116 million of additional
borrowing capacity available. Under these arrangements, Signature pledges as
security qualified purchaser promissory notes to these lenders, who typically
lend Signature 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 Signature's
outstanding balance with the respective lenders. These arrangements currently
have varying borrowing periods ranging from 18 to 20 months after the initial
commitment date. Signature does not presently have binding agreements to
extend the terms of such existing financing or for any replacement financing
upon the expiration of such funding commitments, and there can be no assurance
that alternative or additional arrangements can be made on terms that are
satisfactory to Signature. 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 Signature and by
reduced demand which may result if Signature is unable to provide financing to
purchasers of Vacation Intervals. If Signature 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.
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At September 30, 1996, Signature had a portfolio of approximately 12,800
loans to Vacation Interval buyers amounting to approximately $90.8 million
with respect to Signature's consolidated resorts. Signature's consumer loans
had a weighted average maturity of approximately seven years and a weighted
average interest rate of 15% compared to a weighted average cost of funds of
10.25% on Signature's borrowings secured by such customer loans. As of
September 30, 1996, approximately 8.1% of Signature's consumer loans were
considered by Signature to be delinquent (past due by 60 or more days) and
Signature has completed or commenced foreclosure or deed-in-lieu of
foreclosure on approximately 2.5% of its consumer loans. Signature has
historically derived income from its financing activities. Of these delinquent
loans, approximately 90% were originated by Signature and the remaining 10%
were acquired by Signature as delinquent loans. If only Signature's originated
loans were considered, approximately 7.5% of them would be considered
delinquent as of September 30, 1996. However, because Signature's borrowings
bear interest at variable rates and Signature's loans to purchasers of
Vacation Intervals bear interest at fixed rates, Signature bears the risk of
increases in interest rates with respect to the loans it has from its lenders.
Signature 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
Signature from any adverse changes in interest rates. See "RISK FACTORS--Risk
of Hedging Activities."
Signature also bears the risk of purchaser default. Signature'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 Signature's
inventory for resale. Signature closely monitors its loan accounts and
determines whether to foreclose on a case-by-case basis. See "RISK FACTORS--
Risk Associated with Customer Default."
SALES AND MARKETING
As one of the leading developers and operators of timeshare resorts in North
America, Signature believes that it has acquired the skill and expertise in
the development, management and operation of timeshare resorts and in the
marketing of Vacation Intervals. Signature's primary means of selling Vacation
Intervals is through salesforces on-site 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. Signature'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
Signature's existing resorts, both to sell additional intervals at the owner's
home resort, or to sell an interval at another of Signature's resorts.
Signature also sells Vacation Intervals through off-site sales centers.
Signature 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, Signature has the ability to
generate resort tours through Embassy Suites' central reservation system (and
through the five Embassy Suites hotels owned affiliates of Messrs. Kaneko and
Kenninger) 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. Signature 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,
Signature believes it achieves relatively high sales closing percentages among
these customers. Pursuant to the Westin Agreement, Signature intends to use
similar marketing strategies
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at its Westin Vacation Club resorts. Signature'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.
ACQUISITION PROCESS
Signature obtains information with respect to resort acquisition
opportunities through interaction by Signature's management team with resort
operators, real estate brokers, lodging companies or financial institutions
with which Signature has established business relationships. From time to time
Signature is also contacted by lenders and property owners who are aware of
Signature's development, management, operations and sales expertise with
respect to Vacation Interval properties.
Signature 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, Signature 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, Signature
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, Signature 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,
Signature undertakes to compare sales, construction cost and phasing, debt and
equity structure, cash flow, financing and overall project cost to the
acquisition cost. Signature'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, Signature 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 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. Signature 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. Signature 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, Signature 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.
Signature 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, Signature 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.
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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,
Signature rents units with respect to such unsold or unused Vacation Intervals
for use as a hotel. Signature offers these unoccupied units both through
direct consumer sales, travel agents or package vacation wholesalers. In
addition to providing Signature with supplemental revenue, Signature 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 Signature to Vacation Interval owners, Signature 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 (acquired in November 1994) and the Westin
Vacation Club at St. John (plans for acquisition and development announced in
December 1996) were both acquired or proposed to be acquired as a traditional
hotel with the intention of converting each such resort to a timeshare
property. Until such time as a unit at each resort is sold as Vacation
Intervals, Signature continues (or will continue) 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 "INFORMATION
REGARDING SIGNATURE RESORTS, INC.--Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Resort Management. Signature's Existing Resorts are (i) generally managed by
Signature itself pursuant to management agreements with homeowner associations
with respect to each of Signature's non-branded resorts, (ii) managed by
Promus pursuant to management agreements with Signature with respect to
Signature'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. Signature pays Promus a licensing fee of 2% of
Vacation Interval sales at the Embassy Vacation Resorts.
At each of Signature's non-branded resorts, Signature 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 Signature is paid a monthly
management fee equal to 10% to 12% of monthly maintenance fees. The management
agreements are typically for a three year period, renewable annually
automatically unless notice of non-renewal is given by either party. Pursuant
to each management agreement Signature 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 Signature also obtains comprehensive and general public liability
insurance, all-risk property insurance, business interruption insurance and
such other insurance as is customarily obtained for similar properties.
Signature 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 Signature'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 Signature
pursuant to a management agreement and assumes responsibility of such day-to-
day operation of the Embassy Vacation Resorts.
VACATION INTERVAL OWNERSHIP
The purchase of a Vacation Interval typically entitles the buyer to use a
fully-furnished vacation residence, generally for a one-week period each year,
in perpetuity. Typically, the buyer acquires an ownership interest in the
vacation residence, which is often held as tenant in common with other buyers
of interests in the property.
The owners of Vacation Intervals manage the property through a non-profit
homeowners' association, which is governed by a Board consisting of
representatives of the developer and owners of Vacation Intervals at the
resort. The Board hires an agent, delegating many of the rights and
responsibilities of the homeowner association to a management company, as
described above, including grounds landscaping, security, housekeeping and
operating supplies, garbage collection, utilities, insurance, laundry and
repair and maintenance.
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<PAGE>
Each Vacation Interval owner is required to pay the homeowners' association
a share of all costs of maintaining the property. These charges can consist of
an annual maintenance fee (generally $400 to $550 per owner) and special
assessments, assessed on an as-needed basis. If the owner does not pay such
charges, the owner's use rights may be suspended and the homeowners'
association may foreclose on the owner's Vacation Interval.
PARTICIPATION IN VACATION INTERVAL EXCHANGE NETWORKS
Signature believes that its Vacation Intervals are made more attractive by
Signature's participation in Vacation Interval exchange networks operated by
RCI and Interval International 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. Participation in RCI allows Signature'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, plus an exchange fee of $89
and $119 for domestic and international exchanges, respectively. RCI has
assigned high ratings to the Vacation Intervals in Signature'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. In November 1996, HFS
Incorporated consummated the acquisition of RCI for cash and securities. See
"RISK FACTORS--Dependence on Vacation Interval Exchange Networks; Risk of
Inability to Qualify Resorts."
FUTURE ACQUISITIONS
Signature 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 Signature's operations and
prospects. Signature currently is evaluating possible acquisitions of resorts
and development opportunities, including opportunities located in Southern and
Northern California, the Hawaiian islands of Maui and Oahu, the Caribbean,
Mexico, the Western, Southwestern and Southeastern United States (including
Florida, Arizona and Utah) and in various existing and potential Westin
resorts throughout North America. Other than as described herein with respect
to the St. John resort, Signature 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,
Signature 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.
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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 Signature's major brand
name lodging company competitors, Signature believes, based on published
industry data and reports, that Marriott currently sells Vacation Intervals at
10 resorts which it also owns and operates (Kauai, Hawaii; Palm Desert,
California; Park City, Utah; Breckenridge, Colorado; Williamsburg, Virginia;
Hilton Head Island, South Carolina; Orlando, Florida; Ft. Lauderdale, Florida;
Boston, Massachusetts; and Marbella, Spain) and directly competes with
Signature'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 Signature'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 Signature's Orlando area resorts; Hyatt owns and
operates one resort in Key West, Florida but does not directly compete in any
of Signature'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 Signature and may be
able to grow at a more rapid rate as result.
Signature also competes with companies with unbranded resorts such as
Westgate, Vistana and Vacation Break, each of which competes with Signature's
Orlando area resorts, and Fairfield, which competes with Signature's Orlando
area and Branson resorts. Vacation Break announced in November 1996 that it
had agreed to purchase the Berkley Group, another timeshare resort developer,
for stock worth $225.8 million at the time of the announcement. The
transaction will leave Berkley shareholders with control of the combined
company. Vacation Break markets and finances time-sharing interests in Florida
and Bahamas resorts, and the combined company will have resort properties in
Virginia, Florida and the Bahamas. Both are based in Ft. Lauderdale, Florida.
Signature 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
Signature is uniquely positioned for future growth.
GOVERNMENTAL REGULATION
General. Signature'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 regulatory role through the Federal Trade
Commission Act, which prohibits unfair or deceptive acts or competition in
interstate commerce. Other federal legislation to which Signature is or may be
subject includes 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 Signature to file with a designated state
authority for its approval a detailed offering statement describing Signature
and all material aspects of the project and sale of Vacation Intervals. The
laws of California require Signature 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
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that a project has complied with California law, it will issue a public report
for the project. Signature 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 Signature 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 Signature. Most states have
other laws which regulate Signature's activities such as real estate
licensure; sellers of travel licensure; anti-fraud laws; telemarketing laws;
price gift and sweepstakes laws; and labor laws. Signature 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 Signature desires to conduct sales will not be
significant. Any failure to comply with applicable laws or regulations could
have material adverse effects on Signature. See "RISK FACTORS--Regulation of
Sales of Vacation Intervals; Other Laws."
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, Signature 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, Signature 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 Signature's properties may
adversely affect Signature's ability to sell Vacation Intervals at such
properties and the market value of such property. Recently enacted federal
legislation will require Signature to disclose to potential purchasers of
Vacation Intervals at Signature's resorts that were constructed prior to 1978
any known lead-paint hazards and will impose treble damages for failure to so
notify.
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Electric transmission lines are located in the vicinity of Signature'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, Signature
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 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 Signature
to be exposed to damage claims by persons exposed to EMFs.
Signature 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. Signature's assessments of its properties have not revealed any
environmental liability that Signature believes would have a material adverse
effect on Signature's business, assets or results of operations, nor is
Signature aware of any such material environmental liability. Nevertheless, it
is possible that Signature's assessments do not reveal all environmental
liabilities or that there are material environmental liabilities of which
Signature is unaware. Signature does not believe that compliance with
applicable environmental laws or regulations will have a material adverse
effect on Signature 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, Signature'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 are in the process of requiring the responsible parties (presently
excluding Signature) to effect remediation action. Signature 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, Signature'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 Signature, however, there is no assurance that
claims will not be asserted against Signature with respect to this
environmental condition.
Signature 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,
Signature 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.
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Other Regulations. Under various state and federal laws governing housing
and places of public accommodation Signature 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 Signature believes that its facilities are substantially in
compliance with present requirements of such laws, and Signature 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 Signature, such costs could be substantial. Limitations or
restrictions on the completion of certain renovations may limit application of
Signature's growth strategy in certain instances or reduce profit margins on
Signature's operations.
EMPLOYEES
As of September 30, 1996, Signature employed approximately 650 full-time
employees. Signature believes that its employee relations are good. Except for
certain employees located in the St. Maarten, Netherlands Antilles properties,
none of Signature's employees is represented by a labor union. Signature sells
Vacation Intervals at its resorts through 376 independent sales agents. Such
independent sales agents provide services to Signature under contract and are
not employees of Signature. See "RISK FACTORS--Risk of Tax Re-Classification
of Independent Contractors and Resulting Tax Liability; Cost of Compliance
with Applicable Laws."
INSURANCE, LEGAL PROCEEDINGS
Insurance. Signature carries comprehensive liability, fire, hurricane,
storm, earthquake and business interruption insurance with respect to
Signature's resorts, with policy specifications, insured limits and
deductibles customarily carried for similar properties which Signature
believes are adequate. In September 1995 and July 1996, Signature's St.
Maarten resorts were damaged by a hurricane. With respect to such September
1995 damage, Signature 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. Signature has agreed to
provide approximately 2,700 replacement weeks to owners who were unable to use
their Vacation Interval as a result of such September 1995 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 approximately
$100,000, which is less than the applicable insurance deductibles and,
accordingly, the expense to repair the damage will be borne by Signature.
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, Signature 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 Signature.
Legal Proceedings. Signature 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 Signature is likely to have a material adverse effect on Signature or
its business.
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
Signature's predecessors. Signature generates revenues from the sale and
financing of Vacation Intervals in resorts, which typically entitle the buyer
to the use in perpetuity of a fully-furnished vacation resort in perpetuity,
generally for a one-week period each year. Signature generates additional
revenues from room rental operations, rentals of Vacation Intervals in company
inventory and from fees associated with managing the resorts.
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As part of its growth and acquisition strategy, Signature in September 1996
entered into the Merger Agreement to acquire AVCOM, the parent company of All
Seasons, a developer, marketer and operator of timeshare resorts in Arizona,
California and Texas. AVCOM currently operates nine resorts, which include two
under construction, and a tenth resort in which AVCOM holds a partial
interest. Five of AVCOM's resorts are located in Sedona, Arizona, two are
located in South Lake Tahoe, California and one resort is located in each of
Lake Arrowhead, California, Lake Conroe (near Houston), Texas, and Scottsdale,
Arizona. AVCOM currently sells Vacation Intervals at six of its ten resorts,
sales at three resorts have been substantially completed and sales at one
resort have yet to commence. Signature anticipates that the Merger will be
consummated in the first quarter of 1997, assuming all conditions to closing
are timely satisfied. See "THE PROPOSED MERGER."
Signature recognizes sales of Vacation Intervals on an accrual basis after a
binding sales contract has been executed between Signature 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, except that 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. Signature'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."
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Results of Operations
The following discussion of the results of operations relates to entities
comprising Signature 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 Signature.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 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% 86.4% 77.6%
Interest income.................. 7.5% 8.3% 9.5% 8.7% 10.4%
Other income..................... 1.5% 0.8% 9.1% 4.9% 12.0%
------- ------- -------- ------- -------
Total Revenues................. 100.0% 100.0% 100.0% 100% 100%
======= ======= ======== ======= =======
AS A PERCENTAGE OF VACATION
INTERVAL SALES
Vacation Interval cost of sales.. 25.7% 30.8% 26.5% 27.1% 22.8%
Advertising, sales and
marketing....................... 48.6% 46.5% 48.2% 48.4% 49.4%
AS A PERCENTAGE OF INTEREST
INCOME
Loan Portfolio:
Interest expense--treasury..... 36.9% 44.2% 51.8% 54.2% 60.7%
Other expenses................. 11.4% 23.1% 17.2% 16.2% 15.8%
AS A PERCENTAGE OF TOTAL REVENUES
Provision for doubtful accounts.. 2.5% 2.1% 2.5% 2.7% 2.2%
General and administrative....... 13.2% 8.4% 9.0% 7.2% 11.6%
Depreciation and amortization.... 1.6% 1.1% 2.3% 2.2% 2.6%
Interest expense--other.......... 2.1% 2.2% 0.7% 0.6% 2.9%
Equity loss on investment in
joint venture................... -- 0.6% 2.3% 2.4% 0.0%
------- ------- -------- ------- -------
Total costs and operating
expenses...................... 90.6% 90.3% 84.1% 83.4% 80.3%
======= ======= ======== ======= =======
SELECTED OPERATING DATA:
Vacation Intervals sold at
Existing Resorts(1)............. 2,442 4,482 5,675 4,321 5,157
Vacation Intervals sold at
Consolidated Resorts(2)......... 2,442 4,482 5,394 4,209 4,233
Vacation Intervals sold at non-
branded resorts(3).............. 2,442 4,482 3,871 2,961 3,226
Vacation Intervals sold at
Embassy Vacation Resorts(4)..... -- -- 1,804 1,360 1,931
Average sales price per Vacation
Interval at Consolidated
Resorts(5)...................... $9,106 $ 8,985 $10,953 $11,020 $11,684
Average sales price per Vacation
Interval at non-branded
resorts(6)...................... $ 9,106 $ 8,985 $10,120 $10,265 $10,757
Average sales price per Vacation
Interval at Embassy Vacation
Resorts(7)...................... -- -- $ 13,999 $13,222 $17,343
Number of Vacation Intervals in
inventory at period-end(8)...... 1,233 2,401 9,917 18,122 22,317
</TABLE>
- --------
(1) Reflects Vacation Intervals sold at Signature's Existing Resorts: Cypress
Pointe Resort, Plantation at Fall Creek, Royal Dunes Resort, Royal Palm
Beach Club, Flamingo Beach Club, San Luis Bay Resort, Embassy Vacation
Resort Grand Beach, and Embassy Vacation Resort Poipu Point. Embassy
Vacation Resort Lake Tahoe sales during the third quarter are not
presented because there were none eligible for accrual under the
percentage of completion method.
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(2) Reflects Vacation Intervals sold at Signature's Existing Resorts, with the
exception of Vacation Intervals sold at the Embassy Vacation Resort at
Poipu Point in which Signature holds a partial interest and is accounted
for by Signature under the equity method (the "Consolidated Resorts").
(3) Reflects Vacation Intervals sold at Signature's non-branded resorts.
(4) Reflects Vacation Intervals sold at the Embassy Vacation Resort Grand
Beach and 112 Vacation Intervals sold at the non-consolidated Embassy
Vacation Resort Poipu Point for the nine months ended September 30, 1995
and 924 Vacation Intervals sold for the nine months ended September 30,
1996, respectively.
(5) Reflects average price achieved on sales of Vacation Intervals at
Consolidated Resorts.
(6) Reflects average price achieved on sales of Vacation Intervals at non-
branded resorts.
(7) Reflects average price achieved on sales of Vacation Intervals at Embassy
Vacation Resorts.
(8) Reflects Vacation Interval inventory at all Existing Resorts.
Comparison of the nine months ended September 30, 1996 to the nine months
ended September 30, 1995. For the nine months ended September 30, 1996,
Signature achieved total revenue of $63.7 million compared to $53.7 million
for the nine months ended September 30, 1995, an increase of $10.0 million or
19%. Total revenue grew primarily due to a 7% increase in Vacation Interval
sales to $49.5 million from $46.4 million, a 40% increase in interest income
to $6.6 million from $4.7 million, and a 192% increase in resort operations
and other income to $7.6 million from $2.6 million during the nine months
ended September 30, 1996 as compared to the comparable period in 1995,
respectively. A complete nine months of Vacation Interval sales at Royal Palm
and Flamingo Beach Club, and the commencement of sales at the San Luis Bay
Resort in June 1996 drove the 7% increase in Vacation Interval sales volume at
the Consolidated Resorts.
For the nine months ended September 30, 1996 Vacation Interval sales at the
Existing Resorts grew to $82.3 million from $55.7 million for the comparable
period in 1995, an increase of 48%. Vacation Interval sales at the
Consolidated Resorts increased 7% to $49.5 million and from $46.4 million for
the comparable period in 1995. The average price of Vacation Intervals sold at
the Consolidated Resorts, grew during the period to $11,684 from $11,020, an
increase of 6%. The number of Vacation Intervals sold at the Consolidated
Resorts increased during the period approximately 1% to 4,233 from 4,209.
Management attributes the increase in Vacation Intervals sold to commencement
of sales of Vacation Intervals at the San Luis Bay Resort and increasingly
more effective marketing programs.
Vacation Interval sales at non-branded resorts increased 9% to 3,226 for the
nine months ended September 30, 1996 from 2,961 for 1995. Average sales price
per Vacation Interval at non-branded resorts increased by 5% to $10,757 in
1996 from $10,265 in 1995. These increases are attributed to the commencement
of sales of Vacation Intervals at the San Luis Bay Resort in June 1996 and
increasingly more effective marketing programs.
Vacation Interval sales at Embassy Vacation Resorts, increased 42% to 1,931
in the first nine months of 1996 from 1,360 in the first nine months of 1995
while the average price per Vacation Interval increased 31% to $17,343 in the
first nine months of 1996 from $13,222 in the first nine months of 1995. These
increases primarily resulted from a full nine months of sales at the Embassy
Vacation Resort Poipu Point, as the resort was not in operation for the entire
nine months ended September 30, 1995.
Interest income increased by 40% to $6.6 million in the first nine months of
1996 from $4.7 million in the first nine months of 1995 due to a $19.7 million
increase in mortgages receivables, which grew to $88.0 million at September
30, 1996 from $68.3 million at December 31, 1995, an increase of 29% coupled
with increased interest rates and a full year of interest income on all
properties.
Other income increased by $5.0 million to $7.6 million during the nine
months ended September 30, 1996 from $2.6 million during the nine months ended
September 30, 1995. This increase was the result of rental
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income at the resorts increasing to $1.2 million from $0.7 million in 1995,
and the acquisition of a mortgage receivable portfolio in July, 1995 on which
Signature earned $3.1 million during the 1996 nine months and $1.3 million
during the 1995 nine months.
Operating costs increased to $51.2 million for the nine months ended
September 30, 1996 from $44.8 million for the nine months ended September 30,
1995, an increase of 14%. However, as a percentage of revenues, operating
costs decreased to 80% during the nine months ended September 30, 1996 from
83% during the nine months ended September 30, 1995. Relative decreases in
Vacation Interval cost of sales and other expenses as a percentage of revenues
were offset by relative increases in advertising, sales, marketing, and
interest expense-treasury, depreciation and amortization and general and
administrative expenses. Signature was able to purchase and construct Vacation
Intervals at a discount to historical development costs, reducing the unit
cost on average for each Vacation Interval sold. This, coupled with an
increase in average sales price per unit, has resulted in a proportionate
decrease in costs of Vacation Intervals sold to 23% of Vacation Interval sales
during the nine months ended September 30, 1996 from 27% of Vacation Interval
sales during the nine months ended September 30, 1995.
Loan portfolio expenses consisting of interest expense, other expenses and
provision for doubtful accounts increased to $6.4 million during the nine
months ended September 30, 1996 from $4.8 million during the nine months ended
September 30, 1995, an increase of 33%. This increase reflects the 57%
increase in average mortgages payable due to increased factoring of mortgages
receivable related to Vacation Interval sales growth, an increased factoring
rate, and acquisitions of resorts made by Signature during the nine months
ended September 30, 1996.
General and administrative expenses increased to $7.4 million during the
nine months ended September 30, 1996 from $3.9 million during the nine months
ended September 30, 1995, an increase of 90%. The increase in general and
administrative expenses was the result of (i) the addition of a number of
senior officers and key executives in connection with building Signature's
management and organizational infrastructure necessary to efficiently manage
Signature's future growth, (ii) Signature's expenses and reporting obligations
as a public company, (iii) increased overhead due to the acquisition of
additional resorts, and (iv) added salary, travel, and office expenses
attributable to the current and planned growth in the size of Signature.
Relative to revenues, general and administrative expenses were higher during
the nine months ended September 30, 1996 at 12% of revenues versus 7% of
revenues during the nine months ended September 30, 1995.
Depreciation and amortization increased to $1.7 million during the nine
months ended September 30, 1996 from $1.2 million during the nine months ended
September 30, 1995, reflecting increased depreciation and amortization
resulting from an increase in capital expenditures and intangible assets.
Equity loss on joint venture decreased to $94,695 during the nine months
ended September 30, 1996 from $1.3 million during the nine months ended
September 30, 1995. The decrease in the equity loss is attributable to
increased Vacation Interval sales and higher hotel occupancy at Embassy
Vacation Poipu Point than during the comparable period in 1995.
Pre-tax net income increased 45% to $10.6 million, or 17% of total revenue,
during the nine months ended September 30, 1996 from $7.3 million, or 14% of
total revenues, during the nine months ended September 30, 1995.
Income taxes increased 61%, or $328,882, from $210,322 for the nine months
ended September 30, 1995 to $539,204 for the nine months ended September 30,
1996. The increase in income taxes is due to the change in Signature's status
to a Subchapter C corporation for approximately one month in the third
quarter. Signature completed the Consolidation Transactions in August 1996.
Previously, Signature's predecessor entities only incurred foreign taxes on
their properties located in the St. Maarten, Netherlands Antilles.
Net income increased 42% to $10.1 million for the nine months ended
September 30, 1996 from $7.1 million for the nine months ended September 30,
1995.
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Comparison of the Year Ended December 31, 1995 to Year Ended December 31,
1994.
For the year ended December 31, 1995 Signature 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 at the
consolidated resorts 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 mortgage receivable portfolio of approximately $10.2 million
acquired with the two St. Maarten resorts on which Signature earned $2.2
million. In addition, Signature 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.
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. Signature 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 Vacation Interval sales
growth and acquisitions of resorts made by Signature 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 Signature.
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 $1.8
million increase in intangible assets.
Signature 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.
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Income taxes increased to $641,545 for the year ended December 31, 1995 from
zero for the year ended December 31, 1994 due to the acquisition of Royal Palm
Beach Club and Flamingo Beach Club in St. Maarten, Netherlands Antilles. In
July and August, the Company acquired Royal Palm and Flamingo, respectively,
incurring foreign taxes related to income earned for the remainder of fiscal
year 1995.
Net income increased $6.6 million to $10.9 for the twelve months ended
December 31, 1995 from $4.3 million for the twelve months ended December 31,
1994.
Comparison of the Year Ended December 31, 1994 to Year Ended December 31,
1993.
For the year ended December 31, 1994 Signature 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 Vacation 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% 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 $0.3 million in 1994 reflects Signature'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 Signature
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.
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Merger with AVCOM International, Inc.
On September 22, 1996, Signature signed the Merger Agreement to acquire
AVCOM for shares of the Signature Stock plus the assumption of net debt. AVCOM
is the parent company of All Seasons Resorts, Inc., a developer, marketer and
operator of timeshare resorts in Arizona, California, and Texas.
Signature believes that AVCOM maintains a strong presence in the Sedona,
Arizona market which should be enhanced by the development of its fifth
resort, The Ridge on Sedona Golf Resort. AVCOM is currently completing
development and selling Vacation Intervals at its fourth Sedona resort, Sedona
Summit Resort, and will begin sales at The Ridge in the Spring of 1997. In
addition to development in Sedona, AVCOM is developing and pre-selling
Vacation Intervals at the Scottsdale Villa Mirage Resort in Scottsdale,
Arizona. Signature believes the acquisition of AVCOM will give Signature a
stronger presence in the Southwest, complementing its existing presence in the
Southeastern United States and California. Vacation Intervals at All Seasons'
resorts generally sell for $9,000 to $18,000 and will be targeted to the same
market segment as Signature's non-branded resorts.
Over the year following consummation of the Merger, Signature anticipates
required capital expenditures for expansion and development of certain AVCOM
Resorts (Sedona Summit Resort, The Ridge on Sedona Golf Resort, Scottsdale
Villa Mirage Resort and Villas on the Lake) to be approximately $23.5 million.
Signature may also be required to expend additional amounts to fund certain
AVCOM guarantees relating to the North Bay Resort at Lake Arrowhead. See
"INFORMATION REGARDING AVCOM INTERNATIONAL, INC.--Description of AVCOM's
Resorts--Partially Owned Resorts." Signature plans to fund the foregoing
expenditures primarily with the net proceeds from the proposed Offerings,
available capacity on credit facilities and cash generated from operations.
Signature's management believes that the Merger represents a strategic
combination of two companies in the timeshare resort industry, offering
enhanced opportunities to better service this market. The Merger is viewed by
both management teams as providing both short and long-term potential benefits
to shareholders resulting from economies of scale and other operating
synergies made possible by the Merger. Signature's management believes the
Merger to be an appropriate combination due to several factors, including: (i)
AVCOM's strength in the Southwestern United States combines well with
Signature's presence in Florida, Missouri, California, South Carolina, Hawaii
and St. Maarten, Netherlands Antilles, and (ii) the management strengths of
the two companies are generally complementary, allowing the combined company
to benefit from an enhanced overall level of management experience and
operating leverage.
Signature believes that the Merger may allow Signature to enhance its sales
potential by adding AVCOM's existing six resorts in sales (plus one additional
resort under construction to begin in sales in 1997) to Signature's existing
portfolio of nine resorts in sales and the recently announced Westin Vacation
Club resort in St. John (for a total of 17 resorts in sales by the end of
1997) from which the combined company will be able to sell Vacation Intervals.
In particular, the management of Signature believes that the Merger may allow
Signature to have greater access to customers by way of AVCOM's strong sales
and marketing organization in the Southwestern United States, in addition to
benefiting from AVCOM's current owner base of approximately 15,000 Vacation
Interval owners. Signature believes that the combined company will have access
to greater financial resources and lower borrowing costs. Signature believes
that this lower cost of borrowing may contribute to greater net interest
income and lower development costs for Signature going forward. The Merger is
expected to provide Signature certain administrative benefits and
opportunities for cost reductions, including reductions resulting from
employee redundancies. AVCOM has certain development, sales and marketing
expertise that may enable Signature to function more efficiently. The
management of Signature believes that beyond cost savings and efficiencies
there is also a long term potential benefit to shareholders from leveraging
the operating experiences of both management teams to improve operations of
resorts and, thereby, increasing the profitability of the combined company.
There is no assurance that such potential will be realized.
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Transaction costs relating to the negotiation of, preparation for, and
consummation of the Merger and the anticipated combination of certain
operations of Signature and AVCOM will result in a one-time charge to
Signature's earnings of approximately $1,700,000 to $1,900,000 in the quarter
in which the Merger is consummated (expected to be the first quarter of 1997).
This charge is expected to include the fees and expenses payable to financial
advisors, legal fees and other transaction expenses related to the Merger. In
addition, there can be no assurance that Signature will not incur additional
charges in subsequent quarters to reflect costs associated with the Merger and
the integration of Signature's and AVCOM's operations. Additionally,
transaction costs relating to the consummation of the Merger and the
anticipated combination of certain operations of Signature and AVCOM, along
with changes in AVCOM's accounting policies to conform them to Signature and
the write-down and write-off of certain AVCOM assets, will result in a one-
time charge to AVCOM's earnings of approximately $6 to $8 million. This charge
is expected to include the estimated costs associated with work force
reductions, contractual payment obligations and other restructuring
activities. While the exact timing of this charge cannot be determined at this
time, management anticipates that this charge to earnings will be recorded
primarily in the fourth quarter of 1996.
For the nine months ended September 30, 1996 AVCOM's total revenues grew 26%
from $26.5 million for the period in 1995 to $32.7 million for the period in
1996 while net income decreased from $1.3 million in 1995 to a loss of ($2.0)
million in 1996. The loss for the period in 1996 was due to either the growth
in AVCOM's business or the impact of the following events: (i) general and
administrative expenses increased $3.0 million during the period in 1996, from
12.3% of revenues to 19.1% of revenues reflecting increased corporate
infrastructure necessary to support five resorts in 1996 versus two resorts in
1995, and due to higher sales subject to the percentage of completion method
of revenue recognition which resulted in $7.0 million of Vacation Interval
sales deferred in 1996; (ii) during the period AVCOM commenced sales at three
resorts, two of which were in new geographic locations which caused
significant start-up costs and higher sales and marketing costs as a
percentage of sales of timeshare interests; (iii) both start-up costs
associated with the initiation of AVCOM's contract marketing and selling
business and accounting timing differences between when contract marketing and
selling expenses are incurred and when contract commission revenue is
recognized resulted in contract marketing and selling expenses exceeding
contract commission revenues by $477,000; (iv) AVCOM incurred a one-time
charge of $620,000 associated with the cancellation of a third party services
contract in conjunction with the anticipation of conversion to an integrated
computer reservation system; and (v) commensurate with the announcement of the
merger with Signature, AVCOM wrote off deposits and costs in connection with a
terminated purchase agreement for a property in South Lake Tahoe for which the
recovery of deposits and costs totaling $839,000 incurred by AVCOM is
conditioned upon finding a replacement purchaser.
Liquidity and Capital Resources
Signature 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, Signature generates cash for operations from
cash sales of vacation Intervals, from the receipt of down payments from
customers acquiring Vacation Intervals, and from the hypothecation of mortgage
receivables from purchasers equal to 85% to 90% of the amount borrowed by such
purchasers. Signature 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 years ended December 31, 1995, 1994, and 1993 cash (used in)
provided by operating activities was $2.3 million, ($11.0) million and $3.3
million, respectively. 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.
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During the nine months ended September 30, 1996 and 1995, cash (used in)
provided by operating activities was ($21.9) million, and $4.3 million,
respectively. Cash generated from operating activities was lower for the nine
months ended September 30, 1996 when compared to the comparable period in 1995
primarily due to a $28.3 million increase in expenditures on acquisition and
development activities associated with the acquisition and development of new
resorts and the expansion of existing resorts during the period.
Net cash used in investing activities for the years ended December 31, 1995,
1994 and 1993 was, ($36.9) million, ($24.9) million, and ($10.8) million,
respectively. 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 in 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 investment in Embassy Vacation Resort Poipu Point
and increases in the mortgage receivables portfolio which resulted from higher
Vacation Interval sales in 1994.
Net cash used in investing activities for the nine months ended September
30, 1996, and 1995 was ($27.3) million and ($31.4) million, respectively. For
the nine months ended September 30, 1996, the change in net mortgage
receivables was $4.3 million lower than during the comparable period in 1995
due to more effective collection efforts in 1996. As of September 30, 1996,
approximately 8.1% of Signature's consumer loans were considered by Signature
to be delinquent (past due by 60 or more days) and Signature has completed or
commenced foreclosure or deed-in-lieu of foreclosure on approximately 2.5% of
its consumer loans. Of these delinquent loans, approximately 90% were
originated by Signature and the remaining 10% were acquired by Signature as
delinquent loans. If only Signature's originated loans were considered,
approximately 7.5% of them would be considered delinquent as of September 30,
1996.
For the years ended December 31, 1995, 1994 and 1993, net cash provided by
financing activities was $37.1 million, $36.1 million and $15.3 million,
respectively. These net cash figures were affected by Signature'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.
For the nine months ended September 30, 1996 and 1995, net cash provided by
financing activities was $54.7 million and $30.1 million, respectively. During
the quarter ended September 30, 1996, Signature issued 6,037,500 shares of
common stock in the Initial Public Offering in August 1996 resulting in
approximately $74.0 million of net proceeds. The proceeds of the Initial
Public Offering were used by Signature to repay debt, to fund expansion, and
for other corporate purposes. In addition, period to period 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.
Signature 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 and
partner loans generally funded by third party lenders and capital
contributions. As of September 30, 1996, Signature had $18.9 million
outstanding under its notes payable secured by Vacation Interval inventory
(land), and $62.2 million outstanding under its notes payable secured by
mortgage receivables. In order to finance anticipated development costs at
Existing Resorts, Signature intends to rely on cash from operations and
borrowing capacity available on existing credit facilities.
During 1997, Signature anticipates spending approximately $33.0 million for
expansion and development activities at the Existing Resorts (excluding Royal
Palm Beach Club and Embassy Vacation Resort Poipu Point) and approximately
$23.5 million at certain of the AVCOM Resorts (Sedona Summit Resort, The Ridge
on
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Sedona Golf Resort, Scottsdale Villa Mirage Resort and Villas on the Lake).
The Company may also be required to expend additional amounts to fund certain
AVCOM guarantees relating to the North Bay Resort at Lake Arrowhead. Signature
plans to fund these expenditures primarily with the net proceeds of the
Offerings, available capacity on credit facilities and cash generated from
operations. In addition, during 1997, Signature anticipates spending
approximately $8.8 million to finance the acquisition, development and
conversion costs related to the St. John acquisition and approximately $39.8
million to finance the acquisition and development of additional resorts and
timeshare-related assets. These expenditures are expected to be funded with
available borrowing capacity under lines of credit, cash generated from
operations, and, if available, the net proceeds of the Proposed Offerings.
In addition, Signature anticipates spending approximately $212.0 million to
complete its expansion plans at the Existing Resorts during the periods
following 1997. Signature also plans to spend $34.0 million to complete
expansion plans at the AVCOM Resorts during the periods following 1997.
Signature anticipates financing the expansion plans of Signature's and AVCOM's
resorts through cash acquired from operations, future credit facilities and/or
future issuance of securities. While Signature has not entered into
commitments with respect to any new credit facilities or planned any
additional issuances of securities, it is not currently obligated to continue
with the planned expansion of the Existing Resorts and the AVCOM Resorts.
There can be no assurance that Signature will be able to obtain the financing
necessary to continue the expansion plans.
Signature intends to pursue a growth-oriented strategy. From time to time,
Signature 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 Signature); loan portfolios of Vacation
Interval mortgages; portfolios which include properties or assets which may be
integrated into Signature's operations; and operating companies providing or
possessing management, sales, marketing, development, administration and/or
other expertise with respect to Signature's operations in the timeshare
industry.
Signature is currently evaluating the acquisition and/or development of a
number of resort properties and of completed Vacation Intervals as inventory,
but, other than as disclosed in this Proxy Statement/Prospectus, currently has
no material contracts or capital commitments relating to any such potential or
inventory acquisitions. In addition, Signature is currently evaluating several
timeshare assets and management and operation company acquisitions to
integrate into or to expand the operations of Signature, but, other than as
described in this Proxy Statement/Prospectus, currently has no material
contracts or capital commitments relating to any such potential timeshare
asset or management and operating company acquisitions.
Signature has entered into the Westin Agreement whereby Signature has the
exclusive right through May 2001 to jointly acquire, develop and market with
Westin "four star" and "five star" timeshare resorts located in North America,
Mexico and the Caribbean. See "INFORMATION REGARDING SIGNATURE RESORTS, INC.--
Business." In connection with its recently announced plans to acquire and
develop the first Westin Vacation Club resort at St. John, Signature will be
obligated to contribute $2.5 million in cash. The Westin Partnership will
borrow approximately $5.5 million of the remaining purchase price and
approximately $7.1 million to complete the conversion of the St. John Villas
to a Westin Club resort.
Signature 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 binding material contracts or capital commitments relating to any potential
Embassy Vacation Resorts. Signature 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, Signature is currently evaluating several
asset and operating company acquisitions to integrate into or to expand the
operations of Signature, but currently has no contracts or capital commitments
relating to any such potential asset or operating company acquisitions.
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In the future, Signature may negotiate additional credit facilities, or
issue, in addition to the convertible notes contemplated in the Proposed
Offerings, other corporate debt or equity securities. Any debt incurred or
issued by Signature may be secured or unsecured, fixed or variable rate
interest and may be subject to such terms as management deems prudent.
Signature believes that, with respect to its current operations, the net
proceeds to Signature from its August 1996 initial public offering together
with cash generated from operations and future borrowings, will be sufficient
to meet Signature'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, Signature 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. Signature believes that Signature's properties are adequately
covered by insurance. See "INFORMATION REGARDING SIGNATURE RESORTS, INC.--
Business."
PRINCIPAL SHAREHOLDERS
The information in the following table sets forth information regarding the
beneficial ownership of the common stock of Signature with respect to (i) each
person known by Signature to beneficially owns 5% or more of the outstanding
shares of Signature common stock, (ii) each person who is a director or Named
Executive Officer of Signature and (iii) all directors, proposed directors and
executive officers of Signature as a group. Applicable percentage ownership is
based on 17,392,205 shares of Signature Stock outstanding as of the date of
this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
-----------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(A) SHARES PERCENTAGE
--------------------------------------- --------- ----------
<S> <C> <C>
Osamu Kaneko(b)..................................... 2,667,903 15.3%
Andrew J. Gessow(c)................................. 3,056,704 17.6%
Steven C. Kenninger(b)(d)........................... 1,371,779 7.9%
James E. Noyes...................................... 118,750(j) *
Michael A. Depatie.................................. 82,400(k) *
Juergen Bartels..................................... -- --
Sanford R. Climan................................... 3,250 *
Joshua S. Friedman(f)(h)............................ -- --
W. Leo Kiely, III................................... -- --
Putnam Investments, Inc. (g)........................ 1,765,970 10.2%
One Post Office Square
Boston, Massachusetts 02109
Canpartners Incorporated(e)(f)...................... 1,474,511 8.5%
Beth Friedman(f)(h)............................... 286,688 1.6%
Loretta Evensen(f)(h)............................. 286,688 1.6%
Mitchell R. Julis(f)(h)........................... 286,688 1.6%
--------- ----
Total (as a group).............................. 2,334,575 13.4%
All directors and executive officers as a group
(13 persons)(i).................................... 7,476,134 43.0%
</TABLE>
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- --------
* Less than 1%
(a) Except as otherwise indicated, each beneficial owner has the sole power to
vote, as applicable, and to dispose of all shares of Signature Stock owned
by such beneficial owner.
(b) The address of such person is 5933 West Century Blvd., Suite 210, Los
Angeles, California 90045.
(c) The address of such person is 2934 Woodside Road, Woodside, California
94062.
(d) 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.
(e) The address of such entity is 9665 Wilshire Boulevard, Suite 200, Beverly
Hills, California 90210.
(f) Canpartners Incorporated ("Canyon") is the beneficial owner of 123,269
shares and is the sole general partner of CPI Securities L.P. (which holds
927,274 shares), Canpartners Investments II, L.P. (which holds 380,003
shares) and Canpartners Investments V, L.P. (which holds 43,965 shares).
Mr. Friedman (a director of Signature) 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 and the indicated limited partnerships. Such persons disclaim
beneficial ownership of such shares. This amount does not include 286,688
shares owned by Mr. Friedman's wife, 286,688 shares owned by Mr. Julis and
286,688 shares owned by Mr. Evensen's wife, the beneficial ownership of
which is disclaimed.
(g) Information based solely on a Schedule 13G filed with the Securities and
Exchange Commission by, among others, Putnam Investments, Inc. ("PI"). Of
the shares beneficially owned by PI, Putnam Investment Management, Inc.
("PIM") beneficially owns 1,260,370 (or 7.25%) of the outstanding shares
of Signature Stock and The Putnam Advisory Company, Inc. ("PAC")
beneficially owns 505,600 (or 2.9%) of the outstanding shares of Signature
Stock. The shares of Signature Stock reported as being beneficially owned
by PI consist of securities beneficially owned by subsidiaries of PI which
are registered investment advisers, which in turn include securities
beneficially owned by clients of such investment advisers, which clients
may include investment companies registered under the Investment Company
Act and/or employee benefit plans, pension funds, endowment funds or other
institutional clients. PI, which is a wholly-owned subsidiary of Marsch &
McLennan Companies, Inc. ("M&MC"), wholly owns two registered investment
advisers: PIM, which is the investment adviser to the Putnam family of
mutual funds and PAC, which is the investment adviser to Putnam's
institutional clients. Both subsidiaries have dispository power over the
shares as investment managers, but each of the mutual fund's trustees have
voting power over the shares held by each fund, and PAC has shared voting
power over the shares held by the institutional clients. M&MC and PI
disclaim beneficial ownership of the shares of Signature Stock reported as
being beneficially owned by PI.
(h) Beth Friedman is the wife of Joshua S. Friedman, a director of Signature.
Loretta Evensen is the wife of R. Christian B. Evensen, a shareholder and
director of Canyon. Mitchell R. Julis is a shareholder and director of
Canyon.
(i) Includes 353,750 shares which may be acquired upon exercise of presently
exercisable options or options which will become exercisable within 60
days of the date of this Proxy Statement/Prospectus.
(j) Represents presently exercisable options to acquire shares of Signature
Stock.
(k) Includes (i) presently exercisable options to acquire 75,000 shares of
Signature Stock, (ii) 6,400 shares of Signature Stock held through trusts
and retirement plans and (iii) 1,000 shares of Signature Stock held by a
corporation in which Mr. Depatie is a director and a 7.2% shareholder.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of Signature consists of (i) 50,000,000 shares
of common stock, par value $0.01 per share, 17,392,205 shares of which are
outstanding as of the date of this Proxy Statement/Prospectus, and
(ii) 25,000,000 shares of Preferred Stock, par value $0.01 per share, none of
which are currently outstanding. The following summary description of the
capital stock of Signature is qualified in its entirety by reference to the
Charter and Bylaws of Signature, copies of which are filed as exhibits to the
Registration Statement of which this Prospectus/Proxy Statement is a part. See
"Additional Information."
Common Stock
The holders of Signature common stock are entitled to one vote per share on
all matters voted on by shareholders, including elections of directors, and,
except as otherwise required by law or provided in any resolution adopted by
the Signature Board 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 Signature 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 Signature common stock are entitled to such
distributions as may be declared from time to time by the Signature Board from
funds available therefor, and upon liquidation are entitled to receive pro
rata all assets of Signature available for distribution to such holders. All
shares of common stock issued in the recent public offering, and, in the
Merger, 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 Signature Board. Prior to issuance of shares of each class,
the Board of Directors is required by the MGCL and Signature'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 Signature Board 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 Signature'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 Merger.
Transfer Agent and Registrar
Signature has appointed ChaseMellon Shareholder Services, L.L.C. (successor
in interest to Wells Fargo Bank).
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Dividend Policy
Signature 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. Signature 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
Signature and will depend upon, among other things, Signature's earnings,
financial condition, capital requirements, level of indebtedness, contractual
restrictions in respect of the payment of dividends and other factors that
Signature's Board of Directors deems relevant.
SHARES ELIGIBLE FOR FUTURE SALE
As of December 20, 1996, Signature has outstanding 17,392,205 shares of
common stock. Of these shares, 6,037,500 shares were sold in the Initial
Public Offering and are freely tradable in the public market without
restriction or further registration under the Securities Act.
The remaining 11,354,705 outstanding shares of Signature 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 Signature or the date of
acquisition of shares of common stock from any "affiliate" of Signature, 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 Signature. If three years have elapsed since the date of acquisition of
shares of common stock from Signature or from any "affiliate" of Signature,
and the acquiror or subsequent holder thereof is deemed not to have been an
affiliate of Signature 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.
Pursuant to a Registration Rights Agreement (the "REGISTRATION RIGHTS
AGREEMENT") Signature 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 Signature common stock (the "REGISTRABLE SHARES") issuable to
holders of restricted shares. Signature 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. Signature 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.
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 Signature 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 Initial
Public Offering, the shares of Registrable Shares held by such holders,
subject to certain conditions and restrictions. The existence of the
Registration Rights Agreement may adversely affect the terms upon which
Signature can obtain additional equity financing in the future.
Signature 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
Signature.
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Each shareholder who received its shares as a result of the Consolidation
Transactions has agreed, with certain exceptions, not to offer, sell, contract
to sell or otherwise dispose of any Signature Stock, for a period of 180 days
after the closing of the initial public 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. In November 1996, Mr. Kenninger pledged 300,000 shares of Signature
to secure a margin loan obtained from Swiss Bank Corporation, New York Branch,
permitting advances not to exceed the aggregate amount of $2 million at any
time during a two year term. Messrs. Kaneko and Gessow currently are
negotiating with an affiliate of Merrill Lynch to each obtain a margin loan in
the amount of $4 million, each to be secured by a pledge of shares of
Signature common stock owned by them.
The shares of Signature Stock issued in connection with the Merger will be
freely transferable under the Securities Act and the Exchange Act, except for
shares issued to any shareholder who may be deemed to be an "affiliate"
(generally including, without limitation, directors, certain executive
officers, and beneficial owners of 10% or more of any class of capital stock)
of AVCOM for purposes of Rule 145 under the Securities Act as of the date of
the Special Meeting or for purposes of applicable interpretations regarding
pooling of interest accounting treatment. Such affiliates may not sell their
shares of Signature Stock acquired in connection with the Merger except
pursuant to an effective Registration Statement under the Securities Act or
other applicable exemption from the registration requirements of the
Securities Act and, consistent with the Merger qualifying for pooling-of-
interests accounting treatment, until such time as financial results covering
at least thirty days of combined operations of the parties after the
consummation of the Merger have been published. Signature will place
restrictive legends on certificates representing Signature Stock issued to all
persons who are deemed to be "affiliates" of AVCOM under Rule 145. In
addition, AVCOM has agreed to use its reasonable efforts to cause each person
or entity that is an "affiliate" to enter into a written agreement in
substantially the form attached to the Merger Agreement relating to such
restrictions on sale or other transfer. Shares of Signature Stock deposited
under the Escrow Agreement may not be sold or transferred while they remain
subject to the Escrow Agreement. This Proxy Statement/Prospectus does not
cover resales of Signature Stock received by any person who may be deemed to
be an affiliate of AVCOM.
Prior to the Initial Public Offering, there had been no public market for
Signature Stock and the effect, if any, that future market sales of Signature
common stock or the availability of such Signature Stock for sale will have on
the market price of the Signature common stock prevailing from time to time
cannot be predicted. Nevertheless, sales of substantial amounts of Signature
common stock in the public market (or the perception that such sales could
occur) might adversely affect market prices for the Signature Stock.
Sales of substantial amounts of Signature Stock in the public market after
the consummation of the Merger could adversely affect prevailing market
prices. The shares of Signature Stock to be issued in the Merger will be
eligible for immediate sale in the public market, subject to certain
limitations under the Securities Act, applicable to affiliates of AVCOM.
Additionally, there are (i) outstanding stock options to purchase 1,750,000
shares of Signature Stock which have been granted to executive officers, other
key employees, independent directors and consultants of Signature under the
1996 Equity Participation Plan, and (ii) up to 500,000 shares of Signature
Stock that may be sold pursuant to Signature's Employee Stock Purchase Plan.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
On September 12, 1996, Ernst & Young LLP advised Signature that it was
resigning as independent auditors for Signature. Ernst & Young LLP had been
retained since Signature's inception and there have been no disagreements
between Signature and Ernst & Young LLP with respect to accounting principles
or practices, financial statement disclosure, auditing scope or procedures,
which if not resolved to Ernst & Young LLP's satisfaction, would have resulted
in a reference to the subject matters of the disagreement in its audit report.
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Since Signature's inception, Ernst & Young LLP's report on Signature's
financial statements did not contain an adverse opinion or a disclaimer of
opinion, nor were the opinions qualified or modified as to uncertainty, audit
scope, or accounting principles, nor were there any events of the type
requiring disclosure under Item 304(a)(l)(v) of Regulation S-K under the
Securities Act.
On September 17, 1996, Signature retained the accounting firm of Arthur
Andersen LLP as auditors for the fiscal year ending December 31, 1996
following Board of Directors approval, which was obtained on September 16,
1996. The decision to retain Arthur Andersen LLP was based upon the prior
relationship with a predecessor of Signature as auditors for the fiscal year
ending December 31, 1994 and Arthur Andersen LLP's experience in Signature's
industry, and was not motivated by any disagreements between Signature and
Ernst & Young LLP concerning any accounting principles and/or policy matters.
From Signature's inception to September 17, 1996, Signature did not consult
with Arthur Andersen LLP with respect to the matters described in Item
304(a)(2) of Regulation S-K.
TRADEMARKS AND SIGNATURE NAME
While Signature owns and controls a number of trade secrets, confidential
information, trademarks, trade names, copyrights and other intellectual
property rights which, in the aggregate, are of material importance to its
business, it is believed that Signature's business, as a whole, is not
materially dependent upon any one intellectual property or related group of
such properties. Signature is licensed to use certain technology and other
intellectual property rights owned and controlled by others, and, similarly,
other companies are licensed to use certain technology and other intellectual
property rights owned and controlled by Signature.
Signature is considering a proposal to change its corporate name following
closing of the Merger.
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INFORMATION REGARDING AVCOM INTERNATIONAL, INC.
BUSINESS OVERVIEW
AVCOM develops and markets interests in timeshare resorts, finances and
services timeshare sales and receivables at its timeshare resorts, provides
homeowners' association and property management services and produces
marketing data for itself and third parties. AVCOM currently owns properties
in Scottsdale and Sedona, Arizona, South Lake Tahoe, California, Lake
Arrowhead, California and Lake Conroe, Texas (near Houston), held for the
purpose of developing, marketing, selling, financing and managing timeshare
interests. AVCOM's businesses are conducted through its wholly-owned
subsidiary, All Seasons Resorts, Inc. ("ASR"). ASR has several wholly-owned
subsidiaries of which RPM Management, Inc. ("RPM"), All Seasons Realty, Inc.
("ALL SEASONS REALTY"), All Seasons Construction, Inc. ("AS CONSTRUCTION") and
The Ridge Spa and Racquet Club, Inc. ("RSR CLUB") have employees or
significant activities. ASR conducts the executive, management, accounting,
consumer financing and development activities. RPM directs the resort
homeowners associations and resort management, housekeeping, maintenance,
guest services and other resort operations. All Seasons Realty engages
licensed real estate agents as independent contractors who sell timeshare
interests to consumers and conduct the marketing, sales and administrative
functions in Sedona and South Lake Tahoe. In addition to timeshare interests
at resorts developed by AVCOM, All Seasons Realty markets timeshare interests
in other resort properties not developed by AVCOM from the marketing centers
located at its developed resorts. AS Construction performs development and
construction activities for certain of AVCOM's projects. RSR Club operates The
Ridge Spa and Racquet Club at Sedona, Arizona, which serves as an amenity to
AVCOM's developments in Sedona and is also open to the public.
ADMINISTRATIVE AND OPERATING FACILITIES
AVCOM's administrative offices are located in Sedona, Arizona. The main
facility is owned by AVCOM, has approximately 9,000 square feet of space and
is encumbered by an approximate $1,043,000 debt as of June 30, 1996 due March
2001. In addition to AVCOM's main administrative office, in January 1996,
AVCOM purchased an additional office building in Sedona, Arizona. This
facility has approximately 9,000 square feet of space and is encumbered by a
debt of approximately $796,000 as of June 30, 1996, due January 1999.
AVCOM utilizes additional facilities for its marketing and sales activities,
including sales facilities located at its developments at Sedona, Arizona and
South Lake Tahoe, California and marketing centers located at the Village of
Oak Creek (in proximity to Sedona), Phoenix and Scottsdale, Arizona. The
facilities at the Village of Oak Creek, Phoenix and Scottsdale, Arizona are
leased by AVCOM under short-term leases and the sales facilities at Sedona and
South Lake Tahoe are a part of AVCOM's developments at such locations.
As discussed above, AVCOM owns an approximate 19,000 square foot facility
which is operated as The Ridge Spa & Racquet Club. The facility is located at
the Sedona Golf Resort development.
DESCRIPTION OF AVCOM'S RESORTS
AVCOM owns nine timeshare resorts, including two under construction, and a
tenth resort in which AVCOM holds a partial interest (the "AVCOM RESORTS"). Of
these resorts, six are currently in sales (including the partially-owned North
Bay Resort at Lake Arrowhead), one resort is pending development and AVCOM has
completed sales at three resorts (Villas at Poco Diablo, Villas of Sedona and
Sedona Springs Resort) and provides homeowners' association management and
resale services at these three locations.
Resorts in Current Sales
Tahoe Beach & Ski Club. The Tahoe Beach & Ski Club is a beach front resort
located in the City of South Lake Tahoe, California on approximately eight
acres at the end of Ski Run Boulevard which was purchased by AVCOM in March
1994. The project includes a total of 140 units, of which 110 were renovated
as timeshare
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units at the date acquired. Thirty units have since been renovated for sale as
timeshare units and are being marketed. At the time of purchase, 4,533
Vacation Intervals related to the 110 renovated units of the resort had been
previously sold. The homeowners' association engaged RPM Management, Inc.
("RPM"), a wholly-owned subsidiary of All Seasons, to operate the property.
Sedona Summit Resort. In May 1995, AVCOM purchased approximately three acres
in Sedona, Arizona for development of a 60 unit timeshare resort.
Additionally, in May, 1996, AVCOM exercised an option to acquire an adjacent
parcel consisting of approximately four acres. Timeshare interest sales
commenced in February 1996.
AVCOM is developing the Sedona Summit Resort through an affiliated entity,
Sedona Summit Development Limited Partnership ("SSDLP"), of which ASR is the
sole general partner. The activities of SSDLP are consolidated in AVCOM's
financial statements. SSDLP sold limited partnership interests in March 1996
of approximately $1,500,000 representing a 99% ownership interest. AVCOM has
secured a revolving construction loan of $2,500,000 which has been guaranteed
by SSDLP for the development of the Sedona Summit Resort. AVCOM has contracted
to purchase completed units in phases from SSDLP for an aggregate of
$14,084,000. Sales and construction commenced in February 1996.
Scottsdale Villa Mirage Resort. The Scottsdale Villa Mirage Resort is a 168
unit resort currently under construction located on 10 acres in Scottsdale,
Arizona at the Scottsdale Princess Resort development, within proximity of the
Scottsdale Princess Hotel. The units will be two bedroom condominium type
units consisting of approximately 1,200 square feet. Construction and sales of
Phase I began in March 1996, and is planned to be open for occupancy in
February 1997. Amenities are anticipated to include a clubhouse with an
exercise facility, swimming pool and spas and tennis and volleyball courts.
Villas on the Lake. AVCOM acquired an existing condominium project adjacent
to Lake Conroe in Montgomery County, Texas in April 1996. The project consists
of 37 completed units and existing approvals and land for the construction of
48 additional units. AVCOM has contracted with the April Sound Country Club
for use of its facilities by the project's homeowner's association. Renovation
of existing units began in February 1996 and sales began in June 1996.
Tahoe Seasons Resort. During February 1996, AVCOM acquired a portfolio of
approximately 1,057 non-performing timeshare receivables generated from the
sale of timeshare intervals at Tahoe Seasons Resort in South Lake Tahoe,
California. The purchase price of approximately $1.5 million was funded by a
loan. AVCOM has also agreed to purchase other receivables generated from sales
at Tahoe Seasons Resort that subsequently become delinquent. AVCOM will
convert non-performing loans into timeshare inventory which will be sold.
Resorts Under Development
The Ridge on Sedona Golf Resort. AVCOM has acquired an approximate 12 acre
parcel in Sedona, Arizona for approximately $5.5 million. The facility
comprising The Ridge Spa & Racquet Club has been acquired as a portion of this
development. The parcel is located on the 18th fairway of the golf course at
the Sedona Golf Resort. AVCOM anticipates developing the property into a 120
unit timeshare resort in phases. Amenities are anticipated to include a 12,000
square foot club house, three swimming pools and six spas in addition to
privileges at The Ridge Spa and Racquet Club.
Partially Owned Resorts
North Bay Resort at Lake Arrowhead. The North Bay Resort at Lake Arrowhead
is located in San Bernardino County, California, AVCOM entered into a series
of agreements in January 1996 whereby AVCOM provided guarantees for $12.7
million of the developer's financing in return for a fee of $450,000
(evidenced by a note payable), a right of first refusal to offer Vacation
Interval receivable financing to the developer after expiration of the
developer's present $10.0 million financing commitment, received an option to
assume property
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management for the resort's homeowners association and purchased a 40% equity
position in Trion Capital Corporation, the corporate general partner of
Arrowhead Capital Partners L.P., the developer of the resort. The general
partner is entitled to receive 1% of the profits of the developer partnership,
but under certain circumstances is entitled to receive substantially higher
profits. The 40% equity position was acquired for $600,000. The proposed
resort contemplates the consolidation of two adjacent developments. One
development consists of two completed condominium buildings converted to
Vacation Interval and additional undeveloped land. The second parcel consists
of a combination of three existing condominium buildings in various stages of
construction and pads for two additional condominium buildings. The developer
has been provided with a $2.7 million construction and operating loan
commitment and a $10.0 million commitment for Vacation Interval receivable
financing from a financing company, subject to operational involvement and
financial guarantees of AVCOM.
Resorts At Which Sales Have Been Completed
AVCOM has substantially completed sales of Vacation Intervals at the
following three resorts. AVCOM provides homeowners' association management and
resale services at these locations.
Villas at Poco Diablo. The Villas at Poco Diablo resort is a 33 unit, 1,683
Vacation Interval condominium conversion of studios and one-bedroom units
located in Sedona, Arizona. The one-bedroom units have frontage to Oak Creek
and the studio units have frontage to the golf course owned by the Poco Diablo
Resort. During the period 1988 through 1992, the resort was renovated by
AVCOM, and the units were refurbished with new furniture, fixtures and
equipment, new paint, new roofs and interiors and a remodeled outdoor pool and
spa area.
Villas of Sedona. The Villas of Sedona resort is a 40 unit, 2,040 Vacation
Interval townhouse conversion of one and two bedroom units located in west
Sedona, Arizona. The property was purchased in 1992 and has been remodeled by
AVCOM since then. The resort has new furniture, fixtures and equipment, new
paint, a new outdoor pool and custom spa area and major landscaping. In
addition, a new building encloses an outdoor pool which adjoins a 4,000 square
foot clubhouse and fitness center.
Sedona Springs Resort. Sedona Springs is a 40-unit, 2,040 Vacation Interval
two bedroom suite resort located in Sedona, Arizona on four acres adjacent to
the Villas of Sedona resort. Common areas include a 5,000 sq. ft. clubhouse,
two outdoor spas, a pool facility and spa area. This resort was the first
"purpose built" development construction by AVCOM. Construction of this
project commenced in the first quarter of 1994. Phase one consisted of 13
units and was completed in the third quarter of 1994. Phase two, consisting of
14 units and common areas, was completed in the second quarter of 1995. Phase
three, consisting of 13 units was completed in November 1995. The clubhouse is
completed and being used temporarily as a sales center. Sales at this project
were substantially completed by January 1996.
REGULATORY MATTERS
In connection with the resorts to be acquired in the Merger with AVCOM, the
California Department of Real Estate has conducted an audit with respect to
AVCOM timeshare operations at the Tahoe Beach & Ski Club and has informed
AVCOM of several discrepancies it claims to have discovered during such audit.
AVCOM has responded to the Department of Real Estate's request for additional
information and has been advised by the Department of Real Estate that it will
close its audit. In addition, the Arizona Department of Real Estate is
investigating AVCOM and its Scottsdale Villa Mirage and Sedona Summit Resorts
with respect to the alleged failure of John R. Stevens, AVCOM's Director of
Marketing and New Projects, to disclose certain events from his prior
development history in Colorado on timeshare registration applications filed
in Arizona and certain other of AVCOM's timeshare-related activities. As a
result of the Arizona investigation, Mr. Stevens agreed to voluntarily resign
his position as an officer and director of AVCOM, and AVCOM and Mr. Stevens
are cooperating with the Arizona Department of Real Estate. AVCOM and Mr.
Stevens believe that they have satisfied all applicable requirements and the
Arizona Department of Real Estate has lifted its request for additional
disclosure regarding Mr. Stevens in public timeshare resorts filed in Arizona.
The Texas Real Estate
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Commission also has investigated AVCOM. Signature has been advised that, based
upon the information it has gathered and Mr. Stevens' resignation as an
officer of AVCOM's Texas subsidiaries, the Texas Real Estate Commission will
not take any action in this matter. Upon consummation of the Merger with
AVCOM, it is anticipated that Mr. Stevens will be employed by a subsidiary of
Signature.
SALES AND MARKETING
Since June 1995, AVCOM's Arizona and Tahoe marketing and sales operations
have been conducted through All Seasons Realty. Texas and Lake Arrowhead
marketing and sales are conducted through other AVCOM affiliates. All Seasons
Realty performs all marketing functions and operates all of AVCOM's on site
sales centers. Most of AVCOM's sales are made at the on site sales center at
the resort in which the purchaser is acquiring a timeshare interest. A sales
center located in Sedona Springs Resort is used for all existing Sedona,
Arizona resorts. AVCOM also frequently cross-sells its products. For example,
a purchaser may purchase a timeshare interest in AVCOM's Lake Tahoe property
as part of a sales presentation at one of AVCOM's Sedona resorts.
Additionally, AVCOM may sell timeshare interests at resorts not developed by
AVCOM, which were acquired for resales. AVCOM has in the past and may in the
future, either directly or with a third party, sell timeshare or other resort
property interests at an off site sales center. An off site sales center may
either be located at another party's resort, in a major metropolitan area
independent of the resort's location or at a free standing location in a high
traffic vacation area.
EMPLOYEES
As of September 30, 1996, AVCOM had approximately 430 full time employees.
AVCOM's employees are not represented by a labor union and AVCOM has no
knowledge of any current organization activities. AVCOM has never suffered a
work stoppage and considers its relations with employees to be good.
Additionally, AVCOM primarily utilizes independent contractors as its sales
representatives. As of September 30, 1996, AVCOM engaged approximately 190
independent contractors in this capacity.
LEGAL PROCEEDINGS
AVCOM or its affiliates are presently involved in the following litigation
that AVCOM management has deemed material:
AVCOM International, Inc., et al. v. Needham, et al., filed January 13, 1995
in the United States District Court of the District of Arizona. AVCOM filed
this action against its former director, William C. Needham, Jr. and Cannon
Time for damages relating to of the merger of Cannon Time into AVCOM and
cancellation of AVCOM stock and options claimed by Mr. Needham. The action is
based upon allegations of breach of contract, fraud, securities fraud, breach
of fiduciary duty, and other alleged wrongful conduct of Mr. Needham based
upon allegations of misrepresentation and omissions to disclose material facts
in connection with the merger of Cannon Time into AVCOM. This suit is also
based upon allegations that Mr. Needham failed to perform certain services on
behalf of AVCOM. Mr. Needham has filed a counter-claim against AVCOM, ASR,
Gary L. and Sandra G. Hughes and John R. Stevens alleging defamation,
interference with business relations, breach of contract and indemnification.
AVCOM intends to vigorously prosecute this litigation for the benefit of
AVCOM. Additionally, AVCOM intends to vigorously defend the counter-claim on
behalf of AVCOM and its officers and directors.
All Seasons Development, Inc., et al. v. Eng-Chye Low, et ux., filed on
February 24, 1995 in Maricopa County Superior Court; Eng-Chye Low v.
Villashare Partners Limited Partnership, et al., filed on April 7, 1995 in the
Verde Valley Judicial District of the Yavapai County, Arizona Superior Court.
ASR and Gary L. and Sandra G. Hughes filed the initial action against Eng-Chye
and Vivian Low seeking damages for conversion, breach of fiduciary duty and
breach of contract. The suit arises out of a claim by ASR and Mr. Hughes
related to a loan to or investment with Mr. Low. In response to the suit, Mr.
Low sued ASR under two promissory notes issued by VPLP, of which ASR was the
sole general partner, to Mr. Low under a separate obligation which was secured
by certain consumer receivables, alleging breach of contract under the
promissory notes and breach of the implied covenant of good faith and fair
dealing and sought the appointment of a receiver. Additionally,
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Mr. Low has demanded 200,000 shares of AVCOM Stock which he claims were
promised in connection with a previous business arrangement, although no suit
has been filed on this claim. On June 2, 1995, the Court denied Low's request
for appointment of a receiver without prejudice to reassert such motion. AVCOM
intends to vigorously defend this action.
Success Marketing, Inc., et al. v. All Seasons Resorts, Inc., filed on
August 3, 1995 in the Maricopa County, Arizona Superior Court; Success
Marketing, Inc., et al. v. All Seasons Resorts, Inc., filed on August 3, 1995
with the American Arbitration Association in Phoenix, Arizona. Success
Marketing, Inc. and its affiliate Success Ventures, Inc. (collectively
"Success") filed suit, made demand for arbitration against ASR alleging breach
of contract, loss of compensation, failure to negotiate in good faith and
promissory fraud. Success seeks contract and punitive damages. The suit is a
result of a prior marketing and sales agreement between the parties and
negotiations for a new agreement which were not consummated. AVCOM has filed a
counter-claim for damages and intends to vigorously defend these actions.
Additionally, Success has recently made written demand to exercise an alleged
option for 150,000 shares of AVCOM stock at a per share exercise price of
$2.50, although no suit has been filed on this claim. AVCOM disputes the
existence of these options.
AVCOM is presently advancing legal fees on behalf of the Messrs. Hughes and
Stevens with respect to the defense of the counter-claim asserted by Mr.
Needham in the AVCOM International, Inc., et al. litigation, and on behalf of
Mr. Hughes with respect to prosecution of the All Seasons Development, Inc.,
et al. v. Eng-Chye Low, et ux. litigation.
MANAGEMENT
The following sets forth information with respect to the executive
management of AVCOM as of December 1, 1996.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Gary L. Hughes.............. 56 Chairman of the Board of Directors, Chief
Executive Officer and President
Robert M. Eckenroth......... 48 Senior Vice President, Chief Financial
Officer, and Member of the Board of
Directors
John R. Stevens............. 44 Director of Marketing and New Projects
</TABLE>
GARY L. HUGHES has been Chief Executive Officer and Chairman of the Board of
AVCOM since September 1993 and President since September 1996. Prior to that
time, Mr. Hughes had been the President of ASR and was responsible for overall
management and public relations at both ASR and Villashare Partners Limited
Partnership ("VPLP"), the predecessor to AVCOM. From July 1989 to July 1991,
Mr. Hughes was the managing partner of Villashare Partners, the predecessor of
VPLP. Mr. Hughes had also been the president of RPM, a position he has held
since September 1992. In addition to the positions set forth above, Mr. Hughes
is a member of the board and an officer of several of AVCOM's subsidiaries.
ROBERT M. ECKENROTH has been a Director, the Senior Vice President and Chief
Financial Officer of AVCOM since January 3, 1995. Prior to this position, Mr.
Eckenroth was employed for over fifteen years with Marriott International,
Inc. and its subsidiaries in various capacities, most recently as a Vice
President at Marriott International, Inc. and member of the Executive
Committee of Marriott Ownership Resorts, Inc., the timeshare development
subsidiary of Marriott International, Inc. In addition to the positions set
forth above, Mr. Eckenroth is a director and an officer of several of AVCOM's
subsidiaries.
JOHN R. STEVENS has been Director of Marketing and New Projects of AVCOM
since September 1996. Prior to that time Mr. Stevens has been the President
and a Director of AVCOM since September 1, 1993, and Executive Vice President
of ASR, where he was responsible for sales and general operations, since July
1991. From July 1989 through July 1991, Mr. Stevens was employed by Villashare
Partners, the predecessor of VPLP. Mr. Stevens had also been the Vice
President of RPM since September 1992 and Vice President of ASR since January
1993.
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Executive Compensation
Summary Compensation Table. Compensation paid by AVCOM for fiscal years
1995, 1994 and 1993 to the named individuals and all officers and directors as
a group for services rendered in all capacities to AVCOM is set forth below.
No other officers of AVCOM received compensation (salary and bonus) in excess
of $100,000 in any of fiscal years 1995, 1994 and 1993.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------- ---------------------
NAME AND PRINCIPAL OTHER ANNUAL SECURITIES UNDERLYING
POSITION YEAR SALARY COMPENSATION OPTIONS (#)
------------------ ---- -------- ------------ ---------------------
<S> <C> <C> <C> <C>
Gary L. Hughes............ 1995 $120,192 (1) 150,000
Chief Executive Officer 1994 $ 96,000 (1) --
1993(2) $ 96,000 $130,186(3) --
Robert M. Eckenroth....... 1995 $120,000 (1) 100,000
Vice President and Chief
Financial Officer 1994 -- -- --
1993 -- -- --
John R. Stevens........... 1995 $120,192 (1) 100,000(4)
Director of Marketing and
New Projects 1994(2) $ 96,000 (1) --
1993(2) $ 96,000 $130,186(3) --
</TABLE>
- --------
(1) Less than 10% of aggregate of salary and bonus for the given year.
(2) Because AVCOM was not incorporated until August 1993, the position
reflected was not in effect until such incorporation, but is equivalent to
the position in effect since incorporation.
(3) Compensation in form of a distribution from ASR prior to its acquisition
by AVCOM.
(4) Options to acquire an additional 50,000 shares of AVCOM Stock were granted
to Mr. Stevens in July 1996.
Option Grants in 1995. The following table contains information concerning
the grant of stock options to the executive officers of AVCOM during the
fiscal year ended December 31, 1996. The table also lists potential realizable
values of such options on the basis of assumed annual compounded stock
appreciation rates of 5% and 10% over the life of the options which are not
for a maximum of ten years.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK
PRICE
APPRECIATION FOR
OPTION TERM
-----------------
INDIVIDUAL GRANTS
--------------------------------------------------------
NUMBER OF
SECURITIES PERCENT OF TOTAL EXERCISE
UNDERLYING OPTIONS GRANTED OR BASE
OPTIONS TO EMPLOYEES IN PRICE
NAME GRANTED FISCAL YEAR ($/SH) EXPIRATION DATE 5% 10%
- ---- ---------- ---------------- -------- ----------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Gary L. Hughes.......... 150,000 42.8% $3.44 December 19, 2000 $658,561 $831,023
John R. Stevens......... 100,000(1) 28.6% $3.44 December 19, 2000 $439,041 $554,015
Robert M. Eckenroth..... 100,000 28.6% $2.75 January 4, 2005 $447,946 $713,279
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
- --------
(1) Options to acquire an additional 50,000 shares of AVCOM Stock were granted
to Mr. Stevens in July 1996.
Employment Contracts
Effective August 1993, AVCOM entered into an employment agreement with Gary
L. Hughes and John R. Stevens with a five-year term. Under such agreements,
Messrs. Hughes and Stevens' initial base compensation was $96,000 annually,
with adjustments and bonuses as approved by the AVCOM Board. AVCOM also
provides each with a vehicle and all employee benefits provided to AVCOM's
executive officers. In 1996, the base salary of Messrs. Hughes and Stevens is
$190,000. The AVCOM Board may terminate the employment agreement,
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<PAGE>
with or without cause. As a condition to obtaining a financing facility,
Messrs. Hughes and Stevens were required to personally guaranty AVCOM's
obligations and pledge 50% of their AVCOM Stock held through Sangar
Investment, L.L.C. to secure AVCOM's obligations related to the financing. In
connection with the guaranty, AVCOM agreed to cause the individuals' guaranty
and pledge to be terminated as a condition of termination of employment of
either Mr. Hughes or Mr. Stevens. Messrs. Hughes and Stevens have subsequently
pledged 100% of their AVCOM Stock held through Sangar Investment, L.L.C. in
connection with the guaranty of an additional financing.
Effective January 1, 1995, AVCOM entered into an employment agreement with
Mr. Eckenroth for a five-year term. Under this agreement, Mr. Eckenroth's
initial base compensation was $120,000 annually, with a bonus of up to 35% of
base salary subject to annual review and adjustment. Mr. Eckenroth was also
granted non-statutory options to acquire 100,000 shares of AVCOM's common
stock at $2.75 per share. AVCOM also provides Mr. Eckenroth with a vehicle and
all employee benefits. AVCOM may terminate the employment agreement, with or
without cause.
These employment agreements will be terminated in connection with the
consummation of the Merger. Messrs. Hughes and Stevens will execute new
employment agreements with Signature or a Signature Subsidiary upon the
consummation of the Merger.
Stock Option Plan
Effective October 1, 1995, the AVCOM Board adopted a non-statutory stock
option plan and an incentive stock option plan under a single stock option
plan (the "STOCK OPTION PLAN"). The Stock Option Plan was approved by the
shareholders at the 1996 annual meeting. Under the terms of the Stock Option
Plan, both qualified incentive stock options ("ISOS"), which are intended to
meet the requirements of Section 422 of the Internal Revenue Code and non-
qualified stock options may be granted. ISOs may be granted to the officers
and key personnel of AVCOM. Non-qualified stock options may be granted to
AVCOM's directors and key personnel, and to providers of various services to
AVCOM. The purpose of the Stock Option Plan is to provide a means of
performance-based compensation in order to attract and retain qualified
personnel and to provide an incentive to others whose job performance or
services affects AVCOM.
Under the Stock Option Plan, options to purchase a maximum of 750,000 shares
of AVCOM's common stock may be granted to AVCOM's directors, officers, key
personnel and service providers. The exercise price for any option granted
under the Stock Option Plan may not be less than 100% (110% if the option is
granted to a shareholder who at the time the option is granted owns stock
comprising more than 10% of the total combined voting power of all classes of
stock of AVCOM) of the fair market value of the common stock at the time the
option is granted. The option holder may pay the exercise price in cash or by
delivery of previously acquired shares of AVCOM Stock.
The Stock Option Plan is administered by the AVCOM Board which will
determine whether such options will be granted, whether such options will be
ISOs or non-qualified options, which directors, officers, key personnel and
service providers will be granted options and the restrictions upon the
forfeitability of such options. The number of options to be granted, subject
to the aggregate maximum number set forth above, is determined by the AVCOM
Board. Each option granted must terminate no more than 10 years from the date
it is granted. Under current law, ISOs cannot be granted to directors who are
not also employees of AVCOM.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
AVCOM acquires and converts or develops resort properties for timeshare
sales, finances ownership interests in such properties, and manages the
operations of the resort properties and their related homeowners'
associations. AVCOM currently owns nine resorts in Scottsdale and Sedona,
Arizona, Lake Conroe, Texas and South Lake Tahoe, California as well as a
tenth resort in Lake Arrowhead, California, in which it holds a partial
interest, for these purposes.
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Generally, timeshare interests are sold under contracts which provide a cash
down payment and a deferred payment balance evidenced by a promissory note
secured by a deed of trust or mortgage on the timeshare interest. Sales of
timeshare interests are recognized using the percentage of completion method
after a binding sales contract has been executed, a ten percent minimum down
payment has been received, and certain minimum sales and construction levels
have been obtained. Under the percentage of completion method, the portion of
revenue applicable to costs incurred, as compared to total estimated
development costs, is recognized in the period of sale. Sales which do not
meet these criteria are deferred using the deposit method. The deferred
revenue resulting from the percentage of completion method of accounting was
approximately $80,000, $0, $0 and $6,980,000 at December 31, 1994, September
30, 1995, December 31, 1995 and September 30, 1996, respectively. Capitalized
costs associated with timeshare interests developed by AVCOM include direct
construction costs and indirect product costs, such as interest expense and
real estate taxes. The average capitalized cost of the respective timeshare
interests by project is amortized to cost of sales, including an estimate of
future completion costs related to construction as the related sales revenues
are recognized.
The following analysis should be read in conjunction with the consolidated
financial statements and accompanying notes for the years ended December 31,
1995, 1994 and 1993 and for the nine months ended September 30, 1996 and 1995.
Results Of Operations
The following tables set forth certain summarized consolidated operating
information for AVCOM.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 30
------------------------- ------------------
1993 1994 1995 1995 1996
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
AS A PERCENTAGE OF TOTAL
REVENUES
Sales of timeshare interests... 95.3% 94.9% 94.3% 93.7% 93.2%
Timeshare management........... 3.0% 2.6% 3.6% 3.6% 3.2%
Gain on sale of notes receiv-
able.......................... 1.1% 2.2% 1.6% 2.1% .2%
Other.......................... .6% .3% .5% .6% 3.4%
------- ------- ------- -------- --------
100.0% 100.0% 100.0% 100.0% 100.0%
======= ======= ======= ======== ========
AS A PERCENTAGE OF TIMESHARE
SALES
Cost of timeshare interests
sold.......................... 24.5% 28.1% 33.3% 30.9% 28.8%
Marketing and selling.......... 48.0% 50.7% 41.9% 45.3% 49.7%
AS A PERCENTAGE OF TIMESHARE
MANAGEMENT REVENUES
Timeshare management expense... 121.0% 114.3% 125.1% 106.3% 167.0%
AS A PERCENTAGE OF TOTAL
REVENUES
General and administrative..... 10.7% 11.9% 13.6% 12.3% 19.1%
TIMESHARE NOTES SOLD AND HELD
(000'S)
Timeshare notes receivable
held.......................... $ 2,893 $ 2,751 $15,357 $ 11,162 $ 35,017
Timeshare notes receivable
sold.......................... $14,898 $32,844 $32,449 $ 34,800 $ 29,009
AS A PERCENTAGE OF TIMESHARE
NOTES HELD
Interest and financing costs... 11.6% 29.4% 11.8% 10.1% 8.4%
Interest income................ 8.2% 6.5% 3.9% 2.3% 6.8%
AS A PERCENTAGE OF TIMESHARE
NOTES SOLD AND HELD
Allowance for doubtful
accounts...................... 1.4% 1.0% 1.7% 1.9% 2.1%
</TABLE>
103
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 30
----------------------- -----------------
1993 1994 1995 1995 1996
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Timeshare intervals sold............. 1,061 1,987 2,304 1,809 1,994
Average sales price per interval
sold................................ $13,650 $12,140 $14,420 $ 13,720 $ 15,250
Number of Timeshare intervals in
inventory at end of period.......... 2,264 3,948 1,995 2,322 8,888
</TABLE>
Comparison of the Nine Months Ended September 30, 1996 to the Nine Months
Ended September 30, 1995
Sales of timeshare interest increased $5,590,000 (22.5%) from $24,821,000 in
1995 to $30,411,000 in 1996. This increase was primarily due to a 11.2%
increase in the average sales price and a 10.2% increase in the number of
intervals sold between periods. During January 1996, AVCOM substantially sold-
out of its Sedona Springs Resort project and began sales at its new Sedona
Summit Resort project. The new project introduced additional product
variations which resulted in an accompanying higher average sales price which
substantially accounted for the overall sales price increase. In addition to
its new Sedona resort, AVCOM commenced sales at its new resorts in Scottsdale,
Arizona and Lake Conroe, Texas which contributed to the increase in sales
between years.
Timeshare management revenue increased $97,000 (10.1%) from $962,000 in 1995
to $1,059,000 in 1996 due to the increased number of timeshare units under
management as the result of ongoing sales by AVCOM.
Gain on sale of notes receivable decreased from $564,000 in 1995 to $77,000
in 1996 due to a change in the manner in which AVCOM finances its notes
receivable portfolio. Prior to July 1995, AVCOM exclusively sold all notes
receivable originated through the sale of timeshare interests. The gain on
sale of notes receivable reflects the present value of the difference between
the stated interest rate of notes receivable sold and the yield to the
purchaser (interest rate differential). Commencing in July 1995, AVCOM
primarily financed its notes receivable through the hypothecation of the
notes. As such, the notes receivable, together with the related financing,
remain on AVCOM's balance sheet and the interest rate differential is
recognized as the notes receivable are amortized and collected and the
interest expense is incurred.
Health club revenue increased from $0 in 1995 to $375,000 in 1996 as it was
a new line of business in 1996 when AVCOM purchased and refurbished an
existing inactive health club facility. The facility will be utilized as an
amenity for AVCOM's forthcoming The Ridge on Sedona Golf Resort project
commencing in early 1997.
Contract commission revenue increased from $0 in 1995 to $497,000 in 1996 as
it was a new line of business in 1996 when AVCOM entered into an agreement to
provide marketing and selling services on a fee basis to a resort in
California in which AVCOM holds a partial minority ownership interest.
Contract commission revenues are earned and recognized upon close of escrow of
the related sale.
Cost of timeshare interests sold increased $1,062,000 (13.8%) in 1996 from
1995 primarily as the result of the 22.5% increase in sales revenues. As a
percentage of timeshare sales, cost of timeshare interests sold decreased from
30.9% in 1995 to 28.8% in 1996. The variance is due to a change in product
sales mix which included a higher mix of sales from less costly projects, as
well as a 11.2% increase in the average sales price.
Marketing and selling expenses as a percentage of sales of timeshare
interests increased from 45.3% in 1995 to 49.7% in 1996. During 1996, AVCOM
commenced sales at three new resorts, two of which are located in geographic
markets new to the company. Significant start-up marketing and selling costs
were incurred in connection with these two new geographic locations. Such
start-up costs are capitalized and amortized over a twelve month period. A
portion of marketing and selling costs are fixed in nature represented by
administrative personnel and office related costs. As such, at the onset of
sales activities, marketing and selling costs as a
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<PAGE>
percentage of sales is disproportionately high until sales volumes gradually
increase. The increase in the percentage between 1996 and 1995 reflects the
amortization of start-up marketing and selling costs, as well as the initial
low sales volumes at the two resorts located in new markets in 1996. Prior to
July 1995, AVCOM contracted all sales and marketing functions with an
independent vendor. This relationship was severed in June 1995 and AVCOM
internalized the sales and marketing functions. At September 30, 1996 and
1995, $4.1 million and $0 of marketing and selling expenses have been deferred
related to the percentage of completion and the deposit methods of accounting
for sales, respectively.
Timeshare management expenses increased $746,000 in 1996 from 1995 primarily
as the result of a one-time charge associated with the May 1996 cancellation
of a third-party management services contract. Pursuant to this contract, the
vendor was to provide certain proprietary computer systems and equipment
through December 1996 and consulting services and resort property management
and reservation services for certain resorts through December 1998. In
conjunction with its planned conversion to an integrated management and
reservation computer system, AVCOM assumed responsibility for the management
of its resort properties upon termination of the contract.
Contract marketing and selling expense relates to contract commission
revenue, a new line of business in 1996. Contract expenses exceed contract
revenues primarily as the result of a timing difference between the
recognition of revenues and expenses. Expenses are recognized when incurred,
while related revenues are earned and recognized upon close of escrow of the
related sale. In addition, certain start-up costs associated with this new
operation where incurred and are being amortized over a twelve month period.
General and administrative expenses increased $2,973,000 (91.3%) in 1996
from 1995. As a percentage of total revenues, general and administrative
expenses increased from 12.3% in 1995 to 19.1% in 1996. As the result of the
percentage of completion accounting for sales revenues, $7.0 million of sales
revenues were deferred at September 30, 1996 compared with no deferral at
September 30, 1995. For the nine months ended September 30, 1996, the
percentage would have been reduced to 15.7% had the deferred revenues been
recognized. The additional increase is the result of increased corporate
infrastructure, including office space and personnel, in conjunction with
increasing the number of active selling resorts from two as of September 30,
1995 to five in 1996.
At September 30, 1996, $839,000 of costs relating to a project under
development in South Lake Tahoe, California were written off. In October 1993,
AVCOM acquired the timeshare development rights for approximately 195 units
from a third-party developer for which the company has made payments totaling
$750,000. AVCOM is currently negotiating the termination of this agreement and
does not anticipate proceeding with this project. Since the recovery of its
payments is conditioned upon the future event of finding a replacement
purchaser of AVCOM's rights, the full amount of its payments, together with
costs previously capitalized with regard to this project have been written
off.
The provision for doubtful accounts increased from $212,000 in 1995 to
$1,055,000 in 1996 primarily as the result of the increase in receivables
originated through the sale of timeshare interests.
Interest and financing costs increased by $1,822,000 in 1996 to $2,944,000
from $1,122,000 in 1995. The increase is primarily due to a change in the
manner in which AVCOM finances its notes receivable portfolio. Prior to July
1995, AVCOM exclusively sold all notes receivable originated through the sale
of timeshare interests. Commencing in July 1995, AVCOM primarily financed its
notes receivable through the hypothecation of the notes. As such, the notes
receivable, together with the related financing, remain on AVCOM's balance
sheet and the interest rate differential is recognized as the notes receivable
are amortized and collected and the interest expense incurred, thereby
increasing interest and financing costs.
Interest income increased from $253,000 in 1995 to $2,396,000 in 1996
primarily due to a change in the manner in which AVCOM finances its notes
receivable portfolio as more fully described above.
105
<PAGE>
Comparison of the Year Ended December 31, 1995 to the Year Ended December 31,
1994
Sales of timeshare interest increased $9,101,000 (37.7%) from $24,130,000 in
1994 to $33,231,000 in 1995. The primary reasons for the increase were the
combined affect of an 18.8% increase in average sales price per interval sold,
together with a 16.0% increase in the number of intervals sold. The increase
in intervals sold resulted primarily from the inclusion of a full year of
sales at Tahoe Beach & Ski Club and Sedona Springs Resort in 1995, compared
with a partial sales year in 1994 at Tahoe Beach & Ski Club which was acquired
in March 1994 and Sedona Springs Resort where sales commenced in June 1994.
The average sales price increase reflects an increase in the mix of Sedona
Springs Resort sales in 1995 with a higher average sales price.
Timeshare management revenue increased $606,000 (93.2%) from $650,000 in
1994 to $1,256,000 in 1995 due to the increase in the number of interval
owners at the Tahoe Beach & Ski Club and Sedona Springs Resort that are
charged management fees. The increase is also due to increased room rentals at
the completed projects.
Cost of timeshare interests sold increased $4,289,000 (63.2%) in 1995 from
1994. As a percentage of timeshare sales, cost of timeshare interests sold
increased from 28.1% in 1994 to 33.3% in 1995. These increases reflect overall
increased sales volumes of 37.7%, together with a change in product sales mix.
In 1994, sales were predominantly at the Villas of Sedona project with a lower
product cost resulting from its acquisition as a distressed property. In 1995,
the sales mix predominantly included sales at the Tahoe Beach & Ski Club and
Sedona Springs Resort projects which were newly acquired or constructed
projects with higher costs per interval.
Marketing and selling expenses as a percentage of sales of timeshare
interests decreased from 50.7% in 1994 to 41.9% in 1995. Prior to July 1995,
AVCOM contracted all sales and marketing functions with an independent vendor.
This relationship was severed in June 1995 and AVCOM internalized the sales
and marketing functions resulting in a cost savings during the second half of
1995.
General and administrative expenses increased $1,746,000 (57.6%) in 1995
from 1994. As a percentage of total revenues, general and administrative
expenses increased from 11.9% of sales in 1994 to 13.6% in 1995. The increase
is the result of increased corporate infrastructure, including office space
and personnel, in conjunction with the anticipated start up of two new resorts
in 1996, together with the overall increase in sales volume.
The provision for doubtful accounts increased from $371,000 in 1994 to
$792,000 in 1995 primarily as the result of the increase in receivables
originated through the sale of timeshare interests.
Interest and financing costs increased by $1,009,000 in 1995 to $1,818,000
from $809,000 in 1994. The increase is primarily due to a change in the manner
in which AVCOM finances its notes receivable portfolio. Prior to July 1995,
AVCOM exclusively sold all notes receivable originated through the sale of
timeshare interests. Commencing in July 1995, AVCOM primarily financed its
notes receivable through the hypothecation of the notes. As such, the notes
receivable, together with the related financing, remain on AVCOM's balance
sheet and the interest rate differential is recognized as the notes receivable
are amortized and collected and the interest expense incurred, thereby
increasing interest and financing costs.
Interest income increased from $180,000 in 1994 to $594,000 in 1995
primarily due to a change in the manner in which AVCOM finances its notes
receivable portfolio as more fully described above.
Comparison of the Year Ended December 31, 1994 to the Year Ended December 31,
1993
Sales of timeshare interests increased $9,649,000 (66.6%) from $14,481,000
to $24,130,000 in 1994. The number of timeshare intervals sold increased 87.3%
primarily as the result of the addition of the Tahoe Beach & Ski Club project
acquired by AVCOM in March 1994, the commencement of sales at the Sedona
Springs Resort project in June 1994 and an increase in sales at the Villas of
Sedona compared with 1993 as the result of a mature marketing effort in 1994.
The average sales price decreased by 11.1% as the result of this change in
product mix which included lower price intervals at the Tahoe Beach & Ski Club
project initially.
106
<PAGE>
Timeshare management revenue increased 43.8% from $452,000 in 1993 to
$650,000 in 1994. This represents daily room rentals and fees for management
of the resorts. The increase is primarily due to the addition of the Tahoe
Beach & Ski Club Resort.
Gain on sale of notes receivable increased by 242% from $167,000 in 1993 to
$571,000 in 1994 as the result of an increase in the dollar volume of
receivables sold, together with an increase in the interest differential as
the result of more favorable financing terms.
Cost of timeshare interests sold increased from 24.5% of timeshare sales in
1993 to 28.1% in 1994. In 1993, sales were limited to the Villas of Sedona and
the Villas at Poco Diablo projects with a lower product cost resulting from
their acquisition as distressed properties. In 1994, the sales mix included
sales at the Tahoe Beach & Ski Club and Sedona Springs Resort projects which
were newly acquired or constructed projects with higher costs per interval.
Marketing and selling expenses increased from 48.0% of timeshare sales in
1993 to 50.7% of timeshare sales in 1994 as the result of increased costs
pursuant with AVCOM's independent sales and marketing services vendor.
General and administrative expenses increased by $1,413,000 in 1994 to
$3,034,000 from $1,621,000 in 1993. As a percentage of total revenues, general
and administrative expenses increased from 10.7% in 1993 to 11.9% in 1994.
These increases were attributed to the start up of two new resorts in 1994 and
the expansion of the corporate administration group in Sedona, Arizona.
The provision for doubtful accounts increased from $251,000 in 1993 to
$371,000 in 1994 primarily as the result of the increase in receivables
originated through the sale of timeshare interests.
Interest and financing costs increased by $474,000 in 1994 to $809,000 from
$335,000 in 1993. The increase is attributable to additional borrowings used
for the renovation of the Tahoe Beach & Ski Club, the acquisition of the
corporate administrative facility, construction related to the Sedona Springs
Resort, additional end-loan financing for receivables and various working
capital financings.
Interest income decreased from $236,000 in 1993 to $180,000 in 1994 as a
result of loan processing efficiencies gained in the financing of customer
receivables with financial institutions thereby shortening the income earning
holding period of the notes by AVCOM before their sale.
The provision for income taxes decreased by $1,275,000 from $1,970,000 in
1993 to $695,000 in 1994. As a percentage of income before taxes, the
provision for income taxes decreased from 90.2% in 1993 to 43% in 1994. The
higher provision in 1993 was due to the merger of Villashare Partners into
AVCOM on September 1, 1993. Deferred income taxes were established at that
time as a result of the merger for temporary differences between the financial
reporting basis and the tax basis of the assets and liabilities.
107
<PAGE>
Liquidity And Capital Resources
AVCOM generates cash for operations from the sale of timeshare intervals,
the financing of the sales of timeshare intervals, the rental of unsold
timeshare interval units, and the receipt of management fees for property
management services rendered on behalf of AVCOM's respective homeowners
associations. With respect to the sale of timeshare intervals financed by
AVCOM, AVCOM generates cash from operations from the receipt of down payments
from customers and the sale or hypothecation of the related mortgage
receivables generally equal to 85% to 90% of the amount financed. AVCOM also
generates cash from operations in those instances where the timeshare interval
is purchased for cash. With respect to notes receivable sold or hypothecated,
AVCOM generates cash related to the difference between the interest charged on
the customer mortgages and the interest paid to the end-loan financier.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 30
-------------------------------------- -------------------------
1993 1994 1995 1995 1996
----------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Net Cash Provided From
(Used By)
Operating Activities.. $ 2,907,000 $ 291,000 $ 3,564,000 $ 3,101,000 $ 1,327,000
Investing Activities.. $(2,197,000) $(1,926,000) $(13,413,000) $(9,009,000) $(17,904,000)
Financing Activities.. $ (183,000) $ 1,046,000 $ 11,378,000 $ 6,164,000 $ 15,735,000
</TABLE>
Cash flow provided by operating activities for the nine months ended
September 30, 1996 compared with the same period in 1995, decreased primarily
as the result of an increase in resort property held for timeshare sales and a
decrease in deferred income taxes in 1996, offset by an increase in deferred
revenue, net of related deferred marketing and selling costs, and an increase
in accounts payable and other accrued liabilities in 1996. Cash flow provided
by operating activities for the year ended December 31, 1995 compared with the
same period in 1994, increased primarily as the result of the reduction in
restricted cash in 1995, an increase in the level of commissions payable and
accounts payable and accrued liabilities in 1995 and the leveling-off of
resort property held for timeshare sales in 1995. Cash flow provided by
operating activities for the year ended December 31, 1994 compared with the
same period in 1993, decreased primarily as the result of an increase in
restricted cash in 1994, an increase in resort property held for timeshare
sales in 1994 contrasted to a reduction in 1993 and increases in the level of
commissions payable and accounts payable and accrued liabilities in 1994
contrasted with reductions in 1993.
Cash flow used by investing activities for the nine months ended September
30, 1996 compared with the same period in 1995, increased primarily due to a
change in the manner in which AVCOM finances its notes receivable portfolio.
Prior to July 1995, AVCOM exclusively sold all notes receivable originated
through the sale of timeshare interests. Commencing in July 1995, AVCOM
primarily financed its notes receivable through the hypothecation of the
notes. As such, the proceeds from the sale of notes receivable are presented
as cash flow from investing activities, whereas, the proceeds from the
hypothecation of notes receivable are presented as cash flow from financing
activities. Cash flow used by investing activities for the year ended December
31, 1995 compared with the same period in 1994, increased primarily due to a
change in the manner in which AVCOM finances its notes receivable portfolio as
more fully described above. Cash flow used by investing activities for the
year ended December 31, 1994 compared with the same period in 1993, decreased
primarily as the result of an overall increase in the advance rate on notes
receivable sold.
Cash flow provided by financing activities for the nine months ended
September 30, 1996 compared with the same period in 1995, increased primarily
due to a change in the manner in which AVCOM finances its notes receivable
portfolio. Prior to July 1995, AVCOM exclusively sold all notes receivable
originated through the sale of timeshare interests. Commencing in July 1995,
AVCOM primarily financed its notes receivable through the hypothecation of the
notes. As such, the proceeds from the hypothecation of notes receivable are
presented as cash flow from financing activities, whereas, the proceeds from
the sale of notes receivable are presented as
108
<PAGE>
cash flow from investing activities. Cash flow provided by financing
activities for the year ended December 31, 1995 compared with the same period
in 1994, increased primarily due to a change in the manner in which AVCOM
finances its notes receivable portfolio as more described above. Cash flow
provided by financing activities for the year ended December 31, 1994 compared
with the same period in 1993, increased primarily as the result of an increase
in the hypothecation of non-conforming notes receivable and an increase in
unsecured borrowings.
AVCOM's primary source of end-loan or timeshare receivables financing and
sales of receivables has been and continues to be through institutional
lenders. AVCOM's financing sources include banks, insurance companies,
specialized financing affiliates of major corporations and independent finance
companies. As of September 30, 1996, AVCOM had credit facility commitments
totaling approximately $49,900,000 approximately $20,300,000 remained
available for financing consumer receivables. Additionally, AVCOM has entered
into an agreement with an affiliate of one of its warehouse facility providers
to place up to $75 million of securities collateralized by AVCOM's note
receivables.
Management intends to pursue additional credit facilities as needed by
AVCOM. AVCOM's obligations pursuant to the credit facility agreements are
generally guaranteed by Messrs. Hughes and Stevens. Additionally, a $5 million
commitment has been guaranteed by a company owned by a shareholder of AVCOM.
AVCOM is generally subject to various restrictive financial covenants pursuant
to the commitments, which include covenants prohibiting the payment of
dividends and requiring the maintenance of at least $3 million of tangible net
worth and no more than a 15-to-1 debt-to-equity ratio. AVCOM was in compliance
with all such financial covenants as of December 31, 1995. AVCOM was not in
compliance with the debt-to-equity ratio covenants at September 30, 1996;
however, a waiver from the lender was obtained.
While the terms of AVCOM's receivables financing facilities have varied and
have become increasingly more favorable to AVCOM, the conditions to such
facilities have generally included requirements regarding borrower
qualification and credit underwriting, minimum yields, receivables aging and
minimum obligation terms. AVCOM's sales occasionally generate receivables that
do not meet one or more of these criteria, on either a temporary or a
permanent basis. Receivables resulting from non-standard sales are not
suitable for immediate placement with AVCOM's existing credit facilities. To
finance these non-standard receivables, AVCOM has obtained various loans from
private parties which are secured by the receivables. Most private financing
has been obtained from major shareholders, individuals familiar with AVCOM or
prior business associates of officers of AVCOM. As of September 30, 1996,
there was approximately $3.0 million outstanding in private financing of
timeshare receivables generated by AVCOM.
AVCOM's capital requirements related to the development of future projects
and the financing of notes receivables have been and will continue to be
significant. In addition, AVCOM's level of general and administrative costs is
based on the level of sales and development activity which occurred in 1996
and which is anticipated in 1997. Further, AVCOM has and will continue to
incur initial start-up sales and marketing costs in anticipation of future
projects and transactions. To date, AVCOM has been substantially dependent
upon loans from banks and private lenders and the sale or pledge of notes
receivable to finance its developments and operations. AVCOM will be required
to seek significant amounts of additional debt and/or equity capital to
continue to finance or sell its notes receivable, develop its proposed
projects and carry the current level of overhead. There is no assurance that
AVCOM can continue to obtain adequate financing from lenders for its financing
or sale of notes receivable or its project developments and operations if and
when required, or on terms acceptable to AVCOM. In the event AVCOM is
unsuccessful in obtaining additional funds necessary for these purposes,
management may need to take steps to continue to operate within the available
cash flow. Such steps may include, among others, postponement or abandonment
of certain timeshare projects and transactions, reduction of general and
administrative costs, or reduction of selling and marketing costs.
At December 31, 1995, AVCOM has a minimum tax credit carryforward of
approximately $592,000 for income tax purposes available to offset future
income taxes payable to the extent regular income taxes payable exceeds
alternative minimum taxes payable. Minimum tax credits can be carried forward
indefinitely. AVCOM has a net operating loss carryforward at December 31, 1995
of approximately $3,211,000 for state and federal
109
<PAGE>
income tax purposes. The state net operating loss carryforward will begin to
expire in 1999 and the federal net operating loss carryforward will begin to
expire in 2009.
Impact Of Market Conditions, Interest Rates And Regulations
The sale of timeshare intervals may be effected by fluctuating market
conditions which may be effected by national, regional or local economic
conditions. Changing demographics in particular areas will affect timeshare
development operations in such areas. The development of timeshare properties
by competitors of AVCOM in regions where AVCOM operates may reduce the
potential market for AVCOM's timeshare interests and adversely affect AVCOM's
timeshare interests and adversely affect AVCOM's operating results.
AVCOM's operations are sensitive to interest rates and to inflation.
Increased borrowing costs resulting from increases in interest rates may not
be immediately recoverable from prospective purchasers. AVCOM's notes
receivable are fixed rate with terms of primarily seven years with some
financing extended to ten years, and do not increase or decrease as a result
of interest rates charged to AVCOM. The notes receivable sold, upon which
AVCOM has recourse, were sold at fixed rates. Inflationary increases may be
difficult to pass on to customers since increases in sales prices may result
in lower sales closing rates and higher cancellations. In addition,
delinquency and cancellation rates may be affected by changes in the nation's
economy.
Government regulation may also have a substantial impact on timeshare sales
and profitability of timeshare sales operations. Changes in the tax law,
including federal, state and local income and property taxes, could have an
impact on the operation, appreciation and profitability of AVCOM's projects.
Changes in interest and inflation rates may affect the demand for timeshare
interests. Changes in environmental laws related to products used in the
timeshare developments could affect the viability of AVCOM's current or
planned projects. Changes in previously restrictive zoning ordinances fostered
by a recessionary environment could create added competitive pressures on
AVCOM's timeshare development properties due to such projects having to
compete with newly zoned, more attractive projects.
Recent Developments
On April 30, 1996, AVCOM paid down the principal balance of its convertible
subordinated note payable from $930,000 to $580,000 and received an extension
until August 31, 1996. An additional extension was granted until December 31,
1996 following a principal payment of $94,000 made in September 1996 and
$86,000 due in December 1996. The remaining $400,000 principal balance was
converted into 310,000 shares of AVCOM Stock on August 31, 1996.
AVCOM had 1,310,700 shares of issued and outstanding preferred stock as of
September 30, 1996. As a condition of the Merger, all shares of AVCOM
Preferred have been converted into AVCOM Stock at a conversion rate of one for
one. The AVCOM Preferred was converted into AVCOM Stock on October 24, 1996.
On September 22, 1996, AVCOM entered into the Merger Agreement with
Signature whereby AVCOM's shareholders are to receive newly issued shares of
Signature Stock in exchange for their shares of AVCOM Stock in the Merger. See
"THE PROPOSED MERGER--General Description of the Merger" for a detailed
discussion of the exchange terms and criteria. As a part of the Merger,
Signature agreed to make a $2.5 million working capital loan to AVCOM to
accommodate AVCOM's working capital needs in lieu of AVCOM otherwise
continuing its capital raising activities during the due diligence period
contemplated by the Merger. This was later increased to permit AVCOM to borrow
up to $4.0 million. The outstanding loan amount is $3.0 million as of December
18, 1996 with an interest rate of 12%. The loan will be paid from the proceeds
of sale of the Tunlii, L.L.C. property and release prices paid from the sale
of intervals at the Sedona Summit Resort with a maturity date of not later
than December 31, 1997 but can mature sooner if, e.g., Signature validly
terminates the Merger Agreement.
Separately, should the Merger fail to be consummated, AVCOM will grant
Signature an irrevocable option exercisable through December 31, 1998 to
acquire a number of shares of AVCOM Stock equal to 19.9% of the
110
<PAGE>
total issued and outstanding AVCOM Stock, on a fully diluted basis, at an
exercise price of $5.00 per share. Additionally, if the Merger Agreement is
terminated by Signature under certain circumstances, AVCOM would be required
to pay Signature a termination fee of $1,800,000 plus certain expenses.
PRINCIPAL SHAREHOLDERS
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of December 12, 1996, certain information
regarding the shares of AVCOM's outstanding common stock beneficially owned by
AVCOM's executive management, its directors, all executive management and
directors as a group, and each person who is known by AVCOM to own
beneficially more than 5% of AVCOM's common stock. On October 24, 1996 all
previously outstanding shares of AVCOM Preferred were converted into shares of
AVCOM Stock at a ratio of one share of AVCOM Stock for each share of AVCOM
Preferred outstanding.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
-----------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(A) SHARES PERCENTAGE
--------------------------------------- --------- ----------
<S> <C> <C>
Gary L. Hughes(b)........................... 1,096,225(c) 20.6%
John R. Stevens(b).......................... 1,031,225(d) 19.4%
Robert M. Eckenroth(b)...................... 105,000(e) 2.0%
Harry B. Haisfield(f)....................... 400,000 7.0%
William C. Needham, Jr.(g).................. 721,500(h) 12.9%
Lane Overstreet(i).......................... 310,000 5.9%
Sangar Investment Company, L.L.C.(j)........ 2,011,250 38.2%
All executive management and directors as a
group (3 persons).......................... 2,232,450(c)(d)(e) 40.7%
</TABLE>
- --------
(a) Unless otherwise noted, the named persons have sole investment and voting
power with respect to the shares indicated.
(b) The mailing address for Messrs. Hughes, Stevens and Eckenworth is c/o
AVCOM International, Inc., P.O. Box 10118, Sedona, Arizona 86339.
(c) Includes 58,000 shares subject to options, of which the right to acquire
29,000 have vested and the right to acquire the additional 29,000 vest on
December 29, 1996, and 1,038,125 shares beneficially owned through Sangar
Investment Company, L.L.C., an Arizona limited liability company. Two
Hundred Fifty Thousand shares of AVCOM Stock are subject to an escrow
arrangement and will be released if AVCOM has attained earnings per share
of $0.20 per share on a fully diluted basis for two consecutive fiscal
years prior to December 31, 2000 or redeemed by AVCOM at $0.02 per share
if such per share earnings do not occur.
(d) Includes 58,000 shares subject to options, of which the right to acquire
29,000 have vested and the right to acquire the additional 29,000 vest on
December 29, 1996, and 973,125 beneficially owned through Sangar
Investment Company, L.L.C., an Arizona limited liability company. Two
Hundred Fifty Thousand shares of AVCOM Stock are subject to an escrow
arrangement and will be released if AVCOM has attained earnings per share
of $0.20 per share on a fully diluted basis for two consecutive fiscal
years prior to December 31, 2000 or redeemed by AVCOM at $0.02 per share
if such per share earnings do not occur.
(e) Includes 100,000 shares subject to immediately exercisable options.
(f) Mr. Haisfield's address is 600 South Barrocks, #105, Pensacola, Florida
32501.
(g) Mr. Needham's address is 400 East 58th Street, New York, New York 10022.
All information regarding Mr. Needham's stock ownership is based upon
information as of September 1, 1993.
(h) Includes 350,000 shares pursuant to disputed options. AVCOM has made claim
against Mr. Needham for damages and rescission of his outstanding common
stock and options. See "INFORMATION REGARDING AVCOM INTERNATIONAL, INC.--
Legal Proceedings."
(i) Mr. Overstreet's address is 1615 Quartz Valley Drive, Carefree, Arizona
85377.
(j) Sangar Investment Company, L.L.C. is 100% beneficially owned by Gary L.
Hughes and John R. Stevens.
111
<PAGE>
DESCRIPTION OF CAPITAL STOCK
AVCOM's Certificate of Incorporation authorizes issuance of 10,000,000
shares of $.01 par value common stock, of which 5,274,636 were issued and
outstanding on December 12, 1996 (the "AVCOM STOCK"), including 12,000 shares
held as treasury stock. The Certificate of Incorporation also authorizes the
issuance of 1,400,000 shares of $.01 par value shares of Preferred Stock (the
"AVCOM PREFERRED") none of which were issued and outstanding on December 12,
1996.
Common Stock
The holders of AVCOM Stock are entitled to one vote per outstanding share on
all matters submitted to a vote of the shareholders. Shareholders have no
preemptive or other rights to subscribe for or purchase additional shares of
any class of stock or other securities of AVCOM. Shareholders are not entitled
to cumulate their votes for the election of directors. Dividends may be paid
to the holders of AVCOM Stock out of funds legally available for dividends
when and if declared by the Board of Directors. No dividends may be declared
on the AVCOM Stock unless all cumulative dividends on the AVCOM Preferred have
been declared and paid as of the declaration date. In the event of any
liquidation, dissolution or winding up of the affairs of AVCOM, the holders of
AVCOM Stock will be entitled to share ratably in the assets remaining after
provisions for payment of creditors and the liquidation preference on the
AVCOM Preferred outstanding at that time.
Preferred Stock
The authorized and unissued AVCOM Preferred may be issued by action of the
AVCOM Board without further shareholder approval. Holders of AVCOM Preferred
do not have preemptive rights. The holders of the AVCOM Preferred are entitled
to one vote per outstanding share on all matters submitted to a vote of
shareholders, including the election of directors. The holders of AVCOM
Preferred also vote and must approve as a class any material changes to
AVCOM's Articles of Incorporation or to the rights and preferences of the
AVCOM Preferred. Dividends may be paid to the holders of AVCOM Preferred out
of funds legally available for dividends when and if declared by the Board of
Directors. Each share of AVCOM Preferred is entitled to a cumulative dividend
of $.08 per share per annum, which shall be declared and paid before any
dividend is payable to holders of AVCOM Stock. The $.08 dividend shall accrue
on July 1, 1994 and each July 1st thereafter. In the event of a liquidation,
dissolution or winding-up of the affairs of AVCOM, the holders of the AVCOM
Preferred will be entitled to receive $1.00 per share plus all accrued but
unpaid dividends before any liquidation proceeds are distributed to the
holders of any other class of AVCOM Stock. The AVCOM Preferred is convertible
into common stock as a class, by affirmative vote of the holders of 66 2/3% of
the AVCOM Preferred, on a one-for-one basis, subject to adjustment for stock
dividends, stock splits, mergers and similar changes of AVCOM's capital
structure. Any unpaid dividends are voided upon conversion.
On October 24, 1996, at a special meeting of the holders of the AVCOM
Preferred, holders of 83% of the outstanding shares voted to convert the AVCOM
Preferred as a class into shares of AVCOM Stock. With such vote, each
outstanding share of AVCOM Preferred was converted into one share of AVCOM
Stock. AVCOM's transfer agent has been instructed to issue certificates
representing shares of AVCOM's Stock to the holders of the AVCOM Preferred
upon surrender and cancellation of the AVCOM Preferred certificates. All
holders of the AVCOM Preferred have been directed to forward the certificates
representing their AVCOM Preferred to AVCOM's transfer agent for cancellation
and issuance of a certificate representing shares of AVCOM Stock in an amount
equal to the previously outstanding shares of AVCOM Preferred.
Options and Warrants
AVCOM issued an option to purchase up to 350,000 shares of AVCOM common
stock with an exercise price of $.02 per share to William C. Needham, Jr. The
option is currently exercisable and expires August 31, 1998. The option
becomes forfeitable if the common stock does not trade in a public market for
at least $4.00 for 120 consecutive trading days. If the option is exercised
prior to the expiration date and the common stock
112
<PAGE>
does not trade in a public market for at least $4.00 for 120 consecutive
trading days, shares issued upon exercise of the option may be repurchased by
AVCOM for $0.02 per share. AVCOM is making claim against Mr. Needham for
cancellation of this option, and Mr. Needham has claimed to exercise the
option. See "INFORMATION REGARDING AVCOM INTERNATIONAL, INC.--Legal
Proceedings."
AVCOM has granted partially vested options to acquire a total of 300,000
shares of common stock to Messrs. Hughes and Stevens under its Stock Option
Plan at an exercise price of $3.44 per share. These options are intended to
qualify as incentive stock options under Section 422 of the Internal Revenue
Code of 1986, as amended. Additionally, AVCOM granted Mr. Eckenroth options to
purchase 100,000 shares of common stock at $2.75 per share. These options were
granted under Mr. Eckenroth's employment agreement and are non-qualified
options and are fully vested.
113
<PAGE>
SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA OF AVCOM INTERNATIONAL, INC.
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
The statements of operations for the years ended December 31, 1993, 1994 and
1995 and the balance sheet data as of December 31, 1994 and 1995 are derived
from AVCOM's consolidated financial statements and notes thereto which have
been audited by Ernst & Young LLP, independent public accountants, and are
included elsewhere in this Proxy Statement/Prospectus. Balance sheet data as
of December 31, 1993 is derived from AVCOM's consolidated financial statements
which have been audited by Ernst & Young LLP, independent public accountants,
which are not included in this Proxy Statement/Prospectus. The statements of
operations and the balance sheet data for and as of the nine months ended
September 30, 1995 and 1996 and the statements of operations and balance sheet
data for and as of December 31, 1991 and December 31, 1992 have been derived
from unaudited financial statements that in the opinion of AVCOM's management
reflects all adjustments, consisting of normal recurring adjustments,
necessary to present fairly the financial information for such periods and of
such dates. The selected consolidated financial data presented below should be
read in conjunction with AVCOM's consolidated financial statements, appearing
elsewhere in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 30
----------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
------ ------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF
OPERATIONS:
Revenues:
Sales of Vacation
Intervals............ $6,416 $9,859 $ 14,481 $ 24,130 $ 33,231 $ 24,821 $ 30,411
Timeshare management.. -- -- 452 650 1,256 962 1,059
Contract commission
revenue.............. -- -- -- -- -- -- 497
Gain on sale of notes
receivable........... -- -- 167 571 566 564 77
Health club revenue... -- -- -- -- -- -- 375
Other................. -- -- 99 66 193 137 250
------ ------ --------- --------- --------- --------- ---------
Total revenues........ 6,416 9,859 15,199 25,417 35,246 26,484 32,669
Costs and operating
expenses:
Cost of Vacation
Intervals sold....... 1,676 2,641 3,548 6,792 11,081 7,682 8,744
Marketing and selling. 3,212 4,921 6,950 12,232 13,920 11,232 15,117
Timeshare management.. -- -- 547 743 1,571 1,023 1,769
Contract marketing and
selling.............. -- -- -- -- -- -- 974
Health club expenses.. -- -- -- -- -- -- 572
General and
administrative....... 323 715 1,621 3,034 4,780 3,256 6,229
Resort property
valuation allowance.. -- -- -- -- -- -- 839
Provision for doubtful
accounts............. 322 140 251 371 792 212 1,055
------ ------ --------- --------- --------- --------- ---------
Total costs and
operating expenses... 5,533 8,417 12,917 23,172 32,144 23,405 35,299
Operating income
(loss)............... 883 1,442 2,282 2,245 3,102 3,079 (2,630)
Minority interest in
consolidated limited
partnership.......... -- -- -- -- -- -- (112)
Interest and financing
costs................ (42) (299) (335) (809) (1,818) (1,122) (2,944)
Interest income....... 35 179 236 180 594 253 2,396
------ ------ --------- --------- --------- --------- ---------
Income (loss) before
income taxes......... 876 1,322 2,183 1,616 1,878 2,210 (3,290)
Income taxes
(benefit)............ 0 0 1,970 695 838 936 (1,316)
------ ------ --------- --------- --------- --------- ---------
Net income (loss)..... $ 876 $1,322 $ 213 $ 921 $ 1,040 $ 1,274 $ (1,974)
====== ====== ========= ========= ========= ========= =========
Cumulative preferred
stock dividends...... -- -- -- 105 105 79 79
------ ------ --------- --------- --------- --------- ---------
Net income (loss)
available for holders
of Common Stock...... -- -- -- 816 935 1,195 (2,053)
====== ====== ========= ========= ========= ========= =========
Earnings (loss) per
share of Common Stock
(pro forma in
1993)(a)............. -- -- 0.27 0.16 0.17 0.22 (0.41)
Weighted average
number of shares of
common stock and
common stock
equivalents (pro
forma in 1993)....... -- -- 4,682,507 4,942,759 5,554,089 5,530,669 4,987,080
</TABLE>
114
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 30
-------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA(b)............... $ 1,052 $ 1,738 $ 2,574 $ 2,571 $ 3,881 $ 3,463 $ 502
Cash flows provided by
(used in):
Operating activities... 291 (3,545) 2,907 291 3,564 3,101 1,327
Investing activities... (43) (120) (2,197) (1,926) (13,413) (9,009) (17,904)
Financing activities... (247) 3,636 (183) 1,046 11,378 6,164 15,735
Number of existing
resorts at period end.. 1 2 2 4 4 4 9
Number of Vacation
Intervals sold......... 605 922 1,061 1,987 2,304 1,809 1,994
Number of Vacation
Intervals in inventory. 1,078 2,196 1,211 3,948 1,995 2,322 8,888
Average price of
Vacation Intervals..... $10,609 $10,693 $13,650 $12,140 $ 14,420 $ 13,720 $ 15,600
BALANCE SHEET DATA (AT
END OF PERIOD):
Cash, including cash in
escrow................. 64 35 589 1,026 1,807 486 687
Total assets............ 2,658 7,385 8,459 20,852 35,934 31,380 78,283
Long-term debt
(including capitalized
leases)................ 82 4,477 3,454 12,960 23,453 18,540 52,906
Stockholders' equity(c). 1,078 1,724 2,514 3,415 5,340 5,673 3,766
</TABLE>
- --------
(a)See Footnote 1 to AVCOM's consolidated financial statements.
(b) As shown below, EBITDA represents net income (loss) 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
AVCOM's operating results or to operating cash flow as a measure of
liquidity. The following table reconciles EBITDA to net income:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------- --------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income (loss)........... $ 876 $1,322 $ 213 $ 921 $1,040 $1,274 $(1,974)
Interest and financing
costs...................... 42 299 335 809 1,818 1,122 2,944
Taxes....................... 0 0 1,970 695 838 936 (1,316)
Depreciation and
amortization............... 134 117 56 146 185 131 848
------ ------ ------ ------ ------ ------ -------
EBITDA...................... $1,052 $1,738 $2,574 $2,571 $3,881 $3,463 $ 502
====== ====== ====== ====== ====== ====== =======
</TABLE>
- --------
(c)Partners' capital in 1991 and 1992.
115
<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL INFORMATION OF SIGNATURE RESORTS,
INC.
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth summary consolidated historical financial
information of Signature. For periods ending prior to September 30, 1996, the
financial information presented below combines each of Signature's predecessor
limited partnerships, limited liability companies and other affiliated
corporations that were combined into Signature in the Consolidation
Transactions. The following financial information does not give effect to the
proposed acquisition of AVCOM. Such information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the consolidated financial statements for Signature and the
notes thereto which are contained elsewhere in this Proxy
Statement/Prospectus. Due to seasonality, other market factors and additions
to the number of Signature's resorts, the combined historical and pro forma
results for the nine months ended September 30, 1995 and 1996 are not
necessarily indicative of results for a full year.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------- ----------------------
1992 1993 1994 1995 1995 1996
------- -------- -------- -------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenues:
Vacation Interval
sales................. $11,328 $ 22,238 $ 40,269 $ 59,071 $ 46,385 $ 49,459
Interest income........ 402 1,825 3,683 6,929 4,669 6,627
Other income........... 115 373 338 6,608 2,641 7,646
------- -------- -------- -------- ---------- ----------
Total revenues......... 11,845 24,436 44,290 72,608 53,695 63,732
Costs and operating
expenses:
Vacation Interval cost
of sales.............. 2,999 5,708 12,394 15,650 12,547 11,255
Advertising, sales and
marketing............. 4,734 10,809 18,745 28,488 22,429 24,408
Loan portfolio
Interest expense--
treasury............. 168 674 1,629 3,586 2,533 4,022
Other expenses........ 50 208 851 1,189 758 1,048
Provisions for
doubtful accounts.... 555 619 923 1,787 1,471 1,372
General and
administrative
Resort-level.......... 665 2,346 2,864 4,947 2,760 4,961
Corporate............. 375 877 874 1,607 1,130 2,428
Depreciation and
amortization.......... 209 384 489 1,675 1,158 1,675
Interest expense--
other................. -- 518 959 476 344 1,868
------- -------- -------- -------- ---------- ----------
Total costs and
operating expenses.... 9,755 22,143 39,728 59,405 45,130 53,037
Net operating income... 2,090 2,293 4,562 13,203 8,565 10,695
Equity loss on
investment in joint
venture............... -- -- 271 1,649 1,293 95
------- -------- -------- -------- ---------- ----------
Net income before
taxes................. 2,090 2,293 4,291 11,554 7,272 10,600
Income taxes........... -- -- -- 641 210 539
------- -------- -------- -------- ---------- ----------
Net income............. $ 2,090 $ 2,293 $ 4,291 $ 10,913 $ 7,062 $ 10,061
======= ======== ======== ======== ========== ==========
Pro forma net
income(a)............. 1,301 1,414 2,674 7,206 4,533 6,608
Pro forma net income
per share of common
stock(a).............. -- -- -- -- .40 .54
Pro forma weighted
average number of
shares of common stock
outstanding........... -- -- -- -- 11,354,705 12,321,759
OTHER DATA:
Ratio of earnings to
fixed charges(b)....... 4.23 2.00 1.82 2.77 2.56 2.07
Pro forma ratio of
earnings to fixed
charges(c)............. -- -- -- 3.48 -- 2.27
EBITDA(d)............... $ 2,467 $ 3,869 $ 7,368 $ 17,291 $ 11,307 $ 18,165
Cash flows provided by
(used in)
Operating activities... (6,166) (3,262) (10,964) 2,304 4,345 (21,851)
Investing activities... (51) (10,776) (24,940) (36,919) (31,382) (27,390)
Financing activities... 5,146 15,341 36,134 37,102 30,121 54,744
Number of resorts at
period end............. 1 3 4 7 7 9
Number of Vacation
Intervals sold(e)...... 1,284 2,442 4,482 5,675 4,321 5,157
Numbers of Vacation
Intervals in
inventory(e)........... 1,164 1,233 2,401 9,917 18,122 22,509
Average price of
Vacation Intervals
sold(e)................ $ 8,822 $ 9,106 $ 8,985 $ 11,353 $ 11,196 $ 13,223
BALANCE SHEET DATA (AT
END OF PERIOD):
Cash, including cash in
escrow................. $ 850 $ 2,567 $ 4,282 $ 6,288 $ 6,757 $ 11,339
Total assets............ 18,739 38,230 82,454 138,085 126,643 214,529
Long-term debt.......... 9,696 22,931 44,415 84,738 75,066 81,145
Stockholders' equity.... 7,439 11,838 30,780 38,470 37,312 100,115
</TABLE>
116
<PAGE>
- --------
(a) 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.
(b) The ratio of earnings to fixed charges has been computed by dividing
earnings before income tax plus fixed charges (excluding capitalized
interest) and amortization of previously capitalized interest by fixed
charges. Fixed charges consist of interest and other finance expenses and
capitalized interest.
(c) The pro forma ratio of earnings to fixed charges has been computed as
described in (b) above after giving effect to the net decrease in interest
expense resulting from the portion of the convertible offering used to
retire existing indebtedness of Signature.
(d) 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 Signature's
operating results or to operating cash flow as a measure of liquidity. The
following table reconciles EBITDA to net income:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------- ---------------
1992 1993 1994 1995 1995 1996
------ ------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net income.................. $2,090 $2,293 $4,291 $10,913 $ 7,062 $10,061
Interest expense--treasury.. 168 674 1,629 3,586 2,533 4,022
Interest expense--other..... -- 518 959 476 344 1,868
Taxes....................... -- -- -- 641 210 539
Depreciation and
amortization............... 209 384 489 1,675 1,158 1,675
------ ------ ------ ------- ------- -------
EBITDA...................... $2,467 $3,869 $7,368 $17,291 $11,307 $18,165
====== ====== ====== ======= ======= =======
</TABLE>
(e) Includes the effect of sales or inventory of Vacation Intervals at
Signature's non-consolidated resort (the Embassy Vacation Resort Poipu
Point).
117
<PAGE>
PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
The unaudited pro forma combined Signature and AVCOM balance sheet as of
September 30, 1996, and unaudited pro forma combined statements of income for
the nine months ended September 30, 1996, and for the years ended December 31,
1995, 1994 and 1993, give effect to the proposed merger of Signature and
AVCOM.
The proposed merger of Signature and AVCOM is presented using the pooling of
interests method of accounting, assuming Signature will issue .16 shares of
Signature Stock (based on a current price of Signature's Stock) for each one
share of AVCOM Stock in accordance with Article I, Paragraph 1.3 of the
Agreement and Plan of Merger by and among Signature Resorts, Inc. and AVCOM
International, Inc. as amended (as amended, the "MERGER AGREEMENT"). At
September 30, 1996, AVCOM had options outstanding for 400,000 shares which are
held by employees of AVCOM. In addition, William C. Needham, Jr. claims to
hold options to purchase 350,000 shares which options are being disputed by
AVCOM. Upon consummation, valid options will be converted into the right to
receive shares of Signature stock based upon the value of the options at the
effective time of the Merger, unless Signature elects, at its option, to
convert the options into options to acquire Signature Stock. See "THE PROPOSED
MERGER--General Description of the Merger."
The pro forma combined balance sheet as of September 30, 1996 gives effect
to the proposed Merger as if it had occurred at that date. The pro forma
combined statements of income for the nine months ended September 30, 1996,
and for the year ended December 31, 1995, give effect to the Consolidation
Transactions, the Initial Public Offering and the Merger as if it had been in
effect throughout the periods presented. The pro forma combined statements of
income for the years ended December 31, 1994 and 1993 give effect only to the
Consolidation Transactions and the Merger. The information shown is based upon
numerous assumptions and estimates and is not necessarily indicative of the
results of future operations of the combined entity or the actual results that
would have occurred had the Merger been consummated during the periods
indicated. These statements should be read in conjunction with the
consolidated financial statements of Signature and the consolidated financial
statements of AVCOM which are included herein.
COMPARATIVE PER SHARE DATA (UNAUDITED)
Under the terms of the Merger Agreement, AVCOM shareholders will receive .26
shares of Signature Stock for each share of AVCOM Stock subject to adjustment
in the event the Conversion Share Value (as defined) of a share of Signature
Stock exceeds $23.33 per share or is less than $15.55. As stated in the Merger
Agreement, if the Conversion Share Value of a share of Signature Stock is less
than $15.55 per share, then Signature is not required to consummate the
Merger. The final conversion ratio will be based upon the Conversion Share
Value of the Signature Stock (as defined) at the Closing Date. Assuming a
minimum Conversion Share Value of Signature Stock of $15.55 per share and a
maximum Conversion Share Value of $37.25, a recent closing price, the
conversion ratios would be .26 and .16, respectively, and AVCOM shareholders
would receive 1,371,405 shares and 843,942 shares, respectively, of Signature
Stock.
118
<PAGE>
The following table presents, on an unaudited basis, at the dates and for
the periods indicated (i) historical per share data for Signature and AVCOM,
(ii) pro forma combined per share data giving effect to the merger with AVCOM
and (iii) pro forma equivalent per share data for AVCOM Stock. The pro forma
financial data and equivalent per share data assume conversion ratios of .26
and .16 for AVCOM as discussed above.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
NINE MONTHS ENDED
SEPTEMBER 30, 1996 1995 1994 1993
------------------ ----------- ---------- ----------
<S> <C> <C> <C> <C>
HISTORICAL DATA
Signature Resorts,
Inc.(a)
Weighted average
shares
outstanding........ 12,321,759 11,354,705 -- --
Earnings per
share(b)........... $ 0.54 $ 0.63 -- --
Book value per
share.............. $ 5.76 $ 3.39 -- --
Cash dividends per
share.............. -- -- -- --
AVCOM International,
Inc.
Weighted average
shares
outstanding........ 4,987,080 5,554,089 4,942,759 4,682,507
Earnings per share.. $ (0.41) $ 0.17 $ 0.16 $ 0.27(c)
Book value per
share.............. $ 0.55 $ 1.05 $ 0.59 $ 0.36
Cash dividends per
share.............. -- -- -- --
</TABLE>
- --------
(a) Historical information for Signature is presented on a pro forma basis,
assuming the shares issued in connection with the Initial Public Offering
and the Consolidation Transactions were outstanding since January 1, 1995.
Per share amounts prior to 1995 are not presented.
(b) Reflects the effects on earnings per share assuming Signature had been
treated as a C corporation rather than as individual limited partnerships
and limited liability companies for federal income tax purposes.
(c) Historical earnings per share for AVCOM for the year ended December 31,
1993 are presented on a pro forma basis and gives effect to the
reorganization, as if it occurred at the beginning of the period and is
based on income before income taxes, adjusted for cumulative and unpaid
dividends on convertible preferred stock and adjusted for a pro forma
income tax provision at the rate of forty percent, and on the outstanding
weighted average shares (less treasury stock), common stock equivalents
and convertible preferred stock.
119
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------------------
NINE MONTHS ENDED
SEPTEMBER 30, 1996 1995 1994 1993
------------------ ---------- ------ ------
<S> <C> <C> <C> <C>
PRO FORMA COMBINED DATA
Pro Forma combined at a
conversion ratio of .26
Weighted average shares
outstanding................... 18,886,241 18,763,610 -- --
Earnings per share............. $ 0.36 $ 0.57 -- --
Book value per share........... $ 5.54 -- -- --
Cash dividends per share....... -- -- -- --
Pro Forma combined at a
conversion ratio of .16
Weighted average shares
outstanding................... 18,338,778 18,236,147 -- --
Earnings per share............. $ 0.37 $ 0.59 -- --
Book value per share........... $ 5.70 -- -- --
Cash dividends per share....... -- -- -- --
PRO FORMA EQUIVALENT PER SHARE DATA
Equivalent AVCOM per share
amounts at a conversion ratio of
.26
Weighted average AVCOM shares
outstanding................... 4,987,080 5,554,089 -- --
Earnings per share............. $ 0.09 $ 0.15 -- --
Book value per share........... $ 1.44 -- -- --
Cash dividends per share....... -- -- -- --
Equivalent AVCOM per share
amounts at a conversion ratio of
.16
Weighted average AVCOM shares
outstanding................... 4,987,080 5,554,089 -- --
Earnings per share............. $ 0.06 $ 0.09 -- --
Book value per share........... $ 0.91 -- -- --
Cash dividends per share....... -- -- -- --
</TABLE>
120
<PAGE>
COMBINED PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED AND IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO
INCREASE FORMA
SIGNATURE AVCOM (DECREASE)(A) COMBINED
--------- ------- ------------- --------
<S> <C> <C> <C> <C>
ASSETS
Cash................................. $ 9,844 $ 687 $ 10,531
Escrow............................... 1,495 -- 1,495
Mortgages receivable................. 87,956 36,659 124,615
Due from affiliates.................. 4,567 1,320 5,887
Other receivables, net............... 8,249 1,037 9,286
Prepaid expenses and other assets.... 2,275 5,225 7,500
Investment in joint venture.......... 7,538 -- 7,538
Real estate and development costs.... 85,030 26,705 111,735
Property and equipment, net.......... 2,733 5,580 8,313
Intangible assets.................... 4,842 470 5,312
Investment in common stock........... -- 600 600
-------- ------- ------ --------
Total assets....................... $214,529 $78,283 $292,812
======== ======= ====== ========
LIABILITIES AND EQUITY:
Accounts payable..................... $ 7,903 $ 9,665 $ 17,568
Accrued liabilities.................. 11,766 8,383 20,149
Due to related parties............... 1,632 354 1,986
Income taxes payable................. 569 -- 569
Deferred taxes....................... 11,399 1,597 12,996
Notes payable to financial
institutions........................ 81,145 52,906 134,051
-------- ------- ------ --------
Total liabilities.................. 114,414 72,905 187,319
======== ======= ====== ========
Minority interest in consolidated
limited partnership................. -- 1,612 1,612
SIGNATURE EQUITY:
Common Stock......................... 174 8 (d) 182
Additional paid-in capital........... 98,515 2,232 (d) 100,747
Retained earnings.................... 1,426 1,526 (d) 2,952
AVCOM EQUITY:
Preferred Stock...................... 13 (13)(b) --
Common Stock......................... 41 13 (b) --
(54)(d)
Additional paid-in capital........... 2,216 (30)(c) --
(2,186)(d)
Retained earnings.................... 1,526 (1,526)(d) --
Treasury stock....................... (30) 30 (c) --
-------- ------- ------ --------
Total equity....................... 100,115 3,766 103,881
-------- ------- ------ --------
Total liabilities and equity....... $214,529 $78,283 $292,812
======== ======= ====== ========
</TABLE>
The accompanying notes are an integral part of this combined pro forma balance
sheet.
121
<PAGE>
- --------
Pro forma adjustments for proposed merger of Signature and AVCOM
(a) Pro forma adjustments to combine Signature and AVCOM assume the pooling
occurred on September 30, 1996. Stockholders' equity of AVCOM has been
eliminated to reflect the merger.
(b) Reflects the conversion of 1,310,700 shares AVCOM preferred stock
($13,000) to 1,310,700 shares of AVCOM Stock ($13,000) in accordance with
preexisting conversion rights.
(c) Reflects the cancellation of 12,000 shares of AVCOM treasury stock
($30,000).
(d) Reflects the issuance of 843,942 shares of Signature common stock ($8,000)
in exchange for all outstanding AVCOM Stock ($54,000), and the merger of
AVCOM equity into Signature.The conversion ratio assumed in the pro forma
balance sheet is the conversion ratio for a recent close of $37.25
calculated as described in Article I, Paragraph 1.3 of the Agreement and
Plan of Merger by and among Signature Resorts, Inc. and AVCOM
International, Inc. as amended (as amended, the "Merger Agreement"). This
conversion ratio would result in .16 shares of Signature common stock
being exchanged for each share of AVCOM's common stock. The conversion
ratio may be adjusted as described in Article I, Paragraph 1.3 of the
Merger Agreement, based on the average per share value of Signature common
stock (as defined) on the closing date. As of the date of this filing, the
final conversion ratio could not be determined.
122
<PAGE>
COMBINED PRO FORMA STATEMENTS OF INCOME
(UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED DECEMBER 31,
ENDED ------------------------
9/30/96 1995 1994 1993
----------- -------- ------- -------
<S> <C> <C> <C> <C>
REVENUES:
Vacation interval sales................. $79,870 $ 92,302 $64,399 $36,719
Interest income......................... 9,023 7,523 3,863 2,061
Other income............................ 6,799 7,372 882 544
------- -------- ------- -------
Total revenues........................ $95,692 $107,197 $69,144 $39,324
------- -------- ------- -------
COST OF SALES AND OPERATING EXPENSES:
Vacation interval cost of sales......... $19,949 $ 26,667 $19,186 $ 9,256
Advertising, sales and marketing........ 39,525 42,408 30,977 17,759
Loan portfolio--
Interest expense--treasury............ 3,159 518 1,982 866
Other................................. 982 1,074 851 208
Provision for doubtful accounts....... 2,427 2,579 1,294 870
General and administrative--
Resort-level.......................... 4,961 4,947 2,864 2,346
Corporate............................. 7,886 6,202 3,762 2,442
Depreciation and amortization........... 2,446 1,860 635 440
Interest expense--other................. 1,623 1,300 1,415 661
------- -------- ------- -------
Total costs and operating expenses.... 82,958 87,555 62,966 34,848
------- -------- ------- -------
NET OPERATING INCOME...................... 12,734 19,642 6,178 4,476
Equity in loss on investment in joint
venture................................ 485 1,804 271 --
Minority interest in profits of limited
partnership............................ 112 -- -- --
Resort property valuation allowance..... 839 -- -- --
------- -------- ------- -------
NET INCOME BEFORE TAXES................... 11,298 17,838 5,907 4,476
Income taxes............................ 4,519 7,135 2,363 2,887
------- -------- ------- -------
NET INCOME................................ $ 6,779 $ 10,703 $ 3,544 $ 1,589
======= ======== ======= =======
PRO FORMA EARNINGS PER SHARE BASED UPON
CONVERSION RATIO OF .16.................. $ 0.37 $ 0.59 -- --
======= ======== ======= =======
</TABLE>
123
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS DATA
NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-------------------------------------------------------
PRO FORMA ADJUSTMENTS
------------------------------
CONSOLIDATION
COMPANY TRANSACTIONS/INITIAL THE COMPANY
ACTUAL PUBLIC OFFERING(A) MERGER(B) PRO FORMA
---------- -------------------- --------- ----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenue
Vacation Interval
sales................ $ 49,459 $ -- $30,411 $ 79,870
Interest Income....... 6,627 -- 2,396 9,023
Other Income.......... 7,646 210 (c) (1,057) 6,799
---------- --------- ------- ----------
Total revenues 63,732 210 31,750 95,692
---------- --------- ------- ----------
Costs and Operating
Expenses
Vacation Interval cost
of sales............. 11,255 (50)(d) 8,744 19,949
Advertising, sales and
marketing............ 24,408 -- 15,117 39,525
Loan Portfolio
Interest expense.... 4,022 (2,212)(d) 1,349 3,159
Other expenses...... 1,048 (66)(d) -- 982
Provision for
doubtful accounts.. 1,372 -- 1,055 2,427
General and
administrative
Resort-level........ 4,961 -- -- 4,961
Corporate........... 2,428 -- 5,458 7,886
Depreciation and
amortization......... 1,675 -- 771 2,446
Other interest
expense.............. 1,868 (1,840)(d) 1,595 1,623
---------- --------- ------- ----------
Total costs and
operating
expenses........... 53,037 (4,168) 34,089 82,958
---------- --------- ------- ----------
Net Operating Income 10,695 4,378 (2,339) 12,734
Loss (Gain) on equity
investment........... 95 390 (e) -- 485
Minority interest in
profits of limited
partnership.......... -- -- 112 112
Resort property
valuation allowance.. -- -- 839 839
---------- --------- ------- ----------
Net Income Before
Taxes.................. 10,600 3,988 (3,290) 11,298
Income taxes.......... 539 5,296 (f) (1,316) 4,519
---------- --------- ------- ----------
Net income.............. $ 10,061 $ (1,308) $(1,974) $ 6,779
========== ========= ======= ==========
Pro forma net income per
share of Common Stock.. $ 0.82 $ 0.37
Pro forma weighted
average Common Stock
outstanding............ 12,321,759 5,173,077 (g) 843,942 (h) 18,338,778
</TABLE>
- --------
(a) The consolidated pro forma statements of operations all give effect to the
exchange of direct and indirect in, and obligations of, certain
predecessor limited partnerships, limited liability companies and
corporation for shares of the Company's common stock in the Consolidated
Transactions as if it had occurred at the beginning of the period
indicated. The Consolidation Transactions were consummated concurrently
with the Offering in August 1996. The pro forma adjustments are based upon
currently available information and certain assumptions that the Company's
management believes are reasonable under current circumstances.
(b) The pro forma adjustments for the Merger assume pooling of interests
accounting and reflect the historical statements of operations data for
AVCOM.
(c) Reflects increase in interest income due to the purchase of loans of $2.7
million from certain combining interests relating to loans made by such
combining interests to the joint venture. The loans carry interest at 12%
per annum.
(d) Reflects the following: (i) the elimination or reduction of interest
expense due to the retirement of $54.3 million of debt retirement with
respect to the period ended September 30, 1996; (ii) the reduction of
Vacation Interval cost of sales due to the reduction of capitalized
interest related to the retirement of construction debt; and (iii) the
elimination of financing fees on advances not required as a result of the
debt retirement. The average interest rate on a per annum basis on the
debt retired was 11.5% for the nine months ended September 30, 1996.
(e) Reflects the increase in goodwill amortization on the purchase of a joint
venture interest.
(f) Reflects the effect on historical statements of (c)-(e) 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.
(g) Reflects the Initial Public Offering of 6,037,500 shares of Common Stock
and approximately 1,400,000 options granted to employees and directors to
acquire shares issued during the nine months ended September 30, 1996.
(h) Includes the estimated number of shares that will be issued in connection
with the Merger using an assumed conversion ratio of .16.
124
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS DATA
YEAR ENDED DECEMBER 31, 1995
(UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-------------------------------------------------------
PRO FORMA ADJUSTMENTS
------------------------------
CONSOLIDATION
COMPANY TRANSACTIONS/INITIAL THE COMPANY
ACTUAL PUBLIC OFFERING(A) MERGER(B) PRO FORMA
---------- -------------------- --------- ----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenue
Vacation Interval
sales................ $ 59,071 $ -- $33,231 $ 92,302
Interest Income....... 6,929 -- 594 7,523
Other Income.......... 6,608 320 (c) 444 7,372
---------- --------- ------- ----------
Total revenues 72,608 320 34,269 107,197
---------- --------- ------- ----------
Costs and Operating
Expenses
Vacation Interval cost
of sales............. 15,650 (64)(d) 11,081 26,667
Advertising, sales and
marketing............ 28,488 -- 13,920 42,408
Loan Portfolio
Interest expense.... 3,586 (3,586)(d) 518 518
Other expenses...... 1,189 (115)(d) -- 1,074
Provision for
doubtful accounts.. 1,787 -- 792 2,579
General and
administrative
Resort-level........ 4,947 -- -- 4,947
Corporate........... 1,607 -- 4,595 6,202
Depreciation and
amortization......... 1,675 -- 185 1,860
Other interest
expense.............. 476 (476)(d) 1,300 1,300
---------- --------- ------- ----------
Total costs and
operating
expenses........... 59,405 (4,241) 32,391 87,555
---------- --------- ------- ----------
Net Operating Income 13,203 4,561 1,878 19,642
Loss (Gain) on equity
investment........... 1,649 155 (e) -- 1,804
---------- --------- ------- ----------
Net Income Before
Taxes.................. 11,554 4,406 1,878 17,838
Income taxes.......... 641 5,656 (f) 838 7,135
---------- --------- ------- ----------
Net income.............. $ 10,913 $ (1,250) $ 1,040 $ 10,703
========== ========= ======= ==========
Pro forma net income per
share of Common Stock.. $ 0.96 $ 0.59
Pro forma weighted
average Common Stock
outstanding............ 11,354,705 6,037,500 (g) 843,942 (h) 18,236,147
</TABLE>
- --------
(a) The consolidated pro forma statements of operations all give effect to the
exchange of direct and indirect interest in, and obligations of, certain
predecessor limited partnerships, limited liability companies and
corporations for shares of the Company's Common Stock in the Consolidation
Transactions as if it had occurred at the beginning of the period
indicated. The Consolidation Transactions were consummated concurrently
with the Initial Public Offering in August 1996. The pro forma adjustments
are based upon currently available information and certain assumptions
that the Company's management believes are reasonable under current
circumstances.
(b) The pro forma adjustments for the Merger assume pooling of interest
accounting and reflect the historical statements of operations of AVCOM
for the year ended December 31, 1995.
(c) Reflects increase in interest income due to the purchase of loans of $2.7
million from certain combining interests relating to loans made by such
combining interests to the joint venture. The loans carry interest at 12%
per annum.
(d) Reflects the following: (i) the elimination or reduction of interest
expense due to the retirement of $53.5 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 10.82%.
(e) Reflects the increase in goodwill amortization on the purchase of a joint
venture interest.
(f) Reflects the effect on 1995 historical statement of operations data of
(c)-(e) above and assumes the combined Company had been treated as a C
corporation rather than as limited partnerships and limited liability
companies for federal income tax purposes.
(g) Reflects the Initial Public Offering of 6,037,500 shares of Common Stock.
(h) Represents the number of shares estimated to be issued in connection with
the Merger using an assumed conversion ratio of .16.
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<PAGE>
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
PRO FORMA STATEMENT OF OPERATIONS DATA
YEAR ENDED DECEMBER 31, 1994
(UNAUDITED AND IN THOUSANDS EXCEPT)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
----------------------------------
PRO FORMA ADJUSTMENTS
----------------------------------
COMPANY
COMPANY THE INCOME PRO
ACTUAL MERGER(A) TAXES(B) FORMA
------- --------- -------- -------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenue
Vacation Interval sales.................... $40,269 $24,130 $ $64,399
Interest Income............................ 3,683 180 3,863
Other Income............................... 338 544 882
------- ------- ------ -------
Total revenues 44,290 24,854 69,144
------- ------- ------ -------
Costs and Operating Expenses
Vacation Interval cost of sales............ 12,394 6,792 19,186
Advertising, sales and marketing........... 18,745 12,232 30,977
Loan Portfolio
Interest expense......................... 1,629 353 1,982
Other expenses........................... 851 -- 851
Provision for doubtful accounts.......... 923 371 1,294
General and administrative
Resort-level............................. 2,864 -- 2,864
Corporate................................ 874 2,888 3,762
Depreciation and amortization.............. 489 146 635
Other interest expense..................... 959 456 1,415
------- ------- ------ -------
Total costs and operating expenses....... 39,728 23,238 62,966
------- ------- ------ -------
Net Operating Income 4,562 1,616 6,178
Loss (Gain) on equity investment........... 271 -- 271
------- ------- ------ -------
Net Income Before Taxes...................... 4,291 1,616 5,907
Income taxes............................... -- 695 1,668 2,363
------- ------- ------ -------
Net income................................... $ 4,291 $ 921 $1,668 $ 3,544
======= ======= ====== =======
</TABLE>
- --------
(a) The pro forma adjustments for the Merger assume pooling of interest
accounting and reflect the historical statement of operations of AVCOM for
the year ended December 31, 1994.
(b) Reflects the effect on the historical statement of operations assuming the
combined Company had been treated as a C corporation rather than as
limited liability companies for federal income tax purposes.
126
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS DATA
YEAR ENDED DECEMBER 31, 1993
(UNAUDITED AND IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
----------------------------------
PRO FORMA ADJUSTMENTS
----------------------------------
COMPANY
COMPANY THE INCOME PRO
ACTUAL MERGER(A) TAXES(B) FORMA
------- --------- -------- -------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenue
Vacation Interval sales.................... $22,238 $14,481 $ $36,719
Interest Income............................ 1,825 236 2,061
Other Income............................... 373 171 544
------- ------- ---- -------
Total revenues 24,436 14,888 39,324
------- ------- ---- -------
Costs and Operating Expenses
Vacation Interval cost of sales............ 5,708 3,548 9,256
Advertising, sales and marketing........... 10,809 6,950 17,759
Loan Portfolio
Interest expense......................... 674 192 866
Other expenses........................... 208 -- 208
Provision for doubtful accounts.......... 619 251 870
General and administrative
Resort-level............................. 2,346 -- 2,346
Corporate................................ 877 1,565 2,442
Depreciation and amortization.............. 384 56 440
Other interest expense..................... 518 143 661
------- ------- ---- -------
Total costs and operating expenses....... 22,143 12,705 34,848
------- ------- ---- -------
Net Operating Income 2,293 2,183 4,476
Loss (Gain) on equity investment........... -- -- --
------- ------- ---- -------
Net Income Before Taxes...................... 2,293 2,183 4,476
Income taxes............................... -- 1,970 917 2,887
------- ------- ---- -------
Net income................................... $ 2,293 $ 213 $917 $ 1,589
======= ======= ==== =======
</TABLE>
- --------
(a) The pro forma adjustments for the Merger assume pooling of interest
accounting and reflect the historical statement of operations of AVCOM for
the year ended December 31, 1994.
(b) Reflects the effect on the historical statement of operations assuming the
combined Company had been treated as a C corporation rather than as
limited liability companies for federal income tax purposes.
127
<PAGE>
MARKET PRICE DATA
SIGNATURE RESORTS, INC.
Signature's Stock has been listed on the NASDAQ National Market System under
the symbol "SIGR" since its initial public offering which was completed in
August 1996. The following table sets forth the high and low sales prices of
Signature Stock as reported on the NASDAQ National Market System since
Signature's initial public offering.
<TABLE>
<CAPTION>
1996 HIGH LOW
---- ------- ----
<S> <C> <C>
Third Calendar Quarter (beginning August 15, 1996)........ $24 5/8 $13 5/8
Fourth Calendar Quarter (through December 16, 1996)....... $39 1/8 $25
</TABLE>
On September 20, 1996, the last trading day before announcement of the
execution of the Merger Agreement, the closing price of Signature Stock, as
reported on the NASDAQ National Market System, was $20 1/4 per share.
Because the market price of Signature Stock is subject to fluctuation, the
market value of the shares of Signature Stock that AVCOM shareholders will
receive in the Merger may increase or decrease prior to the Merger. Holders of
shares of AVCOM Stock should obtain current market quotation for shares of
Signature Stock.
AVCOM INTERNATIONAL, INC.
AVCOM Stock is traded over-the-counter and its quotations are reported on
the OTC Bulletin Board Display under the symbol "AVMI". The following sets
forth the high and low per share bid price for the AVCOM Stock:
<TABLE>
<CAPTION>
1994 HIGH LOW
---- -------- ------
<S> <C> <C>
Second Calendar Quarter (beginning April 11, 1994)........ $4 11/16 $1 1/2
Third Calendar Quarter.................................... 3 3
Fourth Calendar Quarter................................... 4 2 1/4
1995
----
First Calendar Quarter.................................... $3 5/8 $2 3/4
Second Calendar Quarter................................... 4 3 1/2
Third Calendar Quarter.................................... 4 3
Fourth Calendar Quarter................................... 3 1/8 2 3/4
1996
----
First Calendar Quarter.................................... $3 $2 1/8
Second Calendar Quarter................................... 3 2 1/4
Third Calendar Quarter ................................... 4 3/4 2
Fourth Calendar Quarter (through December 16, 1996)....... 4 7/8 4 1/4
</TABLE>
On September 20, 1996, the last trading day before announcement of the
execution of the Merger Agreement, the last sale price of AVCOM Stock, as
reported on the over-the-counter market, was $3 7/8 per share.
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<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a discussion of the material federal income tax
consequences of the Merger. This discussion is based on the provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), the regulations
thereunder promulgated by the United States Treasury Department, federal court
decisions and Internal Revenue Service rulings as of the date hereof, all of
which are subject to change, possibly retroactively.
This discussion applies only to AVCOM shareholders who hold their stock as a
capital asset. This discussion does not consider all of the tax consequences
that may be relevant to AVCOM Shareholders entitled to special treatment under
the Code, such as insurance companies, dealers in securities, tax-exempt
organizations, foreign persons or to AVCOM shareholders who acquired their
shares of AVCOM Stock pursuant to the exercise of employee stock options or
otherwise as compensation. This discussion also does not consider the tax
consequences of the assumption by Signature of any outstanding AVCOM stock
options. IN VIEW OF THE INDIVIDUAL NATURE OF THE TAX CONSEQUENCES OF THE
MERGER, AVCOM SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO
THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE
APPLICABILITY OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
Neither Signature nor AVCOM has requested a ruling from the Internal Revenue
Service (the "Service"). The opinions of counsel are not binding on the
Service or the courts and do not preclude the Service from adopting a position
contrary to the opinions. Moreover, these opinions are subject to modification
by future legislative, judicial and administrative actions on a prospective
and, possibly, a retroactive basis.
Subject to the qualifications of this discussion, in the opinion of
Gallagher & Kennedy, P.A., assuming that the Merger is treated as a
reorganization as defined in Section 368(a) of the Code, the principal federal
income tax consequences of the Merger to the AVCOM shareholders will be as
follows:
1. No gain or loss will be recognized for federal income tax purposes by
the AVCOM shareholders upon the receipt in the Merger of Signature Stock in
exchange for their shares of AVCOM Stock (except to the extent of cash
received in lieu of fractional shares of Signature Stock.).
2. The aggregate tax basis of the Signature Stock received by the AVCOM
shareholders pursuant to the Merger will be the same as the aggregate tax
basis of the shares of AVCOM Stock exchanged therefor, less any portion of
such tax basis allocated to shares of AVCOM Stock for which cash is
received in lieu of fractional shares of Signature Stock.
3. The holding period of the shares of Signature Stock received by the
AVCOM shareholders will include the period during which the AVCOM
shareholders held the AVCOM Stock surrendered and exchanged therefor,
provided the AVCOM Stock constitutes a capital asset in the hands of the
AVCOM shareholders on the date of the Merger.
4. An AVCOM shareholder who exercises appraisal rights and receives
solely cash in exchange for his or her shares of AVCOM Stock will recognize
capital gain or capital loss measured by the difference between the amount
of cash received and the AVCOM shareholder's basis in such shares, provided
that such shares are a capital asset in the hands of such shareholder on
the date of the exchange and that the payment received by such shareholder
is neither essentially equivalent to a dividend nor has the effect of a
dividend distribution.
An AVCOM shareholder who receives a cash payment in lieu of a fractional
share of Signature Stock will be treated as if such shareholder received the
fractional share, which Signature then redeemed for cash. As a result of this
treatment, an AVCOM shareholder who receives a cash payment in lieu of a
fractional share of Signature Stock will recognize capital gain or capital
loss measured by the difference between the amount of cash received and the
AVCOM shareholder's basis in the fractional share (which will be a pro-rata
portion of the AVCOM shareholder's basis in the Signature Stock received in
the Merger), provided such shareholder holds
129
<PAGE>
his or her AVCOM Stock as a capital asset on the date of the exchange and that
the payment received by such shareholder in lieu of a fractional share is
neither essentially equivalent to a dividend nor has the effect of a dividend
distribution.
The opinions set forth above are subject to certain assumptions and
qualifications and are based on the truth and accuracy of the representations
delivered to Gallagher & Kennedy, P.A. in letters from Signature, ASP, AVCOM,
the officers and directors of Signature, ASP and AVCOM and certain
shareholders of AVCOM. Of particular importance to the tax opinions is the
assumption that the Merger will satisfy the "continuity of interest"
requirement.
In order for the AVCOM shareholders to satisfy the "continuity of interest"
requirement, the AVCOM shareholders must not have a plan or intention at the
time of the Merger to sell or otherwise dispose of an amount of Signature
Stock to be received in the Merger that will reduce their aggregate ownership
of Signature Stock to a number of shares having in the aggregate a value at
the time of the Merger of less than fifty percent of the total value of AVCOM
Stock outstanding immediately prior to the Merger (the "50% Test"). For
purposes of this determination, AVCOM Stock disposed of in connection with the
exercise of appraisal rights or exchanged for cash in lieu of the receipt of a
fractional share will be treated as outstanding AVCOM Stock immediately prior
to the Merger. In certain circumstances, pre-merger dispositions of AVCOM
stock will also be considered for purposes of determining whether the 50% Test
has been satisfied. Signature, ASP, AVCOM, officers and directors of
Signature, ASP, AVCOM and certain shareholders of AVCOM have all represented
that they are not aware of any plan or intention that would result in the 50%
Test not being satisfied. If these representations are not correct and the
"continuity of interest" requirement is not satisfied, the Merger would not
qualify as a reorganization and the federal tax consequences of the Merger to
the AVCOM shareholders described above would not apply.
If the Merger does not qualify as a reorganization, the AVCOM shareholders
would recognize gain or loss with respect to each share of AVCOM Stock
surrendered equal to the difference between the AVCOM shareholder's basis in
the share and the fair market value of the Signature Stock received in
exchange therefor. In such event, an AVCOM shareholder's aggregate basis in
the shares of Signature Stock received in the exchange would equal the fair
market value of such shares, and the AVCOM shareholder's holding period for
such shares would not include the period during which the AVCOM shareholder
held such shareholder's AVCOM Stock.
COMPARISON OF RIGHTS OF SHAREHOLDERS
Upon consummation of the Merger, the AVCOM shareholders will become
shareholders of Signature and their rights will be governed by Signature's
Charter, as amended, and By-Laws, which differ in certain material respects
from AVCOM's Certificate of Incorporation and By-Laws. As shareholders of
Signature, the rights of the AVCOM shareholders will be governed by the MGCL
instead of the Delaware GCL.
The following comparison of the MGCL, and Signature's Charter and By-Laws,
on the one hand, and the Delaware GCL, and AVCOM's Certificate of
Incorporation and By-Laws, on the other hand, is not intended to be complete
and is qualified in its entirety by reference to Signature's Charter and By-
Laws, and AVCOM's Certificate of Incorporation and Bylaws. Copies of
Signature's Charter and By-Laws are available for inspection at the principal
executive offices of Signature and copies will be sent to the AVCOM
shareholders upon request. Copies of AVCOM's Certificate of Incorporation and
By-Laws are available for inspection at the principal executive offices of
AVCOM and copies will be sent to AVCOM shareholders upon request.
Although it is impractical to note all of the differences between the
corporation statutes of Delaware and Maryland, the most significant
differences in the judgment of the management of Signature are summarized
below. The summary is not intended to be complete and reference should be made
to the Delaware GCL and the MGCL.
130
<PAGE>
DIRECTORS
Both the Delaware GCL and the MGCL permit classified boards of directors.
AVCOM does not have a classified board of directors. Signature's Charter
does provide for a classified board. The number of directors of Signature
shall be established by the Bylaws but shall not be less than the minimum
number required by the MGCL, which in the case of Signature is three. The
Bylaws currently provide that the Board of Directors will consist of not fewer
than seven nor more than 13 members. 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 shareholders to be held in 1997, another class will hold
office initially for a term expiring at the annual meeting of shareholders to
be held in 1998 and another class will hold office initially for a term
expiring at the annual meeting of shareholders 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. Signature
believes that classification of the Board of Directors will help to assure the
continuity and stability of Signature'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 Signature, even though such an attempt might be beneficial
to Signature and its shareholders. At least two annual meetings of
shareholders, 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 Signature Stock will have no right to
cumulative voting for the elections of directors. Consequently, at each annual
meeting of shareholders, the holders of a majority of outstanding shares of
Signature Stock will be able to elect all of the successors of the class of
directors whose term expires at that meeting.
Under AVCOM's By-Laws, the number of directors which shall constitute the
whole board shall not be less than one or more than nine. The directors shall
be elected at the annual meeting of the shareholders and each director elected
shall hold office until his successor is elected and qualified. AVCOM's By-
Laws provide that vacancies may be filled by a majority of the directors then
in office, though less than a quorum, or by a sole remaining director, and the
directors so chosen shall hold office until the next annual election and until
their successors are duly elected and shall qualify.
Any vacancy on the Signature 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.
REMOVAL OF DIRECTORS
Signature's 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 shareholders 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 shareholders from removing incumbent directors except upon a
substantial affirmative vote and filling the vacancies created by such removal
with their own nominees.
Under the Delaware GCL, any one or all of the directors of a corporation
without a classified board of directors may be removed, with or without cause,
by the holders of a majority of shares then entitled to vote in an election of
directors. Although neither AVCOM's Certificate of Incorporation nor its By-
Laws provide for a classified board, its By-Laws provide that a director may
be removed from the Board of Directors with or without cause by the holders of
a majority of shares entitled to vote at an election of directors.
131
<PAGE>
LIMITATION ON PERSONAL LIABILITY OF DIRECTORS
Delaware corporations are permitted to adopt charter provisions limiting, or
even eliminating, the liability of a director of a company and its
shareholders for monetary damages for breach of fiduciary duty as a director,
provided that such liability does not arise from certain proscribed conduct,
including breach of the duty of loyalty, acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law or
liability to the corporation based on unlawful dividends or distributions or
improper personal benefit. Unlike Delaware, Maryland permits such limitations
to extend to officers as well as directors.
AVCOM's Certificate of Incorporation provides that a director of AVCOM is
not personally liable to AVCOM or its shareholders for monetary damages for
breach of fiduciary duty as a director, except for liability (a) for any
breach of the director's duty of loyalty to AVCOM or its shareholders, (b) for
acts or omissions not in good faith or which involved intentional misconduct
or a knowing violation of law, (c) under Section 174 of the Delaware GCL, or
(d) for any transaction from which the director derived any improper personal
benefit.
Signature's Charter limits the liability of Signature's directors and
officers to Signature and its shareholders 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 shareholders 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 Signature or its shareholders to obtain other relief, such as an
injunction or rescission.
INDEMNIFICATION OF OFFICERS AND DIRECTORS AND ADVANCEMENT OF EXPENSES
Delaware and Maryland have similar provisions regarding indemnification by a
corporation of its officers, directors, employees and agents. However, the
Delaware GCL permits a court to allow indemnification where the person seeking
indemnification has been found liable to the corporation, whereas the MGCL
does not permit indemnification in that circumstance.
Delaware and Maryland law differ in their provisions for advancement of
expenses incurred by an officer or director in defending a civil or criminal
action, suit or proceeding. Both give the corporation discretion to advance
expenses incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding prior to the final
disposition of the action, suit or proceeding upon receipt of an undertaking
by or on behalf of the director or officer to repay the amount if it is
ultimately determined that he is not entitled to be indemnified by the
corporation. However, the MGCL does not require security for the undertaking
to repay or verification of financial ability to repay, which would be
required by the Delaware GCL.
There is no provision in AVCOM's Certificate of Incorporation or By-Laws
regarding indemnification of directors or officers.
Signature's Charter and Bylaws require Signature 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
132
<PAGE>
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
standard of conduct required for indemnification to be permitted. Signature
has directors and officers insurance.
SHAREHOLDER INSPECTION; ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
Delaware permits any shareholder to inspect the stockholder list of the
corporation for certain permitted purposes. Maryland limits such right to
shareholders who own in the aggregate five percent of the outstanding stock of
any class and have been shareholders for at least six months.
Under the Delaware GCL, unless otherwise provided in the certificate or
articles of incorporation, shareholders may take action without a meeting,
without prior notice and without a vote, upon the written consent of
shareholders having not less than the minimum number of votes that would be
necessary to authorize the proposed action at a meeting at which all shares
entitled to vote were present and voted.
The Signature Bylaws provide that any action required or permitted to be
taken at a meeting of shareholders 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 shareholders entitled to notice of the meeting
but not entitled to vote at it. Such right has little practical utility in a
public company.
In order for Signature shareholders to call special meetings, the Signature
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 shareholders to submit a
proposal to the vote of all shareholders of Signature in accordance with the
Bylaws, which provide for the additional notice requirements for stockholder
nominations and proposals at the annual meetings of shareholders as described
above.
AVCOM's By-Laws provide that special meetings of the shareholders may be
called by the president, and shall be called by the president or secretary at
the request of a majority of the Board of Directors, or at the request of
shareholders owning a majority in amount of the entire capital stock of the
corporation issued and outstanding and entitled to vote. AVCOM's By-Laws also
provide that any action required to be taken at any annual or special meeting
of the shareholders, or any action which may be taken at any annual or special
meeting of shareholders, may be taken without a meeting, without prior notice
and without a vote, upon the written consent of the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote were present and voted.
CUMULATIVE VOTING
Under both the Delaware GCL and the MGCL cumulative voting of stock applies
only when so provided in the certificate or articles of incorporation of a
corporation. Neither Signature's Charter nor AVCOM's Certificate of
Incorporation provide for cumulative voting.
DIVIDENDS
Under the Delaware GCL, unless otherwise provided in the certificate of
incorporation, a corporation may declare and pay dividends, out of surplus, or
if no surplus exists, out of net profits for the fiscal year in which the
dividend is declared and/or the preceding fiscal year (provided that the
amount of capital of the corporation following the declaration and payment of
the dividends is not less than the aggregate amount of the capital represented
by the issued and outstanding stock of all classes having a preference upon
the distribution of assets). In addition, the Delaware GCL provides that a
corporation may redeem or repurchase its shares only out of surplus.
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<PAGE>
The MGCL permits payment of dividends unless the corporation would not be
able to pay its debts as they become due in the usual course of business or
the corporation's total assets would be less than the sum of the corporation's
total liabilities plus, unless the charter permits otherwise, the amount that
would be needed, if the corporation were to be dissolved at the time of such
dividends, to satisfy the preferential rights upon dissolution of shareholders
whose preferential rights on dissolution are superior to those receiving the
dividends.
Signature does not currently intend to declare or pay any dividends or make
any other distributions on its capital stock. Nevertheless, the difference
between the Delaware GCL and the MGCL, with respect to amounts available for
dividends or other distributions could conceivably effect future dividends or
other distributions, if any are declared.
AMENDMENT OR REPEAL OF THE CERTIFICATE OF INCORPORATION AND BY-LAWS
Under the Delaware GCL, unless the certificate of incorporation or bylaws
otherwise provide, amendments of the certificate of incorporation generally
require the approval of the holders of a majority of the outstanding stock
entitled to vote thereon, and if such amendments would increase or decrease
the number of authorized shares of any class or series or the par value of
such shares or would adversely affect the shares of such class or series, a
majority of the outstanding stock of such class or series would have to
approve the amendment. AVCOM has not altered those provisions in its
Certificate of Incorporation or By-Laws.
Signature'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.
Signature'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 shareholders to adopt, alter and repeal the Bylaws, the Board of
Directors is authorized to adopt, alter or repeal the Bylaws.
The MGCL requires a two-thirds shareholder approval of a charter amendment
that changes or reclassifies or cancels stock and provides certain appraisal
rights to shareholders whose contract rights are adversely affected by such
amendment.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The Bylaws of Signature provide that (i) with respect to an annual meeting
of shareholders, nominations of persons for election to the Board of Directors
and the proposal of business to be considered by shareholders may be made only
(a) pursuant to Signature'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 shareholders, only the business
specified in Signature's notice of meeting may be brought before the meeting
of shareholders, 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.
AVCOM's Certificate of Incorporation and By-Laws do not contain procedures
regarding stockholder nominations of directors.
RESTRICTIONS ON BUSINESS COMBINATIONS/CORPORATE CONTROL
Both the Delaware GCL and the MGCL contain provisions restricting the
ability of a corporation to engage in business combinations with an interested
stockholder.
Under the Delaware GCL, except under certain circumstances, a corporation is
not permitted to engage in a business combination with any interested
stockholder for a three-year period following the time such stockholder became
an interest stockholder. The Delaware GCL defines an interested stockholder,
generally, as a person who owns 15% or more of the outstanding shares of such
corporation's voting stock.
134
<PAGE>
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 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 shareholders 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
Signature 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 under the MGCL compel the Board of Directors to call a special meeting of
shareholders 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 shareholders meeting.
The MGCL provides that, 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 shareholders
at which the voting rights of such shares are considered and not approved. If
voting rights for Control Shares are approved at a shareholders meeting and
the acquiror becomes entitled to vote a majority of the shares entitled to
vote, all other shareholders 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 MGCL 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
135
<PAGE>
Charter or Bylaws of the corporation. Signature in its Bylaws has exempted
from the Control Share Acquisition statute the Executive Officers and certain
persons and entities affiliated therewith.
SHAREHOLDER VOTE FOR MERGERS
Except with respect to certain mergers with subsidiary corporations, both
the Delaware GCL and the MGCL generally require the affirmative vote of the
outstanding shares of the constituent corporations in a merger. The Delaware
GCL requires a majority vote, and the MGCL requires a two-thirds vote. Under
the Delaware GCL and the MGCL, holders of stock which is not by its terms
entitled to vote on such a transaction are entitled to notice of the meeting
at which the proposed transaction is considered. Neither the Delaware GCL nor
the MGCL require a shareholder vote of the surviving corporation in a merger
if (a) the merger agreement does not amend the existing certificate or
articles of incorporation, (b) the merger agreement does not reclassify or
change its stock, and (c) the number of shares to be issued by the surviving
corporation in a merger does not exceed 20% (Delaware GCL) or 15% (MGCL) of
the shares outstanding immediately prior to such issuance.
DISSENTERS' RIGHTS IN MERGERS
Both the Delaware GCL and the MGCL provide that shareholders have the right,
in some circumstances, to dissent from certain corporate reorganizations and
to instead demand payment of the fair cash value of their shares. Unless a
corporation's certificate or articles of incorporation provides otherwise,
neither the Delaware GCL nor the MGCL provides for presently applicable
dissenters' rights of appraisal. In the case of the Delaware GCL, dissenters'
rights of appraisal do not apply to a merger or consolidation or by a
corporation, the shares of which are either listed on a national securities
exchange or widely-held (by more than 2,000 shareholders), if such
shareholders receive shares of the surviving corporation or of such a listed
or widely-held corporation. Dissenters' rights are not available under the
MGCL for shares registered on a securities exchange on the record date for the
meeting at which the transaction is considered by the shareholders.
Additionally, the Delaware GCL does not provide for such dissenters' rights of
appraisal with respect to a sale-of-assets reorganization. Like the Delaware
GCL, the MGCL generally does not provide for dissenters' rights if no vote of
the shareholders of the surviving corporation is required in a merger.
EXPERTS
The consolidated financial statements of Signature Resorts, Inc. and
subsidiaries as of 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 Arthur Andersen LLP, independent
certified public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm
as experts in accounting and auditing in giving said report.
The consolidated financial statements of AVCOM International, Inc. and
subsidiaries as of December 31, 1995 and 1994, and for each of the three years
in the period ended December 31, 1995, appearing in this Proxy
Statement/Prospectus and the related Registration Statement, have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report
appearing elsewhere herein, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters in connection with the share of Signature Stock to be
issued in the Merger shall be passed upon for Signature by Schreeder, Wheeler
& Flint, LLP, Atlanta, Georgia. Certain partners of Schreeder, Wheeler &
Flint, L.L.P., and members of their families own less than 1% of the
outstanding shares of Signature Stock. Certain legal matters for AVCOM shall
be passed upon for AVCOM by Gallagher & Kennedy, P.A., Phoenix, Arizona and
DeConcini McDonald Brammer Yetwin & Lacy, P.C., Phoenix, Arizona. Gallagher &
Kennedy, P.A. will also pass upon the tax consequences of the Merger.
136
<PAGE>
OTHER MATTERS
As of the date of this Proxy Statement/Prospectus, the AVCOM Board knows of
no matters that will be presented for consideration of the special meeting
other than as described in this Proxy Statement/Prospectus. However, if any
other matters shall come before the special meeting or any adjournments or
postponements thereof and shall be voted upon, the proposed Proxy will be
deemed to confer authority to the individuals named as authorized therein to
vote the shares represented by such Proxy as to any such matters that fall
within the purposes set forth in the Notice of Special Meeting as determined
by a majority of the AVCOM Board.
137
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SIGNATURE RESORTS, INC.
Report of Independent Certified Public Accountants........................ F-2
Consolidated Financial Statements (Amounts as of September 30, 1995 and
1996
and for the nine month periods then ended are unaudited)
Consolidated Balance Sheets at December 31, 1994 and 1995 and September
30, 1995 and 1996...................................................... F-3
Consolidated Statements of Income for each of the three years ended
December 31, 1995 and for the nine months ended September 30, 1995 and
1996................................................................... F-4
Consolidated Statements of Equity for each of the three years ended
December 31, 1995 and for the nine months ended September 30, 1996..... F-5
Consolidated Statements of Cash Flows for each of the three years ended
December 31, 1995 and for the nine months ended September 30, 1995 and
1996................................................................... F-6
Notes to Consolidated Financial Statements................................ F-7
AVCOM INTERNATIONAL, INC.
Report of Independent Auditors............................................ F-21
Consolidated Financial Statements (Amounts as of September 30, 1995 and
1996
and for the nine month periods then ended are unaudited)
Consolidated Balance Sheets at December 31, 1994 and 1995 and September
30, 1996............................................................... F-22
Consolidated Statements of Operations for each of the three years ended
December 31, 1995 and for the nine months ended September 30, 1995 and
1996................................................................... F-23
Consolidated Statements of Stockholders' Equity for each of the three
years ended December 31, 1995 and for the nine months ended September
30, 1995 and 1996...................................................... F-24
Consolidated Statements of Cash Flows for each of the three years ended
December 31, 1995 and for the nine months ended September 30, 1995 and
1996................................................................... F-25
Notes to Consolidated Financial Statements................................ F-26
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of
Signature Resorts, Inc.:
We have audited the accompanying consolidated balance sheets of Signature
Resorts, Inc. (a Maryland Corporation) and subsidiaries as of December 31,
1995 and 1994, and the related consolidated statements of income, equity and
cash flows for each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with 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 Signature Resorts, Inc.
and subsidiaries as of December 31, 1995 and 1994, and the 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.
Arthur Andersen LLP
Orlando, Florida,
December 11, 1996
F-2
<PAGE>
SIGNATURE RESORTS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
------------------------ -------------------------
1994 1995 1995 1996
----------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents... $ 1,854,572 $ 4,341,591 $ 4,937,932 $ 9,844,097
Cash in escrow.............. 2,427,190 1,945,856 1,819,112 1,494,906
Mortgages receivable, net of
an allowance of $1,570,886
and $5,589,527 at December
31, 1994 and 1995,
respectively, $6,463,470
and $5,693,022 at September
30, 1995 and 1996,
respectively............... 33,437,116 65,099,612 60,511,155 87,955,723
Due from affiliates......... -- 2,700,820 2,949,419 4,567,335
Other receivables, net...... 1,019,673 6,383,134 3,222,218 8,249,342
Prepaid expenses and other
assets..................... 1,676,348 2,125,118 888,148 2,274,542
Investment in joint
venture.................... 4,293,525 2,644,449 3,000,101 7,537,754
Real estate and development
costs...................... 33,452,751 46,757,151 43,341,935 85,030,279
Property and equipment,
net........................ 437,092 1,863,579 729,741 2,732,399
Intangible assets, net...... 3,856,571 4,223,834 5,243,380 4,842,175
----------- ------------ ------------ ------------
Total assets................ $82,454,838 $138,085,144 $126,643,141 $214,528,552
=========== ============ ============ ============
LIABILITIES AND EQUITY
Accounts payable............ $ 1,190,072 $ 4,599,000 $ 3,614,842 $ 7,902,938
Accrued liabilities......... 5,931,911 8,854,772 10,181,227 11,765,984
Due to affiliates........... 138,245 1,422,098 469,654 1,631,848
Income taxes payable........ -- -- -- 569,451
Deferred taxes.............. -- -- -- 11,398,787
Notes payable to financial
institutions............... 34,439,558 72,395,704 63,398,732 81,144,879
Notes payable to related
parties.................... 9,975,454 12,343,518 11,667,302 --
----------- ------------ ------------ ------------
Total liabilities........... 51,675,240 99,615,092 89,331,757 114,413,887
Commitments (Note 11).......
Equity...................... 30,779,598 38,470,052 37,311,384 100,114,665
----------- ------------ ------------ ------------
Total liabilities and
equity..................... $82,454,838 $138,085,144 $126,643,141 $214,528,552
=========== ============ ============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
F-3
<PAGE>
SIGNATURE RESORTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31 ENDED SEPTEMBER 30
----------------------------------- -----------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Vacation Interval
sales.................. $22,237,812 $40,269,401 $59,070,917 $46,384,993 $49,458,553
Interest income......... 1,825,483 3,683,302 6,928,862 4,668,436 6,626,609
Other income............ 372,697 337,487 6,607,999 2,641,418 7,646,518
----------- ----------- ----------- ----------- -----------
Total revenues.......... 24,435,992 44,290,190 72,607,778 53,694,847 63,731,680
----------- ----------- ----------- ----------- -----------
COSTS AND OPERATING
EXPENSES
Vacation Interval cost
of sales............... 5,707,542 12,393,647 15,649,805 12,547,235 11,254,793
Advertising, sales, and
marketing.............. 10,808,680 18,744,828 28,488,178 22,429,056 24,408,031
Loan portfolio:
Interest expense--
treasury............. 673,706 1,629,283 3,585,927 2,532,436 4,021,948
Other expenses........ 208,258 850,661 1,188,502 757,809 1,048,497
Provision for doubtful
accounts............. 618,650 923,129 1,786,811 1,470,640 1,371,926
General and
administrative:
Resort-level.......... 2,346,043 2,863,833 4,946,525 2,759,876 4,960,842
Corporate............. 877,134 874,137 1,607,413 1,130,266 2,428,228
Depreciation and
amortization........... 384,470 489,160 1,675,515 1,158,337 1,674,822
----------- ----------- ----------- ----------- -----------
Total costs and
operating expenses..... 21,624,483 38,768,678 58,928,676 44,785,655 51,169,087
----------- ----------- ----------- ----------- -----------
Net operating income.... 2,811,509 5,521,512 13,679,102 8,909,192 12,562,593
Interest expense--
other.................. 518,612 958,628 475,693 343,796 1,867,765
Equity loss on
investment in joint
venture................ -- 271,475 1,649,076 1,293,424 94,695
----------- ----------- ----------- ----------- -----------
Net income before
taxes.................. 2,292,897 4,291,409 11,554,333 7,271,972 10,600,133
Income taxes............ -- -- 641,545 210,322 539,204
----------- ----------- ----------- ----------- -----------
Net income.............. $ 2,292,897 $ 4,291,409 $10,912,788 $ 7,061,650 $10,060,929
=========== =========== =========== =========== ===========
PRO FORMA INCOME DATA
(UNAUDITED)
Net income before
taxes.................. $ 2,292,897 $ 4,291,409 $11,554,333 $ 7,271,972 $10,600,133
Pro forma provision for
income taxes........... 878,966 1,617,913 4,348,822 2,738,904 3,992,505
----------- ----------- ----------- ----------- -----------
Pro forma net income.... $ 1,413,931 $ 2,673,496 $ 7,205,511 $ 4,533,068 $ 6,607,628
=========== =========== =========== =========== ===========
Pro forma net income per
common share........... -- -- $ 0.63 $ -- $ 0.54
Pro forma weighted
average common shares
outstanding............ -- -- 11,354,705 -- 12,321,759
</TABLE>
See accompanying notes to the consolidated financial statements.
F-4
<PAGE>
SIGNATURE RESORTS, INC.
CONSOLIDATED STATEMENTS OF EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
---------------------
ADDITIONAL RETAINED MEMBERS'
PAID-IN EARNINGS EQUITY GENERAL LIMITED
SHARES AMOUNT CAPITAL (DEFICIT) (DEFICIT) PARTNERS PARTNERS TOTAL
---------- --------- ------------ ----------- ----------- ----------- ------------ ------------
<S> <C> <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 0 2,435,338 (1,432,615) 4,176,344 33,113,985 38,470,052
1996 activity
(unaudited):
Proceeds from the
sale of 6,037,500
shares of common
stock to the
public, net of
offering costs of
$9,864,811....... 16,845,205 171,452 74,488,737 0 0 0 0 74,660,189
Goodwill from the
acquisition of
investment in
Joint Venture in
exchange for
stock............ 547,000 5,470 4,982,530 -- -- -- -- 4,988,000
Acquisition of
minority limited
partners'
interests........ -- -- (6,751,037) -- -- -- -- (6,751,037)
Deferred taxes
recorded in
connection with
the Consolidation
Transactions..... -- -- (11,227,504) -- -- -- -- (11,227,504)
Interest accrued
on deferred
installment
gains............ -- -- (517,993) -- -- -- -- (517,993)
Distributions of
partnership
equity........... (200) (11,735) -- (2,541,257) (5,382,314) -- (1,632,665) (9,567,971)
Net income........ -- -- -- 2,901,998 3,568,304 (164,269) 3,754,896 10,060,929
Reclassification
of partners'
equity in
connection with
the Consolidation
Transactions..... -- (168,261) 37,540,424 (1,370,497) 3,246,625 (4,012,075) (35,236,216) --
---------- --------- ------------ ----------- ----------- ----------- ------------ ------------
Balance at
September 30,
1996 (unaudited). 17,392,205 $ 173,926 $ 98,515,157 $ 1,425,582 $ 0 $ 0 $ 0 $100,114,665
========== ========= ============ =========== =========== =========== ============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
F-5
<PAGE>
SIGNATURE RESORTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31 ENDED SEPTEMBER 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 $ 7,061,650 $ 10,060,929
Adjustments to reconcile
net income to net cash
(used in) provided by
operating activities:
Depreciation and
amortization.......... 384,470 489,160 1,675,515 1,158,337 1,674,822
Provision for bad debt
expense............... 618,650 923,129 1,786,811 1,470,640 1,371,926
Equity loss on
investment in joint
venture............... -- 271,475 1,649,076 1,293,424 94,695
Changes in operating
assets and
liabilities:
Cash in escrow....... (413,591) (1,484,501) 481,334 608,078 450,950
Due from affiliates.. -- -- (2,700,820) (2,949,419) (1,866,515)
Prepaid expenses and
other assets........ (642,680) (1,033,668) (448,770) 788,200 (149,423)
Real estate and
development costs... (7,270,978) (17,671,125) (13,304,400) (9,889,184) (38,273,128)
Other receivables.... (87,870) (549,041) (5,363,461) (2,202,545) (1,866,208)
Accounts payable..... 358,896 24,486 3,408,928 2,424,770 3,303,938
Accrued liabilities.. 1,451,996 3,682,475 2,922,861 4,249,316 2,396,218
Income taxes payable. -- -- -- -- 569,451
Deferred taxes....... -- -- -- -- 171,283
Due to affiliates.... 45,730 92,515 1,283,853 331,409 209,750
------------ ------------ ------------ ------------ ------------
Net cash (used in)
provided by operating
activities............. (3,262,480) (10,963,686) 2,303,715 4,344,676 (21,851,312)
------------ ------------ ------------ ------------ ------------
INVESTING ACTIVITIES
Expenditures for
investment in joint
venture................ -- (4,565,000) -- -- --
Expenditures for
property and equipment. (255,156) (221,248) (1,764,253) (380,431) (1,149,402)
Expenditures for
intangible assets...... (722,923) (3,146,546) (1,705,012) (2,457,364) (2,012,581)
Mortgages receivable.... (9,797,740) (17,007,472) (33,449,307) (28,544,679) (24,228,037)
------------ ------------ ------------ ------------ ------------
Net cash used in
investing activities... (10,775,819) (24,940,266) (36,918,572) (31,382,474) (27,390,020)
------------ ------------ ------------ ------------ ------------
FINANCING ACTIVITIES
Proceeds from notes
payable................ 16,478,302 35,266,249 71,062,122 52,984,364 76,759,011
Payments on notes
payable................ (7,591,261) (16,358,188) (33,105,976) (24,025,190) (68,009,836)
Proceeds from notes
payable to related
parties................ 6,120,971 5,145,454 3,711,005 3,141,193 5,606,208
Payments on notes
payable to related
parties................ (1,773,209) (2,569,224) (1,342,941) (1,449,345) (17,949,726)
Equity contributions.... 2,501,900 15,519,997 1,208,133 970,136 --
Proceeds from Initial
Public Offering........ -- -- -- -- 74,657,189
Acquisition of minority
limited partners'
interests.............. -- -- -- -- (6,751,037)
Equity distributions.... (395,378) (870,000) (4,430,467) (1,500,000) (9,567,971)
------------ ------------ ------------ ------------ ------------
Net cash provided by
financing activities... 15,341,325 36,134,288 37,101,876 30,121,158 54,743,838
------------ ------------ ------------ ------------ ------------
Net increase in cash and
cash equivalents....... 1,303,026 230,336 2,487,019 3,083,360 5,502,506
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 $ 4,937,932 $ 9,844,097
============ ============ ============ ============ ============
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION
Cash paid during the
period for interest.... $ 1,352,000 $ 3,646,117 $ 5,413,502 $ 4,753,739 $ 9,156,703
============ ============ ============ ============ ============
SUPPLEMENTAL DISCLOSURE
OF NON-CASH INFORMATION
Acquisition of
Investment in Joint
Venture in exchange for
stock recorded in
connection with the
Consolidation
Transactions........... $ 7,658,000
============
Deferred taxes recorded
in connection with the
Consolidation
Transactions........... $ 11,227,504
============
Interest accrued on
deferred installment
gains recorded in
connection with the
Consolidation
Transactions........... $ 517,993
============
Net assets of
predecessor
partnerships acquired
in exchange for stock,
net of cash transferred
of approximately $4.5
million recorded in
connection with the
Consolidation
Transactions........... $ 35,324,920
============
</TABLE>
See accompanying notes to the consolidated financial statements.
F-6
<PAGE>
SIGNATURE RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND SEPTEMBER 30, 1996 (UNAUDITED)
1. NATURE OF BUSINESS
Signature Resorts, Inc. and its wholly-owned subsidiaries (the Company)
generate 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 Company was incorporated in May 1996. On August 20, 1996, the Company
consummated an initial public offering of a portion of its common stock (the
Initial Public Offering). Concurrently with the Initial Public Offering,
certain predecessor limited partnerships, limited liability companies and
corporations (the Entities) exchanged their direct or indirect interest in,
and obligations of, for shares of the Company's common stock (the
Consolidation Transactions).
For periods ended prior to September 30, 1996, the Entities were 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 Consolidation
Prior to August 20, 1996, the accompanying financial statements include the
combined accounts of Signature Resorts, Inc. and the companies listed in Note
1, which became wholly-owned by common interests. As a result, the combined
accounts are now referred to as consolidated financial statements for the
historical periods presented. All significant intercompany transactions and
balances have been eliminated from these consolidated financial statements.
F-7
<PAGE>
SIGNATURE RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Consolidation Transactions have been accounted for as a reorganization
of entities under common control. Accordingly, the net assets of the
predecessor entities were recorded at the predecessor entities' basis. In
addition, the accompanying financial statements reflect the historical results
of operations of the predecessor partnerships on a combined basis.
Interim Financial Statements
The accompanying unaudited interim financial statements at September 30,
1995 and 1996 and for the nine months ended September 30, 1995 and 1996 do not
include all disclosures provided in the annual combined financial statements.
These interim financial statements should be read in conjunction with the
accompanying annual audited combined financial statements and the footnotes
thereto. Results for the 1996 interim period are not necessarily indicative of
the results to be expected for the year ending December 31, 1996. However, the
accompanying interim 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
nine months ended September 30, 1995 and 1996, depreciation and amortization
expense was $87,783 and $280,582, respectively.
F-8
<PAGE>
SIGNATURE RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
Goodwill recorded in connection with the acquisition of the Investment in
Joint Venture is being amortized by a fixed amount per Interval as Intervals
are sold.
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 (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
Prior to August 20, 1996, the predecessor entities were taxed as regular
corporations at the corporate level, as S corporations taxable at the
shareholder level, or as partnerships taxable at the partner level. Due to the
Initial Public Offering, the Company became subject to federal, state, and
foreign income taxes from the effective date of the Initial Public Offering.
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.
Reclassifications
Certain reclassifications were made to the 1995 financial statements to
conform to the 1996 presentation.
3. ACCOUNTS RECEIVABLE
The Company has accrued insurance claims as a result of hurricane damage to
its Royal Palm and Flamingo properties located in St. Maarten, Netherlands
Antilles of $3.8 million and $1.5 million at December 31, 1995 and September
30, 1996, respectively. The receivable at September 30, 1996 consists of
business interruption insurance claims. The Company has submitted additional
claims above the amounts accrued for business interruption insurance and is in
negotiations with its carriers 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%.
F-9
<PAGE>
SIGNATURE RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 $627,139 and $1,132,916 at September 30, 1995 and
September 30, 1996, respectively. The accrued interest receivable at December
31, 1995 and September 30, 1996 is net of an allowance for doubtful accounts
of $151,201 and $145,319, respectively.
The following schedule reflects the principal maturities of mortgages
receivable:
<TABLE>
<S> <C>
Year ending 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...................... (5,589,527)
-----------
Net principal maturities of mortgages receivable.......... $65,099,612
===========
</TABLE>
The Company considers all mortgages receivable past due more than 60 days to
be delinquent. At December 31, 1995, $6,700,000 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.
The activity in the mortgages receivable allowance for doubtful accounts is
as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 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 $5,589,527
Increase (decrease) in allowance
for purchased mortgage receiv-
ables.......................... -- $3,156,166 $3,412,276 (729,633)
Provision....................... 923,129 1,786,811 1,470,640 1,371,926
Receivables (charged off) recov-
ery............................ (150,684) (924,336) 9,668 (538,798)
---------- ---------- ---------- ----------
Balance, end of the period...... $1,570,886 $5,589,527 $6,463,470 $5,693,022
========== ========== ========== ==========
</TABLE>
During September 1995, the Company recorded an allowance for doubtful
accounts of $3,412,276 for certain mortgage portfolios acquired in conjunction
with the acquisition of the two properties in St. Maarten.
F-10
<PAGE>
SIGNATURE RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. REAL ESTATE AND DEVELOPMENT COSTS
Real estate and development costs and accumulated cost of sales consist of
the following:
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
-------------------------- --------------------------
1994 1995 1995 1996
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Land.................... $ 18,102,052 $ 19,734,459 $ 18,451,761 $ 29,049,291
Development costs, ex-
cluding capitalized
interest............... 33,718,050 57,969,594 54,632,946 96,035,101
Capitalized interest.... 2,730,363 5,300,400 4,667,789 8,260,858
------------ ------------ ------------ ------------
Total real estate and
development costs...... 54,550,465 83,004,453 77,752,496 133,345,250
Less accumulated cost of
sales.................. (21,097,714) (36,247,302) (34,410,561) (48,314,971)
------------ ------------ ------------ ------------
Net real estate and de-
velopment costs........ $ 33,452,751 $ 46,757,151 $ 43,341,935 $ 85,030,279
============ ============ ============ ============
</TABLE>
6. INVESTMENT IN JOINT VENTURE
The Company owns 100% of the partnership interests in one of the co-managing
general partners 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 co-
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>
Concurrently with the Initial Public Offering, the Company exchanged 547,000
shares of stock with the former holders of interests in the Poipu Partnership
for a 30.43% interest in the joint venture. As a result of this exchange,
$4,988,000 of goodwill was recorded and is being amortized on a per Interval
basis as Intervals are
F-11
<PAGE>
SIGNATURE RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
sold. The amortization of such goodwill for the nine months ended September
30, 1996 was $76,371. The Company also acquired a $2,546,513 note receivable
from the partnership in connection with the exchange on which the Company has
accrued approximately $30,000 of interest. This note bears interest at a rate
of 12% per annum.
7. INTANGIBLE ASSETS
Intangible assets and accumulated amortization consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
----------------------- ------------------------
1994 1995 1995 1996
---------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Organizational costs........ $3,200,510 $ 3,884,581 $ 2,528,256 $ 3,134,066
Start-up costs.............. 538,364 713,319 2,849,615 2,471,200
Loan origination fees....... 349,380 522,378 422,380 422,379
Financing fees.............. 698,229 1,444,242 1,304,859 2,356,035
---------- ----------- ----------- -----------
Total intangible assets..... 4,786,483 6,564,520 7,105,110 8,383,680
Less accumulated
amortization............... (929,912) (2,340,686) (1,861,730) (3,541,505)
---------- ----------- ----------- -----------
Net intangible assets....... $3,856,571 $ 4,223,834 $ 5,243,380 $ 4,842,175
========== =========== =========== ===========
</TABLE>
Amortization expense related to intangible assets was $358,908, $429,450,
and $1,337,750 in 1993, 1994 and 1995, respectively. For the nine months ended
September 30, 1995 and 1996, amortization expense was $1,070,555 and
$1,394,240, respectively.
F-12
<PAGE>
SIGNATURE RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. NOTES PAYABLE
Notes payable to financial institutions consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
----------------------- -----------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Construction loans payable not
to exceed $49 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 September 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 $ 6,359,756 $ --
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 10.75% and 10.25% at
September 30, 1995 and 1996,
respectively), secured by
land, improvements and
timeshare interests.......... -- 1,897,716 1,698,511 --
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 10.25% to
11.75% and 10.25% to 11.25%
at September 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 30,597,567 48,411,823
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
September 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 3,737,910 4,154,852
Revolving line of credit of
$11 million, with interest
payable at prime plus 2.5%
(11% and 10.75% at
December 31, 1994 and
September 30, 1995,
respectively), and prime plus
2% (10.65% and 10.25% at
December 31, 1995 and
September 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 $ 3,923,614 $ 3,807,138
</TABLE>
F-13
<PAGE>
SIGNATURE RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
----------------------- -----------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
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
September 30, 1996,
respectively), maturing seven
years after the date of the
last advance, secured by
mortgages receivable......... $ -- $ 3,873,513 $ -- $ 2,889,328
Working capital loan payable,
due September 30, 1995, with
interest payable monthly at
prime plus 2.5% (11% at
December 31, 1994), 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 1,121,656 2,955,815
Acquisition loans payable of
$9.85 million, with interest
payable at prime plus 3%
(11.65% and 11.25% at
December 31, 1995 and
September 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 9,846,289 2,735,530
Acquisition/construction loan
payable of $9 million, with
interest payable at prime
plus 2% (10.25% at
September 30, 1996), due by
June 13, 1999, payable with a
portion of the proceeds
received on the sale of
Vacation Intervals........... -- -- -- 2,363,539
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.................... -- -- -- 5,443,833
Land purchase obligation at
the Fall Creek Plantation
property (see note 9 for
further discussion).......... -- 1,500,000 -- 639,626
Noninterest bearing land loan
of $500,000 payable at
$54 per interval sold with
remaining balance due May 1,
1991......................... 500,000
Notes payable to certain
investors and former owners,
with monthly principle
payments of $100,000, plus
interest at 12%, with
additional interest of $325
per interval sold............ 2,000,000
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 6,000,000 4,000,000
Other notes payable........... -- 261,253 113,429 1,243,395
----------- ----------- ----------- -----------
Total notes payable........... $34,439,558 $72,395,704 $63,398,732 $81,144,879
=========== =========== =========== ===========
</TABLE>
F-14
<PAGE>
SIGNATURE RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Under the terms of the revolving lines of credit agreements, the Company may
typically borrow from 85% to 90% of the balances of the pledged mortgages
receivable. Of the aggregate of $178 million borrowings available under these
certain agreements at September 30, 1996, 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 $49 million available in construction loans payable,
$2.0 million expires on January 31, 1997, $8.0 million expires January 14,
1998, $8.0 million expires on May 9, 1998, $3.0 million expires on October 31,
1998 and $28.0 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 accrued $652,164 and $1,418,022 as a receivable and payable,
respectively, at December 31, 1995 with the homeowners' associations at its
resorts. The related party payable to the homeowners' associations at December
31, 1995 included $1,029,900 of a special assessment fee charged to the
Company. At September 30, 1996, the Company, had accrued $2,903,873 and
$1,631,856 as a receivable and payable, respectively, with the various
homeowners' associations at its resorts. All amounts are classified as due
from and due to related parties in the accompanying consolidated balance
sheets.
The Company recorded a receivable of $1,153,829 and $120,697 from two of its
predecessor partnerships at December 31, 1995 for pre-development costs
incurred by the Company at its Embassy Vacation Resort
F-15
<PAGE>
SIGNATURE RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Lake Tahoe and San Luis Bay Resorts. Such predecessor partnerships were
consolidated into the Company on August 20, 1996 as a result of the
Consolidation Transactions.
Included in due from related parties at December 31, 1995 and September 30,
1996 are approximately $310,000 and $1,549,555, respectively, relating to
expenses paid on behalf of related parties to be subsequently reimbursed to
the Company by such related party. Subsequent to September 30, 1996, the
Company collected $739,458 of this amount.
The Company also made payments of $295,001 during the twelve months ended
December 31, 1995 to an affiliate of the Company for construction consulting
and expense reimbursement. For the three months and nine months ended
September 30, 1996, no such payments were made.
Notes payable to related parties consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 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 --
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 --
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 3,200,000 --
Acquisition loan payable with interest
payable at 12%, due on December 31,
1996................................. -- 1,495,000 -- --
Notes payable to partners, with
interest accrued at 16%, payable on
demand............................... -- 2,157,018 2,947,302 --
Other................................. 292,941 291,500 20,000 --
---------- ----------- ----------- ----
Total notes payable to related
parties.............................. $9,975,454 $12,343,518 $11,667,302 $--
========== =========== =========== ====
</TABLE>
F-16
<PAGE>
SIGNATURE RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. COMMITMENTS
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.
On September 23, 1996, the Company announced the signing of a merger
agreement to acquire AVCOM for approximately $34.6 million of the Company's
common stock plus the assumption of net debt. AVCOM is the parent company of
All Seasons, Resorts, Inc., a developer, marketer and operator of timeshare
resorts in Arizona, California and Texas.
Under the terms of the merger agreement, the Company has agreed to issue
approximately 1,480,000 shares of its common stock in exchange for all
outstanding capital stock of AVCOM, based on the average high and low trading
prices of the Company's common stock on September 20, 1996 of $19.44 per
share. The actual number of its shares of the Company's common stock to be
issued is subject to adjustment if the price of the Company's common stock on
the NASDAQ National Market System exceeds $23.33 per share, or falls below
$15.55 per share and under certain other circumstances. In addition, if the
merger had taken place, as of September 30, 1996, the Company would have
assumed approximately $22.6 million of AVCOM's net debt. Also, pursuant to the
merger agreement, the Company committed to loan AVCOM $2.5 million. Management
expects the merger will qualify for pooling accounting treatment. The Company
has received an opinion from its independent financial advisor that the
consideration paid by the Company in the proposed merger is fair from a
financial point of view. It is anticipated that the acquisition will be
consummated in the first quarter of 1997, subject to the occurrence of all
conditions to closing.
AVCOM Resorts, Inc. develops, markets and operates timeshare resorts in the
western United States, with four existing resorts in Sedona, Arizona, one at
Lake Arrowhead, California, one at South Lake Tahoe, California and one at
Houston, Texas. In addition, All Seasons has resorts currently under
development in Scottsdale, Arizona, and South Lake Tahoe, California, and has
purchased twelve acres of land in Sedona, Arizona for future development.
The proposed merger is subject to the approval of the stockholders of AVCOM,
the satisfactory completion of due diligence by the Company, the expiration of
the waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of
1976 and other customary conditions.
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-17
<PAGE>
SIGNATURE RESORTS, INC.
NOTES TO CONSOLIDATED 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 65,099,612 65,099,612
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 nine months ended
September 30, 1996 is $2,940,490 of income from purchased mortgages
receivable, $1.7 million of income related to the settlement of certain
receivables from the former owners of the St. Martin properties, $1,215,374 of
rental income and $769,253 of management fees.
14. PRO FORMA DISCLOSURES (UNAUDITED)
On August 20, 1996 the Company consummated a public offering which made it
subject to federal, state, and foreign income taxes from the effective date of
the Initial Public Offering. In addition, the Company is now required to
record a deferred tax liability for cumulative temporary differences between
financial reporting and tax reporting following the effective date of the
Initial Public Offering. During the nine months ended September 30, 1996, the
Company recorded approximately $315,000 of current income tax expense and
approximately $171,000 of deferred income tax expense. Additionally, the
Company recorded deferred taxes of $11,227,504 related to deferred taxes from
previous years that were assumed as part of the Initial Public Offering. The
total current tax liability and deferred tax liability at September 30, 1996
was $569,451 and $11,398,787, respectively. Both the deferred tax assets,
deferred tax liabilities, and the current tax provision were estimated based
on management's most recent information as of September 30, 1996.
The Company has recorded $517,993 of accrued interest related to deferred
installment gains from previous years that were assumed as part of the Initial
Public Offering.
F-18
<PAGE>
SIGNATURE RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 C corporation. The following
summarizes the unaudited pro forma provision for income taxes:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31 SEPTEMBER 30
------------------------------ ---------------------
1993 1994 1995 1995 1996
-------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal............... $405,552 $ 361,290 $1,579,424 $1,358,974 $2,242,039
States................ 41,148 -- 4,934 151,183 233,882
Foreign............... -- -- 662,288 122,618 49,186
-------- ---------- ---------- ---------- ----------
446,700 361,290 2,246,646 1,632,775 2,525,107
Deferred:
Federal............... 346,393 1,018,602 1,476,865 860,317 1,080,838
States................ 85,873 238,021 633,808 245,812 344,819
Foreign............... -- -- (8,497) -- 41,741
-------- ---------- ---------- ---------- ----------
432,266 1,256,623 2,102,176 1,106,129 1,467,398
-------- ---------- ---------- ---------- ----------
Unaudited pro forma
provision for income
taxes.................. $878,966 $1,617,913 $4,348,822 $2,738,904 $3,992,505
======== ========== ========== ========== ==========
</TABLE>
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>
F-19
<PAGE>
SIGNATURE RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred income taxes reflect the net tax effects 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-20
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
AVCOM International, Inc.
We have audited the accompanying consolidated balance sheets of AVCOM
International, Inc. (Company) as of December 31, 1995 and 1994, and the
related consolidated statements of operations, stockholders equity, and cash
flows for each of the three years in the period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 audits to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of AVCOM International, Inc. as of December 31, 1995 and 1994, and the
consolidated results of its operations and its 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
Phoenix, Arizona
May 31, 1996, except for Note 12,
as to which the date is July 1, 1996
F-21
<PAGE>
AVCOM INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1994 1995 1996
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash ($1,026,000, $278,000 and $0
restricted at December 31, 1994 and
1995 and September 30, 1996,
respectively)......................... $ 1,026,000 $ 1,807,000 $ 687,000
Notes receivable, net.................. 5,939,000 18,659,000 36,659,000
Receivables from related parties....... 734,000 690,000 1,320,000
Other receivables...................... 386,000 626,000 1,037,000
Resort property held for timeshare
sales and under development........... 10,643,000 10,827,000 26,705,000
Property and equipment, net............ 1,906,000 2,188,000 5,580,000
Prepaid loan commitment fees........... -- 199,000 414,000
Deferred marketing and selling costs... 40,000 759,000 4,143,000
Capitalized start-up costs, net........ -- -- 470,000
Investment in common stock............. -- -- 600,000
Other assets........................... 178,000 179,000 668,000
----------- ----------- -----------
Total assets........................... $20,852,000 $35,934,000 $78,283,000
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and other accrued
liabilities........................... $ 989,000 $ 2,524,000 $ 9,665,000
Deferred revenue....................... 80,000 -- 7,055,000
Commissions payable.................... 442,000 1,009,000 1,328,000
Amounts due to related parties......... 387,000 484,000 354,000
Income taxes payable................... 403,000 500,000 --
Deferred income taxes payable.......... 2,176,000 2,624,000 1,597,000
Capitalized leases payable............. 378,000 761,000 1,586,000
Notes payable.......................... 12,582,000 22,692,000 51,320,000
----------- ----------- -----------
Total liabilities...................... 17,437,000 30,594,000 72,905,000
----------- ----------- -----------
Minority interest in consolidated lim-
ited partnership...................... -- -- 1,612,000
Commitments and contingencies
Stockholders' equity:
Convertible preferred stock, $.01 par
value; 1,400,000 shares authorized,
1,310,700 shares issued and
outstanding; liquidation preference
of $1,521,000 at December 31, 1995
and $1,600,000 at September 30,
1996................................ 13,000 13,000 13,000
Common stock, $.01 par value;
10,000,000 shares authorized,
3,290,300 and 3,653,936 shares
issued and outstanding at December
31, 1994 and 1995, respectively, and
3,963,936 shares at September 30,
1996................................ 33,000 38,000 41,000
Paid-in capital...................... 939,000 1,819,000 2,216,000
Retained earnings.................... 2,460,000 3,500,000 1,526,000
----------- ----------- -----------
3,445,000 5,370,000 3,796,000
Less treasury stock, 12,000 shares of
common stock, at cost............... (30,000) (30,000) (30,000)
----------- ----------- -----------
Total stockholders' equity............. 3,415,000 5,340,000 3,766,000
----------- ----------- -----------
Total liabilities and stockholders'
equity................................ $20,852,000 $35,934,000 $78,283,000
=========== =========== ===========
</TABLE>
See accompanying notes.
F-22
<PAGE>
AVCOM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Sales of timeshare
interests.............. $14,481,000 $24,130,000 $33,231,000 $24,821,000 $30,411,000
Timeshare management.... 452,000 650,000 1,256,000 962,000 1,059,000
Contract commission
revenue................ -- -- -- -- 497,000
Gain on sale of notes
receivable............. 167,000 571,000 566,000 564,000 77,000
Health club revenue..... -- -- -- -- 375,000
Other................... 99,000 66,000 193,000 137,000 250,000
----------- ----------- ----------- ----------- -----------
15,199,000 25,417,000 35,246,000 26,484,000 32,669,000
COST OF SALES AND
OPERATING EXPENSES
Cost of timeshare
interests sold......... 3,548,000 6,792,000 11,081,000 7,682,000 8,744,000
Marketing and selling... 6,950,000 12,232,000 13,920,000 11,232,000 15,117,000
Timeshare management.... 547,000 743,000 1,571,000 1,023,000 1,769,000
Contract marketing and
selling................ -- -- -- -- 974,000
Health club expenses.... -- -- -- -- 572,000
General and
administrative......... 1,621,000 3,034,000 4,780,000 3,256,000 6,229,000
Resort property
valuation allowance.... -- -- -- -- 839,000
Provision for doubtful
accounts............... 251,000 371,000 792,000 212,000 1,055,000
----------- ----------- ----------- ----------- -----------
12,917,000 23,172,000 32,144,000 23,405,000 35,299,000
----------- ----------- ----------- ----------- -----------
Operating income (loss). 2,282,000 2,245,000 3,102,000 3,079,000 (2,630,000)
Minority interest in
consolidated limited
partnership............ -- -- -- -- (112,000)
Interest and financing
costs.................. (335,000) (809,000) (1,818,000) (1,122,000) (2,944,000)
Interest income......... 236,000 180,000 594,000 253,000 2,396,000
----------- ----------- ----------- ----------- -----------
Income (loss) before
income taxes........... 2,183,000 1,616,000 1,878,000 2,210,000 (3,290,000)
Provision for (benefit
from) income taxes..... 1,970,000 695,000 838,000 936,000 (1,316,000)
----------- ----------- ----------- ----------- -----------
Net income (loss)....... $ 213,000 921,000 1,040,000 1,274,000 (1,974,000)
===========
Cumulative preferred
stock dividends........ 105,000 105,000 79,000 79,000
----------- ----------- ----------- -----------
Net income (loss)
available for common
stockholders........... $ 816,000 $ 935,000 $ 1,195,000 $(2,053,000)
=========== =========== =========== ===========
Earnings (loss) per
share.................. $ 0.16 $ 0.17 $ 0.22 $ (0.41)
=========== =========== =========== ===========
Pro forma earnings per
share (unaudited)...... $ 0.27
===========
Weighted average common
shares and common share
equivalents (pro forma
in 1993--unaudited).... 4,682,507 4,942,759 5,554,089 5,530,669 4,987,080
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-23
<PAGE>
AVCOM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK
----------------- ----------------- PAID-IN RETAINED TREASURY
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS STOCK TOTAL
--------- ------- --------- ------- ---------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1992................... 1,310,700 $13,000 2,890,300 $29,000 $ 451,000 $ 1,326,000 $ -- $ 1,819,000
Issuance of common
stock.................. -- -- 400,000 4,000 496,000 -- -- 500,000
Redemption of
partnership interests.. -- -- -- -- (18,000) -- -- (18,000)
Net income.............. -- -- -- -- -- 213,000 -- 213,000
--------- ------- --------- ------- ---------- ----------- -------- -----------
Balance at December 31,
1993................... 1,310,700 13,000 3,290,300 33,000 929,000 1,539,000 -- 2,514,000
Repurchase of common
stock.................. -- -- -- -- -- -- (30,000) (30,000)
Payment for stock held
in escrow.............. -- -- -- -- 10,000 -- -- 10,000
Net income.............. -- -- -- -- -- 921,000 -- 921,000
--------- ------- --------- ------- ---------- ----------- -------- -----------
Balance at December 31,
1994................... 1,310,700 13,000 3,290,300 33,000 939,000 2,460,000 (30,000) 3,415,000
Issuance of common
stock, net of issuance
costs of $114,999...... -- -- 363,636 5,000 880,000 -- -- 885,000
Net income.............. -- -- -- -- 1,040,000 -- 1,040,000
--------- ------- --------- ------- ---------- ----------- -------- -----------
Balance at December 31,
1995................... 1,310,700 13,000 3,653,936 38,000 1,819,000 3,500,000 (30,000) 5,340,000
Conversion of
subordinated debt
(unaudited)............ 310,000 3,000 397,000 400,000
Net (loss) (unaudited).. -- -- -- -- -- (1,974,000) -- (1,974,000)
--------- ------- --------- ------- ---------- ----------- -------- -----------
Balance at September 30,
1996 (unaudited)....... 1,310,700 $13,000 3,963,936 $41,000 $2,216,000 $ 1,526,000 $(30,000) $3,766,000
========= ======= ========= ======= ========== =========== ======== ===========
</TABLE>
See accompanying notes.
F-24
<PAGE>
AVCOM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss)....... $ 213,000 $ 921,000 $ 1,040,000 $ 1,274,000 $(1,974,000)
Adjustments to reconcile
net income (loss) to
net cash provided by
operating activities:
Gain on sale of notes
receivable............. (167,000) (571,000) (566,000) (564,000) (77,000)
Deferred income taxes... 1,658,000 506,000 448,000 571,000 (1,027,000)
Provision for doubtful
accounts............... 251,000 371,000 792,000 212,000 1,055,000
Depreciation and
amortization........... 56,000 146,000 185,000 131,000 848,000
Write-off of resort
property............... -- -- -- -- 839,000
Changes in operating
assets and liabilities:
Restricted cash......... -- (1,026,000) 748,000 796,000 278,000
Receivables from related
parties................ (382,000) (328,000) 44,000 (169,000) (630,000)
Other receivables....... (71,000) (195,000) (240,000) (100,000) (411,000)
Resort property held for
timeshare sales........ 1,684,000 (1,013,000) (184,000) (629,000) (6,623,000)
Prepaid loan commitment
fee.................... -- -- (199,000) -- (493,000)
Deferred marketing and
selling costs.......... -- -- (719,000) -- (3,384,000)
Capitalized start-up
costs.................. -- -- -- -- (470,000)
Other assets............ 139,000 -- (1,000) (135,000) (489,000)
Accounts payable and
other accrued
liabilities............ (402,000) 720,000 1,535,000 887,000 7,141,000
Commissions payable..... (463,000) 361,000 567,000 521,000 319,000
Amounts due to related
parties................ 79,000 308,000 97,000 (44,000) (130,000)
Deferred revenue........ -- -- (80,000) 7,055,000
Income taxes payable.... 312,000 91,000 97,000 350,000 (500,000)
----------- ------------ ------------ ----------- -----------
Net cash provided by
operating activities... 2,907,000 291,000 3,564,000 3,101,000 1,327,000
CASH FLOWS FROM
INVESTING ACTIVITIES
Additions to notes
receivable............. (9,472,000) (20,539,000) (26,843,000) (19,512,000) (30,004,000)
Proceeds from sales of
notes receivable....... 7,211,000 18,425,000 11,645,000 10,009,000 6,210,000
Collections of notes
receivable............. 300,000 740,000 2,252,000 571,000 6,571,000
Purchases of property
and equipment.......... (236,000) (552,000) (467,000) (77,000) (631,000)
Investment in common
stock.................. -- -- -- -- (50,000)
----------- ------------ ------------ ----------- -----------
Net cash used by
investing activities... (2,197,000) (1,926,000) (13,413,000) (9,009,000) (17,904,000)
CASH FLOWS FROM
FINANCING ACTIVITIES
Proceeds from notes
payable................ 1,115,000 4,413,000 22,410,000 10,144,000 34,632,000
Principal payments on
notes payable.......... (1,874,000) (3,542,000) (12,301,000) (4,991,000) (20,178,000)
Proceeds from
capitalized leases
payable................ 238,000 315,000 604,000 189,000 --
Principal payments on
capitalized leases
payable................ (65,000) (110,000) (220,000) (162,000) (331,000)
Minority interest in
limited partnership.... -- 1,612,000
Redemptions of partners. (18,000) -- -- -- --
Payments to redeeming
partners............... (79,000) -- -- -- --
Purchase of treasury
stock.................. -- (30,000) -- -- --
Issuance of common
stock, net of issuance
costs.................. 500,000 -- 885,000 984,000 --
----------- ------------ ------------ ----------- -----------
Net cash provided (used)
by financing
activities............. (183,000) 1,046,000 11,378,000 6,164,000 15,735,000
----------- ------------ ------------ ----------- -----------
Net increase (decrease)
in cash................ 527,000 (589,000) 1,529,000 256,000 (842,000)
Cash, excluding
restricted cash, at
beginning of period.... 62,000 589,000 -- -- 1,529,000
----------- ------------ ------------ ----------- -----------
Cash, excluding
restricted cash, at end
of period.............. $ 589,000 $ -- $ 1,529,000 $ 256,000 $ 687,000
=========== ============ ============ =========== ===========
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION
Income taxes paid....... $ -- $ 127,000 $ 367,000 $ 33,000 $ 353,000
=========== ============ ============ =========== ===========
SUPPLEMENTAL DISCLOSURE
OF NONCASH ACTIVITY
Acquisition of resort
property through
origination of notes
payable................ $ -- $ 7,275,000 $ 805,000 $ 805,000 $10,094,000
Acquisition of office
building and land
through origination of
note payable........... -- 1,165,000 -- -- 2,098,000
Payment received for
stock held in escrow
through forgiveness of
note payable to
stockholder............ -- 10,000 -- -- --
Acquisition of stock in
Trion through
origination of note
payable................ 550,000
Acquisition of notes
receivable through
origination of note
payable................ 1,832,000
Acquisition of equipment
through origination of
capitalized leases..... 1,156,000
Conversion of note
payable to common
stock.................. 400,000
</TABLE>
See accompanying notes.
F-25
<PAGE>
AVCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(INFORMATION AT SEPTEMBER 30, 1996 AND FOR THE PERIODS ENDED
SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization and Business Combination
American Vacation Company, Inc., a Delaware corporation, was incorporated on
August 16, 1993. On August 20, 1993, Cannon Time Corp. (Cannon) was merged
with and into the Company. Cannon was formed on March 16, 1988 and had not
conducted business operations since 1990. On September 27, 1993, American
Vacation Company, Inc. changed its name to AVCOM International, Inc.
(Company).
Effective September 1, 1993, the Company exchanged 1,531,300 shares of
common stock and 1,310,700 shares of preferred stock for 100 percent of the
partners equity of Villashare Partners Limited Partnership (Villashare
Partners) and the common stock of its general partner, All Seasons Resorts,
Inc. (formerly All Seasons Development, Incorporated) (All Seasons). The
merger has been accounted for as a reverse merger with Villashare Partners as
the acquirer for accounting purposes.
On September 30, 1995, the Company purchased all of the outstanding stock of
All Seasons Properties, Inc. (ASP) and Great Western Financial, Inc. (GWFI)
for $100,000, by issuing promissory notes to the shareholders of ASP and GWFI.
ASP and GWFI were wholly-owned by the chief executive officer and the
president of the Company and had liabilities in excess of assets on an
historical cost basis of approximately $177,000 at the date of the
acquisition. ASP's assets, which aggregated approximately $580,000, consisted
primarily of resort property held for timeshare sales and timeshare notes
receivable at the date of acquisition. The acquisition has been accounted for
as a purchase and the results of the operations of ASP and GWFI are included
in the Company's consolidated financial statements from the date of
acquisition.
Prior to June 20, 1995, the Company utilized one company at its projects to
provide all marketing and selling services which were paid solely on a
commission basis. The Company terminated its relationship with the marketing
company and acquired All Seasons Realty, Inc. in June 1995, for $1,000. As a
result, the Company is currently performing the selling and marketing of its
projects through All Seasons Realty, Inc. All Seasons Realty, Inc. did not
have material activity prior to the acquisition, which has been accounted for
as a purchase.
In January 1996, the Company purchased 40 percent of the common stock of
Trion Capital Corporation (Trion), the general partner of Arrowhead Capital
Partners developing North Bay Resort at Lake Arrowhead (see Note 3).
Business Activities
The Company develops resort properties for timeshare sales, finances
ownership interests in such properties, and manages the operations of the
resort properties and their related homeowners associations. The Company's
capital requirements related to the development of future projects and the
financing of notes receivables have been and will continue to be significant.
In addition, the Company's level of general and administrative costs is based
on the level of sales and development activity which occurred in 1995 and
which is anticipated in 1996. Further, the Company has and will continue to
incur initial start-up sales and marketing costs in anticipation of future
projects and transactions. To date, the Company has been substantially
dependent upon loans from banks and private lenders and the sale or pledge of
notes receivable to finance its developments and operations. The Company will
be required to seek significant amounts of additional debt and/or equity
capital to continue to finance or sell its notes receivable, develop its
proposed projects and carry the current level of overhead. There is no
assurance that the Company can continue to obtain adequate financing from
lenders for its financing or sale
F-26
<PAGE>
AVCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of notes receivable or its project developments and operations if and when
required, or on terms acceptable to the Company.
In the event the Company is unsuccessful in obtaining additional funds
necessary for these purposes, management may need to take steps to continue to
operate within the available cash flow. Such steps may include, among others,
postponement or abandonment of certain timeshare projects and transactions,
reduction of general and administrative costs, or reduction of selling and
marketing costs.
Principles of Consolidation
The consolidated financial statements include the accounts of AVCOM
International, Inc. and its wholly-owned subsidiaries and a majority owned
limited partnership. All significant intercompany transactions and balances
have been eliminated in consolidation. Investments in joint ventures and the
Company's investment in 40 percent of the common stock of Trion Capital
Corporation are accounted for on the equity method.
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. These estimates and assumptions include expected default
rates on notes receivable, resale value of the timeshare interests received
through foreclosure, total construction and other costs to develop projects
and the resulting cost per interval, and recoverability of costs incurred on
projects, particularly those projects which are in the early stages. Actual
results could differ from those estimates.
Resort Property Held for Timeshare Sales and Underdevelopment
Resort property held for timeshare sales and under development is recorded
at historical cost less amounts charged to cost of sales for timeshare sales.
As timeshare interests are sold, the Company amortizes to cost of sales the
average carrying cost of the respective timeshare interest, which includes an
estimate of future completion costs related to remodeling and/or construction.
Timeshare interests received in exchange for timeshare interests in property
which were not developed by the Company are recorded at the fair value of the
timeshare interest received. Timeshare interests received in exchange for
timeshare interests at properties developed by the Company or through
foreclosure are recorded at the average carrying cost of timeshare interests
for the related project, which management believes approximates fair value.
In addition to direct construction costs, interest and indirect product
costs are capitalized as part of the cost of the property during the periods
of qualifying activities. Indirect product costs include the allocation of
certain payroll and administrative costs attributed to personnel directly
involved with the development and construction of the respective properties
and estimated subsidies of the homeowners' association related to the
property.
Recognition of Revenue
Generally, timeshare interests are sold under contracts which provide a cash
down payment and a deferred payment balance evidenced by a promissory note
secured by a deed of trust or mortgage on the timeshare interest. Sales of
timeshare interests are recognized using the percentage of completion method
after a binding sales contract has been executed, a 10 percent minimum down
payment has been received, and certain minimum sales and construction levels
have been obtained. Under the percentage of completion method, the portion of
revenue applicable to costs incurred, as compared to total estimated
development costs, is recognized in the period of sale. Sales which do not
meet these criteria are deferred using the deposit method.
F-27
<PAGE>
AVCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Until a contract for sale qualifies for revenue recognition, all payments
received are accounted for as deposits. Commissions and other selling costs,
attributable to the sale, are deferred until the sale is recorded. If a
contract is canceled before qualifying as a sale, nonrecoverable selling
expenses are charged to expense and deposits forfeited are credited to income.
Contract commission revenues are earned and recognized upon close of escrow
of the related sale. Contract marketing and selling costs are expensed when
incurred.
The deferred revenue resulting from the percentage of completion method was
approximately $80,000, $0 and $6,980,000 at December 31, 1994 and 1995, and
September 30, 1996, respectively.
Timeshare management revenue represents daily room rentals and fees for
management of the resorts. Such revenues are net of amounts due to timeshare
interval owners, if any, and are recorded as the rooms are rented or the
services are performed.
Health club initiation fees are deferred and amortized to revenue over three
years.
The present value of the difference between the stated interest rate of
notes receivable sold and the yield to the purchaser (interest rate
differential) is recognized as a gain at the time the notes receivable are
sold, less an allowance for estimated prepayments and notes receivable
repurchased pursuant to the recourse provisions.
Allowances for Losses
The Company provides for losses on notes receivable, including notes
receivable owned by the Company and notes sold with recourse, by a charge
against earnings at the time of sale, at a rate based on historical default
experience.
Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation
and amortization. Depreciation and amortization are calculated using the
straight-line method based on the following estimated lives:
<TABLE>
<S> <C>
Equipment...................................................... 5 years
Furniture and fixtures......................................... 7 years
Building improvements.......................................... 10 years
Buildings...................................................... 40 years
</TABLE>
Income Taxes
Prior to the merger, Villashare Partners was taxed as a partnership.
Accordingly, Villashare Partners did not pay federal or state income taxes on
its income. Instead, the partners were liable for individual federal and state
income taxes based on their respective partnership interests.
On September 1, 1993, the assets, liabilities and operations of Villashare
Partners were transferred to All Seasons as a result of the merger. Deferred
income taxes were established at that time for temporary differences between
the financial reporting basis and the tax basis of the assets and liabilities.
The Company follows Statement of Financial Accounting Standard No. 109
"Accounting for Income Taxes," which uses the liability method in accounting
for income taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax basis of
assets and liabilities, and are measured using the enacted tax rates and laws
that will be in effect when differences are expected to reverse.
F-28
<PAGE>
AVCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Capitalized Start-Up Costs
It is the Company's policy to capitalize as start-up costs all marketing and
selling expenses incurred at new resort projects up to sixty days after sales
begin. Capitalized start-up costs are then amortized over one year.
Advertising Expense
The cost of advertising is expensed as incurred. The Company did not incur
any significant amounts of advertising costs during the years ended December
31, 1993, 1994 and 1995, and the nine months ended September 30, 1995 and
1996, respectively.
Stock Based Compensation
The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of
grant. The Company accounts for stock option grants in accordance with APB
Opinion No. 25, Accounting for Stock Issued to Employees, and, accordingly,
recognizes no compensation expense for the stock option grants.
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 123, Accounting for Stock-
Based Compensation, which provides an alternative to APB Opinion No. 25 in
accounting for stock-based compensation issued to employees. Statement No. 123
allows for a fair value based method of accounting for employee stock options
and similar equity instruments. The Company applies the recognition and
measurement provisions of APB Opinion No. 25 to all employee stock options and
similar equity instruments awarded after December 31, 1995.
Fair Value of Financial Instruments
The carrying value of cash, receivables, and accounts payable and other
accrued liabilities approximate fair value due to the short-term nature of
these assets and liabilities. The fair value of notes receivable held with a
carrying value of $15,357,000 is approximately $15,900,000 at December 31,
1995. The fair value of debt approximates its carrying value since the current
rates reflect the rates at which the Company could borrow funds with similar
maturities.
Concentration of Credit Risks
Most of the Company's notes receivable held and notes receivable sold on a
recourse basis originated from sales of timeshare interests of Tahoe Beach and
Ski Club in Lake Tahoe, California, Sedona Summit Resort, Sedona Springs
Resort, Villas of Sedona and Villas at Poco Diablo resorts in Sedona, Arizona
and Scottsdale Villa Mirage Resort in Scottsdale, Arizona. The sales have been
primarily made to residents of California and Arizona. The Company performs
credit evaluations prior to timeshare sales. The timeshare deed of trust
serves as collateral on the note receivable.
The Company's development of timeshare projects through September 30, 1996
has been limited to Sedona and Scottsdale, Arizona, Lake Tahoe, California and
Houston, Texas. This lack of geographic diversification results in a high
correlation between the profitability of such operations and the local market,
economy and legislative conditions of such locations and generally the states
of Arizona, California and Texas. While management of the Company intends to
expand operations and to engage in timeshare development projects at other
locations, there is no assurance that significant geographic diversification
of the timeshare operations can be achieved.
F-29
<PAGE>
AVCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Earnings (Loss) Per Share and Pro Forma Earnings Per Share
Earnings (loss) per share for the years ended December 31, 1994 and 1995 and
the nine months ended September 30, 1995 and 1996 is based on net income
(loss), adjusted for cumulative and unpaid dividends on convertible preferred
stock, and on the outstanding weighted average shares (less treasury shares),
common stock equivalents and convertible preferred stock outstanding. Common
stock held in escrow has been considered to
be outstanding and stock options are considered common stock equivalents.
Common stock equivalents, which are antidilutive, were not included in the
computation of the net loss per share for the nine months ended September 30,
1996.
Pro forma earnings per share for the year ended December 31, 1993 gives
effect to the reorganization, as if it occurred at the beginning of the period
and is based on income before income taxes, adjusted for cumulative and unpaid
dividends on convertible preferred stock and adjusted for a pro forma income
tax provision at the rate of 40 percent, and on the outstanding weighted
average shares (less treasury stock), common stock equivalents and convertible
preferred stock.
Impact of Recently Issued Accounting Standards
In March 1995, the FASB issued Statement of Financial Accounting Standards
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 No. 121 also addresses the
accounting for long-lived assets that are expected to be disposed of,
including resort property held for timeshare sales. The Company adopted
Statement No. 121 in 1996 which did not have a material effect.
In June 1996, the FASB issued Statement of Financial Accounting Standards
No. 125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, which provides standards for distinguishing
transfers of financial assets that are sales from transfers that are secured
borrowings. The Company plans to adopt Statement No. 125 in 1997 and the
Company has yet to determine its impact.
Interim Financial Information
The financial information at September 30, 1996 and for the nine month
periods ended September 30, 1995 and 1996 is unaudited, but includes all
adjustments that the Company considered necessary for a fair presentation of
the financial information set forth therein, in accordance with generally
accepted accounting principles. The results for the nine months ended
September 30, 1996 are not considered indicative of the results to be expected
for any future period or for the entire year.
Reclassifications
Certain prior year amounts in the consolidated financial statements have
been reclassified to conform them to the current year presentation.
F-30
<PAGE>
AVCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. NOTES RECEIVABLE
Notes receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER
----------------------- 30,
1994 1995 1996
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Timeshare notes receivable............. $2,751,000 $15,357,000 $35,017,000
Holdbacks on notes receivable sold..... 3,177,000 3,197,000 2,046,000
Accrued interest rate differential..... 678,000 921,000 823,000
Other notes receivable................. -- 202,000 131,000
---------- ----------- -----------
6,606,000 19,677,000 38,017,000
Less allowance for possible losses..... (667,000) (1,018,000) (1,358,000)
---------- ----------- -----------
$5,939,000 $18,659,000 $36,659,000
========== =========== ===========
</TABLE>
Notes receivable from the sale of timeshare interests bear interest at
annual rates ranging generally from 9.9 percent to 14.9 percent and have terms
of generally seven years. The notes are collateralized by first deeds of trust
on the timeshare interests sold.
The Company has outstanding commitments under which the Company may sell its
notes receivable under certain terms and conditions. At September 30, 1996,
the remaining commitments aggregated approximately $4,885,000, expiring
primarily in 1996. In connection with one commitment, Fletcher Financial, Inc.
(Fletcher Financial), which is owned by one of the stockholders of the Company
(see Note 9), has guaranteed $5,000,000 of notes receivable sold. In exchange,
therefore, the Company has agreed to share 50 percent of the interest rate
differential with Fletcher Financial resulting from the sale of these notes
receivable.
The Company's obligations pursuant to these agreements are generally
guaranteed by the Company's president and chief executive officer, and are
secured by the related holdbacks. The commitments also contain various
restrictive financial covenants which the Company must meet. Among the most
restrictive are covenants prohibiting the payment of dividends and requiring
the maintenance of at least $3,000,000 of tangible net worth and no more than
a 15-to-1 debt-to-equity ratio. The Company was not in compliance with the
debt-to-equity ratio covenants at September 30, 1996; however, a waiver from
the lender was obtained.
The agreements which provide for sales of the notes receivable are on a
recourse basis with a percentage (generally 10 percent) of the amount sold
held back by the purchaser as additional collateral, which is released to the
Company as the notes receivable are paid down. The Company is paid interest on
the holdback at generally a money market rate. At December 31, 1994 and 1995
and September 30, 1996, the Company had approximately $32,844,000, $32,449,000
and $29,009,000, respectively, of outstanding notes receivable sold on a
recourse basis.
The activity in the allowance for possible losses consisted of the
following:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- -------- ---------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Balance, beginning of
period................. $ 300,000 $300,000 $ 667,000 $667,000 $ 1,018,000
Provisions.............. 251,000 371,000 792,000 212,000 1,055,000
Charge offs............. (251,000) (4,000) (441,000) -- (715,000)
--------- -------- ---------- -------- -----------
Balance, end of period.. $ 300,000 $667,000 $1,018,000 $879,000 $ 1,358,000
========= ======== ========== ======== ===========
</TABLE>
F-31
<PAGE>
AVCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. RESORT PROPERTY HELD FOR TIMESHARE SALES AND UNDER DEVELOPMENT
Resort property held for timeshare sales and under development consists of
the following projects:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER
1994 1995 30, 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Held for timeshares sales:
Villas of Sedona/ Poco Diablo............ $ 458,000 $ 301,000 $ 357,000
Sedona Springs Resort.................... 1,287,000 233,000 226,000
Tahoe Beach & Ski Club................... 7,635,000 6,367,000 4,852,000
Villas on The Lake....................... -- 56,000 2,676,000
Other.................................... 91,000 573,000 505,000
Tahoe Seasons............................ -- -- 450,000
Under development:
Scottsdale Villa Mirage Resort........... 238,000 1,095,000 7,061,000
Sedona Summit............................ -- 1,220,000 3,411,000
Park Plaza Resort........................ 833,000 833,000 --
Sedona Golf Resort....................... -- 62,000 4,594,000
Tunlii................................... -- 61,000 2,402,000
Other.................................... 101,000 26,000 171,000
----------- ----------- -----------
$10,643,000 $10,827,000 $26,705,000
=========== =========== ===========
</TABLE>
Completed Developments
The Villas at Poco Diablo and Villas of Sedona resorts are 33-unit and 40-
unit townhouse projects, respectively, located in Sedona, Arizona.
Sales were substantially complete at the Villas at Poco Diablo in October
1992 and at Villas of Sedona in June 1994. The current balance consists of
timeshare interests available for sale that were received in trade for
timeshare interests at other developments of the Company.
Sedona Springs Resort. Sedona Springs Resort (Sedona Springs) is a 40-unit
resort located in Sedona, Arizona adjacent to the Villas of Sedona resort.
Sales at the project began in 1994 and were substantially completed in January
1996.
Current Developments
Tahoe Beach & Ski Club. The Tahoe Beach & Ski Club is located in South Lake
Tahoe, California and was purchased in March 1994 for approximately
$6,400,000. The project includes a total of 140 units of which 110 were
renovated as timeshare units at the date acquired. Renovation of the remaining
30 units was completed in April 1996. At the time of purchase by the Company,
4,533 timeshare interests related to the 110 renovated units of the resort had
been sold. As part of the purchase, the Company acquired approximately
$9,245,000 of notes receivable related to these prior sales, which were
concurrently resold. Further, the Company provided approximately $875,000 to
the homeowners association for reserves for current and future renovation and
refurbishing, which was recorded as part of the acquisition cost.
Under Development
Scottsdale Villa Mirage Resort. The Scottsdale Villa Mirage Resort is a
planned 176 unit resort located in Scottsdale, Arizona. The Company entered
into an agreement with Desert Princess Resort L.L.C. (Princess) to
F-32
<PAGE>
AVCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
develop the project for the Company in three phases of 64, 48, and 64 units,
respectively. The Company has a construction loan commitment for $4,350,000
and a take-out commitment for $8,800,000. Construction of phase one and sales
began in March 1996.
The Company had advanced approximately $1,000,000 as of December 31, 1995 in
construction and development costs and in January 1996 paid an additional
$1,600,000 to pay off prior encumbrances. The Company purchased on February
28, 1996 substantially all of the outstanding interests in Princess for a
total of $550,000. The purchase price consists of $285,000 paid at closing,
and a note payable of $265,000 payable in 12 monthly installments.
Princess has a construction contract for Phase I of $8,389,000 and for
Phases II and III of $9,563,000. The construction contractor has a right to
$500,000 of the profits, as defined, and the construction lender has a right
to 15% of the profits, as defined.
Park Plaza Resort. In October 1993, the Company acquired the timeshare
development rights for approximately 195 units in South Lake Tahoe from a
third-party developer (the Developer). The project is a component of a major
area redevelopment program sponsored in part by the South Lake Tahoe
Redevelopment Agency (the Agency). The purchase price is $2,500,000, of which
the Company has made a deposit of $750,000 and the balance of $1,750,000 is
due upon issuance of certain building permits anticipated in 1998. The
Developer has a right to 9% of the gross project sales as additional
consideration. The Company is further required to pay a developers fee to be
determined by the Agency, but not to exceed $1,500,000. The Company is
currently negotiating the termination of this agreement and does not
anticipate proceeding with this project. It is anticipated that the proposed
termination will provide for a partial refund of the Company's $750,000
deposit conditioned on the Developer or the Agency finding a replacement
developer should the existing Developer decide not to proceed with its
development rights. Notwithstanding the proposed termination agreement,
pursuant to the current purchase agreement, the Company's recovery would be
limited to $600,000 conditioned on the Developer or Agency finding a
replacement purchaser of the Company's development rights. Under either
circumstance, since recovery is conditioned on a future event, the Company has
written-off the full amount of its deposit, together with costs previously
capitalized with regard to this project.
Sedona Summit. In May, 1995, the Company purchased approximately three acres
in Sedona, Arizona for $1,067,000, which is planned for development of 26
timeshare units. The Company made additional payments of $52,000 through
December 31, 1995 and $52,000 thereafter, which does not apply toward the
purchase price. Additionally, the Company purchased in May 1996 an adjacent
parcel consisting of approximately four acres for $1,220,000, which is planned
for development of 34 timeshare units. Development of the property includes
the start-up and operation of a private waste water treatment facility, which
has been leased by the Company. The start-up costs of the waste water
treatment facility is estimated at approximately $30,000.
The Company is developing the property through an affiliated entity, Sedona
Summit Development Limited Partnership (SSDLP), which was formed on May 1,
1996 and All Seasons is the sole general partner. The activities of SSDLP are
consolidated in the financial statements. SSDLP sold limited partnership
interests in March 1996 of approximately $1,500,000 representing a 99%
ownership interest. The Company has secured a revolving construction loan of
$2,500,000 which has been guaranteed by SSDLP for the development of the
project. The Company has contracted to purchase completed units in phases from
SSDLP for an aggregate of $14,084,000. Sales and construction commenced in
February 1996.
Tahoe Seasons Resort. In February 1996, the Company acquired a portfolio of
1,057 non-performing timeshare receivables generated from the sale of
timeshare interests at Tahoe Seasons Resort in South Lake Tahoe, California.
The purchase price of $1,548,000 was funded by a loan. The Company has also
agreed to purchase other receivables generated from sales at Tahoe Seasons
Resort that subsequently become delinquent.
F-33
<PAGE>
AVCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company will convert non-performing loans into timeshare interest
inventory which will be sold by the Company's marketing group at Lake Tahoe.
Villas on the Lake. In February 1996, the Company acquired an existing
condominium project in Lake Conroe, Texas for $1,860,000. The project consists
of 37 completed units and existing approvals and land for the construction of
48 additional units. The Company obtained a $2,400,000 loan for acquisition
and renovation of the project. Renovation of existing units began in February
1996 and sales commenced in June 1996.
Future Developments
The Ridge on Sedona Golf Resort. In October 1995, the Company entered into a
purchase agreement to acquire an approximately 12 acre parcel in Sedona,
Arizona for $5,500,000, including the Ridge Spa & Racquet Club, an existing,
though inactive facility. The Company anticipates developing the property into
a 120 unit timeshare resort in phases. The Company closed this transaction in
February 1996 with a $1,000,000 cash payment and notes payable of $700,000 due
on March 15, 1996 which was paid, and $500,000 due on October 31, 1996. The
remaining purchase price of $3,300,000 is payable in quarterly installments of
principal and interest of $79,800 with the balance due in February 1999. The
Company obtained a short-term loan of $1,307,000 to fund the acquisition
payment.
Main Street Pier. The Company entered into a letter of intent in November
1995 whereby the Company agreed to purchase 80 condominium units located in
Huntington Beach, California for a total cost not to exceed $17,176,000. The
seller is to acquire the property and construct the condominium units. The
Company has deposited $50,000 earnest money in escrow. The seller has not
timely obtained the necessary governmental approvals for the project. The
Company has informed the seller of its intent to terminate the letter of
intent and close the purchase escrow. The Company anticipates full recovery of
its earnest money.
Tunlii (formerly known as Cherry Creek Country Club). In February 1996, the
Company acquired a 68.4 acre parcel of land in Camp Verde, Arizona,
approximately 100 miles north of Phoenix. This parcel is contiguous to a 127
acre tract owned by an independent party with cooperative intent to jointly
develop the properties. At the same time, the Company contracted to purchase
an additional 99.2 acres and 263 acres adjacent to the development parcels.
The purchase of the 99.2 acre tract closed in May 1996. The acquisition cost
of the 68.4 acres and the 99.2 acres was $547,000 and $843,000, respectively,
which includes seller financing of $447,000 and $632,000, respectively. The
263 acre tract is under contract for $790,000 with an earnest money deposit of
$40,000, and seller financing of $552,000.
During March 1996, the Company entered into a limited liability company
operating agreement (LLC) with the independent land owner whereby the
respective parties will contribute their respective land holdings
(approximately 557 acres) and liabilities related to this project into a
limited liability company in exchange for an 82.5% and 17.5% ownership,
respectively. During September 1996, the LLC entered into a sale agreement for
the bulk sale of the LLC's land holdings contingent upon certain land use
approvals being obtained. The LLC Operating Agreement provides for a 76.5% and
23.5% allocation, respectively, in the event of a bulk sale.
North Bay Resort at Lake Arrowhead. The North Bay Resort at Lake Arrowhead,
located in San Bernardino County, California, is the first "affiliated
property" of the Company. The Company entered into a series of agreements in
January 1996 whereby the Company provided guarantees for $12,650,000 of the
developer's financing for a fee of $450,000 (evidenced by a note payable),
received a right of first refusal to offer timeshare receivable financing to
the developer after expiration of the developer's present $10,000,000
financing commitment, received an option to assume property management for the
project's homeowners' association and
F-34
<PAGE>
AVCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
purchased a 40% equity position in the corporate general partner of the
developer partnership. The equity position was acquired for $600,000, of which
$550,000 is financed by a note payable due in installments of $150,000 in May
1996 (which has been paid) and $400,000 in January 1998. The proposed project
contemplates the consolidation of two adjacent developments. One development
consists of two completed condominium buildings converted to timeshare use and
additional undeveloped land. The second parcel consists of a combination of
three existing condominium buildings in various stages of construction and
pads for two additional condominium buildings. The developer has been provided
with a $2,650,000 construction and operating loan commitment and a $10,000,000
commitment for timeshare receivable financing from a financing company,
subject to operational involvement and financial guarantees of the Company.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- SEPTEMBER 30,
1994 1995 1996
---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Land and building........................ $1,200,000 $1,200,000 $3,403,000
Building improvements.................... 172,000 430,000 961,000
Computer equipment....................... 335,000 464,000 896,000
Office equipment, furniture and fixtures. 306,000 330,000 1,005,000
Sales center............................. 104,000 91,000 135,000
---------- ---------- ----------
2,117,000 2,515,000 6,400,000
Accumulated depreciation and amortiza-
tion.................................... (211,000) (327,000) (820,000)
---------- ---------- ----------
$1,906,000 $2,188,000 $5,580,000
========== ========== ==========
</TABLE>
F-35
<PAGE>
AVCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER
----------------------- 30,
TERM NOTES 1994 1995 1996
---------- ----------- ----------- ----------- ---
(UNAUDITED)
<S> <C> <C> <C> <C>
Warehouse note payable secured by
timeshare notes receivable, interest
at LIBOR plus 3 percent, personally
guaranteed by the president and chief
executive officer.................... $ -- $12,277,000 $29,165,000
Notes payable secured by unsold
timeshare interests and common area
of Tahoe Beach & Ski Club:
Interest at 13.5 percent, payable
through a release price of the
greater of 10 percent of the selling
price of the timeshare interest or
$1,200, plus 5 percent of net
profits, as defined, due in April
1997................................. 2,246,000 1,408,000 615,000
Interest at 10 percent payable
monthly, principal payable at the
greater of 13 percent of the selling
price of the timeshare interest or
$1,200, balance due in March 1997,
personally guaranteed by the
president and the chief executive
officer, subordinate to the 13.5
percent note payable................. 3,677,000 1,921,000 711,000
Construction notes payable, secured by
unsold timeshare interests and common
area of Sedona Springs, principal
payable by release prices of $2,375
per annual sale and $1,188 per
biannual sale, interest at the prime
rate (8.8 percent at December 31,
1995) plus 3.5 percent payable
monthly, due April, 1996. The loan is
guaranteed by the president and chief
executive officer.................... 1,654,000 174,000 --
Notes payable, secured by deed of
trust on Sedona Summit land:
Interest at 15.0 percent, monthly
installments of interest only, due
June, 1996........................... -- 307,000 --
Interest of 13.0 percent, quarterly
installments of interest only, due
June, 1996........................... -- 500,000 --
Unsecured note payable, interest at 5
percent, due in equal monthly
principal and interest installments
of $1,946, due June, 1997............ -- 33,000 17,000
Convertible subordinated note payable,
monthly installments of interest
only, interest at 9.0 percent,
convertible into 310,000 shares of
common stock at $3 per share. On
April 30, 1996, the Company paid down
the principal balance to $580,000 and
received an extension until August
31, 1996. As part of the extension
agreement, interest changed to
$10,000 per month. An additional
extension was granted until December
31, 1996 when a principal payment of
$94,000 was made in September, 1996
and $86,000 is due in December, 1996.
The remaining $400,000 principal
balance was converted into 310,000
shares of the Company's common stock. -- 930,000 86,000
Note payable, secured by office
building, interest at 8.5 percent,
due in equal monthly principal and
interest installments of $8,112,
balance due March, 2001.............. 1,054,000 1,046,000 1,040,000
</TABLE>
F-36
<PAGE>
AVCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- SEPTEMBER 30,
TERM NOTES 1994 1995 1996
---------- ---------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Note payable, secured by unsold timeshare
interests, principal payable by release
price of $1,000 per timeshare interval
sold, and monthly installments of
interest only, interest at 17.5 percent. $ -- $ 185,000 $ 138,000
Unsecured note payable with Fletcher
Financial, Inc., interest at
20.0 percent due monthly, principal due
December 1996, personally guaranteed by
the president and chief executive
officer................................. 650,000 650,000 650,000
Unsecured notes payable to chief
executive officer and president,
interest at 12.5 percent, due September
2000.................................... -- 100,000 100,000
Note payable to Glaser Capital, interest
at prime plus 1 percent, paid January
1995.................................... 500,000 -- --
Note payable, secured by office building,
interest at 12.0 percent, due in equal
monthly principal and interest
installments of $8,239, balance due
January, 1999........................... -- -- 752,000
Note payable secured by stock in Trion
Capital Corporation, interest at 10.0
percent, interest payable in quarterly
installments, balance due January, 1998. -- -- 400,000
Note payable secured by deed of trust,
interest at 15.0 percent, installments
of $16,000 including interest, due
monthly, balance due July, 1997......... -- -- 973,000
Note payable secured by deed of trust,
interest at 9.0 percent, principal
payment of $500,000 plus accrued and
unpaid interest due August, 1996,
thereafter interest and principal
installments of $79,774 due quarterly,
balance due May, 1999................... -- -- 3,800,000
Note payable secured by deed of trust,
due in monthly payments of $4,500
including interest at 9.0 percent,
balance due March, 2001................. -- -- 440,000
Construction note payable, secured by
unsold timeshare interests and common
area of Scottsdale Villa Mirage,
principal payable by release price,
interest at prime rate (8.5 percent at
September 30, 1996) plus 3 percent
payable monthly, due April, 1997........ -- -- 2,614,000
Construction note payable, secured by
unsold timeshare interests and common
area of Sedona Summit, principal payable
by release price, interest at prime (8.5
percent at September 30, 1996) plus
3 percent payable monthly, due
September, 1997......................... -- -- 614,000
Note payable, secured by unsold timeshare
interests, principal payable by release
price, interest at prime plus 4.5
percent payable monthly, due February,
1999.................................... -- -- 1,523,000
Note payable secured by deed of trust,
due in monthly installments of $5,000
including interest at 10.0 percent,
balance due February, 1997.............. -- -- 234,000
</TABLE>
F-37
<PAGE>
AVCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER 30,
TERM NOTES 1994 1995 1996
---------- ----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Other................................... $ 231,000 $ $ --
Notes payable secured by deed of trust
on Tunlii land: Interest at 8.0
percent, monthly installments of
principal and interest of $6,052.
$315,000 due December 15, 2000 and
remaining balance due January, 2001.... -- -- 623,000
Interest at 6.8 percent, quarterly
installments of $9,320, due June, 1999. -- -- 552,000
Note payable secured by deed of trust on
Sedona Golf Resort land, interest at
15.0 percent, monthly installments of
principal and interest of $4,952, due
April, 1997............................ -- -- 303,000
Note payable secured by deed of trust
and lien on real property and
improvements, due in monthly
installments of principal and interest
at prime rate (8.5 percent at September
30, 1996) plus 2.5 percent, balance due
August, 1997........................... -- -- 2,047,000
Note payable secured by deed of trust on
Sedona Golf Resort land, interest at
15.0 percent, monthly installments of
principal and interest of $4,030, due
July 31, 1997.......................... -- -- 247,000
Warehouse note payable secured by
timeshare notes receivable, interest at
prime plus 1.75 percent................ -- -- 403,000
----------- ----------- -----------
Total term notes........................ 10,012,000 19,531,000 48,047,000
<CAPTION>
DEMAND NOTES
------------
<S> <C> <C> <C>
Subordinated notes payable secured by
notes receivable from sales of
timeshare interests, interest ranging
from 12.5 percent to 15.5 percent:
Stockholders, due on demand........... 1,557,000 1,742,000 1,509,000
Others, due on demand or five years
from origination..................... 1,013,000 1,356,000 1,355,000
Notes payable, secured by a collateral
assignment of beneficial interest,
monthly installments of interest only,
interest at 15 percent, due on 60 day
demand or June 1998.................... -- 63,000 63,000
Note payable, secured by contract
commissions, monthly installments of
$50,000, interest at 15.0 percent, due
on demand.............................. -- -- 225,000
Note payable, secured by contract
commissions, interest at 15.0 percent,
due on demand.......................... -- -- 121,000
----------- ----------- -----------
$12,582,000 $22,692,000 $51,320,000
=========== =========== ===========
</TABLE>
The warehouse loan agreement provides for borrowings up to an aggregate of
$25,000,000 and in September 1996 it was increased to $40,000,000 and was
extended to September 1997. The Company has an additional warehouse line of
credit available up to an aggregate of $5,000,000 of which $4,597,000 is
unused at September 30, 1996. These loan agreements and certain other of the
notes payable contain various restrictive covenants prohibiting the payment of
dividends and requiring the maintenance of at least $3,000,000 of tangible net
worth and no more than a 15-to-1 debt to equity ratio. The Company was not in
compliance with the debt-to-equity ratio covenants at September 30, 1996;
however, a waiver from the lender was obtained.
F-38
<PAGE>
AVCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following is a schedule by year of principal payments of the term notes
payable as of December 31, 1995 and September 30, 1996:
<TABLE>
<CAPTION>
SEPTEMBER
DECEMBER 30,
31, 1995 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
1996.............................................. $16,988,000 $33,212,000
1997.............................................. 1,416,000 7,185,000
1998.............................................. 10,000 1,098,000
1999.............................................. 11,000 4,521,000
2000 and thereafter............................... 1,106,000 2,031,000
----------- -----------
Total term notes.................................. $19,531,000 $48,047,000
=========== ===========
</TABLE>
Interest and finance costs capitalized and expensed for the years ended
December 31 and for the nine months ended September 30, 1995 and 1996 is as
follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- ---------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Capitalized, beginning
of period.............. $ 142,000 $ 227,000 $ 508,000 $ 508,000 $ 597,000
Capitalized........... 411,000 755,000 745,000 612,000 996,000
Expensed as cost of
sales................ (326,000) (474,000) (656,000) (568,000) (426,000)
--------- --------- --------- --------- ----------
Capitalized, end of pe-
riod................... $ 227,000 $ 508,000 $ 597,000 $ 552,000 $1,167,000
========= ========= ========= ========= ==========
</TABLE>
Interest and finance costs paid aggregated $766,000, $1,406,000 and
$2,563,000 during the years ended December 31, 1993, 1994 and 1995,
respectively and $1,734,000 and $3,940,000 for the nine months ended September
30, 1995 and 1996, respectively. Included in interest and finance costs paid
is interest paid to related parties of $128,000, $192,000, and $232,000 for
the years ended December 31, 1993, 1994 and 1995, respectively and $175,000
and $169,000 for the nine months ended September 30, 1995 and 1996,
respectively.
6. INCOME TAXES
The income tax provision consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1993 1994 1995
---------- -------- --------
<S> <C> <C> <C>
Current
Federal.......................................... $ 262,000 $183,000 $360,000
State............................................ 50,000 6,000 30,000
Deferred
Federal.......................................... 1,409,000 430,000 381,000
State............................................ 249,000 76,000 67,000
---------- -------- --------
$1,970,000 $695,000 $838,000
========== ======== ========
</TABLE>
F-39
<PAGE>
AVCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A reconciliation of the provision for income taxes with the expected income
taxes based on the statutory federal and state income tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1993 1994 1995
---------- -------- --------
<S> <C> <C> <C>
Expected federal income tax provision............ $ 743,000 $549,000 $639,000
State income taxes............................... 131,000 97,000 113,000
Other............................................ 95,000 49,000 86,000
Establishment of deferred tax liability at Sep-
tember 1, 1993.................................. 1,380,000 -- --
Reduction in allowance........................... (40,000) -- --
Villashare Partners Limited Partnership income
taxed to partners............................... (339,000) -- --
---------- -------- --------
$1,970,000 $695,000 $838,000
========== ======== ========
</TABLE>
The net deferred tax liability results from the tax effects of temporary
differences between the carrying amount of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes are
shown below:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
---------- ----------
<S> <C> <C>
Deferred tax assets
Allowance for losses................................... $ 267,000 $ 407,000
Net operating loss carryforward........................ 514,000 1,383,000
Prepaid interest....................................... 182,000 62,000
Uniform capitalization costs........................... 94,000 94,000
Credit carryforwards................................... 319,000 592,000
---------- ----------
Total deferred tax assets................................ 1,376,000 2,538,000
---------- ----------
Deferred tax liabilities
Other.................................................. 368,000 371,000
Percentage of completion............................... 271,000 --
Deferred sales expense................................. -- 304,000
Interest rate differential............................. 272,000 368,000
Installment sales...................................... 2,161,000 3,879,000
Cash to accrual adjustment............................. 480,000 240,000
---------- ----------
Total deferred tax liabilities........................... 3,552,000 5,162,000
---------- ----------
Net deferred tax liability............................... $2,176,000 $2,624,000
========== ==========
</TABLE>
At December 31, 1995, the Company has a minimum tax credit carryforward of
approximately $592,000 for income tax purposes available to offset future
income taxes payable to the extent regular income taxes payable exceeds
alternative minimum taxes payable. Minimum tax credits can be carried forward
indefinitely. The Company has a net operating loss carryforward at December
31, 1995 of approximately $3,211,000 for state and federal income tax
purposes. The state net operating loss carryforward will begin to expire in
1999 and the federal net operating loss carryforward will begin to expire in
2009.
F-40
<PAGE>
AVCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. LEASES
Capital Leases
The Company leases furnishings and equipment under capital leases with a
cost of approximately $284,000, $470,000 and $1,550,000 at December 31, 1994
and 1995 and September 30, 1996, respectively, and accumulated amortization of
approximately $48,000, $119,000 and $281,000, respectively, and such amounts
are included with property and equipment. The amortization of the costs of the
furnishings and equipment is included with depreciation expense.
The Company also leases furniture and equipment under capital leases which
it subleases to the homeowner associations at the projects under financing
leases. The balance of the lease receivables from the homeowners associations
are included in receivables from related parties and were $275,000, $675,000
and $514,000 at December 31, 1994 and 1995 and September 30, 1996,
respectively.
The following is a schedule by year of future minimum lease payments under
the capital leases together with the present value of the payments as of
September 30, 1996.
<TABLE>
<CAPTION>
(UNAUDITED)
<S> <C>
1996......................................................... $ 206,000
1997......................................................... 727,000
1998......................................................... 558,000
1999......................................................... 286,000
2000......................................................... 117,000
2001......................................................... 15,000
----------
Total minimum lease payments................................. 1,909,000
Less interest................................................ (323,000)
----------
Present value of net minimum lease payments.................. $1,586,000
==========
</TABLE>
The scheduled future sublease receivables related to the furniture and
equipment subleased to the homeowners associations approximates the following
at September 30, 1996 (including interest of $152,000): 1996--$63,000; 1997--
$153,000; 1998--$153,000; 1999--$153,000; and 2000 and thereafter $144,000.
These sublease receivables vary in amount from the future minimum lease
payments under the capital leases as the result of differing lease maturities
and lease commencement dates.
OPERATING LEASES
The Company leases offices and equipment under operating leases expiring at
various dates through 2001. Future minimum annual rental payments required
under operating leases with initial or remaining noncancelable terms of one
year or more consisted of the following at September 30, 1996:
<TABLE>
<CAPTION>
(UNAUDITED)
<S> <C>
1996.......................................................... $ 189,000
1997.......................................................... 382,000
1998.......................................................... 354,000
1999.......................................................... 220,000
2000.......................................................... 53,000
2001.......................................................... 12,000
----------
$1,210,000
==========
</TABLE>
F-41
<PAGE>
AVCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Total rental expense, including short-term rentals, was approximately
$35,000, $167,000, and $279,000, for the years ended December 31, 1993, 1994
and 1995, respectively, and $240,000 and $391,000 for the nine months ended
September 30, 1995 and 1996.
8. STOCKHOLDERS' EQUITY
Common Stock
The Company has 10,000,000 shares of $.01 par value common stock authorized,
of which 3,653,936 are outstanding at December 31, 1995, including 12,000
shares held as treasury stock. On all matters voted upon by stockholders, each
outstanding share of common stock is entitled to one vote. No dividends may be
declared on the common stock unless all cumulative dividends on preferred
stock have been declared and paid as of the declaration date. The terms of
certain of the agreements for the sale or financing of notes receivable
prohibit payment of dividends (see Note 2). Substantially all of the Company's
operations and assets are held by its wholly-owned subsidiary All Seasons,
which is also prohibited from paying dividends by virtue of these agreements.
In connection with the stock exchange discussed in Note 1, 500,000 shares of
common stock issued to Sangar Investment Company, L.L.C. (jointly owned by the
chief executive officer and the president) and 65,000 shares issued to an
individual are subject to the terms of an escrow agreement which provides that
the shares are to be released upon the Company attaining earnings per share on
a fully diluted basis of at least $0.20. If the shares are not released prior
to December 31, 2000, the shares shall be redeemed by the Company at $0.02 per
share.
During 1993, the Company issued 400,000 shares of common stock pursuant to
Rule 504 of Regulation D for $1.25 per share.
During 1994, the Company repurchased 12,000 shares of its common stock, to
be held as treasury stock, from stockholders for $30,000.
In January 1995, the Company issued 363,636 shares of common stock pursuant
to Rule 504 of Regulation D at $2.75 per share for net proceeds of
approximately $885,000.
In August 1996, the Company issued 310,000 shares of common stock pursuant
to an agreement to modify a convertible note payable and subscription
agreement. Under the agreement, the convertible note payable was reduced
by$400,000 in exchange for the stock (see Note 5).
CONVERTIBLE PREFERRED STOCK
The Company has 1,400,000 shares of convertible preferred stock authorized
of which 1,310,700 shares are issued and outstanding at December 31, 1995 and
September 30, 1996. The preferred stock may be issued by action of the board
of directors without further shareholder approval. Holders of preferred stock
do not have preemptive rights. Each share of preferred stock is entitled to
one vote on all matters submitted to a vote of shareholders, including the
election of directors. The holders of the preferred stock also vote and must
approve as a class any material changes to the Company's articles of
incorporation or to the rights and preferences of the preferred stock.
Dividends may be paid to the holders of preferred stock out of funds legally
available for dividends when and if declared by the board of directors. Each
share of preferred stock is entitled to a cumulative dividend of $.08 per
share per annum, which shall be declared and paid before any dividend is
payable to holders of the common stock. The $.08 dividend shall accrue on July
1, 1994 and each July 1st thereafter. In the event of a liquidation,
dissolution or winding-up of the affairs of the Company, the holders of the
preferred stock will
F-42
<PAGE>
AVCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
be entitled to receive $1.00 per share plus all accrued but unpaid dividends
before any liquidation proceeds are distributed to the holders of any other
class of Company stock. The preferred stock is convertible into common stock
as a class, by affirmative vote of the holders of 66.67 percent of the
preferred stock, on a one-for-one basis, subject to adjustment for stock
dividends, stock splits, mergers and similar changes of the Company's capital
structure. The Company has no obligation to pay accrued but unpaid dividends
on the shares of preferred stock converted. The accumulated but unpaid and
undeclared dividends on preferred stock was $210,000 at December 31, 1995 and
$289,000 at September 30, 1996. The terms of certain of the agreements for the
sale or financing of notes receivable prohibit payment of dividends (see Note
2). Subsequent to September 30, 1996, all holders of the convertible preferred
stock converted their shares into common stock and forfeited their rights to
cumulative dividends.
STOCK OPTIONS
In connection with the merger with Cannon described in Note 1, the Company
issued an option to purchase up to 350,000 shares of common stock with an
exercise price of $.02 per share to an individual. The option is currently
exercisable and expires August 1998. The option (or the common stock received
upon exercise of the option) vests and becomes nonforfeitable if the common
stock trades in a public market for at least $4.00 for 120 consecutive trading
days prior to the expiration date. If the option is exercised prior to vesting
and the vesting criteria is not met prior to the expiration date of the
option, the shares issued upon exercise of the option shall be repurchased by
the Company for $0.02 per share. The option has not vested and has not been
exercised as of September 30, 1996. The Company has made a claim against the
individual for cancellation of the 371,500 outstanding shares of common stock
held by the individual and of this option (see Note 10) which, if successful,
would reduce the number of outstanding shares and impact the calculation of
earnings per share.
The Company granted 100,000 options on January 5, 1995 to an employee to
purchase common stock at $2.75 per share exercisable for up to 10 years.
Although the options are immediately exercisable, the employee is restricted
from selling any shares in 1995 and shares in excess of 25,000 in 1996. No
options have been exercised as of September 30, 1996.
Effective October 1, 1995, the Company's Board of Directors adopted a non-
statutory stock option plan and an incentive stock option plan under a single
stock option plan (Stock Option Plan). The Stock Option Plan was approved by
the stockholders in June 1996. Under the terms of the Stock Option Plan, both
qualified incentive stock options (ISOs) and non-qualified stock options may
be granted. ISOs may be granted to the officers and key personnel of the
Company. Non-qualified stock options may be granted to the Company's directors
and key personnel, and to providers of various services to the Company.
Under the Stock Option Plan, options to purchase a maximum of 750,000 shares
of the Company's common stock may be granted. The exercise price for any
option granted under the Stock Option Plan may not be less than 100% (110% if
the option is granted to a stockholder who at the time the option is granted
owns stock comprising more than 10% of the total combined voting power of all
classes of stock of the Company) of the fair market value of the common stock
at the time the option is granted. The option holder may pay the exercise
price in cash or by delivery of previously acquired shares of common stock of
the Company. Each option granted must terminate no more than 10 years from the
date it is granted.
The Stock Option Plan will terminate in September 2005, but any option
granted thereunder will continue throughout the terms of such option.
Pursuant to the Stock Option Plan, 250,000 options were issued on December
19, 1995 and 50,000 options were issued in July 1996 at an exercise price of
$3.44, and vest ratably over five years. No options had been exercised through
September 30, 1996.
F-43
<PAGE>
AVCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. RELATED PARTY TRANSACTIONS
At December 31, 1994, ASP owed the Company $454,000 in advances, including
accrued interest, to facilitate resale of timeshare interests which is
included in receivables from related parties. At December 31, 1994, the
Company owed the executive officers of ASP $78,000, included in amounts due to
related parties, and $130,000 included in notes payable to stockholders
relating to the issuance of subordinated notes payable (see Note 5).
As discussed in Note 1, the Company purchased all of the outstanding stock
of ASP and GWFI on September 30, 1995 from the chief executive officer and the
president of the Company. The Company received commissions of $37,000 from ASP
through September 30, 1995 related to the sale of ASP timeshare interests.
Fletcher Financial, a company owned by one of the stockholders of the
Company, has guaranteed up to $5,000,000 of timeshare notes receivable sold
(see Note 2). In addition, Fletcher Financial has an unsecured note payable
(see Note 5).
The Company provides management services to the homeowners associations of
its developments. Certain officers of the Company are members of the board of
directors and officers of the homeowners associations. The homeowners
associations board of directors is responsible for presenting the annual
budget to each homeowners association and supervising the daily operations of
each resort. The Company has provided covenants in its debt agreements and
note receivable sale and financing agreements that it will support the
operations of the homeowners associations, if required, until substantially
sold-out. The Company has receivables, including lease receivables (Note 7),
from the homeowners' association of $280,000, $675,000 and $568,000 at
December 31, 1994 and 1995 and September 30, 1996, respectively, and payables
of $309,000, $484,000 and $353,000, respectively, included in receivables from
and amounts due to related parties.
10. CONTINGENCIES
The stockholders approved the removal of one of the Company's directors in
February 1995. The Company has initiated litigation against this former
director and Cannon for damages and rescission of the merger of Cannon into
the Company based upon breach of contract, fraud, securities fraud and
violations of the Arizona Racketeering Act. The director has filed a counter-
claim alleging defamation, interference with business relations, breach of
contract and indemnification.
The Company is a defendant in several lawsuits filed by its former marketing
company, Success Marketing, Inc. (Success). On September 20, 1995 Success gave
the Company notice of termination of their sales agreement. On August 3, 1995
Success filed suit and made demand for arbitration alleging breach of
contract, loss of compensation, failure to negotiate in good faith and
promissory fraud. Success seeks contract and punitive damages. The suit is a
result of a prior marketing and sales agreement between the parties and
negotiations of a new agreement which was not consummated. The Company is
vigorously defending these actions and has filed counterclaims. The Company
has withheld commissions related to sales prior to termination of the sales
agreement and has paid various costs subsequent to termination of the sales
agreement which it believes are recoverable through offset against the
commissions and has established a receivable. The ultimate resolution of this
commission payable and receivable is dependent upon the resolution of the
litigation.
The Company is a defendant in other litigation arising in the course of the
operations. Management intends to vigorously defend these and the foregoing
actions and does not believe such lawsuits will have a material effect on the
Company's consolidated financial position, results of operations or cash
flows.
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<PAGE>
AVCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. DEFINED CONTRIBUTION PLAN
The Company adopted a 401(k) defined contribution plan (Plan) covering all
employees who elect to participant in the Plan effective January 1, 1995. Each
participant may make pretax contributions to the Plan up to 10 percent of such
participant's earnings with a maximum of approximately $9,240 in 1995.
12. SUBSEQUENT EVENT
The Company received an extension and modification of the warehouse loan
agreement (Note 5) on July 1, 1996. The loan was extended to August 13, 1996
and the aggregate maximum amount of advances was increased to $28,000,000. The
loan was further modified as discussed in Note 5.
13. PROPOSED MERGER (UNAUDITED)
Pursuant to a merger agreement entered into in September, 1996, ASP
Acquisition Corp., a wholly owned subsidiary of Signature Resorts, Inc.
(Signature), will merge with and into AVCOM. Upon consummation of the merger,
each share of AVCOM Stock, except shares held in treasury and shares owned by
dissenting shareholders who have taken all required steps to exercise their
appraisal rights, will be converted into shares of Signature Stock. As part of
the Merger, Signature agreed to make a working capital loan to the Company up
to $4.0 million to accommodate the Company's working capital needs in lieu of
the Company otherwise continuing its capital raising activities during the due
diligence period contemplated by the Merger. The outstanding loan amount is
$3.0 million as of December 18, 1996 with an interest rate of 12 percent. The
loan will be paid from the proceeds of sale of the Tunlii, L.L.C. property and
release prices and paid from the sale of intervals at the Sedona Summit Resort
with a maturity date of not later than December 31, 1997 but can mature sooner
if, e.g., Signature validly terminates the Merger Agreement.
Separately, should the Merger fail to be consummated, the Company will grant
Signature an irrevocable option exercisable through December 31, 1998 to
acquire a number of shares of AVCOM Stock equal to 19.9 percent of the total
issued and outstanding AVCOM Stock, on a fully diluted basis, at an exercise
price of $5.00 per share. Additionally, if the Merger Agreement is terminated
by Signature under certain circumstances, the Company would be required to pay
Signature a termination fee of $1,800,000 plus certain expenses.
F-45
<PAGE>
APPENDIX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
SIGNATURE RESORTS, INC. ("SIGR")
AND
AVCOM INTERNATIONAL, INC. ("AVCOM")
DATED
SEPTEMBER 22, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<C> <C> <S> <C>
ARTICLE I TERMS OF THE MERGER
1.1 Merger.................................................. A-4
1.2 Time and Place of Closing............................... A-4
1.3 Effects of Merger....................................... A-4
1.4 Method of Carrying Merger into Effect................... A-7
1.5 Registration Statement/Prospectus/Proxy Statement....... A-8
ARTICLE II REPRESENTATIONS AND WARRANTIES OF SIGR
2.1 Organization............................................ A-9
2.2 Articles of Incorporation............................... A-9
2.3 Authorization........................................... A-9
2.4 Reporting............................................... A-9
2.5 Disclosure.............................................. A-10
2.6 Reaffirmation of Prospectus............................. A-10
ARTICLE III REPRESENTATIONS AND WARRANTIES OF AVCOM
3.1 Organization............................................ A-10
3.2 Articles of Incorporation, Bylaws and Agreements........ A-11
3.3 Capital Structure and Ownership......................... A-11
3.4 Authorization........................................... A-11
3.5 Financial Statements and Absence of Changes............. A-12
3.6 Title to and Condition of Assets and Property........... A-12
3.7 Insurance............................................... A-14
3.8 Environmental Matters................................... A-15
3.9 Minute and Stock Books; Records......................... A-17
3.10 Liabilities............................................. A-17
3.11 Contracts............................................... A-18
3.12 Litigation and Compliance............................... A-19
3.13 Non-Contravention....................................... A-19
3.14 Licenses, Permit and Required Consents.................. A-19
3.15 Labor Matters........................................... A-20
3.16 Employee Benefit Plans.................................. A-20
3.17 Taxes and Returns....................................... A-21
3.18 Changes................................................. A-22
3.19 Accounts Receivable..................................... A-23
3.20 No Adverse Actions...................................... A-23
3.21 Reporting............................................... A-23
3.22 Disclosure.............................................. A-23
3.23 Updating of Exhibits and Disclosure Documents........... A-23
ARTICLE IV ADDITIONAL AGREEMENTS OF THE PARTIES
4.1 Ordinary Course......................................... A-24
4.2 Access Prior to Closing................................. A-25
4.3 Regulatory and Other Authorizations..................... A-25
4.4 Further Assurances...................................... A-25
4.5 Payment of Taxes........................................ A-25
4.6 Delivery................................................ A-25
4.7 Employees............................................... A-25
4.8 Continued Relationships................................. A-25
4.9 Confidentiality......................................... A-25
</TABLE>
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<TABLE>
<CAPTION>
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<C> <C> <S> <C>
4.10 Options................................................ A-26
4.11 No Solicitation........................................ A-26
4.12 Option to Acquire AVCOM Shares......................... A-26
4.13 SIGR Loan.............................................. A-27
4.14 Agreement of Affiliates................................ A-27
4.15 Conversion of Preferred Stock.......................... A-27
ARTICLE V CONDITIONS TO CLOSING
5.1 Closing Conditions of AVCOM............................ A-27
5.2 Closing Conditions of SIGR............................. A-28
ARTICLE VI THE CLOSING
6.1 Deliveries by AVCOM.................................... A-29
6.2 SIGR's Deliveries...................................... A-30
ARTICLE VII TERMINATION
7.1 Termination............................................ A-31
7.2 Effect of Termination.................................. A-32
7.3 Cancellation Payments and Expenses..................... A-32
ARTICLE VIII INDEMNIFICATION
8.1 Agreement to Indemnify................................. A-34
8.2 Survival of Representations and Warranties............. A-34
8.3 Security for Indemnification Obligation................ A-34
8.4 Delivery of Holdback Shares............................ A-35
8.5 No Bar................................................. A-35
8.6 Limitation on Claims................................... A-35
ARTICLE IX MISCELLANEOUS
9.1 Governing Law and Consent to Jurisdiction.............. A-36
9.2 Notices................................................ A-36
9.3 Assignment............................................. A-37
9.4 Section Headings....................................... A-37
9.5 Counterparts........................................... A-37
9.6 Amendment.............................................. A-37
9.7 Entire Agreement....................................... A-37
9.8 Binding Effect......................................... A-37
9.9 Survival............................................... A-37
9.10 Severability........................................... A-37
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger ("AGREEMENT") is made as of September 22,
1996, by and among Signature Resorts, Inc., a Maryland corporation ("SIGR"),
and AVCOM International, Inc., a Delaware corporation ("AVCOM").
W I T N E S S E T H :
In consideration of the premises and the mutual covenants and agreements
hereinafter set forth, the parties hereto agree as follows.
ARTICLE I
TERMS OF THE MERGER
1.1 Merger.
(a) SIGR and AVCOM acknowledge and agree that their representations,
covenants, warranties, agreements, indemnities and other undertakings
contained in this Agreement are made and given to induce the other party to
enter into this Agreement and consummate the transactions contemplated by this
Agreement and that each party in reliance thereon has agreed to execute this
Agreement and consummate the transactions contemplated by this Agreement.
Subject to the satisfaction or waiver of the conditions set forth in this
Agreement, on the Closing Date (as hereinafter defined), pursuant to the terms
and provisions of this Agreement and all relevant laws, AVCOM shall merge with
a subsidiary of SIGR to be formed or designated by SIGR prior to Closing (the
"MERGER"). The corporation which will survive the Merger shall be determined
by SIGR. The parties shall prepare and execute a plan of merger, articles of
merger and any other related documents in order to comply in all respects with
the requirements of the corporate laws of the state(s) having jurisdiction
over the Merger and with the terms and provisions of this Agreement.
1.2 Time and Place of Closing. The Closing of the Merger (the "CLOSING")
shall occur on such date (the "CLOSING DATE") at such time and at such place
as SIGR shall determine as soon as practicable after all of the conditions to
the obligations of the parties hereto shall have been satisfied or waived.
SIGR shall give AVCOM not less than five days' prior notice of the place and
time of Closing.
1.3 Effects of Merger. Upon consummation thereof, the Merger shall have the
effects described below:
(a) Conversion of Shares and Merger Consideration. Subject to adjustment
as hereinafter provided, the issued and outstanding shares of common stock
of AVCOM (the "AVCOM SHARES") and the outstanding and unexercised options
(the "OPTIONS") to acquire shares of common stock of AVCOM, if any, on the
Closing Date shall be converted into and become, and there shall be paid
and issued, in exchange for the AVCOM Shares and the Options (subject to
the provisions of this Agreement, any applicable withholding requirements,
applicable statutory provisions with respect to appraisal rights and
adjustment pursuant to this Section, Sections 4.7 and 8.1, below) a number
of shares of common stock of SIGR ("SIGR STOCK") determined as follows:
(i) Subject to adjustments required herein, the aggregate
consideration to be received by the shareholders of AVCOM (the "AVCOM
SHAREHOLDERS" or, individually, an "AVCOM SHAREHOLDER") in connection
with the Merger (the "MERGER CONSIDERATION"), results in each share of
AVCOM Shares and Option Shares issued and outstanding at the Closing
Date (with the exception of shares held in treasury which shall be
canceled), by virtue of the merger and without any action on the part
of the holder thereof, being converted into and exchanged for .26
shares of SIGR Stock [$5.00 / $19.44] (the "INITIAL CONVERSION RATIO"),
the shares of SIGR Stock required for such purpose being drawn from the
authorized but unissued shares of SIGR Stock. The
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<PAGE>
conversation ratio determined after taking into consideration any
adjustments shall be referred to herein as the "FINAL CONVERSION RATIO"
which shall be the same as the Initial Conversion Ratio if there are no
adjustments. The Merger Consideration (subject to the provisions of
this Agreement, any applicable withholding requirements, applicable
statutory provisions with respect to appraisal rights or other
adjustments required herein), prior to the adjustments described in
subsection (d), shall be not less than $4.00 multiplied by the number
of AVCOM Shares and Option Shares (the "MINIMUM PRE-ADJUSTMENT MERGER
CONSIDERATION"), nor more than $6.00 multiplied by the number of Option
Shares (as hereinafter defined) and AVCOM Shares (the "MAXIMUM PRE-
ADJUSTMENT MERGER CONSIDERATION"). In the event that there are any
adjustments to the Pre-Adjustment Merger Consideration pursuant to
subsection (ii) hereof, the result will be referred to herein as the
"Final Merger Consideration" which will be the same as the Pre-
Adjustment Merger Consideration if no adjustments are required. The
Final Merger Consideration will be payable in shares of SIGR Stock,
delivered in accordance with Section 1.3(d) of this Agreement. The
value of each share of SIGR Stock (the "CONVERSION SHARE VALUE" or
"SHARE VALUE") for purposes of determining the number of shares
issuable hereunder shall be equal to the mean average high and low
trades of SIGR Stock as reported on the NASDAQ National Market System
for each of the ten (10) consecutive trading days immediately preceding
ten (10) days prior to the Closing Date.
To Determine the Final Conversion Ratio,
(1) First determine the Pre-Adjustment Merger Consideration by multiplying
the Initial Conversion Ratio by the number of AVCOM Shares and Option Shares,
with the result then being multiplied by the Conversion Share Value. In the
event that the result is less than the Minimum Pre-Adjustment Merger
Consideration or greater than the Maximum Pre-Adjustment Merger Consideration,
the Initial Conversion Ratio shall be adjusted in an amount necessary to
increase or decrease the result to the Minimum or Maximum amount, as
appropriate.
(2) Second, determine the Final Merger Consideration by adjusting the Pre-
Adjustment Merger Consideration as required in subsection (ii).
(3) Third, and finally, adjust the Initial Conversion Ratio (after taking
into consideration the adjustments already made in (i) above so that the
product of the Final Conversion Ratio times the number of AVCOM Shares and
Option Shares times the Conversion Share Value equals the Final Merger
Consideration.
(ii) The Final Merger Consideration, shall be reduced, if and as
necessary, in an amount equal to the sum of the following: (i) Any amount
paid by AVCOM or a Subsidiary in excess of $800,000 as part of a final
settlement between AVCOM and each Subsidiary and Success Marketing, Inc.,
Success Companies, Inc., Success Ventures, Inc., and their affiliates
arising out of a dispute concerning the relationship between Success and
AVCOM and its Subsidiaries, and (ii) all amounts in excess of $250,000 paid
or to be paid by AVCOM for the fees and expenses of consultants, attorneys,
accountants and the like by AVCOM in connection with the Merger and the due
diligence conducted in regard to the Merger, unless a higher amount is
agreed to by SIGR, such agreement not to be unreasonably withheld.
The Share Value for the SIGR Stock referenced above shall be subject to
appropriate adjustment in the event of a stock split, stock dividend or
recapitalization applicable to shares of SIGR Stock held of record prior to
the Closing to the extent not reflected in such prices. No fractional shares
of SIGR Stock shall be issued. In lieu thereof, any AVCOM Shareholder who
would otherwise be entitled to a fractional share of SIGR Stock pursuant to
the provisions hereof shall receive an amount in cash equal to the value of
such fractional share. The value of such fractional share shall be the product
of such fraction multiplied by the Share Value per whole share determined
pursuant to the foregoing provisions.
The Merger Consideration shall be paid to the holders of the AVCOM Shares
and the Options outstanding on the Closing Date based upon the number of AVCOM
Shares and Option Shares owned by each such holder on the Closing Date. For
purposes hereof, "OPTION SHARES" shall mean the sum of the Separate Option
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<PAGE>
Shares, rounded down to the nearest whole share. The term "SEPARATE OPTION
SHARES" means, as to Options having the same exercise price, the number of
AVCOM Shares issuable pursuant to Options outstanding and unexercised on the
Closing Date which have the same exercise price multiplied by a fraction
(rounded to the nearest thousandth), the denominator of which is $5.00
(subject to reduction for adjustments pursuant to this Agreement) and the
numerator of which is the excess in the amount of the denominator referenced
above over the exercise price of the Options involved, rounded down to the
nearest whole share. By way of example, if there are fifteen (15) shares
underlying Options with an exercise price of $2.00 per share and forty (40)
shares underlying Options with an exercise price of $2.50 per share all held
by one person, the number of Option Shares would be twenty-nine (29),
determined as follows:
Separate Option Shares for 15 Option Shares at $2.00
1. $5.00 -- $2.00 = 3.00 (numerator)
2. $3.00 / $5.00 = .60 (multiplicand)
3. 15 shares X .60 = 9 shares
Separate Option Shares for 40 Option Shares at $2.50
1. $5.00 -- $2.50 = $2.50 (numerator)
2. $2.50 / $5.00 = .50 (multiplicand)
3. 40 shares X .50 = 20 shares
Option Shares
9 shares + 20 shares = 29 shares
The aggregate Merger Consideration shall be reduced by the amount otherwise
payable or issuable to AVCOM Shareholders who exercise appraisal rights in
connection with the Merger based upon such holders' ownership of AVCOM Shares
and Option Shares outstanding on the Closing Date.
Each share of common stock of AVCOM held in the treasury of AVCOM or wholly
owned subsidiary of AVCOM shall be canceled as of the effective time of the
Merger. From and after the effective time of the Merger, there shall be no
further transfers on the stock transfer books of AVCOM of any of the AVCOM
Shares.
(b) Shareholders' Rights upon Merger. Upon confirmation of the Merger (i)
all unvested options granted pursuant to AVCOM's 1995 stock option plan (i.e.
options for 150,000 shares to each of the Principal Shareholders) and options
to acquire 100,000 shares of AVCOM stock granted to Robert M. Eckenroth shall
vest and be nonforfeitable and (ii) the requirements for release of 500,000
shares of AVCOM common stock to Sangar Investments, LLC and 65,000 shares of
AVCOM common stock to Robert Fletcher pursuant to that certain Escrow
Agreement between such parties and AVCOM shall be waived and such shares
released. Upon consummation of the Merger, the holders of all certificates
which theretofore represented AVCOM Shares and the holders of all Options
shall cease to have any rights with respect thereto, and, subject to
applicable law, shall only have the right (i) in the case of holders who do
not exercise appraisal rights, to receive the number of shares of SIGR Stock
into which their Shares or Options have been converted pursuant to this
Agreement and the Merger, or (ii) in the case of holders who do exercise
appraisal rights in accordance with the Delaware General Corporation Law (the
"DELAWARE ACT"), to receive the fair value of their AVCOM Shares in accordance
with the Delaware Act. Holders of AVCOM Shares or Options who exercise
appraisal rights shall not be entitled to any dividends or other distributions
payable after the Closing Date to holders of SIGR Stock, regardless of whether
such holders of AVCOM Shares or Options who exercise appraisal rights have
received payment of the fair value of their AVCOM Shares or Options at the
time any such dividend or distribution is declared or paid by SIGR.
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<PAGE>
(c) Corporate Existence, Rights and Obligations. Upon consummation of the
Merger and pursuant to this Agreement, the surviving corporation shall possess
all the rights, privileges, immunities and franchises, as well as of a public
as of a private nature, of each of the merging corporations; and all property,
whether real, personal or mixed, and all debts due on whatever account,
including subscriptions to shares and all other choses in action, and all and
every other interest, of or belonging or due to each of the merging
corporations, shall be taken and deemed to be transferred to and vested in the
corporation which survives the Merger without further act or deed; and the
title to any real estate, or any interest therein, vested in either of such
corporations shall not revert or be in any way impaired by reason of the
Merger. The Merger shall have all further effects as specified in all
applicable corporate laws of the State of Delaware and such other state, if
any, the laws of which shall govern the Merger.
(d) Payment of Merger Consideration. Immediately upon consummation of the
Merger and receipt by SIGR of (i) certificates representing the AVCOM Shares
and cancellation of any Options, (ii) the federal taxpayer identification
number of each holder of such stock certificates and Options, (iii) duly
executed transmittal letters in form and substance acceptable to SIGR, and (iv)
the other documents and instruments required pursuant to this Agreement, SIGR
immediately shall cause to be paid by SIGR's check and issued to each holder of
AVCOM Shares or Options, the amount of cash and a certificate representing 90%
of the number of shares of SIGR Stock which such holder is entitled to receive
pursuant to subsection (a) hereof (less the amount of any required
withholding), with the remaining SIGR stock due to each AVCOM Shareholder (the
"HOLDBACK STOCK") to be retained by SIGR and delivered in accordance with the
holdback provisions of Article VIII hereof. As soon as practicable after
Closing, SIGR will send or cause to be sent a notice and transmittal materials
to each AVCOM Shareholder and holder of Options of record at the effective time
of the Merger advising of the effectiveness of the Merger and the procedure for
delivering the above-referenced documents and instruments in order to receive
the Merger Consideration. If any certificate evidencing shares of SIGR Stock is
to be issued in a name other than that in which the certificate(s) surrendered
in exchange therefor is registered, it shall be a condition of the issuance
thereof that the certificate surrendered in exchange shall be properly endorsed
and otherwise in proper form for transfer and that the person requesting such
transfer pay any transfer or other taxes required by reason of the issuance of
a certificate for shares of SIGR Stock in any name other than that of the
registered holder of the certificate surrendered, or establish to the
satisfaction of SIGR that such tax has been paid or is not payable.
(e) Tax-Free Reorganization. The parties intend that the Merger will qualify
as a tax-free reorganization pursuant to Section 368 of the Internal Revenue
Code, as amended (the "CODE").
1.4 Method of Carrying Merger into Effect. SIGR and AVCOM shall cooperate in
effecting the transactions contemplated by this Agreement, including without
limitation, taking, or causing to be taken, such actions as may be required in
order to cause the Merger to become effective, subject to and in accordance
with the provisions hereof. The Chief Executive Officers of SIGR and AVCOM
shall mutually agree on the specific time, date and place for a meeting of the
AVCOM Shareholders for the purpose of voting upon the Merger and on the
information and documents to be provided in connection therewith. Costs
required to be paid during the course of proceeding with the actions to
implement the Merger shall be advanced by AVCOM or SIGR based upon whichever is
taking the actions required to be taken. Costs advanced or incurred by AVCOM
(or by SIGR in the event that SIGR shall advance any costs properly chargeable
to AVCOM under the preceding sentence) shall be charged against the adjustment
factor (the "SALE EXPENSE CAP") in clause (ii) of paragraph (ii) of Section
1.3(a) above based upon the following:
(i) The entirety of any cost or expense shall be charged against the Sale
Expense Cap if the cost or expense is incurred solely to reduce the
likelihood of imposing any liabilities on the pre-Merger officers,
directors or shareholders of AVCOM, to satisfy any obligation that AVCOM is
required under this Agreement to perform in order to satisfy any condition
to Closing or any condition to Closing that is outside the control of SIGR
or that SIGR does not have the responsibility to accomplish under this
Agreement or that is required to assure that AVCOM (or its Subsidiary)
retains good and marketable title to the assets that this Agreement
provides for SIGR to control after the Merger.
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(ii) None of the cost or expense shall be charged against the Sale
Expense Cap if the cost or expense is incurred solely to reduce the
likelihood of imposing any liabilities on the pre-Merger officers,
directors, or shareholders of SIGR, to satisfy any obligations that SIGR is
required under this Agreement to perform in order to satisfy any condition
to Closing or any condition to Closing that is outside the control of AVCOM
or that AVCOM does not have the responsibility to accomplish under this
Agreement.
(iii) Otherwise, fifty percent (50%) of the cost or expense shall be
charged against the Sale Expense Cap.
1.5 Registration Statement/Prospectus/Proxy Statement.
(a) For the purposes (i) of registering the SIGR Stock to be issued to
holders of the AVCOM Shares in connection with the Merger with the Securities
and Exchange Commission ("SEC") under the Securities Act of 1933, as amended,
(the "SECURITIES ACT") and the rules and regulations thereunder and complying
with applicable state securities laws, and (ii) of holding the meeting of
AVCOM Shareholders, SIGR and AVCOM will cooperate in the preparation of a
registration statement on Form S-4 (such registration statement, together with
any and all amendments and supplements thereto, being herein referred to as
the "REGISTRATION STATEMENT"), including a prospectus/proxy statement
satisfying all applicable requirements of applicable state securities laws and
of the Securities Act and the Securities Exchange Act of 1934, as amended (the
"SECURITIES EXCHANGE ACT"), and the rules and regulations thereunder (such
prospectus/proxy statement in the form mailed by AVCOM to its shareholders,
together with any and all amendments or supplements thereto, being herein
referred to as the "PROSPECTUS/PROXY STATEMENT").
(b) AVCOM will furnish SIGR with such information concerning AVCOM and the
Subsidiaries as is necessary in order to cause the Prospectus/Proxy Statement,
insofar as it relates to such corporations, to comply with applicable law.
AVCOM agrees promptly to advise SIGR if at any time prior to the meeting of
AVCOM shareholders any information provided by it in the Prospectus/Proxy
Statement becomes incorrect or incomplete in any material respect and to
provide AVCOM with the information needed to correct such inaccuracy or
omission. AVCOM will furnish SIGR with such supplemental information as may be
necessary in order to cause the Prospectus/Proxy Statement, insofar as it
relates to AVCOM and the Subsidiaries, to comply with applicable law after the
mailing thereof to AVCOM Shareholders.
(c) SIGR will furnish AVCOM with such information concerning SIGR and its
subsidiaries as is necessary in order to cause the Prospectus/Proxy Statement,
insofar as it relates to such corporations, to comply with applicable law.
SIGR agrees promptly to advise AVCOM if at any time prior to the meeting of
AVCOM Shareholders any information provided by it in the Prospectus/Proxy
Statement becomes incorrect or incomplete in any material respect and to
provide AVCOM with the information needed to correct such inaccuracy or
omission. SIGR will furnish AVCOM with such supplemental information as may be
necessary in order to cause the Prospectus/Proxy Statement, insofar as it
relates to SIGR and its subsidiaries, to comply with applicable law after the
mailing thereof to AVCOM Shareholders.
(d) SIGR will, at its expense, as promptly as practicable file the
Registration Statement with the SEC and appropriate materials with applicable
state securities agencies and will use all reasonable efforts to cause the
Registration Statement to become effective under the Securities Act and all
such state filed materials to comply with applicable state securities laws at
the earliest practicable date. AVCOM authorizes SIGR to utilize in the
Registration Statement and in all such state filed materials, the information
concerning AVCOM and the Subsidiaries provided to SIGR in connection with, or
contained in, the Prospectus/Proxy Statement. SIGR will advise AVCOM promptly
when the Registration Statement has become effective and of any supplements or
amendments thereto, and SIGR will furnish AVCOM with copies of all such
documents. Prior to the effective time of Merger or the termination of this
Agreement, AVCOM shall consult with SIGR with respect to any written material
(other than the Prospectus/Proxy Statement) that might constitute a
"prospectus" relating to the Merger within the meaning of the Securities Act.
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(e) AVCOM shall determine which of the AVCOM Shareholders may be deemed to
be "affiliates" of AVCOM (herein called "AFFILIATED PERSONS") within the
meaning of Rule 145 of the rules and regulations of the SEC promulgated under
the Securities Act and advise SIGR of the names and addresses of the
Affiliated Persons at least ten (10) days prior to the Closing Date.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SIGR
SIGR represents and warrants to AVCOM as follows, which representations and
warranties are made as of the date hereof and as of the Closing Date and shall
survive the Closing:
2.1 Organization.
(a) SIGR is a corporation duly organized, validly existing and in good
standing under the laws of the State of Maryland, is duly qualified and in
good standing as a foreign corporation in the jurisdictions where the
ownership of its assets or the conduct of its business requires such
qualification with full power and authority to own its properties and assets
and to carry on lawfully its business as currently conducted.
(b) Except as set forth on Exhibit 2.1 attached hereto, SIGR does not have
any subsidiaries which engage in active operations (hereinafter, any such
subsidiaries are referred to collectively as the "SIGR SUBSIDIARIES" and
individually as an "SIGR SUBSIDIARY"). Each such SIGR Subsidiary is a
corporation duly organized, validly existing and in good standing under the
laws of the state of its incorporation (as set forth on said Exhibit 2.1), is
duly qualified and in good standing as a foreign corporation in the
jurisdictions where the ownership of its assets or the conduct of its business
requires such qualification with full power and authority to own its property
and assets and to carry on lawfully its business as currently conducted.
2.2 Articles of Incorporation, Bylaws and Agreements. A true, complete and
correct copy of the Articles of Incorporation and Bylaws of SIGR as currently
in effect have been delivered to AVCOM. SIGR has no actual knowledge that
there are any agreements by and between or among SIGR and any or all of their
shareholders imposing any restrictions upon the transfer of or otherwise
pertaining to the SIGR Stock to be received by the AVCOM Shareholders or any
Subsidiary or the ownership thereof.
2.3 Authorization. SIGR has full legal right, power and authority to enter
into this Agreement and to carry out the transactions contemplated by this
Agreement. The execution, delivery and performance by SIGR of this Agreement
and the other agreements and documents referred to herein and the actions
contemplated hereby and thereby have been duly and validly authorized by all
necessary corporate action, and this Agreement and such other agreements and
documents constitute valid and binding obligations of SIGR, enforceable in
accordance with their terms, subject to (i) general principles of equity,
regardless of whether enforcement is sought in a proceeding in equity or at
law, and (ii) bankruptcy, reorganization, insolvency, fraudulent conveyance,
moratorium, receivership or other similar laws relating to or affecting
creditors' rights generally.
2.4 Reporting. SIGR has timely filed (within applicable extension periods)
all reports and documents required to be filed by it on Forms 10-K, 10-Q and
8-K under the Securities Exchange Act and the rules and regulations
promulgated thereunder. All such reports were appropriately responsive to all
applicable requirements, were complete, correct and proper in form and did not
contain an untrue statement of a fact or omit to state a fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. SIGR shall send to
AVCOM copies of all financial statements and reports as and when sent to the
SIGR shareholders and the SEC, as to which the representations and warranties
in the preceding sentence shall also apply.
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2.5 Disclosure. No representation, warranty or statement made by or on
behalf of SIGR in this Agreement or the Exhibits attached hereto or in the
certificates or other materials furnished or to be furnished to AVCOM or its
representatives or lenders in connection with this Agreement and the
transactions contemplated hereby or thereby, contains or will contain any
untrue statement of fact or omits or will omit to state a fact required to be
stated herein or therein or necessary to make the statements contained herein
or therein not misleading. All information and documents provided prior to the
date of this Agreement, and all information and documents subsequently
provided, to AVCOM or its representatives by or on behalf of SIGR are or
contain, or will be or will contain, as to subsequently provided information
or documents, true, accurate and complete information with respect to the
subject matter thereof and are, or will be as to subsequently provide
information or documents, fully responsive to any specific request made by or
on behalf of AVCOM or its representatives. SIGR shall promptly notify AVCOM of
any change or event which could materially adversely affect the assets,
operations, business, conditions or prospects of SIGR or an SIGR Subsidiary.
2.6 Reaffirmation of Prospectus. The information contained in the prospectus
issued by SIGR with respect to an offering of its common stock dated August
15, 1996 is reaffirmed to be true and correct in all material respects as of
the date hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF AVCOM
AND PRINCIPAL SHAREHOLDERS
AVCOM, Gary Hughes ("HUGHES"), and John Stevens ("STEVENS") (Hughes and
Stevens being referred to herein as the "PRINCIPAL SHAREHOLDERS") do hereby
jointly and severally represent and warrant to SIGR as follows, which
representations and warranties are made as of the date hereof and as of the
Closing Date and shall survive the Closing:
3.1 Organization.
(a) AVCOM is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, is duly qualified and in
good standing as a foreign corporation in the states set forth on
Exhibit 3.1(a) attached hereto (which list of states includes all states in
which the Real Properties (as defined below) are located and all states in
which AVCOM is advertising, soliciting or consummating the sale of Intervals
(as defined below) the sale, with full power and authority to own its
properties and assets and to carry on lawfully its business as currently
conducted in the states so indicated on said Exhibit 3.1(a), and, to the best
of AVCOM's and the Principal Shareholders' knowledge, is not required to be
qualified to do business as a foreign corporation in any other jurisdiction.
(b) Except as set forth on Exhibit 3.1(b) attached hereto, AVCOM does not
have any wholly or partially owned subsidiaries (hereinafter, any such
subsidiaries are referred to collectively as the "SUBSIDIARIES" and
individually as a "SUBSIDIARY") and neither it nor any Subsidiary owns or
holds any securities of, or any ownership interest (whether directly or
indirectly or whether beneficial or otherwise) in, any other person or entity
other than the Related Parties (as defined below). Each such Subsidiary is a
corporation, partnership, or limited liability company duly organized, validly
existing and in good standing under the laws of the state of its
organization), is duly qualified and in good standing as a foreign
corporation, partnership, or limited liability company in the states so
indicated on said Exhibit 3.1(b), with full power and authority to own its
property and assets and to carry on lawfully its business as currently
conducted, and, to the best of AVCOM's and the Principal Shareholders'
knowledge is not required to be qualified to do business as a foreign
corporation, partnership, or limited liability company in any other
jurisdiction.
(c) Except as set forth on Exhibit 3.1(c) attached hereto, there are no
condominium, timeshare or other homeowner associations (hereinafter, any such
Associations are referred to collectively as the
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"ASSOCIATIONS" and individually as a "ASSOCIATION") for any of the Real
Properties and neither AVCOM nor any Association owns or holds any securities
of, or any material interest in, any other person or entity. Each such
Association is a non-profit corporation or other non-profit entity duly
organized, validly existing and in good standing under the laws of the state
of its organization, and is duly qualified and in good standing, with full
power and authority to own its property and assets and to carry on lawfully
its business as currently conducted.
(d) The ownership structure of each of the Related Parties (as defined
below) and any Subsidiary in which AVCOM does not own 100% of ownership
interests therein (whether beneficial or otherwise) is set forth on Exhibit
3.1(d) and, except as set forth on Exhibit 3.1(d), there are no constituent
ownership interests (whether beneficial or otherwise) in any of the
Subsidiaries or the Related Parties which is owned by any party not described
on Exhibit 3.1(d).
3.2 Articles of Incorporation, Bylaws and Agreements. A true, complete and
correct copy of the organizational documents (e.g. charter, articles of
incorporation, bylaws, partnership certificate and agreement, limited
liability company certificate and operating agreement) of AVCOM and each
Subsidiary, each Association and each Related Party together with all
amendments thereto have been delivered to SIGR, as set forth on Exhibit 3.2(a)
attached hereto. Except as set forth on Exhibit 3.2(b) attached hereto, AVCOM
and the Principal Shareholders have no actual knowledge that there are any
agreements by and between or among AVCOM, any Subsidiary, any Association, any
Related Party or any or all of their respective shareholders, whether or not
AVCOM or a Subsidiary, an Association or a Related Party is a party thereto,
imposing any restrictions upon the transfer of or otherwise pertaining to the
securities of AVCOM (including but not limited to the AVCOM Shares) or any
Subsidiary or the ownership thereof. Any and all such restrictions shall be
duly complied with or effectively waived as of the Closing.
3.3 Capital Structure and Ownership. AVCOM and each Subsidiary has
authorized, issued and outstanding the number of shares of stock and other
securities so indicated on Exhibit 3.3 attached hereto. It is expressly
represented and warranted that as of September 22, 1996 the number of shares
of outstanding stock and options to acquire stock of AVCOM do not exceed the
preliminary Exhibit 3.3 attached to this Agreement and initialed by AVCOM for
identification. All such outstanding securities have been duly and validly
issued, are fully paid and nonassessable and have not been issued in violation
of the preemptive rights of any person or applicable federal or state
securities laws. No shares of any other class of capital stock or security of
AVCOM or any Subsidiary are outstanding. There are no outstanding options,
warrants or other rights to acquire securities of AVCOM or any Subsidiary, nor
are there securities outstanding which are convertible into securities of
AVCOM or any Subsidiary, except as set forth on said Exhibit 3.3. Except
pursuant to applicable corporate, partnership or limited liability company
laws, there are no restrictions, including but not limited to self-imposed
restrictions, on the retained earnings of AVCOM or any Subsidiary or on the
ability of AVCOM or any Subsidiary to declare and pay dividends or
distributions that are not disclosed on Exhibit 3.3. The name and residence
address of each of the record holders of the AVCOM Shares and the Options of
AVCOM and the securities of each Subsidiary and the respective number and
description of outstanding securities held by each holder are set forth on
Exhibit 3.3 attached hereto.
3.4 Authorization. AVCOM has full legal right, power and authority to enter
into this Agreement and to carry out the transactions contemplated by this
Agreement. The execution, delivery and performance by AVCOM of this Agreement
and the other agreements and documents referred to herein and the actions
contemplated hereby and thereby have been duly and validly authorized by all
necessary corporate action, and this Agreement and such other agreements and
documents constitute valid and binding obligations of AVCOM, enforceable in
accordance with their terms, subject to (i) general principles of equity,
regardless of whether enforcement is sought in a proceeding in equity or at
law, and (ii) bankruptcy, reorganization, insolvency, fraudulent conveyance,
moratorium, receivership or other similar laws relating to or affecting
creditors' rights generally.
Approval of the transactions contemplated by this Agreement requires the
approval of no more than a simple majority of any class of outstanding
securities of AVCOM.
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3.5 Financial Statements and Absence of Changes. The consolidated and
separate balance sheets as of December 31, 1995, 1994, and 1993, and the
consolidated and separate income statements and consolidated and separate
statements of changes in financial condition or cash flows for the fiscal
years then ended and the consolidated and separate balance sheets as of the
end of each month from January through June 30, 1996, and the consolidated and
separate income statements for each of the months then ended of AVCOM and the
Subsidiaries (the "FINANCIAL STATEMENTS") have been provided to SIGR except
for the statements for the period January through June 30, 1996 which shall be
provided by AVCOM in final form not later than October 15, 1996. Each of the
Financial Statements fairly presents (subject to year-end adjustments with
respect to interim periods which will be necessary to present fairly the
financial condition and assets and liabilities or the results of operations of
AVCOM and the Subsidiaries on a consolidated basis as to consolidated
Financial Statements and individually as to separate Financial Statements) the
financial condition and assets and liabilities or the results of operations of
AVCOM and the Subsidiaries as of the dates and for the periods indicated on a
consolidated basis as to consolidated Financial Statements and individually as
to separate Financial Statements. The year-end financial statements and
reports on Form 10-K were prepared in accordance with generally accepted
accounting principles applicable to the business of AVCOM and the Subsidiaries
consistently applied in accordance with past accounting practices, and the
interim financial statements have been prepared internally to fairly present
the financial condition of AVCOM and the Subsidiaries, subject to year-end
adjustments. Except as reflected in the Financial Statements, none of AVCOM or
any Subsidiary has any debts, obligations, subsidies or assessment buy-down,
cost sharing or other agreements required by any Authorities or in favor of
any Associations or otherwise, guaranties of obligations of others or
liabilities (contingent or otherwise) of a material nature that would be
required to be disclosed in financial statements prepared as described herein.
Except as set forth in Exhibit 3.5 attached hereto, since December 31, 1995,
there have been no adverse changes to the business, financial condition,
results of operations or prospects of AVCOM or any Subsidiary from that
described and reflected in the Financial Statements as of that date. All
operating budgets and reserves of the Associations are adequately funded and
neither AVCOM nor any Subsidiary is delinquent in the payment of any regular
or special assessments thereto whether due with respect to Undedicated Units,
Inventory or otherwise or under the terms and conditions of any subsidy
agreement or otherwise.
3.6 Title to and Condition of Assets and Property.
(a) Exhibit 3.6(a) attached hereto sets forth a (i) list of each of the
resorts, properties under development and undeveloped real property holdings
or interests therein (collectively, the "RESORTS") in which AVCOM and the
Subsidiaries directly or (through constituent ownership interests in the
entities which do own all or any portion of the Resorts (such entities being
referred to herein as the "RELATED PARTIES" and each Related Party being
included within the term "Subsidiary" except where specifically excluded)
indirectly own real property, (ii) a legal description of all real property
which comprises the Resorts (the "REAL PROPERTY") (which description includes
a legal description of all land comprising the Resorts (the "LAND"), a legal
description of all condominium, undivided interest and other dwelling units
which have been constructed on the Land (the "DWELLING UNITS") including all
Dwelling Units which have been dedicated to timeshare regimes (the "DEDICATED
UNITS") and which have not been dedicated to timeshare regimes (the
"UNDEDICATED UNITS") as well as a list of all timeshare interests therein (the
"INTERVALS") which have been sold (the "SOLD INVENTORY") and which have not
been sold and which are owned by AVCOM, the Subsidiaries and/or the Related
Parties (the "UNSOLD INVENTORY")), and (iii) a list of all leases, licenses or
similar agreements subject to which AVCOM, any Subsidiary and any Related
Party uses or otherwise uses or occupies any portion of the Real Property (the
"LEASES"), true, correct and complete copies of which have been delivered to
SIGR. Except as set forth on Exhibit 3.6(a), neither AVCOM, any Subsidiary nor
any Related Party owns any real property or any interest therein and has not
entered into any agreement to acquire additional Real Property ("PURCHASE AND
OPTION AGREEMENTS"). AVCOM, the Subsidiaries and/or the Related Parties have
good and marketable title to all Unsold Inventory and all other assets
reflected in the Financial Statements or currently owned and used in the
operation of their businesses, and such Unsold Inventory and other assets are
free and clear of all liens, claims, charges, security interests, options, or
other title defects or encumbrances, except as set forth on the title policies
listed on Exhibit 3.6(a) attached hereto (which liens,
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claims, charges, security interests, options, or other title defects or
encumbrances are collectively referred to herein as the "TITLE EXCEPTIONS" and
such title policies are referred to herein as the "TITLE POLICIES"). The
ownership of all such assets as among AVCOM and the Subsidiaries is as set
forth on said Exhibit 3.6(a). The Undedicated Units, the Unsold Inventory and
the Sold Inventory and any personal property owned by any Association (as
defined below) collectively comprise 100% of the Real Property and 100% of the
personal property which is used and/or occupied in the ownership and operation
of the Resorts (with such personal property being referred to herein as the
"PERSONAL PROPERTY") and no real property other than that which constitutes
the Undedicated Units, the Unsold Inventory, and the Sold Inventory is needed
or necessary for the ownership and operation of the Resorts as currently owned
and operated by AVCOM and the Subsidiaries, as contemplated by SIGR, or as
required under the Licenses and Permits (as defined below).
(b) Except as set forth in Exhibit 3.6(b) attached hereto, neither AVCOM nor
any of the Subsidiaries has any patents, copyrights, trade names, trademarks,
service marks, other such names or marks or applications therefor and has not
conducted business under any corporate, trade or fictitious name other than
their current corporate name. There are no pending, nor to the best of AVCOM
or the Principal Shareholders' knowledge, threatened claims of infringement
upon the rights to any intellectual property referred to on Exhibit 3.6 of
others or, except as set forth in Exhibit 3.11 attached hereto, any agreements
or undertakings with respect to any such rights.
(c) Except as noted on Exhibit 3.11 with respect to the Leases and the
Purchase and Option Agreements, there is (i) no material breach or event of
default on the part of AVCOM or any Subsidiary, (ii) no material breach or
event of default, to the knowledge of AVCOM and the Principal Shareholders, on
the part of any other party thereto, and (iii) no event that, with the giving
of notice or lapse of time or both, would constitute such breach or event of
default on the part of AVCOM or any Subsidiary or, to the knowledge of AVCOM
and the Principal Shareholders, on the part of any other party thereto, has
occurred and is continuing. The Leases and the Purchase and Option Agreements
are in full force and effect and are valid and enforceable against the parties
thereto in accordance with their terms and all rental and other payments due
under each of the Leases and all option and other payments due under each of
the Purchase and Option Agreements have been duly paid in accordance with the
terms thereof. The consummation of the transactions contemplated hereby will
not require the consent of any party to any Lease or Purchase and Option
Agreement and will not terminate or allow any party to terminate any Lease or
Purchase and Option Agreement.
(d) Except as noted on Exhibit 3.11 with respect to any deeds, title
insurance policies, surveys, mortgages, agreements and other documents
granting to AVCOM or any Subsidiary title to or an interest in or otherwise
affecting any real property, there is (i) no material breach or event of
default on the part of AVCOM or any Subsidiary, (ii) no material breach or
event of default, to the knowledge of AVCOM and the Principal Shareholders, on
the part of any other party thereto and (iii) no event that, with the giving
of notice or lapse of time or both, would constitute such material breach or
event of default on the part of AVCOM or any Subsidiary, or to the knowledge
of AVCOM and the Principal Shareholders, on the part of any other party
thereto, has occurred and is continuing.
(e) Except as set forth on Exhibit 3.6(a), the buildings and improvements
owned or leased by AVCOM or any Subsidiary, and the operation and maintenance
thereof as operated and maintained, do not (and all buildings and improvements
contemplated to be owned, developed and/or operated by AVCOM or any Subsidiary
will not) (i) contravene any zoning or building law or ordinance or other
administrative regulation or (ii) violate any restrictive covenant or any law
(including working conditions and access), and, further, all such buildings
and improvements comply with all applicable federal, state and local laws
including, but not limited to, the Americans with Disabilities Act and similar
state laws. All Dwelling Units are fully furnished with all improvements and
furniture, fixtures and equipment therein are in good operating condition
ordinary wear and tear excepted) and all improvements required to be completed
or bonded as a requirement of any of the Licenses and Permits (as defined
below) which has not been completed or bonded as required therein. All other
plants, buildings, structures and equipment owned or leased by AVCOM and any
Subsidiary are in a state of good maintenance and repair (normal wear and tear
excepted) suitable in all respects for the operation of the Business.
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(f) There is no pending or threatened condemnation, eminent domain or
similar proceeding with respect to, or that could affect, any Real Property or
leased property.
(g) The Real Property owned or leased by AVCOM or any Subsidiary (i) has
direct access to public roads or access to public roads by means of a
perpetual access easement, such access being sufficient to satisfy the current
and reasonably anticipated normal transportation requirements of AVCOM or any
Subsidiary of their business as presently conducted at such parcel; and (ii)
is served by all utilities in such quantity and quality as are sufficient to
satisfy the current normal business activities as conducted at such parcel.
AVCOM and the Principal Shareholders have no notice or knowledge of any fact
or condition which would result in the discontinuation of water, sewage,
electric, telephone, drainage or other utilities or services to such real
property which are necessary and required for the use and operation thereof.
All impact fees have been completely and fully paid with respect to all Real
Property owned or leased by AVCOM or any Subsidiary and all buildings and
improvements contemplated to be owned, developed and/or operated by AVCOM or
any Subsidiary.
(h) There are no outstanding options or rights of first refusal to purchase
any of the Real Property, or any portion thereof or interest therein except as
noted in Exhibit 3.6(a).
(i) The legal descriptions for the parcels of Real Property contained in the
deeds thereof describe such parcels fully and adequately; the buildings and
improvements are located within the boundary lines of the described parcels of
land, are not in violation of applicable setback requirements, local
comprehensive plan provisions, zoning laws and ordinances (and none of the
properties or buildings or improvements thereon are subject to "permitted non-
conforming use" or "permitted non-conforming structure" classifications),
building code requirements, permits, licenses or other forms of approval by
any governmental authority, and do not encroach on any easement which may
burden the land; the land does not serve any adjoining property for any
purpose inconsistent with the use of the land; and, except as noted in Exhibit
3.6(a), the Real Properties are not located within any flood plain (such that
a mortgagee would require a mortgagor to obtain flood insurance) or subject to
any similar type restriction for which any permits or licenses necessary to
the use thereof have not been obtained.
(j) Except as set forth on Exhibit 3.6(a), there are no contracts,
arrangements, licenses, concessions, easements, or other agreements,
including, without limitation, service arrangements and employment agreements,
either recorded or unrecorded, written or oral, which affect or could affect
the Real Property or any portion thereof, or the use thereof, after the
Closing Date.
(k) Prior to Closing, no portion of the Real Property or any interest
therein shall be further (after the date hereof) alienated, encumbered,
conveyed or otherwise transferred except for sales of time-share interests
("Intervals") in the ordinary course of business. Except as set forth on
Exhibit 3.6(a), there are no agreements (whether or oral or written) to sell,
convey or transfer any Intervals except sales of Intervals in the ordinary
course of business (i.e, for a price and upon terms which are in the ordinary
course of business of AVCOM and any Subsidiary).
(l) Neither AVCOM, nor any Subsidiary is a "foreign person" within the
meaning of the United States tax laws and to which reference is made in
Internal Revenue Code Section 1445(b)(2). At Closing, AVCOM and each
Subsidiary shall deliver to SIGR an affidavit to such effect, and also stating
the employer identification number of AVCOM and each Subsidiary and the State
within the United States under which each such entity was organized and
exists. AVCOM acknowledges and agrees that SIGR shall be entitled to fully
comply with Internal Revenue Code Section 1445 and all related sections and
regulations, as same may be modified and amended from time to time, and AVCOM
shall act in accordance with all reasonable requirements of SIGR to effect
such full compliance by SIGR.
3.7 Insurance. Exhibit 3.7 attached hereto sets forth a list of all policies
of insurance which insure the properties, business or liability (including,
but not limited to, directors' and officers' liability) of AVCOM and each of
the Subsidiaries, setting forth the types and amounts of coverage, true,
correct and complete copies of
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which have previously been delivered to SIGR. Each of such policies is current
and in full force and effect and neither AVCOM nor any of the Subsidiaries has
received notice of default under, or intended cancellation or nonrenewal of,
any such policies. AVCOM and each of the Subsidiaries will keep all current
insurance policies in effect through the Closing. Neither AVCOM nor any of the
Subsidiaries has been refused any insurance by an insurance carrier to which
it has applied for insurance.
3.8 Environmental Matters.
(a) AVCOM and all Subsidiaries are and have at all times been in compliance
with all Environmental, Health and Safety Laws (as defined herein) governing
its business, operations, properties and assets. Neither AVCOM nor any
Subsidiary is not currently liable for any penalties, fines or forfeitures for
failure to comply with any Environmental, Health and Safety Laws. AVCOM and
the Subsidiaries are in full compliance with all notice, record keeping and
reporting requirements of all Environmental, Health and Safety Laws, and have
complied with all informational requests or demands arising under the
Environmental, Health and Safety Laws.
(b) AVCOM and each Subsidiary has obtained, or caused to be obtained, and is
in full compliance with, all licenses, certificates, permits, approvals and
registrations (collectively "ENVIRONMENTAL LICENSES") required by the
Environmental, Health and Safety Laws for the ownership of its respective
properties and assets and the operation of its business as presently
conducted. AVCOM and each Subsidiary is in full compliance with all the terms,
conditions and requirements of such Environmental Licenses, and copies of such
Environmental Licenses have been provided to SIGR. There are no administrative
or judicial investigations, notices, claims or other proceedings pending or
threatened by any governmental authority or third parties against AVCOM or a
Subsidiary, its businesses, operations, properties, or assets, which question
the validity of or its entitlement to any Environmental License required by
the Environmental, Health and Safety Laws for the ownership of each of the
properties and assets of AVCOM or any Subsidiary and the operation of its
business or wherein an unfavorable decision, ruling or finding could have a
material adverse effect on AVCOM or any Subsidiary.
(c) Neither AVCOM nor any Subsidiary has not received and is not aware of
any non-compliance order, warning letter, notice of violation, claim, suit,
action, judgment, or administrative or judicial proceeding pending against or
involving AVCOM or any Subsidiary, its business, operations, properties, or
assets, issued by any governmental authority or third party with respect to
any Environmental, Health and Safety Laws in connection with the ownership by
AVCOM or any Subsidiary of its properties or assets or the operation of its
business, which has not been resolved to the satisfaction of the issuing
governmental authority or third party in a manner that would not impose any
obligation, burden or continuing liability on SIGR in the event that the
merger contemplated by this Agreement closes, or which could have a material
adverse effect on AVCOM or any Subsidiary.
(d) AVCOM and each Subsidiary is in full compliance with, and is not in
breach of or default under any applicable Order issued pursuant to the
Environmental, Health and Safety Laws and no event has occurred or is
continuing which, with the passage of time or the giving of notice or both,
could constitute such non-compliance, breach or default thereunder.
(e) Neither AVCOM nor any Subsidiary has generated, manufactured, used,
transported, transferred, stored, handled, treated, spilled, leaked, dumped,
discharged, released or disposed, nor has it allowed or arranged for any third
parties to generate, manufacture, use, transport, transfer, store, handle,
treat, spill, leak, dump, discharge, release or dispose of, Hazardous
Substances or other waste to or at any location other than a site lawfully
permitted to receive such Hazardous Substances or other waste for such
purposes, nor has it performed, arranged for or allowed by any method or
procedure such generation, manufacture, use, transportation, transfer,
storage, treatment, spillage, leakage, dumping, discharge, release or disposal
in contravention of any Environmental, Health and Safety Laws. Neither AVCOM,
nor any Subsidiary has generated, manufactured, used, stored, handled,
treated, spilled, leaked, dumped, discharged, released or disposed of, or
allowed or arranged for any third parties to generate, manufacture, use,
store, handle, treat, spill, leak, dump, discharge, release or dispose of,
Hazardous Substances, or other waste upon property owned or leased by it,
except as
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permitted by law. For purposes of this Section the term "Hazardous Substances"
shall be construed broadly to include any toxic or hazardous substance,
material, or waste, and any other contaminant, pollutant or constituent
thereof, whether liquid, solid, semi-solid, sludge and/or gaseous, including
without limitation, chemicals, compounds, by-products, pesticides, asbestos
containing materials, petroleum or petroleum products, and polychlorinated
biphenyls, the presence of which requires investigation or remediation under
any Environmental, Health and Safety Laws or which are to become regulated,
listed or controlled by, under or pursuant to any Environmental, Health and
Safety Laws, including, without limitation, the United States Department of
Transportation Table (49 CFR 172, 101) or by the Environmental Protection
Agency as hazardous substances (40 CFR Part 302) and any amendments thereto;
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended by the Superfund Amendment and Reauthorization Act of 1986,
42 U.S.C. (S) 9601, et seq. (hereinafter collectively "CERCLA"); the Solid
Waste Disposal Act, as amended by the Resource Conservation and Recovery Act
of 1976 and subsequent Hazardous and Solid Waste Amendments of 1984, 42 U.S.C.
(S) 6901, et seq. (hereinafter, collectively "RCRA"); the Hazardous Materials
Transportation Act, as amended, 49 U.S.C. (S) 1801, et seq.; the Clean Water
Act, as amended, 33 U.S.C. (S) 1311, et seq.; the Clean Air Act, as amended
(42 U.S.C. (S) 7401-7642); Toxic Substances Control Act, as amended, 15 U.S.C.
(S) 2601, et seq.; the Federal Insecticide, Fungicide, and Rodenticide Act, as
amended, 7 U.S.C. (S) 136-136y ("FIFRA"); the Emergency Planning and Community
Right-to-Know Act of 1986, as amended, 42 U.S.C. (S) 11001, et seq. (Title III
of SARA) ("EPCRA"); the Occupational Safety and Health Act of 1970, as
amended, 29 U.S.C. (S) 651, et seq. ("OSHA"); any similar state statute, or
any future amendments to, or regulations implementing such statutes, laws,
ordinances, codes, rules, regulations, orders, rulings, decrees, or which has
been or shall be determined or interpreted at any time by any governmental
authority to be a hazardous or toxic substance regulated under any other
statute, law, regulation, order, code, rule, or decree. For purposes of this
Section the term "Waste" shall be construed broadly to include agricultural
wastes, biomedical wastes, biological wastes, bulky wastes, construction and
demolition debris, garbage, household wastes, industrial solid wastes, liquid
wastes, recyclable materials, sludge, solid wastes, special wastes, used oils,
white goods, and yard trash.
(f) Neither AVCOM nor any Subsidiary has caused, or allowed to be caused or
permitted, either by action or inaction, a Release or Discharge, or threatened
Release or Discharge, of any Hazardous Substance on, into or beneath the
surface of any such parcel of realty. There has not occurred, nor is there
presently occurring, a Release or Discharge, or threatened Release or
Discharge, of any Hazardous Substance on, into or beneath the surface of any
parcel of realty. For purposes of this Section, the terms "Release" or
"Discharge" shall have the meanings given them in the Environmental, Health
and Safety Laws.
(g) Neither AVCOM nor any Subsidiary has generated, handled, manufactured,
treated, stored, used, shipped, transported, transferred, or disposed of, nor
has it allowed or arranged, by contract, agreement or otherwise, for any third
parties to generate, handle, manufacture, treat, store, use, ship, transport,
transfer or dispose of, any Hazardous Substance or other Waste to or at a site
which, pursuant to CERCLA or and similar state law (i) has been placed on the
National Priorities List or its state equivalent; or (ii) the Environmental
Protection Agency or the relevant state agency has notified AVCOM or any
Subsidiary that it has proposed or is proposing to place on the National
Priorities List or its state equivalent. Neither AVCOM, any Subsidiary nor the
Principal Shareholders has received notice, and neither AVCOM nor the
Principal Shareholders has knowledge of any facts which could give rise to any
notice, that AVCOM or any Subsidiary is a potentially responsible party for a
federal or state environmental cleanup site or for corrective action under
CERCLA, RCRA or any other applicable Environmental, Health and Safety Laws.
Neither AVCOM nor any Subsidiary has submitted or was required to submit any
notice pursuant to Section 103(c) of CERCLA with respect to any realty.
(h) Except as set forth on Exhibit 3.8, neither AVCOM nor any Subsidiary
uses, nor has it used, any Aboveground Storage Tanks or Underground Storage
Tanks, and there are not now nor have there ever been any Underground Storage
Tanks on any realty. For purposes of this Section, the terms "Aboveground
Storage Tanks" and "Underground Storage Tanks" shall have the meanings given
them in Section 690l et seq., as amended, of RCRA, or any applicable state or
local statute, law, ordinance, code, rule, regulation, order ruling, or decree
governing Aboveground Storage Tanks or Underground Storage Tanks.
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(i) Exhibit 3.8 identifies (i) all environmental audits, assessments or
occupational health studies undertaken by AVCOM, any Subsidiary or its agents
or, to the knowledge of AVCOM or the Principal Shareholders, undertaken by any
governmental authority, or any third party, relating to or affecting or any
realty; (ii) the results of any ground, water, soil, air or asbestos
monitoring undertaken by any governmental authority or any third party,
relating to or affecting AVCOM; (iii) all written communications between AVCOM
(and its Subsidiaries) and any governmental authority arising under or related
to Environmental, Health and Safety Laws; and (iv) all citations issued under
OSHA, or similar state or locate statutes, laws, ordinances, codes, rules,
regulations, orders, rulings, or decrees, relating to or affecting AVCOM.
(j) Exhibit 3.8 contains a list of the assets of AVCOM or any Subsidiary
which contain "asbestos" or "asbestos-containing material" (as such terms are
identified under the Environmental, Health and Safety Laws). AVCOM and each
Subsidiary has operated and continues to operate in compliance with all
Environmental, Health & Safety Laws governing the handling, use and exposure
to and disposal of asbestos or asbestos-containing materials. There are no
claims, actions, suits, governmental investigations or proceedings before any
governmental authority or third party pending, or threatened against or
directly affecting AVCOM, any Subsidiary or any of their assets or operations
relating to the use, handling or exposure to and disposal of asbestos or
asbestos-containing materials in connection with their assets and operations.
(k) As used in this Agreement, "ENVIRONMENTAL, HEALTH AND SAFETY LAWS" means
all federal, state, regional or local statutes, laws, rules, regulations,
codes, orders, plans, injunctions, decrees, rulings and changes or ordinances
or judicial or administrative interpretations thereof, currently in existence,
any of which govern (or purport to govern) or relate to pollution, protection
of the environment, public health and safety, air emissions, water discharges,
hazardous or toxic substances, solid or hazardous waste or occupational health
and safety, as any of these terms are or may be defined in such statutes,
laws, rules, regulations, codes, orders, plans, injunctions, decrees, rulings
and changes or ordinances, or judicial or administrative interpretations
thereof, including, without limitation, RCRA, CERCLA, the Hazardous Materials
Transportation Act, the Toxic Substances Control Act, the Clean Air Act, the
Clean Water Act, FIFRA, EPCRA and OSHA.
3.9 Minute and Stock Books; Records. The respective minute books of AVCOM
and each of the Subsidiaries made available to SIGR contain all of the records
of meetings and other corporate or similar actions of the respective
shareholders, directors, partners and members (and committees thereof) to the
extent such records were prepared. The Bylaws contained in or kept with said
minute books are true, complete and correct copies of the Bylaws of AVCOM and
each of the Subsidiaries and all amendments thereto duly adopted and in force.
The stock transfer ledger maintained by AVCOM's transfer agent and made
available to SIGR is complete and accurate. The respective stock or other
interest transfer records maintained by each of the Subsidiaries and made
available to SIGR are complete and accurately disclose all issuances and
transfers of stock or other interest of each of the Subsidiaries. All other
records maintained by AVCOM and each of the Subsidiaries accurately reflect
the information presented therein, including but not limited to records
pertaining to bank accounts and safe deposit boxes. Except as set forth in
Exhibit 3.9 attached hereto, none of AVCOM or any Subsidiary has any of its
records or information recorded, stored, maintained or held off its premises.
3.10 Liabilities. Except as and to the extent reflected or reserved against
in the Financial Statements, neither AVCOM nor any of the Subsidiaries had any
material liabilities or obligations as of the dates thereof, secured or
unsecured (whether accrued, absolute, contingent or otherwise), including,
without limitation, tax liabilities due or to become due, and neither AVCOM
nor any of the Subsidiaries has incurred, or will incur, any material
liabilities or obligations outside of the ordinary course of business since
the date of the most recent of the Financial Statements, except liabilities
permitted by this Agreement. Except as set forth in Exhibit 3.10 or Exhibit
3.6(a) attached hereto, neither AVCOM nor any of the Subsidiaries has any
material obligations or liabilities, whether direct or indirect, joint or
several, absolute or contingent, matured or unmatured, secured or unsecured,
which could be affected by the execution and delivery of this Agreement or
consummation of the transactions contemplated by this Agreement or which could
affect the same. For the purposes of this paragraph, "material" shall be
defined as any obligation or liability individually in excess of $25,000 or in
the aggregate in excess of $100,000.
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3.11 Contracts. Except as set forth in Exhibit 3.11 attached hereto or in
any other Exhibit attached hereto and referenced below, true, correct and
complete copies of which referenced items have previously been delivered to
SIGR, neither AVCOM nor any Subsidiary is a party to or bound by any of the
following (hereinafter, any of the following are referred to collectively as
the "CONTRACTS" and individually as a "CONTRACT"):
(a) any contract outside of the ordinary course of business for the
purchase or sale of services, equipment, inventory, materials, supplies, or
any capital item or items, or supply agreements with the federal government
or any state or local government or any agency thereof;
(b) any collective bargaining agreement or other agreement with any labor
union or labor organization or any employment, consulting, severance,
bonus, deferred compensation, independent contractor, commission or similar
agreement;
(c) any acquisition, development, working capital, receivables or other
loan (whether secured or unsecured) agreement or indenture or other
instrument relating to the borrowing of money or guaranty of any obligation
for the borrowing of money;
(d) any tenancy, lease, license or similar agreement relating to property
except as set forth in Exhibit 3.6(a) attached hereto;
(e) any license, lease or other agreement outside of the ordinary course
of business to provide or acquire services or equipment related to the
timeshare industry of any kind;
(f) except as noted in Exhibit 3.7, any insurance policies currently in
force naming AVCOM or a Subsidiary as an insured or beneficiary or as a
loss payee, or for which AVCOM or a Subsidiary has paid all or part of the
premium;
(g) any instrument or agreement relating to indebtedness by way of lease-
purchase arrangements, conditional sale, guarantee or other undertakings on
which others rely in extending credit, any joint venture agreements or any
chattel mortgages or other security arrangements;
(h) any agreement or contract with, or any obligation to or from an
affiliate or a shareholder of any of the Principal Shareholders, or to the
best knowledge of AVCOM and the Principal Shareholders, any Affiliate of
any Shareholder. For purposes of this Agreement, "AFFILIATE" shall mean any
person or entity (i) that controls or is controlled by or is under common
control with, the person or entity involved, including, without limitation,
officers and directors, (ii) that beneficially owns or holds 5% or more of
any equity interest in any person or entity involved, or (iii) 5% or more
of whose voting securities (or in the case of a person which is not a
corporation, 5% or more of any equity interest) is owned beneficially by
the person or entity involved. As used herein, the term "CONTROL" shall
mean possession of the power to direct or cause the direction of the
management or policies of a person or entity, whether through ownership of
securities, by contract or otherwise;
(i) any marketing and sales agreement, any management agreement, any
exchange agreement, any franchise agreement, any profit interest agreement,
any agreement in favor of any Association or any Authority, declarations of
covenants, conditions and restrictions, indemnification agreement, or
partnership or joint venture agreement; or
(j) any other plans, agreements, contracts, powers of attorney, bids or
proposals, whether written or oral.
Except as set forth in Exhibit 3.11 attached hereto, none of AVCOM nor any
Subsidiary has committed any material breach of any provisions of, or is in
violation or default under the terms of, or has caused or permitted to exist
any event that without due notice or lapse of time or both would constitute a
default or event of default under, any such Contract. The execution and
delivery of this Agreement by AVCOM and the consummation of the transactions
contemplated by this Agreement will not violate or cause a default or event of
default under any provision of, or result in the acceleration of any
obligation under, or the termination of, any such Contract. To
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the best knowledge of AVCOM and the Principal Shareholders, all such Contracts
are valid, binding and in full force and effect and will continue in full
force and effect to the benefit of AVCOM or a Subsidiary, as indicated on said
Exhibit 3.11, their respective successors and assigns, if such party so
elects, without change following the consummation of the transactions
contemplated by this Agreement without obtaining the consent of any other
party, except as set forth on Exhibit 3.14(b) attached hereto.
3.12 Litigation and Compliance. Except as set forth on Exhibit 3.12 attached
hereto, there is no pending claim, investigation, lawsuit or administrative
proceeding by or against AVCOM or a Subsidiary or the operation of their
business; the business of AVCOM or a Subsidiary is not affected by any pending
or threatened strike or other labor disturbance. AVCOM and each of the
Subsidiaries and the operation of their business are in substantial compliance
with all federal, state and local laws and regulations and administrative
orders applicable thereto including, but not limited to, all federal, state,
local and foreign laws and regulations regarding the advertising, marketing,
offer to sell, or sale of Intervals in each state and local jurisdiction in
which AVCOM and the Subsidiaries are doing business including, but not limited
to, the Federal Trade Commission Act, Regulation Z (the Truth in Lending Act),
Equity Credit Opportunity Act and Regulation B, 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 Civil Rights Act of 1964 and 1968, and any and all other
licensure, anti-fraud, telemarketing, price, gift, and sweepstakes laws to
which AVCOM and the Subsidiaries are subject (collectively, "Consumer
Protection Laws"); and there is no order, writ, injunction or decree affecting
the operations or the business of AVCOM or any of the Subsidiaries or the
transactions contemplated by this Agreement. No actions are being taken by
AVCOM or the Subsidiaries or any other party in connection with the operation
of the Resorts and/or the rental of Dedicated Units which would constitute a
"rental pool" or which would otherwise constitute a violation of any federal
or state securities or other laws.
3.13 Non-Contravention. Neither the execution of this Agreement nor the
consummation of the transactions contemplated hereby will result in the breach
of any term or provision of, constitute a default under, or accelerate or
augment the performance otherwise required under, any provision of the
governing documents of AVCOM or a Subsidiary, or any agreement (including
without limitation any loan agreement or promissory note), indenture,
instrument, order, law or regulation to which AVCOM or a Subsidiary is a party
or by which they are bound, or will result in the creation of any lien or
encumbrance upon any property of AVCOM or a Subsidiary.
3.14 Licenses, Permits and Required Consents. To the best of AVCOM's
knowledge and the knowledge of the Principal Shareholders, AVCOM and each of
the Subsidiaries have all federal, state and local franchises, tariffs,
licenses, ordinances, certifications, approvals, authorizations and permits
necessary to the conduct of their business as currently conducted including,
but not limited to, all public reports, brokerage and OPC licenses and other
permits required by federal, state and local laws to sell the Intervals in the
states and local jurisdictions in which the Properties are located as well as
all other state and local jurisdictions in which the Intervals are being
advertised, marketed and sold (collectively, "LICENSES AND PERMITS"). A list
of the Licenses and Permits is set forth on Exhibit 3.14(a) attached hereto,
true, correct and complete copies of which have previously been delivered to
SIGR. To the best of AVCOM's knowledge and the knowledge of the Principal
Shareholders, all Licenses and Permits are in full force and effect, no
material violations have been made in respect thereof, and no proceeding is
pending which could have the effect of revoking or limiting any such Licenses
and Permits and, except for amendments to Licenses and Permits which will be
necessary as a result of the change in control which will occur as a result of
the transactions contemplated hereby and which can be obtained in due course,
the same will not cease to remain in full force and effect by reason of the
transactions contemplated by this Agreement.
Exhibit 3.14(b) attached hereto sets forth all registrations, filings,
applications, notices, transfers, consents, approvals, orders, qualifications,
waivers or other actions of any kind known by AVCOM to be required to be made,
filed, given or obtained by or on behalf of AVCOM or any of the Subsidiaries
with, to or from any
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persons, governmental authorities or private entities in connection with the
consummation of the transactions contemplated by this Agreement, and, to the
best knowledge of the Principal Shareholders, there is no reason why all
registrations, filings, applications, notices, transfers, consents, approvals,
orders, qualifications, waivers and other actions will not be able to be made
and/or granted in a manner that will permit the transactions contemplated
herein within the time frame contemplated herein without the payment of any
fee or other amount and without any material adverse affect on the business or
operations of AVCOM.
3.15 Labor Matters. Neither AVCOM nor any of the Subsidiaries has any
obligations, contingent or otherwise, under any employment or consulting
agreement (except if and as set forth in Exhibit 3.11 attached hereto),
collective bargaining agreement or other contract with a labor union or other
labor or employee group. To the best of AVCOM's knowledge, there are no
efforts presently being made or threatened by or on behalf of any labor union
with respect to employees of AVCOM or a Subsidiary. To the best of AVCOM's
knowledge and the knowledge of the Principal Shareholders, AVCOM and each of
the Subsidiaries are in compliance with all federal, state or other applicable
laws, domestic or foreign, respecting employment and employment practices,
terms and conditions of employment and wages and hours, and have not and are
not engaged in any unfair labor practice; no unfair labor practice complaint
against AVCOM or any Subsidiary is pending or threatened before the National
Labor Relations Board; there is no labor strike, dispute, slowdown or stoppage
pending or threatened against or involving AVCOM or any Subsidiary; no
representation question exists respecting the employees of AVCOM or any
Subsidiary; no grievance or internal or informal complaint which might have an
adverse effect upon AVCOM or any Subsidiary or the conduct of their respective
businesses exists; no arbitration proceeding arising out of or under any
collective bargaining agreement is pending and no claim therefor has been
asserted; and no collective bargaining agreement is currently being negotiated
by AVCOM or any Subsidiary. There has not been any adverse change in relations
with employees of AVCOM or any Subsidiary as a result of any announcement or
consummation of the transactions contemplated by this Agreement.
3.16 Employee Benefit Plans.
(a) Exhibit 3.16 attached hereto sets forth a complete list and brief
description of each employee benefit plan ("EMPLOYEE BENEFIT PLAN" or "PLAN"),
as defined in Section 3(3) of the Employee Retirement Income Security Act of
1974 ("ERISA"), maintained for employees of AVCOM or any of the Subsidiaries
or contributed to by AVCOM or any of the Subsidiaries. For purposes of this
Section, AVCOM and the Subsidiaries shall include all trades or businesses
(whether or not incorporated) which are a member of a group of which AVCOM or
a Subsidiary is a member and which are under common control within the meaning
of Section 414 of the Code and the regulations promulgated thereunder.
(b) Each Employee Benefit Plan and any related trust agreement, annuity
contract or any other funding or implementing instrument complies currently
and has complied in the past, as to form, operation and administration, with
the provisions of ERISA, as amended, and all other laws, rules and regulations
and with the Code where required in order to be tax-qualified under Sections
401(a) or 403(a) and 501(a) of the Code and no event has occurred which will
or could give rise to disqualification of any such Plan under said sections.
All necessary governmental approvals for the Employee Benefit Plans have been
obtained; each Employee Benefit Plan which is an employee pension benefit plan
(as defined in Section 3(2)(A) of ERISA) has been duly authorized by the Board
of Directors of AVCOM or a Subsidiary, as appropriate, and a favorable
determination as to the qualification under the Code of each such employee
pension benefit plan has been made by the Internal Revenue Service. None of
the Plans is a "Multiemployer Plan" within the meaning of Section 3(37) of
ERISA.
(c) None of AVCOM, any Subsidiary or any fiduciary or administrator of any
Employee Benefit Plan has engaged in any transaction in violation of Section
406(a) or (b) of ERISA for which no exemption exists under Section 408 of
ERISA or any "prohibited transaction" (as defined in Section 4975(c)(1) of the
Code) for which no exemption exists under Section 4975(c)(2) or 4975(d) of the
Code. No event has occurred which will or could subject any such Plan to
income tax under Section 511 of the Code or to an excise tax under Section
4971 through 4981 of the Code.
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(d) No Employee Benefit Plan is subject to the minimum funding standards of
Section 302 of ERISA or Section 412 of the Code. No Employee Benefit Plan is a
defined benefit pension plan subject to Title IV of ERISA.
(e) AVCOM has delivered to SIGR a complete and correct copy of (i) each
Employee Benefit Plan (and related trust agreement, annuity contract or other
funding or implementing instrument), including all amendments thereto; (ii)
all filings (including all attachments thereto) made or required to be made
(including but not limited to annual reports and returns) with the Internal
Revenue Service, Department of Labor or the PBGC relative to any Employee
Benefit Plan for each of the three (3) most recent plan years; (iii) the
actuarial reports as of the last valuation date, balance sheets and
consolidated financial statements as of the last valuation date, and the most
recent IRS determination letters; and (iv) other relevant documents in the
possession of AVCOM, a Subsidiary or their respective employees or agents,
with respect to each Employee Benefit Plan. Such documents fairly present the
financial condition of each of such Plans.
(f) The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby will not result in: (i) a complete or partial
withdrawal from any Employee Benefit Plan, or (ii) any funding deficiency or
lien under ERISA.
3.17 Taxes and Returns.
(a) All returns or filings respecting federal, state, county and local, and
all foreign and other, income, franchise, excise, tariff, gross receipts,
sales and use, payroll, real and personal property and other taxes and
governmental charges, assessments and contributions ("TAXES") which AVCOM or
any of the Subsidiaries is required to make have been filed and all taxes due
pursuant to such returns or filings have been paid or collected or withheld
and remitted to the appropriate governmental agency except for any Taxes which
AVCOM or a Subsidiary is contesting in good faith which have been noted in the
Financial Statements, and except for Taxes not yet payable which AVCOM
believes have been adequately provided for in the Financial Statements. Copies
of returns (including, without limitation, information returns) have been
timely filed with the appropriate governmental agency with respect to all
Taxes and the copies thereof which have been provided to SIGR are true,
accurate and complete. None of AVCOM, a Subsidiary or any group of which AVCOM
or any Subsidiary is now or ever was a member has filed or entered into any
currently effective election, consent or extension agreement that extends any
applicable statute of limitations. No issues have been raised (and are
currently pending) by any taxing authority in connection with any return of
AVCOM or any Subsidiary. Exhibit 3.17 sets forth the years for which
examination of any return are presently being conducted. All deficiencies
asserted or assessments made as a result of any examination have been fully
paid, or are being contested and an adequate reserve therefore has been
established and is reflected in the financial statements of the AVCOM. Except
as otherwise indicated on Exhibit 3.1 attached hereto, neither AVCOM nor any
of the Subsidiaries ever has been an "S" corporation under the Code.
(b) All elections with respect to Taxes affecting AVCOM and the Subsidiaries
are set forth in Exhibit 3.17 attached hereto. None of AVCOM or the
Subsidiaries: (i) has made or will make a deemed dividend election under
Treas. Reg. (S) 1.1502-32(f)(2) or a consent dividend election under Section
565 of the Code; (ii) has consented at any time under Section 341(f)(l) of the
Code to have the provisions of Section 341(f)(2) of the Code apply to any
disposition of AVCOM's or the Subsidiaries' assets; (iii) has agreed, or is
required, to make any adjustment under Section 481(a) of the Code by reason of
a change in accounting method or otherwise; (iv) has made an election, or is
required, to treat any asset of AVCOM or the Subsidiaries as owned by another
person for federal income tax purposes or as tax-exempt bond financed property
or tax-exempt use property within the meaning of Section 168 of the Code; or
(v) has made any of the foregoing elections under any comparable state or
local income tax provision.
(c) Except as set forth in Exhibit 3.17 attached hereto, AVCOM and the
Subsidiaries are not and have never been includable corporations in an
affiliated group of corporations, within the meaning of Section 1504 of the
Code, other than in the affiliated group of which AVCOM is the common parent
corporation.
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(d) All tax sharing agreements or similar arrangements with respect to or
involving AVCOM and the Subsidiaries are set forth in Exhibit 3.17 attached
hereto.
(e) Neither AVCOM nor any of the Subsidiaries has made an election under
Section 338 of the Code or has taken any action that would result in any tax
liability of AVCOM or any of the Subsidiaries as a result of a deemed election
within the meaning of Section 338 of the Code.
(f) Neither AVCOM nor any of the Subsidiaries has made or become obligated
to make, or will, as a result of the transactions contemplated by this
Agreement, make or become obligated to make, any "excess parachute payment" as
defined in Section 280G of the Code (without regard to subsection (b)(4)
thereof).
(g) Except as set forth in Exhibit 3.17 attached hereto, there are no
outstanding balances of deferred gain or loss accounts related to deferred
intercompany transactions among AVCOM and the Subsidiaries.
(h) The amount of consolidated net operating losses, net capital losses,
foreign tax credits, investment and other tax credits of the consolidated
group of which AVCOM is the common parent allocable to AVCOM and the
Subsidiaries under Treas. Reg. (S) 1.1502-79 is set forth in Exhibit 3.17
attached hereto.
(i) AVCOM's basis, and excess loss account, if any, in each Subsidiary is
set forth in Exhibit 3.17 attached hereto. The earnings and profits (and any
adjustment required by Section 1503(e) of the Code) for each Subsidiary is set
forth in Exhibit 3.17 attached hereto.
(j) The amount of investment tax credit of AVCOM and the Subsidiaries
subject to recapture is set forth in Exhibit 3.17 attached hereto. The
aggregate amount of ordinary losses on $1231 (b) property that has been
deducted by AVCOM and the Subsidiaries is set forth in Section 3.17 attached
hereto.
(k) Except as set forth in Exhibit 3.17 or Exhibit 3.1 attached hereto,
neither AVCOM nor any of the Subsidiaries is subject to any joint venture,
partnership or other arrangement or contract which is or should be treated by
AVCOM or a Subsidiary as a partnership for federal income tax purposes.
(l) Except as set forth on Exhibit 3.17 attached hereto, the consolidated
net operating losses, net capital losses, foreign tax credits, investment and
other tax credits set forth in Exhibit 3.17 attached hereto are not currently
subject to any limitations under Section 382, Section 383 or any Treasury
Regulations (whether temporary, proposed or final) under Section 1502 of the
Code.
(m) All representations and warranties made in this Section 3.17 are being
made by AVCOM and the Principal Shareholders to the extent of its knowledge
after reasonable inquiry and investigation of tax returns.
(n) Except as set forth on Exhibit 3.17 attached hereto, there are no
documentary, stamp or other taxes (exclusive of income taxes) which shall
become due and payable as a result of the transactions contemplated herein.
3.18 Changes. Except as otherwise expressly disclosed on the Exhibits
hereto, since December 31, 1995, there has not been:
(a) any damage, destruction, other casualty loss or other occurrence
resulting in a loss individually of $25,000 and in the aggregate of
$100,000;
(b) any disposition of any asset of AVCOM or a Subsidiary other than
Intervals in the ordinary course of business;
(c) any amendment, modification or termination of any existing, or
entering into any new, contract, agreement, lease, license, permit or
franchise with a value individually of $25,000 and in the aggregate of
$100,000;
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(d) any direct or indirect redemption, purchase or other acquisition of,
or any declaration, setting aside or payment of any dividend or other
distribution on or in respect of, any stock or other securities of AVCOM or
a Subsidiary;
(e) any material changes in the accounting methods or practices followed
by AVCOM or any of the Subsidiaries or any change in depreciation or
amortization policies or rates; or
(f) any other materially adverse change in the assets, business,
condition or prospects of AVCOM or a Subsidiary.
3.19 Accounts Receivable. The accounts receivable which are reflected in the
Financial Statements or which arose subsequent thereto were or will be, as the
case may be, validly obtained in the ordinary course of business of AVCOM and
the Subsidiaries and AVCOM and the Subsidiaries own 100% of the beneficial
interests therein, none of which has been pledged, encumbered or sold (or are
subject to a contract which for the sale, encumbrance or pledge thereof)
except as set forth on Exhibit 3.19. The reserves for doubtful accounts
reflected on the Financial Statements were determined in accordance with
generally accepted accounting principles and past practice consistently
applied.
3.20 No Adverse Actions. There is no existing, pending or threatened
termination, cancellation, limitation, modification or change in the business
relationship of AVCOM or a Subsidiary with any principal supplier, customer or
other person or entity except as are immaterial individually and in the
aggregate and which are in the ordinary course of business. None of AVCOM, a
Subsidiary or, to the best of AVCOM's and the Principal Shareholders'
knowledge, any shareholder, director, officer, agent, employee or other person
associated with or acting on behalf of any of the foregoing has used any
corporate funds for unlawful contributions, payments, gifts, entertainment or
other unlawful expenses relating to political activity, or made any direct or
indirect unlawful payments to governmental officials or others.
3.21 Reporting. AVCOM and each Subsidiary has timely filed (within
applicable extension periods) all reports and documents required to be filed
by it pursuant to federal and state securities laws and the rules and
regulations promulgated thereunder. All such reports and documents were
appropriately responsive to all applicable requirements, were complete,
correct and proper in form and did not contain an untrue statement of a fact
or omit to state a fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. AVCOM shall send to SIGR copies of all financial statements
and reports as and when sent to the AVCOM Shareholders, the SEC or any other
regulatory authority, as to which the representations and warranties in the
preceding sentence shall also apply.
3.22 Disclosure. No representation, warranty or statement made by or on
behalf of AVCOM in this Agreement or the Exhibits attached hereto or in the
certificates or other materials furnished or to be furnished to SIGR or its
representatives or lenders in connection with this Agreement and the
transactions contemplated hereby or thereby, contains or will contain any
untrue statement of fact or omits or will omit to state a fact required to be
stated herein or therein or necessary to make the statements contained herein
or therein not misleading. AVCOM shall promptly notify SIGR of any change or
event which could materially adversely affect the assets, operations,
business, conditions or prospects of AVCOM or a Subsidiary.
3.23 Updating of Exhibits and Disclosure Documents. This Agreement is being
executed without the attachment of all contemplated Exhibits due to AVCOM's
lack of immediate access to the information required to complete the Exhibits.
Notwithstanding anything to the contrary herein, SIGR's due diligence period
described in Section 5.2(o) shall not commence until all Exhibits have been
completed and identified to the reasonable satisfaction of SIGR. SIGR's
approval of information in an exhibit for the purpose of approving the same as
an exhibit to be attached to this Agreement shall not preclude SIGR from
reviewing the information contained therein as part of SIGR's due diligence
investigation. SIGR shall have the right to terminate this Agreement if the
exhibits have not been completed and identified by October 15, 1996. AVCOM
shall notify SIGR of any changes, additions or events which may cause any
change in or addition to any Exhibits delivered by it under
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this Agreement, promptly after the occurrence of the same and at the Closing
by the delivery of updates of all Schedules and Exhibits. No notification made
pursuant to this Section shall be deemed to cure any breach of any
representation or warranty made in this Agreement unless SIGR specifically
agrees thereto in writing nor shall any such notification be considered to
constitute or give rise to a waiver by SIGR of any condition set forth in this
Agreement. AVCOM warrants that the Exhibits to be attached shall be consistent
with and in accordance with the Financial Statements provided to SIGR as
referenced in Section 3.5, and the determination of SIGR to proceed with
Closing notwithstanding that the final Exhibits do not satisfy such warranty
shall not preclude SIGR from asserting remedies under Article VIII or
otherwise due to the failure to satisfy such warranty.
ARTICLE IV
ADDITIONAL AGREEMENTS OF THE PARTIES
4.1 Ordinary Course. Except as described on Exhibit 4.1 attached hereto and
made a part hereof, prior to the Closing from and after the execution of this
Agreement, without SIGR's written consent, AVCOM represents and warrants that
neither AVCOM nor a Subsidiary shall have:
(a) borrowed any sums or entered into any financial guarantees or
otherwise incurred any indebtedness or liability in excess of $10,000
individually or $50,000 in the aggregate for AVCOM and all Subsidiaries as
a group;
(b) sold, assigned, transferred, leased, mortgaged, pledged or subjected
to lien, or otherwise encumbered, any of its assets, with the exception of
interval sales made in the ordinary course of business;
(c) managed customer accounts, equipment, inventories and other supplies
other than in the ordinary course of business;
(d) issued or sold any shares of its capital stock of any class, or
issued or sold any securities convertible into, or options with respect to,
or warrants to purchase or rights to subscribe to, any shares of its
capital stock of any class, nor made any commitment to issue or sell any
such shares or securities;
(e) directly or indirectly through any investment banker or other
representative or otherwise, solicited or negotiated with respect to any
inquiries or proposals from any person relating to: (1) the merger or
consolidation of AVCOM or a Subsidiary with any person or entity, (2) the
direct or indirect acquisition by any person of any of the assets of AVCOM
or a Subsidiary, or (3) the acquisition of direct or indirect beneficial
ownership or control of AVCOM or a Subsidiary or any securities thereof by
any person;
(f) entered into any agreement or transaction not in the ordinary course
of business (i) pursuant to which the aggregate financial obligation of
AVCOM or a Subsidiary may exceed $10,000 individually or $50,000 in the
aggregate for AVCOM and the Subsidiaries as a group, or (ii) which is not
terminable by AVCOM or such Subsidiary without penalty upon no more than 31
days' notice;
(g) entered into any employment, consulting or similar agreement with, or
made or authorized any compensation increase for, any executive officer,
director or key employee of AVCOM or a Subsidiary whether such increase
relates to base compensation, commissions, bonuses or benefits, or
otherwise;
(h) declared, paid or set aside for payment any dividend, distribution or
return of capital in respect of its capital stock or other equity
securities or, directly or indirectly, redeemed, purchased or otherwise
acquired any shares of its capital stock, options, warrants or securities
convertible into its capital stock or other equity securities;
(i) made or committed to make any capital expenditures in excess of
$10,000 individually or $50,000 when aggregated with all other such
expenditures by AVCOM and all Subsidiaries as a group during any 30-day
period;
(j) made any new elections with respect to Taxes or any changes in
current elections with respect to Taxes; or
(k) otherwise entered into any transaction or taken other action not in
the ordinary course of business.
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4.2 Access Prior to Closing. Upon reasonable notice from the date hereof
through the Closing, AVCOM, SIGR and the respective subsidiaries of each and
their respective directors, officers, agents and employees shall afford the
other party hereto and its representatives (including, without limitation, its
independent public accountants, engineers, consultants, attorneys, lenders and
other representatives) reasonable access to, and opportunity to examine, any
and all of the premises, properties, contracts, books, records, business,
data, personnel, customers and vendors of or relating to AVCOM or SIGR as the
case may be, any of their subsidiaries or their operations. AVCOM, SIGR and
the respective Subsidiaries, and their respective officers, directors, agents
and employees shall cooperate fully in connection with the foregoing.
4.3 Regulatory and Other Authorizations. AVCOM and each of the Subsidiaries
shall obtain, and/or shall cooperate fully in obtaining, all governmental,
regulatory and third-party approvals, consents, filings, authorizations or
certifications necessary in order to consummate the transactions contemplated
hereby. The parties hereto will not take any action that will have the effect
of delaying, impairing or impeding the receipt of any of the foregoing and
will use their best efforts to secure the same as promptly as possible.
4.4 Further Assurances. At any time and from time to time at or after the
Closing, the parties agree to cooperate with each other, to execute and
deliver such other documents, instruments of transfer or assignment, files,
books and records and do all such further acts and things as may be reasonably
required to carry out the transactions contemplated hereby.
4.5 Payment of Taxes. The AVCOM Shareholders shall pay all sales taxes,
other property transfer taxes, all documentary or other stamp taxes and all
similar taxes, including but not limited to income taxes, if any, arising out
of or related to their receipt of SIGR stock (including the Holdback Stock) or
cash as contemplated by this Agreement.
4.6 Delivery. The parties shall cause the delivery of the respective
documents required to be delivered or caused to be delivered by them pursuant
to Article VI below.
4.7 Employees. Except as otherwise provided herein, AVCOM hereby
acknowledges that SIGR has no obligation to employ, or to continue the
employment by AVCOM or a Subsidiary of, any of the employees of AVCOM or a
Subsidiary. Neither AVCOM nor a Subsidiary shall make any representation to
the contrary to any of such employees; provided, however, SIGR and/or its
Affiliates may interview or otherwise contact such employees regarding any
future employment. If and to the extent SIGR so requests, the respective
directors and officers of AVCOM and each of the Subsidiaries will use their
best efforts to cause employees of AVCOM or a Subsidiary designated by SIGR to
remain employees of AVCOM or a Subsidiary or become employees or consultants
of SIGR, with it being understood and agreed that such employment or
engagement shall be with no contractual obligation on the part of AVCOM, a
Subsidiary or SIGR to continue any such employment or engagement, which
employment or engagement shall be upon terms and conditions satisfactory to
SIGR.
4.8 Continued Relationships. AVCOM and each of the Subsidiaries shall
preserve intact the business of AVCOM and each of the Subsidiaries and keep
available the services of their respective officers and employees and maintain
good relationships with suppliers, customers and others having business
relations with AVCOM or any of the Subsidiaries, and shall cause to be taken
no change in the business, condition or results of operations of AVCOM or any
of the Subsidiaries which may have an adverse effect on the assets, business,
condition or prospects of AVCOM or a Subsidiary.
4.9 Confidentiality. Except as contemplated by this Agreement, as required
by law or otherwise expressly consented to in writing by SIGR and AVCOM, all
information or documents furnished hereunder by any party shall be kept
strictly confidential by the party or parties to whom furnished at all times
prior to the Closing Date, and in the event such transactions are not
consummated, each shall return to the other all documents furnished hereunder
and copies thereof upon request and shall continue to keep confidential all
information furnished hereunder and shall not thereafter use the same for its
advantage. Notwithstanding the foregoing, (a) SIGR or AVCOM may, with the
consent of the other, which consent shall not be unreasonably withheld or
delayed, issue
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or make a press release, announcement or other disclosure regarding this
Agreement and the transactions contemplated hereby which it reasonably
determines necessary or desirable under applicable law, and (b) SIGR or AVCOM
may, at any time after the date of this Agreement, file with the SEC a Form 8-
K pursuant to the Exchange Act with respect to the transactions contemplated
by this Agreement, which Form 8-K may include, among other things, financial
statements and pro forma financial information with respect to AVCOM and the
Subsidiaries, and/or file with the Commission a registration statement under
the Securities Act which includes a prospectus containing any information
required to be included therein with respect to the transactions contemplated
by this Agreement, including but not limited to financial statements and pro
forma financial information with respect to AVCOM and the Subsidiaries, and
thereafter distribute said prospectus in connection with the offer and sale of
securities of SIGR. AVCOM shall cooperate with SIGR and provide such
information and documents as may be required in connection with any such
filings.
In the event the Closing is not consummated, each party hereto will hold in
absolute confidence any information obtained from another party except to the
extent (a) such party is required to disclose such information by law or
regulation, (b) disclosure of such information is necessary in connection with
the pursuit of a claim by such party against another party, (c) such
information was known by such party prior to such disclosure or was thereafter
developed or obtained by such party independent of such disclosure, or (d)
such information becomes generally available to the public or is otherwise no
longer confidential. Prior to any disclosure of information pursuant to the
exception in clause (a) or (b) of the preceding sentence, the party intending
to disclose the same shall so notify the party which provided the same in
order that such party may seek a protective order or other appropriate remedy
should it choose to do so. Notwithstanding the foregoing, SIGR or AVCOM may,
with the consent of the other, which consent shall not be unreasonably
withheld or delayed, issue or make a press release, announcement or other
disclosure regarding the termination of this Agreement and the transactions
contemplated hereby which it reasonably determines necessary or desirable
under applicable law.
4.10 Options. AVCOM shall use its best efforts to cause all holders of the
Options to exercise said Options prior to the Closing and to pay the exercise
price by the delivery of Options.
4.11 No Solicitation. AVCOM and its respective Subsidiaries, and those
acting on behalf of any of them will not, and AVCOM will use its best efforts
to cause its officers, employees, agents, and representatives (including any
investment banker) not, directly or indirectly, to solicit, encourage, or
initiate any discussions with, or negotiate or otherwise deal with, or provide
any information to, any person or entity other than SIGR and its officers,
employees, and agents, concerning any merger, sale of substantial assets, or
similar transaction involving AVCOM or any Subsidiary or division of AVCOM or
any sale of any of its capital stock or of the capital stock or other
securities or assets of any Subsidiary or division of AVCOM. AVCOM will notify
SIGR immediately upon receipt of any inquiry, offer or proposal relating to
any of the foregoing. None of the foregoing shall prohibit providing
information to others in a manner in keeping with the ordinary conduct of
AVCOM's business, or providing information to government authorities.
4.12 Option to Acquire AVCOM Shares. AVCOM hereby grants to SIGR an
irrevocable option exercisable in whole or in part at any time or times
through December 31, 1998, following the occurrence of any of the termination
events set forth in Section 7.1(d)-(i) below, to acquire a number of shares of
AVCOM common stock equal to 19.9% of the total issued and outstanding AVCOM
Shares, on a fully diluted basis assuming the exercise of all conversion
privileges, at a exercise price of $5.00 per share (the "STRIKE PRICE"), the
Strike Price to be reasonably adjusted based upon any corporate
recapitalizations, reorganizations, issuances of securities or instruments
convertible into securities of AVCOM subsequent to the date hereof, such that
SIGR shall maintain the economic benefits contemplated herein as of the date
of this Agreement. Moreover, such shares deliverable upon exercise of the
option shall constitute 19.9% of both economic interest in AVCOM as well as
19.9% of the voting power of AVCOM. The Strike Price will be payable at the
sole option of SIGR, in either cash or by the delivery of common stock of
SIGR. In the event payment is by SIGR Stock, the Strike Price may vary to the
maximum of $6.00 per share or a minimum of $4.00 per share with the Initial
Conversion Ratio between the SIGR Stock and the AVCOM Shares being .26 and
subject to adjustment in a manner consistent with the method
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described in Section 1.3 hereof (with the exception of the adjustment in
Section 1.3(ii)), and the Share Value being calculated from the date of
exercise.
4.13 SIGR Loan. SIGR shall proceed with funding of the loan referenced in
Exhibit 4.13 in accordance with the terms of such loan.
4.14 Agreement of Affiliates. AVCOM shall use its reasonable efforts to
cause each Person whom it reasonably believes is an "affiliate" of AVCOM for
purposes of Rule 145 of the Securities Act of 1933 to deliver to SIGR the
Affiliate Agreement attached hereto as Exhibit 5.2. If the Merger will qualify
for pooling-of-interests accounting treatment, shares of SIGR Stock issued to
affiliates of AVCOM in exchange for their AVCOM Shares shall not be
transferable until such time as the financial results covering at least 30
days of combined operations of SIGR and AVCOM have been published within the
meaning of Section 201.01 of the SEC's Codification of Financial Reporting
Policies. SIGR shall be entitled to place a restrictive legend on certificates
issued to AVCOM affiliates to enforce the provisions of this Section,
regardless of whether the affiliate has executed the Affiliate Agreement.
4.15 Conversion of Preferred Stock. All preferred stock of AVCOM shall,
prior to Closing, be converted into AVCOM Common Stock. The failure of AVCOM
to complete the conversion of all preferred stock into AVCOM Common Stock by
June 30, 1997 shall be a material breach of this Agreement.
ARTICLE V
CONDITIONS TO CLOSING
5.1 Closing Conditions of AVCOM. The obligations of AVCOM under this
Agreement are subject to the reasonable satisfaction at or prior to the
Closing of each of the following conditions, but compliance with any or all of
such conditions may be waived, in writing, by AVCOM:
(a) The representations and warranties of SIGR contained in this
Agreement shall be true and correct in all material respects on the date
hereof and on the Closing Date;
(b) SIGR shall have performed and complied with all of the covenants and
agreements in all material respects and satisfied all of the conditions
required by this Agreement to be performed or complied with or satisfied by
SIGR at or prior to the Closing;
(c) SIGR and its attorneys, accountants and representatives shall have
provided reasonable cooperation to AVCOM's tax professionals in supplying
information and representations reasonably necessary in preparing a tax
opinion to the AVCOM Shareholders with respect to the tax treatment of the
Merger;
(d) All required governmental, regulatory and third party approvals,
consents and/or waiting periods shall have been obtained or shall have
expired;
(e) On the Closing Date, there shall be no injunction, restraining order
or decree of any nature of any court or governmental agency or body in
effect that restrains or prohibits the consummation of the transactions
contemplated by this Agreement;
(f) The Merger shall have received the requisite approval of the AVCOM
Shareholders, which to the best of AVCOM's knowledge will be timely
obtained and which in any event is represented by AVCOM to require approval
by not more than a simple majority of any class of AVCOM Stock; and
(g) AVCOM's lenders shall have consented to the merger to the extent that
proceeding without such consent would allow such lender to accelerate its
indebtedness; however, (i) AVCOM undertakes to seek such consent and to
promptly provide such lenders with such information as they may require to
provide consent; (ii) SIGR shall have the right (but not the obligation) to
negotiate directly with such lenders to obtain consent; and (iii) SIGR
shall have the right (but not the obligation) to satisfy the loan (on such
terms as may be negotiated by SIGR) for which the lender declines to
provide the consent necessary to satisfy this condition.
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5.2 Closing Conditions of SIGR. The obligations of SIGR under this Agreement
are subject to the reasonable satisfaction at or prior to the Closing of each
of the following conditions, but compliance with any or all of any such
conditions may be waived, in writing, by SIGR:
(a) The representations and warranties of AVCOM contained in this
Agreement shall be true and correct in all material respects on the date
hereof and on the Closing Date;
(b) AVCOM and each of the Subsidiaries shall have performed and complied
with all the covenants and agreements in all material respects and
satisfied all the conditions required by this Agreement to be performed or
complied with or satisfied by it or them at or prior to the Closing;
(c) All required governmental, regulatory and third-party approvals,
consents and/or waiting periods shall have been obtained or shall have
expired;
(d) No action, suit or proceeding shall have been instituted by any
person or entity, or by any governmental agency or body, before a court or
governmental body, to restrain or prevent the carrying out of the
transactions contemplated by this Agreement or that seeks other material
relief with respect to any of such transactions or that could, individually
or in the aggregate, have a material adverse effect on the business or
prospects of AVCOM or any Subsidiary. On the Closing Date, there shall be
no injunction, restraining order or decree of any nature of any court or
governmental agency or body in effect that restrains or prohibits the
consummation of the transactions contemplated by this Agreement;
(e) AVCOM Shareholders holding more than ten percent (10%) of the AVCOM
Shares shall not have dissented or exercised appraisal rights under
applicable law in connection with the transactions contemplated by this
Agreement;
(f) SIGR shall have received "comfort" letters from the independent
certified public accountants for AVCOM, dated the date on which the
Registration Statement, or last amendment thereto, shall become effective,
and dated the Closing Date, and addressed to SIGR and AVCOM, covering such
matters as are customary for such certified public accountants to deliver
in connection with transactions similar to the Merger;
(g) The Registration Statement shall have been declared effective and no
stop order suspending the effectiveness of the Registration Statement shall
have been issued and no proceeding for that purpose shall have been
initiated or threatened by the SEC, and the SIGR Stock to be received by
the AVCOM Shareholders shall be fully registered and freely tradeable,
subject to the provisions of Rules 144 and 145 of the Securities Act of
1933;
(h) SIGR shall have received all state securities laws or blue sky laws
and other authorizations necessary to consummate the transactions
contemplated hereby;
(i) SIGR's lenders shall have consented to the transactions contemplated
by this Agreement;
(j) SIGR's lenders shall have received such documents and instruments as
SIGR's lenders may reasonably require, provided SIGR shall use reasonable
efforts to obtain the same;
(k) Each person who is or may be an Affiliated Person of AVCOM shall have
entered into an agreement with SIGR in the form customarily given in
similar transactions, including the Affiliate Letter, Lock-Up Letter and
Standstill Agreement, copies of which are attached hereto as Exhibit 5.2;
(l) The Merger shall have received the requisite approval of the AVCOM
Shareholders and that all shares of AVCOM preferred stock shall have been
converted into shares of AVCOM Common Stock;
(m) SIGR shall receive, in a form and substance reasonably acceptable to
SIGR estoppel certificates and beneficiary statements from all of AVCOM's
and each Subsidiary's lenders and material parties;
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(n) SIGR shall have received a letter, dated as of the Closing Date, in a
form and substance reasonably acceptable to SIGR, from Arthur Anderson &
Co. to the effect that the Merger shall qualify for pooling-of-interest
accounting treatment;
(o) On or before sixty (60) days following the date of this Agreement
(subject to extension pursuant to Section 3.23 hereof), SIGR shall have
completed its due diligence investigation in regard to AVCOM and shall have
resolved to its full satisfaction any issue which arises in the course of
the investigation;
(p) The Conversion Share Value determined pursuant to Section 1.3(a),
above, shall not be less than 80% of $19.44, subject to appropriate
adjustment in the event of a stock split, stock dividend or
recapitalization as referenced therein;
(q) All consents, permits, approvals, licenses or orders from any
governmental or regulatory body or other third party required to be
obtained, including but not limited to, notification of the proposed
transaction to the Federal Trade Commission and the United States
Department of Justice for review pursuant to the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, shall have been obtained or the
applicable or required waiting periods shall have expired; and
(r) There shall not have occurred any material adverse change in the
assets, business, condition or prospects of AVCOM or any Subsidiary.
ARTICLE VI
THE CLOSING
6.1 Deliveries by AVCOM. At the Closing, SIGR shall receive from AVCOM the
following and AVCOM shall cause the same to be delivered to SIGR:
(a) Certificate of good standing from the Secretary of State of each of
the states in which AVCOM or any of the Subsidiaries is incorporated,
organized or qualified stating that each such entity is a validly existing
corporation in good standing;
(b) A certificate, dated as of the Closing, signed by an officer of,
AVCOM to the effect that the conditions specified in Section 5.1, and
Section 5.2(a), (b), (e), (l) and (r) above, have been satisfied;
(c) An opinion from counsel of AVCOM and the Subsidiaries, in form and
substance satisfactory to counsel for SIGR, to the effect that: (i) AVCOM
and each Subsidiary is a corporation, partnership or limited liability
company duly organized, validly existing and in good standing under the
laws of the state of its incorporation or organization, is duly qualified
to do business as a foreign corporation, partnership or limited liability
company and is in good standing in each jurisdiction in which it has
qualified to do business, as known by such counsel, requires such
qualification, has all requisite power and authority to own all of its
properties and assets, and has all required governmental certifications,
licenses, permits, approvals and authorizations and the foregoing shall not
cease to remain in full force and effect in accordance with their terms by
reason of the transactions contemplated by this Agreement; (ii) the AVCOM
Shares and the securities of the Subsidiaries outstanding immediately prior
to the Closing Date have been duly and validly authorized and issued, are
fully paid and nonassessable and were not, to the knowledge of such
counsel, issued in contravention to the preemptive rights of any person
and, based upon a review of the stock or other security transfer records
and inquiry of the officers and directors of AVCOM and the Subsidiaries,
constitute all of the issued and outstanding securities of AVCOM and the
Subsidiaries, which securities of the Subsidiaries are held as set forth in
Exhibit 3.3 of this Agreement; (iii) all authorizations, consents,
approvals, certifications or notices of any federal, state, local or
foreign regulatory or administrative agency, commission or other body
required to be obtained or given or waiting period required to expire in
order that the transactions contemplated hereby may be consummated have
been satisfied or waived; (iv) this Agreement and the other agreements and
documents contemplated hereby have been duly and validly authorized,
executed and delivered on behalf of AVCOM and constitute (subject to
standard exceptions to enforceability) its valid, binding and enforceable
agreements; (v) except as disclosed in this Agreement or
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the Exhibits hereto, and as may be specified by such counsel, to the
knowledge of such counsel, there is no litigation, proceeding, or
governmental investigation or labor dispute pending or threatened against
or relating to AVCOM, any of the Subsidiaries or their properties or
business which is material to the business of AVCOM or a Subsidiary or
which may prohibit or inhibit consummation of this Agreement; (vi) the
execution, delivery and performance of this Agreement and the other
agreements and documents contemplated hereby do not (a) violate any
provision of the Certificate and/or Articles of Incorporation or Bylaws of
AVCOM or the governing documents of any Subsidiary, or (b) to the knowledge
of such counsel, violate any provision of, or constitute an event which is
or with the passage of time, or notice or both could result in a violation
or acceleration of, or result in the imposition of any lien upon the AVCOM
Shares, any other securities of AVCOM or a Subsidiary or the assets of
AVCOM or a Subsidiary pursuant to, any mortgage, lien, security agreement,
lease, agreement, instrument, order, award, judgment, decree or other
matter to which AVCOM, a Subsidiary or an AVCOM Shareholder is a party or
by which they are bound; and (vii) the Merger has been duly and validly
approved and adopted by the AVCOM Shareholders and the Board of Directors
of AVCOM and all actions on the part of AVCOM necessary to cause the Merger
to become effective have been duly and validly taken;
(d) Copies of duly adopted resolutions approving the execution, delivery
and performance of this Agreement and the other instruments contemplated
hereby certified by the Secretary of AVCOM;
(e) If requested by SIGR, a policy or policies of title insurance or
commitments therefor (with the actual policy or policies to be issued
subsequent to Closing), with all premiums therefor to be paid by AVCOM,
from a title insurance company acceptable to SIGR in amounts and in form
and substance acceptable to SIGR, insuring all real estate interests of
AVCOM and each of the Subsidiaries, subject only to such exceptions as are
reasonably acceptable to SIGR;
(f) A true, correct and complete copy of the Articles of Incorporation
(or similar public record of formation), as amended, of AVCOM and each
Subsidiary, certified by the Secretary of State of its state of
incorporation or formation, and a true, correct and complete copy of the
Bylaws, operating agreement or partnership agreement (as applicable) as
amended, of AVCOM and each Subsidiary, certified by the corporate
Secretary;
(g) A list of the AVCOM Shareholders entitled to vote on the Merger as of
the Closing and certified by the transfer agent of AVCOM;
(h) An original or photostatic copy duly certified as accurate and
complete of all requisite governmental or regulatory approvals of the
transactions contemplated hereby; and
(i) Such other documents and instruments as SIGR may reasonably request.
6.2 SIGR's Deliveries. At the Closing, counsel for AVCOM shall receive from
SIGR the following:
(a) Certificate of good standing from the Secretary of State of the State
of Maryland stating that SIGR is a validly existing corporation in good
standing;
(b) A certificate, dated as of the Closing, signed by an officer of SIGR
to the effect that the conditions specified in Section 5.1(a) and (b) and
(based in part on the certificate delivered pursuant to Section 6.1(b)
above), Section 5.2, above, have been satisfied;
(c) Copies of duly adopted resolutions of SIGR's Board of Directors as
well as any necessary shareholder approval or Board resolutions from any
other party to the reorganization affiliated with SIGR approving the
execution, delivery and performance of this Agreement, certified by its
Secretary;
(d) An opinion from counsel of SIGR, in form and substance satisfactory
to counsel for AVCOM, to the effect that: (i) SIGR is a corporation, duly
incorporated, validly existing and in good standing under the laws of the
State of Maryland; (ii) the shares of SIGR Stock, when issued pursuant to
this Agreement, will have been duly and validly authorized and issued and
will be fully paid and nonassessable and issued in compliance with all
applicable federal and state securities laws; (iii) this Agreement and the
other
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agreements and documents contemplated hereby have been duly and validly
authorized, executed and delivered on behalf of SIGR and constitute
(subject to standard exceptions to enforceability) its valid, binding and
enforceable agreements; and (iv) the execution, delivery and performance of
this Agreement and other agreements and documents contemplated hereby do
not violate any provision of the Certificate and/or Articles of
Incorporation or By-laws of SIGR or any other party to the reorganization
which is an affiliate with SIGR; and (v) that any requisite shareholder
approvals of SIGR or any other party to the reorganization affiliated with
SIGR have been obtained; and
(e) Employment agreements to be entered into upon Closing between SIGR or
an SIGR subsidiary and Gary Hughes, John Stevens and Bob Eckenroth, in a
form substantially similar to Exhibit 6.2 hereto.
ARTICLE VII
TERMINATION
7.1 Termination. Notwithstanding anything in this Agreement to the contrary,
this Agreement may be terminated only:
(a) by mutual consents of the Boards of Directors of SIGR and AVCOM;
(b) by SIGR or AVCOM if, for any reason, the Closing has not occurred on
or before June 30, 1997;
(c) by SIGR or AVCOM if any court of competent jurisdiction in the United
States or other United States governmental body shall have issued an order,
decree or ruling or taken any other final action restraining, enjoining or
otherwise prohibiting the Merger or the acceptance and payment for the
AVCOM Shares and such order, decree, ruling or other action is or shall
have become non-appealable;
(d) by SIGR if AVCOM (or its Board of Directors) shall have (x)
authorized, recommended or filed a Solicitation/ Recommendation Statement
on Schedule 14d-9 not opposing any tender or exchange offer (other than the
offer described in this Agreement), or (y) authorized, recommended or
publicly announced its intention to enter into any merger (other than the
Merger), consolidation, liquidation, dissolution, business combination,
recapitalization, acquisition or disposition of a material amount of assets
or securities or any comparable transaction (each of the transactions
described in subclause (x) and (y) being referred to herein as an
"ACQUISITION TRANSACTION") which has not been consented to in writing by
SIGR;
(e) by SIGR if the Board of Directors of AVCOM shall have withdrawn or
materially modified its authorization, approval or recommendation to the
stockholders of AVCOM with respect to the Merger or the Agreement, unless
such withdrawal or modification results solely from a material breach by
SIGR of any material obligation, covenant or agreement of SIGR contained in
the Agreement which SIGR fails to cure within 10 business days after notice
thereof is received from AVCOM, or the failure by AVCOM to complete the
conversion of its preferred stock pursuant to Section 4.15 hereof;
(f) by SIGR if any person, entity or "group" (as that term is used in
Section 13(d)(3) of the Exchange Act) (other than SIGR or any of its
affiliates) shall have commenced a tender offer for at least a majority of
the outstanding AVCOM Shares at a price in excess of $5.00 per Share or
shall have become the "beneficial owner" (as defined in Rule 13d-3
promulgated under the Exchange Act) of a majority of the then outstanding
AVCOM Shares;
(g) by either SIGR or AVCOM, if prior to the Closing Date, (i) a person
or group shall have made a bona fide proposal which the Board of Directors
of AVCOM believes, in good faith after consultation with its financial
advisor and special counsel, is for a superior offer, and (ii) the Board of
Directors of AVCOM withdraws its recommendation or changes its
recommendation in a manner adverse to SIGR or the likelihood of the
consummation of the Offer and Merger;
(h) by SIGR if any person or group other than an associate or an
affiliate of SIGR presents to AVCOM a proposal for an acquisition or
similar transaction (including, without limitation, a recapitalization),
whether or not it constitutes a superior offer, which the Board of
Directors of AVCOM believes in good faith, after consultation with its
financial advisor, should be presented for approval by AVCOM's
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<PAGE>
shareholders and the Board of Directors thereafter resolves, without
terminating this Agreement pursuant to paragraph 7.1(g) above and (i)
without withdrawing or changing the recommendation, to present to the
shareholders for approval both such other transaction or proposal and the
Merger or (ii) withdraws or changes its recommendation;
(i) by SIGR in the event the Board of Directors of AVCOM shall have
failed to reaffirm, following written request by SIGR for such
reaffirmation after AVCOM shall have received any inquiry or proposal with
respect to any proposal for an Acquisition Event, its approval of the
Merger (to the exclusion of any other proposal for an Acquisition Event),
or shall have resolved not to reaffirm the Merger;
(j) by AVCOM if the Board of Directors of SIGR shall have withdrawn or
materially modified its authorization or approval with respect to the
Merger or this Agreement, unless such withdrawal or modification is
permitted hereunder or results from a material breach of AVCOM of any
material obligation, covenant or agreement of AVCOM contained in this
Agreement which AVCOM fails to cure within ten (10) business days after
notice thereof is received from SIGR;
(k) by SIGR if, within the period described in Section 5.2(o), as may be
extended, SIGR shall not have resolved to its full satisfaction any issues
arising in its due diligence investigation; or
(l) by SIGR if, the Conversion Share Value determined pursuant to Section
1.3(a), above, shall at any time subsequent to the date of this Agreement
be less than 80% of $19.44, subject to appropriate adjustment in the event
of a stock split, stock dividend or recapitalization as referenced therein.
As used herein, "Acquisition Event" shall mean the consummation of any
Acquisition Transaction (or series of transactions) that results in any
person, entity or "group" (other than SIGR or any of its affiliates) acquiring
more than 50% of the outstanding AVCOM Shares or assets of Avcom (including
through any merger or business combination).
The date on which this Agreement is terminated pursuant to any of the
foregoing paragraphs is herein referred to as the "Termination Date."
7.2 Effect of Termination. Except for the provisions set forth in Sections
4.9, 4.12, 4.13, 7.3, and in this Section 7.2, upon the termination of this
Agreement pursuant to Section 7.1, this Agreement shall forthwith become null
and void. It is expressly agreed and understood that nothing in this Agreement
shall preclude either party from seeking specific performance, injunctive
relief or any other remedies not involving the payment of monetary damages in
the event of any breach or violation of any provision of this Agreement by the
other party (whether or not this Agreement is terminated as a result of such
breach or violation) and each party acknowledges that, in light of the unique
benefit to it of its rights under this Agreement, such remedies shall be
available in respect of any such breach or violation by it in any suit
properly instituted in a court of competent jurisdiction.
7.3 Cancellation Payments and Expenses.
(a) Expenses and Cancellation Fee to SIGR. If the Merger is not consummated
or this Agreement is terminated (i) pursuant to Sections 7.1(d), (e), (f),
(g), (h) or (i), or (ii) if a Change in Control (as defined below) shall occur
prior to December 31, 1998 (other than a change of control pursuant to the
Merger), or (iii) because of a material breach by AVCOM of its obligations
under this Agreement or because the representations and warranties of AVCOM
contained in this Agreement shall be or become inaccurate or incomplete in any
material respects (any of the foregoing constituting an "AVCOM PAYMENT
EVENT"), AVCOM shall, (A) upon demand, reimburse SIGR for all Reimbursable
Expenses (as defined below) and, in addition, (B) pay immediately to SIGR a
cancellation fee (the "AVCOM CANCELLATION FEE") of $1,800,000, as liquidated
damages, and not as a penalty, payable in immediately available funds.
A "CHANGE IN CONTROL" shall be deemed to have occurred on the earliest date
on or by which (i) the beneficial ownership of the equity securities of AVCOM
on the part of any person or group (other than SIGR or its affiliates or
associates), together with the beneficial ownership thereof on the part of the
affiliates and or
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<PAGE>
associates of such person or group (other than SIGR or its affiliates or
associates), together with the beneficial ownership thereof on the part of the
affiliates and or associates of such person or group, first equals or exceeds
50 percent of the equity securities of AVCOM then outstanding, or (ii) any
person or group (other than SIGR or its affiliates or associates) acquires
assets of AVCOM or its Subsidiaries which, together with any assets acquired
from AVCOM or its Subsidiaries by any affiliates and or associates or such
person or group, constitute 50 percent of the assets owned by AVCOM and its
Subsidiaries on the Termination Date; provided, however, that if during the
Measuring Period (as defined below), AVCOM enters into an agreement providing
for a transaction or series of transactions that would result in Change in
Control, the AVCOM Cancellation Fee shall become payable on the date such
agreement is entered into, provided further, however, that no payment shall
become due in respect of such Change in Control until the earliest date upon
which such transaction or series of transactions is consummated (whether or
not such date occurs during the Measuring Period).
The "MEASURING PERIOD" shall be the period of time beginning on the
Termination Date and ending on the first anniversary of such date.
(b) Expenses and Cancellation Fee to AVCOM. If the Merger is not consummated
or this Agreement is terminated (i) pursuant to Section 7.1(j), or (ii)
because of a material breach by SIGR of its obligations under this Agreement
or because the representations and warranties of SIGR contained in this
Agreement shall be or become inaccurate or incomplete in any material respect
(any of the foregoing constituting a "SIGR PAYMENT EVENT"), SIGR shall (A)
upon demand reimburse AVCOM for all reimbursable expenses (as defined below)
and, in addition, (B) pay immediately to AVCOM a cancellation fee (the "SIGR
CANCELLATION FEE") of $900,000, as liquidated damages, and not as a penalty,
payable in immediately available funds.
(c) Reimbursable Expenses. "REIMBURSABLE EXPENSES" shall mean all reasonable
out-of-pocket expenses and fees incurred by the party being reimbursed
hereunder (including, without limitation, legal and accounting fees and fees
payable to banks and other financial institutions and advisors, including such
party's respective agents) or on their behalf in connection with the Merger
and the consummation of all transactions contemplated by this Agreement, or
incurred by banks, financial institutions or advisors and assumed by the party
being reimbursed hereunder in connection with the negotiation, preparation,
execution and performance of this Agreement or any related financing.
(d) Remedies. The parties acknowledge that the agreements contained in this
Section 7.3 are an integral part of the transactions contemplated by this
Agreement and that, without these agreements, the parties would not enter into
this Agreement. Accordingly, if either party fails to pay any amounts due
pursuant to this Section 7.3, and, in order to obtain such payment, suit is
commenced which results in a judgment against such party therefor, such party
shall pay the plaintiffs' reasonable costs (including attorneys' reasonable
fees and expenses) in connection with such suit, together with interest
computed on any amounts determined to be due pursuant to this Section 7.3
(computed from the date upon which such amounts were due and payable pursuant
to this Section 7.3) and such costs (computed from the date(s) incurred) at
the prime rate of interest published from time to time by the Wall Street
Journal (using the highest if more than one is published for a particular
day). The obligations under this Section 7.3 shall survive any termination of
this Agreement. The provisions for liquidated damages hereunder are
acknowledged by the parties to be reasonable due to the inability to
accurately estimate damages for breach hereunder.
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<PAGE>
ARTICLE VIII
INDEMNIFICATION AND HOLDBACK SHARES
8.1 Agreement to Indemnify. AVCOM and the Principal Shareholders agree for
themselves and the AVCOM Shareholders jointly and severally to indemnify and
hold SIGR harmless from and against the aggregate of all expenses, losses,
costs, deficiencies, liabilities and damages (including, without limitation,
related counsel and paralegal fees and expenses) incurred or suffered by SIGR
(collectively, "Indemnifiable Damages") resulting from or arising out of (i)
any breach of a representation or warranty made by AVCOM in or pursuant to
this Agreement, (ii) any breach of the covenants or agreements made by AVCOM
in this Agreement, or (iii) any inaccuracy in any certificate delivered by
AVCOM pursuant to this Agreement.
Without limiting the generality of the foregoing, with respect to the
measurement of Indemnifiable Damages, SIGR shall have the right to be put in
the same pre-tax consolidated financial position as it would have been in had
each of the representations and warranties of AVCOM been true and correct and
had the covenants and agreements of AVCOM been performed in full.
8.2 Survival of Representations and Warranties. Each of the representations
and warranties made by AVCOM in this Agreement or pursuant hereto shall
survive for a period of one year after the Effective Time, notwithstanding any
investigation at any time made by or on behalf of SIGR and upon expiration of
such one year period, such representations and warranties shall expire except
as follows: (i) the representations and warranties of AVCOM contained in
Section 3.17 shall expire at the time the period of limitations (including any
extensions thereof pursuant to the delivery of waivers of the applicable
period of limitations) expires for the assessment by the taxing authority of
additional Taxes with respect to which the representations and warranties
relate; (ii) the representations and warranties of the Shareholders contained
in Sections 3.8 and 3.14 shall expire at the time the latest period of
limitations expires for the enforcement by an applicable governmental
authority of any remedy with respect to which the particular representations
and warranties of AVCOM related; and (iii) the representations and warranties
of AVCOM contained in Sections 3.1, 3.2, 3.3 and 3.4 shall not expire but
shall continue indefinitely. No claim for the recovery of Indemnifiable
Damages may be asserted by SIGR against AVCOM or the AVCOM Shareholders after
such representations and warranties shall thus expire, provided, however, that
claims for Indemnifiable Damages first asserted within the applicable period
shall not thereafter be barred. Notwithstanding any knowledge of facts
determined or determinable by any party by investigation, each party shall
have the right to fully rely on the representations, warranties, covenants and
agreements of the other parties contained in this Agreement or in any other
documents or papers delivered in connection herewith. Each representations,
warranty, covenant and agreement of the parties contained in this Agreement is
independent of each other representation, warranty, covenant and agreement.
8.3 Security for Indemnification Obligation. As security for the agreement
by AVCOM and the AVCOM Shareholders to indemnify and hold SIGR harmless as
described in Section 8.1, at the Closing, SIGR shall set aside and hold
certificates representing the Holdback Shares issued pursuant to this
Agreement. SIGR may set off against the Holdback Shares any loss, damage, cost
or expense for which AVCOM or the AVCOM Shareholders may be responsible
pursuant to this Agreement (including without limitations, any Indemnifiable
Damages for which AVCOM or the AVCOM Shareholders may be responsible pursuant
to this Agreement) whether or not indemnified pursuant to Section 8.1 of this
Agreement, subject, however, to the following terms and conditions:
(1) SIGR shall give written notice to the AVCOM Shareholders of any claim
for Indemnifiable Damages or any other damages hereunder, which notice
shall set forth (i) the amount of Indemnifiable Damages or other loss,
damage, cost or expense which SIGR claims to have sustained by reason
thereof, and (ii) the basis of the claim therefor;
(2) Such set off shall be effected pro rata against the AVCOM
Shareholders' Holdback Shares on the later to occur on the expiration of 10
days from the date of such notice (the "Notice of Contest Period") or, if
such claim is contested, the date the dispute is resolved, and such set off
shall be charged proportionally against the shares set aside;
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(3) If, prior to the expiration of the Notice of Contest Period, any one
or more AVCOM Shareholders due to receive as much as (in the aggregate) ten
percent (10%) of the Holdback Shares shall notify SIGR in writing of an
intention to dispute the claim and if such dispute is not resolved within
30 days after expiration of such period (the "Resolution Period"), then
SIGR may elect that such dispute shall be resolved by a committee of three
arbitrators (one appointed by a majority in interest of the AVCOM
Shareholders, one appointed by SIGR and one appointed by the two
arbitrators so appointed), which shall be appointed within 60 days after
the expiration of the Resolution Period. If a majority in interest of the
AVCOM Shareholders does not appoint an arbitrator within such period, then
the arbitrator appointed by SIGR shall arbitrate the dispute. The
arbitrators shall abide by the rules of the American Arbitration
Association and their decision shall be made within 45 days of being
appointed and shall be final and binding on all parties;
(4) Any of the AVCOM Shareholders may instruct SIGR to sell some or all
of such AVCOM Shareholder's Holdback Shares and the net proceeds thereof
shall be substituted for such Holdback Shares in any set off to be made by
SIGR pursuant to any claim hereunder.
Except with respect to shares transferred pursuant to the foregoing right of
setoff (and in the case of such shares, until the same are transferred), all
Holdback Shares shall be deemed to be owned by the AVCOM Shareholders, and the
AVCOM Shareholders shall be entitled to vote the same; provided, however,
that, there shall also be deposited with SIGR subject to the terms of this
Section 8.3, all shares of SIGR Stock issued to the Shareholders as a result
of any stock dividend or stock split and all cash issuable to the Shareholders
as a result of any cash dividend, with respect to the Holdback Shares. All
stock and cash issued or paid upon Holdback Shares shall be distributed to the
AVCOM Shareholders together with such Holdback Shares.
8.4 Delivery of Holdback Shares. SIGR agrees to deliver to the Shareholders
no later than one year following the Effective Time any Holdback Shares then
held by it (or proceeds from the Holdback Shares) unless there then remains
unresolved any claim for Indemnifiable Damages or other damages hereunder as
to which notice has been given, in which event any Holdback Shares remaining
on deposit (or proceeds from the sale of Holdback Shares) after such claim
shall have been satisfied shall be returned to the Shareholders promptly after
the time of satisfaction; provided, however, that any litigation or disputes
between AVCOM or any Subsidiaries and Success Marketing, Inc., Success
Marketing Companies, Inc., Success Ventures, Inc., or any of their affiliates,
as described in Exhibit 3.12 to be settled for not more than $800,000, must
have in fact been settled for not more than $800,000, and dismissed with
prejudice prior to any release of the Holdback Shares sooner than five years
following the Effective Date.
8.5 No Bar. If the Holdback Shares are insufficient to set off any claim for
Indemnifiable Damages hereunder (or have been delivered to the AVCOM
Shareholders prior to the making or resolution of such claim), then SIGR may
take any action or exercise any remedy available to it by appropriate legal
proceedings to collect the Indemnifiable Damages from the AVCOM Shareholders
specifically including the Principal Shareholders.
8.6 Limitations on Claims. Notwithstanding anything contained in this
Article VIII to the contrary, no claim for indemnification may be made by SIGR
unless the amount of the individual claim exceeds $25,000, or the aggregate
amount of all claims made from the date of Closing shall exceed $100,000. Once
such limitations are met, whether individually or in the aggregate, the entire
claim shall be subject to indemnification. This provision does not provide for
a deductible and shall not apply, in any event, in the event that the claim
arises out of fraud or intentional or willful misconduct on the part of the
breaching party.
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ARTICLE IX
MISCELLANEOUS
9.1 Governing Law and Consent to Jurisdiction. This Agreement shall be
deemed to be made in, and in all respects shall be interpreted, construed and
governed by and in accordance with the internal laws of, the State of Arizona
(without regard to such state's conflicts of law principles).
9.2 Notices. Any notices or other communications required under this
Agreement shall be in writing, shall be deemed to have been given when
delivered in person, by telex or telecopier, when delivered to a recognized
next business day courier, or, if mailed, when deposited in the United States
mail, first class, registered or certified, return receipt requested, with
proper postage prepaid, addressed as follows or to such other address as
notice shall have been given pursuant hereto:
If to AVCOM:
AVCOM International, Inc.
Attn: Gary Hughes/John Stevens
Post Office Box 1243
Sedona, Arizona 86339
561 Highway 179
Sedona, Arizona 86336
Telecopy: (520) 282-9428
With a copy to:
Gallagher & Kennedy
Attn: Thomas J. Morgan, Esq.
2600 North Central Avenue
Phoenix, Arizona 85004-3020
Telephone: (602) 530-8000
Telecopy: (602) 257-9459
and a copy to:
DeConcini McDonald Brammer Yetwin & Lacy, P.C.
Attn: David V. Sanderson, Esq.
2901 North Central Avenue
Suite 1644
Phoenix, Arizona 85012-2736
Telephone: (602) 241-0100
Telecopy: (602) 241-0220
If to SIGR:
Signature Resorts, Inc.
Attn: Mr. Steven C. Kenninger
911 Wilshire Blvd.
Suite 2250
Los Angeles, California 90017
Telecopy: (213) 622-2211
With a copy to:
Edward H. Brown, Esq.
Schreeder, Wheeler & Flint, LLP
127 Peachtree Street, N.E.
1600 Candler Building
Atlanta, Georgia 30303-1845
Telephone: (404) 681-3450
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<PAGE>
9.3 Assignment. This Agreement may not be assigned, by operation of law or
otherwise, except that SIGR may assign its rights under this Agreement in
whole or in part to a subsidiary or other Affiliate of SIGR (including but not
limited to any subsidiary or Affiliate of SIGR formed or acquired following
the date hereof) or to any lender of SIGR.
9.4 Section Headings. The section headings contained in this Agreement are
for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
9.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
9.6 Amendment. Except as hereinafter provided, this Agreement may not be
amended except by a writing signed by the party to be charged.
9.7 Entire Agreement. This Agreement and the Lock-Up Letters constitute the
entire agreement and supersedes all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof.
9.8 Binding Effect. Subject to Section 9.3, this Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
heirs, personal representatives, successors and permitted assigns.
9.9 Survival. The covenants, agreements, indemnities, representations and
warranties of SIGR and AVCOM made in or pursuant to this Agreement shall
survive the Closing, notwithstanding any investigation made or information
obtained by or on behalf of another party.
9.10 Severability. In case any provision in this Agreement shall be held
invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions hereof shall not in any way be affected or
impaired thereby unless SIGR elects otherwise.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the date first above written.
<TABLE>
<S> <C>
SIGNATURE RESORTS, INC. AVCOM INTERNATIONAL, INC.
By: /s/ Andrew J. Gessow By: /s/ Gary L. Hughes
___________________________________ ____________________________________
Name: Andrew J. Gessow Name: Gary L. Hughes
Title: President Title: C.E.O.
</TABLE>
<TABLE>
<S> <C>
(CORPORATE SEAL) (CORPORATE SEAL)
</TABLE>
JOINDER OF PRINCIPAL SHAREHOLDERS
The undersigned Principal Shareholders hereby join in and execute the
foregoing Agreement for the purposes of Article III and VIII.
/s/ Gary Hughes (SEAL)
-------------------------------
Gary Hughes
/s/ John Stevens (SEAL)
-------------------------------
John Stevens
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<PAGE>
FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER
THIS FIRST AMENDMENT TO THE AGREEMENT AND PLAN OF MERGER (the "Merger
Agreement") by and among SIGNATURE RESORTS, INC. ("SIGR") and AVCOM
INTERNATIONAL, INC. ("AVCOM") is hereby made and entered into this 15th day of
November, 1996, by and among SIGR and AVCOM and ASP ACQUISITION CORP., a
Delaware corporation ("ASP") (SIGR, AVCOM and ASP collectively referred to
herein as the "Parties").
W I T N E S S E T H:
WHEREAS, SIGR and AVCOM did enter into the Merger Agreement, dated September
22, 1996, which contemplated the creation of ASP, a subsidiary of Signature,
which entity has subsequently been created; and
WHEREAS, the parties hereto are desirous of amending the Merger Agreement in
certain respects.
NOW, THEREFORE, in consideration of the mutual covenants and promises herein
contained, good and valuable consideration, the receipt, sufficiency and
adequacy of which are hereby acknowledged is hereby acknowledged, the parties
hereto agree as follows:
1. Section 3.12--Status of Litigation and Compliance. Section 3.12 of the
Merger Agreement is hereby amended to provide that the matters set forth on
Exhibit 3.12 include all pending, threatened or potential litigation,
arbitration or administrative proceedings against AVCOM or a Subsidiary
(known, or which through the conduct of reasonable investigation, should have
been known), whether or not incurred in the ordinary course of business,
including matters which may reasonably be anticipated to give rise to
litigation, arbitration or administrative proceedings, such disclosure being
made as of the date of the Merger Agreement and as of the Closing Date,
provided, however, that AVCOM may amend Exhibit 3.12 at any time through the
Closing Date to add any matter of which AVCOM has subsequently obtained
knowledge and which matter is not one which was known, or which through the
conduct of reasonable investigation should have been known, to AVCOM at the
date of the Merger Agreement or preparation of Exhibit 3.12.
2. Section 8.1--Indemnification for Outstanding Litigation. Section 8.1 of
the Merger Agreement is hereby amended to provide that Indemnifiable Damages
shall consist of, in addition to the items stated in Section 8.1, any
expenses, losses, costs, deficiencies, liabilities and damages (including,
without limitation, related counsel and paralegal fees and expenses)
(collectively, "Litigation Expenses") with respect to any litigation or claims
described on Exhibit 3.12 to the Merger Agreement incurred from and after
September 22, 1996 in excess of $1,000,000, in the aggregate (it being
acknowledged that Indemnifiable Damages resulting from litigation and claims
which should have been but were not disclosed on Exhibit 3.12 are not subject
to the $1,000,000 amount), including any amounts paid with respect to the
litigation and disputes between AVCOM or any Subsidiaries, and Success
Marketing, Inc., Success Marketing Companies, Inc., Success Ventures, Inc., or
any of their affiliates as described in Exhibit 3.12. Notwithstanding the
foregoing, Indemnifiable Damages (i) shall not include any Litigation Expenses
which arise out of or are based upon either the proposed Merger or any alleged
actions or misrepresentations or breaches of duty by either AVCOM, its
Subsidiaries and/or its officers, directors or shareholders in connection
therewith, except to the extent of any fraudulent or willful or grossly
negligent conduct or misrepresentation by any of such persons or entities in
connection therewith; and (ii) shall not include any Litigation Expenses with
respect to any matter which is either disclosed on Exhibit 3.12 or which
should have been disclosed on Exhibit 3.12 to the extent that any solvent
insurance carrier has agreed to defend and indemnify the applicable defendant
within the policy limits of the applicable insurance policy.
3. Section 8.2--Survival of Representations and Warranties. Section 8.2 of
the Merger Agreement is amended to provide that, prior to the expiration of
one year after the Effective Time (the "Evaluation Date"), SIGR and the
Principal Shareholders will meet and confer and attempt in good faith to agree
upon and establish
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<PAGE>
prior to the Evaluation Date the realistic Exposure (as defined below) to
AVCOM, SIGR and/or either's Subsidiaries with respect to each matter remaining
on Exhibit 3.12 which has not previously been adjudicated, dismissed or
settled, and, with respect to each such remaining matter, counsel for AVCOM
shall have acknowledged that such Exposure as so determined is not
"unreasonable" (an "Exposure Analysis"). In the event that SIGR and the
Principal Shareholders cannot so agree, SIGR shall have the obligation to act
in good faith and determine in the exercise of its good faith business
judgment what such Exposure should be with respect to any matter to which the
parties cannot reach agreement. As used herein, "Exposure" shall mean the
reasonably projected cost of defense or prosecution through a final judgment
of such matter (including attorneys' fees, costs and any direct expenses of
either AVCOM and SIGR in connection therewith) plus a realistic assessment
expressed as a dollar amount of the likelihood and amount of either an adverse
or favorable judgment on all claims and counterclaims in connection with each
of such matters. The sum of the Exposure determined for each of such matters
remaining on Exhibit 3.12 as of the Evaluation Date plus the cumulative amount
of Litigation Expenses through the Evaluation Date which either AVCOM or SIGR
has incurred, paid out or accrued to adjudicate, dismiss and/or settle each of
the matters originally included (or which should have been included) on
Exhibit 3.12 shall be the "Cumulative Exposure" in connection with such
matters pending on the Evaluation Date.
4. Section 8.4--Delivery of Holdback Shares. Section 8.4 of the Merger
Agreement is amended to provide that, to the extent that the Cumulative
Exposure determined in any Exposure Analysis is:
a. Equal to or less than $1.0 Million, all of the Holdback Shares shall
promptly be delivered to the Shareholders in accordance with the provisions
of Section 8.4 of the Merger Agreement; and
b. Greater than $1.0 Million, SIGR shall be entitled to continue to
withhold that amount of the Holdback Shares equal to the amount by which
the Cumulative Exposure exceeds $1.0 Million without the need to submit a
notice for claim of Indemnifiable Damages, and the balance of the Holdback
Shares, if any, shall promptly be delivered to the Shareholders in
accordance with the provisions of Section 8.4 of the Merger Agreement;
provided, however, to the extent that the then Cumulative Exposure exceeds
the amount of the Holdback Shares, there shall be no obligation of either
AVCOM or the Shareholders to supplement or increase the amount of the
Holdback Shares.
At any date between the Evaluation Date and the distribution by SIGR of all
Holdback Shares, any of the Principal Shareholders can request that an
Exposure Analysis be done as of such date ("Revised Cumulative Exposure"),
provided that such analysis does not occur more than once in any three month
period and only when the parties have reason to believe that a new Exposure
Analysis will produce a meaningful reduction in the amount of Holdback Shares
being held by SIGR. To the extent that the Revised Cumulative Exposure as
recalculated in the current Exposure Analysis has decreased from the most
recently calculated Cumulative Exposure, and to the extent that the Revised
Cumulative Exposure is less than the amount of the Holdback Shares which SIGR
is holding, SIGR shall be obligated to reduce the Holdback Shares (and deliver
to the Shareholders in accordance with the provisions of Section 8.4 of the
Merger Agreement) by the amount by which the Revised Cumulative Exposure is
less than the Cumulative Exposure, but only to the extent that the Revised
Cumulative Exposure is less than the amount of the Holdback Shares. SIGR shall
have the obligation to distribute any and all Holdback Shares remaining in its
possession as soon as the Revised Cumulative Exposure is reduced to zero, but,
in any event, no later than five years after the Effective Time except for any
Holdback Shares being held by SIGR to satisfy disputed claims for
Indemnifiable Damages.
5. Taxes. Section 3.17 of the Merger Agreement is hereby clarified to
provide that, to the best knowledge of AVCOM and each of the Principal
Shareholders after reasonable inquiry and investigation, all tax returns
(including informational returns) described therein filed by AVCOM and the
Subsidiaries are true, complete and correct, subject to reasonable
interpretation of the applicable tax codes, rulings, and regulations, and that
all Taxes (including interest and penalties) required to be paid, collected or
withheld with respect to all open tax years have been paid or collected or
withheld and remitted to the appropriate governmental agency or otherwise
accrued as a liability in AVCOM's June 30, 1996 financial statements.
6. Other Matters. In all other respects, the terms of the Merger Agreement
are ratified and confirmed.
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<PAGE>
7. IN WITNESS WHEREOF, the undersigned have hereunto set their hands and
seals as of the day and year first written above.
SIGNATURE RESORTS, INC.
By: /s/ Steven C. Kenninger
-----------------------------------
Title: Chief Operating Officer
[CORPORATE SEAL]
AVCOM INTERNATIONAL, INC.
By: /s/ Gary L. Hughes
-----------------------------------
Title: C.E.O., President
By: /s/ Robert M. Eckenroth
-----------------------------------
Title: Vice President
[CORPORATE SEAL]
ASP ACQUISITION CORP.
By: /s/ Andrew D. Hutton
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Title: Vice President
[CORPORATE SEAL]
JOINDER OF PRINCIPAL SHAREHOLDERS
The undersigned Principal Shareholders hereby join in and execute the
foregoing Agreement for the purposes of Articles III and VIII.
By: /s/ Gary Hughes
-----------------------------------
Gary Hughes
By: /s/ John Stevens
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John Stevens
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SECOND AMENDMENT TO AGREEMENT AND PLAN OF MERGER
THIS SECOND AMENDMENT TO THE AGREEMENT AND PLAN OF MERGER (the "Merger
Agreement") by and among SIGNATURE RESORTS, INC., ("Signature") and AVCOM
INTERNATIONAL, INC. ("AVCOM") is hereby made and entered into this 18th day of
December, 1996, by and among SIGR and AVCOM and ASP ACQUISITION CORP., a
Delaware corporation ("ASP") (Signature, AVCOM and ASP collectively referred
to herein as the "Parties").
WITNESSETH:
WHEREAS, Signature and AVCOM did enter into the Merger Agreement, dated
September 22, 1996, which contemplated the creation of ASP, a subsidiary of
Signature, which entity has subsequently been created; and
WHEREAS, said Merger Agreement was subsequently amended effective November
15, 1996 (said Merger Agreement, as amended, being herein referred to as the
"Merger Agreement"); and
WHEREAS, Section 1.3 of the Merger Agreement provides for the issued and
outstanding shares of common stock of AVCOM and the outstanding and
unexercised options, if any, to acquire shares of common stock of AVCOM to be
converted into and become (subject to certain conditions and qualifications) a
number of shares of common stock of Signature determined in accordance with
the formula stated in the Merger Agreement; and
WHEREAS, Signature desires to be able to convert such options to options to
acquire shares of Signature common stock, in lieu of converting the options
into Signature common stock; and
WHEREAS, AVCOM has advised Signature that certain disputed claims have been
asserted to acquire the common stock of AVCOM pursuant to which no shares of
the common stock of AVCOM have been issued or are outstanding and that certain
disputed claims have been asserted to acquire options to acquire the common
stock of AVCOM which options are not outstanding; and
WHEREAS, the parties hereto desire to amend the Merger Agreement for the
purposes stated herein.
NOW THEREFORE, for and in consideration of the premises and other good and
valuable consideration, the sufficiency of which is acknowledged, the parties
hereto amend the Merger Agreement as follows:
1. CONVERSION OF AVCOM SHARES AND OPTIONS.
(a) The Provisions of Section 1.3 of the Merger Agreement shall apply not
only to the issued and outstanding shares of the common stock of AVCOM,
but also to all shares of the common stock of AVCOM that any person or
entity had the valid right to require to be issued.
(b) The provisions of Section 1.3 of the Merger Agreement with respect to
outstanding and unexercised options to acquire shares of the common
stock of AVCOM shall apply equally to any valid rights to acquire such
options regardless of whether such options were outstanding on or after
September 22, 1996.
(c) Nothing in this Section is intended to constitute an acknowledgement of
AVCOM or Signature or ASP that AVCOM has any unfilled obligations to
issue AVCOM common stock or to issue any options to acquire AVCOM
common stock that were not issued and outstanding on September 22,
1996, or at anytime thereafter. The purpose of this Section is to
provide that any such rights, if established, shall be converted into
the same rights as are provided under the Merger Agreement to acquire
shares of the common stock of Signature on the same terms as the
holders of issued and outstanding shares of the common stock of AVCOM
or holders of outstanding and unexercised options to acquire shares of
the common stock of AVCOM.
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2. CARRYOVER OF AVCOM OPTIONS. Notwithstanding anything to the contrary in
the Merger Agreement, Signature may, in its sole option, elect to carryover
any option to acquire shares of AVCOM common stock (an "AVCOM Option") into an
option to acquire shares of Signature common stock (a "Signature Option") in
lieu of the conversion provisions of Section 1.3 of the Merger Agreement with
respect to options to acquire AVCOM shares. In such event the holder of an
AVCOM Option shall receive a Signature Option on terms and conditions
substantially similar to such holder's AVCOM Option. The number of Signature
shares subject to such Signature Option shall be equal to the number of AVCOM
shares subject to the AVCOM Option multiplied by the Final Conversion Ratio
established in Section 1.3 of the Merger Agreement, and the exercise price per
share for such Signature Option shall be equal to the exercise price per share
for the AVCOM Option divided by the Final Conversion Ratio established in
Section 1.3 of the Merger Agreement.
3. METHOD OF CONVERTING OPTIONS. Section 1.3 of the Merger Agreement is
hereby amended to state that for purposes of determining the Separate Option
Shares the denominator of the fraction used in the second step of such
determination shall be the Merger Consideration, per share, rather than $5.00
as stated in the Merger Agreement.
4. RATIFICATION. Except as specifically amended hereby, the Merger Agreement
continues without any amendment or modification whatsoever.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands and seals
as of the day and year first written above.
SIGNATURE RESORTS, INC.
By: /s/ Andrew D. Hutton __________
Title:Vice President____________
(CORPORATE SEAL)
AVCOM INTERNATIONAL, INC.
By: /s/ Gary L. Hughes____________
Title:President_________________
(CORPORATE SEAL)
ASP ACQUISITION CORP.
By: /s/ Andrew D. Hutton__________
Title:Vice-President____________
(CORPORATE SEAL)
JOINDER OF PRINCIPAL SHAREHOLDERS
The undersigned Principal Shareholders hereby join in and execute the
foregoing Agreement.
/s/ John Stevens /s/ Gary Hughes
- ------------------------------------- -------------------------------------
John Stevens Gary Hughes
A-42
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APPENDIX B
FORM OF ESCROW AGREEMENT
THIS ESCROW AGREEMENT, dated as of this day of , 199 (this
"AGREEMENT"), is by and among SIGNATURE RESORTS, INC., a Maryland corporation
(the "PARENT"), AVCOM INTERNATIONAL, INC., a Delaware corporation (the
"COMPANY"), GARY L. HUGHES and JOHN R. STEVENS (collectively, the "STOCKHOLDER
REPRESENTATIVES"), CHICAGO TITLE INSURANCE COMPANY, as escrow agent (the
"ESCROW AGENT").
RECITALS
A. The Parent, the Company and AS Acquisition Corporation, a Delaware
corporation and wholly owned subsidiary of the Parent (the "PURCHASER"), have
entered into an Agreement and Plan of Merger dated as of September 22, 1996
(the "MERGER AGREEMENT"), which provides, among other things, for the merger
("MERGER") of the Purchaser with and into the Company, with the result that
the Company will become a wholly owned subsidiary of the Parent.
B. The Parent, the Company, the Purchaser and the Stockholder
Representatives who are parties hereto desire, pursuant to Article VIII of the
Merger Agreement, to set aside a portion of the consideration to be paid to
the AVCOM Shareholders (as defined in the Merger Agreement) in connection with
the Merger, for the purpose of providing the Parent with a remedy in the event
of a breach by the Company of certain representations, warranties and
covenants made in the Merger Agreement.
C. The Escrow Agent has agreed to hold the Escrowed Shares (as defined
below) in accordance with the terms and provisions contained herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the parties hereto agree as
follows:
1. Definitions. Except as hereinafter defined, capitalized terms used in
this Agreement will have the meanings assigned to such terms in the Merger
Agreement.
"Average Share Price" shall refer to the mean average high and low trades of
SIGR Stock as reported on the NASDAQ National Market System for each of the
ten (10) consecutive trading days immediately preceding ten (10) days prior to
the date that the Average Share Price is to be determined.
"Breach" shall mean (A) any breach of any representation or warranty or the
inaccuracy of any representation made by the Company in or pursuant to the
Merger Agreement; and (B) any breach of any covenant or agreement made by the
Company in or pursuant to the Merger Agreement.
"Claim" shall mean a claim for Damages incurred by the Parent or the
Purchaser as a result of one or more Breaches.
"Claim Date" shall have the meaning set forth in Section 5 hereof.
"Claim Expiration Time" shall mean the date of first anniversary following
the Effective Date unless litigation pending on the date hereof involving
AVCOM or any of its subsidiaries disclosed on Exhibit 3.12 to the Merger
Agreement continues to be pending and unresolved on such first anniversary, in
which case the Claim Expiration Time with respect to such litigation only
shall extend to the fifth anniversary following the Effective Date.
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"Damage Amount" shall have the meaning set forth in Section 5 hereof.
"Escrowed Funds" shall have the meaning set forth in Section 4 hereof.
"Escrowed Shares" shall have the meaning set forth in Section 3 hereof.
"Final Instruction" shall have the meaning set forth in Section 6 hereof.
"AVCOM Shareholders" shall mean holders of AVCOM Shares or the options
immediately prior to the Effective Date.
"Indemnifiable Amount" shall mean those amounts for which the Parent is
entitled to indemnity pursuant to Article VIII of the Merger Agreement.
"Parent Net Claim" shall have the meaning set forth in Section 5 hereof.
"Total Shares Available" shall, as of any date of determination, mean the
sum of the aggregate number of Escrowed Shares held in escrow and governed by
this Agreement as of such date of termination.
2. Appointment of Escrow Agent. The Parent, the Company and the AVCOM
Shareholders hereby designate and appoint Chicago Title Insurance Company as
Escrow Agent for the purposes set forth herein and the Escrow Agent hereby
accepts such appointments on the terms herein provided.
3. Deposit of Escrowed Shares. Promptly after the Effective Date, the Parent
shall deliver to the Escrow Agent one or more certificates in the name of each
AVCOM Shareholder representing 10% of the aggregate number of shares of SIGR
Common Stock issuable to the AVCOM Shareholders in connection with the Merger
(collectively, the "ESCROWED SHARES").
4. Maintenance of Escrow.
(a) The Escrow Agent shall hold the Escrowed Shares in escrow, and shall
maintain and disburse the Escrowed Shares, pursuant to this Agreement.
(b) All stock splits or dividends payable in stock or other securities of
the Parent that are made by the Parent with respect to the Escrowed Shares
while such shares are held by the Escrow Agent, shall be registered in the
name of the respective AVCOM Shareholders, deposited in escrow and become part
of the Escrowed Shares and any cash in lieu of fractional shares of the SIGR
Stock are collectively referred to in this Agreement as the "Escrowed Funds."
All other dividends or distributions made by the Parent with respect to the
Escrowed Shares while such shares are held by the Escrow Agent shall be
delivered to each AVCOM Shareholder based on the number of Escrowed Shares to
which such AVCOM Shareholder is entitled, and such dividends or distributions
shall be made to each such AVCOM Shareholder at the same time such dividends
or distributions are paid or delivered to holders of SIGR Stock.
5. The Parent's Right to Assert Claim to Escrowed Funds. The Parent shall
have the right to make one or more Claims on or prior to the Claim Expiration
Time by delivering a notice of such Claim (a "Claim Notice") to the
Stockholder Representatives, the AVCOM Shareholders and the Escrow Agent prior
to such time (the date of such notice, the "Claim Date"). If the Parent
asserts a Claim, such Claim Notice shall state with particularity (i) all
Breaches asserted, together with sufficient facts relating thereto so that the
Stockholder Representatives may reasonably evaluate such Claim, (ii) the
Parent's estimate of the amount that equals the aggregate amount of such
Indemnifiable Amount (the "Damage Amount"), (iii) the Parent's estimate of the
amount (the "Parent Net Claim") that equals (A) the Indemnifiable Amount
multiplied by (B) the aggregate number of Escrowed Shares divided by (C) the
aggregate number of Total Shares Available, and (iv) a calculation of the
number of Escrowed Shares to be disbursed from the Escrow Fund in connection
with such Parent Net Claim (for purposes of such calculation, each share of
SIGR Stock shall be valued at the Average Share Price).
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6. Determination of Valid Parent Net Claim; Final Instruction. For purposes
of this Agreement, a "Final Instruction" shall mean a written notice given to
the Escrow Agent directing the disbursement of the amount of the Parent Net
Claim (which had previously been set forth in a Claim Notice properly
delivered in accordance with the provisions of Section 5 hereof), and shall be
signed both by the Parent and by the Stockholder Representatives except as
otherwise provided below in clause (b) or (d). A Final Instruction shall be
delivered to the Escrow Agent under the following circumstances, and
accompanied by the indicated documentation:
(a) If the Stockholder Representatives dispute either the validity, amount
or calculation of the Claim and/or the Parent Net Claim, the Stockholder
Representatives shall give written notice of such dispute to the Parent, with
a copy to the Escrow Agent, within 10 business days after the delivery of the
Claim Notice by the Parent to the Stockholder Representatives. In such
circumstances, no Final Instruction may be given to the Escrow Agent except as
provided in (c) or (d) below.
(b) If the Stockholder Representatives fail to respond to the Claim Notice
within 10 business days after the delivery to the Stockholder Representatives
and the Escrow Agent of the Claim Notice, or if the Stockholder
Representatives notify the Escrow Agent that there is no dispute with respect
to the Claim and/or the Parent Net Claim, the Parent shall have the right to
deliver to the Escrow Agent a Final Instruction, signed only by the Parent,
with respect to the Claim and/or the Parent Net Claim.
(c) If the Stockholder Representatives and the Parent reach an agreement
with respect to the proper determination of the Claim and/or the Parent Net
Claim, the Stockholder Representatives and the Parent shall give to the Escrow
Agent a Final Instruction, signed by both the Stockholder Representatives and
the Parent, with respect to the Claim and/or the Parent Net Claim.
(d) If an arbitration award pursuant to Section 24 hereof is entered with
respect to the Claim and/or the Parent Net Claim, either the Stockholder
Representatives or the Parent shall have the right to deliver to the Escrow
Agent a Final Instruction with respect to the Claim and/or the Parent Net
Claim based on and in compliance with such award, signed only by the
Stockholder Representatives or by the Parent, as the case may be, and
accompanied by a copy of such award.
Upon receipt of a Final Instruction in accordance with this Section, the
Escrow Agent shall disburse to the Parent from the Escrow such number of
shares of the SIGR Stock as shall equal the Parent Net Claim based on the
valuation procedures set forth in Section 8 hereof and shall distribute the
remaining Escrowed Shares and Escrowed Funds in accordance with Section 7
hereof.
Notwithstanding anything contained in this Section 6 to the contrary, no
claim may be made by Parent unless the amount of the individual claim exceeds
$25,000, or the aggregate amount of all claims made from the Effective Date
shall exceed $100,000. Once such limitations are met, whether individually or
in the aggregate, the entire claim may be made the subject of a Claim Notice.
This provision does not provide for a deductible and shall not apply, in any
event, in the event that the claim arises out of fraud or intentional or
willful misconduct on the part of the breaching party.
7. Distribution of Escrowed Funds. If the Parent fails to make a Claim on or
prior to the Claim Expiration Date in accordance with Section 5 hereof, then
as promptly as practicable thereafter (and in no event later than 10 business
days following the Claim Expiration Time), the Escrow Agent shall deliver to
each AVCOM Shareholder the Escrowed Shares to which such AVCOM Shareholder is
entitled together with all other Escrowed Funds relating to such Escrowed
Shares. If the Parent timely makes a Claim or Claims and if at or after the
expiration of the Claim Expiration Time, such Claim or Claims (whether or not
in dispute) aggregate less than the sum of the remaining Escrowed Shares
(valued at the Average Share Price) plus the remaining Escrowed Funds, then
the Escrow Agent shall deliver such remaining amount of Escrowed Funds and
Escrowed Shares (less the amount of such Claim or Claims) to each AVCOM
Shareholder based on the number of Escrowed Shares to which such AVCOM
Shareholder is entitled. If, however, the Parent timely makes a Claim or
Claims in accordance with Section 5 hereof and if at the expiration of the
Claim Expiration Time, such Claim
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or Claims (whether or not in dispute) aggregate more than the sum of the
remaining Escrowed Shares (valued at the Average Share Price) plus the
remaining Escrowed Funds, then only upon the Escrow Agent's receipt of a Final
Instruction shall the Escrow Agent deliver that portion of the Escrowed Funds
and Escrowed Shares to the Parent that is set forth in such Final Instruction
and then deliver any remaining portion of the Escrowed Funds and Escrowed
Shares to each AVCOM Shareholder based on the number of Escrowed Shares to
which such AVCOM Shareholder is entitled. Whenever less than all Escrowed
Funds and Escrowed Shares are required to be released to AVCOM Shareholders
under this Section, the release shall be satisfied to the extent possible from
Escrowed Funds, then from Escrowed Shares.
8. Valuation of Escrowed Shares; Fractional Shares. For purposes of
determining the number of Escrowed Shares to be disbursed from the Escrow
under this Agreement with respect to the Parent Net Claim, each share of the
SIGR Stock shall be valued at the Average Share Price. No certificates or
scrip representing fractional shares of the SIGR Stock shall be issued
pursuant to this Agreement. In lieu of any fractional share of the SIGR Stock,
each AVCOM Shareholder who would otherwise have been entitled to a fraction of
a share of the SIGR Stock hereunder shall be paid an amount in cash (without
interest) equal to the value of such fraction of a share based upon the
Average Share Price. The Parent agrees to pay to Escrow Agent such amounts as
are necessary to pay such cash in lieu of fractional shares and the Escrow
Agent shall transfer and deliver such shares to the Parent with respect to
which cash is so paid as a result of the distribution to the AVCOM
Shareholders.
9. Actions by AVCOM Shareholders Representative. A decision, act, consent or
instruction of both Stockholder Representatives acting jointly (or, in the
event there is only one Stockholder Representative as a result of the legal
disability of a Stockholder Representative, any decision, act, consent or
instruction of such remaining Stockholder Representative) shall constitute a
decision of all the AVCOM Shareholders, and shall be final, binding and
conclusive upon each of the AVCOM Shareholders, and the Escrow Agent, and the
Parent may rely upon any decision, act, consent or instruction of both
Stockholder Representatives acting jointly (or, in the event there is only one
Stockholder Representative as a result of the legal disability of a
Stockholder Representative, any decision, act, consent or instruction of such
remaining Stockholder Representative) as being the decision, act, consent or
instruction of each and all of the AVCOM Shareholders. The Escrow Agent and
the Parent are relieved from any liability to any person for any acts done by
them in accordance with such decision, act, consent or instruction. Although
the Stockholder Representatives shall not be obligated to obtain instructions
from the AVCOM Shareholders prior to any decision, act, consent or
instruction, if, and to the extent that, the Stockholder Representatives
receive any written instructions from AVCOM Shareholders entitled to receive a
majority of the Escrowed Shares held in the Escrow Fund, the Stockholder
Representatives shall comply with such instructions. In the event that there
is a disagreement between either of the Stockholder Representatives, AVCOM
Shareholders entitled to receive a majority of the Escrowed Shares held in the
Escrow Fund may resolve such disagreement or remove any Stockholder
Representative.
10. Reliance by Escrow Agent; Liability of Escrow Agent. The Escrow Agent
shall be protected in acting upon any written notice, request, waiver,
consent, certificate, receipt, authorization or other paper or document that
the Escrow Agent believes to be genuine and what it purports to be. The Escrow
Agent may confer with its own corporate or outside legal counsel in the event
counsel in the event of any dispute or question as to the construction of any
of the provisions hereof, or its duties hereunder, and shall incur no
liability and shall be fully protected in acting in accordance with the
written opinions of such counsel. The duties of the Escrow Agent hereunder
will be limited to the observance of the express provisions of this Agreement.
The Escrow Agent will not be subject to, or be obliged to recognize, any other
agreement between the parties hereto or directions or instructions not
specifically set forth as provided for herein. The Escrow Agent will not make
any payment or disbursement from or out of the Escrow that is not expressly
authorized pursuant to this Agreement. The Escrow Agent may rely upon and act
upon any instrument received by it pursuant to the provisions of this
Agreement that it reasonably believes to be genuine and in conformity with the
requirements of this Agreement. The Escrow Agent undertakes to use the same
degree of care and skill in performing its services hereunder as an ordinary
prudent person would do or use under the conduct of his or her own affairs.
The Escrow Agent will not be liable for any action taken or not taken by it
under the terms hereof in the absence of breach of its obligations hereunder
or gross negligence or willful misconduct on its part.
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11. Indemnification of Escrow Agent. The Parent will indemnify and hold the
Escrow Agent harmless from and against any and all losses, costs, damages or
expenses (including, but not limited to, reasonable attorneys' fees) it may
sustain by reason of its service as Escrow Agent hereunder, except such
losses, costs, damages or expenses (including, but not limited to, reasonable
attorneys' fees) incurred by reason of such acts or omissions for which the
Escrow Agent is liable or responsible under the last sentence of Section 9
hereof.
12. Fees and Expenses of the Escrow Agent. All fees of the Escrow Agent for
its services hereunder, together with any expenses reasonably incurred by the
Escrow Agent in connection with this Agreement, shall be paid by the Parent.
The fees and reasonable expenses of the Escrow Agent in connection with the
negotiation, preparation, execution and delivery of this Agreement, the
deposit of the Escrowed Shares into the escrow, and the distribution of Escrow
pursuant to no more than two Final Instructions shall be $ and shall be
paid by the Parent within 30 days of the execution of this Agreement. The fees
and reasonable expenses of the Escrow Agent for the distribution of Escrow to
more than two Final Instructions shall be determined at the time of such
distributions and shall be paid by the Parent.
13. Resignation of Escrow Agent. The Escrow Agent may resign from its duties
hereunder by giving Parent and the AVCOM Shareholder Representative not less
than 30 days prior written notice of the effective date of such resignation
(which effective date shall be at least 30 days after the date such notice is
given). The parties hereto intend that a substitute Escrow Agent will be
appointed by the Parent to fulfill the duties of the Escrow Agent hereunder
for the remaining term of this Agreement in the event of the Escrow Agent's
resignation. If on or before the effective date of such resignation, a
substitute Escrow Agent has not been appointed, the Escrow Agent will
thereupon deposit the Escrowed Funds into the registry of a court of competent
jurisdiction.
14. Designees for Instructions. The Parent, may, by notice to the Escrow
Agent, designate one or more persons who will execute notices and from whom
the Escrow Agent may take instructions hereunder. Such designations may be
changed from time to time upon notice to the Escrow Agent from the Parent. The
Escrow Agent will be entitled to rely conclusively on any notices or
instructions from any person so designated by the Parent.
15. Tax Reporting. Unless otherwise required by Treasury Regulations issued
in the future, the parties will treat the Escrowed Shares and any other shares
of the SIGR Stock deposited with the Escrow Agent hereunder for purposes of
Section 468(g) of the Internal Revenue Code of 1986, as amended, and for all
other income tax purposes as being owned by the AVCOM Shareholders during the
period such shares are held in escrow, and therefore any income earned on such
shares during such period will be allocated and reported to the AVCOM
Shareholders as such income is earned. The parties will make any elections or
filings required to characterize such shares in a manner consistent with the
preceding sentence. The AVCOM Shareholders will be entitled to vote their
respective Escrowed Shares while they remain in escrow. Notwithstanding the
provisions of the Merger Agreement, no AVCOM Shareholder shall have the right
to direct Escrow Agent to sell any of the Escrowed Shares.
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16. Notices. All notices, requests, demands and other communications which
are required or may be given under this Agreement shall be in writing and
shall be deemed to have been duly given when received if personally delivered;
when transmitted if trnasmitted by telecopy, electronic or digital
transmission method; the day after it is ;sent, if sent for next day delivery
to a domestic address by recognized overnight delivery service (e.g., Fedex);
and upon receipt, if sent by certified or registered mail, return receipt
requested. Notwithstanding the foregoing, a Final Instruction provided
pursuant to Section 6 hereof shall be deemed to have been duly given (whether
delivered personally, by telecopy, by electronic or digital delivery, by
recognized overnight delivery or by certified or registered mail) if receipt
of such Final Instruction was acknowledged in writing. In each case notice
shall be sent to:
If to the Parent or, after the Effective Date, to the Company, addressed to:
Signature Resorts, Inc.
Attn: Mr. Steven C. Kenninger
5933 W. Century Blvd.
Suite 210
Los Angeles, California 90045
Telecopy: (310) 348-1010
With a copy to:
Edward H. Brown
Schreeder, Wheeler & Flint, LLP
1600 Candler Building
127 Peachtree Street, N.E.
Atlanta, Georgia 30303-1845
Telecopy No.: (404) 681-1046
If to the Stockholder Representatives:
Gary L. Hughes
100 Broken Lance Way
Sedona, Arizona 86351
and
John R. Stevens
50 Cord Circle
Sedona, Arizona 86351
With a copy to:
David V. Sanderson, Esq.
Deconcini McDonald Brammer
Yetwin & Lacy, P.C.
2901 North Central Avenue
Suite 1644
Phoenix, AZ 85012-2736
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If to the Escrow Agent:
Chicago Title Insurance Company
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17. Assignment. Neither this Agreement nor any of the rights or obligations
hereunder may be assigned by any party without the prior written consent of
the other party; except that the Parent may, without such consent, assign all
such rights and obligations to a wholly owned subsidiary (or a partnership
controlled by the Parent) or subsidiaries of the Parent or to a successor in
interest to the Parent which shall assume all obligations of the Parent, as
the case may be, under this Agreement. Subject to the foregoing, this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns, and no other person
shall have any right, benefit or obligation under this Agreement as a third
party beneficiary or otherwise.
18. Ammendment and Termination. This Agreement may be amended by and upon
written notice to the Escrow Agent given jointly by the Parent and the
Stockholder Representatives, but the duties and responsibilities of the Escrow
Agent may not be increased without its written consent. This Agreement will
terminate on the date on which all the Escrowed Funds and Escrowed Shares have
been distributed.
19. Multiple Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
20. Invalidity. In the event that any one or more of the provisions
contained in this Agreement or in any other instrument referred to herein,
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, then to the maximum extent permitted by law, such invalidity,
illegality or unenforceability shall not affect any other provisions of this
Agreement or any other such instrument.
21. Titles. The titles, captions or headings of the Sections herein are for
convenience of reference only and are not intended to be a part of or to
affect the meaning or interpretation of this Agreement.
22. Cumulative Remedies. All rights and remedies of either party hereto are
cumulative of each other and of every other right or remedy such party may
otherwise have at law or in equity, and the exercise of one or more rights or
remedies shall not prejudice or impair the concurrent or subsequent exercise
of other rights or remedies.
23. Governing Law; Jurisdiction. IT IS THE PARTIES' INTENT THAT THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL
LAWS OF THE STATE OF ARIZONA (WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAW).
24. Arbitration. Notwithstanding anything herein to the contrary, in the
event that there shall be a dispute among the parties arising out of or
relating to this Agreement, or the breach thereof, the parties agree that such
dispute shall be resolved by final and binding arbitration in Los Angeles,
California, administered by AAA, in accordance with AAA's Commercial
Arbitration Rules then in effect. There shall be three (3) arbitrators (one
appointed by the AVCOM Shareholder Representatives, one appointed by the
Parent, and one appointed by the two arbitrators so appointed), which shall be
appointed within 70 days after the Claim Notice. If AVCOM Shareholder
Representatives do not appoint an arbitrator within such period, then the
arbitrator appointed by the Parent shall arbitrate the dispute. There shall be
limited discovery prior to the arbitration hearing, subject to the discretion
of the arbitrators, as follows (i) exchange of witness lists and copies of
documentary evidence and documents related to or arising out of the issues to
be arbitrated, (ii) depositions of all party witnesses, (iii) other
depositions as may be allowed by the arbitrators upon a showing of good cause.
Depositions shall be conducted in accordance with the California Code of Civil
Procedure. Any award issued as a result of such arbitration shall
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be final and binding between the parties thereto, and shall be enforceable by
any court having jurisdiction over the party against whom enforcement is
sought. The costs of the arbitration and reasonable attorneys' fees shall be
paid by the Parent, but the arbitrators shall have the right to increase the
Parent Net Claim by any or all of such costs.
25. Binding Effect. This Agreement will be binding upon and inure to the
benefit of the parties hereto and their permitted assigns. The rights of any
person or entity to receive Escrowed Shares hereunder shall not be
transferable except by operation of law.
IN WITNESS WHEREOF, the parties hereto have executed this Escrow Agreement
as of the date first written above.
COMPANY:
AVCOM INTERNATIONAL, INC.,
a Delaware corporation
By: _________________________________
Name: ____________________________
PARENT:
SIGNATURE RESORTS, INC.,
a Maryland corporation
By: _________________________________
Name: ____________________________
Title: President and Chief
Executive
Officer
ESCROW AGENT:
CHICAGO TITLE COMPANY
By: _________________________________
Name: ____________________________
Title: ___________________________
STOCKHOLDER REPRESENTATIVES:
By: _________________________________
Name: ____________________________
Title: ___________________________
B-8
<PAGE>
APPENDIX C
DELAWARE GENERAL CORPORATION LAW
SECTION 262
APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has neither voted in
favor of the merger or consolidation nor consented hereto in writing pursuant
to (S) 228 of this title shall be entitled to an appraisal by the Court of
Chancery of the fair value of his shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock
corporation and also a member of record of a nonstock corporation; the words
"stock" and "share" mean and include what is ordinarily meant by those words
and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to (S) 251 (other than a merger effected pursuant to
subsection (g) of (S) 251), 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the holders of the surviving corporation as
provided in subsection (f) of (S) 251 of this title.
(2) Notwithstanding paragraph (l) if this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the items of an agreement of merger or consolidation pursuant to
(S)(S) 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on
a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more than
2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
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(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S) 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsections (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation,
a written demand for appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to (S) 228 or
(S) 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may within twenty days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holder
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders
C-2
<PAGE>
entitled to receive either notice, each constituent corporation may fix, in
advance, a record date that shall be not more than 10 days prior to the
date the notice is given; provided that, if the notice is given on or after
the effective date of the merger or consolidation, the record date shall be
such effective date. If no record date is fixed and the notice is given
prior to the effective date, the record date shall be the close of business
on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied
with subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger
or consolidation, any stockholder shall have the right to withdraw his demand
for appraisal and to accept the terms offered upon the merger or
consolidation. Within 120 days after the effective date of the merger or
consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which
demands for appraisal have been received and the aggregate number of holders
of such shares. Such written statement shall be mailed to the stockholder
within 10 days after his written request for such a statement is received by
the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register of
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such hearing of such petition by registered or certified mail to
the surviving or resulting corporation and to the stockholders shown on the
list at the addresses therein stated. Such notice shall also be given by 1 or
more publications at least 1 week before the day of the hearing, in a
newspaper of general circulation published in the City of Wilmington, Delaware
or such publication as the Court deems advisable. The forms of the notices by
mail and by publication shall be approved by the Court, and the costs thereof
shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates
to submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court
may, in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted his certificates of stock
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled to
appraisal rights under this section.
C-3
<PAGE>
(i) The Court shall direct payment of the fair value of the shares, together
with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be made to each such stockholder, in the case
of holders of uncertified stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, of if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal
of his demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter
within the written approval of the corporation, then the right of such
stockholder to an appraisal shall cease. Notwithstanding the foregoing, no
appraisal proceeding in the Court of Chancery shall be dismissed as to any
stockholder without the approval of the Court, and such approval may be
conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation. (Last amended by Ch. 349, L.
'96 eff. 7-1-96).
C-4
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Signature is a Maryland corporation. Section 2-418 of the Maryland General
Corporation Law empowers Signature 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 Signature may
purchase insurance on behalf of any such director, officer, employee or agent.
Signature's Charter and Bylaws provide in effect for the indemnification by
Signature of each director and officer of Signature to the fullest extent
permitted by applicable law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
A list of exhibits filed with this Registration Statement on Form S-4 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.
ITEM 22. UNDERTAKINGS
(a)(1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of
a prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment 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.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference unto the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
II-1
<PAGE>
registrant has 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
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit of
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
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. 1 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 December 20,
1996.
Signature Resorts, Inc.
/s/ Andrew D. Hutton
By: _________________________________
Andrew D. Hutton,
Vice President and General Counsel
Pursuant to the requirements of the Securities Act of 1933, as amended, this
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 December 20, 1996
____________________________________ Chief Executive Officer
Osamu Kaneko (Principal Executive
Officer)
* Director and President December 20, 1996
____________________________________
Andrew J. Gessow
* Director, Chief Operating December 20, 1996
____________________________________ Officer and Secretary
Steven C. Kenninger
/s/ Michael A. Depatie Executive Vice President and December 20, 1996
____________________________________ Chief Financial Officer
Michael A. Depatie (Principal Financial
Officer)
* Senior Vice President and December 20, 1996
____________________________________ Treasurer (Principal
Charles C. Frey Accounting Officer)
* Executive Vice President and December 20, 1996
____________________________________ Director
James E. Noyes
* Director December 20, 1996
____________________________________
Juergen Bartels
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director December 20, 1996
____________________________________
Sanford H. Climan
* Director December 20, 1996
____________________________________
Joshua S. Friedman
* Director December 20, 1996
____________________________________
W. Leo Kiely III
*Power of Attorney by
/s/ Andrew D. Hutton
____________________________________
Andrew D. Hutton
Vice President
</TABLE>
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
2. Plan and Agreement of Merger, as amended (included as Appendix
A to this Registration Statement)
3.1 Charter of Signature Resorts, Inc. (incorporated by reference
to Exhibit 3.1 to Registrant's Registration Statement on Form
S-1 (No. 333-06027))
3.2 Bylaws of Signature Resorts, Inc. (incorporated by reference to
Exhibit 3.2 to Registrant's Registration Statement on Form S-1
(No. 333-06027))
4.1 Form of Stock Certificate of Signature Resorts, Inc.
(incorporated by reference to Exhibit 4.1 to Registrant's
Registration Statement on Form S-1 (No. 333-06027))
*5.1 Opinion of Schreeder, Wheeler & Flint, LLP regarding the
validity of the Common Stock being registered (including
consent)
*8.1 Form of Opinion of Gallagher & Kennedy, P.A. regarding federal
income tax consequences
10.1 Form of Registration Rights Agreement among Signature Resorts,
Inc. and the persons named therein (incorporated by reference
to Exhibit 10.1 to Registrant's Registration Statement on Form
S-1 (No. 333-06027))
10.2.1 Form of Employment Agreements between Signature Resorts, Inc.
and each of Osamu Kaneko, Andrew J. Gessow and Steven C.
Kenninger (incorporated by reference to Exhibit 10.2.1 to
Registrant's Registration Statement on Form S-1 (No. 333-
06027))
10.2.2 Employment Agreement between Signature Resorts, Inc. and James
E. Noyes (incorporated by reference to Exhibit 10.2.2 to
Registrant's Registration Statement on Form S-1 (No. 333-
06027))
*10.2.3 Form of Employment Agreement between Signature Resorts, Inc.
and Gary L. Hughes
*10.2.4 Form of Employment Agreements between Signature Resorts, Inc.
and John R. Stevens
*10.2.5 Employment Agreement between Signature Resorts, Inc. and
Michael A. Depatie
*10.2.6 Form of Stock Option Agreement between Signature Resorts, Inc.
and Gary L. Hughes
*10.2.7 Form of Stock Option Agreement between Signature Resorts, Inc.
and John R. Stevens
*10.2.8 Stock Option Agreement between Signature Resorts, Inc. and
Michael A. Depatie
10.3 1996 Equity Participation Plan of Signature Resorts, Inc.
(incorporated by reference to Exhibit 10.3 to Registrant's
Registration Statement on Form S-1 (No. 333-06027))
10.4 Agreement of Limited Partnership of Pointe Resort Partners,
L.P. (subsequently renamed Poipu Resort Partners L.P.) dated
October 11, 1994 (incorporated by reference to Exhibit 10.4 to
Registrant's Registration Statement on Form S-1 (No. 333-
06027))
10.5 Signature Resorts, Inc. Employee Stock Purchase Plan
(incorporated by reference to Exhibit 10.5 to Registrant's
Registration Statement on Form S-1 (No. 333-06027))
10.6 Agreement between W&S Hotel L.L.C. and Argosy/KOAR Group, Inc.
dated as of May 3, 1996 (incorporated by reference to Exhibit
10.6 to Registrant's Registration Statement on Form S-1 (No.
333-06027))
*10.7 Contitrade Services, L.L.C. Loan and Security Agreement
+10.8.1 Lender's Certification and Consent from Resort Capital
Corporation to Signature Resorts, Inc. dated as of August 15,
1996
+10.8.2 Lender's Certification and Consent from FINOVA Capital
Corporation to Signature Resorts, Inc. dated as of August 15,
1996
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
+10.8.3 Assumption Agreement between FINOVA Capital Corporation and
Signature Resorts, Inc. dated as of August 15, 1996
+10.8.4 Assumption Agreement between Resort Capital Corporation and
Signature Resorts, Inc. dated as of August 15, 1996
+10.8.5 Assumption Agreement between FINOVA Capital Corporation and
AKGI-Sint Maarten, N.V. dated as of August 15, 1996
*11 Statement re Computation of Earnings
*12 Computation of Ratios of Earnings to Fixed Charges
16.1 Letter from Ernst & Young LLP regarding change in certifying
accountant (incorporated by reference to Exhibit 16.1 to
Registrant's current report on Form 8-K filed with the
Commission on September 18, 1996)
*21 Subsidiaries of Signature Resorts, Inc.
23.1 Consent of Schreeder, Wheeler & Flint, LLP (included as part of
Exhibit 5.1)
*23.2 Consent of Gallagher & Kennedy, P.A.
*23.4 Consent of Ernst & Young LLP
*23.5 Consent of Arthur Andersen LLP
+24.1 Power of Attorney
*27 Amended Financial Data Schedule
*99 Form of Proxy
</TABLE>
- --------
+ previously filed
* filed herewith
<PAGE>
EXHIBIT 5.1
[SCHREEDER, WHEELER & FLINT, LLP LETTERHEAD]
December 20, 1996
Signature Resorts, Inc.
5933 W. Century Blvd.
Suite 210
Los Angeles, California 90045
RE: Signature Resorts, Inc., a Maryland corporation (the "Company") -
Registration Statement on Form S-4 (File No. 333-16339)
Ladies and Gentlemen:
In connection with the registration of up to 1,494,957 shares of the
Company's Common Stock, par value $0.01 per share (the "Shares"), under the
Securities and Exchange Commission (the "Commission") on or about December 20,
1996 (the "Registration Statement"), you have requested our opinion with respect
to the matters set forth below.
We have acted as special corporate counsel for the Company in connection
with the matters described herein. In our capacity as special Maryland
corporation counsel to the Company, we have reviewed and are familiar with
proceedings taken and proposed to be taken by the Company in connection with the
authorization, issuance and sale of the Shares, and for purposes of this opinion
have assumed such proceedings will be timely completed in the manner presently
proposed. In addition, we have relied upon certification and advice from the
officers of the Company upon which we believe we are justified in relying and on
various certificates from, and the documents recorded with, the State Department
of Assessments and Taxation of Maryland (the "SDAT"), including the charter of
the Corporation (the "Charter"), consisting of Articles of Incorporation filed
with the SDAT on May 28, 1996 and Articles of Amendment filed with the SDAT on
June 13, 1996. We have also examined the Bylaws of the Company adopted as of
May 28, 1996 (the "Bylaws") and Resolutions of the Board of Directors of the
Company adopted on or before September 22, 1996 and in full force and effect on
December 20, 1996; and such laws, records, documents, certificates, opinions
and instruments as we deem necessary to render this opinion.
We have assumed the genuineness of all signatures and the authenticity of
all documents submitted to us as originals and the conformity to the originals
of all documents submitted to us as certified, photostatic or conformed copies.
In addition, we have assumed that each person executing any instrument, document
or certificate referred to herein on behalf of any party is duly authorized to
do so.
Based on the foregoing, and subject to the assumptions and qualifications
set forth herein, it is our opinion that, as of the date of this letter, the
Shares have been duly authorized by all necessary corporation action on the part
of the Company, and the Shares will, upon issuance and delivery in accordance
with the terms and conditions described in the Registration Statement, be
validly issued, fully paid and nonassessable.
We consent to your filing this opinion as an exhibit to the Registration
Statement and further consent to the filing of this opinion as an exhibit to the
applications to securities commissions for the various states of the United
States for registration of the Shares. We also consent to the identification of
our firm as special corporate counsel to the Company in the section of the
Prospectus (which is part of the Registration Statement) entitled "Legal
Matters."
The opinions expressed herein are limited to the laws of the state of
Maryland and we express no opinion concerning any laws other than the laws of
the State of Maryland. Furthermore, the opinions presented in this letter are
limited to the matters specifically set forth herein and no other opinion shall
be inferred beyond the matters expressly stated.
<PAGE>
The opinions expressed in this letter are solely for your use and may not
be relied upon by any other person without our prior written consent.
Very truly yours,
SCHREEDER, WHEELER & FLINT, LLP
By: /s/ Warren O. Wheeler
Warren O. Wheeler, Partner
<PAGE>
EXHIBIT 8.1
[FORM OF TAX OPINION TO BE DELIVERED AT CLOSING]
[GALLAGHER & KENNEDY, P.A. LETTERHEAD]
_____________, 199_
AVCOM International, Inc.
Post Office Box 1243
561 Highway 179
Sedona, Arizona 86336
Ladies and Gentlemen:
This opinion is being delivered to you in connection with the Agreement and
Plan of Merger (the "Agreement") executed September 22, 1996, subsequently
amended on November 12, 1996 and December 18, 1996, by and among Signature
Resorts, Inc., a Maryland corporation ("SIGR"), and AVCOM International, Inc., a
Delaware corporation ("AVCOM"). AS Acquisition Corp., a Delaware corporation and
a wholly owned subsidiary of SIGR ("AS Acquisition"), will merge into AVCOM (the
"Merger") pursuant to the Agreement.
Except as otherwise provided, capitalized terms referred to herein have the
meanings set forth in the Agreement. All section references, unless otherwise
indicated, are to the Internal Revenue Code of 1986, as amended (the "Code").
For the purpose of rendering our opinion, we have examined and are relying
upon the truth and accuracy, at all relevant times, of the statements,
covenants, representations and warranties contained in the following documents:
1. The Agreement;
2. Representations made to us by SIGR, AS Acquisition, AVCOM, officers
and directors of SIGR, AS Acquisition and AVCOM, and shareholders of AVCOM
holding five percent or more of the outstanding stock of AVCOM;
3. The Registration Statement on Form S-4 filed with the Securities and
Exchange Commission on November 18, 1996, as amended to the date hereof,
in connection with the issuance of shares of SIGR Stock in the Merger (the
"Registration Statement");
4. An opinion received by SIGR from Montgomery Securities that the Merger
is fair to the shareholders of SIGR as of the Closing Date of the Merger; and
5. Such other instruments and documents related to the formation,
organization and operation of SIGR, AS Acquisition and AVCOM and related to the
consummation of the Merger and the transactions contemplated thereby as we have
deemed necessary or appropriate.
In connection with rendering this opinion we have assumed and are relying
upon, without any independent investigation or review thereof, the following:
1. The genuineness of all signatures on, and the authenticity of,
original documents, the conformity to original documents of all documents
submitted to us as copies, and the due authorization, execution and delivery of
all documents;
<PAGE>
AVCOM International, Inc.
________________, 199_
Page 2
2. The transactions described in the Agreement will be consummated in
accordance with their terms, without waiver of any material provision thereof,
and the Merger will be effective under applicable state laws;
3. The shareholders of AVCOM do not, and will not on or before the
Closing Date of the Merger, have an existing plan or intent to dispose of an
amount of SIGR Stock to be received in the Merger such that the shareholders of
AVCOM will not retain a meaningful continuing equity ownership in SIGR that is
sufficient to satisfy the continuity of interest requirement as specified in
Treas. Reg. (S) 1.368-l(b) and as interpreted in certain Internal Revenue
Service rulings and federal judicial decisions;
4. AVCOM is not a collapsible corporation within the meaning of Section
341(b) of the Code;
5. All of the AVCOM Shares for which dissenters' or appraisal rights are
perfected and all of the AVCOM Shares exchanged for SIGR Stock or for payment in
lieu of a fractional share of SIGR Stock (i) are capital assets in the hands of
the AVCOM shareholder, (ii) were not acquired pursuant to the exercise of an
employee stock option or otherwise in connection with the performance of
services, and (iii) are not "Section 306 stock" within the meaning of Section
306 of the Code; and
6. Payments to a shareholder of AVCOM due to perfection of dissenters' or
appraisal rights or in lieu of fractional shares of SIGR stock (i) are neither
essentially equivalent to a dividend nor have the effect of a distribution of a
dividend, (ii) will be received within six months of the Closing Date of the
Merger and the same taxable year of the shareholder as the Closing Date of the
Merger, and (iii) with respect to payments to dissenters, will be from the
respective corporation in which dissenters' or appraisal rights were perfected.
Based on our examination of the foregoing items and subject to the
assumptions, exceptions, limitations and qualifications set forth herein, we are
of the opinion that, for federal income tax purposes, the following consequences
will result:
1. The Merger will be a reorganization as defined in Section 368(a) of
the Code;
2. No gain or loss will be recognized by the shareholders of AVCOM upon
the receipt pursuant to the Merger of SIGR Stock solely in exchange for their
AVCOM Shares;
3. The aggregate basis of the SIGR Stock received by each shareholder of
AVCOM will be the same as the aggregate basis of the AVCOM Shares surrendered in
exchange therefor;
4. The holding period for each share of SIGR Stock received by each
shareholder of AVCOM in exchange for AVCOM Shares will include the period for
which such shareholder held the AVCOM Shares exchanged therefor;
5. A shareholder of AVCOM who exercises dissenters' or appraisal rights
under any applicable law with respect to AVCOM Shares and receives payment for
such shares in cash will recognize capital gain or capital loss measured by the
difference between the amount of cash received and the shareholder's basis in
such shares; and
6. A shareholder of AVCOM who receives a cash payment in lieu of a
fractional share of SIGR Stock will be treated as if the fractional share were
distributed in the Merger and then redeemed by SIGR, and such shareholder will
recognize capital gain or capital loss measured by the difference between the
amount of cash received and the shareholder's basis in the fractional share
(which will be a pro-rata portion of the shareholder's basis in the SIGR Stock
received in the Merger).
<PAGE>
AVCOM International, Inc.
________________, 199_
Page 3
In addition to the assumptions set forth above, this opinion is subject to
the following exceptions, limitations and qualifications:
1. Our opinion of the consequences expressed herein is based upon our
interpretation of the federal income tax treatment of the Merger under the Code
and existing judicial decisions, administrative regulations and published
rulings and procedures. Our opinion is not binding upon the Internal Revenue
Service or courts and there is no assurance that the Internal Revenue Service
will not successfully challenge the consequences set forth herein. Furthermore,
no assurance can be given that future legislative, judicial or administrative
changes, on either a prospective or retroactive basis, would not adversely
affect the accuracy of the conclusions stated herein. We undertake no
responsibility to advise you of any new developments in the application or
interpretation of the federal income tax laws;
2. This opinion only addresses certain federal income tax consequences of
the Merger and does not address any estate, gift, state, local or foreign tax
consequences that may result from the Merger. In particular, we express no
opinion regarding (i) the amount, existence, and/or availability, after the
Merger, of any of the federal income tax attributes of AVCOM (including, without
limitation, net operating loss carryforwards, if any, of AVCOM or its
subsidiaries), (ii) the potential application of the "disqualifying disposition"
rules of Section 421 to dispositions of SIGR Stock or AVCOM Shares, or (iii) the
effects of the Merger and SIGR's assumption of outstanding options to acquire
AVCOM Shares on the holders of such options under any AVCOM employee stock
option or stock purchase or other compensatory plan; and
3. This opinion is intended solely for your benefit in connection with
the Merger; it may not be relied upon for any other purpose or by any other
person or entity, and may not be made available to any other person or entity
without our prior written consent. We hereby consent, however, to the use of
this opinion as an exhibit to the Registration Statement and further consent to
the use of our name whenever appearing in the Registration Statement, including
the Prospectus/Proxy Statement constituting a part thereof, and any amendments
thereto.
In the event any one of the statements, representations, warranties or
assumptions we have relied upon to issue this opinion is incorrect, our opinion
might be adversely affected and may not be relied upon.
Very truly yours,
GALLAGHER & KENNEDY, P.A.
<PAGE>
Exhibit 10.2.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is dated as of
---------
___________, 199_, between Signature Resorts, Inc., a Maryland corporation (the
"Company"), and Gary L. Hughes (the "Executive").
------- ---------
WHEREAS, the Executive has been a key employee of AVCOM International, Inc.
("AVCOM") and possesses an intimate knowledge of the business affairs of AVCOM;
WHEREAS, the Company and AVCOM have previously entered into an Agreement
and Plan of Merger dated September 22, 1996, as amended, pursuant to which AVCOM
has merged with a wholly owned subsidiary of the Company (the "Merger
Agreement"); and
WHEREAS, as a condition to the closing of the transactions contemplated in
the Merger Agreement, the Company and Executive have agreed to enter into this
Employment Agreement; and
WHEREAS, the Company recognizes the Executive's contribution to the
operations of AVCOM and to the future growth and success of the AVCOM operations
as part of the Company and the Company desires to assure the continued benefits
of Executive's expertise and knowledge. The Executive, in turn, desires to
engage full time employment with the Company on the terms provided herein, and
in consideration for such employment and the transaction described in the Merger
Agreement, the Executive is desirous of agreeing to certain covenants of
confidentiality, non-solicitation, and non-competition.
NOW, THEREFORE, for good and valuable consideration, the receipt,
sufficiency and adequacy of which are hereby acknowledged, the parties hereto
agrees as follows:
1. Employment. The Company hereby agrees to employ the Executive, and
----------
the Executive hereby agrees to be employed by the Company, on the terms and
conditions set forth herein effective as of the date first written above (the
"Effective Date").
2. Term.
----
(a) New Agreement. The employment of the Executive by the Company as
-------------
provided in Section 1 will commence on the Effective Date and will terminate at
12:01 a.m. three years after the Effective Date (the "Expiration Date") unless
---------------
automatically extended or sooner terminated as hereinafter provided (such
period, the "Employment Period"). Unless terminated by the Executive or the
-----------------
Company prior to the commencement of the thirty-fourth month after the Effective
Date, the Company shall notify the Executive with written notice as to whether
the Company intends to further renew or extend the Agreement (including
proposals for such further renewal which the Executive may accept, reject or
negotiate, at his discretion).
(b) Termination of Previous Agreement. Executive acknowledges that
---------------------------------
all prior employment arrangements between Executive and AVCOM or any of its
affiliates, including,
<PAGE>
but not limited to, an Employment Agreement between Executive and American
Vacation Company, dated August 8, 1993 and subsequently amended, are hereby
terminated and Executive releases the Company from any liability under any
previous agreements, and affirms and states that there are no claims (known or
unknown) under such agreements held by Executive.
3. Position, Duties and Responsibilities.
-------------------------------------
(a) Position. The Executive hereby agrees to serve as
--------
President of AVCOM International, Inc., a subsidiary of the Company. The
Executive shall devote his best efforts and substantially full business time and
attention to the performance of services to the Company in his capacity as an
officer thereof and as may reasonably be requested by the Board of Directors of
the Company (the "Board"). The Company shall retain full direction and control
of the means and methods by which the Executive performs his services thereto.
Both the Executive and the Company agree that the nature and scope of the
Executive's responsibility and authority will be consistent with being an
officer of a subsidiary of a public company, as described in more detail herein.
The specific responsibilities and duties that the Executive would have will be
formulated and by the Executive and the Company during the period between the
date of this Agreement and the Effective Date.
(b) Other Activities. Except with the prior written approval of the
----------------
Board (which the Board may grant or withhold in its sole and absolute
discretion), the Executive, during the Employment Period, will not (i) accept
any other employment, (ii) serve on the board of directors or similar body of
any other business entity (except as otherwise set forth below), or (iii)
engage, directly or indirectly, in any other business activity (whether or not
pursued for pecuniary advantage) that is or may be competitive with, or that
might place him in a competing position to, that of the Company or any of its
affiliates. Notwithstanding the foregoing, the Company agrees that the
Executive (or affiliates of the Executive) shall be permitted (i) to undertake
the activities set forth in Section 8 and (ii) to make any other passive
personal investment that is not in a business activity that is directly or
indirectly competitive with the Company.
4. Compensation and Related Matters.
--------------------------------
(a) Salary. During the Employment Period, the Company shall pay the
------
Executive a salary of not less than $225,000 during the first full year and at
such salary as determined by the Compensation Committee of the Board during the
second and subsequent years of the Executive's employment with the Company. All
salary is to be paid consistent with the standard payroll practices of the
Company (e.g., timing of payments and standard employee deductions, such as
----
income tax withholdings, social security, etc.). The Executive's performance
and salary shall be subject to review at the end of each fiscal year and
increase consistent with the standard practices of the Company.
2
<PAGE>
(b) Business Expenses. The Company shall reimburse the Executive in
-----------------
connection with the conduct of the Company's business upon presentation of
sufficient evidence of such expenditures consistent with the Company's policies
as in place from time to time. Such benefits are all subject to change in the
Company's sole and absolute discretion.
(c) Other Benefits. (i) The Executive shall be entitled to
--------------
participate in or receive health, welfare, life insurance, long-term disability
insurance, bonus plan and similar benefits as the Company provides generally
from time to time to its executives. Currently, those benefits include a
Company paid participation for the Executive only in (i) an HMO (with the right
to upgrade to a PPO health provider at the Executive's expense in accordance
with the terms of our agreement with our current carrier, Blue Shield) and (ii)
an HMO dental provider (with the right to upgrade to a PPO dental provider at
the Executive's expense in accordance with the terms of our agreement with our
current carrier). There is a waiting period on the effectiveness of the
Executive's medical coverage which may be as long as 90 days after commencement
of the Executive's employment with the Company. During this waiting period, the
Company's health plan would not cover the Executive. However, the Company has
agreed to cover the Executive's COBRA costs to maintain the Executive's current
health coverage for this three month waiting period, subject to a maximum
contribution by the Company each month equal to what the Company would have paid
on behalf of the Executive for health coverage had he been an employee of the
Company eligible for the Company's plan during this three month period. In
addition, the Executive will be able to participate at the Executive's own
expense in any life and disability policies available for purchase, in
accordance with the terms of the Company's plan with its carrier, and in the
Company 401K retirement plan. The cost of any medical or dental or other
insurance benefits selected by the Executive in excess of the benefits provided
by the Company for either the Executive or the Executive's dependents will be
paid by the Executive personally from payroll deductions.
(ii) The Company acknowledges that, simultaneously with the execution
of this Agreement, it will execute an option agreement substantially in the form
attached as Exhibit "A" hereto (the "Option Agreement") and will institute and
-----------
grant the Executive benefits under the Signature Resorts, Inc. "1996 Equity
Participation Plan" (the "Option Plan"). In the event that the Board and the
-----------
shareholders of the Company later approve amendments to the Option Plan which
would expand the number of shares included therein, to the extent that there are
additional options available to award in excess of any prior awards of options
in excess of the number of options then available under the Option Plan, the
Board would consider the Executive for additional grants of options under the
Option Plan based on the Executive's contributions to the Company on the same
basis that other senior executives (including, without limitation, the
Principals and the Executive Vice President of the Company) are so considered by
the Board for such subsequent option grants. Except as otherwise set forth in
this Section 4 and except with respect to the Company's obligations under this
Agreement with respect to the Option Agreement and the Option Plan, nothing
herein is intended, or shall be construed to require the Company to institute or
continue any, or any particular, plan or benefits.
3
<PAGE>
(d) Merit Bonus. The Board of Directors, or the Compensation
-----------
Committee of the Board have established, and shall monitor and oversee an
incentive bonus program for the Executive which has definitive and specific
hurdles and performance standards which, if achieved in the aggregate, would
result in the Executive receiving bonus compensation of $175,000 during the
applicable fiscal year, more specifically described as follows:
(i) Attached as Exhibit "B" are the consolidated revenue, expense and
-----------
net pre-tax profits projections prepared in accordance with generally accepted
accounting principles by the Executive for the 1997 and 1998 calendar years of
AVCOM.
(ii) The Company and the Executive have agreed to tie the Executive's
incentive bonus to the achievement of the revenue and net pre-tax profit
projections contained in Exhibit "B". In connection with the merger of AVCOM
-----------
and a subsidiary of the Company, there will be some integration of the
operations of AVCOM and the Company to promote efficiency and increase
profitability. For purposes of calculating the Executive's incentive bonus for
the 1997 and 1998 fiscal years, the Company and the Executive agree to work
together to formulate a reasonable measure of the profitability of AVCOM for
these periods as though the merger had not occurred.
(iii) In the event that the 1997 AVCOM calendar year consolidated
net revenues and pre-tax net profits, as determined by the Company in the
exercise of its good faith business judgment, are (a) 80% or more of the
amounts set forth in Exhibit "B", the Executive shall receive a $50,000
-----------
incentive bonus for such year; (b) 90% or more of the amounts set forth in
Exhibit "B", the Executive shall receive an additional $50,000 incentive bonus
- -----------
for such year (for a total of a $100,000 incentive bonus for such year); or (c)
100% or more of the amounts set forth in Exhibit "B", the Executive shall
-----------
receive an additional $75,000 incentive bonus for such year (for a total of a
$175,000 incentive bonus for such year).
(iv) In the event that the 1998 AVCOM calendar year consolidated net
revenues and pre-tax net profits, as determined by the Company in the exercise
of its good faith business judgment, are (a) 80% or more of the amounts set
forth in Exhibit "B", the Executive shall receive a $50,000 incentive bonus for
-----------
such year; (b) 90% or more of the amounts set forth in Exhibit "B", the
-----------
Executive shall receive an additional $50,000 incentive bonus for such year (for
a total of a $100,000 incentive bonus for such year); or (c) 100% or more of the
amounts set forth in Exhibit "B", the Executive shall receive an additional
-----------
$75,000 incentive bonus for such year (for a total of a $175,000 incentive bonus
for such year).
(v) In the event that the Executive is not employed for the entire
calendar year in either 1997 or 1998 due to a termination of employment as a
result of death or disability, the Executive's incentive bonus compensation
would be prorated at the end of the year based upon the incentive bonus
compensation that would have been due for the entire year for the period of time
during such calendar year of the Executive's employment with the Company. If
Executive's employment is terminated for any other reason during a calendar
year, no amount described in this Section 4(d) shall be due or payable.
4
<PAGE>
(vi) For calendar years after 1998 during which this Agreement is in
effect, the Compensation Committee of the Board will monitor and review this
program as necessary to reflect the Executive's contributions to the Company.
The award of the merit bonus will be based primarily on two criteria. The first
will be the nature of the Executive's performance in excess of the high level of
reasonably achievable performance which the Company requires of all of its
employees, including the quality and level of the Executive's performance; the
achievement by the Executive of the reasonably achievable performance standards
specified in the Executive's incentive bonus compensation plan; and the value
which the Executive has contributed to or created for the Company. The second
will be based on the overall profitability, level of increased profitability and
success in each of the Company's activities in which the Executive has been
materially involved, as well as the overall financial performance of the Company
and its publicly-traded stock.
(vii) For extraordinary performance by the Executive in any
calendar year, the Compensation Committee of the Board may, in its sole and
absolute discretion, consider the Executive for the receipt of an additional
incentive bonus in excess of the specified incentive bonus plan outlined above.
(e) Fringe Benefits. The Executive will be entitled to fringe
---------------
benefits as may be determined or granted from time-to-time by the Board.
(f) Vacation. The Executive shall be entitled to four vacation weeks
--------
(20 days) in each calendar year on a pro-rated basis. The Executive will be
entitled to all Company holidays.
(g) Performance Reviews. At the end of each fiscal year, the Company
-------------------
(through the Compensation Committee of the Board) will review the Executive's
job performance and will provide the Executive a written review of the
Executive's job performance during the prior year and implement any Company
determined revisions to the Executive's base salary, the Executive's merit
bonus, the Executive's prospective incentive compensation package (including the
Executive's participation in the Option Plan), the Executive's title and/or the
Executive's responsibility at the Company; provided, however, that during the
initial term of this Agreement, none of such revisions shall be less financially
beneficial to the Executive than those financial terms and conditions of
employment for the Executive (e.g., salary, merit bonus, etc.) which are set
forth in this Agreement.
5. Termination. The Executive's employment hereunder shall be, or may
-----------
be, as the case may be, terminated under the following circumstances:
(a) Death. The Executive's employment hereunder shall terminate upon
-----
his death.
(b) Disability. The Executive's employment hereunder shall terminate
----------
on the Executive's physical or mental disability or infirmity which, in the
opinion of a competent
5
<PAGE>
physician selected by the Board, renders the Executive unable to perform his
duties under this Agreement for more than 120 days during any 180-day period.
(c) Cause. The Company may terminate the Executive's employment
-----
hereunder for "Cause." Cause shall mean (i) Employee's material breach of any
-----
of the terms of this Agreement, (ii) his conviction of a crime involving moral
turpitude or constituting a felony under the laws of any state, the District of
Columbia or of the United States, or (iii) his gross negligence, willful
misconduct or fraud in the performance of his duties hereunder.
(d) Employment-At-Will/Termination for Any Reason. Notwithstanding
---------------------------------------------
the term of this Agreement having a duration of three years and Sections 2 and 4
hereof referring to extensions of this Agreement and the annual salary to be
paid to the Executive during his employment with the Company, nothing in this
Agreement should be construed as to confer any right of the Executive to be
employed by the Company for a fixed or definite term. Subject to Section 6
hereof, the Executive hereby agrees that the Company may dismiss him under this
Section 5(d) without regard (i) to any general or specific policies (whether
written or oral) of the Company relating to the employment or termination of its
employees, or (ii) to any statements made to the Executive, whether made orally
or contained in any document, pertaining to the Executive's relationship with
the Company. Notwithstanding anything to the contrary contained herein,
including Sections 2 and 4, the Executive's employment with the Company is not
for any specified term, is at will and may be terminated by the Company at any
time by delivery of a notice of termination to the Executive, for any reason,
with or without cause, without liability except with respect to the payments
provided for by Section 6.
(e) Voluntary Resignation. The Executive may voluntarily resign his
---------------------
position and terminate his employment with the Company at any time by delivery
of a written notice of resignation to the Company (the "Notice of Resignation").
---------------------
The Notice of Resignation shall set forth the date such resignation shall become
effective (the "Date of Resignation"), which date shall, in any event, be at
-------------------
least ten (10) days and no more than thirty (30) days from the date the Notice
of Resignation is delivered to the Company. At its option, the Company may
reduce such notice period to any length, upon thirty (30) days written notice to
the Executive.
(f) Notice. Any termination of the Executive's employment by the
------
Company shall be communicated by written Notice of Termination to the Executive.
For purposes of this Agreement, a "Notice of Termination" shall mean a notice
---------------------
that shall indicate the specific termination provision in this Agreement relied
upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated.
(g) "Date of Termination" shall mean (i) if the Executive's employment
-------------------
is terminated by his death, the date of his death, (ii) if the Executive's
employment is terminated by reason of his disability, the date of the opinion of
the physician referred to in Section 5(b), above, (iii) if the Executive's
employment is terminated by the Company for Cause pursuant to subsection 5(c)
above, or without Cause by the Company pursuant to subsection 5(d) above, the
6
<PAGE>
date specified in the Notice of Termination and (iv) if the Executive
voluntarily resigns pursuant to subsection 5(e) above, the date of the Notice of
Resignation.
(h) Termination Obligations.
-----------------------
(i) The Executive hereby acknowledges and agrees that all
personal property and equipment furnished to or prepared by the Executive
in the course of or incident to his employment, belongs to the Company and
shall be promptly returned to the Company upon termination of the
Employment Period. "Personal property" includes, without limitation, all
-----------------
books, manuals, records, reports, notes, contracts, lists, blueprints, and
other documents, or materials, or copies thereof (including computer
files), and all other proprietary information relating to the business of
the Company. Following termination, the Executive will not retain any
written or other tangible material containing any proprietary information
of the Company.
(ii) Upon termination of the Employment Period, the Executive
shall be deemed to have resigned from all offices and directorships then
held with the Company or any affiliate.
(iii) The representations and warranties contained herein and
the Executive's obligations under Sections 5(h), 7, 8, 9 and 15 through 18
shall survive termination of the Employment Period and the expiration of
this Agreement.
(i) Release. In exchange for the Company entering into the Agreement,
-------
the Executive agrees that, at the time of his resignation or termination from
the Company, he will execute a release acceptable to the Company of all
liability of the Company and its officers, shareholders, employees and directors
to the Executive in connection with or arising out of his employment with the
Company, except with respect to any then-vested rights under the Company's
Option Plan and except with respect to any Severance Payments which may be
payable to him under the terms of the Agreement. Nothing herein shall modify
Employee's mediation and other rights under this Agreement.
6. Compensation Upon Termination.
-----------------------------
(a) Death. If the Executive's employment shall be terminated pursuant
-----
to Section 5(a), the Company shall pay to the personal representative of the
Executive monthly the Executive's base salary payable pursuant to Section 4(a)
and one-twelfth of any bonus payable pursuant to Section 4(d) at the most recent
annual amount received, or entitled to be received, by the Executive (the
"Severance Payment") for a period of two years following the Date of
Termination. At the Executive's own expense, the Executive's dependents shall
also be entitled to any continuation of health insurance coverage rights under
any applicable law.
(b) Disability. If the Executive's employment shall be terminated by
----------
reason of disability pursuant to Section 5(c), the Executive shall receive the
Severance Payment for the
7
<PAGE>
lesser of two years or the duration of such disability; provided that payments
so made to the Executive during the disability shall be reduced by the sum of
the amounts, if any, payable to the Executive at or prior to the time of any
such payment under any disability benefit plan of the Company. At the
Executive's own expense, the Executive and his dependents shall also be entitled
to any continuation of health insurance coverage rights under any applicable
law.
(c) Cause. If the Executive's employment shall be terminated for
-----
Cause pursuant to Section 5(c) hereof, the Company shall pay the Executive,
within sixty (60) days of the Date of Termination, his salary and any bonus then
payable pursuant to Section 4(d)) through the Date of Termination. At the
Executive's own expense, the Executive and his dependents shall also be entitled
to any continuation of health insurance coverage rights under any applicable
law.
(d) Other Terminations by the Company. If the Company shall terminate
---------------------------------
the Executive's employment without cause pursuant to Section 5(d) hereof, the
Company shall pay the Executive the Severance Payment for a period of the
greater of the balance of the term of this Agreement or two (2) years from the
Date of Termination. The Executive and his dependents shall also be entitled to
any continuation of health insurance coverage rights under any applicable law.
(e) Voluntary Resignation. If the Executive terminates his employment
---------------------
with the Company pursuant to Section 5(g) hereof for "Good Cause", the Company
shall pay the Executive the Severance Payment for a period of the greater of the
balance of the term of this Agreement or two (2) years from the Date of
Resignation. If the Executive terminates his employment with the Company
pursuant to Section 5(g) hereof without "Good Cause," the Company shall have no
obligation to compensate the Executive following the Date of Resignation. In
any event, at the Executive's own expense, the Executive and his dependents
shall be entitled to any continuation of health insurance coverage rights under
any applicable law.
For purposes of this Agreement, "Good Cause" shall mean, without the
express written consent of the Executive, the occurrence of any of the following
events unless such events are substantially corrected within 30 days following
written notification by the Executive to the Company that he intends to
terminate his employment hereunder for one of the reasons set forth below:
(i) Any material alteration, reduction or diminution in the duties,
responsibilities or compensation of the Executive;
(ii) a material breach by the Company of any provision of this
Agreement; and
(iii) the occurrence of a "Change in Control."
8
<PAGE>
As used in this Agreement, "Change of Control" means the occurrence of
any of the following: (i) the adoption of a plan relating to the liquidation or
dissolution of the Company, (ii) the consummation of any transaction (including,
without limitation, any merger or consolidation) the result of which is that any
person or group, other than any of Osamu Kaneko, Andrew J. Gessow and Steven C.
Kenninger or their affiliates (the "Principals"), becomes the "beneficial owner"
(as such term is defined in Rule 13d-3 and Rule 13d-5 under the Securities
Exchange Act of 1934), directly or indirectly, of more than 50% of the total
voting power of the total outstanding voting stock of the Company on a fully
diluted basis or (iii) the consummation of the first transaction (including,
without limitation, any merger or consolidation) the result of which is that any
person or group, other than the Principals, becomes the beneficial owner (as
defined above), directly or indirectly, of more than 50% of the total voting
power of the total outstanding voting stock of the Company.
The Executive understands that any voluntary resignation by him as a
result of any personal or family reasons not otherwise set forth in this Section
6(e) shall not constitute "Good Cause."
(f) The Company will be entitled to offset and reduce each month the
amount of the monthly Severance Payment otherwise payable to the Executive
hereunder by seventy-five percent (75%) of the amount of the Executive's prior
month's earnings (if any) from post-Company employment (including both salary,
bonus and other cash or cash equivalent compensation) at a subsequent employer
or in connection with any consulting practice or other self-employment or
venture founded by the Executive.
(g) In the event of any Termination pursuant to Section 5, the
Executive shall be entitled to retain any and all options to purchase capital
stock of the Company granted to the Executive pursuant to the terms and
conditions of the Option Agreement attached as Exhibit "A" hereto that have
-----------
vested as of the date of such Termination.
(h) Any Severance Payment made pursuant to this Section 6 shall be
payable in equal monthly installments over the required duration set forth in
Sections 6(a) through 6(e).
(i) The continuing obligation of the Company to make the Severance
Payment to the Executive is expressly conditioned upon the Executive complying
and continuing to comply with his obligations and covenants under Sections 7 and
8 of this Agreement following termination of employment with the Company.
7. Confidentiality and Non-Solicitation Covenants.
----------------------------------------------
(a) Confidentiality. In addition to the agreements set forth in
---------------
Section 5(h)(i), the Executive hereby agrees that the Executive will not, during
the Employment Period or at any time thereafter directly or indirectly disclose
or make available to any person, firm, corporation, association or other entity
for any reason or purpose whatsoever, any Confidential Information (as defined
below). The Executive agrees that, upon termination of his employment with the
9
<PAGE>
Company, all Confidential Information in his possession that is in written or
other tangible form (together with all copies or duplicates thereof, including
computer files) shall be returned to the Company and shall not be retained by
the Executive or furnished to any third party, in any form except as provided
herein; provided, however, that the Executive shall not be obligated to treat as
confidential, or return to the Company copies of any Confidential Information
that (i) was publicly known at the time of disclosure to the Executive, (ii)
becomes publicly known or available thereafter other than by any means in
violation of this Agreement or any other duty owed to the Company by any person
or entity or (iii) is lawfully disclosed to the Executive by a third party. As
used in this Agreement the term "Confidential Information" means: information
------------------------
disclosed to the Executive or known by the Executive as a consequence of or
through his relationship with the Company, about the owners, customers,
employees, business methods, public relations methods, organization, procedures
or finances, including, without limitation, information of or relating to owner
or customer lists of the Company and its affiliates.
(b) Non-Solicitation. In addition, the Executive hereby agrees that
----------------
during the Employment Period and at all times thereafter, regardless of the
reason or circumstances of termination of employment with the Company, the
Executive will not, either on his own account or jointly with or as a manager,
agent, officer, employee, consultant, partner, joint venturer, owner or
shareholder or otherwise on behalf of any other person, firm or corporation, (i)
carry on or be engaged or interested directly or indirectly in, or solicit, the
manufacture or sale of goods or provision of services to any person, firm or
corporation which, at any time during the Employment Period has been or is a
customer of or in the habit of dealing with the Company in its business, (ii)
endeavor directly or indirectly to canvas or solicit in competition with Company
or to interfere with the supply of orders for goods or services from or by any
person, firm or corporation which during the Employment Period has been or is a
supplier of goods or services to Company or (iii) directly or indirectly solicit
or attempt to solicit away from Company any of its officers or employees or
offer employment to any person who, on or during the 6 months immediately
preceding the date of such solicitation or offer, is or was an officer or
employee of Company.
8. Covenant Not to Compete.
-----------------------
(a) The Executive agrees that during the Employment Period he will
devote substantially full-time to the business of the Company and not engage in
any competitive businesses. Subject to such full-time requirement and the
restrictions set forth below in this Section 8 and Section 3(c) above, the
Executive shall be permitted to continue his existing business investments and
activities and may pursue additional business investments; provided that the
Executive not serve as officer of any public company resulting from such
business investments. The Executive agrees that he shall not (i) invest in,
manage, consult or participate in any way in any other timeshare business (in
either an active or passive manner), (ii) participate in or advise any business
wherein timeshare is a relevant business segment or (iii) act for or on behalf
of any business that intends to enter or participate in the timeshare business,
in each case unless the independent members of the Company's Board of Directors
determine
10
<PAGE>
that such action is in the best interest of the Company. Notwithstanding the
foregoing, the Executive may purchase stock as a stockholder in any publicly
traded company, including any company which is involved in the timeshare
business; provided that the Executive does not own (together or separately or
through his affiliates) more than 5% of any company (other than the Company) in
the timeshare business. In addition, the Executive shall not invest (directly
or indirectly) in any timeshare property in the hospitality business (including
any condominium project) or any property where the business plan therefor
includes an intention to convert the property to timeshare, unless the
independent members of the Company's Board of Directors determine that such an
investment is in the best interest of the Company.
(b) The provisions of this Section 8 shall survive for a period of
three (3) years following any termination of employment, regardless of whether
the termination is for "Good Cause" or otherwise.
9. Injunctive Relief and Enforcement. In the event of breach by the
---------------------------------
Executive of the terms of Sections 5(h)(i), 7 or 8, and only following mediation
or attempted mediation as set forth in Section 16 below (unless the Company is
suffering irreparable injury, in which case Section 16 will not prevent the
Company from seeking injunctive relief against the Executive in any court or
forum), the Company shall be entitled to institute legal proceedings to enforce
the specific performance of this Agreement by the Executive and to enjoin the
Executive from any further violation of Sections 5(h)(i), 7 or 8 and to exercise
such remedies cumulatively or in conjunction with all other rights and remedies
provided by law and not otherwise limited by this Agreement. The Executive
acknowledges, however, that the remedies at law for any breach by him of the
provisions of Sections 5(h)(i), 7 or 8 may be inadequate. In addition, in the
event the agreements set forth in Sections 5(h)(i), 7 or 8 shall be determined
by any court of competent jurisdiction to be unenforceable by reason of
extending for too great a period of time or over too great a geographical area
or by reason of being too extensive in any other respect, each such agreement
shall be interpreted to extend over the maximum period of time for which it may
be enforceable and to the maximum extent in all other respects as to which it
may be enforceable, and enforced as so interpreted, all as determined by such
court in such action.
10. Notice. For the purposes of this Agreement, notices, demands and all
------
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when personally delivered when
transmitted by telecopy with receipt confirmed, or one day after delivery to an
overnight air courier guaranteeing next day delivery, addressed as follows:
If to the Executive: Gary L. Hughes
100 Broken Lance Way
Sedona, Arizona 86351
11
<PAGE>
If to the Company: Signature Resorts, Inc.
5933 W. Century Blvd.
Suite 210
Los Angeles, California 90045
Attention: Andrew D. Hutton, Esq.
With a copy to: Schreeder, Wheeler & Flint, LLP
127 Peachtree Street, N.E.
1600 Candler Building
Atlanta, Georgia 30303-1845
Attention: Edward H. Brown, Esq.
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
11. Severability. The invalidity or unenforceability of any provision or
------------
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect; provided, however, that if any one or more of the terms contained in
Sections 5(h), 7 or 8 hereto shall for any reason be held to be excessively
broad with regard to time, duration, geographic scope or activity, that term
shall not be deleted but shall be reformed and constructed in a manner to enable
it to be enforced to the extent compatible with applicable law.
12. Assignment. This Agreement may not be assigned by the Executive, but
----------
may be assigned by the Company to any successor to its business and will inure
to the benefit and be binding upon any such successor.
13. Counterparts. This Agreement may be executed in several counterparts,
------------
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
14. Headings. The headings contained herein are for reference purposes
--------
only and shall not in any way affect the meaning or interpretation of this
Agreement.
15. Choice of Law. This Agreement shall be construed, interpreted and the
-------------
rights of the parties determined in accordance with the laws of the State of
Maryland (without reference to the choice of law provisions of Maryland), except
with respect to matters of law concerning the internal corporate affairs of any
corporate entity which is a party to or the subject of this Agreement, and as to
those matters the law of the jurisdiction under which the respective entity
derives its powers shall govern.
16. Mediation. Subject to any irreparable injury being suffered by the
---------
Company giving rise to the right of the Company to seek injunctive relief
against the Executive pursuant to Section 9 hereof, in the event that there
shall be a dispute among the parties arising out of or
12
<PAGE>
relating to this Agreement, or the breach thereof, the parties agree that such
dispute shall be resolved by final and binding mediation in Los Angeles,
California, before a mediator and on terms and conditions mutually acceptable to
the parties; provided, however, that if the parties cannot agree on the terms
and conditions of such mediation, such terms and conditions shall be established
by the mediator. Any award issued as a result of such mediation shall be final
and binding between the parties thereto, and shall be enforceable by any court
having jurisdiction over the party against whom enforcement is sought. The fees
and expenses relating to such mediation (with the exception of the Executive's
attorneys' fees, if any) or any action to enforce a mediation award shall be
paid by the Company.
17. LIMITATION ON LIABILITIES. IF EITHER THE EXECUTIVE OR THE COMPANY IS
-------------------------
AWARDED ANY DAMAGES AS COMPENSATION FOR ANY BREACH OR ACTION RELATED TO THIS
AGREEMENT, A BREACH OF ANY COVENANT CONTAINED IN THIS AGREEMENT (WHETHER EXPRESS
OR IMPLIED BY EITHER LAW OR FACT), OR ANY OTHER CAUSE OF ACTION BASED IN WHOLE
OR IN PART ON ANY BREACH OF ANY PROVISION OF THIS AGREEMENT, SUCH DAMAGES SHALL
BE LIMITED TO CONTRACTUAL DAMAGES AND SHALL EXCLUDE (I) PUNITIVE DAMAGES, AND
(II) CONSEQUENTIAL AND/OR INCIDENTAL DAMAGES (E.G., LOST PROFITS AND OTHER
----
INDIRECT OR SPECULATIVE DAMAGES). THE MAXIMUM AMOUNT OF DAMAGES THAT THE
EXECUTIVE MAY RECOVER FOR ANY REASON SHALL BE THE AMOUNT EQUAL TO ALL AMOUNTS
OWED (BUT NOT YET PAID) TO THE EXECUTIVE PURSUANT TO THIS AGREEMENT THROUGH ITS
NATURAL TERM OR THROUGH ANY SEVERANCE PERIOD, PLUS INTEREST ON ANY DELAYED
PAYMENT AT THE MAXIMUM RATE PER ANNUM ALLOWABLE BY APPLICABLE LAW FROM AND AFTER
THE DATE(S) THAT SUCH PAYMENTS WERE DUE.
18. WAIVER OF JURY TRIAL. TO THE EXTENT APPLICABLE, EACH OF THE PARTIES
--------------------
TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL
OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR
ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT.
19. Tolling. In the event the Executive shall breach any or all of the
-------
covenants set forth in Sections 7 or 8 hereof, the running of restrictions set
forth in such section breached shall be tolled during the continuation(s) of any
such breach or breaches by the Executive and the running of the period of such
restrictions shall commence or commence again only upon compliance by the
Executive with the terms of the applicable section breached.
20. Entire Agreement. This Agreement contains the entire agreement and
----------------
understanding between the Company and the Executive with respect to the
employment of the Executive by the Company as contemplated hereby, and no
representations, promises, agreements or understandings, written or oral, not
herein contained shall be of any force or
13
<PAGE>
effect. This Agreement shall not be changed unless in writing and signed by
both the Executive and the Board of Directors of the Company.
21. The Executive's Acknowledgment. The Executive acknowledges (a) that
------------------------------
he has had the opportunity to consult with independent counsel of his own choice
concerning this Agreement, and (b) that he has read and understands the
Agreement, is fully aware of its legal effect, and has entered into it freely
based on his own judgment.
IN WITNESS WHEREOF, the parties have executed this Employment
Agreement as of the date and year first above written.
SIGNATURE RESORTS, INC.
-----------------------
By:_______________________________________
Name:_____________________________________
Title: ____________________________________
[CORPORATE SEAL]
EXECUTIVE
---------
____________________________________(SEAL)
Gary L. Hughes
14
<PAGE>
Exhibit 10.2.4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is dated as of
---------
___________, 199_, between Signature Resorts, Inc., a Maryland corporation (the
"Company"), and John R. Stevens (the "Executive").
------- ---------
WHEREAS, the Executive has been a key employee of AVCOM International, Inc.
("AVCOM") and possesses an intimate knowledge of the business affairs of AVCOM;
WHEREAS, the Company and AVCOM have previously entered into an Agreement
and Plan of Merger dated September 22, 1996, as amended, pursuant to which AVCOM
has merged with a wholly owned subsidiary of the Company (the "Merger
Agreement"); and
WHEREAS, as a condition to the closing of the transactions contemplated in
the Merger Agreement, the Company and Executive have agreed to enter into this
Employment Agreement; and
WHEREAS, the Company recognizes the Executive's contribution to the
operations of AVCOM and to the future growth and success of the AVCOM operations
as part of the Company and the Company desires to assure the continued benefits
of Executive's expertise and knowledge. The Executive, in turn, desires to
engage full time employment with the Company on the terms provided herein, and
in consideration for such employment and the transaction described in the Merger
Agreement, the Executive is desirous of agreeing to certain covenants of
confidentiality, non-solicitation, and non-competition.
NOW, THEREFORE, for good and valuable consideration, the receipt,
sufficiency and adequacy of which are hereby acknowledged, the parties hereto
agrees as follows:
1. Employment. The Company hereby agrees to employ the Executive, and
----------
the Executive hereby agrees to be employed by the Company, on the terms and
conditions set forth herein effective as of the date first written above (the
"Effective Date").
2. Term.
----
(a) New Agreement. The employment of the Executive by the Company as
-------------
provided in Section 1 will commence on the Effective Date and will terminate at
12:01 a.m. three years after the Effective Date (the "Expiration Date") unless
---------------
automatically extended or sooner terminated as hereinafter provided (such
period, the "Employment Period"). Unless terminated by the Executive or the
-----------------
Company prior to the commencement of the thirty-fourth month after the Effective
Date, the Company shall notify the Executive with written notice as to whether
the Company intends to further renew or extend the Agreement (including
proposals for such further renewal which the Executive may accept, reject or
negotiate, at his discretion).
(b) Termination of Previous Agreement. Executive acknowledges that
---------------------------------
all prior employment arrangements between Executive and AVCOM or any of its
affiliates, including,
<PAGE>
but not limited to, an Employment Agreement between Executive and American
Vacation Company, dated August 8, 1993 and subsequently amended, are hereby
terminated and Executive releases the Company from any liability under any
previous agreements, and affirms and states that there are no claims (known or
unknown) under such agreements held by Executive.
3. Position, Duties and Responsibilities.
-------------------------------------
(a) Position. The Executive hereby agrees to serve as
--------
Director of Marketing and New Products of AVCOM International, Inc., a
subsidiary of the Company. The Executive shall devote his best efforts and
substantially full business time and attention to the performance of services to
the Company in his capacity as an officer thereof and as may reasonably be
requested by the Board of Directors of the Company (the "Board"). The Company
shall retain full direction and control of the means and methods by which the
Executive performs his services thereto. Both the Executive and the Company
agree that the nature and scope of the Executive's responsibility and authority
will be consistent with being an employee of a subsidiary of a public company,
as described in more detail herein. The specific responsibilities and duties
that the Executive would have will be formulated and by the Executive and the
Company during the period between the date of this Agreement and the Effective
Date.
(b) Other Activities. Except with the prior written approval of the
----------------
Board (which the Board may grant or withhold in its sole and absolute
discretion), the Executive, during the Employment Period, will not (i) accept
any other employment, (ii) serve on the board of directors or similar body of
any other business entity (except as otherwise set forth below), or (iii)
engage, directly or indirectly, in any other business activity (whether or not
pursued for pecuniary advantage) that is or may be competitive with, or that
might place him in a competing position to, that of the Company or any of its
affiliates. Notwithstanding the foregoing, the Company agrees that the
Executive (or affiliates of the Executive) shall be permitted (i) to undertake
the activities set forth in Section 8 and (ii) to make any other passive
personal investment that is not in a business activity that is directly or
indirectly competitive with the Company.
4. Compensation and Related Matters.
--------------------------------
(a) Salary. During the Employment Period, the Company shall pay the
------
Executive a salary of not less than $225,000 during the first full year and at
such salary as determined by the Compensation Committee of the Board during the
second and subsequent years of the Executive's employment with the Company. All
salary is to be paid consistent with the standard payroll practices of the
Company (e.g., timing of payments and standard employee deductions, such as
----
income tax withholdings, social security, etc.). The Executive's performance
and salary shall be subject to review at the end of each fiscal year and
increase consistent with the standard practices of the Company.
2
<PAGE>
(b) Business Expenses. The Company shall reimburse the Executive in
-----------------
connection with the conduct of the Company's business upon presentation of
sufficient evidence of such expenditures consistent with the Company's policies
as in place from time to time. Such benefits are all subject to change in the
Company's sole and absolute discretion.
(c) Other Benefits. (i) The Executive shall be entitled to
--------------
participate in or receive health, welfare, life insurance, long-term disability
insurance, bonus plan and similar benefits as the Company provides generally
from time to time to its executives. Currently, those benefits include a
Company paid participation for the Executive only in (i) an HMO (with the right
to upgrade to a PPO health provider at the Executive's expense in accordance
with the terms of our agreement with our current carrier, Blue Shield) and (ii)
an HMO dental provider (with the right to upgrade to a PPO dental provider at
the Executive's expense in accordance with the terms of our agreement with our
current carrier). There is a waiting period on the effectiveness of the
Executive's medical coverage which may be as long as 90 days after commencement
of the Executive's employment with the Company. During this waiting period, the
Company's health plan would not cover the Executive. However, the Company has
agreed to cover the Executive's COBRA costs to maintain the Executive's current
health coverage for this three month waiting period, subject to a maximum
contribution by the Company each month equal to what the Company would have paid
on behalf of the Executive for health coverage had he been an employee of the
Company eligible for the Company's plan during this three month period. In
addition, the Executive will be able to participate at the Executive's own
expense in any life and disability policies available for purchase, in
accordance with the terms of the Company's plan with its carrier, and in the
Company 401K retirement plan. The cost of any medical or dental or other
insurance benefits selected by the Executive in excess of the benefits provided
by the Company for either the Executive or the Executive's dependents will be
paid by the Executive personally from payroll deductions.
(ii) The Company acknowledges that, simultaneously with the execution
of this Agreement, it will execute an option agreement substantially in the form
attached as Exhibit "A" hereto (the "Option Agreement") and will institute and
-----------
grant the Executive benefits under the Signature Resorts, Inc. "1996 Equity
Participation Plan" (the "Option Plan"). In the event that the Board and the
-----------
shareholders of the Company later approve amendments to the Option Plan which
would expand the number of shares included therein, to the extent that there are
additional options available to award in excess of any prior awards of options
in excess of the number of options then available under the Option Plan, the
Board would consider the Executive for additional grants of options under the
Option Plan based on the Executive's contributions to the Company on the same
basis that other senior executives (including, without limitation, the
Principals and the Executive Vice President of the Company) are so considered by
the Board for such subsequent option grants. Except as otherwise set forth in
this Section 4 and except with respect to the Company's obligations under this
Agreement with respect to the Option Agreement and the Option Plan, nothing
herein is intended, or shall be construed to require the Company to institute or
continue any, or any particular, plan or benefits.
3
<PAGE>
(d) Merit Bonus. The Board of Directors, or the Compensation
-----------
Committee of the Board have established, and shall monitor and oversee an
incentive bonus program for the Executive which has definitive and specific
hurdles and performance standards which, if achieved in the aggregate, would
result in the Executive receiving bonus compensation of $175,000 during the
applicable fiscal year, more specifically described as follows:
(i) Attached as Exhibit "B" are the consolidated revenue, expense and
-----------
net pre-tax profits projections prepared in accordance with generally accepted
accounting principles by the Executive for the 1997 and 1998 calendar years of
AVCOM.
(ii) The Company and the Executive have agreed to tie the Executive's
incentive bonus to the achievement of the revenue and net pre-tax profit
projections contained in Exhibit "B". In connection with the merger of AVCOM
-----------
and a subsidiary of the Company, there will be some integration of the
operations of AVCOM and the Company to promote efficiency and increase
profitability. For purposes of calculating the Executive's incentive bonus for
the 1997 and 1998 fiscal years, the Company and the Executive agree to work
together to formulate a reasonable measure of the profitability of AVCOM for
these periods as though the merger had not occurred.
(iii) In the event that the 1997 AVCOM calendar year consolidated
net revenues and pre-tax net profits, as determined by the Company in the
exercise of its good faith business judgment, are (a) 80% or more of the
amounts set forth in Exhibit "B", the Executive shall receive a $50,000
-----------
incentive bonus for such year; (b) 90% or more of the amounts set forth in
Exhibit "B", the Executive shall receive an additional $50,000 incentive bonus
- -----------
for such year (for a total of a $100,000 incentive bonus for such year); or (c)
100% or more of the amounts set forth in Exhibit "B", the Executive shall
-----------
receive an additional $75,000 incentive bonus for such year (for a total of a
$175,000 incentive bonus for such year).
(iv) In the event that the 1998 AVCOM calendar year consolidated net
revenues and pre-tax net profits, as determined by the Company in the exercise
of its good faith business judgment, are (a) 80% or more of the amounts set
forth in Exhibit "B", the Executive shall receive a $50,000 incentive bonus for
-----------
such year; (b) 90% or more of the amounts set forth in Exhibit "B", the
-----------
Executive shall receive an additional $50,000 incentive bonus for such year (for
a total of a $100,000 incentive bonus for such year); or (c) 100% or more of the
amounts set forth in Exhibit "B", the Executive shall receive an additional
-----------
$75,000 incentive bonus for such year (for a total of a $175,000 incentive bonus
for such year).
(v) In the event that the Executive is not employed for the entire
calendar year in either 1997 or 1998 due to a termination of employment as a
result of death or disability, the Executive's incentive bonus compensation
would be prorated at the end of the year based upon the incentive bonus
compensation that would have been due for the entire year for the period of time
during such calendar year of the Executive's employment with the Company. If
Executive's employment is terminated for any other reason during a calendar
year, no amount described in this Section 4(d) shall be due or payable.
4
<PAGE>
(vi) For calendar years after 1998 during which this Agreement is in
effect, the Compensation Committee of the Board will monitor and review this
program as necessary to reflect the Executive's contributions to the Company.
The award of the merit bonus will be based primarily on two criteria. The first
will be the nature of the Executive's performance in excess of the high level of
reasonably achievable performance which the Company requires of all of its
employees, including the quality and level of the Executive's performance; the
achievement by the Executive of the reasonably achievable performance standards
specified in the Executive's incentive bonus compensation plan; and the value
which the Executive has contributed to or created for the Company. The second
will be based on the overall profitability, level of increased profitability and
success in each of the Company's activities in which the Executive has been
materially involved, as well as the overall financial performance of the Company
and its publicly-traded stock.
(vii) For extraordinary performance by the Executive in any
calendar year, the Compensation Committee of the Board may, in its sole and
absolute discretion, consider the Executive for the receipt of an additional
incentive bonus in excess of the specified incentive bonus plan outlined above.
(e) Fringe Benefits. The Executive will be entitled to fringe
---------------
benefits as may be determined or granted from time-to-time by the Board.
(f) Vacation. The Executive shall be entitled to four vacation weeks
--------
(20 days) in each calendar year on a pro-rated basis. The Executive will be
entitled to all Company holidays.
(g) Performance Reviews. At the end of each fiscal year, the Company
-------------------
(through the Compensation Committee of the Board) will review the Executive's
job performance and will provide the Executive a written review of the
Executive's job performance during the prior year and implement any Company
determined revisions to the Executive's base salary, the Executive's merit
bonus, the Executive's prospective incentive compensation package (including the
Executive's participation in the Option Plan), the Executive's title and/or the
Executive's responsibility at the Company; provided, however, that during the
initial term of this Agreement, none of such revisions shall be less financially
beneficial to the Executive than those financial terms and conditions of
employment for the Executive (e.g., salary, merit bonus, etc.) which are set
forth in this Agreement.
5. Termination. The Executive's employment hereunder shall be, or may
-----------
be, as the case may be, terminated under the following circumstances:
(a) Death. The Executive's employment hereunder shall terminate upon
-----
his death.
(b) Disability. The Executive's employment hereunder shall terminate
----------
on the Executive's physical or mental disability or infirmity which, in the
opinion of a competent
5
<PAGE>
physician selected by the Board, renders the Executive unable to perform his
duties under this Agreement for more than 120 days during any 180-day period.
(c) Cause. The Company may terminate the Executive's employment
-----
hereunder for "Cause." Cause shall mean (i) Employee's material breach of any
-----
of the terms of this Agreement, (ii) his conviction of a crime involving moral
turpitude or constituting a felony under the laws of any state, the District of
Columbia or of the United States, or (iii) his gross negligence, willful
misconduct or fraud in the performance of his duties hereunder.
(d) Employment-At-Will/Termination for Any Reason. Notwithstanding
---------------------------------------------
the term of this Agreement having a duration of three years and Sections 2 and 4
hereof referring to extensions of this Agreement and the annual salary to be
paid to the Executive during his employment with the Company, nothing in this
Agreement should be construed as to confer any right of the Executive to be
employed by the Company for a fixed or definite term. Subject to Section 6
hereof, the Executive hereby agrees that the Company may dismiss him under this
Section 5(d) without regard (i) to any general or specific policies (whether
written or oral) of the Company relating to the employment or termination of its
employees, or (ii) to any statements made to the Executive, whether made orally
or contained in any document, pertaining to the Executive's relationship with
the Company. Notwithstanding anything to the contrary contained herein,
including Sections 2 and 4, the Executive's employment with the Company is not
for any specified term, is at will and may be terminated by the Company at any
time by delivery of a notice of termination to the Executive, for any reason,
with or without cause, without liability except with respect to the payments
provided for by Section 6.
(e) Voluntary Resignation. The Executive may voluntarily resign his
---------------------
position and terminate his employment with the Company at any time by delivery
of a written notice of resignation to the Company (the "Notice of Resignation").
---------------------
The Notice of Resignation shall set forth the date such resignation shall become
effective (the "Date of Resignation"), which date shall, in any event, be at
-------------------
least ten (10) days and no more than thirty (30) days from the date the Notice
of Resignation is delivered to the Company. At its option, the Company may
reduce such notice period to any length, upon thirty (30) days written notice to
the Executive.
(f) Notice. Any termination of the Executive's employment by the
------
Company shall be communicated by written Notice of Termination to the Executive.
For purposes of this Agreement, a "Notice of Termination" shall mean a notice
---------------------
that shall indicate the specific termination provision in this Agreement relied
upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated.
(g) "Date of Termination" shall mean (i) if the Executive's employment
-------------------
is terminated by his death, the date of his death, (ii) if the Executive's
employment is terminated by reason of his disability, the date of the opinion of
the physician referred to in Section 5(b), above, (iii) if the Executive's
employment is terminated by the Company for Cause pursuant to subsection 5(c)
above, or without Cause by the Company pursuant to subsection 5(d) above, the
6
<PAGE>
date specified in the Notice of Termination and (iv) if the Executive
voluntarily resigns pursuant to subsection 5(e) above, the date of the Notice of
Resignation.
(h) Termination Obligations.
-----------------------
(i) The Executive hereby acknowledges and agrees that all
personal property and equipment furnished to or prepared by the Executive
in the course of or incident to his employment, belongs to the Company and
shall be promptly returned to the Company upon termination of the
Employment Period. "Personal property" includes, without limitation, all
-----------------
books, manuals, records, reports, notes, contracts, lists, blueprints, and
other documents, or materials, or copies thereof (including computer
files), and all other proprietary information relating to the business of
the Company. Following termination, the Executive will not retain any
written or other tangible material containing any proprietary information
of the Company.
(ii) Upon termination of the Employment Period, the Executive
shall be deemed to have resigned from all offices and directorships then
held with the Company or any affiliate.
(iii) The representations and warranties contained herein and
the Executive's obligations under Sections 5(h), 7, 8, 9 and 15 through 18
shall survive termination of the Employment Period and the expiration of
this Agreement.
(i) Release. In exchange for the Company entering into the Agreement,
-------
the Executive agrees that, at the time of his resignation or termination from
the Company, he will execute a release acceptable to the Company of all
liability of the Company and its officers, shareholders, employees and directors
to the Executive in connection with or arising out of his employment with the
Company, except with respect to any then-vested rights under the Company's
Option Plan and except with respect to any Severance Payments which may be
payable to him under the terms of the Agreement. Nothing herein shall modify
Employee's mediation and other rights under this Agreement.
6. Compensation Upon Termination.
-----------------------------
(a) Death. If the Executive's employment shall be terminated pursuant
-----
to Section 5(a), the Company shall pay to the personal representative of the
Executive monthly the Executive's base salary payable pursuant to Section 4(a)
and one-twelfth of any bonus payable pursuant to Section 4(d) at the most recent
annual amount received, or entitled to be received, by the Executive (the
"Severance Payment") for a period of two years following the Date of
Termination. At the Executive's own expense, the Executive's dependents shall
also be entitled to any continuation of health insurance coverage rights under
any applicable law.
(b) Disability. If the Executive's employment shall be terminated by
----------
reason of disability pursuant to Section 5(c), the Executive shall receive the
Severance Payment for the
7
<PAGE>
lesser of two years or the duration of such disability; provided that payments
so made to the Executive during the disability shall be reduced by the sum of
the amounts, if any, payable to the Executive at or prior to the time of any
such payment under any disability benefit plan of the Company. At the
Executive's own expense, the Executive and his dependents shall also be entitled
to any continuation of health insurance coverage rights under any applicable
law.
(c) Cause. If the Executive's employment shall be terminated for
-----
Cause pursuant to Section 5(c) hereof, the Company shall pay the Executive,
within sixty (60) days of the Date of Termination, his salary and any bonus then
payable pursuant to Section 4(d)) through the Date of Termination. At the
Executive's own expense, the Executive and his dependents shall also be entitled
to any continuation of health insurance coverage rights under any applicable
law.
(d) Other Terminations by the Company. If the Company shall terminate
---------------------------------
the Executive's employment without cause pursuant to Section 5(d) hereof, the
Company shall pay the Executive the Severance Payment for a period of the
greater of the balance of the term of this Agreement or two (2) years from the
Date of Termination. The Executive and his dependents shall also be entitled to
any continuation of health insurance coverage rights under any applicable law.
(e) Voluntary Resignation. If the Executive terminates his employment
---------------------
with the Company pursuant to Section 5(g) hereof for "Good Cause", the Company
shall pay the Executive the Severance Payment for a period of the greater of the
balance of the term of this Agreement or two (2) years from the Date of
Resignation. If the Executive terminates his employment with the Company
pursuant to Section 5(g) hereof without "Good Cause," the Company shall have no
obligation to compensate the Executive following the Date of Resignation. In
any event, at the Executive's own expense, the Executive and his dependents
shall be entitled to any continuation of health insurance coverage rights under
any applicable law.
For purposes of this Agreement, "Good Cause" shall mean, without the
express written consent of the Executive, the occurrence of any of the following
events unless such events are substantially corrected within 30 days following
written notification by the Executive to the Company that he intends to
terminate his employment hereunder for one of the reasons set forth below:
(i) Any material alteration, reduction or diminution in the duties,
responsibilities or compensation of the Executive;
(ii) a material breach by the Company of any provision of this
Agreement; and
(iii) the occurrence of a "Change in Control."
8
<PAGE>
As used in this Agreement, "Change of Control" means the occurrence of
any of the following: (i) the adoption of a plan relating to the liquidation or
dissolution of the Company, (ii) the consummation of any transaction (including,
without limitation, any merger or consolidation) the result of which is that any
person or group, other than any of Osamu Kaneko, Andrew J. Gessow and Steven C.
Kenninger or their affiliates (the "Principals"), becomes the "beneficial owner"
(as such term is defined in Rule 13d-3 and Rule 13d-5 under the Securities
Exchange Act of 1934), directly or indirectly, of more than 50% of the total
voting power of the total outstanding voting stock of the Company on a fully
diluted basis or (iii) the consummation of the first transaction (including,
without limitation, any merger or consolidation) the result of which is that any
person or group, other than the Principals, becomes the beneficial owner (as
defined above), directly or indirectly, of more than 50% of the total voting
power of the total outstanding voting stock of the Company.
The Executive understands that any voluntary resignation by him as a
result of any personal or family reasons not otherwise set forth in this Section
6(e) shall not constitute "Good Cause."
(f) The Company will be entitled to offset and reduce each month the
amount of the monthly Severance Payment otherwise payable to the Executive
hereunder by seventy-five percent (75%) of the amount of the Executive's prior
month's earnings (if any) from post-Company employment (including both salary,
bonus and other cash or cash equivalent compensation) at a subsequent employer
or in connection with any consulting practice or other self-employment or
venture founded by the Executive.
(g) In the event of any Termination pursuant to Section 5, the
Executive shall be entitled to retain any and all options to purchase capital
stock of the Company granted to the Executive pursuant to the terms and
conditions of the Option Agreement attached as Exhibit "A" hereto that have
-----------
vested as of the date of such Termination.
(h) Any Severance Payment made pursuant to this Section 6 shall be
payable in equal monthly installments over the required duration set forth in
Sections 6(a) through 6(e).
(i) The continuing obligation of the Company to make the Severance
Payment to the Executive is expressly conditioned upon the Executive complying
and continuing to comply with his obligations and covenants under Sections 7 and
8 of this Agreement following termination of employment with the Company.
7. Confidentiality and Non-Solicitation Covenants.
----------------------------------------------
(a) Confidentiality. In addition to the agreements set forth in
---------------
Section 5(h)(i), the Executive hereby agrees that the Executive will not, during
the Employment Period or at any time thereafter directly or indirectly disclose
or make available to any person, firm, corporation, association or other entity
for any reason or purpose whatsoever, any Confidential Information (as defined
below). The Executive agrees that, upon termination of his employment with the
9
<PAGE>
Company, all Confidential Information in his possession that is in written or
other tangible form (together with all copies or duplicates thereof, including
computer files) shall be returned to the Company and shall not be retained by
the Executive or furnished to any third party, in any form except as provided
herein; provided, however, that the Executive shall not be obligated to treat as
confidential, or return to the Company copies of any Confidential Information
that (i) was publicly known at the time of disclosure to the Executive, (ii)
becomes publicly known or available thereafter other than by any means in
violation of this Agreement or any other duty owed to the Company by any person
or entity or (iii) is lawfully disclosed to the Executive by a third party. As
used in this Agreement the term "Confidential Information" means: information
------------------------
disclosed to the Executive or known by the Executive as a consequence of or
through his relationship with the Company, about the owners, customers,
employees, business methods, public relations methods, organization, procedures
or finances, including, without limitation, information of or relating to owner
or customer lists of the Company and its affiliates.
(b) Non-Solicitation. In addition, the Executive hereby agrees that
----------------
during the Employment Period and at all times thereafter, regardless of the
reason or circumstances of termination of employment with the Company, the
Executive will not, either on his own account or jointly with or as a manager,
agent, officer, employee, consultant, partner, joint venturer, owner or
shareholder or otherwise on behalf of any other person, firm or corporation, (i)
carry on or be engaged or interested directly or indirectly in, or solicit, the
manufacture or sale of goods or provision of services to any person, firm or
corporation which, at any time during the Employment Period has been or is a
customer of or in the habit of dealing with the Company in its business, (ii)
endeavor directly or indirectly to canvas or solicit in competition with Company
or to interfere with the supply of orders for goods or services from or by any
person, firm or corporation which during the Employment Period has been or is a
supplier of goods or services to Company or (iii) directly or indirectly solicit
or attempt to solicit away from Company any of its officers or employees or
offer employment to any person who, on or during the 6 months immediately
preceding the date of such solicitation or offer, is or was an officer or
employee of Company.
8. Covenant Not to Compete.
-----------------------
(a) The Executive agrees that during the Employment Period he will
devote substantially full-time to the business of the Company and not engage in
any competitive businesses. Subject to such full-time requirement and the
restrictions set forth below in this Section 8 and Section 3(c) above, the
Executive shall be permitted to continue his existing business investments and
activities and may pursue additional business investments; provided that the
Executive not serve as officer of any public company resulting from such
business investments. The Executive agrees that he shall not (i) invest in,
manage, consult or participate in any way in any other timeshare business (in
either an active or passive manner), (ii) participate in or advise any business
wherein timeshare is a relevant business segment or (iii) act for or on behalf
of any business that intends to enter or participate in the timeshare business,
in each case unless the independent members of the Company's Board of Directors
determine
10
<PAGE>
that such action is in the best interest of the Company. Notwithstanding the
foregoing, the Executive may purchase stock as a stockholder in any publicly
traded company, including any company which is involved in the timeshare
business; provided that the Executive does not own (together or separately or
through his affiliates) more than 5% of any company (other than the Company) in
the timeshare business. In addition, the Executive shall not invest (directly
or indirectly) in any timeshare property in the hospitality business (including
any condominium project) or any property where the business plan therefor
includes an intention to convert the property to timeshare, unless the
independent members of the Company's Board of Directors determine that such an
investment is in the best interest of the Company.
(b) The provisions of this Section 8 shall survive for a period of
three (3) years following any termination of employment, regardless of whether
the termination is for "Good Cause" or otherwise.
9. Injunctive Relief and Enforcement. In the event of breach by the
---------------------------------
Executive of the terms of Sections 5(h)(i), 7 or 8, and only following mediation
or attempted mediation as set forth in Section 16 below (unless the Company is
suffering irreparable injury, in which case Section 16 will not prevent the
Company from seeking injunctive relief against the Executive in any court or
forum), the Company shall be entitled to institute legal proceedings to enforce
the specific performance of this Agreement by the Executive and to enjoin the
Executive from any further violation of Sections 5(h)(i), 7 or 8 and to exercise
such remedies cumulatively or in conjunction with all other rights and remedies
provided by law and not otherwise limited by this Agreement. The Executive
acknowledges, however, that the remedies at law for any breach by him of the
provisions of Sections 5(h)(i), 7 or 8 may be inadequate. In addition, in the
event the agreements set forth in Sections 5(h)(i), 7 or 8 shall be determined
by any court of competent jurisdiction to be unenforceable by reason of
extending for too great a period of time or over too great a geographical area
or by reason of being too extensive in any other respect, each such agreement
shall be interpreted to extend over the maximum period of time for which it may
be enforceable and to the maximum extent in all other respects as to which it
may be enforceable, and enforced as so interpreted, all as determined by such
court in such action.
10. Notice. For the purposes of this Agreement, notices, demands and all
------
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when personally delivered when
transmitted by telecopy with receipt confirmed, or one day after delivery to an
overnight air courier guaranteeing next day delivery, addressed as follows:
If to the Executive: John R. Stevens
50 Cord Circle
Sedona, Arizona 86351
11
<PAGE>
If to the Company: Signature Resorts, Inc.
5933 W. Century Blvd.
Suite 210
Los Angeles, California 90045
Attention: Andrew D. Hutton, Esq.
With a copy to: Schreeder, Wheeler & Flint, LLP
127 Peachtree Street, N.E.
1600 Candler Building
Atlanta, Georgia 30303-1845
Attention: Edward H. Brown, Esq.
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
11. Severability. The invalidity or unenforceability of any provision or
------------
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect; provided, however, that if any one or more of the terms contained in
Sections 5(h), 7 or 8 hereto shall for any reason be held to be excessively
broad with regard to time, duration, geographic scope or activity, that term
shall not be deleted but shall be reformed and constructed in a manner to enable
it to be enforced to the extent compatible with applicable law.
12. Assignment. This Agreement may not be assigned by the Executive, but
----------
may be assigned by the Company to any successor to its business and will inure
to the benefit and be binding upon any such successor.
13. Counterparts. This Agreement may be executed in several counterparts,
------------
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
14. Headings. The headings contained herein are for reference purposes
--------
only and shall not in any way affect the meaning or interpretation of this
Agreement.
15. Choice of Law. This Agreement shall be construed, interpreted and the
-------------
rights of the parties determined in accordance with the laws of the State of
Maryland (without reference to the choice of law provisions of Maryland), except
with respect to matters of law concerning the internal corporate affairs of any
corporate entity which is a party to or the subject of this Agreement, and as to
those matters the law of the jurisdiction under which the respective entity
derives its powers shall govern.
16. Mediation. Subject to any irreparable injury being suffered by the
---------
Company giving rise to the right of the Company to seek injunctive relief
against the Executive pursuant to Section 9 hereof, in the event that there
shall be a dispute among the parties arising out of or
12
<PAGE>
relating to this Agreement, or the breach thereof, the parties agree that such
dispute shall be resolved by final and binding mediation in Los Angeles,
California, before a mediator and on terms and conditions mutually acceptable to
the parties; provided, however, that if the parties cannot agree on the terms
and conditions of such mediation, such terms and conditions shall be established
by the mediator. Any award issued as a result of such mediation shall be final
and binding between the parties thereto, and shall be enforceable by any court
having jurisdiction over the party against whom enforcement is sought. The fees
and expenses relating to such mediation (with the exception of the Executive's
attorneys' fees, if any) or any action to enforce a mediation award shall be
paid by the Company.
17. LIMITATION ON LIABILITIES. IF EITHER THE EXECUTIVE OR THE COMPANY IS
-------------------------
AWARDED ANY DAMAGES AS COMPENSATION FOR ANY BREACH OR ACTION RELATED TO THIS
AGREEMENT, A BREACH OF ANY COVENANT CONTAINED IN THIS AGREEMENT (WHETHER EXPRESS
OR IMPLIED BY EITHER LAW OR FACT), OR ANY OTHER CAUSE OF ACTION BASED IN WHOLE
OR IN PART ON ANY BREACH OF ANY PROVISION OF THIS AGREEMENT, SUCH DAMAGES SHALL
BE LIMITED TO CONTRACTUAL DAMAGES AND SHALL EXCLUDE (I) PUNITIVE DAMAGES, AND
(II) CONSEQUENTIAL AND/OR INCIDENTAL DAMAGES (E.G., LOST PROFITS AND OTHER
----
INDIRECT OR SPECULATIVE DAMAGES). THE MAXIMUM AMOUNT OF DAMAGES THAT THE
EXECUTIVE MAY RECOVER FOR ANY REASON SHALL BE THE AMOUNT EQUAL TO ALL AMOUNTS
OWED (BUT NOT YET PAID) TO THE EXECUTIVE PURSUANT TO THIS AGREEMENT THROUGH ITS
NATURAL TERM OR THROUGH ANY SEVERANCE PERIOD, PLUS INTEREST ON ANY DELAYED
PAYMENT AT THE MAXIMUM RATE PER ANNUM ALLOWABLE BY APPLICABLE LAW FROM AND AFTER
THE DATE(S) THAT SUCH PAYMENTS WERE DUE.
18. WAIVER OF JURY TRIAL. TO THE EXTENT APPLICABLE, EACH OF THE PARTIES
--------------------
TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL
OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR
ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT.
19. Tolling. In the event the Executive shall breach any or all of the
-------
covenants set forth in Sections 7 or 8 hereof, the running of restrictions set
forth in such section breached shall be tolled during the continuation(s) of any
such breach or breaches by the Executive and the running of the period of such
restrictions shall commence or commence again only upon compliance by the
Executive with the terms of the applicable section breached.
20. Entire Agreement. This Agreement contains the entire agreement and
----------------
understanding between the Company and the Executive with respect to the
employment of the Executive by the Company as contemplated hereby, and no
representations, promises, agreements or understandings, written or oral, not
herein contained shall be of any force or
13
<PAGE>
effect. This Agreement shall not be changed unless in writing and signed by
both the Executive and the Board of Directors of the Company.
21. The Executive's Acknowledgment. The Executive acknowledges (a) that
------------------------------
he has had the opportunity to consult with independent counsel of his own choice
concerning this Agreement, and (b) that he has read and understands the
Agreement, is fully aware of its legal effect, and has entered into it freely
based on his own judgment.
IN WITNESS WHEREOF, the parties have executed this Employment
Agreement as of the date and year first above written.
SIGNATURE RESORTS, INC.
-----------------------
By:_______________________________________
Name:_____________________________________
Title: ____________________________________
[CORPORATE SEAL]
EXECUTIVE
---------
____________________________________(SEAL)
John R. Stevens
14
<PAGE>
EXHIBIT 10.2.5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is dated as of September
---------
27, 1996, between Signature Resorts, Inc., a Maryland corporation (the
"Company"), and Michael A. Depatie (the "Executive").
------- ---------
1. Employment. The Company hereby agrees to employ the Executive, and
----------
the Executive hereby agrees to be employed by the Company, on the terms and
conditions set forth herein.
2. Term. The employment of the Executive by the Company as provided in
----
Section 1 will commence on a mutually agreeable date on or before November 18,
1996 (the "Effective Date") and will terminate at 12:01 a.m. two years after the
Effective Date (the "Expiration Date") unless automatically extended or sooner
---------------
terminated as hereinafter provided (such period, the "Employment Period").
-----------------
Unless terminated by the Executive or the Company prior to September 1, 1998,
this Agreement shall automatically renew on the terms set forth herein for a
second two-year period. If so renewed, no later than September 1, 2000, the
Company shall notify the Executive with written notice as to whether the Company
intends to further renew or extend the Agreement (including proposals for such
further renewal which the Executive may accept, reject or negotiate, at his
discretion).
3. Position, Duties and Responsibilities.
-------------------------------------
(a) Position. The Executive hereby agrees to serve as Executive Vice
--------
President and Chief Financial Officer of the Company. The Executive shall
devote his best efforts and substantially full business time and attention to
the performance of services to the Company in his capacity as an officer thereof
and as may reasonably be requested by the Board. The Company shall retain full
direction and control of the means and methods by which the Executive performs
his services thereto. Both the Executive and the Company agree that the nature
and scope of the Executive's responsibility and authority will be consistent
with being the Executive Vice President and Chief Financial Officer of a public
company, as described in more detail herein. The Executive shall report
directly to Messrs. Osamu Kaneko, Andrew Jody Gessow and Steven C. Kenninger
(the "Principals"), and the Principals shall be generally available to the
Executive on a day to day basis. In no order of priority, the following are the
responsibilities and duties that the Executive would have:
1. To work closely with the Company's executive level senior-most
officers and the Principals to structure strategic initiatives,
including acquisitions, and to analyze the financial impact of such
initiatives; and to participate actively in the negotiations thereof
and oversee the completion of such initiatives.
2. To maintain a current understanding of the Company's progress in
achieving stated financial goals and objectives (i.e., internal and
Wall ----
Street estimates) relative to applicable Company projections and
budgets prepared by others.
1
<PAGE>
3. To serve as the primary point of contact for investor relations and
investment banking, research and analyst communications; to
participate in investor and analyst meetings and conferences; to
coordinate press releases, quarterly and annual filings; and to
coordinate the design and preparation of the Company's annual
shareholders' report; and to be involved in such other similar
matters with the assistance of Company counsel.
4. To analyze and structure the Company's capital base, including,
without limitation, coordinating and implementing equity and debt
initiatives such as follow-on offerings, lines of credit and
securitization programs; and, generally, to manage the Company's
commercial banking relationships and lines of credit.
5. To develop and oversee cash management policies.
6. To oversee the Company's policies and procedures respecting employee
purchases and sales of the Company's stock and the exercise of its
stock options.
7. To oversee the Company's treasury function, with the assistance of
appropriate personnel.
8. To oversee the Company's insurance and risk management program, with
the assistance of appropriate personnel.
9. To carry out such other customary duties and responsibilities of an
executive vice president and chief financial officer of a public
company.
The Company recognizes that to accomplish these responsibilities, the Executive
will require full cooperation and extensive interaction with the Principals, the
Company's controller and accounting department, as well as the use of reasonably
necessary staff resources dedicated exclusively to assisting the Executive in
discharging his duties.
(b) Place of Employment. During the term of this Agreement, the
-------------------
Executive shall perform the services required by this Agreement at the Company's
place of business in the San Francisco Bay area; provided, however, that the
Company will require the Executive to travel extensively to other locations on
the Company's business.
(c) Other Activities. Except with the prior written approval of the
----------------
Board (which the Board may grant or withhold in its sole and absolute
discretion), the Executive, during the Employment Period, will not (i) accept
any other employment, (ii) serve on the board of directors or similar body of
any other business entity (except as otherwise set forth below), or (iii)
engage, directly or indirectly, in any other business activity (whether or not
pursued for pecuniary advantage) that is or may be competitive with, or that
might place him in a competing position to, that of the Company or any of its
affiliates. Notwithstanding the foregoing, the Company agrees that the
Executive (or affiliates of the Executive) shall be permitted (i) to undertake
the activities set forth in Section 8 and (ii) to make any other passive
personal
2
<PAGE>
investment that is not in a business activity that is directly or indirectly
competitive with the Company.
4. Compensation and Related Matters.
--------------------------------
(a) Salary. During the Employment Period, the Company shall pay the
------
Executive a salary of not less than $280,000 during the first full year and at
such salary as determined by the Compensation Committee of the Board during the
second and subsequent years of the Executive's employment with the Company, but
in no case less than $280,000 per year. All salary is to be paid consistent
with the standard payroll practices of the Company (e.g., timing of payments and
----
standard employee deductions, such as income tax withholdings, social security,
etc.). The Executive's performance and salary shall be subject to review at the
end of each fiscal year and increase consistent with the standard practices of
the Company.
(b) Business Expenses. The Company shall reimburse the Executive in
-----------------
connection with the conduct of the Company's business upon presentation of
sufficient evidence of such expenditures consistent with the Company's policies
as in place from time to time. Such benefits are all subject to change in the
Company's sole and absolute discretion. Currently, those benefits include a
Company paid participation for the Executive only in (i) an HMO (with the right
to upgrade to a PPO health provider at the Executive's expense in accordance
with the terms of our agreement with our current carrier, Blue Shield) and (ii)
an HMO dental provider (with the right to upgrade to a PPO dental provider at
the Executive's expense in accordance with the terms of our agreement with our
current carrier). There is a waiting period on the effectiveness of the
Executive's medical coverage which may be as long as 90 days after commencement
of the Executive's employment with the Company. During this waiting period, the
Company's health plan would not cover the Executive. However, the Company has
agreed to cover the Executive's COBRA costs to maintain the Executive's current
health coverage for this three month waiting period, subject to a maximum
contribution by the Company each month equal to what the Company would have paid
on behalf of the Executive for health coverage had he been an employee of the
Company eligible for the Company's plan during this three month period. In
addition, the Executive will be able to participate at the Executive's own
expense in any life and disability policies available for purchase, in
accordance with the terms of the Company's plan with its carrier, and in the
Company 401K retirement plan. The cost of any medical or dental or other
insurance benefits selected by the Executive in excess of the benefits provided
by the Company for either the Executive or the Executive's dependents will be
paid by the Executive personally from payroll deductions.
(c) Other Benefits. The Executive shall be entitled to participate in
--------------
or receive health, welfare, life insurance, long-term disability insurance,
bonus plan and similar benefits as the Company provides generally from time to
time to its executives. The Executive shall have the right to participate at
Company expense in industry related trade groups, conventions, etc. in
furtherance of enhancing the Executive's visibility in and knowledge of the
time-share and resort industry. The Company acknowledges that, subject to and
conditioned upon the approval of the Board, within a reasonable time following
the execution of this Agreement, it will execute an option agreement
substantially in the form attached as Exhibit A hereto (the "Option Agreement")
and will institute and grant the Executive benefits under the equity
participation plan substantially
3
<PAGE>
in the form attached as Exhibit B hereto (the "Option Plan"). In the event that
the Board and the shareholders of the Company later approve amendments to the
Company's Stock Option Plan which would expand the number of shares included
therein, the Board would consider the Executive for additional grants of options
under the Company's Stock Option Plan based on the Executive's contributions to
the Company on the same basis that other senior executives (including, without
limitation, the Principals and other the Executive Vice President of the
Company) are so considered by the Board for such subsequent option grants.
Except as otherwise set forth in this Section 4 and except with respect to the
Company's obligations under this Agreement with respect to the Option Agreement
and the Option Plan, nothing herein is intended, or shall be construed to
require the Company to institute or continue any, or any particular, plan or
benefits.
(d) Merit Bonus. The Principals, or a relevant committee thereof, or
-----------
the Compensation Committee of the Board shall establish, monitor and oversee an
incentive bonus program for the Executive which has definitive, specific and
reasonably achievable hurdles and reasonably achievable performance standards
which, if achieved in the aggregate, and subject to the performance of the
Company as a whole specified therein, would result in the Executive receiving
bonus compensation of 100% of the Executive's then annual base salary paid to
the Executive during the applicable fiscal year, which bonus compensation would
be prorated for the first fiscal year of the Executive's employment ending on
December 31, 1996. Such incentive program would provide for specific partial
bonus achievement hurdles in connection with this program as well. Each
subsequent year thereafter, the Principals or the Compensation Committee of the
Board will monitor and review this program as necessary to reflect the
Executive's contributions to the Company. The award of the merit bonus will be
based primarily on two criteria. The first will be the nature of the
Executive's performance in excess of the high level of reasonably achievable
performance which the Company requires of all of its employees, including the
quality and level of the Executive's performance; the achievement by the
Executive of the reasonably achievable performance standards specified in the
Executive's incentive bonus compensation plan; and the value which the Executive
has contributed to or created for the Company. The second will be based on the
overall profitability and level of increased profitability (e.g., reduced cost
of funds, off-balance sheet financing, and other similar issues) in each of the
Company's activities in which the Executive has either bottom-line
responsibility or in which the Executive has been materially involved, as well
as the overall financial performance of the Company and its publicly-traded
stock.
(e) Fringe Benefits. The Executive will be entitled to fringe
---------------
benefits as may be determined or granted from time-to-time by the Board.
(f) Vacation. The Executive shall be entitled to four vacation weeks
--------
(20 days) in each calendar year on a pro-rated basis. The Executive will be
entitled to all Company holidays.
(g) Performance Reviews. At the end of each fiscal year, the Company
-------------------
(through the Principals or the Compensation Committee of the Board) will review
the Executive's job performance and will provide the Executive a written review
of the Executive's job performance during the prior year and implement any
Company determined revisions to the
4
<PAGE>
Executive's base salary, the Executive's merit bonus, the Executive's
prospective incentive compensation package (including the Executive's
participation in the Option Plan), the Executive's title and/or the Executive's
responsibility at the Company; provided, however, that neither of Executive's
title, base salary, merit bonus potential, position or responsibilities at the
Company shall be reduced.
(h) Moving Expenses. The Company agrees to reimburse the Executive
---------------
for his reasonable and necessary moving expenses incurred in moving his
personal, family and household belongings from San Antonio, Texas to the San
Francisco Bay area. Such reimbursements will not include costs incurred by the
Executive in either selling his current residence, or purchasing a new residence
and will not include any brokerage, closing, or incremental gains or losses
incurred by Executive in selling and/or purchasing such residential real estate.
The Company will reimburse the Executive all reasonable costs incurred in making
up to two trips to the San Francisco area with his family to locate a new
residence.
5. Termination. The Executive's employment hereunder shall be, or may
-----------
be, as the case may be, terminated under the following circumstances:
(a) Death. The Executive's employment hereunder shall terminate upon
-----
his death.
(b) Disability. The Executive's employment hereunder shall terminate
----------
on the Executive's physical or mental disability or infirmity which, in the
opinion of a competent physician selected by the Board, renders the Executive
unable to perform his duties under this Agreement for more than 120 days during
any 180-day period.
(c) Cause. The Company may terminate the Executive's employment
-----
hereunder for "Cause." Cause shall mean (i) Employee's material breach of any
-----
of the terms of this Agreement, (ii) his conviction of a crime involving moral
turpitude or constituting a felony under the laws of any state, the District of
Columbia or of the United States, or (iii) his gross negligence, willful
misconduct or fraud in the performance of his duties hereunder.
(d) Employment-At-Will/Termination for Any Reason. Notwithstanding
---------------------------------------------
the term of this Agreement having a duration of two years and Sections 2 and 4
hereof referring to extensions of this Agreement and the annual salary to be
paid to the Executive during his employment with the Company, nothing in this
Agreement should be construed as to confer any right of the Executive to be
employed by the Company for a fixed or definite term. Subject to Section 6
hereof, the Executive hereby agrees that the Company may dismiss him under this
Section 5(d) without regard (i) to any general or specific policies (whether
written or oral) of the Company relating to the employment or termination of its
employees, or (ii) to any statements made to the Executive, whether made orally
or contained in any document, pertaining to the Executive's relationship with
the Company. Notwithstanding anything to the contrary contained herein,
including Sections 2 and 4, the Executive's employment with the Company is not
for any specified term, is at will and may be terminated by the Company at any
time by delivery of a notice of termination to the Executive, for any reason,
with or without cause, without liability except with respect to the payments
provided for by Section 6.
5
<PAGE>
(e) Voluntary Resignation. The Executive may voluntarily resign his
---------------------
position and terminate his employment with the Company at any time by delivery
of a written notice of resignation to the Company (the "Notice of Resignation").
---------------------
The Notice of Resignation shall set forth the date such resignation shall become
effective (the "Date of Resignation"), which date shall, in any event, be at
-------------------
least ten (10) days and no more than thirty (30) days from the date the Notice
of Resignation is delivered to the Company. At its option, the Company may
reduce such notice period to any length, upon thirty (30) days written notice to
the Executive.
(f) Notice. Any termination of the Executive's employment by the
------
Company shall be communicated by written Notice of Termination to the Executive.
For purposes of this Agreement, a "Notice of Termination" shall mean a notice
---------------------
that shall indicate the specific termination provision in this Agreement relied
upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated.
(g) "Date of Termination" shall mean (i) if the Executive's employment
-------------------
is terminated by his death, the date of his death, (ii) if the Executive's
employment is terminated by reason of his disability, the date of the opinion of
the physician referred to in Section 5(b), above, (iii) if the Executive's
employment is terminated by the Company for Cause pursuant to subsection 5(c)
above, or without Cause by the Company pursuant to subsection 5(d) above, the
date specified in the Notice of Termination and (iv) if the Executive
voluntarily resigns pursuant to subsection 5(e) above, the date of the Notice of
Resignation.
(h) Termination Obligations.
-----------------------
(i) The Executive hereby acknowledges and agrees that all
personal property and equipment furnished to or prepared by the Executive
in the course of or incident to his employment, belongs to the Company and
shall be promptly returned to the Company upon termination of the
Employment Period. "Personal property" includes, without limitation, all
-----------------
books, manuals, records, reports, notes, contracts, lists, blueprints, and
other documents, or materials, or copies thereof (including computer
files), and all other proprietary information relating to the business of
the Company. Following termination, the Executive will not retain any
written or other tangible material containing any proprietary information
of the Company.
(ii) Upon termination of the Employment Period, the Executive
shall be deemed to have resigned from all offices and directorships then
held with the Company or any affiliate.
(iii) The representations and warranties contained herein and the
Executive's obligations under Sections 5(h), 7, 8, 9 and 15 through 18
shall survive termination of the Employment Period and the expiration of
this Agreement.
(i) Release. In exchange for the Company entering into the Agreement,
-------
the Executive agrees that, at the time of his resignation or termination from
the Company, he will execute a release acceptable to the Company of all
liability of the Company and its officers,
6
<PAGE>
shareholders, employees and directors to the Executive in connection with or
arising out of his employment with the Company, except with respect to any then-
vested rights under the Company's Option Plan and except with respect to any
Severance Payments which may be payable to him under the terms of the Agreement.
Nothing herein shall modify Employee's mediation and other rights under this
Agreement.
6. Compensation Upon Termination.
-----------------------------
(a) Death. If the Executive's employment shall be terminated pursuant
-----
to Section 5(a), the Company shall pay the Executive monthly his base salary
payable pursuant to Section 4(a) and one-twelfth of any bonus payable pursuant
to Section 4(d) at the most recent annual amount received, or entitled to be
received, by the Executive (the "Severance Payment") for a period of two years
following the Date of Termination. At the Executive's own expense, the
Executive's dependents shall also be entitled to any continuation of health
insurance coverage rights under any applicable law.
(b) Disability. If the Executive's employment shall be terminated by
----------
reason of disability pursuant to Section 5(c), the Executive shall receive the
Severance Payment for the lesser of two years or the duration of such
disability; provided that payments so made to the Executive during the
disability shall be reduced by the sum of the amounts, if any, payable to the
Executive at or prior to the time of any such payment under any disability
benefit plan of the Company. At the Executive's own expense, the Executive and
his dependents shall also be entitled to any continuation of health insurance
coverage rights under any applicable law.
(c) Cause. If the Executive's employment shall be terminated for
-----
Cause pursuant to Section 5(c) hereof, the Company shall pay the Executive his
salary and any bonus then payable pursuant to Section 4(d)) through the Date of
Termination. At the Executive's own expense, the Executive and his dependents
shall also be entitled to any continuation of health insurance coverage rights
under any applicable law.
(d) Other Terminations by the Company. If the Company shall terminate
---------------------------------
the Executive's employment without cause pursuant to Section 5(d) hereof, the
Company shall pay the Executive the Severance Payment for a period of two years
from the Date of Termination. The Executive and his dependents shall also be
entitled to any continuation of health insurance coverage rights under any
applicable law.
(e) Voluntary Resignation. If the Executive terminates his employment
---------------------
with the Company pursuant to Section 5(g) hereof for "Good Cause", the Company
shall pay the Executive the Severance Payment for a period of two years from the
Date of Resignation. If the Executive terminates his employment with the
Company pursuant to Section 5(g) hereof without "Good Cause," the Company shall
have no obligation to compensate the Executive following the Date of
Resignation. In any event, at the Executive's own expense, the Executive and
his dependents shall be entitled to any continuation of health insurance
coverage rights under any applicable law.
7
<PAGE>
For purposes of this Agreement, "Good Cause" shall mean, without the
express written consent of the Executive, the occurrence of any of the following
events unless such events are substantially corrected within 30 days following
written notification by the Executive to the Company that he intends to
terminate his employment hereunder for one of the reasons set forth below:
(i) Any material alteration, reduction or diminution in the duties,
responsibilities or compensation of the Executive or required
relocation of the Executive from the Company's San Francisco Bay
area office;
(ii) a material breach by the Company of any provision of this
Agreement; and
(iii) the occurrence of a "Change in Control."
As used in this Agreement, "Change of Control" means the occurrence of
any of the following: (i) the adoption of a plan relating to the liquidation or
dissolution of the Company, (ii) the consummation of any transaction (including,
without limitation, any merger or consolidation) the result of which is that any
person or group, other than any of Osamu Kaneko, Andrew J. Gessow and Steven C.
Kenninger or their affiliates (the "Principals"), becomes the "beneficial owner"
(as such term is defined in Rule 13d-3 and Rule 13d-5 under the Securities
Exchange Act of 1934), directly or indirectly, of more than 50% of the total
voting power of the total outstanding voting stock of the Company on a fully
diluted basis or (iii) the consummation of the first transaction (including,
without limitation, any merger or consolidation) the result of which is that any
person or group, other than the Principals, becomes the beneficial owner (as
defined above), directly or indirectly, of more than 50% of the total voting
power of the total outstanding voting stock of the Company.
The Executive understands that any voluntary resignation by him as a
result of any personal or family reasons not otherwise set forth in this Section
6(e) shall not constitute "Good Cause."
(f) The Company will be entitled to offset and reduce each month the
amount of the monthly Severance Payment otherwise payable to the Executive
hereunder by seventy-five percent (75%) of the amount of the Executive's prior
month's earnings (if any) from post-Company employment (including both salary,
bonus and other cash or cash equivalent compensation) at a subsequent employer
or in connection with any consulting practice or other self-employment or
venture founded by the Executive.
(g) In the event of any Termination pursuant to Section 5, the
Executive shall be entitled to retain any and all options to purchase capital
stock of the Company granted to the Executive pursuant to the terms and
conditions of the Option Agreement attached as Exhibit A hereto that have vested
as of the date of such Termination.
(h) Any Severance Payment made pursuant to this Section 6 shall be
payable in equal monthly installments over the required duration set forth in
Sections 6(a) through 6(e).
8
<PAGE>
(i) The continuing obligation of the Company to make the Severance
Payment to the Executive is expressly conditioned upon the Executive complying
and continuing to comply with his obligations and covenants under Sections 7 and
8 of this Agreement following termination of employment with the Company.
7. Confidentiality and Non-Solicitation Covenants.
----------------------------------------------
(a) Confidentiality. In addition to the agreements set forth in
---------------
Section 5(h)(i), the Executive hereby agrees that the Executive will not, during
the Employment Period or at any time thereafter directly or indirectly disclose
or make available to any person, firm, corporation, association or other entity
for any reason or purpose whatsoever, any Confidential Information (as defined
below). The Executive agrees that, upon termination of his employment with the
Company, all Confidential Information in his possession that is in written or
other tangible form (together with all copies or duplicates thereof, including
computer files) shall be returned to the Company and shall not be retained by
the Executive or furnished to any third party, in any form except as provided
herein; provided, however, that the Executive shall not be obligated to treat as
confidential, or return to the Company copies of any Confidential Information
that (i) was publicly known at the time of disclosure to the Executive, (ii)
becomes publicly known or available thereafter other than by any means in
violation of this Agreement or any other duty owed to the Company by any person
or entity or (iii) is lawfully disclosed to the Executive by a third party. As
used in this Agreement the term "Confidential Information" means: information
------------------------
disclosed to the Executive or known by the Executive as a consequence of or
through his relationship with the Company, about the owners, customers,
employees, business methods, public relations methods, organization, procedures
or finances, including, without limitation, information of or relating to owner
or customer lists of the Company and its affiliates.
(b) Non-Solicitation. In addition, the Executive hereby agrees that
----------------
during the Employment Period and at all times thereafter, regardless of the
reason or circumstances of termination of employment with the Company, the
Executive will not, either on his own account or jointly with or as a manager,
agent, officer, employee, consultant, partner, joint venturer, owner or
shareholder or otherwise on behalf of any other person, firm or corporation, (i)
carry on or be engaged or interested directly or indirectly in, or solicit, the
manufacture or sale of goods or provision of services to any person, firm or
corporation which, at any time during the Employment Period has been or is a
customer of or in the habit of dealing with the Company in its business, (ii)
endeavor directly or indirectly to canvas or solicit in competition with Company
or to interfere with the supply of orders for goods or services from or by any
person, firm or corporation which during the Employment Period has been or is a
supplier of goods or services to Company or (iii) directly or indirectly solicit
or attempt to solicit away from Company any of its officers or employees or
offer employment to any person who, on or during the 6 months immediately
preceding the date of such solicitation or offer, is or was an officer or
employee of Company.
8. Covenant Not to Compete.
-----------------------
(a) The Executive agrees that during the Employment Period he will
devote substantially full-time to the business of the Company and not engage in
any competitive
9
<PAGE>
businesses. Subject to such full-time requirement and the restrictions set forth
below in this Section 8 and Section 3(c) above, the Executive shall be permitted
to continue his existing business investments and activities which the Executive
was involved in prior to his joining the Company as detailed on Exhibit "1"
attached hereto and may pursue additional business investments; provided that
the Executive not serve as officer of any public company resulting from such
business investments, except with the prior written approval of the Board (which
the Board may grant or withhold in its sole and absolute discretion). The
Executive agrees that he shall not (i) invest in, manage, consult or participate
in any way in any other timeshare business (in either an active or passive
manner), (ii) participate in or advise any business wherein timeshare is a
relevant business segment or (iii) act for or on behalf of any business that
intends to enter or participate in the timeshare business, in each case unless
the independent members of the Company's Board of Directors determine that such
action is in the best interest of the Company. Notwithstanding the foregoing,
the Executive may purchase stock as a stockholder in any publicly traded
company, including any company which is involved in the timeshare business;
provided that the Executive does not own (together or separately or through his
affiliates) more than 5% of any company (other than the Company) in the
timeshare business. In addition, the Executive shall not invest (directly or
indirectly) in any timeshare property in the hospitality business (including any
condominium project) or any property where the business plan therefor includes
an intention to convert the property to timeshare, unless the independent
members of the Company's Board of Directors determine that such an investment is
in the best interest of the Company.
(b) The provisions of this Section 8 shall survive for two years
following any termination of employment, regardless of whether the termination
is for "Good Cause" or otherwise.
9. Injunctive Relief and Enforcement. In the event of breach by the
---------------------------------
Executive of the terms of Sections 5(h)(i), 7 or 8, and only following mediation
or attempted mediation as set forth in Section 16 below (unless the Company is
suffering irreparable injury, in which case Section 16 will not prevent the
Company from seeking injunctive relief against the Executive in any court or
forum), the Company shall be entitled to institute legal proceedings to enforce
the specific performance of this Agreement by the Executive and to enjoin the
Executive from any further violation of Sections 5(h)(i), 7 or 8 and to exercise
such remedies cumulatively or in conjunction with all other rights and remedies
provided by law and not otherwise limited by this Agreement. The Executive
acknowledges, however, that the remedies at law for any breach by him of the
provisions of Sections 5(h)(i), 7 or 8 may be inadequate. In addition, in the
event the agreements set forth in Sections 5(h)(i), 7 or 8 shall be determined
by any court of competent jurisdiction to be unenforceable by reason of
extending for too great a period of time or over too great a geographical area
or by reason of being too extensive in any other respect, each such agreement
shall be interpreted to extend over the maximum period of time for which it may
be enforceable and to the maximum extent in all other respects as to which it
may be enforceable, and enforced as so interpreted, all as determined by such
court in such action.
10. Notice. For the purposes of this Agreement, notices, demands and all
------
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when personally delivered when
transmitted by telecopy with receipt confirmed,
10
<PAGE>
or one day after delivery to an overnight air courier guaranteeing next day
delivery, addressed as follows:
If to the Executive: Michael A. Depatie
2934 Woodside Road
Woodside, California 94062
If to the Company: Signature Resorts, Inc.
5933 W. Century Boulevard, Suite 210
Los Angeles, California 90045
Attention: Andrew D. Hutton, Esq.
With a copy to: Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, California 90071-2007
Attention: Edward Sonnenschein, Jr., Esq.
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
11. Severability. The invalidity or unenforceability of any provision or
------------
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect; provided, however, that if any one or more of the terms contained in
Sections 5(h), 7 or 8 hereto shall for any reason be held to be excessively
broad with regard to time, duration, geographic scope or activity, that term
shall not be deleted but shall be reformed and constructed in a manner to enable
it to be enforced to the extent compatible with applicable law.
12. Assignment. This Agreement may not be assigned by the Executive, but
----------
may be assigned by the Company to any successor to its business and will inure
to the benefit and be binding upon any such successor.
13. Counterparts. This Agreement may be executed in several counterparts,
------------
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
14. Headings. The headings contained herein are for reference purposes
--------
only and shall not in any way affect the meaning or interpretation of this
Agreement.
15. Choice of Law. This Agreement shall be construed, interpreted and the
-------------
rights of the parties determined in accordance with the laws of the State of
Maryland (without reference to the choice of law provisions of Maryland), except
with respect to matters of law concerning the internal corporate affairs of any
corporate entity which is a party to or the subject of this Agreement, and as to
those matters the law of the jurisdiction under which the respective entity
derives its powers shall govern.
11
<PAGE>
16. Mediation. Subject to any irreparable injury being suffered by the
---------
Company giving rise to the right of the Company to seek injunctive relief
against the Executive pursuant to Section 9 hereof, in the event that there
shall be a dispute among the parties arising out of or relating to this
Agreement, or the breach thereof, the parties agree that such dispute shall be
resolved by final and binding mediation in Los Angeles, California, before a
mediator and on terms and conditions mutually acceptable to the parties;
provided, however, that if the parties cannot agree on the terms and conditions
of such mediation, such terms and conditions shall be established by the
mediator. Any award issued as a result of such mediation shall be final and
binding between the parties thereto, and shall be enforceable by any court
having jurisdiction over the party against whom enforcement is sought. The fees
and expenses relating to such mediation (with the exception of the Executive's
attorneys' fees, if any) or any action to enforce a mediation award shall be
paid by the Company.
17. LIMITATION ON LIABILITIES. IF EITHER THE EXECUTIVE OR THE COMPANY IS
-------------------------
AWARDED ANY DAMAGES AS COMPENSATION FOR ANY BREACH OR ACTION RELATED TO THIS
AGREEMENT, A BREACH OF ANY COVENANT CONTAINED IN THIS AGREEMENT (WHETHER EXPRESS
OR IMPLIED BY EITHER LAW OR FACT), OR ANY OTHER CAUSE OF ACTION BASED IN WHOLE
OR IN PART ON ANY BREACH OF ANY PROVISION OF THIS AGREEMENT, SUCH DAMAGES SHALL
BE LIMITED TO CONTRACTUAL DAMAGES AND SHALL EXCLUDE (I) PUNITIVE DAMAGES, AND
(II) CONSEQUENTIAL AND/OR INCIDENTAL DAMAGES (E.G., LOST PROFITS AND OTHER
----
INDIRECT OR SPECULATIVE DAMAGES). THE MAXIMUM AMOUNT OF DAMAGES THAT THE
EXECUTIVE MAY RECOVER FOR ANY REASON SHALL BE THE AMOUNT EQUAL TO ALL AMOUNTS
OWED (BUT NOT YET PAID) TO THE EXECUTIVE PURSUANT TO THIS AGREEMENT THROUGH ITS
NATURAL TERM OR THROUGH ANY SEVERANCE PERIOD, PLUS INTEREST ON ANY DELAYED
PAYMENT AT THE MAXIMUM RATE PER ANNUM ALLOWABLE BY APPLICABLE LAW FROM AND AFTER
THE DATE(S) THAT SUCH PAYMENTS WERE DUE.
18. WAIVER OF JURY TRIAL. TO THE EXTENT APPLICABLE, EACH OF THE PARTIES
--------------------
TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL
OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR
ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT.
19. Entire Agreement. This Agreement contains the entire agreement and
----------------
understanding between the Company and the Executive with respect to the
employment of the Executive by the Company as contemplated hereby, and no
representations, promises, agreements or understandings, written or oral, not
herein contained shall be of any force or effect. This Agreement shall not be
changed unless in writing and signed by both the Executive and the Board of
Directors of the Company.
20. The Executive's Acknowledgment. The Executive acknowledges (a) that
------------------------------
he has had the opportunity to consult with independent counsel of his own choice
concerning this
12
<PAGE>
Agreement, and (b) that he has read and understands the Agreement, is fully
aware of its legal effect, and has entered into it freely based on his own
judgment.
IN WITNESS WHEREOF, the parties have executed this Employment
Agreement as of the date and year first above written.
SIGNATURE RESORTS, INC.
By /s/ Steven C. Kenninger
----------------------------------
Name: Steven C. Kenninger
Title: Chief Operating Officer
EXECUTIVE
/s/ Michael A. Depatie
--------------------------------------
Michael A. Depatie
13
<PAGE>
Exhibit 10.2.6
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (the "Agreement"), dated as of ______________,
199__, is made by and between SIGNATURE RESORTS, INC., a Maryland corporation
hereinafter referred to as "Company," and Gary L. Hughes, an employee of the
Company, hereinafter referred to as "Optionee":
WHEREAS, the Company wishes to afford the Optionee the opportunity to
purchase shares of its $.01 par value Common Stock; and
WHEREAS, the Company wishes to carry out the Plan (the terms of which are
hereby incorporated by reference and made a part of this Agreement); and
WHEREAS, the Committee, appointed to administer the Plan, has determined
that it would be to the advantage and best interest of the Company and its
shareholders to grant the Option provided for herein to the Optionee as an
inducement to enter into or remain in the service of the Company or its
Subsidiaries and as an incentive for increased efforts during such service, and
has advised the Company thereof and instructed the undersigned officers to issue
said Option;
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
Whenever the following terms are used in this Agreement, they shall have
the meaning specified below unless the context clearly indicates to the
contrary. The masculine pronoun shall include the feminine and neuter, and the
singular the plural, where the context so indicates.
Section 1.1 - Board
- ----------- -----
"Board" shall mean the Board of Directors of the Company.
Section 1.2 - Code
- ----------- ----
"Code" shall mean the Internal Revenue Code of 1986, as amended.
Section 1.3 - Committee
- ----------- ---------
<PAGE>
"Committee" shall mean the Compensation Committee of the Board, or a
subcommittee of the Board, appointed as provided in Section 9.1 of the Plan.
Section 1.4 - Common Stock
- ----------- ------------
"Common Stock" shall mean the common stock of the Company, par value $.01
per share, and any equity security of the Company issued or authorized to be
issued in the future, but excluding any warrants, options or other rights to
purchase Common Stock. Debt securities of the Company convertible into Common
Stock shall be deemed equity securities of the Company.
Section 1.5 - Company
- ----------- -------
"Company" shall mean Signature Resorts, Inc., a Maryland corporation.
Section 1.6 - Director
- ----------- --------
"Director" shall mean a member of the Board.
Section 1.7 - Employee
- ----------- ---------
"Employee" shall mean any officer or other employee (as defined in
accordance with Section 3401(c) of the Code) of the Company, or of any
corporation which is a Subsidiary.
Section 1.8 - Exchange Act
- ----------- -------------
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
Section 1.9 - Fair Market Value
- ----------- ------------------
"Fair Market Value" of a share of Common Stock as of a given date shall be
(i) the mean between the highest and lowest selling price of a share of Common
Stock on the principal exchange on which shares of Common Stock are then
trading, if any, on such date, or if shares were not traded on such date, then
on the closest preceding date on which a trade occurred, or (ii) if Common Stock
is not traded on an exchange, the mean between the closing representative bid
and asked prices for the Common Stock on such date as reported by NASDAQ or, if
NASDAQ is not then in existence, by its successor quotation system; or (iii) if
Common Stock is not publicly traded, the Fair Market Value of a share of Common
Stock as established by the Committee acting in good faith.
Section 1.10 - Option
- ------------ -------
"Option" shall mean a non-qualified stock option granted under this
Agreement and Article III of the Plan.
2
<PAGE>
Section 1.11 - Optionee
- ------------ ---------
"Optionee" shall mean an Employee or consultant granted an Option under
this Agreement and the Plan.
Section 1.12 - Plan
- ------------ ----
"Plan" shall mean The 1996 Equity Participation Plan of Signature Resorts,
Inc.
Section 1.13 - Rule 16b-3
- ------------ ----------
"Rule 16b-3" shall mean that certain Rule 16b-3 under the Exchange Act, as
such Rule may be amended from time to time.
Section 1.14 - Secretary
- ------------ ---------
"Secretary" shall mean the Secretary of the Company.
Section 1.15 - Securities Act
- ------------ --------------
"Securities Act" shall mean the Securities Act of 1933, as amended.
Section 1.16 - Subsidiary
- ------------ -----------
"Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
Section 1.17 - Termination of Consultancy
- ------------ --------------------------
"Termination of Consultancy" shall mean the time when the engagement of
Optionee as a Consultant to the Company or a Subsidiary is terminated for any
reason, with or without cause, including without limitation, resignation,
discharge, death or retirement; but excluding terminations where there is a
simultaneous commencement of employment with the Company or any Subsidiary. The
Committee, in its absolute discretion, shall determine the effect of all matters
and questions relating to Termination of Consultancy, including, but not by way
of limitation, the question of whether a Termination of Consultancy resulted
from a discharge for good cause, and all questions of whether particular leaves
of absence constitute Terminations of Employment. Notwithstanding any other
provision of this Plan, the Company or any Subsidiary has an absolute and
unrestricted right to terminate a consultant's service at any time for any
reason whatsoever, with or without cause, except to the extent expressly
provided otherwise in writing.
3
<PAGE>
Section 1.18 - Termination of Employment
- ------------ --------------------------
"Termination of Employment" shall mean the time when the employee-employer
relationship between the Optionee and the Company or any Subsidiary is
terminated for any reason, including, but not by way of limitation, a
termination by resignation, discharge, death, disability or retirement; but
excluding (i) terminations where there is a simultaneous reemployment,
continuing employment of an Optionee by the Company or any Subsidiary, (ii) at
the discretion of the Committee, terminations which result in a temporary
severance of the employee-employer relationship, and (iii) at the discretion of
the Committee, terminations which are followed by the simultaneous establishment
of a consulting relationship by the Company or a Subsidiary with the former
employee. The Committee, in its absolute discretion, shall determine the effect
of all matters and questions relating to Termination of Employment, including,
but not by way of limitation, the question of whether a Termination of
Employment resulted from a discharge for good cause, and all questions of
whether particular leaves of absence constitute Terminations of Employment.
Notwithstanding any other provision of this Plan, the Company or any Subsidiary
has an absolute and unrestricted right to terminate an Employee's employment at
any time for any reason whatsoever, with or without cause, except to the extent
expressly provided otherwise in writing.
ARTICLE II
GRANT OF OPTION
---------------
Section 2.1 - Grant of Option
- ----------- ---------------
(a) In consideration of the Optionee's agreement to remain in the employ
of (or consult for) the Company or its Subsidiaries for a period of at three (3)
years after the option is granted and for other good and valuable consideration,
on the date hereof the Company irrevocably grants to the Optionee the option to
purchase any part or all of an aggregate of 50,000 shares of its $.01 par value
Common Stock upon the terms and conditions set forth in this Agreement.
(b) In consideration of the Optionee's agreement to remain in the employ
of (or consult for) the Company or its Subsidiaries for a period of at three (3)
years after the option is granted and for other good and valuable consideration,
on the date hereof the Company conditionally grants to the Optionee the option
to purchase any part or all of an aggregate of 50,000 shares of its $.01 par
value Common Stock upon the terms and conditions set forth in this Agreement,
subject to the complete satisfaction of the following conditions subsequent as
determined by the Company in the exercise of its good faith business judgment:
(i) As defined with particularity in that certain Employment Agreement
between the Executive and the Company, In the event that the 1997 AVCOM calendar
year consolidated net revenues and after-tax net profits are (a) 80% or more of
the amounts set forth in Exhibit "C" to such Employment Agreement, the Executive
-----------
shall unconditionally receive
4
<PAGE>
16,666 shares; (b) 90% or more of the amounts set forth in Exhibit "C" to such
-----------
Employment Agreement, the Executive shall receive an additional 16,667 shares
(for a total of a 33,333 shares); or (c) 100% or more of the amounts set forth
in Exhibit "C" to such Employment Agreement, the Executive shall receive an
-----------
additional 16,667 shares (for a total of a 50,000 shares).
(ii) In the event that any of the foregoing conditions subsequent is not
timely satisfied, the options conditionally granted conditioned upon the
occurrence of such condition subsequent shall automatically be revoked and be of
no further force or effect.
Section 2.2 - Purchase Price
- ----------- --------------
The purchase price of the shares of stock covered by the Option shall be
$_____ per share without commission or other charge, which sum is the Fair
Market Value of a share of Common Stock as of the date of this Agreement (i.e.,
the mean between the highest and lowest selling price of a share of Common Stock
as traded on NASDAQ on the effective date of the Employment Agreement between
the Executive and the Company).
Section 2.3 - Consideration to Company
- ----------- ------------------------
In consideration of the granting of this Option by the Company, the
Optionee agrees to render faithful and efficient services to the Company or a
Subsidiary, with such duties and responsibilities as the Company shall from time
to time prescribe, for a period of at least two (2) years from the date this
Option is granted. Nothing in the Plan or this Agreement shall confer upon any
Optionee any right to continue in the employ of, or as a consultant for, the
Company or any Subsidiary, or as a director of the Company, or shall interfere
with or restrict in any way the rights of the Company and any Subsidiary, which
are hereby expressly reserved, to discharge the Optionee at any time for any
reason whatsoever, with or without good cause.
Section 2.4 - Adjustments in Option
- ----------- ---------------------
(a) In the event that the outstanding shares of the stock subject to the
Option are changed into or exchanged for a different number or kind of shares of
the Company or other securities of the Company, or of another corporation, by
reason of reorganization, merger, consolidation, recapitalization,
reclassification, stock splitup, stock dividend or combination of shares, the
Committee shall make an appropriate and equitable adjustment in the number and
kind of shares as to which the Option, or portions thereof then unexercised,
shall be exercisable, to the end that after such event the Optionee's
proportionate interest shall be maintained as before the occurrence of such
event. Such adjustment in the Option may include any necessary corresponding
adjustment in the Option price per share, but shall be made without change in
the total price applicable to the unexercised portion of the Option (except for
any change in the aggregate price resulting from rounding-off of share
quantities or prices). Any such adjustment made by the Committee shall be final
and binding upon the Optionee, the Company and all other interested persons.
5
<PAGE>
(b) Notwithstanding the foregoing, in the event of such a reorganization,
merger, consolidation, recapitalization, reclassification, stock splitup, stock
dividend or combination, or other adjustment or event which results in shares of
Common Stock being exchanged for or converted into cash, securities or other
property, the Company will have the right to terminate the Plan as of the date
of the exchange or conversion, in which case all options, rights and other
awards under this Plan shall become the right to receive such cash, securities
or other property, net of any applicable exercise price.
(c) In the event of a "spin-off" or other substantial distribution of
assets of the Company which has a material diminutive effect upon the Fair
Market Value of the Company's Common Stock, the Board may in its discretion make
an appropriate and equitable adjustment to the Option to reflect such
diminution.
ARTICLE III
PERIOD OF EXERCISABILITY
------------------------
Section 3.1 - Commencement of Exercisability
- ----------- ------------------------------
(a) Subject to Section 5.6, the Option shall become exercisable in three
(3) cumulative installments as follows, subject to the occurrence of each of the
conditions subsequent set forth in Section 2.1(b):
(i) The first installment shall consist of 33,333 of the shares
covered by the Option and shall become exercisable on the first anniversary
of the date of execution of this Agreement.
(ii) The second installment shall consist of 33,333 of the shares
covered by the Option and shall become exercisable on the second
anniversary of the date of execution of this Agreement.
(iii) The third installment shall consist of 33,333 of the shares
covered by the Option and shall become exercisable on the third
anniversary of the date of execution of this Agreement.
(b) No portion of the Option which is unexercisable at Termination of
Employment or Termination of Consultancy, as applicable, shall thereafter become
exercisable.
Section 3.2 - Duration of Exercisability
- ----------- --------------------------
The installments provided for in Section 3.1 are cumulative. Each such
installment which becomes exercisable pursuant to Section 3.1 shall remain
exercisable until it becomes unexercisable under Section 3.3.
6
<PAGE>
Section 3.3 - Expiration of Option
- ----------- --------------------
The Option may not be exercised to any extent by anyone after the first to
occur of the following events:
(a) The expiration of ten (10) years from the date the Option was granted;
or
(b) The time of the Optionee's Termination of Employment or Termination of
Consultancy unless such Termination of Employment or Termination of Consultancy,
as applicable, results from his death, his retirement, his disability or his
being discharged not for "Cause" (as defined in Section 5(c) of the Employment
Agreement dated the date hereof between Optionee and the Company); or
(c) The expiration of three (3) months from the date of the Optionee's
Termination of Employment or Termination of Consultancy by reason of his
retirement or his being discharged not for "Cause," unless the Optionee dies
within said three-month period; or
(d) The expiration of one (1) year from the date of the Optionee's
Termination of Employment or Termination of Consultancy by reason of his
disability; or
(e) The expiration of one (1) year from the date of the Optionee's death;
or
(f) The effective date of either the merger or consolidation of the
Company with or into another corporation, the exchange of all or substantially
all of the assets of the Company for the securities of another corporation, the
acquisition by another corporation or person of all or substantially all of the
Company's assets or eighty percent (80%) or more of the Company's then
outstanding voting stock, or the liquidation or dissolution of the Company,
unless the Committee waives this provision in connection with such transaction.
At least ten (10) days prior to the effective date of such merger,
consolidation, exchange, acquisition, liquidation or dissolution, the Committee
shall give the Optionee notice of such event if the Option has then neither been
fully exercised nor become unexercisable under this Section 3.3.
Section 3.4 - Acceleration of Exercisability
- ----------- ------------------------------
In the event of the merger or consolidation of the Company with or into
another corporation, the exchange of all or substantially all of the assets of
the Company for the securities of another corporation, the acquisition by
another corporation or person of all or substantially all of the Company's
assets or eighty percent (80%) or more of the Company's then outstanding voting
stock, or the liquidation or dissolution of the Company, the Committee may, in
its absolute discretion and upon such terms and conditions as it deems
appropriate, provide by resolution, adopted prior to such event and incorporated
in the notice referred to in Section 3.3(f), that at some time prior to the
effective date of such event this Option shall be exercisable as to all the
shares covered hereby, notwithstanding that this Option may not yet have become
7
<PAGE>
fully exercisable under Section 3.1(a); provided, however, that this
acceleration of exercisability shall not take place if:
(a) This Option becomes unexercisable under Section 3.3 prior to said
effective date; or
(b) In connection with such an event, provision is made for an assumption
of this Option or a substitution therefor of a new option by an employer
corporation or a parent or subsidiary of such corporation.
The Committee may make such determinations and adopt such rules and
conditions as it, in its absolute discretion, deems appropriate in connection
with such acceleration of exercisability, including, but not by way of
limitation, provisions to ensure that any such acceleration and resulting
exercise shall be conditioned upon the consummation of the contemplated
corporate transaction.
None of the foregoing discretionary terms of this Section shall be
permitted to the extent that such discretion would be inconsistent with the
requirements of Rule 16b-3.
ARTICLE IV
EXERCISE OF OPTION
------------------
Section 4.1 - Person Eligible to Exercise
- ----------- ---------------------------
During the lifetime of the Optionee, only he may exercise the Option or any
portion thereof. After the death of the Optionee, any exercisable portion of
the Option may, prior to the time when the Option becomes unexercisable under
Section 3.3, be exercised by his personal representative or by any person
empowered to do so under the Optionee's will or under the then applicable laws
of descent and distribution.
Section 4.2 - Partial Exercise
- ----------- ----------------
Any exercisable portion of the Option or the entire Option, if then wholly
exercisable, may be exercised in whole or in part at any time prior to the time
when the Option or portion thereof becomes unexercisable under Section 3.3;
provided, however, that each partial exercise shall be for not less than one
thousand (1,000) shares and shall be for whole shares only.
Section 4.3 - Manner of Exercise
- ----------- ------------------
The Option, or any exercisable portion thereof, may be exercised solely by
delivery to the Secretary or his office of all of the following prior to the
time when the Option or such portion becomes unexercisable under Section 3.3:
8
<PAGE>
(a) Notice in writing signed by the Optionee or the other person then
entitled to exercise the Option or portion, stating that the Option or portion
is thereby exercised, such notice complying with all applicable rules
established by the Committee or the Board; and
(b)(i) Full payment (in cash) for the shares with respect to which such
Option or portion is exercised;
(ii) With the consent of the Committee, payment delayed for up to
thirty (30) days from the date the Option, or portion thereof, is exercised; or
(iii) With the consent of the Committee, (A) shares of the Company's
Common Stock owned by the Optionee duly endorsed for transfer to the Company or
(B) subject to the timing requirements of Section 4.4, shares of the Company's
Common Stock issuable to the Optionee upon exercise of the Option, with a Fair
Market Value on the date of Option exercise equal to the aggregate purchase
price of the shares with respect to which such Option or portion is exercised;
or
(iv) With the consent of the Committee, property of any kind which
constitutes good and valuable consideration; or
(v) With the consent of the Committee, a full recourse promissory note
bearing interest (at no less than such rate as shall then preclude the
imputation of interest under the Code or successor provision) and payable upon
such terms as may be prescribed by the Committee or the Board. The Committee
may also prescribe the form of such note and the security to be given for such
note. The Option may not be exercised, however, by delivery of a promissory
note or by a loan from the Company when or where such loan or other extension of
credit is prohibited by law; or
(vi) With the consent of the Committee, any combination of the
consideration provided in the foregoing subparagraphs (iii), (iv) and (v); and
(c) A bona fide written representation and agreement, in a form
satisfactory to the Committee or the Board, signed by the Optionee or other
person then entitled to exercise such Option or portion, stating that the shares
of stock are being acquired for his own account, for investment and without any
present intention of distributing or reselling said shares or any of them except
as may be permitted under the Securities Act and then applicable rules and
regulations thereunder, and that the Optionee or other person then entitled to
exercise such Option or portion will indemnify the Company against and hold it
free and harmless from any loss, damage, expense or liability resulting to the
Company if any sale or distribution of the shares by such person is contrary to
the representation and agreement referred to above. The Committee may, in its
absolute discretion, take whatever additional actions it deems appropriate to
insure the observance and performance of such representation and agreement and
to effect compliance with the Securities Act and any other federal or state
securities laws or regulations. Without limiting the generality of the
foregoing, the Committee may require an opinion of
9
<PAGE>
counsel acceptable to it to the effect that any subsequent transfer of shares
acquired on an Option exercise does not violate the Securities Act, and may
issue stop-transfer orders covering such shares. Share certificates evidencing
stock issued on exercise of this Option shall bear an appropriate legend
referring to the provisions of this subsection (c) and the agreements herein.
The written representation and agreement referred to in the first sentence of
this subsection (c) shall, however, not be required if the shares to be issued
pursuant to such exercise have been registered under the Securities Act, and
such registration is then effective in respect of such shares; and
(d) Full payment to the Company (or other employer corporation) of all
amounts which, under federal, state or local tax law, it is required to withhold
upon exercise of the Option; with the consent of the Committee, (i) shares of
the Company's Common Stock owned by the Optionee duly endorsed for transfer, or
(ii) subject to the timing requirements of Section 4.4, shares of the Company's
Common Stock issuable to the Optionee upon exercise of the Option, having a Fair
Market Value at the date of Option exercise equal to the sums required to be
withheld, may be used to make all or part of such payment; and
(e) In the event the Option or portion shall be exercised pursuant to
Section 4.1 by any person or persons other than the Optionee, appropriate proof
of the right of such person or persons to exercise the Option.
Section 4.4 - Certain Timing Requirements
- ----------- ---------------------------
Shares of the Company's Common Stock issuable to the Optionee upon exercise
of the Option may be used to satisfy the Option price or the tax withholding
consequences of such exercise only (i) during the period beginning on the third
(3rd) business day following the date of release of the quarterly or annual
summary statement of sales and earnings of the Company and ending on the twelfth
(12th) business day following such date or (ii) pursuant to an irrevocable
written election by the Optionee to use shares of the Company's Common Stock
issuable to the Optionee upon exercise of the Option to pay all or part of the
Option price or the withholding taxes (subject to the approval of the Committee)
made at least six (6) months prior to the payment of such Option price or
withholding taxes.
Section 4.5 - Conditions to Issuance of Stock Certificates
- ----------- --------------------------------------------
The shares of stock deliverable upon the exercise of the Option, or any
portion thereof, may be either previously authorized but unissued shares or
issued shares which have then been reacquired by the Company. Such shares shall
be fully paid and nonassessable. The Company shall not be required to issue or
deliver any certificate or certificates for shares of stock purchased upon the
exercise of the Option or portion thereof prior to fulfillment of all of the
following conditions:
(a) The admission of such shares to listing on all stock exchanges on
which such class of stock is then listed; and
10
<PAGE>
(b) The completion of any registration or other qualification of such
shares under any state or federal law or under rulings or regulations of the
Securities and Exchange Commission or of any other governmental regulatory body,
which the Committee or Board shall, in its absolute discretion, deem necessary
or advisable; and
(c) The obtaining of any approval or other clearance from any state or
federal governmental agency which the Committee or Board shall, in its absolute
discretion, determine to be necessary or advisable; and
(d) The receipt by the Company of full payment for such shares, including
payment of all amounts which, under federal, state or local tax law, it is
required to withhold upon exercise of the Option; and
(e) The lapse of such reasonable period of time following the exercise of
the Option as the Committee or Board may from time to time establish for reasons
of administrative convenience.
Section 4.6 - Rights as Shareholder
- ----------- ---------------------
The holder of the Option shall not be, nor have any of the rights or
privileges of, a shareholder of the Company in respect of any shares purchasable
upon the exercise of any part of the Option unless and until certificates
representing such shares shall have been issued by the Company to such holder.
ARTICLE V
OTHER PROVISIONS
----------------
Section 5.1 - Administration
- ----------- --------------
The Committee shall have the power to interpret the Plan and this Agreement
and to adopt such rules for the administration, interpretation and application
of the Plan as are consistent therewith and to interpret or revoke any such
rules. All actions taken and all interpretations and determinations made by the
Committee in good faith shall be final and binding upon the Optionee, the
Company and all other interested persons. No member of the Committee shall be
personally liable for any action, determination or interpretation made in good
faith with respect to the Plan or the Option. In its absolute discretion, the
Board may at any time and from time to time exercise any and all rights and
duties of the Committee under this Plan except with respect to matters which
under Rule 16b-3 or Section 162(m) of the Code, or any regulations or rules
issued thereunder, are required to be determined in the sole discretion of the
Committee.
11
<PAGE>
Section 5.2 - Option Not Transferable
- ----------- -----------------------
Neither the Option nor any interest or right therein or part thereof shall
be liable for the debts, contracts or engagements of the Optionee or his
successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other means
whether such disposition be voluntary or involuntary or by operation of law by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof shall
be null and void and of no effect; provided, however, that this Section 5.2
shall not prevent transfers by will or by the applicable laws of descent and
distribution.
Section 5.3 - Shares to Be Reserved
- ----------- ---------------------
The Company shall at all times during the term of the Option reserve and
keep available such number of shares of stock as will be sufficient to satisfy
the requirements of this Agreement.
Section 5.4 - Notices
- ----------- -------
Any notice to be given under the terms of this Agreement to the Company
shall be addressed to the Company in care of its Secretary, and any notice to be
given to the Optionee shall be addressed to him at the address given beneath his
signature hereto. By a notice given pursuant to this Section 5.4, either party
may hereafter designate a different address for notices to be given to him. Any
notice which is required to be given to the Optionee shall, if the Optionee is
then deceased, be given to the Optionee's personal representative if such
representative has previously informed the Company of his status and address by
written notice under this Section 5.4. Any notice shall be deemed duly given
when enclosed in a properly sealed envelope or wrapper addressed as aforesaid,
deposited (with postage prepaid) in a post office or branch post office
regularly maintained by the United States Postal Service.
Section 5.5 - Titles
- ----------- ------
Titles are provided herein for convenience only and are not to serve as a
basis for interpretation or construction of this Agreement.
Section 5.6 - Construction
- ----------- ------------
This Agreement shall be administered, interpreted and enforced under the
laws of the State of Maryland.
Section 5.7 - Conformity to Securities Laws
- ----------- -----------------------------
The Optionee acknowledges that the Plan is intended to conform to the
extent necessary with all provisions of the Securities Act and the Exchange Act
and any and all
12
<PAGE>
regulations and rules promulgated by the Securities and Exchange Commission
thereunder, including without limitation Rule 16b-3. Notwithstanding anything
herein to the contrary, the Plan shall be administered, and the Option is
granted and may be exercised, only in such a manner as to conform to such laws,
rules and regulations. To the extent permitted by applicable law, the Plan and
this Agreement shall be deemed amended to the extent necessary to conform to
such laws, rules and regulations.
IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties hereto.
COMPANY:
-------
SIGNATURE RESORTS, INC.
By: ____________________________
President
By: ____________________________
Secretary
[CORPORATE SEAL]
OPTIONEE:
- --------
_______________________________
Gary L. Hughes
Address:_______________________
_______________________________
Taxpayer Identification Number:
_______________________________
13
<PAGE>
Exhibit 10.2.7
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (the "Agreement"), dated as of ______________,
199__, is made by and between SIGNATURE RESORTS, INC., a Maryland corporation
hereinafter referred to as "Company," and John R. Stevens, an employee of the
Company, hereinafter referred to as "Optionee":
WHEREAS, the Company wishes to afford the Optionee the opportunity to
purchase shares of its $.01 par value Common Stock; and
WHEREAS, the Company wishes to carry out the Plan (the terms of which are
hereby incorporated by reference and made a part of this Agreement); and
WHEREAS, the Committee, appointed to administer the Plan, has determined
that it would be to the advantage and best interest of the Company and its
shareholders to grant the Option provided for herein to the Optionee as an
inducement to enter into or remain in the service of the Company or its
Subsidiaries and as an incentive for increased efforts during such service, and
has advised the Company thereof and instructed the undersigned officers to issue
said Option;
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
Whenever the following terms are used in this Agreement, they shall have
the meaning specified below unless the context clearly indicates to the
contrary. The masculine pronoun shall include the feminine and neuter, and the
singular the plural, where the context so indicates.
Section 1.1 - Board
- ----------- -----
"Board" shall mean the Board of Directors of the Company.
Section 1.2 - Code
- ----------- ----
"Code" shall mean the Internal Revenue Code of 1986, as amended.
Section 1.3 - Committee
- ----------- ---------
<PAGE>
"Committee" shall mean the Compensation Committee of the Board, or a
subcommittee of the Board, appointed as provided in Section 9.1 of the Plan.
Section 1.4 - Common Stock
- ----------- ------------
"Common Stock" shall mean the common stock of the Company, par value $.01
per share, and any equity security of the Company issued or authorized to be
issued in the future, but excluding any warrants, options or other rights to
purchase Common Stock. Debt securities of the Company convertible into Common
Stock shall be deemed equity securities of the Company.
Section 1.5 - Company
- ----------- -------
"Company" shall mean Signature Resorts, Inc., a Maryland corporation.
Section 1.6 - Director
- ----------- --------
"Director" shall mean a member of the Board.
Section 1.7 - Employee
- ----------- ---------
"Employee" shall mean any officer or other employee (as defined in
accordance with Section 3401(c) of the Code) of the Company, or of any
corporation which is a Subsidiary.
Section 1.8 - Exchange Act
- ----------- -------------
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
Section 1.9 - Fair Market Value
- ----------- ------------------
"Fair Market Value" of a share of Common Stock as of a given date shall be
(i) the mean between the highest and lowest selling price of a share of Common
Stock on the principal exchange on which shares of Common Stock are then
trading, if any, on such date, or if shares were not traded on such date, then
on the closest preceding date on which a trade occurred, or (ii) if Common Stock
is not traded on an exchange, the mean between the closing representative bid
and asked prices for the Common Stock on such date as reported by NASDAQ or, if
NASDAQ is not then in existence, by its successor quotation system; or (iii) if
Common Stock is not publicly traded, the Fair Market Value of a share of Common
Stock as established by the Committee acting in good faith.
Section 1.10 - Option
- ------------ -------
"Option" shall mean a non-qualified stock option granted under this
Agreement and Article III of the Plan.
2
<PAGE>
Section 1.11 - Optionee
- ------------ ---------
"Optionee" shall mean an Employee or consultant granted an Option under
this Agreement and the Plan.
Section 1.12 - Plan
- ------------ ----
"Plan" shall mean The 1996 Equity Participation Plan of Signature Resorts,
Inc.
Section 1.13 - Rule 16b-3
- ------------ ----------
"Rule 16b-3" shall mean that certain Rule 16b-3 under the Exchange Act, as
such Rule may be amended from time to time.
Section 1.14 - Secretary
- ------------ ---------
"Secretary" shall mean the Secretary of the Company.
Section 1.15 - Securities Act
- ------------ --------------
"Securities Act" shall mean the Securities Act of 1933, as amended.
Section 1.16 - Subsidiary
- ------------ -----------
"Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
Section 1.17 - Termination of Consultancy
- ------------ --------------------------
"Termination of Consultancy" shall mean the time when the engagement of
Optionee as a Consultant to the Company or a Subsidiary is terminated for any
reason, with or without cause, including without limitation, resignation,
discharge, death or retirement; but excluding terminations where there is a
simultaneous commencement of employment with the Company or any Subsidiary. The
Committee, in its absolute discretion, shall determine the effect of all matters
and questions relating to Termination of Consultancy, including, but not by way
of limitation, the question of whether a Termination of Consultancy resulted
from a discharge for good cause, and all questions of whether particular leaves
of absence constitute Terminations of Employment. Notwithstanding any other
provision of this Plan, the Company or any Subsidiary has an absolute and
unrestricted right to terminate a consultant's service at any time for any
reason whatsoever, with or without cause, except to the extent expressly
provided otherwise in writing.
3
<PAGE>
Section 1.18 - Termination of Employment
- ------------ --------------------------
"Termination of Employment" shall mean the time when the employee-employer
relationship between the Optionee and the Company or any Subsidiary is
terminated for any reason, including, but not by way of limitation, a
termination by resignation, discharge, death, disability or retirement; but
excluding (i) terminations where there is a simultaneous reemployment,
continuing employment of an Optionee by the Company or any Subsidiary, (ii) at
the discretion of the Committee, terminations which result in a temporary
severance of the employee-employer relationship, and (iii) at the discretion of
the Committee, terminations which are followed by the simultaneous establishment
of a consulting relationship by the Company or a Subsidiary with the former
employee. The Committee, in its absolute discretion, shall determine the effect
of all matters and questions relating to Termination of Employment, including,
but not by way of limitation, the question of whether a Termination of
Employment resulted from a discharge for good cause, and all questions of
whether particular leaves of absence constitute Terminations of Employment.
Notwithstanding any other provision of this Plan, the Company or any Subsidiary
has an absolute and unrestricted right to terminate an Employee's employment at
any time for any reason whatsoever, with or without cause, except to the extent
expressly provided otherwise in writing.
ARTICLE II
GRANT OF OPTION
---------------
Section 2.1 - Grant of Option
- ----------- ---------------
(a) In consideration of the Optionee's agreement to remain in the employ
of (or consult for) the Company or its Subsidiaries for a period of at three (3)
years after the option is granted and for other good and valuable consideration,
on the date hereof the Company irrevocably grants to the Optionee the option to
purchase any part or all of an aggregate of 50,000 shares of its $.01 par value
Common Stock upon the terms and conditions set forth in this Agreement.
(b) In consideration of the Optionee's agreement to remain in the employ
of (or consult for) the Company or its Subsidiaries for a period of at three (3)
years after the option is granted and for other good and valuable consideration,
on the date hereof the Company conditionally grants to the Optionee the option
to purchase any part or all of an aggregate of 50,000 shares of its $.01 par
value Common Stock upon the terms and conditions set forth in this Agreement,
subject to the complete satisfaction of the following conditions subsequent as
determined by the Company in the exercise of its good faith business judgment:
(i) As defined with particularity in that certain Employment Agreement
between the Executive and the Company, In the event that the 1997 AVCOM calendar
year consolidated net revenues and after-tax net profits are (a) 80% or more of
the amounts set forth in Exhibit "C" to such Employment Agreement, the Executive
-----------
shall unconditionally receive
4
<PAGE>
16,666 shares; (b) 90% or more of the amounts set forth in Exhibit "C" to such
-----------
Employment Agreement, the Executive shall receive an additional 16,667 shares
(for a total of a 33,333 shares); or (c) 100% or more of the amounts set forth
in Exhibit "C" to such Employment Agreement, the Executive shall receive an
-----------
additional 16,667 shares (for a total of a 50,000 shares).
(ii) In the event that any of the foregoing conditions subsequent is not
timely satisfied, the options conditionally granted conditioned upon the
occurrence of such condition subsequent shall automatically be revoked and be of
no further force or effect.
Section 2.2 - Purchase Price
- ----------- --------------
The purchase price of the shares of stock covered by the Option shall be
$_____ per share without commission or other charge, which sum is the Fair
Market Value of a share of Common Stock as of the date of this Agreement (i.e.,
the mean between the highest and lowest selling price of a share of Common Stock
as traded on NASDAQ on the effective date of the Employment Agreement between
the Executive and the Company).
Section 2.3 - Consideration to Company
- ----------- ------------------------
In consideration of the granting of this Option by the Company, the
Optionee agrees to render faithful and efficient services to the Company or a
Subsidiary, with such duties and responsibilities as the Company shall from time
to time prescribe, for a period of at least two (2) years from the date this
Option is granted. Nothing in the Plan or this Agreement shall confer upon any
Optionee any right to continue in the employ of, or as a consultant for, the
Company or any Subsidiary, or as a director of the Company, or shall interfere
with or restrict in any way the rights of the Company and any Subsidiary, which
are hereby expressly reserved, to discharge the Optionee at any time for any
reason whatsoever, with or without good cause.
Section 2.4 - Adjustments in Option
- ----------- ---------------------
(a) In the event that the outstanding shares of the stock subject to the
Option are changed into or exchanged for a different number or kind of shares of
the Company or other securities of the Company, or of another corporation, by
reason of reorganization, merger, consolidation, recapitalization,
reclassification, stock splitup, stock dividend or combination of shares, the
Committee shall make an appropriate and equitable adjustment in the number and
kind of shares as to which the Option, or portions thereof then unexercised,
shall be exercisable, to the end that after such event the Optionee's
proportionate interest shall be maintained as before the occurrence of such
event. Such adjustment in the Option may include any necessary corresponding
adjustment in the Option price per share, but shall be made without change in
the total price applicable to the unexercised portion of the Option (except for
any change in the aggregate price resulting from rounding-off of share
quantities or prices). Any such adjustment made by the Committee shall be final
and binding upon the Optionee, the Company and all other interested persons.
5
<PAGE>
(b) Notwithstanding the foregoing, in the event of such a reorganization,
merger, consolidation, recapitalization, reclassification, stock splitup, stock
dividend or combination, or other adjustment or event which results in shares of
Common Stock being exchanged for or converted into cash, securities or other
property, the Company will have the right to terminate the Plan as of the date
of the exchange or conversion, in which case all options, rights and other
awards under this Plan shall become the right to receive such cash, securities
or other property, net of any applicable exercise price.
(c) In the event of a "spin-off" or other substantial distribution of
assets of the Company which has a material diminutive effect upon the Fair
Market Value of the Company's Common Stock, the Board may in its discretion make
an appropriate and equitable adjustment to the Option to reflect such
diminution.
ARTICLE III
PERIOD OF EXERCISABILITY
------------------------
Section 3.1 - Commencement of Exercisability
- ----------- ------------------------------
(a) Subject to Section 5.6, the Option shall become exercisable in three
(3) cumulative installments as follows, subject to the occurrence of each of the
conditions subsequent set forth in Section 2.1(b):
(i) The first installment shall consist of 33,333 of the shares
covered by the Option and shall become exercisable on the first anniversary
of the date of execution of this Agreement.
(ii) The second installment shall consist of 33,333 of the shares
covered by the Option and shall become exercisable on the second
anniversary of the date of execution of this Agreement.
(iii) The third installment shall consist of 33,333 of the shares
covered by the Option and shall become exercisable on the third
anniversary of the date of execution of this Agreement.
(b) No portion of the Option which is unexercisable at Termination of
Employment or Termination of Consultancy, as applicable, shall thereafter become
exercisable.
Section 3.2 - Duration of Exercisability
- ----------- --------------------------
The installments provided for in Section 3.1 are cumulative. Each such
installment which becomes exercisable pursuant to Section 3.1 shall remain
exercisable until it becomes unexercisable under Section 3.3.
6
<PAGE>
Section 3.3 - Expiration of Option
- ----------- --------------------
The Option may not be exercised to any extent by anyone after the first to
occur of the following events:
(a) The expiration of ten (10) years from the date the Option was granted;
or
(b) The time of the Optionee's Termination of Employment or Termination of
Consultancy unless such Termination of Employment or Termination of Consultancy,
as applicable, results from his death, his retirement, his disability or his
being discharged not for "Cause" (as defined in Section 5(c) of the Employment
Agreement dated the date hereof between Optionee and the Company); or
(c) The expiration of three (3) months from the date of the Optionee's
Termination of Employment or Termination of Consultancy by reason of his
retirement or his being discharged not for "Cause," unless the Optionee dies
within said three-month period; or
(d) The expiration of one (1) year from the date of the Optionee's
Termination of Employment or Termination of Consultancy by reason of his
disability; or
(e) The expiration of one (1) year from the date of the Optionee's death;
or
(f) The effective date of either the merger or consolidation of the
Company with or into another corporation, the exchange of all or substantially
all of the assets of the Company for the securities of another corporation, the
acquisition by another corporation or person of all or substantially all of the
Company's assets or eighty percent (80%) or more of the Company's then
outstanding voting stock, or the liquidation or dissolution of the Company,
unless the Committee waives this provision in connection with such transaction.
At least ten (10) days prior to the effective date of such merger,
consolidation, exchange, acquisition, liquidation or dissolution, the Committee
shall give the Optionee notice of such event if the Option has then neither been
fully exercised nor become unexercisable under this Section 3.3.
Section 3.4 - Acceleration of Exercisability
- ----------- ------------------------------
In the event of the merger or consolidation of the Company with or into
another corporation, the exchange of all or substantially all of the assets of
the Company for the securities of another corporation, the acquisition by
another corporation or person of all or substantially all of the Company's
assets or eighty percent (80%) or more of the Company's then outstanding voting
stock, or the liquidation or dissolution of the Company, the Committee may, in
its absolute discretion and upon such terms and conditions as it deems
appropriate, provide by resolution, adopted prior to such event and incorporated
in the notice referred to in Section 3.3(f), that at some time prior to the
effective date of such event this Option shall be exercisable as to all the
shares covered hereby, notwithstanding that this Option may not yet have become
7
<PAGE>
fully exercisable under Section 3.1(a); provided, however, that this
acceleration of exercisability shall not take place if:
(a) This Option becomes unexercisable under Section 3.3 prior to said
effective date; or
(b) In connection with such an event, provision is made for an assumption
of this Option or a substitution therefor of a new option by an employer
corporation or a parent or subsidiary of such corporation.
The Committee may make such determinations and adopt such rules and
conditions as it, in its absolute discretion, deems appropriate in connection
with such acceleration of exercisability, including, but not by way of
limitation, provisions to ensure that any such acceleration and resulting
exercise shall be conditioned upon the consummation of the contemplated
corporate transaction.
None of the foregoing discretionary terms of this Section shall be
permitted to the extent that such discretion would be inconsistent with the
requirements of Rule 16b-3.
ARTICLE IV
EXERCISE OF OPTION
------------------
Section 4.1 - Person Eligible to Exercise
- ----------- ---------------------------
During the lifetime of the Optionee, only he may exercise the Option or any
portion thereof. After the death of the Optionee, any exercisable portion of
the Option may, prior to the time when the Option becomes unexercisable under
Section 3.3, be exercised by his personal representative or by any person
empowered to do so under the Optionee's will or under the then applicable laws
of descent and distribution.
Section 4.2 - Partial Exercise
- ----------- ----------------
Any exercisable portion of the Option or the entire Option, if then wholly
exercisable, may be exercised in whole or in part at any time prior to the time
when the Option or portion thereof becomes unexercisable under Section 3.3;
provided, however, that each partial exercise shall be for not less than one
thousand (1,000) shares and shall be for whole shares only.
Section 4.3 - Manner of Exercise
- ----------- ------------------
The Option, or any exercisable portion thereof, may be exercised solely by
delivery to the Secretary or his office of all of the following prior to the
time when the Option or such portion becomes unexercisable under Section 3.3:
8
<PAGE>
(a) Notice in writing signed by the Optionee or the other person then
entitled to exercise the Option or portion, stating that the Option or portion
is thereby exercised, such notice complying with all applicable rules
established by the Committee or the Board; and
(b)(i) Full payment (in cash) for the shares with respect to which such
Option or portion is exercised;
(ii) With the consent of the Committee, payment delayed for up to
thirty (30) days from the date the Option, or portion thereof, is exercised; or
(iii) With the consent of the Committee, (A) shares of the Company's
Common Stock owned by the Optionee duly endorsed for transfer to the Company or
(B) subject to the timing requirements of Section 4.4, shares of the Company's
Common Stock issuable to the Optionee upon exercise of the Option, with a Fair
Market Value on the date of Option exercise equal to the aggregate purchase
price of the shares with respect to which such Option or portion is exercised;
or
(iv) With the consent of the Committee, property of any kind which
constitutes good and valuable consideration; or
(v) With the consent of the Committee, a full recourse promissory note
bearing interest (at no less than such rate as shall then preclude the
imputation of interest under the Code or successor provision) and payable upon
such terms as may be prescribed by the Committee or the Board. The Committee
may also prescribe the form of such note and the security to be given for such
note. The Option may not be exercised, however, by delivery of a promissory
note or by a loan from the Company when or where such loan or other extension of
credit is prohibited by law; or
(vi) With the consent of the Committee, any combination of the
consideration provided in the foregoing subparagraphs (iii), (iv) and (v); and
(c) A bona fide written representation and agreement, in a form
satisfactory to the Committee or the Board, signed by the Optionee or other
person then entitled to exercise such Option or portion, stating that the shares
of stock are being acquired for his own account, for investment and without any
present intention of distributing or reselling said shares or any of them except
as may be permitted under the Securities Act and then applicable rules and
regulations thereunder, and that the Optionee or other person then entitled to
exercise such Option or portion will indemnify the Company against and hold it
free and harmless from any loss, damage, expense or liability resulting to the
Company if any sale or distribution of the shares by such person is contrary to
the representation and agreement referred to above. The Committee may, in its
absolute discretion, take whatever additional actions it deems appropriate to
insure the observance and performance of such representation and agreement and
to effect compliance with the Securities Act and any other federal or state
securities laws or regulations. Without limiting the generality of the
foregoing, the Committee may require an opinion of
9
<PAGE>
counsel acceptable to it to the effect that any subsequent transfer of shares
acquired on an Option exercise does not violate the Securities Act, and may
issue stop-transfer orders covering such shares. Share certificates evidencing
stock issued on exercise of this Option shall bear an appropriate legend
referring to the provisions of this subsection (c) and the agreements herein.
The written representation and agreement referred to in the first sentence of
this subsection (c) shall, however, not be required if the shares to be issued
pursuant to such exercise have been registered under the Securities Act, and
such registration is then effective in respect of such shares; and
(d) Full payment to the Company (or other employer corporation) of all
amounts which, under federal, state or local tax law, it is required to withhold
upon exercise of the Option; with the consent of the Committee, (i) shares of
the Company's Common Stock owned by the Optionee duly endorsed for transfer, or
(ii) subject to the timing requirements of Section 4.4, shares of the Company's
Common Stock issuable to the Optionee upon exercise of the Option, having a Fair
Market Value at the date of Option exercise equal to the sums required to be
withheld, may be used to make all or part of such payment; and
(e) In the event the Option or portion shall be exercised pursuant to
Section 4.1 by any person or persons other than the Optionee, appropriate proof
of the right of such person or persons to exercise the Option.
Section 4.4 - Certain Timing Requirements
- ----------- ---------------------------
Shares of the Company's Common Stock issuable to the Optionee upon exercise
of the Option may be used to satisfy the Option price or the tax withholding
consequences of such exercise only (i) during the period beginning on the third
(3rd) business day following the date of release of the quarterly or annual
summary statement of sales and earnings of the Company and ending on the twelfth
(12th) business day following such date or (ii) pursuant to an irrevocable
written election by the Optionee to use shares of the Company's Common Stock
issuable to the Optionee upon exercise of the Option to pay all or part of the
Option price or the withholding taxes (subject to the approval of the Committee)
made at least six (6) months prior to the payment of such Option price or
withholding taxes.
Section 4.5 - Conditions to Issuance of Stock Certificates
- ----------- --------------------------------------------
The shares of stock deliverable upon the exercise of the Option, or any
portion thereof, may be either previously authorized but unissued shares or
issued shares which have then been reacquired by the Company. Such shares shall
be fully paid and nonassessable. The Company shall not be required to issue or
deliver any certificate or certificates for shares of stock purchased upon the
exercise of the Option or portion thereof prior to fulfillment of all of the
following conditions:
(a) The admission of such shares to listing on all stock exchanges on
which such class of stock is then listed; and
10
<PAGE>
(b) The completion of any registration or other qualification of such
shares under any state or federal law or under rulings or regulations of the
Securities and Exchange Commission or of any other governmental regulatory body,
which the Committee or Board shall, in its absolute discretion, deem necessary
or advisable; and
(c) The obtaining of any approval or other clearance from any state or
federal governmental agency which the Committee or Board shall, in its absolute
discretion, determine to be necessary or advisable; and
(d) The receipt by the Company of full payment for such shares, including
payment of all amounts which, under federal, state or local tax law, it is
required to withhold upon exercise of the Option; and
(e) The lapse of such reasonable period of time following the exercise of
the Option as the Committee or Board may from time to time establish for reasons
of administrative convenience.
Section 4.6 - Rights as Shareholder
- ----------- ---------------------
The holder of the Option shall not be, nor have any of the rights or
privileges of, a shareholder of the Company in respect of any shares purchasable
upon the exercise of any part of the Option unless and until certificates
representing such shares shall have been issued by the Company to such holder.
ARTICLE V
OTHER PROVISIONS
----------------
Section 5.1 - Administration
- ----------- --------------
The Committee shall have the power to interpret the Plan and this Agreement
and to adopt such rules for the administration, interpretation and application
of the Plan as are consistent therewith and to interpret or revoke any such
rules. All actions taken and all interpretations and determinations made by the
Committee in good faith shall be final and binding upon the Optionee, the
Company and all other interested persons. No member of the Committee shall be
personally liable for any action, determination or interpretation made in good
faith with respect to the Plan or the Option. In its absolute discretion, the
Board may at any time and from time to time exercise any and all rights and
duties of the Committee under this Plan except with respect to matters which
under Rule 16b-3 or Section 162(m) of the Code, or any regulations or rules
issued thereunder, are required to be determined in the sole discretion of the
Committee.
11
<PAGE>
Section 5.2 - Option Not Transferable
- ----------- -----------------------
Neither the Option nor any interest or right therein or part thereof shall
be liable for the debts, contracts or engagements of the Optionee or his
successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other means
whether such disposition be voluntary or involuntary or by operation of law by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof shall
be null and void and of no effect; provided, however, that this Section 5.2
shall not prevent transfers by will or by the applicable laws of descent and
distribution.
Section 5.3 - Shares to Be Reserved
- ----------- ---------------------
The Company shall at all times during the term of the Option reserve and
keep available such number of shares of stock as will be sufficient to satisfy
the requirements of this Agreement.
Section 5.4 - Notices
- ----------- -------
Any notice to be given under the terms of this Agreement to the Company
shall be addressed to the Company in care of its Secretary, and any notice to be
given to the Optionee shall be addressed to him at the address given beneath his
signature hereto. By a notice given pursuant to this Section 5.4, either party
may hereafter designate a different address for notices to be given to him. Any
notice which is required to be given to the Optionee shall, if the Optionee is
then deceased, be given to the Optionee's personal representative if such
representative has previously informed the Company of his status and address by
written notice under this Section 5.4. Any notice shall be deemed duly given
when enclosed in a properly sealed envelope or wrapper addressed as aforesaid,
deposited (with postage prepaid) in a post office or branch post office
regularly maintained by the United States Postal Service.
Section 5.5 - Titles
- ----------- ------
Titles are provided herein for convenience only and are not to serve as a
basis for interpretation or construction of this Agreement.
Section 5.6 - Construction
- ----------- ------------
This Agreement shall be administered, interpreted and enforced under the
laws of the State of Maryland.
Section 5.7 - Conformity to Securities Laws
- ----------- -----------------------------
The Optionee acknowledges that the Plan is intended to conform to the
extent necessary with all provisions of the Securities Act and the Exchange Act
and any and all
12
<PAGE>
regulations and rules promulgated by the Securities and Exchange Commission
thereunder, including without limitation Rule 16b-3. Notwithstanding anything
herein to the contrary, the Plan shall be administered, and the Option is
granted and may be exercised, only in such a manner as to conform to such laws,
rules and regulations. To the extent permitted by applicable law, the Plan and
this Agreement shall be deemed amended to the extent necessary to conform to
such laws, rules and regulations.
IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties hereto.
COMPANY:
-------
SIGNATURE RESORTS, INC.
By: ____________________________
President
By: ____________________________
Secretary
[CORPORATE SEAL]
OPTIONEE:
- --------
_______________________________
John R. Stevens
Address:_______________________
_______________________________
Taxpayer Identification Number:
_______________________________
13
<PAGE>
EXHIBIT 10.2.8
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (the "Agreement"), dated as of September
27, 1996, is made by and between Signature Resorts, Inc., a Maryland corporation
hereinafter referred to as "Company," and Michael A. Depatie, an employee of the
Company, hereinafter referred to as "Optionee":
WHEREAS, the Company wishes to afford the Optionee the opportunity to
purchase shares of its $.01 par value Common Stock; and
WHEREAS, the Company wishes to carry out the Plan (the terms of which
are hereby incorporated by reference and made a part of this Agreement); and
WHEREAS, the Committee, appointed to administer the Plan, has
determined that it would be to the advantage and best interest of the Company
and its shareholders to grant the Option provided for herein to the Optionee as
an inducement to enter into or remain in the service of the Company or its
Subsidiaries and as an incentive for increased efforts during such service, and
has advised the Company thereof and instructed the undersigned officers to issue
said Option;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
Whenever the following terms are used in this Agreement, they shall
have the meaning specified below unless the context clearly indicates to the
contrary. The masculine pronoun shall include the feminine and neuter, and the
singular the plural, where the context so indicates.
Section 1.1 - Board
- ----------- -----
"Board" shall mean the Board of Directors of the Company.
Section 1.2 - Code
- ----------- ----
"Code" shall mean the Internal Revenue Code of 1986, as amended.
Section 1.3 - Committee
- ----------- ---------
"Committee" shall mean the Compensation Committee of the Board, or a
subcommittee of the Board, appointed as provided in Section 9.1 of the Plan.
1
<PAGE>
Section 1.4 - Common Stock
- ----------- ------------
"Common Stock" shall mean the common stock of the Company, par value
$.01 per share, and any equity security of the Company issued or authorized to
be issued in the future, but excluding any warrants, options or other rights to
purchase Common Stock. Debt securities of the Company convertible into Common
Stock shall be deemed equity securities of the Company.
Section 1.5 - Company
- ----------- -------
"Company" shall mean Signature Resorts, Inc., a Maryland corporation.
Section 1.6 - Director
- ----------- --------
"Director" shall mean a member of the Board.
Section 1.7 - Employee
- ----------- --------
"Employee" shall mean any officer or other employee (as defined in
accordance with Section 3401(c) of the Code) of the Company, or of any
corporation which is a Subsidiary.
Section 1.8 - Exchange Act
----------- ------------
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
Section 1.9 - Fair Market Value
----------- -----------------
"Fair Market Value" of a share of Common Stock as of a given date
shall be (i) the mean between the highest and lowest selling price of a share of
Common Stock on the principal exchange on which shares of Common Stock are then
trading, if any, on such date, or if shares were not traded on such date, then
on the closest preceding date on which a trade occurred, or (ii) if Common Stock
is not traded on an exchange, the mean between the closing representative bid
and asked prices for the Common Stock on such date as reported by NASDAQ or, if
NASDAQ is not then in existence, by its successor quotation system; or (iii) if
Common Stock is not publicly traded, the Fair Market Value of a share of Common
Stock as established by the Committee acting in good faith.
Section 1.10 - Option
- ------------ ------
"Option" shall mean a non-qualified stock option granted under this
Agreement and Article III of the Plan.
Section 1.11 - Optionee
------------ --------
2
<PAGE>
"Optionee" shall mean an Employee or consultant granted an Option
under this Agreement and the Plan.
Section 1.12 - Plan
- ------------ ----
"Plan" shall mean The 1996 Equity Participation Plan of Signature
Resorts, Inc.
Section 1.13 - Rule 16b-3
- ------------ ----------
"Rule 16b-3" shall mean that certain Rule 16b-3 under the Exchange
Act, as such Rule may be amended from time to time.
Section 1.14 - Secretary
- ------------ ---------
"Secretary" shall mean the Secretary of the Company.
Section 1.15 - Securities Act
- ------------ --------------
"Securities Act" shall mean the Securities Act of 1933, as amended.
Section 1.16 - Subsidiary
------------ ----------
"Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
Section 1.17 - Termination of Consultancy
- ------------ --------------------------
"Termination of Consultancy" shall mean the time when the engagement
of Optionee as a Consultant to the Company or a Subsidiary is terminated for any
reason, with or without cause, including without limitation, resignation,
discharge, death or retirement; but excluding terminations where there is a
simultaneous commencement of employment with the Company or any Subsidiary. The
Committee, in its absolute discretion, shall determine the effect of all matters
and questions relating to Termination of Consultancy, including, but not by way
of limitation, the question of whether a Termination of Consultancy resulted
from a discharge for good cause, and all questions of whether particular leaves
of absence constitute Terminations of Employment. Notwithstanding any other
provision of this Plan, the Company or any Subsidiary has an absolute and
unrestricted right to terminate a consultant's service at any time for any
reason whatsoever, with or without cause, except to the extent expressly
provided otherwise in writing.
Section 1.18 - Termination of Employment
------------ -------------------------
"Termination of Employment" shall mean the time when the employee-
employer relationship between the Optionee and the Company or any Subsidiary is
terminated
3
<PAGE>
for any reason, including, but not by way of limitation, a termination by
resignation, discharge, death, disability or retirement; but excluding (i)
terminations where there is a simultaneous reemployment, continuing employment
of an Optionee by the Company or any Subsidiary, (ii) at the discretion of the
Committee, terminations which result in a temporary severance of the employee-
employer relationship, and (iii) at the discretion of the Committee,
terminations which are followed by the simultaneous establishment of a
consulting relationship by the Company or a Subsidiary with the former employee.
The Committee, in its absolute discretion, shall determine the effect of all
matters and questions relating to Termination of Employment, including, but not
by way of limitation, the question of whether a Termination of Employment
resulted from a discharge for good cause, and all questions of whether
particular leaves of absence constitute Terminations of Employment.
Notwithstanding any other provision of this Plan, the Company or any Subsidiary
has an absolute and unrestricted right to terminate an Employee's employment at
any time for any reason whatsoever, with or without cause, except to the extent
expressly provided otherwise in writing.
ARTICLE II
GRANT OF OPTION
---------------
Section 2.1 - Grant of Option
- ----------- ---------------
In consideration of the Optionee's agreement to remain in the employ
of (or consult for) the Company or its Subsidiaries for a period of at least two
(2) years after the option is granted and for other good and valuable
consideration, as of the date hereof the Company irrevocably grants to the
Optionee the option to purchase any part or all of an aggregate of two hundred
sixty five thousand (265,000) shares of its $.01 par value Common Stock upon the
terms and conditions set forth in this Agreement. The Company agrees that it
will promptly submit the Plan to the Board for amendment to increase the number
of shares included therein, and will submit the Plan, as amended by the Board,
for the approval of the Company's stockholders within twelve months after such
Board approval as set forth in Section 10.4 of the Plan. In the event that such
stockholder approval has not been obtained by the date which is twelve months
after such Board approval, the options granted to the Optionee pursuant to this
Section 2.1 shall thereupon be canceled and become null and void.
Section 2.2 - Purchase Price
- ----------- --------------
The purchase price of the shares of stock covered by the Option shall
be $24.125 per share without commission or other charge, which sum is the Fair
Market Value of a share of Common Stock as of the date of this Agreement (i.e.,
the mean between the highest and lowest selling price of a share of Common Stock
as traded on NASDAQ on September 27, 1996).
Section 2.3 - Consideration to Company
- ----------- ------------------------
In consideration of the granting of this Option by the Company, the
Optionee agrees to render faithful and efficient services to the Company or a
Subsidiary, with such
4
<PAGE>
duties and responsibilities as the Company shall from time to time prescribe,
for a period of at least two (2) years from the date this Option is granted.
Nothing in the Plan or this Agreement shall confer upon any Optionee any right
to continue in the employ of, or as a consultant for, the Company or any
Subsidiary, or as a director of the Company, or shall interfere with or restrict
in any way the rights of the Company and any Subsidiary, which are hereby
expressly reserved, to discharge the Optionee at any time for any reason
whatsoever, with or without good cause.
Section 2.4 - Adjustments in Option
- ----------- ---------------------
(a) In the event that the outstanding shares of the stock subject to
the Option are changed into or exchanged for a different number or kind of
shares of the Company or other securities of the Company, or of another
corporation, by reason of reorganization, merger, consolidation,
recapitalization, reclassification, stock split up, stock dividend or
combination of shares, the Committee shall make an appropriate and equitable
adjustment in the number and kind of shares as to which the Option, or portions
thereof then unexercised, shall be exercisable, to the end that after such event
the Optionee's proportionate interest shall be maintained as before the
occurrence of such event. Such adjustment in the Option may include any
necessary corresponding adjustment in the Option price per share, but shall be
made without change in the total price applicable to the unexercised portion of
the Option (except for any change in the aggregate price resulting from
rounding-off of share quantities or prices). Any such adjustment made by the
Committee shall be final and binding upon the Optionee, the Company and all
other interested persons.
(b) Notwithstanding the foregoing, in the event of such a
reorganization, merger, consolidation, recapitalization, reclassification, stock
split up, stock dividend or combination, or other adjustment or event which
results in shares of Common Stock being exchanged for or converted into cash,
securities or other property, the Company will have the right to terminate the
Plan as of the date of the exchange or conversion, in which case all options,
rights and other awards under this Plan shall become the right to receive such
cash, securities or other property, net of any applicable exercise price.
(c) In the event of a "spin-off" or other substantial distribution of
assets of the Company which has a material diminutive effect upon the Fair
Market Value of the Company's Common Stock, the Board may in its discretion make
an appropriate and equitable adjustment to the Option to reflect such
diminution.
ARTICLE III
PERIOD OF EXERCISABILITY
------------------------
Section 3.1 - Commencement of Exercisability
- ----------- ------------------------------
(a) Subject to Section 5.6, the Option shall become exercisable in
five (5) cumulative installments as follows:
5
<PAGE>
(i) The first installment shall consist of fifty three thousand
(53,000) of the shares covered by the Option and shall become exercisable
on the Effective Date (as defined in the Executive's Employment Agreement
with the Company).
(ii The second installment shall consist of fifty three thousand
(53,000) of the shares covered by the Option and shall become exercisable
on the first anniversary of the date of execution of this Agreement.
(ii The third installment shall consist of fifty three thousand
(53,000) of the shares covered by the Option and shall become exercisable
on the second anniversary of the date of execution of this Agreement.
(iv The fourth installment shall consist of fifty three thousand
(53,000) of the shares covered by the Option and shall become exercisable
on the third anniversary of the date of execution of this Agreement.
(v) The fifth installment shall consist of fifty three thousand
(53,000) of the shares covered by the Option and shall become exercisable
on the fourth anniversary of the date of execution of this Agreement.
(b) No portion of the Option which is unexercisable at Termination of
Employment or Termination of Consultancy, as applicable, shall thereafter become
exercisable.
Section 3.2 - Duration of Exercisability
- ----------- --------------------------
The installments provided for in Section 3.1 are cumulative. Each
such installment which becomes exercisable pursuant to Section 3.1 shall remain
exercisable until it becomes unexercisable under Section 3.3.
Section 3.3 - Expiration of Option
- ----------- --------------------
The Option may not be exercised to any extent by anyone after the
first to occur of the following events:
(a) The expiration of ten (10) years from the date the Option was
granted; or
(b) The time of the Optionee's Termination of Employment or
Termination of Consultancy unless such Termination of Employment or Termination
of Consultancy, as applicable, results from his death, his retirement, his
disability or his being discharged not for "Cause" (as defined in Section 5(c)
of the Employment Agreement dated the date hereof between Optionee and the
Company); or
6
<PAGE>
(c) The expiration of three (3) months from the date of the Optionee's
Termination of Employment or Termination of Consultancy by reason of his
retirement or his being discharged not for "Cause," unless the Optionee dies
within said three-month period; or
(d) The expiration of one (1) year from the date of the Optionee's
Termination of Employment or Termination of Consultancy by reason of his
disability; or
(e) The expiration of one (1) year from the date of the Optionee's
death; or
(f) The effective date of either the merger or consolidation of the
Company with or into another corporation, the exchange of all or substantially
all of the assets of the Company for the securities of another corporation, the
acquisition by another corporation or person of all or substantially all of the
Company's assets or eighty percent (80%) or more of the Company's then
outstanding voting stock, or the liquidation or dissolution of the Company,
unless the Committee waives this provision in connection with such transaction.
At least ten (10) days prior to the effective date of such merger,
consolidation, exchange, acquisition, liquidation or dissolution, the Committee
shall give the Optionee notice of such event if the Option has then neither been
fully exercised nor become unexercisable under this Section 3.3.
Section 3.4 - Acceleration of Exercisability
- ----------- ------------------------------
In the event of the merger or consolidation of the Company with or
into another corporation, the exchange of all or substantially all of the assets
of the Company for the securities of another corporation, the acquisition by
another corporation or person of all or substantially all of the Company's
assets or eighty percent (80%) or more of the Company's then outstanding voting
stock, or the liquidation or dissolution of the Company, the Committee may, in
its absolute discretion and upon such terms and conditions as it deems
appropriate, provide by resolution, adopted prior to such event and incorporated
in the notice referred to in Section 3.3(f), that at some time prior to the
effective date of such event this Option shall be exercisable as to all the
shares covered hereby, notwithstanding that this Option may not yet have become
fully exercisable under Section 3.1(a); provided, however, that this
acceleration of exercisability shall not take place if:
(a) This Option becomes unexercisable under Section 3.3 prior to said
effective date; or
(b) In connection with such an event, provision is made for an
assumption of this Option or a substitution therefor of a new option by an
employer corporation or a parent or subsidiary of such corporation.
The Committee may make such determinations and adopt such rules and
conditions as it, in its absolute discretion, deems appropriate in connection
with such acceleration of exercisability, including, but not by way of
limitation, provisions to ensure that
7
<PAGE>
any such acceleration and resulting exercise shall be conditioned upon the
consummation of the contemplated corporate transaction.
None of the foregoing discretionary terms of this Section shall be
permitted to the extent that such discretion would be inconsistent with the
requirements of Rule 16b-3.
ARTICLE IV
EXERCISE OF OPTION
------------------
Section 4.1 - Person Eligible to Exercise
- ----------- ---------------------------
During the lifetime of the Optionee, only he may exercise the Option
or any portion thereof. After the death of the Optionee, any exercisable
portion of the Option may, prior to the time when the Option becomes
unexercisable under Section 3.3, be exercised by his personal representative or
by any person empowered to do so under the Optionee's will or under the then
applicable laws of descent and distribution.
Section 4.2 - Partial Exercise
- ----------- ----------------
Any exercisable portion of the Option or the entire Option, if then
wholly exercisable, may be exercised in whole or in part at any time prior to
the time when the Option or portion thereof becomes unexercisable under Section
3.3; provided, however, that each partial exercise shall be for not less than
one thousand (1,000) shares and shall be for whole shares only.
Section 4.3 - Manner of Exercise
- ----------- ------------------
The Option, or any exercisable portion thereof, may be exercised
solely by delivery to the Secretary or his office of all of the following prior
to the time when the Option or such portion becomes unexercisable under Section
3.3:
(a) Notice in writing signed by the Optionee or the other person then
entitled to exercise the Option or portion, stating that the Option or portion
is thereby exercised, such notice complying with all applicable rules
established by the Committee or the Board; and
(b) (i) Full payment (in cash) for the shares with respect to which
such Option or portion is exercised;
(ii) With the consent of the Committee, payment delayed for up
to thirty (30) days from the date the Option, or portion thereof, is
exercised; or
(iii) With the consent of the Committee, (A) shares of the
Company's Common Stock owned by the Optionee duly endorsed for transfer to
the Company or (B) subject to the timing requirements of Section 4.4,
shares of the Company's
8
<PAGE>
Common Stock issuable to the Optionee upon exercise of the Option, with a
Fair Market Value on the date of Option exercise equal to the aggregate
purchase price of the shares with respect to which such Option or portion
is exercised; or
(iv) With the consent of the Committee, property of any kind
which constitutes good and valuable consideration; or
(v) With the consent of the Committee, a full recourse promissory
note bearing interest (at no less than such rate as shall then preclude the
imputation of interest under the Code or successor provision) and payable
upon such terms as may be prescribed by the Committee or the Board. The
Committee may also prescribe the form of such note and the security to be
given for such note. The Option may not be exercised, however, by delivery
of a promissory note or by a loan from the Company when or where such loan
or other extension of credit is prohibited by law; or
(vi With the consent of the Committee, any combination of the
consideration provided in the foregoing subparagraphs (iii), (iv) and (v);
and
(c) A bona fide written representation and agreement, in a form
satisfactory to the Committee or the Board, signed by the Optionee or other
person then entitled to exercise such Option or portion, stating that the shares
of stock are being acquired for his own account, for investment and without any
present intention of distributing or reselling said shares or any of them except
as may be permitted under the Securities Act and then applicable rules and
regulations thereunder, and that the Optionee or other person then entitled to
exercise such Option or portion will indemnify the Company against and hold it
free and harmless from any loss, damage, expense or liability resulting to the
Company if any sale or distribution of the shares by such person is contrary to
the representation and agreement referred to above. The Committee may, in its
absolute discretion, take whatever additional actions it deems appropriate to
insure the observance and performance of such representation and agreement and
to effect compliance with the Securities Act and any other federal or state
securities laws or regulations. Without limiting the generality of the
foregoing, the Committee may require an opinion of counsel acceptable to it to
the effect that any subsequent transfer of shares acquired on an Option exercise
does not violate the Securities Act, and may issue stop-transfer orders covering
such shares. Share certificates evidencing stock issued on exercise of this
Option shall bear an appropriate legend referring to the provisions of this
subsection (c) and the agreements herein. The written representation and
agreement referred to in the first sentence of this subsection (c) shall,
however, not be required if the shares to be issued pursuant to such exercise
have been registered under the Securities Act, and such registration is then
effective in respect of such shares; and
(d) Full payment to the Company (or other employer corporation) of all
amounts which, under federal, state or local tax law, it is required to withhold
upon exercise of the Option; with the consent of the Committee, (i) shares of
the Company's Common Stock owned by the Optionee duly endorsed for transfer, or
(ii) subject to the timing requirements of Section 4.4, shares of the Company's
Common Stock issuable to the Optionee upon exercise
9
<PAGE>
of the Option, having a Fair Market Value at the date of Option exercise equal
to the sums required to be withheld, may be used to make all or part of such
payment; and
(e) In the event the Option or portion shall be exercised pursuant to
Section 4.1 by any person or persons other than the Optionee, appropriate proof
of the right of such person or persons to exercise the Option.
Section 4.4 - Certain Timing Requirements
- ----------- ---------------------------
Shares of the Company's Common Stock issuable to the Optionee upon
exercise of the Option may be used to satisfy the Option price or the tax
withholding consequences of such exercise only (i) during the period beginning
on the third (3rd) business day following the date of release of the quarterly
or annual summary statement of sales and earnings of the Company and ending on
the twelfth (12th) business day following such date or (ii) pursuant to an
irrevocable written election by the Optionee to use shares of the Company's
Common Stock issuable to the Optionee upon exercise of the Option to pay all or
part of the Option price or the withholding taxes (subject to the approval of
the Committee) made at least six (6) months prior to the payment of such Option
price or withholding taxes.
Section 4.5 - Conditions to Issuance of Stock Certificates
- ----------- --------------------------------------------
The shares of stock deliverable upon the exercise of the Option, or
any portion thereof, may be either previously authorized but unissued shares or
issued shares which have then been reacquired by the Company. Such shares shall
be fully paid and nonassessable. The Company shall not be required to issue or
deliver any certificate or certificates for shares of stock purchased upon the
exercise of the Option or portion thereof prior to fulfillment of all of the
following conditions:
(a) The admission of such shares to listing on all stock exchanges on
which such class of stock is then listed; and
(b) The completion of any registration or other qualification of such
shares under any state or federal law or under rulings or regulations of the
Securities and Exchange Commission or of any other governmental regulatory body,
which the Committee or Board shall, in its absolute discretion, deem necessary
or advisable; and
(c) The obtaining of any approval or other clearance from any state or
federal governmental agency which the Committee or Board shall, in its absolute
discretion, determine to be necessary or advisable; and
(d) The receipt by the Company of full payment for such shares,
including payment of all amounts which, under federal, state or local tax law,
it is required to withhold upon exercise of the Option; and
10
<PAGE>
(e) The lapse of such reasonable period of time following the exercise
of the Option as the Committee or Board may from time to time establish for
reasons of administrative convenience.
Section 4.6 - Rights as Shareholder
- ----------- ---------------------
The holder of the Option shall not be, nor have any of the rights or
privileges of, a shareholder of the Company in respect of any shares purchasable
upon the exercise of any part of the Option unless and until certificates
representing such shares shall have been issued by the Company to such holder.
ARTICLE V
OTHER PROVISIONS
----------------
Section 5.1 - Administration
- ----------- --------------
The Committee shall have the power to interpret the Plan and this
Agreement and to adopt such rules for the administration, interpretation and
application of the Plan as are consistent therewith and to interpret or revoke
any such rules. All actions taken and all interpretations and determinations
made by the Committee in good faith shall be final and binding upon the
Optionee, the Company and all other interested persons. No member of the
Committee shall be personally liable for any action, determination or
interpretation made in good faith with respect to the Plan or the Option. In
its absolute discretion, the Board may at any time and from time to time
exercise any and all rights and duties of the Committee under this Plan except
with respect to matters which under Rule 16b-3 or Section 162(m) of the Code, or
any regulations or rules issued thereunder, are required to be determined in the
sole discretion of the Committee.
Section 5.2 - Option Not Transferable
- ----------- -----------------------
Neither the Option nor any interest or right therein or part thereof
shall be liable for the debts, contracts or engagements of the Optionee or his
successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other means
whether such disposition be voluntary or involuntary or by operation of law by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof shall
be null and void and of no effect; provided, however, that this Section 5.2
shall not prevent transfers by will or by the applicable laws of descent and
distribution.
Section 5.3 - Shares to Be Reserved
- ----------- ---------------------
The Company shall at all times during the term of the Option reserve
and keep available such number of shares of stock as will be sufficient to
satisfy the requirements of this Agreement.
11
<PAGE>
Section 5.4 - Notices
- ----------- -------
Any notice to be given under the terms of this Agreement to the
Company shall be addressed to the Company in care of its Secretary, and any
notice to be given to the Optionee shall be addressed to him at the address
given beneath his signature hereto. By a notice given pursuant to this Section
5.4, either party may hereafter designate a different address for notices to be
given to him. Any notice which is required to be given to the Optionee shall,
if the Optionee is then deceased, be given to the Optionee's personal
representative if such representative has previously informed the Company of his
status and address by written notice under this Section 5.4. Any notice shall
be deemed duly given when enclosed in a properly sealed envelope or wrapper
addressed as aforesaid, deposited (with postage prepaid) in a post office or
branch post office regularly maintained by the United States Postal Service.
Section 5.5 - Titles
- ----------- ------
Titles are provided herein for convenience only and are not to serve
as a basis for interpretation or construction of this Agreement.
Section 5.6 - Construction
- ----------- ------------
This Agreement shall be administered, interpreted and enforced under
the laws of the State of Maryland.
Section 5.7 - Conformity to Securities Laws
- ----------- -----------------------------
The Optionee acknowledges that the Plan is intended to conform to the
extent necessary with all provisions of the Securities Act and the Exchange Act
and any and all regulations and rules promulgated by the Securities and Exchange
Commission thereunder, including without limitation Rule 16b-3. Notwithstanding
anything herein to the contrary, the Plan shall be administered, and the Option
is granted and may be exercised, only in such a manner as to conform to such
laws, rules and regulations. To the extent permitted by applicable law, the
Plan and this Agreement shall be deemed amended to the extent necessary to
conform to such laws, rules and regulations.
12
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties hereto.
SIGNATURE RESORTS, INC.
By /s/ A. Jody Gessow
---------------------------------------
President
By /s/ Steven C. Kenniger
---------------------------------------
Secretary
/s/ Michael A. Depatie
- ---------------------------
Optionee
304 Morningside
- ---------------------------
San Antonio, TX
- ---------------------------
Address
Optionee's Taxpayer
Identification Number:
###-##-####
- ---------------------------
13
<PAGE>
Exhibit 10.7
LOAN AND SECURITY AGREEMENT
between
ALL SEASONS RESORTS, INC., as Borrower
and
CONTITRADE SERVICES L.L.C., as Lender
dated as of July 13, 1995
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
<TABLE>
<S> <C>
1.1 Certain Defined Terms............................................... 1
1.2 Accounting Terms.................................................... 9
1.3 Other Definitional Provisions....................................... 9
ARTICLE II
REPRESENTATIONS, WARRANTIES AND COVENANTS
2.1 Representations and Warranties Relating to Borrower................ 10
A. Formation, Powers and Good Standing............................ 10
B. Authorization of Borrowing..................................... 10
C. Financial Condition............................................ 11
D. Material Adverse Changes....................................... 11
E. Title to Properties; Liens..................................... 11
F. Litigation; Adverse Facts...................................... 12
G. Payment of Taxes............................................... 12
H. Other Agreements, Performance.................................. 12
I. Governmental Regulation........................................ 13
J. Borrower's Securities Activities............................... 13
K. Employee Benefit Plans......................................... 13
L. Disclosure..................................................... 13
M. Compliance with State Law...................................... 13
N. Place of Business.............................................. 14
2.2 Borrower's Representations and Warranties as to Mortgage Loans..... 14
ARTICLE III
BORROWING AND REPAYMENTS; NOTE
3.1 Commitment Letter.................................................. 21
3.2 Certifications; Advances........................................... 21
A. Certifications................................................. 21
B. Advances....................................................... 21
3.3 Note; Interest..................................................... 22
A. Note........................................................... 22
B. Rate of Interest............................................... 22
C. Interest Payments.............................................. 22
D. Default Interest............................................... 22
E. Computation of Interest........................................ 22
3.4 Prepayments and Payments........................................... 22
A. Monthly Payment of Principal................................... 22
B. Repayment...................................................... 23
C. Manner and Time of Payment..................................... 23
D. Payments on Non-Business Days.................................. 23
E. Prepayment..................................................... 23
</TABLE>
<PAGE>
<TABLE>
<S> <C>
A. Distributions............................................. 23
B. Payments Credited to Borrower............................. 24
ARTICLE IV
CONDITIONS TO THE ADVANCES
4.1 Conditions to the Effective Date and to the Initial Advance... 25
4.2 Conditions to All Advances.................................... 26
ARTICLE V
SECURITY
5.1 Grant of Security Interest.................................... 28
5.2 Lockbox Account............................................... 28
5.3 Lender Appointed Attorney-in-Fact............................. 29
5.4 Security for Obligations...................................... 29
5.5 Substitute Mortgage Loans..................................... 29
5.6 Original Mortgage Note........................................ 30
ARTICLE VI
COVENANTS OF BORROWER
6.1 Financial Statements and Other Reports........................ 31
6.2 Existence, Franchises......................................... 33
6.3 Payment of Taxes and Claims................................... 33
6.4 Inspection.................................................... 34
6.5 Compliance with Laws.......................................... 34
6.6 Restriction on Fundamental Changes; Non-Competition........... 34
6.7 Financial Covenants........................................... 34
A. Tangible Net Worth........................................ 34
B. Indebtedness Ratio........................................ 35
6.8 Notice of Change in Organizational Documents.................. 35
6.9 Further Assurances............................................ 35
6.10 Use of Proceeds............................................... 35
6.11 Independence of Covenants..................................... 35
6.12 Servicing of the Mortgage Loans............................... 35
6.13 Mortgage Payments Received by Borrower........................ 36
6.14 Events of Default............................................. 37
6.15 Dividends; Bonuses............................................ 37
6.16 No Liens...................................................... 37
ARTICLE VII
EVENTS OF DEFAULT
7.1 Events of Default............................................. 38
A. Failure to Make Payments When Due.......................... 38
B. Default in Other Agreements................................ 38
C. Breach of Covenants........................................ 38
D. Breach of Warranty......................................... 38
E. Other Defaults............................................. 39
</TABLE>
<PAGE>
<TABLE>
<S> <C>
F. Involuntary Bankruptcy, Appointment of Receiver........... 39
G. Voluntary Bankruptcy, Appointment of Receiver............. 39
H. Judgments and Attachments................................. 39
I. Dissolution............................................... 40
J. Failure of Security Interest.............................. 40
K. Material Change........................................... 40
7.2 Application of Proceeds....................................... 42
ARTICLE VIII
MISCELLANEOUS
8.1 Expenses...................................................... 44
8.2 Indemnity by Borrower......................................... 44
A. Indemnification by Borrower............................... 44
B. Claims.................................................... 45
8.3 Amendments and Waivers........................................ 45
8.4 Notices....................................................... 45
8.5 Attorneys' Fees............................................... 45
8.6 Survival of Warranties and Certain Agreements................. 46
A. Agreement................................................. 46
B. Termination............................................... 46
8.7 Failure or Indulgence Not Waiver; Remedies Cumulative......... 46
8.8 Severability.................................................. 46
8.9 Headings...................................................... 46
8.10 Applicable Law................................................ 46
8.11 Successors and Assigns: Subsequent Holders of Note............ 46
8.12 Counterparts; Effectiveness................................... 47
</TABLE>
EXHIBITS
Exhibit A Form of Compliance Certificate
Exhibit B Form of Promissory Note
Exhibit C Form of Lender's Incumbency Certificate
Exhibit D Borrower's Officer's Certificates
Exhibit E Form of Mortgage and Mortgage Note
Exhibit F Borrower's Wire Instructions
Exhibit G Litigation Matters
Exhibit H Borrower's Underwriting Guidelines
Exhibit I Form of Servicing Report
Schedule A Affiliates of Borrower
<PAGE>
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT (the "Agreement") is dated as of the date
set forth on the cover page hereof between ALL SEASONS RESORTS, INC., an Arizona
corporation ("Borrower") and CONTITRADE SERVICES L.L.C., a Delaware limited
liability company ("Lender").
RECITALS
--------
A. Borrower desires to finance originations and purchases of certain
mortgage loans, each secured by an interest in real property at one of the
Resorts (each, the "Timeshare Estate"). Lender desires to provide financing to
Borrower to enable Borrower to finance the originations and purchases of such
timeshare mortgage loans.
B. The timeshare mortgage loans pledged by Borrower to Lender shall be
held by LaSalle National Trust, N.A. ("Custodian").
NOW, THEREFORE, in consideration of the above Recitals and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
AGREEMENT
---------
ARTICLE I
---------
DEFINITIONS
-----------
1.1 Certain Defined Terms.
---------------------
The following terms used in this Agreement shall have the following
meanings:
"Advance" means an amount, not less than $150,000, advanced by Lender to
-------
Borrower pursuant to Section 3.2.B.
"Advance Date" means the date of an Advance, which date shall be two
------------
Business Days after Lender's receipt of Borrower's request for an Advance. No
more than one Advance Date shall occur in any week.
"Advance Maturity Date" means July 13, 1996, as such date may be extended
---------------------
by Lender in its sole discretion by notice to be delivered to Borrower not later
than sixty (60) days prior to such date.
"Affiliate" means a Person (i) which directly or indirectly through one or
---------
more intermediaries controls, or is controlled by, or is under common control
with, Borrower or Lender; or (ii) five percent or more of the voting stock or
equity interest of which is beneficially owned or held by Borrower or Lender.
<PAGE>
"Agreement" means this Loan and Security Agreement dated as of the date set
---------
forth on the cover page hereof, as it may from time to time be supplemented,
modified or amended.
"Business Day" means any day other than (a) a Saturday, Sunday or other day
------------
on which banks located in the City of New York, New York are authorized or
obligated by law or executive order to be closed, or (b) any day on which Lender
is closed for business.
"Capital Lease" means, as applied to any Person, any lease of any property
-------------
(whether real, personal or mixed) by that Person as lessee which would, in
conformity with GAAP, be required to be accounted for as a capital lease on a
balance sheet of that Person (i.e.; not an operating lease in conformity with
GAAP).
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Collateral" means any Mortgage Loans, including, without limitation, the
----------
contractual right to service such Mortgage Loans and any subservicing agreement
with respect to such Mortgage Loans, whose pledge by Borrower to Lender is
accepted by Lender, in Lender's sole discretion, and all proceeds thereof.
"Collection Account" means the account created, maintained and denominated
------------------
as such pursuant to the Custodial Agreement.
"Collection Period" means, with respect to each Distribution Date, the
-----------------
preceding calendar month until the Note shall be paid in full.
"Commitment Letter" means the letter agreement between ContiFinancial
-----------------
Services Corporation and Borrower dated as of the date hereof, as the same may
be amended or supplemented from time to time.
"Compliance Certificate" means a certificate substantially in the form of
----------------------
Exhibit A hereto delivered to Lender by Borrower pursuant to subsection (iii) of
Section 6.1.
"Contingent Obligation" means, as applied to any Person, any contingent or
---------------------
indirect liability of that Person with respect to any Indebtedness, lease,
dividend, letter of credit or other obligation of another, including, without
limitation, any such obligation guaranteed, endorsed (otherwise than for
collection or deposit in the ordinary course of business), co-made or discounted
or sold with recourse by that Person, or in respect of which that Person is
otherwise liable, including, without limitation, any such obligation for which
that Person is in effect liable through any agreement (contingent or otherwise)
to purchase, repurchase or otherwise acquire such obligation or any security
therefor, or to provide funds for the payment or discharge of such obligation
(whether in the form of loans, advances, stock purchases, capital contributions
or otherwise), or to maintain the solvency or any balance sheet item, level of
income or other financial condition of the obliger of such obligation, or to
make payment for any products, materials or supplies or for any transportation,
services or lease regardless of the non-delivery or non-furnishing thereof, in
any such case if the purpose or intent of such agreement is to provide assurance
that such obligation will be paid or discharged, or that any agreements relating
<PAGE>
thereto will be complied with, or that the holders of such obligation will be
protected (in whole or in part) against loss in respect thereof. The amount of
any Contingent Obligation shall be equal to the amount of the obligation so
guaranteed or otherwise supported.
"Contractual Obligation" means, as applied to any Person, a provision of
----------------------
any agreement issued by that Person or of any indenture, mortgage, deed of
trust, contract, undertaking, agreement or other instrument to which that Person
is a party or by which it is or any of its properties is bound or to which it or
any of its properties is subject.
"Custody Agreement" means the Custody Agreement dated as of the date hereof
-----------------
among Lender, Borrower and Custodian, as may be amended from time to time.
"Current Principal Amount" means, with respect to any Distribution Date,
------------------------
other than the Advance Maturity Date, and the related Collection Period, an
amount equal to the sum of:
(i) the aggregate of the respective portions of Monthly P&I allocable
to principal actually collected from Mortgagors during such Collection
Period, and
(ii) the aggregate of the respective portions of Prepayments allocable
to principal of the related Mortgage Loans received during such Collection
Period.
On the Advance Maturity Date, the Current Principal Amount shall be an amount
equal to the outstanding Principal Amount of the Note.
"Defective Mortgage Loan" has the meaning set forth in Section 5.5 hereof.
-----------------------
"Distribution Date" means the 15th day of each calendar month or, if such
-----------------
date is not a Business Day, the next succeeding Business Day, until the Note is
paid in full.
"Documents" means this Agreement, the Guaranty, the Custody Agreement, the
---------
Pledge Agreement, the Subservicing Agreement and the Commitment Letter.
"Dollar" means lawful currency of the United States of America.
------
"Effective Date" means the date on or after which all the conditions set
--------------
forth in Section 4.1 have been met and this Agreement becomes effective.
"Eligible Account" means an account that is either (i) maintained with a
----------------
depository institution or trust company the long-term unsecured debt obligations
of which have credit ratings from a nationally recognized statistical rating
organization of the equivalent of "AA" or better, or which is the principal
subsidiary of a holding company the long-term unsecured debt obligations of
which are so rated or (ii) maintained with a depository institution or trust
company the commercial paper or other short-term debt obligations of which have
credit ratings from a nationally recognized statistical rating organization at
least equal to the equivalent of "A-1" or "P-1" or which is the principal
subsidiary of a holding company the commercial paper or other short-term debt
obligations of which are so rated; provided, however, that so long as an account
-------- -------
<PAGE>
is a trust account maintained with the Custodian, such account is deemed to be
an Eligible Account.
"Employee Benefit Plan" means any pension plan, any employee welfare
---------------------
benefit plan, or any other employee benefit plan which is described in Section
3(3) of ERISA and is maintained for employees of Borrower or any ERISA
Affiliate.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time, and any successor statute.
"ERISA Affiliate" means, as applied to any Person, any trade or business
---------------
(whether or not incorporated) which is a member of a group of which that Person
is a member and is under common control within the meaning of the regulations
promulgated under Section 414 of the Internal Revenue Code of 1986.
"Event of Default" means any of the events set forth in Section 7.1 hereof.
----------------
"GAAP" means generally accepted accounting principles set forth in the
----
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession, which are applicable to the circumstances as of the date of
determination consistently applied.
"Guaranty" means any of the separate Guaranties, dated as of the date
--------
hereof, executed by Gary Hughes and his wife, Sandra Hughes, John Stevens and
AVCOM International, Inc. in favor of Lender, as may be amended from time to
time.
"Indebtedness" means, total liabilities in accordance with GAAP.
------------
"LIBOR" means, as of 11:00 a.m. London time on any date of determination,
-----
the London interbank offered rate for one-month United States dollar deposits as
indicated on Telerate page 3750. If LIBOR cannot be so determined, then LIBOR
shall mean the rate so quoted on such date and time by the Union Bank of
Switzerland.
"Lien" means any lien, mortgage, pledge, security interest, charge or
----
encumbrance of any kind (including any conditional sale or other title retention
agreement, any lease in the nature thereof, and any agreement to give any
security interest).
"Lockbox Account" means the segregated account maintained on behalf of
---------------
Lender in accordance with Section 5.2A hereof.
"Lockbox Bank" means a depository institution named by Borrower and
------------
acceptable to Lender.
<PAGE>
"Margin Stock" has the meaning assigned to that term in Regulation X of the
------------
Board of Governors of the Federal Reserve System as in effect from time to time.
"Monthly P&I" means, with respect to any Mortgage Loan and any Collection
-----------
Period, the payment of principal and interest due in such Collection Period
pursuant to the related Mortgage Note, determined after giving effect to any
Prepayment with respect to such Mortgage Loan made prior to such Collection
Period.
"Mortgage" means an original mortgage, deed of trust or other instrument
--------
creating a first lien on the Mortgaged Property securing a Mortgage Loan.
"Mortgage Documents" means, with respect to each Mortgage Loan and each
------------------
Mortgagor, the documents listed in clauses (a) through (f) of Section 1.1 of the
Custody Agreement.
"Mortgage Loan" means, as of any date of determination, each loan evidenced
-------------
by a Mortgage Note and secured by a Mortgage referenced on the Mortgage Loan
Schedule which has been pledged by Borrower to Lender and originated in
conformity with the Underwriting Guidelines, or has been substituted under
Section 5.5, and has not been released by the Custodian under the terms of the
Custody Agreement.
"Mortgage Loan Documents" means, with respect to each Mortgage Loan and
-----------------------
each Mortgagor, (i) the related Mortgage Documents, (ii) the original related
credit application, if any and (iii) the original related truth-in-lending
disclosure statement executed by such Mortgagor.
"Mortgage Loan Schedule" means the schedule of Mortgage Loans required by
----------------------
Section 1.1 of the Custody Agreement.
"Mortgage Note" means the original note or other instrument of indebtedness
-------------
evidencing a Mortgage Loan.
"Mortgaged Property" means the Timeshare Estate which secures a Mortgage
------------------
Loan.
"Mortgagor" means, collectively, the obligor or obligers on a Mortgage
---------
Note.
"Note" means the promissory note executed by Borrower in favor of Lender
----
pursuant to Section 3.3 hereof and substantially in the form of Exhibit B
hereto.
"Obligations" means all obligations of every nature of Borrower from time
-----------
to time owed to Lender under this Agreement.
"Officer's Certificate" means a certificate executed on behalf of any
---------------------
entity by its Chief Executive Officer, President, Executive Vice President,
Senior Vice President or Portfolio Manager (each, an "Authorized
Representative").
"Outstanding" means the amount of an Advance outstanding and payable to the
-----------
Lender at any time.
<PAGE>
"Outstanding Principal Balance" means, as of any date of determination,
-----------------------------
with respect to any Mortgage Loan, the amount set forth as the Outstanding
Principal Balance of such Mortgage Loan on the Mortgage Loan Schedule, and
thereafter as reduced by the amount of principal payments made by the related
Mortgagor prior to such date of determination.
"Permitted Encumbrances" means, as to any Mortgaged Property, those liens
----------------------
and encumbrances set forth in the related title insurance policy, which liens
and encumbrances are limited to (a) the lien of current real property taxes and
assessments not yet due and payable, (b) covenants, conditions and restrictions,
rights of way, easements and other matters of public record as of the date of
recording of the related Deed of Trust acceptable to mortgage lending
institutions in the area in which the Resort is located, (c) the liens of the
appropriate timeshare association and (d) such other matters to which Timeshare
Estates are commonly subject and which do not individually or in the aggregate,
materially interfere with the benefits of the security intended to be provided
by the related Deed of Trust.
"Permitted Investments" means, with respect to the investment of amounts on
---------------------
deposit in the Lockbox Account or the Collection Account, any one or more of the
following obligations or securities, provided such investment may not mature
later than the next succeeding Distribution Date:
(a) direct obligations of, and obligations fully guaranteed as to
timely payment by, the United States of America or any agency or instrumentality
of the United States of America the obligations of which are backed by the full
faith and credit of the United States of America;
(b) demand and time deposits in, certificates of deposit of, bankers'
acceptances issued by, or federal funds sold by, any depository institution or
trust company (including the Trustee) incorporated under the laws of the United
States of America or any State thereof and subject to supervision and
examination by Federal and/or State banking authorities, so long as at the time
of such investment or contractual commitment providing for such investment (i)
the long-term unsecured debt obligations of such depository institution or trust
company (or, in the case of a depository institution that is the principal
subsidiary of a holding company, the long-term unsecured debt obligations of
such holding company) have credit ratings at least equal to "A" or an equivalent
rating by a nationally recognized statistical rating organization or (ii) the
commercial paper or other short-term debt obligations of such depository
institution or trust company (or, in the case of a depository institution that
is the principal subsidiary of a holding company, the short-term unsecured debt
obligations of such holding company) have credit ratings at least equal to the
equivalent of "A-1" or "P-1" or an equivalent rating by a nationally recognized
statistical rating organization;
(c) taxable money market mutual funds with assets under management of
at least $500,000,000 that (i) maintain a constant share price of $1 per share
net asset value and (ii) are rated in the highest applicable rating category for
money market mutual funds by a nationally recognized statistical rating
organization.
<PAGE>
"Person" means and includes natural persons, corporations, limited
------
partnerships, general partnerships, joint stock companies, limited liability
companies, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts or other organizations, whether or not
legal entities, and governments and agencies and political subdivisions thereof.
"Pledge Agreement" means the Pledge Agreement dated as of the date hereof
----------------
among Lender and Sangar Investment Company, L.L.C., as may be amended from time
to time.
"Potential Event of Default" means a condition or event which, after notice
--------------------------
or lapse of time or both, would constitute an Event of Default if that condition
or event were not cured or removed within any applicable grace or cure period.
"Prepayment" means, with respect to any Mortgage Loan, any of the
----------
following: (i) payment by the Mortgagor of the Outstanding Principal Balance
plus all accrued interest with respect to such Mortgage Loan in advance of its
maturity date, (ii) payment by Borrower to Lender of the principal balance of
such Mortgage Loan pursuant to Section 5.5 or (iii) any partial prepayment of
principal received from the relevant Mortgagor.
"Resorts" means the respective land, buildings and appurtenant rights of
-------
Villas at Poco Diablo, Villas of Sedona, Sedona Springs Resort, Sedona Summit
Resort, Sedona Golf and Tennis, Scottsdale Villa Mirage Resort, Tahoe Beach and
Ski Club and St. Augustine Beach Club, each as created by a declaration of
condominium or similar document recorded in the public records of the county in
which such resort is located, or such other resort as Lender may approve, from
time to time, in its own discretion.
"Servicer Report Date" means the tenth day of each month in which a
--------------------
Distribution Date occurs; provided, however, that, if such tenth day is not a
Business Day, the Servicer Report Date shall be the Business Day next preceding
such tenth day.
"Servicing Report" means the servicing report provided by Borrower to
----------------
Lender pursuant to Section 6.12(c) hereof, a form of which is attached hereto as
Exhibit I.
"Subservicer" means Concord Servicing, Inc. or such other subservicer
-----------
appointed pursuant to the Subservicing Agreement.
"Subservicing Agreement" means the Subservicing Agreement dated the date
----------------------
hereof between Borrower and Subservicer.
"Substitute Mortgage Loan" means one or more Mortgage Loans substituted for
------------------------
one or more Defective Mortgage Loans under Section 5.5 having as of the time of
substitution an aggregate Outstanding Principal Balance equal to or greater than
the aggregate Outstanding Principal Balance of the Mortgage Loans for which they
are being substituted, and (b) otherwise satisfying the requirements of Section
2.2.
<PAGE>
"Tangible Net Worth" means, as of any date of determination, total
------------------
stockholders' equity, including but not limited to, the sum of the paid-in
capital, retained earnings, and capital stock minus intangibles and treasury
stock of Borrower, all as determined in accordance with GAAP.
"Underwriting Guidelines" means Borrower's underwriting and origination
-----------------------
criteria as set forth in Exhibit H hereto.
1.2 Accounting Terms.
----------------
For purposes of this Agreement, all accounting terms not otherwise defined
herein shall have the meanings assigned to them in conformity with GAAP.
1.3 Other Definitional Provisions.
-----------------------------
References to "Sections" and "Subsections" shall be to Sections and
Subsections, respectively, of this Agreement unless otherwise specifically
provided. Any of the terms defined in Section 1.1 may, unless the context
otherwise requires, be used in the singular or the plural depending on the
reference.
ARTICLE II
----------
REPRESENTATIONS, WARRANTIES AND COVENANTS
-----------------------------------------
2.1 Representations and Warranties Relating to Borrower. Borrower
---------------------------------------------------
represents, warrants to and covenants with Lender at the time of execution of
this Agreement and at the time any Advance is made to Borrower from Lender that:
A. Formation, Powers and Good Standing.
-----------------------------------
(i) Formation and Powers. Borrower is duly organized, validly existing
--------------------
and in good standing under the laws of the state of Arizona and has all
requisite power and authority to own and operate its properties, to carry on its
business as now conducted and proposed to be conducted, and the Borrower has all
requisite power and authority to enter into the Documents, to issue the Note and
to carry out the transactions contemplated hereby and thereby.
(ii) Good Standing. Borrower is in good standing wherever necessary to
-------------
carry on its business and operations, except in jurisdictions in which the
failure to be in good standing has and will have no material adverse effect on
the business, operations, properties, assets, condition (financial or otherwise)
or prospects of Borrower.
B. Authorization of Borrowing.
--------------------------
(i) Authorization of Borrowing. The execution, delivery and
--------------------------
performance of the Documents, and the issuance, delivery and payment of the
Note, and the consummation of the transactions contemplated hereby and thereby,
have been duly authorized by all necessary action by Borrower.
<PAGE>
(ii) No Conflict. The execution, delivery and performance by Borrower
-----------
of the Documents and the issuance, delivery and payment of the Note, and the
consummation of the transactions contemplated hereby and thereby, do not and
will not (a) violate any provision of law applicable to Borrower, the Articles
of Incorporation or Bylaws of Borrower (the "Organizational Documents"), or any
order, judgment or decree of any court or other agency of government binding on
Borrower, (b) conflict with, result in a breach of or constitute (with due
notice or lapse of time or both) a default under any Contractual Obligation of
Borrower, (c) result in or require the creation or imposition of any Lien,
charge or encumbrance of any nature whatsoever upon any of its properties or
assets except the Lien in favor of Lender pursuant to Section 5.1, or (d)
require any approval or consent of any Person under any Contractual Obligation
of Borrower other than approvals or consents which have been obtained and
disclosed in writing to Lender.
(iii) Governmental Consents. The execution, delivery and performance
---------------------
by Borrower of the Documents and the issuance, delivery and payment of the Note,
and the consummation of the transactions contemplated hereby and thereby, do not
and will not require any registration with, consent or approval of, or notice
to, or other action to, with or by, any Federal, state or other governmental
authority or regulatory body or other Person except those that have been
obtained and disclosed in writing to Lender.
(iv) Binding Obligation. This Agreement is, and the Note when executed
------------------
and delivered hereunder will be, the legally valid and binding obligations of
Borrower, enforceable against it in accordance with their respective terms,
except as enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws or equitable principles relating to or limiting
creditors' rights generally.
C. Financial Condition. Borrower has heretofore delivered to Lender
-------------------
financial statements prepared in accordance with Section 6.1 hereof for the
fiscal year ended December 31, 1994.
D. Material Adverse Changes. Since December 31, 1994, there has been
------------------------
no materially adverse change, either in any case or in the aggregate, in the
business, operations, properties, assets, condition (financial or otherwise) or
prospects of Borrower.
E. Title to Properties; Liens. Borrower has good, sufficient,
--------------------------
marketable and legal title to all the properties and assets reflected in the
balance sheet dated December 31, 1994, referred to in subsection C of Section
2.1 (including all Collateral pledged pursuant to this Agreement and all assets
held by Borrower on the date hereof but acquired subsequent to the date of such
balance sheet), except for assets disposed of in the ordinary course of
business. The pledge and assignment of the Collateral pursuant to this Agreement
creates a valid security interest in the Collateral and the Lien on the
Collateral created by this Agreement will be at the time of delivery of the
Collateral to the Lender a first priority Lien thereon, superior to all other
Liens. Except for the due filing of any financing statement with respect to the
Collateral (and except for delivery to Lender of any Collateral as to which
possession is the only method of perfecting a security interest in such
Collateral), no further action need be taken in order to establish and perfect
the security interest of Lender in all the Collateral.
<PAGE>
F. Litigation; Adverse Facts. There is no material action, other than
-------------------------
those matters set forth on Exhibit G hereto, suit, proceeding or arbitration
(whether or not purportedly on behalf of Borrower) at law or in equity or before
or by any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
pending or, to the knowledge of Borrower, threatened against or affecting
Borrower, or any of its properties, or any proposed tax assessment and there is
no basis known to Borrower for any action, suit or proceeding which would have
such an effect. Borrower is not (i) in violation of any applicable law which
violation materially adversely affects or may materially adversely affect the
business, operations, properties, assets, condition (financial or otherwise) or
prospects of Borrower, or (ii) subject to or in default with respect to any
final judgment, writ, injunction, decree, rule or regulation of any court or
Federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, which would have a
material adverse effect on the business, operations, properties, assets,
condition (financial or otherwise) or prospects of Borrower. There is no action,
suit, proceeding or investigation pending or, to the knowledge of Borrower,
threatened against or affecting Borrower which questions the validity or the
enforceability of this Agreement or the Note.
G. Payment of Taxes. Borrower and each Guarantor has filed, or has
----------------
properly filed for an extension of, all tax returns that are required to be
filed by Borrower, and all taxes, assessments, fees and other governmental
charges upon Borrower as set forth in such returns and upon its properties and
assets which are due and payable have been paid when due and payable, except to
the extent permitted by Section 6.3.
H. Other Agreements, Performance.
-----------------------------
(i) Agreements. Borrower is not, and at the Effective Date will not
----------
be, a party to or subject to any Contractual Obligation or charter or other
internal restriction materially adversely affecting the business, properties,
assets, operations, condition (financial or otherwise) or prospects of Borrower.
(ii) Performance. Borrower is not, and at the Effective Date will not
-----------
be, in default in the performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in any Contractual Obligation of
Borrower, and no condition exists which, with the giving of notice or the lapse
of time or both, would constitute such a default, except where the consequences,
direct or indirect, of such default or defaults, if any, would not have a
material adverse effect on the business, properties, assets, operations,
condition (financial or otherwise), or prospects of Borrower. To the best
knowledge of Borrower, the other parties to each Contractual Obligation of
Borrower are not in default thereunder, except where the consequences, direct or
indirect, of such default or defaults, if any, would not have a material adverse
effect on the business, properties, assets, operations, condition (financial or
otherwise) or prospects of Borrower.
I. Governmental Regulation. Borrower is not, and at the Effective
-----------------------
Date will not be, subject to regulation under the Investment Company Act of 1940
or to any Federal or state statute or regulation limiting its ability to incur
Indebtedness.
<PAGE>
J. Borrower's Securities Activities. Borrower is not, and at the
--------------------------------
Effective Date will not be, engaged in the business of extending credit for the
purpose of purchasing or carrying any Margin Stock. Neither Borrower nor any
agent acting on its behalf has taken any action which might cause this Agreement
or the Note to violate Regulation X or any other regulation of the Board of
Governors of the Federal Reserve System as in effect now or as may hereafter be
in effect on the date of any Advance.
K. Employee Benefit Plans. Borrower is in compliance in all material
----------------------
respects with all applicable provisions of ERISA and the Code, as amended and
the regulations and published interpretations thereunder with respect to all
Employee Benefit Plans.
L. Disclosure. No representation or warranty of Borrower contained
----------
in this Agreement or any other document, certificate or written statement
furnished to Lender by or on behalf of Borrower for use in connection with the
transactions contemplated by the Documents contains any untrue statement of a
material fact or omits to state a material fact (known to Borrower in the case
of any document not furnished by it) necessary in order to make the statements
contained herein or therein not misleading. There is no fact known to Borrower
(other than matters of a general economic nature) which materially adversely
affects the business, operations, property, assets, condition (financial or
otherwise) or prospects of Borrower, which has not been disclosed herein or in
such other documents, certificates and statements furnished to Lender for use in
connection with the transactions contemplated hereby.
M. Compliance with State Law. Borrower is in compliance with the
-------------------------
laws, regulations and rules of each State of the United States of America, and
with any other jurisdiction which may be applicable to Borrower, to the extent
necessary to ensure the enforceability of the Collateral. Borrower has obtained
all permits and licenses necessary to carry on its business and operations.
N. Place of Business. Borrower's principal place of business and
-----------------
chief executive office is, and for the past one (1) year, has been, located at
561 Highway 179, Sedona, Arizona.
2.2 Borrower's Representations and Warranties as to Mortgage Loans.
--------------------------------------------------------------
Borrower hereby represents and warrants to Lender with respect to each
Mortgage Loan, at the time of execution of this Agreement and at the time each
Advance is made to Borrower from Lender that:
A. All Federal, state and local laws, rules and regulations,
including, without limitation, those relating to usury, truth-in-lending,
real estate settlement procedure (except as noted in counsel's opinion
letter and subject to Lender's satisfaction), land sales, the offer and
sale of securities, consumer credit protection and equal credit opportunity
or disclosure, applicable to such Mortgage Loan or the sale of the
Timeshare Estate securing such Mortgage Loan have been complied with in all
material respects.
<PAGE>
B. The Timeshare Estate mortgaged by each Mortgagor constitutes a fee
interest in real property at one of the Resorts. The related Mortgage has
been duly filed and recorded with all appropriate governmental authorities
in all jurisdictions in which such Mortgage is required to be filed and
recorded to create a valid, binding and enforceable first Lien on the
related Mortgaged Property and such Mortgage creates a valid, binding and
enforceable first Lien on the related Mortgaged Property, subject only to
Permitted Encumbrances; and Borrower, to the extent applicable, is in
compliance with any Permitted Encumbrances respecting the right to the use
of such Mortgaged Property. Each of the assignments of such related
Mortgage and each related endorsement of the related Mortgage Note
constitutes a duly executed, legal, valid, binding and enforceable
assignment or endorsement, as the case may be, of such related Mortgage and
related Mortgage Note, and all monies due or to become due thereunder, and
all proceeds thereof.
C. Immediately prior to the pledge to Lender of a Mortgage Loan,
Borrower will own full legal and equitable title to such Mortgage Loan,
free and clear of any Lien or participation or ownership interest in favor
of any other Person.
D. Each of the related Assignment, related Mortgage, related Mortgage
Note and each other related Mortgage Loan Document is genuine and is the
legal, valid and binding obligation of the maker thereof, enforceable in
accordance with its terms (except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, or other similar laws affecting the
enforcement of creditors' rights in general and by general principles of
equity, regardless of whether such enforceability shall be considered in a
proceeding in equity or at law), and, to the best of Borrower's knowledge,
is not subject to any dispute, right of rescission, setoff, abatement,
diminution, recoupment, counterclaim or defense of any kind.
E. All parties to the related Mortgage and the related Mortgage Note
had legal capacity to enter into such Mortgage Loan and to execute and
deliver such related Mortgage and related Mortgage Note, and such related
Mortgage and related Mortgage Note have been duly and properly executed by
such parties. No amendments to such related Mortgage, related Mortgage Note
or any other related Mortgage Loan Document were required as a result of
any mergers involving Borrower or, to the best of its knowledge, its
predecessors, to maintain the rights of Borrower or its predecessors
thereunder as a mortgagee.
F. At the time Borrower made such Mortgage Loan to the related
Mortgagor, Borrower had full power and authority to originate such Mortgage
Loan and the Mortgagor had good and marketable fee simple title to the
Mortgaged Property securing such Mortgage Loan, free and clear of all
Liens, except for Permitted Encumbrances.
G. The related Mortgage contains customary and enforceable provisions
so as to render the rights and remedies of the holder thereof adequate for
the realization against the related Mortgaged Property of the benefits of
the security interests intended to be provided thereby, including (a) if
the Mortgage is a deed of trust, by trustee's sale,
<PAGE>
including power of sale and/or (b) otherwise by judicial foreclosure or
power of sale. There is no exemption available to the related Mortgagor
which would interfere with the mortgagee's right to sell at a trustee's
sale or power of sale or right to foreclose such related Mortgage.
H. The related Mortgage Note is not and has not been secured by any
collateral except the Lien of the related Mortgage.
I. Such Mortgage Loan is covered by a lender's title insurance policy
issued by a title insurer qualified to do business in the jurisdiction
where the related Mortgaged Property is located in a form generally
acceptable to prudent originators of similar mortgage loans, insuring
Borrower or its predecessor and its successors and assigns, as to the first
priority mortgage Lien of the related Mortgage in an amount equal to the
original principal balance of such Mortgage Loan. Borrower or its assign is
the sole named insured of such lender's title insurance policy. Such
lender's title insurance policy is in full force and effect. No claims have
been made under such lender's title insurance policy, and, to the best of
Borrower's knowledge, no prior holder of such Mortgage Loan has done or
omitted to do anything which would impair the coverage of such lender's
title insurance policy. Full premiums for such lender's title insurance
policy, endorsements or all special endorsements have been paid.
J. Borrower has not taken (or omitted to take), and has no notice
that the related Mortgagor has taken (or omitted to take), any action that
would impair or invalidate the coverage provided by any hazard, title or
other insurance policy relating to such Mortgage Loan or the related
Mortgaged Property.
K. The related Mortgage Note evidences a fully amortizing debt
obligation which bears a fixed rate of interest and provides for level
monthly payments of principal and interest. The related Mortgage Note is
payable in Dollars. Interest is calculated on a simple interest basis on
the basis of a 365-day year.
L. The maximum original term of the related Mortgage Note is less
than or equal to ten years.
M. No Mortgage Note is 59 or more days delinquent in respect of any
payment of principal or interest as of the date of any Advance.
N. All applicable intangible taxes and documentary stamp taxes were
paid as to the related Mortgage Note and the related Mortgage.
O. The proceeds of each Mortgage Loan have been fully disbursed,
there is no obligation to make future advances or to lend additional funds
under the originator's commitment or the documents and instruments
evidencing or securing the Mortgage Loan and no such advances or loans have
been made since the origination of the Mortgage Loan.
<PAGE>
P. The terms of each Mortgage and Mortgage Note have not been
impaired, waived, altered or modified in any respect, except by written
instruments which are part of the related Mortgage Documents. No other
instrument has been executed or agreed to which would effect any such
impairment, waiver, alteration or modification. No Mortgagor has been
released from liability on or with respect to any Mortgage Loan, in whole
or in part, except in such cases where such release would not materially
and adversely affect the mortgagee's security for the related Mortgage
Loan, and any such release is reflected by a written instrument which is a
part of the related Mortgage Documents. If required by law or prudent
originators of similar mortgage loans in the jurisdiction where the related
Mortgaged Property is located, all waivers, alterations and modifications
have been filed and/or recorded in all places necessary to perfect,
maintain and continue a valid first priority lien of the Mortgage subject
only to Permitted Encumbrances.
Q. Each Mortgage Loan is principally and directly secured by an
interest in real property.
R. Except as approved in writing by Lender, each Mortgage Loan was
originated by Borrower in the normal course of its business. Each Mortgage
Loan originated by Borrower was underwritten in accordance with the
Underwriting Guidelines. The origination, servicing and collection
practices used by Borrower and its Affiliates with respect to each Mortgage
Loan have been in all respects, legal, proper, prudent and customary.
S. The related Mortgage is assignable to and by the mortgagee without
the consent of any other Person (including any condominium association or
timeshare association), and there are no other restrictions on resale
thereof.
T. The related Mortgage is and will be prior to any Lien on, or other
interests relating to, the related timeshare estate.
U. The related Mortgagor is not an Affiliate of Borrower.
V. There are no delinquent or unpaid taxes, ground rents, water
charges, sewer rents, assessments outstanding with respect to any of the
Mortgaged Properties, nor any other outstanding Liens or charges affecting
the Mortgaged Properties that would result in the imposition of a Lien on
the Mortgaged Property affecting the Lien of the Mortgage or otherwise
materially affecting the interests of Lender in the related Mortgage Loans.
W. The Mortgaged Properties and the project in which the Mortgaged
Properties are located are free of material damage and waste and are in
good repair and fully operational. There is no proceeding pending or
threatened for the total or partial condemnation of or affecting the
Mortgaged Property or taking of the Mortgaged Properties by eminent domain.
To the best of Borrower's knowledge, the Mortgaged
<PAGE>
Properties and the project in which the Mortgaged Properties are located
are lawfully used and occupied under applicable law by the owner thereof.
X. The portions of the project in which the Mortgaged Properties are
located which represent the common facilities are free of material damage
and waste and are in good repair and condition, ordinary wear and tear
excepted.
Y. To the best of Borrower's knowledge, there has been no default,
breach, violation or event of acceleration existing under any Mortgage, the
related Mortgage Note or any other document or instrument evidencing,
guaranteeing, insuring or otherwise securing the Mortgage Loan, and no
event which, with the lapse of time or with notice and the expiration of
any grace or cure period, would constitute a material default, breach,
violation or event of acceleration thereunder; and Borrower has not waived
any such material default, breach, violation or event of acceleration under
the Mortgage, the Mortgage Note or any other related document.
Z. Neither the Mortgagor nor any other Person has the right, by
statute, contract or otherwise, to seek the partition of the Mortgaged
Property.
AA. No Mortgage Loan has been satisfied, canceled, rescinded or
subordinated, in whole or in part; no portion of the Mortgaged Property has
been released from the lien of the Mortgage, in whole or in part; no
instrument has been executed that would effect any such satisfaction,
cancellation, rescission, subordination or release. The terms of the
Mortgage do not provide for a release of any portion of the Mortgaged
Property from the lien of the Mortgage except upon the payment of the
Mortgage Loan in full.
AB. To the best of Borrower's knowledge, each party which has had an
interest in the Mortgage is (or, during the period in which such party held
and disposed of such interest, was) in compliance with any and all
applicable filing, licensing and "doing business" requirements of the laws
of the state wherein the Mortgaged Property is located to the extent
necessary to permit Borrower to maintain or defend actions or proceedings
with respect to the Mortgage Loan in all appropriate forums in such state
without any further act on the part of any such party.
AC. To the best of Borrower's knowledge, there is no current
obligation on the part of any other person to make payments on behalf of
the Mortgagor in respect of the Mortgage Loan, except for any persons who
may have purchased the related Mortgaged Property subject to the Mortgage
but in connection with which purchase no assumption agreement is included
in the related Custodian's Mortgage File (as such term is defined in the
Custody Agreement).
AD. The related Mortgage and related Mortgage Note are substantially
in the respective forms set forth as Exhibit E hereto.
---------
AE. The entry with respect to such Mortgage Loan as set forth on the
Mortgage Loan Schedule is true and correct as of the date hereof.
<PAGE>
AF. The timeshare association relating to the Resort in which the
Mortgaged Property is located was duly organized and, to the best of
Borrower's knowledge, is validly existing. RPM Management, Inc. ("Manager")
manages such Resort and performs services for the timeshare association,
pursuant to an agreement between Manager and the respective timeshare
association, such contract being in full force and effect. A true and
correct copy of the management agreement between Manager and the timeshare
association has been furnished to Lender. Manager and the timeshare
association have performed in all material respects all obligations under
such agreement and are not in default under such agreement.
AG. The Resort in which the Mortgaged Property is located is insured
through the timeshare association, in the event of fire or other casualty
for the full replacement value thereof, and in the event that the Mortgaged
Property should suffer any loss covered by casualty or other insurance,
upon receipt of any insurance proceeds, the timeshare association is
required, during the time such Mortgaged Property is covered by such
insurance, under the applicable governing instruments either to repair or
rebuild the portions of the project in which the Mortgaged Property is
located or to pay such proceeds to the holders of any Mortgage secured by a
timeshare estate in the portions of the project in which the Mortgaged
Property is located.
AH. The related Mortgage or deed of trust is and will be prior to any
Lien other than Permitted Encumbrances.
AI. The related Mortgage or deed of trust gives the mortgagee the
right to receive and direct the application of insurance and condemnation
proceeds received in respect of the Mortgaged Property, except where the
related timeshare declarations or applicable state law provide that
insurance and condemnation proceeds be applied to restoration of the
improvements.
AJ. No mortgagor is a Person that is affiliated with the Guarantor,
the Borrower, the Subservicer, or any of their respective Affiliates.
ARTICLE III
-----------
BORROWING AND REPAYMENTS; NOTE
------------------------------
3.1 Commitment Letter. Concurrent with the execution of this Agreement,
-----------------
Borrower and Lender have entered into the Commitment Letter. In any direct
conflict between this Agreement and the Commitment Letter, this Agreement shall
prevail.
3.2 Certifications; Advances.
------------------------
A. Certifications. On each date that Lender makes an Advance to
--------------
Borrower, Borrower shall be deemed to certify that (i) the representations and
warranties of Borrower contained herein are accurate and complete in all
material respects to the same extent as though made on and as of the date of
such Advance; (ii) no Event of Default or Potential Event of Default has
occurred and is continuing hereunder or will result from the proposed borrowing;
<PAGE>
(iii) Borrower has delivered or will cause to be delivered to Lender all
documents required to be delivered to Lender pursuant to this Agreement; and
(iv) Borrower has performed in all respects all agreements and satisfied all
conditions hereunder provided to be performed or satisfied by it on or before
the date of such Advance.
B. Advances. On each Advance Date, if all conditions set forth in
--------
Section 4.2 of this Agreement have been satisfied, Lender shall make an Advance
to Borrower by causing an amount of immediately available funds equal to the
amount of the proposed Advance (which amount shall not be greater than 90% of
the Outstanding Principal Balance of the Mortgage Loans to be pledged as
Collateral for such Advance) to be paid in accordance with Borrower's wire
instructions set forth on Exhibit F hereto. If the Commitment Letter is in
effect and Borrower satisfies all the conditions of Section 4.2 of this
Agreement after 11:00 a.m., New York City time, on a Business Day, Lender shall
use its best efforts to make an Advance to Borrower not later than 4:30 p.m.,
New York City time, on the next succeeding Business Day, but in no event later
than 4:30 p.m., New York City time, on the second succeeding Business Day. If
the Commitment Letter is not in effect, Lender will have no obligation to make
an Advance to Borrower even if Borrower has satisfied all the conditions set
forth in Section 4.2. Lender will send, via facsimile transmission, a copy of
the schedule attached to the Note updated to reflect such Advance and the
applicable rate of interest. To the extent that an Advance is made by Lender to
Borrower on the Interest Maturity Date of a prior Advance, Lender shall
calculate the net amount payable and shall send Borrower a confirmation
detailing Lender's calculation and setting forth the net amount to be received
or paid by Borrower including, without limitation, amounts payable under the
Note.
3.3 Note; Interest.
--------------
A. Note.
----
(i) Borrower shall execute and deliver to Lender, not later than the
Effective Date, the Note.
(ii) Upon repayment in full of all amounts due and payable under the
Note, Lender shall promptly cancel the Note and return the cancelled Note to
Borrower.
B. Rate of Interest. Subject to subsection D of this Section 3.3, each
----------------
Advance shall bear interest on the unpaid principal amount thereof from the date
made through maturity (whether by acceleration or otherwise) at a rate per annum
calculated on each Interest Maturity Date, of each month, equal to one month
LIBOR plus 300 basis points.
C. Interest Payments. Subject to subsection D of Section 3.3, interest
-----------------
shall be payable on each Advance on the related Distribution Date and on the
Advance Maturity Date.
D. Default Interest. If any amount due hereunder is not paid when due or
----------------
within any applicable grace period (whether at stated maturity, by notice of
prepayment, by acceleration or otherwise) to the extent permitted by applicable
law, such amount shall thereafter bear interest payable on demand at a default
interest rate of one month LIBOR plus 500 basis points.
<PAGE>
E. Computation of Interest. Interest on each Advance shall be computed on
-----------------------
the basis of a 360-day year and the actual number of days elapsed in the period
during which it accrues on the principal balance of the loan outstanding. In
computing interest on each Advance, the date of the making of such Advance shall
be included and the date of payment shall be excluded.
3.4 Prepayments and Payments.
------------------------
A. Monthly Payment of Principal. On each Distribution Date, Borrower
----------------------------
shall pay to Lender the Current Principal Amount due with respect to such
Distribution Date.
B. Repayment. Borrower shall repay the entire Outstanding amount of each
---------
Advance on any of (i) the Advance Maturity Date, (ii) ninety (90) days after the
Advance Maturity Date or (iii) a date, after the Advance Maturity Date but prior
to ninety (90) days after the Advance Maturity Date, provided Borrower has
notified Lender of such date not less than five (5) days prior to the such date.
C. Manner and Time of Payment. All payments of principal, interest and
--------------------------
any fees hereunder and under the Note shall be made in immediately available
funds and delivered to Lender for its own account, not later than 2:00 p.m., New
York City time (for any payments to be received from Custodian), and 3:30 p.m.,
New York City time (for any payments to be received from Borrower), on a
Business Day; funds received by Lender after that time shall be deemed to have
been paid by Borrower on the next succeeding Business Day.
D. Payments on Non-Business Days. Whenever any payment to be made
-----------------------------
hereunder or under the Note shall be stated to be due on a day which is not a
Business Day, such payment shall be made on the next succeeding Business Day and
such extension of time shall be included in the computation of the payment of
interest hereunder or under the Note.
E. Prepayment. Except as set forth in this Section 3.4 or in connection
----------
with a securitization transaction, which shall have been consented to in writing
by Lender prior to the effectiveness thereto, Borrower shall not prepay any
portion of the principal balance of the Note.
3.5 Distributions made by Custodian.
-------------------------------
A. Distributions. On each Distribution Date the Custodian shall
-------------
distribute, pursuant to the Custody Agreement, all amounts in the Collection
Account (including any income from Permitted Investments) on such Distribution
Date, in the following order of priority:
first, to the payment to Lender of any accrued but unpaid interest,
-----
with respect to prior Distribution Dates;
second, to the payment to Lender of interest currently due on the
------
Note;
third, to the payment to Lender of the Current Principal Amount;
-----
<PAGE>
fourth, to the payment to itself of the custodial fee due pursuant to
------
the Custody Agreement;
fifth, to the payment to Subservicer of any subservicing fee due
-----
pursuant to the Subservicing Agreement; and
sixth, to the payment to Borrower of the remainder, if any, of the
-----
amount in the Collection Account for such Distribution Date.
B. Payments Credited to Borrower. To the extent distributions are
-----------------------------
received by Lender pursuant to this Section 3.5, such amounts will be credited
to amounts due to Lender from Borrower under the Note and Sections 3.3 and 3.4
hereof.
ARTICLE IV
----------
CONDITIONS TO THE ADVANCES
--------------------------
The obligation of Lender to make or maintain each Advance hereunder is
subject to the satisfaction of all of the following conditions:
4.1 Conditions to the Effective Date and to the Initial Advance. The
-----------------------------------------------------------
obligation of Lender to make or maintain any Advance on or after the Effective
Date is, in addition to the conditions precedent specified in Section 4.2,
subject to prior or concurrent satisfaction of the following conditions:
A. On or before the Effective Date, Borrower shall deliver to Lender:
(i) a resolution of its Board of Directors approving and authorizing
the execution, delivery and performance of the Documents and approving and
authorizing the execution, delivery and payment of the Note;
(ii) an Officer's Certificate substantially in the form of Exhibit C;
(iii) executed copies of the Documents and the executed Note relating
to the Advance with appropriate insertions and such opinions of counsel and
Officer's Certificates as reasonably required by Lender's counsel with respect
to the Documents.
(iv) such executed financing statement as Lender may require for
filing pursuant to the Uniform Commercial Code;
(v) the initial Collateral; and
(vi) one Business Day prior to the Effective Date, a form of Servicing
Report.
B. Lender and its counsel shall have received the favorable written
opinion of counsel to Borrower, substantially in the form of Exhibit D,
satisfactory to Lender and its counsel, dated as of the Effective Date.
<PAGE>
C. Borrower shall have performed all agreements which the Documents
provide shall be performed on or before the Effective Date except for the
requirement in Section 2.1.C. to provide the balance sheet and the related
statements of income, shareholders' equity and statement of cash flows for the
period ended March 31, 1995, which statements shall be provided no later than
three (3) weeks after the Effective Date.
D. All actions and documents required to create and perfect the
Lender's first priority security interest and Liens in the Collateral shall have
been duly authorized and executed and delivered or taken and all filings with
governmental agencies shall have been made or taken and completed.
E. Lender shall have received written instructions from Borrower in
the form of Exhibit F hereto.
F. Lender shall have received the initial $45,000 installment of its
$225,000 commitment fee (the "Commitment Fee"), in immediately available funds,
which fee, if not previously paid, shall be netted out of the initial Advance.
The remainder of such Commitment Fee shall be paid by Borrower monthly in four
equal monthly installments of $45,000, on or prior to the later of the date of
the first Advance or the fifteenth day of each month, beginning in August 1995,
until the Commitment Fee has been paid in full.
G. Lender and Concord Servicing, Inc. shall have entered into the
Subservicing Agreement.
H. Borrower or Subservicer shall have established the Lockbox
Account.
I. Custodian shall have established the Collection Account.
4.2 Conditions to All Advances. The obligation of Lender to make any
--------------------------
Advance is subject to the following further conditions precedent:
A. At and as of each Advance Date:
(i) the representations and warranties of Borrower contained herein
shall be accurate and complete to the same extent as though made on and as of
that date;
(ii) no event shall have occurred and be continuing or would result
from the consummation of the proposed Advance which would constitute an Event of
Default or a Potential Event of Default;
(iii) Borrower shall have performed all agreements and satisfied all
conditions which the Documents provide shall be performed by it on or before
such date (including the payment of each monthly installment of the Commitment
Fee, which, if not previously paid, shall be netted out of the first Advance to
be made in the month such installment is due);
<PAGE>
(iv) no order, judgment or decree of any court, arbitrator or
governmental authority shall purport to enjoin or restrain Lender from making
that Advance;
(v) there shall not be pending or, to the knowledge of Borrower
threatened, any action, suit, proceeding, governmental investigation or
arbitration against or affecting Borrower or any property of Borrower, which has
not been disclosed by Borrower to Lender in writing prior to the execution of
this Agreement or prior to the making of the last preceding Advance, and there
shall have occurred no development not disclosed by Borrower to Lender in
writing prior to the execution of this Agreement or prior to the making of the
last preceding Advance in any such action, suit, proceeding, governmental
investigation or arbitration so disclosed, which, in either event, in the
opinion of Lender, would reasonably be expected to (a) materially and adversely
affect the business, operations, properties, assets, condition (financial or
otherwise) or prospects of Borrower, or (b) impair the ability of Borrower to
perform the Obligations or of Lender to enforce the Obligations;
(vi) Lender shall have received a request for Advance specifying the
amount of such Advance.
ARTICLE V
---------
SECURITY
--------
5.1 Grant of Security Interest. To secure the payment of the
--------------------------
Advances and the performance of the other Obligations, Borrower pledges and
hypothecates to Lender and grants a continuing lien on and a first priority
security interest in favor of Lender, in all of Borrower's right, title and
interest in and to the Collateral.
5.2 Lockbox Account.
---------------
A. Prior to the Effective Date, the Borrower shall open and maintain
or cause Subservicer to open and maintain, a trust account denominated "Lockbox
Account -- LaSalle National Trust, N.A., as Custodian for ContiTrade Services
L.L.C.". The Lockbox Account shall at all times be an Eligible Account, shall
relate solely to the Mortgage Loans and Permitted Investments and Custodian and
Lender shall have the exclusive right to withdraw funds therefrom pursuant to
the terms of Custody Agreement.
B. Borrower shall (and shall direct Subservicer to) use its best
efforts to cause Mortgagors to make all payments on the Mortgage Loans, whether
by check or by direct debit of the Mortgagor's bank account, to be made directly
to the Lockbox Bank. Borrower shall (and shall direct Subservicer to) use its
best efforts to cause any Lockbox Bank to deposit all payments on the Mortgage
Loans in the Lockbox Account no later than the Business Day after receipt.
C. Prior to the Effective Date, Borrower shall (and shall direct
Subservicer to) notify each Mortgagor that makes its payments on the Mortgage
Loans by check to make such payments thereafter directly to the Lockbox Bank
(except in the case of Mortgagors that have already been making such payments to
the Lockbox Bank), and shall have provided each such
<PAGE>
Mortgagor with remittance advices in order to enable such Mortgagors to make
such payments directly to the Lockbox Bank for deposit into the Lockbox Account,
and Borrower will continue (or direct Subservicer to continue), not less than
often than every three months, to so notify those Mortgagors who have failed to
make payments to the Lockbox Bank.
D. The Lockbox Bank shall invest all or a portion of the amounts in
the Lockbox Account in obligations or securities of the type set forth in
paragraph (c) of the definition of Permitted Investments.
E. On or prior to the effective date, Borrower shall (or shall direct
Subservicer to) issue irrevocable instructions to the Lockbox Bank to wire all
amounts in the Lockbox Account to the Collection Account no less than weekly.
5.3 Lender Appointed Attorney-in-Fact. Upon the occurrence of and
---------------------------------
during the continuance of an Event of Default, Borrower appoints Lender, as
Borrower's attorney-in-fact, with full power of substitution, for the purpose of
taking such action and executing such documents, in the name of Borrower or
otherwise, as Lender may deem necessary or advisable to accomplish the purposes
of this Agreement, which appointment is coupled with an interest and is
irrevocable. Lender agrees promptly to notify Borrower after any such action or
execution of instruments, provided that the failure to give such notice shall
not affect the validity of such action or execution of instruments.
5.4 Security for Obligations. This Agreement shall create a
------------------------
continuing security interest in the Collateral and shall (i) remain in full
force and effect until payment in full of all Obligations, (ii) be binding upon
Borrower, its successors and assigns, and (iii) inure to the benefit of Lender
and its successors, transferees and assigns. Upon the payment in full of the
Obligations, Borrower shall be entitled to the return, upon its request and at
its expense, of such of the Collateral as shall not have been sold or otherwise
applied pursuant to the terms hereof.
5.5 Substitute Mortgage Loans. If, while the Commitment Letter is in
-------------------------
effect, a Mortgage Loan shall fail to comply with the representations and
warranties set forth in Section 2.2 or shall become 90 or more days delinquent
in respect of any payment of principal or interest or if Custodian does not
receive an original Mortgage Note with respect to a Mortgage Loan pursuant to
Section 5.6 hereof (each, a "Defective Mortgage Loan"), Borrower shall, within
five (5) Business Days from the date each such Mortgage Loan became a Defective
Mortgage Loan, either (i) immediately prepay to Lender under the Note (in
immediately available funds) an amount equal to 90% of the Outstanding Principal
Balance of the related Mortgage Note plus interest at the rate specified in
Section 3.3 hereof on the principal amount being repaid from the date of the
Advance relating to such Mortgage Loan or the most recent Interest Maturity Date
(whichever is later) to the date of such prepayment or (ii) pledge to Lender, in
substitution for such Defective Mortgage Loan, a Substitute Mortgage Loan. A
substitution of a Mortgage Loan shall be effective upon the receipt by Lender of
a Trust Receipt from the Custodian pursuant to the terms of the Custody
Agreement.
5.6 Original Mortgage Note. If, pursuant to the Custody Agreement,
----------------------
Custodian does not receive an original Mortgage Note from Escrow Agent (as
defined in the Custody
<PAGE>
Agreement), Lender shall promptly give Borrower written notice thereof and
Borrower shall have five (5) Business Days to provide Custodian with such
original Mortgage Note. If such Mortgage Note is not so provided, the related
Mortgage Loan shall become a Defective Mortgage Loan.
ARTICLE VI
----------
COVENANTS OF BORROWER
---------------------
Borrower covenants and agrees that until the payment in full of all
Obligations, unless Lender shall otherwise give prior written consent, Borrower
will perform all covenants in this Article VI.
6.1 Financial Statements and Other Reports. Borrower and AVCOM
--------------------------------------
International, Inc. ("Parent") will maintain a system of accounting established
and administered in accordance with sound business practices to permit
preparation of financial statements in conformity with GAAP. Borrower will
deliver, or cause to be delivered, to Lender the following:
(i) as soon as practicable and in any event within ninety (90) days
after the end of the first three calendar quarters of each fiscal year of Parent
ending December 31, (a) a consolidated balance sheet of Parent and its
subsidiaries as at the end of such period and the related statements of income,
shareholder's equity and statement of cash flows of Parent and its subsidiaries
for such quarter and for the period from the beginning of the current fiscal
year to the end of such quarter, setting forth in each case in comparative form
the figures for the corresponding periods of the previous fiscal year, all in
reasonable detail and certified by the authorized representative of Parent that
they fairly present the financial condition and results of operations of Parent
and its subsidiaries, subject to changes resulting from audit and normal year-
end adjustments as at the end of and for the period covered thereby and (b) a
financial statement of Borrower and its consolidated subsidiaries, containing
the information required in clause (a), but which may be unaudited;
(ii) as soon as practicable and in any event within one hundred twenty
(120) days after the end of each fiscal year of Parent, (a) a consolidated
balance sheet of Parent and its subsidiaries as at the end of such fiscal year
and the related statements of income, shareholder's equity and statement of cash
flows of Parent and its subsidiaries for such fiscal year, setting forth in each
case in comparative form the figures for the previous year, all in reasonable
detail and audited by independent certified public accountants of recognized
national standing selected by Parent and satisfactory to Lender, stating in
writing that such financial statements present fairly the financial position of
Parent and its subsidiaries as at the dates indicated and the results of its
operations and statement of cash flows for the periods indicated in conformity
with GAAP applied on a basis consistent with prior years (except as otherwise
stated therein) and that the examination by such accountants in connection with
such financial statements has been made in accordance with generally accepted
auditing standards, provided, that each such financial statement shall include a
footnote thereto containing an unconsolidated financial statement of Parent and
(b) a financial statement of Borrower and its consolidated subsidiaries,
containing the information required in clause (a), but which may be unaudited.
As
<PAGE>
of the date hereof, Ernst & Young, L.L.P. is an independent certified public
accountant that is acceptable
(iii) (a) together with each delivery of financial statements
pursuant to subdivisions (i) and (ii) above, a Compliance Certificate, (I)
stating that the signers of the Compliance Certificate have reviewed the terms
of this Agreement and the Note and have made, or caused to be made under their
supervision, a review in reasonable detail of the transactions and condition of
Parent and its subsidiaries during the accounting period covered by such
financial statements and that such review has not disclosed the existence during
or at the end of such accounting period, and that the signers do not have
knowledge of the existence as of the date of the Compliance Certificate, of any
condition or event which constitutes an Event of Default or Potential Event of
Default, or, if any such condition or event existed or exists, specifying the
nature and period of existence thereof and what action Borrower has taken, is
taking and proposes to take with respect thereto and (II) demonstrating in
reasonable detail compliance during and at the end of such accounting period
with the restrictions contained in Section 6.7 and (b) together with each
delivery of financial statements pursuant to subdivision (ii) above, a letter
from Parent's independent certified public accountants stating that such
accountants do not have knowledge of the existence as of the date of such letter
of any condition or event which constitutes an Event of Default or Potential
Event of Default, or, if any such condition or event existed or exists,
specifying the nature and period of existence thereof;
(iv) copies of all filings made by Borrower and/or Guarantor to the
Securities and Exchange Commission (the "SEC") at the same time as delivered to
the SEC;
(v) copies of any press releases issued by Borrower or any Affiliate
at the same time as such releases are released to the press;
(vi) promptly upon any officer or director of Borrower obtaining
knowledge (a) of any condition or event which constitutes an Event of Default or
Potential Event of Default, (b) that any Person has given any notice to Borrower
or taken any other action with respect to a claimed default or event or
condition of the type referred to in subsection B of Section 7.1, or (c) of the
institution of any litigation involving an alleged liability of Borrower equal
to or greater than $50,000, or any adverse determination in any litigation
involving a potential liability of Borrower equal to or greater than $50,000, or
any adverse determination in any litigation which would materially adversely
affect the business, operations, properties, assets, condition (financial or
otherwise) or prospects or the validity or enforceability of this Agreement or
Borrower's ability to perform the Obligations, an Officers' Certificate
specifying the nature and period of existence of any such condition or event, or
specifying the notice given or action taken by such holder or Person and the
nature of such claimed default, Event of Default, Potential Event of Default,
event or condition, and what action Borrower has taken, is taking and proposes
to take with respect thereto; and
(vii) together with each delivery of financial statements pursuant to
subdivisions (i) and (ii) above, a letter from an officer of Parent stating that
Borrower is a wholly-owned subsidiary of Parent; that all other subsidiaries
included in Parent's consolidated financial statements are subsidiaries of
Borrower; that Parent is a non-operating holding company, whose
<PAGE>
only asset is its investment in Borrower and Borrower's subsidiaries; and
stating the assets, liabilities (contingent or otherwise) and net worth of
Parent.
6.2 Existence; Franchises. Borrower will at all times preserve and
---------------------
keep in full force and effect its existence and all rights, licenses and
franchises material to its business.
6.3 Payment of Taxes and Claims. Borrower will pay all taxes,
---------------------------
assessments and other governmental charges imposed upon it or any of its
properties or assets before any penalty or interest accrues thereon, and all
claims (including, without limitation, claims for labor, services, materials and
supplies) for sums which have become due and payable and which by law have or
may become a Lien upon any of its properties or assets, prior to the time when
any penalty or fine shall be incurred with respect thereto; provided that no
such charge or claim need be paid if being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted and if such
reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made therefor.
6.4 Inspection. Borrower will permit any authorized representatives
----------
of Lender to visit and inspect any of the properties of Borrower including its
financial and accounting records, and to make copies and take extracts
therefrom, and to discuss its affairs, finances, prospects and accounts with
authorized representatives of the Borrower and, with the permission of Borrower
(which may not be unreasonably withheld), its independent public accountants,
all upon reasonable notice and at such reasonable times during normal business
hours and as often as may be reasonably requested; provided that no permission
of Borrower shall be required in order to discuss Borrower's affairs, finances,
prospects and accounts during an Event of Default or Potential Event of Default.
6.5 Compliance with Laws. Borrower will exercise all due diligence
--------------------
in order to comply with the requirements of all applicable laws, rules,
regulations and orders of any governmental authority, noncompliance with which
would materially adversely affect the business, properties, assets, operation,
prospects or condition (financial or otherwise) of Borrower.
6.6 Restriction on Fundamental Changes; Non-Competition.
---------------------------------------------------
A. Neither Borrower nor Parent will enter into any transaction of
merger or consolidation, or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution), or, except in the ordinary course of business,
convey, sell, lease, transfer or otherwise dispose of, in one transaction or a
series of transactions, all or any substantial part of its business, property or
assets, whether now owned or hereafter acquired, or acquire by purchase or
otherwise all or substantially all the business, property or fixed assets of, or
stock or other evidence of beneficial ownership of, any Person, nor shall
Borrower or any of its direct or indirect affiliates or any Guarantor engage in
any business, without the prior written consent of Lender, other than the
business of marketing, management and financing of Timeshare Estates; management
of timeshare resorts; the purchase and sale of timeshare mortgage loans; and the
acquisition, master planning, improvement, construction, remodeling, marketing
and management of: timeshare and other resort properties, including facilities
for golf, tennis, health
<PAGE>
clubs and other resort-related amenities; residential sub-divisions and planned
residential communities; and incidental commercial office and retail properties
related to such resorts or residential developments.
B. Without the prior written consent of Lender, none of the
Guarantors shall directly or indirectly as an officer, director, more-than-5-
percent stockholder, employee, partner, proprietor or consultant engage in any
business that competes with the businesses of Borrower set forth in the prior
paragraph.
6.7 Financial Covenants.
-------------------
A. Tangible Net Worth. Borrower will not permit its Tangible Net
------------------
Worth at any time to be less than $3,000,000.
B. Indebtedness Ratio. Borrower will not permit the ratio of its
------------------
total liabilities (as calculated in accordance with GAAP) to Tangible Net Worth
(as calculated in accordance with GAAP) to equal or exceed 15 to 1.
6.8 Notice of Change in Organizational Documents. Borrower shall
--------------------------------------------
notify Lender of any anticipated change in the provisions of Borrower's
Organizational Documents.
6.9 Further Assurances. Borrower shall, at Borrower's expense, do
------------------
all such further acts, and execute, acknowledge and deliver all such further
documents as Lender reasonably shall require to more fully or effectively carry
out the intention or facilitate the performance of the Documents.
6.10 Use of Proceeds. Borrower shall use the proceeds of the
---------------
Advances (i) to pay off any existing Indebtedness; (ii) to purchase Mortgage
Loans; (iii) to repay amounts due hereunder; and (iv) for general corporate
purposes. No part of the proceeds of the Advance made hereunder will be used for
"purchasing" or "carrying" Margin Stock or for any purpose which violates, or
would be inconsistent with, the provisions of the Regulations of the Board of
Governors of the Federal Reserve System.
6.11 Independence of Covenants. All covenants in any of the
-------------------------
Documents shall be given independent effect so that if a particular action or
condition is not permitted by any of such covenants, the fact that it would be
permitted by an exception to, or be otherwise within the limitations of, another
covenant shall not avoid the occurrence of an Event of Default or Potential
Event of Default if such action is taken or condition exists.
6.12 Servicing of the Mortgage Loans.
-------------------------------
A. Borrower shall service and administer the Mortgage Loan with the
same degree of skill and care that Borrower exercises with respect to mortgage
loans similar to the Mortgage Loans owned and/or serviced by the Borrower for
its own account, but in no event lower than in accordance with prudent mortgage
loan servicing standards and procedures generally accepted
<PAGE>
in the mortgage banking industry, provided that Borrower shall at all times
comply with applicable law.
B. (i) In connection with its servicing of the Mortgage Loans,
Borrower shall enter into one or more Subservicing Agreements with a Subservicer
to assist Borrower in the performance of its duties under the Documents.
References in this Agreement to actions taken or to be taken by Borrower in
servicing the Mortgage Loans include actions taken or to be taken by a
Subservicer on behalf of Borrower. Any Subservicing Agreement will be upon such
terms and conditions as Borrower and Lender may reasonably agree and as are not
inconsistent with the Documents. The Servicer shall be solely responsible for
any subservicing fees and the Subservicing Agreement shall provide that in no
event shall Subservicer seek compensation or reimbursement for performance of
its obligations under any Subservicing Agreement from Lender and that
Subservicer shall have no lien on, and shall not attempt to place a lien on any
of the Mortgage Loans or any files or other documents obtained by Subservicer
relating to the Mortgage Loans or any proceeds of any of the foregoing to secure
payment of its fees.
(ii) Borrower shall be entitled to terminate any Subservicing
Agreement that may exist in accordance with the terms and conditions of such
Subservicing Agreement and with the consent of Lender; provided, however, that
-------- -------
in the event of the termination of any Subservicing Agreement by Borrower or the
related Subservicer, Borrower shall enter into a Subservicing Agreement with a
successor subservicer acceptable to Lender in writing.
(iii) Notwithstanding any Subservicing Agreement, or any of the
provisions of this Agreement, Borrower shall remain obligated and liable for the
servicing and administering of the Mortgage Loans in accordance with the
provisions of this Agreement without diminution of such obligation or liability
by virtue of such Subservicing Agreement and to the same extent and under the
same terms and conditions as if Borrower alone were servicing and administering
the Mortgage Loans.
C. On each Servicer Report Date, the Borrower will deliver or cause
the Subservicer to deliver the Servicing Report to Lender and Custodian. The
Servicing Report shall be completed with the information specified therein for
the related Collection Period, shall contain updated information as to the
Mortgage Loans and shall contain such other information as may be reasonably
requested by Lender. Each such Servicing Report shall be accompanied by an
Officer's Certificate certifying the accuracy of the computations reflected in
such Servicing Report. Lender shall have five (5) days to review each Servicing
Report and give Borrower notice of any errors in writing. Borrower shall have
one (1) Business Day to correct any errors set forth in such notice.
6.13 Mortgage Payments Received by Borrower. Borrower shall remit
--------------------------------------
all payments by or on behalf of the Mortgagors received directly by Borrower to
the Lockbox Bank, without deposit into any intervening account and as soon as
practicable, but in no event later than the Business Day after receipt thereof.
6.14 Events of Default. Borrower shall immediately notify Lender if
-----------------
Borrower learns of the occurrence of an Event of Default hereunder.
<PAGE>
6.15 Dividends; Bonuses. Neither Borrower nor any of its direct or
------------------
indirect subsidiaries shall, without the prior written consent of Lender, (i)
pay any cash dividend to its respective shareholders, (ii) pay cash bonuses to
any officer or director in excess of $250,000, or (iii) make any loans or
advances to, investments in, or guaranties of any obligations of, any Person,
except in the ordinary course of Borrower's business.
6.16 No Liens. Borrower shall not permit any Liens to be placed on
--------
any of its assets or properties, other than (i) liens placed on furniture,
fixtures and equipment arising in the ordinary course of business, (ii) liens
granted to lenders to secure loans to finance the acquisition of real property
or the construction of or improvements on real property, in each case to the
extent Borrower is permitted to engage in such activities pursuant to Section
6.6 hereof, (iii) receivables financings arising in the ordinary course of
business and (iv) as otherwise permitted in writing by Lender.
ARTICLE VII
------------
EVENTS OF DEFAULT
-----------------
7.1 Events of Default. If any of the following conditions or events
-----------------
("Events of Default") shall occur:
A. Failure to Make Payments When Due. Failure to (i) pay the
---------------------------------
principal of an Advance when due, whether at stated maturity, or by acceleration
or otherwise; or (ii) pay any installment of interest on the Advance or any
other amount due under this Agreement or the Note on the due date thereof and
such failure under this clause (ii) continues unremedied for a period of four
(4) Business Days; or
B. Default in Other Agreements. Failure of Borrower to pay or any
---------------------------
default in the payment of any amount of principal of or interest on any other
Indebtedness in the aggregate principal amount of $25,000 or more, or in the
payment of any Contingent Obligation in the aggregate principal amount of
$25,000 or more, beyond the later of any period of grace provided or fifteen
(15) days, unless a bond or other provision for payment thereof reasonably
satisfactory to Lender has been made; or breach or default with respect to any
other term of any evidence of any other Indebtedness or of any loan agreement,
mortgage, indenture or other agreement relating thereto, any Contingent
Obligation, or any other contract or agreement to which Borrower is a party, if
the effect of such default or breach is to cause Indebtedness of Borrower in the
aggregate amount of $25,000 or more to become or be declared due prior to its
stated maturity and such breach or default thereunder continues unremedied for a
period of fifteen (15) days; or
C. Breach of Covenants. Failure of Borrower to perform or comply
-------------------
with any term or condition applicable to it contained in the Documents, which
failure continues for a period of fifteen (15) days after written notice thereof
from Lender to Borrower, provided, however, that (1) with respect to the
covenants contained in subsection (i) or (ii) of Section 6.1, Lender shall give
Borrower ten (10) business days notice before such failure shall become an Event
of Default and (2) with respect to the covenants contained in subsection (iii),
(iv) or (v)
<PAGE>
of Section 6.1 or in Section 6.8, Lender shall give Borrower five (5) business
days notice before such failure shall become an Event of Default; or
D. Breach of Warranty. Any of Borrower's representations or
------------------
warranties made or deemed made herein or in any statement, notice or certificate
at any time given by Borrower in writing pursuant hereto or in connection
herewith shall be false in any material respect on the date as of which made or
deemed made and such breach is not remedied as set forth in Section 5.5 hereof;
or
E. Other Defaults. Borrower shall default in the performance of or
--------------
compliance with any term contained in any of the Documents other than those
referred to above in subsections A, C or D of this Section 7.1, which failure
continues for a period of fifteen (15) days after written notice thereof from
Lender to Borrower; or
F. Involuntary Bankruptcy; Appointment of Receiver. (i) A court
-----------------------------------------------
having jurisdiction in the premises shall enter a decree or order for relief in
respect of Borrower, in an involuntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, which decree or
order shall not be stayed within 60 consecutive days of its date of issuance; or
(ii) any other similar relief shall be granted under any applicable Federal or
state law; or (iii) a decree or order of a court having jurisdiction in the
premises for the appointment of a receiver, liquidator, sequestrator, trustee,
custodian or other officer having similar powers over Borrower, or over all or a
substantial part of its property, shall have been entered; or (iv) the
involuntary appointment shall be made of an interim receiver, trustee or other
custodian of Borrower, for all or a substantial part of its property (by
petition, application, answer, consent or otherwise); or (v) a warrant of
attachment, execution or similar process shall be issued against any substantial
part of the property of Borrower; or
G. Voluntary Bankruptcy; Appointment of Receiver. Borrower shall
---------------------------------------------
have an order for relief entered with respect to it or commence a voluntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or shall consent to the entry of an order for relief in an
involuntary case, or to the conversion to an involuntary case, under any such
law, or shall consent to the appointment of or taking possession by a receiver,
trustee or other custodian for all or a substantial part of its property; the
making by Borrower of any assignment for the benefit of creditors; or the
inability or failure of Borrower, or the admission by Borrower in writing of its
inability, to pay its debts as such debts become due or the board of directors
of Borrower (or any committee thereof) adopt any resolution or otherwise
authorizes action to approve any of the foregoing; or
H. Judgments and Attachments. Any money judgment, writ or warrant of
-------------------------
attachment, or similar process involving in any case an amount in excess of
$50,000 shall be entered or filed against Borrower or any of its assets and
shall remain undischarged, unvacated, unbonded or unstayed for a period of 30
days or in any event later than five days prior to the date of any proposed sale
thereunder; or
I. Dissolution. Any order, judgment or decree shall be entered
-----------
against Borrower decreeing the dissolution or splitting up of Borrower;
<PAGE>
J. Failure of Security Interest. The security interest of Lender in
----------------------------
any portion of the Collateral shall become impaired or unenforceable and one or
more Substitute Mortgage Loan(s) is not provided pursuant to Section 5.5; or
K. Material Change. If there shall occur any material adverse change
---------------
in the Collateral or in the business of Borrower or the operations, conduct,
financial condition or prospects thereof, that individually or in the aggregate,
would have a material adverse effect on the ability of the Borrower to perform
its obligations hereunder or under the Mortgage Note or Mortgage or on the value
of the Collateral or on the validity or enforceability of the pledge thereof to
the Lender;
THEN
(i) Upon the occurrence of any Event of Default described in
subsections F or G of Section 7.1, the unpaid principal amount of and accrued
interest on the Note and any fees due hereunder shall automatically become due
and payable, without presentment, demand, notice or other requirements of any
kind, all of which are hereby expressly waived by Borrower, and the obligation
of Lender to make any further Advances shall thereupon terminate.
(ii) Upon the occurrence of any Event of Default (other than those
described in subsection F or G of Section 7.1), Lender may, by written notice to
Borrower, declare the unpaid principal amount of and accrued interest on the
Note and any fees due hereunder to be due and payable whereupon the same shall
forthwith become due and payable, without presentment, demand, notice or other
requirements of any kind, all of which are hereby expressly waived by Borrower,
and the obligation of Lender to make any further Advances shall thereupon
terminate. Failure of Lender to provide any such notice shall not limit or
otherwise affect the rights of Lender hereunder.
(iii) Upon the occurrence of any Event of Default, Lender may do any
of the following:
(a) Collect by legal proceedings all interest, principal payments and
other sums payable with respect to any outstanding Advance.
(b) Foreclose upon or otherwise enforce its security interest in and
Lien on the Collateral pursuant to this Agreement.
(c) Sell the Collateral in one or more lots, at one or more times, at
public or private sales, in an established market therefor or otherwise, as
Lender may elect, at such prices and on such terms, as to cash or credit, as
Lender may deem proper, provided that every aspect of such sale or sales is
commercially reasonable. With respect to any such sale or sales, a
securitization of any or all of the Collateral shall be deemed to be
commercially reasonable. Any sale may be made at any place designated by Lender,
and Lender shall have the right to become the purchaser at any such sale which
is open to the public and, to the extent permitted by law, private sales. If
notice is given of the sale of any Collateral, it is agreed that notice shall be
satisfactorily given for all purposes if Lender sends, via facsimile
transmission, a copy of such
<PAGE>
notice to Borrower not less than fifteen (15) days prior to such sale. The
foregoing notice provisions shall not preclude Lender's rights to foreclose upon
the Collateral in any other manner permitted under the Uniform Commercial Code
of the State of New York; provided that a sale of the Collateral in accordance
with such notice requirements shall be deemed a disposal of the Collateral in a
commercially reasonable manner. Lender shall have the right in connection with
the Collateral either to sell the same as above provided, or to foreclose, sue
upon, or otherwise seek to enforce the same in its own name or in the name of
Borrower as provided herein. Subject to the foregoing provisions of this
paragraph, after an Event of Default shall occur and be continuing, Lender shall
have the right to renew, extend the time of payment of, or otherwise amend,
supplement, settle or compromise, in any manner, any obligations for the payment
of money included in the Collateral, any security therefor and any other
agreements, instruments, claims or chooses in action of any kind which may be
included in the Collateral. Each purchaser at any sale or other disposition
shall hold the Collateral free from any claim or right of whatever kind,
including any equity or right of redemption of Borrower, and Borrower
specifically waives (to the extent permitted by law) all rights of redemption,
stay or appraisal which it has or may have under any rule of law or statute now
existing or hereafter adopted.
(d) Take possession of all or any portion of the Collateral that is
not already in the possession of Lender, and Borrower agrees to assemble and
make available the Collateral to Lender at a convenient location. Lender may
manage and protect the Collateral, do any acts which Lender deems proper to
protect the Collateral as security hereunder, and sue upon any contract or claim
relating to the Collateral and receive any payments due thereon or any damages
thereunder, and apply all sums received to the payment of the Obligations
secured hereby in accordance with Section 7.2.
(e) Be entitled, without regard to the adequacy of the security for
the Obligations secured hereby, to the appointment of a receiver by any court
having jurisdiction, and without notice, to take possession of and protect,
collect, manage, liquidate and sell the Collateral or any portion thereof,
collect the payments due with respect to the Collateral or any portion thereof,
and do anything that Lender is authorized with respect thereto to do.
(f) Grant extensions of time, make any compromise or settlement it
deems desirable with respect to the Collateral, or waive or release any security
interest in Collateral.
(g) Exercise all rights and remedies of a secured creditor under the
Uniform Commercial Code.
(h) Require Borrower to pursue, to the extent applicable, in its own
name but for the benefit of Lender, any one or more of the remedies described in
(a) through (g) above.
(i) All remedies are cumulative. Any failure on the part of Lender to
exercise or any delay in exercising any right hereunder shall not operate as a
waiver thereof, nor shall any single or partial exercise by Lender of any right
hereunder preclude any other exercise thereof or the exercise of any other
right.
<PAGE>
7.2 Application of Proceeds. Any money collected by Lender pursuant
-----------------------
to this Article VII (whether upon voluntary payment, foreclosure or otherwise)
shall be promptly applied as follows unless otherwise required by provisions of
applicable law:
(i) first, to the payment of all expenses incurred by Lender under
this Agreement and in enforcing its rights hereunder, including all costs and
expenses of collection, attorneys' fees, court costs, and foreclosure expenses;
(ii) next, to the payment of all principal and interest due and unpaid
on any Advance;
(iii) next, to the payment of any other Obligations owed by Borrower
to Lender; and
(iv) next, to Borrower or as a court of competent jurisdiction may
direct.
ARTICLE VIII
------------
MISCELLANEOUS
-------------
8.1 Expenses. Borrower agrees to pay on demand (i) all costs and
--------
expenses in connection with the preparation and negotiation of any Document, the
Custody Agreement, the Commitment Letter, the Guaranties and the Pledge
Agreement and any amendments hereto or thereto, including the legal fees and
expenses of counsel to Lender, (ii) all the actual costs and expenses of
creating and perfecting Liens in favor of Lender, pursuant to this Agreement,
including filing and recording fees and expenses, reasonable fees and expenses
of counsel for providing such opinions as Lender may reasonably request; and
(iii) after the occurrence of an Event of Default, all costs and expenses
(including reasonable attorneys' fees and costs of settlement) incurred by
Lender in enforcing any Obligations of or in collecting any payments due from
Borrower hereunder or under the Note by reason of such Event of Default.
Reasonable attorneys' fees, expenses and disbursements incurred in enforcing, or
on appeal from, a judgment pursuant hereto shall be recoverable separately from
and in addition to any other amount included in such judgment, and this clause
is intended to be severable from the other provisions of this Agreement and to
survive and not be merged into such judgment.
8.2 Indemnity by Borrower.
---------------------
A. Indemnification by Borrower. Borrower agrees to indemnify, pay
---------------------------
and hold harmless Lender and the officers, directors, employees and agents of
Lender and its Affiliates (collectively called the "Indemnitees"), from and
against any and all other liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, claims, costs, expenses and disbursements (including,
without limitation, the reasonable fees and disbursements of counsel for such
Indemnitees in connection with any investigative, administrative or judicial
proceeding, whether or not such Indemnitee shall be designated a party thereto),
which may be imposed on, incurred by, or asserted against such Indemnitee, in
any manner relating to or arising out of the use or intended use of the proceeds
of the Advances or on account of the Collateral taken hereunder (the
"Indemnified Liabilities"); provided that Borrower shall have no obligation
hereunder with
<PAGE>
respect to Indemnified Liabilities arising from the gross negligence or willful
misconduct of any such Indemnitee. To the extent that the undertaking to
indemnify, pay and hold harmless set forth in the preceding sentence may be
unenforceable because it violates any law or public policy, Borrower shall
contribute the maximum portion which it is permitted to pay and satisfy under
applicable law, to the payment and satisfaction of all Indemnified Liabilities
incurred by the Indemnitees or any of them.
B. Claims. If any claim is made, or any action, suit or proceeding is
------
brought against any Person indemnified pursuant to this Section 8.2, the
Indemnitee shall notify Borrower of such claim or of the commencement of such
action, suit or proceeding, and Borrower will assume the defense of such action,
suit or proceeding, employing counsel selected by Borrower and reasonably
satisfactory to such Indemnitee and pay the fees and expenses of such counsel;
provided, however, that if counsel to the Indemnitee shall determine that, due
to conflicts in the liabilities or defenses of Borrower and Lender, Lender
should retain its own counsel, Lender shall have the right to retain counsel and
the reasonable fees and expenses of such counsel shall be for the account of
Borrower.
8.3 Amendments and Waivers. No amendment, modification, termination
----------------------
or waiver of any provision of this Agreement or of the Note, or consent to any
departure by Borrower therefrom, shall in any event be effective without the
written concurrence of Lender.
8.4 Notices. All notices, requests or demands required or permitted
-------
to be given hereunder shall be in writing, and shall be deemed effective (a)
upon hand delivery, if hand delivered; (b) one (1) business day after such are
deposited for delivery via Federal Express or other nationally recognized
overnight courier service; or (c) three (3) business days after such are
deposited in the United States mails, certified or registered mail, all with
delivery charges and/or postage prepaid, and addressed as set forth on the
signature page hereof, or to such other address as either party may, from time
to time, designate in writing. Written notice may be given by facsimile to the
facsimile number set forth on the signature page hereof, or to such other
facsimile number as either party may designate, from time to time, in writing,
provided that such notice shall not be deemed effective unless it is confirmed
within 24 hours by hand delivery, courier delivery or mailing or a copy of such
notice in accordance with the requirements set forth above.
8.5 Attorneys' Fees. Subject to Sections 8.1 and 8.2, if any party
---------------
hereto commences litigation for the interpretation, enforcement, termination,
cancellation or rescission hereof, or for damages for the breach hereof, the
prevailing party in such action shall be entitled to its reasonable attorneys'
fees and court and other costs incurred, to be paid by the losing party as fixed
by the court or in a separate action brought for that purpose.
8.6 Survival of Warranties and Certain Agreements.
---------------------------------------------
A. Agreement. All covenants, agreements, representations and
---------
warranties made herein shall survive the execution and delivery of this
Agreement, the making of the Advances hereunder and the execution and
delivery of the Note.
<PAGE>
B. Termination. Notwithstanding anything in this Agreement or implied
-----------
by law to the contrary, the agreements of Borrower set forth in Sections
8.1 and 8.2 shall survive the payment of the Advances and the Note and the
termination of this Agreement.
8.7 Failure or Indulgence Not Waiver; Remedies Cumulative. No failure or
-----------------------------------------------------
delay on the part of Lender in the exercise of any power, right or privilege
hereunder or under the Note shall impair such power, right or privilege or be
construed to be a waiver of any default or acquiescence therein, nor shall any
single or partial exercise of any such power, right or privilege preclude other
or further exercise thereof or of any other right, power or privilege. All
rights and remedies existing under the Documents or the Note are cumulative to
and not exclusive of any rights or remedies otherwise available.
8.8 Severability. In case any provision in or obligation under this
------------
Agreement or the Note shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligations in any other
jurisdiction, shall not in any way be affected or impaired thereby.
8.9 Headings. Article, section and subsection headings in this Agreement
--------
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose or be given any substantive effect.
8.10 Applicable Law. This Agreement, the Commitment Letter, the Custody
--------------
Agreement and the Note shall be governed by, and shall be construed and enforced
in accordance with, the laws of the State of New York, without giving effect to
any conflict of laws principles thereof.
8.11 Successors and Assigns: Subsequent Holders of Note. This Agreement
--------------------------------------------------
shall be binding upon the parties hereto and their respective successors and
assigns and shall inure to the benefit of the parties hereto and the successors
and assigns of Lender. The terms and provisions of this Agreement shall inure to
the benefit of any assignee or transferee of the Note, and in the event of such
transfer or assignment, the rights and privileges herein conferred upon Lender
shall automatically extend to and be vested in such transferee or assignee, all
subject to the terms and conditions hereof. Borrower's rights, obligations or
any interest therein hereunder may not be assigned without the express written
consent of Lender.
8.12 Counterparts; Effectiveness. This Agreement and any amendments,
---------------------------
waivers, consents, or supplements may be executed in any number of counterparts,
and by different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument.
8.13 SUBMISSION TO JURISDICTION; WAIVER OF TRIAL BY JURY. WITH RESPECT TO
---------------------------------------------------
ANY CLAIM ARISING OUT OF THIS AGREEMENT (A) EACH PARTY IRREVOCABLY SUBMITS TO
THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE UNITED
STATES DISTRICT COURT FOR THE
<PAGE>
SOUTHERN DISTRICT OF NEW YORK, AND (B) EACH PARTY IRREVOCABLY WAIVES ANY
OBJECTION WHICH IT MAY HAVE AT ANY TIME TO THE LAYING OF VENUE OF ANY SUIT,
ACTION OR PROCEEDING ARISING OUT OF OR RELATING HERETO BROUGHT IN ANY SUCH
COURT, IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN ANY INCONVENIENT FORUM AND FURTHER
IRREVOCABLY WAIVES THE RIGHT TO OBJECT, WITH RESPECT TO SUCH CLAIM, SUIT, ACTION
OR PROCEEDING BROUGHT IN ANY SUCH COURT, THAT SUCH COURT DOES NOT HAVE
JURISDICTION OVER SUCH PARTY. TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE
BORROWER AND LENDER EACH IRREVOCABLY WAIVE ALL RIGHT OF TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT OR ANY MATTER ARISING HEREUNDER.
8.14 Representation by Counsel. Borrower hereby acknowledges to Lender
-------------------------
that Borrower has been represented by counsel during the course of the
negotiation of this Agreement and the other Documents.
WITNESS the due execution hereof by the respective duly authorized officers
of the undersigned as of the date first written above.
ALL SEASONS RESORTS, INC.
Borrower
By: /s/ Gary L. Hughes
-----------------------------
Name: Gary L. Hughes
Title: President
Notice Address:
P.O. Box 1243
Sedona, Arizona 96339
Attention: Chief Financial Officer
Telephone:_________________
Telecopier:________________
with a copy to:
the Attention of Portfolio Manager
CONTITRADE SERVICES L.L.C.
By: /s/ Jerome M. Perelson
---------------------------------
<PAGE>
Name: Jerome M. Perelson
Title: Authorized Signatory
By: /s/ Peter Abeles
----------------------------------
Name: Peter Abeles
Title: Authorized Signatory
Notice Address:
277 Park Avenue
New York, New York 10172
Attention: Chief Counsel
Telephone: (212)
Telecopier: (212)
<PAGE>
EXHIBIT B
PROMISSORY NOTE
$25,000,000.00 New York, New York
Dated: , 1995
FOR VALUE RECEIVED, the undersigned ALL SEASONS RESORTS, INC. having its
principal place of business at 561 Highway 179, Sedona, Arizona ("Borrower"),
promises to pay to the order of ContiTrade Services L.L.C., a Delaware limited
liability company, with its principal office at 277 Park Avenue, New York, New
York 10172 ("Lender"), at Lender's principal office or at such other place as
the holder hereof may designate, in lawful money of the United States of America
and in immediately available funds, the principal sum TWENTY-FIVE MILLION and
00/100 DOLLARS ($25,000,000.00) or the unpaid principal amount of each advance
("Advance") made by Lender to Borrower and recorded on the schedule attached
hereto, whichever is less, plus interest, as provided herein.
Borrower shall pay to Lender interest on each Advance from time to time
outstanding at a rate per annum equal to that rate which is three percent
(3.00%) in excess of LIBOR (as defined below). Such interest shall be due and
payable monthly in arrears commencing on the first Distribution Date (as defined
in the Loan Agreement) following the applicable date of an Advance and
continuing on each Distribution Date until and including payment in full of the
unpaid principal amount of such Advance plus accrued interest thereon. As used
herein, the term "LIBOR" means, as of 11:00 a.m. London time on any date of
-----
determination, the London interbank offered rate for one month United States
dollar deposits as indicated on Telerate page 3750. If LIBOR cannot be so
determined, then LIBOR shall mean the rate so quoted on such date and time by
the Union Bank of Switzerland.
With respect to each Advance, Borrower shall pay to Lender on each
Distribution Date the Current Principal Amount (as defined in the Loan
Agreement) and on any of (i) the date set forth as the "Advance Maturity Date"
on the schedule attached hereto, (ii) ninety (90) days after the Advance
Maturity Date or (iii) a date, after the Advance Maturity Date but prior to
ninety (90) days after the Advance Maturity Date, provided Borrower has notified
Lender of such date not less than five (5) days prior to such date, in full the
outstanding principal amount of such Advance.
All Advances made by Lender hereunder and all payments made on account of
the principal hereof shall be recorded by Lender on the schedule attached to
this Note and any such recordation shall constitute prima facie evidence of the
----- -----
accuracy of the amount so recorded (provided that any failure by Lender to make
any such notation on such schedule shall not affect the obligations of Borrower
hereunder).
If any amount due hereunder is not paid when due (whether at stated
maturity, by acceleration or otherwise) or within any applicable grace period,
to the extent permitted by applicable law, such amount shall thereafter bear
interest payable on demand at a default interest rate of one month LIBOR plus
500 basis points.
<PAGE>
Interest shall be computed for the actual number of days elapsed on the
basis of a 360-day year. In no event shall interest be chargeable or collectible
hereunder in excess of the maximum lawful rate under applicable law.
Borrower promises to pay the holder hereof all costs and expenses of
collection of this Note and to pay all reasonable attorney's fees incurred in
such collection or in any suit or action to collect this Note and any appeal
thereof.
The provisions of this Note shall inure to the benefit of Lender and its
successors and assigns and be binding on Borrower and its successors and
assigns. This Note shall in all respects be governed by, and construed in
accordance with, the laws of the State of New York, including all matters of
construction, performance and validity. Borrower waives presentment and demand
for payment, notice of dishonor, protest and notice of protest of this Note. No
failure or delays by Lender in the exercise of any power or right under this
Note shall operate as a waiver thereof, and no exercise or waiver of any single
power or right, or the partial exercise thereof, shall affect Lender's rights
with respect to any and all other rights and powers.
Borrower hereby irrevocably consents and submits to the nonexclusive
jurisdiction and venue of any State or Federal Court sitting in New York County
over any action or proceeding arising out of or relating to this Note or any
document or instrument delivered in connection herewith, and Borrower hereby
irrevocably agrees that all claims in respect of such action or proceeding may
be heard and determined in such State or Federal Court. Borrower waives any
objection to any action or proceeding in any State or Federal Court sitting in
New York County on the basis of forum non conveniens. Borrower hereby waives
the right to trial by jury, rights of set-off and rights to interpose
counterclaims of any nature, except for compulsory counterclaims. Borrower
agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. Borrower further agrees that any action or
proceeding brought against Lender shall be brought only in any State or Federal
Court sitting in New York County. Borrower further agrees that in Lender's
discretion, it may serve legal process in any other manner permitted by law and
may bring any action or proceeding against Borrower or its property in the
courts of any other jurisdiction.
The unenforceability or invalidity of any provision or provisions of this
Note shall not render any other provision or provisions herein contained
unenforceable or invalid.
This Note evidences Indebtedness incurred under the Loan and Security
Agreement, dated as of July 13, 1995 ("Loan Agreement"), between Borrower and
Lender to which reference is made for a statement of the terms and conditions on
which the Borrower is permitted and required to make prepayments and repayments
of principal of the Indebtedness evidenced by this Note and on which such
Indebtedness may be declared to be immediately due and payable. Payment of this
Note is secured by the Collateral (as defined in the Loan Agreement), and
reference is hereby made to the Loan Agreement for a description of the
Collateral and the nature and extent of the collateral security and the rights
of the Lender in respect of such collateral security. Unless otherwise defined,
terms used herein have the meanings provided in the Loan Agreement.
<PAGE>
This Note cannot be amended, modified or changed in any way except by a
written instrument executed by both Borrower and Lender.
ALL SEASONS RESORTS, INC.
By:_____________________________________
Name:
Title:
State of _____________ )
):
County of ____________ )
On this ____ day of ________________, 199__, before me personally appeared
____________________________________ to me known who, being duly sworn did
depose and say that he/she is the _________________ of
____________________________, the corporation described in and which executed
the foregoing instrument; that he knows the seal of said corporation; that the
seal affixed to said instrument is such corporate seal and that it was so
affixed by order of the Board of Directors of said corporation, and that he
signed his name thereto by like order.
----------------------------
Notary Public
<PAGE>
Form of Schedule to Promissory Note omitted
<PAGE>
The following Exhibits are not included:
Exhibit A Form of Compliance Certificate
Exhibit C Form of Lender's Incumbency Certificate
Exhibit D Borrower's Officer's Certificates
Exhibit E Form of Mortgage and Mortgage Note
Exhibit F Borrower's Wire Instructions
Exhibit G Litigation Matters
Exhibit H Borrower's Underwriting Guidelines
Exhibit I Form of Servicing Report
Schedule A Affiliates of Borrower
<PAGE>
AMENDMENT TO LOAN AND SECURITY AGREEMENT
----------------------------------------
This AMENDMENT TO LOAN AND SECURITY AGREEMENT (the "Agreement") is dated as
of January 10, 1996 between ALL SEASONS RESORTS, INC., an Arizona corporation
("Borrower") and CONTITRADE SERVICES L.L.C., a Delaware limited liability
company ("Lender").
RECITALS
--------
WHEREAS, Borrower and Lender entered into that certain Loan and Security
Agreement, dated as of July 13, 1995 (the "Loan Agreement"), to finance
originations and purchases of certain mortgage loans, each secured by an
interest in real property;
WHEREAS, Borrower desires to amend the Loan Agreement to finance the
acquisition and development of the Scottsdale Villa Mirage Resort Condominiums,
such financing to be secured by the mortgage loans securing the Loan Agreement
and certain additional collateral and Lender desires to provide such additional
financing to Borrower;
NOW THEREFORE, in consideration of the above Recitals and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
AGREEMENT
---------
ARTICLE I
---------
DEFINITIONS
-----------
A. Certain Defined Terms. Capitalized terms used but not otherwise
---------------------
defined herein shall have the meanings ascribed to them in the Loan Agreement.
The following terms shall have the following meanings and such terms and
meanings shall replace in their entirety the respective terms in the Loan
Agreement:
"Advance Maturity Date" means December 15, 1996, as such date may be
extended by Lender in its sole discretion by notice to be delivered to Borrower
not later than sixty (60) days prior to such date.
"Additional Collateral" means all of (i) Borrower's right, title and
interest in and to the Marine Reserve Fund, the Membership Interests pledged to
Lender pursuant to the Collateral Assignment and the Membership Interest
Assignment, respectively, (ii) the Desert Guaranty, as secured by the Mortgage
(as defined herein) and (iii) Sangar's right, title and interest in and to the
Pledged Collateral (as such term is defined in the Pledge Agreement) pledged to
Lender pursuant to the Pledge Agreement.
"ASDI" means All Seasons Development, Inc.
"AVCOM" means AVCOM International, Inc.
<PAGE>
"Construction Loan" means the $4,350,000 revolving loan secured by that
certain Deed of Trust and Assignment of Rents with Security Agreement and
Financing Statement from Desert Princess to Trustee (as defined therein) for the
benefit of Huntington Banks of Michigan, dated December 13, 1995.
"Collateral Assignment" means the Collateral Assignment of Reserve Account
and Payment Rights, dated January 10, 1996, between Borrower and Lender.
"Desert Guaranty" means the Guaranty Agreement, dated as of January 10,
1996, between Desert Princess and Lender.
"Desert Princess" means Desert Princess Resort L.L.C., an Arizona limited
liability company.
"Documents" means this Agreement, the Loan Agreement, the Guaranty, the
Custody Agreement, the Pledge Agreement dated July 13, 1995, the Pledge
Agreement dated as of the date hereof, the Subservicing Agreement, the
Commitment Letter, the Desert Guaranty, the Mortgage, the Profit Sharing
Agreement, the Escrow Agreement, the Membership Interest Assignment and the
Collateral Assignment.
"Escrow Agreement" means the Escrow Agreement, dated as of January 10, 1996,
among Transamerica Title Insurance Company, Borrower and Lender.
"Marine Reserve Fund" means (i) the Reserve Account established pursuant to
that certain Agreement of Finance between Marine Midland Bank, N.A. ("Marine")
and Borrower dated December 6, 1993, as amended, by which Borrower assumed the
liabilities of Villashare Partners Limited Partnership under that certain
Agreement of Finance, dated July 15, 1993; (ii) any interest differential to be
paid to Borrower by Marine pursuant to the Agreements (as such term is defined
in the Collateral Assignment) and (iii) the proceeds and products of the
foregoing.
"Membership Interest Assignment" means the Membership Interest Assignment
dated January 10, 1996, between Borrower, RPM and Lender.
"Membership Interests means all of Borrower's right, title and interest in
and to an Assignment of Members' Interests dated as of March 1, 1995.
"Mortgage" means the Deed of Trust, Security Agreement, Assignment of Rents
and Fixture Filing from Desert Princess to Transamerica Title Insurance Company
for the benefit of Lender, dated as of January 10, 1996 relating to the
Scottsdale Villa Mirage Timeshare Resort Land.
"Pledge Agreement" means the Pledge Agreement dated January 10, 1996 between
Sangar Investment Company, L.L.C. and Lender.
<PAGE>
"Profit Sharing Agreement" means the Profit Sharing Agreement, dated as of
January 10, 1996, between Desert Princess, Borrower and Lender.
"RPM" means RPM Services, Inc., a subsidiary of Borrower.
"Sales Agreement" means the Agreement, dated January 24, 1995, between A11
Seasons Development Incorporated ("ASDI") and Desert Princess Resorts L.L.C.,
("Desert Princess") as amended by the First Amendment to Agreement, dated
February 2, 1995, between ASDI and Desert Princess, as amended by the Second
Amendment to Agreement, dated February 24, 1995, between ASDI and Desert
Princess, as amended by the Third Amendment to Agreement, dated October 9, 1995,
between ASDI and Desert Princess.
"Sangar" means Sangar Investment Company, L.L.C., an Arizona limited
liability company.
"Scottsdale Villa Mirage Timeshare Resort Land" means the property described
in Exhibit A to the Mortgage.
ARTICLE II
----------
[intentionally left blank]
ARTICLE III
-----------
BORROWING AND REPAYMENTS; NOTE
------------------------------
A. Section 3.2B of the Loan Agreement is hereby deleted and the following
substituted therefore:
"B. Advances. On each Advance Date hereafter, if all conditions set forth
--------
in Section 4.2 of this Agreement have been satisfied, Lender shall make an
Advance to Borrower by causing an amount of immediately available funds equal to
the amount of the proposed Advance to be paid in accordance with Borrower's wire
instructions set forth on Exhibit F hereto. Until the Outstanding Principal
Balance of the Mortgage Loans to be pledged as Collateral for such Advance and
heretofore pledged as Collateral for Advances heretofore made in accordance with
the terms of the Loan Agreement is equal to $16 million, the amount of the
proposed Advance shall not exceed 100% of the Outstanding Principal Balance of
such Mortgage Loans. If the Outstanding Principal Balance of the Mortgage Loans
to be pledged as Collateral for such Advance and heretofore pledged as
Collateral for Advances heretofore made in accordance with the terms of the Loan
Agreement exceeds $16 million, the amount of the proposed Advance shall not
exceed 90% of the Outstanding Principal Balance of such Mortgage Loans. On the
date of this Amendment, Lender shall make an Advance in the amount of 10% of the
outstanding Principal Balance of the Mortgage Loans heretofore pledged as
Collateral, in an amount not to exceed $1.6 million (less any amounts to be
deducted therefrom pursuant to the terms hereof). If the Commitment Letter is in
effect and Borrower satisfies all the conditions of Section 4.2 of this
Agreement after 11:00 a.m., New York City time, on a Business Day, Lender shall
use its best efforts to make an Advance to Borrower not later than 4:30 p.m.,
New York City time, on
<PAGE>
the next succeeding Business Day, but in no event later than 4:30 p.m., New York
City time, on the second succeeding Business Day. If the Commitment Letter is
not in effect, Lender will have no obligations to make an Advance to Borrower
even if Borrower has satisfied all the conditions set forth in Section 4.2.
Lender will send, via facsimile transmission, a copy of the schedule attached to
the Note updated to reflect such Advance and the applicable rate of interest. To
the extent that an Advance is made by Lender to Borrower on the Interest
Maturity Date of a prior Advance, Lender shall calculate the net amount payable
and shall send Borrower a confirmation detailing Lender's calculation and
setting forth the net amount to be received or paid by Borrower including,
without limitation, amounts payable under the Note."
ARTICLE IV
----------
CONDITIONS TO THE ADVANCES
--------------------------
A. The obligation of Lender to make or maintain any Advance on or after
the date hereof is, in addition to the conditions precedent specified in the
Loan Agreement, subject to prior or concurrent satisfaction of the following
conditions:
1. On or before the date hereof, Borrower shall deliver, or cause to be
delivered, to Lender:
(i) a resolution of its Board of Directors approving and authorizing the
execution, delivery and performance of the Documents;
(ii) a resolution of the members of Desert Princess approving and
authorizing the execution, delivery and performance of the Documents;
(iii) an Officer's Certificate substantially in the form of Exhibit C;
(iv) executed copies of the Collateral Assignment, Desert Guaranty,
Mortgage, Pledge Agreement, Profit Sharing Agreement, Escrow Agreement,
Membership Interest Assignment and this Agreement and such opinions of counsel
and Officer's Certificates as reasonably required by Lender's counsel with
respect to such documents;
(v) such executed financing statement as Lender may require for filing
pursuant to the Uniform Commercial Code;
(vi) the Additional Collateral;
(vii) executed copies of the consent from Huntington Banks of Michigan
relating to the Mortgage;
(vii) survey of Scottsdale Villa Mirage Resort Land certified to Lender and
in form acceptable to Lender;
(viii) title policy relating to Scottsdale Villa Mirage Resort Land in form
acceptable to Lender; and
<PAGE>
(ix) executed copies of the subordination agreement relating to the mortgage
in connection with the Scottsdale Villa Mirage Resort Land held by RPM.
2. All actions and documents required to create and perfect the Lender's
security interest, in the case of the Marine Reserve Account, and second
priority security interest, in the case of the Scottsdale Villa Mirage Timeshare
Resort Land, and Liens in the Additional Collateral shall have been duly
authorized and executed and delivered or taken and all filings with governmental
agencies shall have been made or taken and completed.
3. Lender shall have received $200,000 from Borrower as a nonrefundable
commitment fee, in immediately available funds, which fee, if not previously
paid, shall be netted out of the Advance required to be paid to Borrower
hereunder.
ARTICLE V
---------
SECURITY
--------
A. Section 5.1 of the Loan Agreement is deleted in its entirety and the
following substituted therefore:
"5.1 Grant of Security Interest. To secure the payment of the Advances and
--------------------------
the performance of the other Obligations, Borrower pledges and hypothecates to
Lender and grants a continuing lien on and a first priority security interest in
favor of Lender, in all of Borrower's right, title and interest in and to the
Collateral and Additional Collateral; provided that with respect to the Marine
Reserve Fund and the Scottsdale Villa Mirage Timeshare Resort Land, Borrower
grants a second priority security interest in favor Lender in all of Borrower's
right, title and interest in and to the Marine Reserve Fund and the Scottsdale
Villa Mirage Timeshare Resort Land, respectively."
B. Section 5.4 of the Loan Agreement is hereby deleted in its entirety
and the following substituted therefore:
"5.4 Security for Obligations. This Agreement shall create a continuing
------------------------
security interest in the Collateral and the Additional Collateral and shall (i)
remain in full force and effect until payment in full of all Obligations, (ii)
be binding upon Borrower, its successors and assigns, and (iii) inure to the
benefit of Lender and it successors, transferees and assigns. Upon the payment
in full of the Obligations, Borrower shall be entitled to the return, upon its
request and at its expense, of such of the Collateral and Additional Collateral
as shall not have been sold or otherwise applied pursuant to the terms hereof;
provided that, when and if the amount of the Obligations is less than or equal
- -------------
to 90% of the Outstanding Principal Balance of the Mortgage Loans to be pledged
as Collateral for any Advances made hereunder or heretofore pledged as
Collateral for any Advances heretofore made in accordance with the Loan
Agreement, Borrower shall be entitled to the return, upon its request and at its
expense, of such of the Additional Collateral as shall not have been sold or
otherwise applied pursuant to the terms hereof."
C. Section 5.5 of the Loan Agreement is hereby and deleted and the
following substituted therefore:
<PAGE>
"5.5 Substitute Mortgage Loans. If, while the Commitment Letter is in
-------------------------
effect, a Mortgage Loan shall fail to comply with the representations and
warranties set forth in Section 2.2 or shall become 90 or more days delinquent
in respect of any payment of principal or interest or if the Custodian does not
receive an original Mortgage Note with respect to a Mortgage Loan pursuant to
Section 5.6 hereof (each, a "Defective Mortgage Loan"), Borrower shall within
five (5) Business Days from the date each such Mortgage Loan became a Defective
Mortgage Loan, either (i) immediately prepay to Lender under the Note (in
immediately available funds) an amount equal to 100% of the Outstanding
Principal Balance of the related Mortgage Note plus interest at the rate
specified in Section 3.3 hereof on the principal amount being repaid from the
date of the Advance relating to such Mortgage Loan or the most recent Interest
Maturity Date (whichever is later) to the date of such prepayment or (ii) pledge
to Lender, in substitution for such Defective Mortgage Loan, a Substitute
Mortgage Loan. A substitution of a Mortgage Loan shall be effective upon the
receipt by Lender of a Trust Receipt from the Custodian pursuant to the terms of
the Custody Agreement. Notwithstanding the foregoing, when and if the amount of
the Obligations is less than or equal to 90% of the Outstanding Principal
Balance of the Mortgage Loans pledged as Collateral for any Advances hereunder,
any prepayment under (i) above shall be an amount equal to 90% of the
Outstanding Principal Balance of the related Mortgage Note plus interest as
described therein."
ARTICLE VI
----------
COVENANTS OF BORROWER
---------------------
A. For so long as this Agreement is in effect, Borrower covenants and
agrees, unless Lender shall otherwise give prior written consent, not to amend,
alter, or change in any way the terms or provisions of the Construction Loan or
the Sales Agreement.
ARTICLE VII
-----------
EVENTS OF DEFAULT
-----------------
A. Section 7.1J. of the Loan Agreement is hereby amended by inserting "or
the Additional Collateral" following the word "Collateral" and preceding the
word "shall" in line two thereof.
B. Section 7.1K. of the Loan Agreement is hereby amended by inserting ",
the Additional Collateral" following the word "Collateral" and preceding the
"or" in line two thereof and inserting "or the Additional Collateral" following
the word "Collateral" and preceding the word "or" in line seven thereof.
C. Section 7.1K (iii)(b) of the Loan Agreement is hereby amended by
inserting "and the Additional Collateral" following the word "Collateral" and
preceding the word "pursuant" in line two thereof.
D. Section 7.1K.(iii)(c) of the Loan Agreement is hereby amended by
inserting "or the Additional Collateral" following the word "Collateral" and
preceding the word "in" in line one thereof, after the word "Collateral" and
preceding the word "shall" in line seven thereof, after the word "Collateral"
and preceding the word ", it" in line twelve thereof, after the word
<PAGE>
"Collateral" and preceding the word "in" in line seventeen thereof, after the
word "Collateral" and preceding the word "in" in line twenty thereof, after the
word "Collateral" and preceding the word ""in" in line twenty-one thereof, after
the word "Collateral" and preceding the word "either" in line twenty-three
thereof, after the word "Collateral" and preceding the word ", any" in line
thirty-one thereof, after the word "Collateral" and preceding the word ". Each"
in line thirty-three thereof and after the word "Collateral" and preceding the
word "free" in line thirty-five thereof.
E. Section 7.1K.(iii)(d) of the Loan Agreement is hereby amended by
inserting "and the Additional Collateral" following the word "Collateral" and
preceding the word "that" in line two thereof, following the word "Collateral"
and preceding the word "to" in line four thereof, following the word
"Collateral" and preceding the word ", do" in line five thereof and following
the word "Collateral" and preceding the word "as" in line six thereof. Section
7.1K(iii)(d) of the Loan Agreement is hereby amended by inserting "or the
Additional Collateral" following the word "Collateral" and preceding the word
"and" in line seven thereof.
F. Section 7.1K (iii)(e) of the Loan Agreement is hereby amended by
inserting "and the Additional Collateral" following the word "Collateral" and
preceding the word "or" in line five thereof and following the word "Collateral"
and preceding the word "or" in line seven thereof.
G. Section 7.1K (iii)(f) of the Loan Agreement is hereby amended by
inserting "or the Additional Collateral" following the word "Collateral" and
preceding the word ", or" in line three thereof and following the word
"Collateral" and preceding the period in line four thereof.
ARTICLE VIII
------------
MISCELLANEOUS
-------------
A. Expenses. Borrower agrees to pay on demand (i) all costs and expenses
--------
in connection with the preparation and negotiation of this Agreement, the Desert
Guaranty, the Mortgage, the Profit Sharing Agreement, the Membership Interest
Assignment, the Pledge Agreement and the Collateral Assignment and any
amendments hereto or thereto, including the legal fees and expenses of counsel
to Lender, (ii) all the actual costs and expenses of creating and perfecting
Liens in favor of Lender, pursuant to this Agreement, including filing and
recording fees and expenses, fees and expenses of counsel for providing such
opinions as Lender may reasonably request.
B. Representation by Counsel. Borrower hereby acknowledges to lender
-------------------------
that Borrower has been represented by counsel during the course of the
negotiation of this Agreement and the other Documents.
WITNESS the due execution hereof by the respective duly authorized officers
of the undersigned as of the date first written above.
ALL SEASONS RESORTS, INC.
Borrower
<PAGE>
By: /s/ Gary L. Hughes
---------------------------------------
Name: Gary L. Hughes
Title: President
Notice Address:
561 Highway 179
Sedona, Arizona 86336
Attention: Chief Financial Officer
Telephone:_________________
Facsimile:__________________
with a copy to:
the Attention of Portfolio Manager
CONTITRADE SERVICES L.L.C.
Lender
By: /s/ James E. Moore
-------------------------------
Name: James E. Moore
Title: Authorized Signatory
By: /s/ Jerome M. Perelson
-------------------------------
Name: Jerome M. Perelson
Title: Authorized Signatory
Notice Address;
277 Park Avenue
New York, New York 10172
Attention: Chief Counsel
Telephone:________________
Facsimile:_________________
<PAGE>
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "Amendment") is
dated as of September 10, 1996 between ALL SEASONS RESORTS, INC., an Arizona
corporation ("Borrower") and CONTITRADE SERVICES L.L.C., a Delaware limited
liability company ("Lender").
RECITALS
--------
WHEREAS, Borrower and Lender entered into that certain Loan and Security
Agreement, dated as of July 13, 1995 (the "Loan Agreement"), to finance
originations and purchases of certain mortgage loans, each secured by an
interest in real property;
WHEREAS, Borrower and Lender entered into that certain Amendment to the Loan
Agreement, dated January 10, 1996;
WHEREAS, Borrower desires to further amend the Loan Agreement to finance the
acquisition and development of the Magic Tree Resort in Osceola County, Florida,
Sunburst Condominiums in Steamboat Springs, Colorado, Villas on the Lake in
Montgomery, Texas, North Bay at Lake Arrowhead, Kauai Beach Villas in Kauai,
Hawaii and Tahoe Seasons Resort in South Lake Tahoe, California, such financing
to be secured by the mortgage loans securing the Loan Agreement and certain
additional collateral and Lender desires to provide such additional financing to
Borrower; and
WHEREAS, Borrower and Lender desire to further amend the Loan Agreement as
provided herein.
NOW THEREFORE, in consideration of the above Recitals and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
AGREEMENT
---------
ARTICLE I
---------
DEFINITIONS
-----------
A. Certain Defined Terms. Capitalized Terms used but not otherwise
---------------------
defined herein shall have the meanings ascribed to them in the Loan Agreement.
The following terms shall have the respective meanings and such terms and
meanings shall replace in their entirety the respective terms in the Loan
Agreement:
"Advance Maturity Date" means September 16, 1997, as such date may be
extended by Lender in its sole discretion by notice to be delivered to Borrower
not later than sixty (60) days prior to such date.
<PAGE>
"Note" means the Amended and Restated Promissory Note executed by Borrower
in favor of Lender pursuant to Section 3.3 hereof and substantially in the form
of Exhibit A to the Amendment to Loan and Security Agreement, dated as of
September 10, 1996, between Borrower and Lender.
"Resorts" means the respective land, buildings and appurtenant rights of
Villas at Poco Diablo, Villas of Sedona, Sedona Springs Resort, Sedona Summit
Resort, Sedona Golf and Tennis, Scottsdale Villa Mirage Resort, Tahoe Beach and
Ski Club, St. Augustine Beach Club, Magic Tree Resort, Sunburst Condominiums,
Tahoe Seasons Resort, Villas on the Lake and North Bay at Lake Arrowhead and
Kauai Beach Villas, each as created by a declaration of condominium or similar
document recorded in the public records of the county in which such resort is
located, or such other resort as Lender may approve, from time to time, in its
own discretion.
ARTICLE II
----------
BORROWER'S REPRESENTATIONS AND WARRANTIES
-----------------------------------------
AS TO MORTGAGE LOANS
--------------------
A. Section 2.2 of the Loan Agreement is hereby amended to add a new
Section 2.2(AK), that reads:
"AK. The aggregate Outstanding Principal Balance of Mortgage Loans relating
to all of Magic Tree Resort, Sunburst Condominiums, Tahoe Seasons Resort, Villas
on the Lake, North Bay at Lake Arrowhead, and Kauai Beach Villas does not exceed
10% of all Mortgage Loans."
B. Section 2.2 of the Loan Agreement is hereby further amended to add a
new Section 2.2(AL), that reads:
"AL. The aggregate Outstanding Principal Balance of Mortgage Loans relating
to any of Magic Tree, Sunburst Condominiums, Tahoe Seasons Resort, Villas on the
Lake, North Bay at Lake Arrowhead and Kauai Beach Villas, does not exceed 5.0%
of all Mortgage Loans."
C. Section 6.1(iii) of the Loan Agreement is hereby amended to add a new
Section 6.1(iii)(a)(III), that reads:
"and (III) stating the identity of the owner of Westpro Research Corporation
("Westpro") and that no more than $75,000 has been paid to Westpro during the
preceding calendar year."
D. Section 6.7(B) is hereby amended and restated to read in full as
follows:
"B. Indebtedness Ratio. Borrower will not permit the ratio of its
------------------
liabilities (defined as the sum of (i) liabilities as calculated in accordance
with GAAP and (ii) the sum of (1) the product of (x) contingent liabilities
related to the sale with recourse of Mortgage Loans related to Timeshare Estates
and (y) .20 and (2) all other contingent liabilities) to Tangible Net Worth (as
calculated in accordance with GAAP) to equal or exceed 15 to 1."
<PAGE>
E. Section 6.15 is hereby amended and restated to read in full as follows:
"6.15 Dividends; Bonuses. Neither the Borrower, any of its direct or
------------------
indirect subsidiaries, nor the parent (AVCOM International, Inc.) shall, without
the prior written consent of Lender, (i) pay any cash dividend to its respective
shareholders, (ii) pay cash bonuses to any officer or director in excess of
$250,000, or (iii) make any loans or advances to, investments in, or guaranties
of any obligations of, any Person, except in the ordinary course of Borrower's
business."
F. Conditions to Effectiveness of this Amendment. (1) On or before the
---------------------------------------------
date of execution of this Amendment (the "Effective Date"), Borrower shall
deliver to Lender:
(i) A resolution of its Board of Directors approving and authorizing the
execution, delivery and performance of this Amendment and approving and
authorizing the execution, delivery and payment of the Note;
(ii) an Officer's Certificate substantially in the form of Exhibit B hereto;
(iii) an executed copy of this Amendment and the executed Note; and
(iv) the Collateral;
(2) All actions and documents required to create and perfect the Lender's first
priority security interest and Liens in the Collateral shall have been duly
authorized and executed and delivered or taken and all filings with
governmental agencies shall have been made or taken and completed.
(3) Lender shall have received the initial $30,000 installment of its $360,000
commitment fee (the "Commitment Fee"), in immediately available funds,
which fee, if not previously paid, shall be netted out of the first Advance
on or subsequent to the execution of this Amendment. The remainder of such
Commitment Fee shall be paid by Borrower in installments of $30,000 in each
of the months of October, November and December of 1996 and January and
February of 1997, and the then remaining unpaid balance of the Commitment
Fee shall be paid by Borrower in March of 1997.
G. Representation by Counsel. Borrower hereby acknowledges to Lender that
-------------------------
it was represented by counsel during the course of the negotiation of this
Amendment.
H. Separate Counterparts. This Amendment may be executed by the parties
---------------------
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute but
one and the same instrument.
I. Ratification. The terms and provisions set forth in this Amendment
------------
shall modify and supersede all inconsistent terms and provisions set forth in
the Loan Agreement and except as expressly modified and superseded by this
Amendment to the Loan Agreement, the Loan Agreement is ratified and confirmed in
all respects and shall continue in full force and effect.
<PAGE>
WITNESS the due execution hereof by the respective duly authorized officers
of the undersigned as of the date first written above.
ALL SEASONS RESORTS, INC.
Borrower
By: /s/ Robert M. Eckenroth
------------------------------
Name: Robert M. Eckenroth
Title: Senior Vice President
Notice Address:
561 Highway 179
Sedona, Arizona 86336
Attention: Chief Financial Officer
Telephone: (520) 204-3424
Facsimile: (520) 282-9428
with a copy to:
the Attention of Portfolio Manager
CONTITRADE SERVICES L.L.C.
Lender
By: /s/ Jerome M. Perelson
--------------------------------
Name: Jerome M. Perelson
Title: Authorized Signatory
By: /s/ Scott M. Mannes
--------------------------------
Name: Scott M. Mannes
Title: Authorized Signatory
Notice Address:
277 Park Avenue
New York, New York 10172
Attention: Chief Counsel
Telephone: (212) 207-2800
Facsimile: (212) 207-2985
<PAGE>
AMENDED AND RESTATED PROMISSORY NOTE
$40,000,000.00 New York, New York
Dated: September 10, 1996
FOR VALUE RECEIVED, the undersigned ALL SEASONS RESORTS, INC. having its
principal place of business at 561 Highway 179, Sedona, Arizona ("Borrower"),
promises to pay to the order of ContiTrade Services L.L.C., a Delaware limited
liability company, with its principal office at 277 Park Avenue, New York, New
York 10172 ("Lender"), at Lender's principal office or at such other place as
the holder hereof may designate, in lawful money of the United States of America
and in immediately available funds, the principal sum of FORTY MILLION and
00/100 DOLLARS ($40,000,000.00) or the unpaid principal amount of each advance
("Advance") made by Lender to Borrower and recorded on the schedule attached
hereto, whichever is less, plus interest, as provided herein.
Borrower shall pay to Lender interest on each Advance from time to time
outstanding at the rate per annum equal to that rate which is three percent
(3.00%) in excess of LIBOR (as defined below). Such interest shall be due and
payable monthly in arrears commencing on the first Distribution Date (as defined
in the Loan Agreement) following the applicable date of an Advance and
continuing on each Distribution Date until and including payment in full of the
unpaid principal amount of such Advance plus accrued interest thereon. As used
herein, the term "LIBOR" means, as of 11:00 a.m. London time on any date of
-----
determination, the London interbank offered rate for one-month United States
dollar deposits as indicated on Telerate page 3750. If LIBOR cannot be so
determined, then LIBOR shall mean the rate so quoted on such date and time by
the Union Bank of Switzerland.
With respect to each Advance, Borrower shall pay to Lender on each
Distribution Date the Current Principal Amount (as defined in the Loan
Agreement) and on any of (i) the date set forth as the "Advance Maturity Date"
on the schedule attached hereto, (ii) ninety (90) days after the Advance
Maturity Date or (iii) a date, after the Advance Maturity Date but prior to
ninety (90) days after the Advance Maturity Date, provided Borrower has notified
Lender of such date not less than five (5) days prior to such date, in full the
outstanding principal amount of such Advance.
All Advances made by Lender hereunder and all payments made on account of
the principal hereof shall be recorded by Lender on the schedule attached to
this Note and any such recordation shall constitute prima facie evidence of the
----- -----
accuracy of the amount so recorded (provided that any failure by Lender to make
any such notation on such schedule shall not affect the obligations of Borrower
hereunder).
If any amount due hereunder is not paid when due (whether at stated
maturity, by acceleration or otherwise) or within any applicable grace period,
to the extent permitted by applicable law, such amount shall thereafter bear
interest payable on demand at a default interest rate of one month LIBOR plus
500 basis points.
<PAGE>
Interest shall be computed for the actual number of days elapsed on the
basis of a 360-day year. In no event shall interest be chargeable or
collectible hereunder in excess of the maximum lawful rate under applicable law.
Borrower promises to pay the holder hereof all costs and expenses of
collection of this Note and to pay all reasonable attorney's fees incurred in
such collection or in any suit or action to collect this Note and any appeal
thereof.
The provisions of this Note shall inure to the benefit of Lender and its
successors and assigns and be binding on Borrower and it successors and assigns.
This Note shall in all respects by governed by, and construed in accordance
with, the laws of the State of New York, including all matters of construction,
performance and validity. Borrower waives presentment and demand for payment,
notice of dishonor, protest and notice of protest of this Note. No failure or
delays by Lender in the exercise of any power or right under this Note shall
operate as a waiver thereof, and no exercised or waiver of any single power or
right, or the partial exercise thereof, shall affect Lender's rights with
respect to any and all other rights and powers.
Borrower hereby irrevocably consents and submits to the nonexclusive
jurisdiction and venue of any State or Federal Court sitting in New York County
over any action or proceeding arising out of or relating to this Note or any
document or instrument delivered in connection herewith, and Borrower hereby
irrevocably agrees that all claims in respect of such action or proceeding may
be heard and determined in such State or Federal Court. Borrower waives any
objection to any action or proceeding in any State or Federal Court sitting in
New York County on the basis of forum non conveniens. Borrower hereby waives
the right to trial by jury, rights of set-off and rights to interpose
counterclaims of any nature, except for compulsory counterclaims. Borrower
agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. Borrower further agrees that any action or
proceeding brought against Lender shall be brought only in any State or Federal
Court sitting in New York County. Borrower further agrees that in Lender's
discretion, it may serve legal process in any other manner permitted by law and
may bring any action or proceeding against Borrower or its property in the
courts of any other jurisdiction.
The unenforceability or invalidity of any provision or provisions of this
Note shall not render any other provision or provisions herein contained
unenforceable or invalid.
This Note evidences Indebtedness incurred under the Loan and Security
Agreement, dated as of July 13, 1995, as amended (the "Loan Agreement"), between
Borrower and Lender to which reference is made for a statement of the terms and
conditions on which the Borrower is permitted and required to make prepayments
and repayments of principal of the Indebtedness evidenced by this Note and on
which such Indebtedness may be declared to be immediately due and payable.
Payment of this Note is secured by the Collateral (as defined in the Loan
Agreement), and reference is hereby made to the Loan Agreement for a description
of the Collateral and the nature and extent of the collateral security and the
rights of the Lender in respect of such collateral security. Unless otherwise
defined, terms used herein have the meanings provided in the Loan Agreement.
<PAGE>
This Note cannot be amended, modified or changed in any way except by a
written instrument executed by both Borrower and Lender.
ALL SEASONS RESORTS, INC.
By: /s/ Robert M. Eckenroth
--------------------------
Name: Robert M. Eckenroth
Title: Senior Vice President
STATE OF ARIZONA )
-----------
) :ss
COUNTY OF COCONINO )
------------
On this 12th day of September , 1996, before me personally appeared
-------- -------------- -
Robert M. Eckenroth to me known who, being duly sworn did depose and say that
- ----------------------
he/she is the Senior Vice President of All Seasons Resorts, Inc., the
--------------------------- -------------------------
corporation described in and which executed the foregoing instrument; that he
knows the seal of said corporation; that the seal affixed to said instrument is
such corporate seal and that it was so affixed by order of the Board of
Directors of said corporation, and that he signed his name thereto by like
order.
/s/ Patricia Christy
--------------------------------
Notary Public
<PAGE>
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------
NINE MONTHS ENDED
----------------------------------------
DECEMBER 31, SEPTEMBER 31, SEPTEMBER 31,
1995 1995 1996
------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
NET INCOME:
As reported....... $ 10,913 $ 7,062 $ 10,061
PRO FORMA
ADJUSTMENTS:
Consolidation
Transactions/
Initial Public
Offering..........
The Merger........
Pro forma net
income..........
APPLICABLE COMMON
SHARES:
Average
outstanding
common shares
during the
period............ 11,354,705 11,354,705 12,219,128
Outstanding stock
options (a)....... 102,631
Conversion of
AVCOM common
shares upon
Merger at .16.....
---------- ---------- ----------
Adjusted
weighted average
number of common
and common share
equivalents
outstanding..... 11,354,705 11,354,705 12,321,759
---------- ---------- ----------
NET INCOME PER
COMMON SHARE....... $ 0.96 $ 0.62 $ 0.82
========== ========== ==========
PRO FORMA NET
INCOME PER COMMON
SHARE..............
<CAPTION>
PRO FORMA (UNAUDITED)
--------------------------------------------------------------------------------
NINE MONTHS ENDED
-----------------------------------------------------
DECEMBER 31, 1995 SEPTEMBER 31, 1995 SEPTEMBER 31, 1996
-------------------------- -------------------------- --------------------------
CONSOLIDATION CONSOLIDATION CONSOLIDATION
TRANSACTIONS/ TRANSACTIONS/ TRANSACTIONS/
INITIAL PUBLIC INITIAL PUBLIC INITIAL PUBLIC
OFFERING THE MERGER OFFERING THE MERGER OFFERING THE MERGER
-------------- ----------- -------------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
NET INCOME:
As reported....... $ 10,913 $ 10,913 $ 7,062 $ 7,062 $ 10,061 $ 10,061
PRO FORMA
ADJUSTMENTS:
Consolidation
Transactions/
Initial Public
Offering.......... (1,250) (1,250) (730) (730) (1,308) (1,308)
The Merger........ 1,040 1,274 (1,974)
-------------- ----------- -------------- ----------- -------------- -----------
Pro forma net
income.......... $ 9,663 $ 10,703 $ 6,332 $ 7,606 $ 8,753 $ 6,779
-------------- ----------- -------------- ----------- -------------- -----------
APPLICABLE COMMON
SHARES:
Average
outstanding
common shares
during the
period............ 17,392,205 17,392,205 17,392,205 17,392,205 17,392,205 17,392,205
Outstanding stock
options (a)....... 102,631 102,631
Conversion of
AVCOM common
shares upon
Merger at .16..... 843,942 843,942 843,942
-------------- ----------- -------------- ----------- -------------- -----------
Adjusted
weighted average
number of common
and common share
equivalents
outstanding..... 17,392,205 18,236,147 17,392,205 18,236,147 17,494,836 18,338,778
-------------- ----------- -------------- ----------- -------------- -----------
NET INCOME PER
COMMON SHARE.......
PRO FORMA NET
INCOME PER COMMON
SHARE.............. $ 0.56 $ 0.59 $ 0.36 $ 0.42 $ 0.50 $ 0.37
============== =========== ============== =========== ============== ===========
</TABLE>
- ----
(a)Based on the treasury stock method.
<PAGE>
EXHIBIT 12
STATEMENTS RE COMPUTATION OF RATIOS
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED SEPTEMBER 30 PRO FORMA(a)
------------------------------- ---------------- --------------------------
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1992 1993 1994 1995 1995 1996 1996 1995
------ ------ ------ ------- ------- ------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings
Pretax Income.......... $2,090 $2,293 $4,291 $11,554 $ 7,272 $10,600 $10,600 $11,554
------ ------ ------ ------- ------- ------- ------- -------
Plus:
Interest Charges...... 514 1,706 4,609 6,632 4,814 8,850 7,350 4,632
Less: Amounts
Capitalized.......... 346 514 2,021 2,570 1,937 2,960 2,960 2,570
------ ------ ------ ------- ------- ------- ------- -------
Net Interest
Expense............ 168 1,192 2,588 4,062 2,877 5,890 4,390 2,062
------ ------ ------ ------- ------- ------- ------- -------
Amortization of Debt
Expense.............. 49 323 194 372 318 415 415 372
Amortization of
Previously
Capitalized Interest. 76 259 1,384 1,766 1,382 2,150 2,150 1,766
Less: JV Profit/(Loss). 0 0 (271) (1,649) (1,293) (95) (95) (1,649)
------ ------ ------ ------- ------- ------- ------- -------
TOTAL EARNINGS.......... $2,383 $4,067 $8,728 $19,403 $13,142 $19,150 $17,650 $17,403
====== ====== ====== ======= ======= ======= ======= =======
Fixed Charges
Interest Charges....... $ 514 $1,706 $4,609 $ 6,632 $ 4,814 $ 8,850 $ 7,350 $ 4,632
Amortization of Debt
Expense............... 49 323 194 372 318 415 415 372
------ ------ ------ ------- ------- ------- ------- -------
TOTAL FIXED CHARGES..... $ 563 $2,029 $4,803 $ 7,004 $ 5,132 $ 9,265 $ 7,765 $ 5,004
====== ====== ====== ======= ======= ======= ======= =======
RATIO................... 4.23x 2.00x 1.82x 2.77x 2.56x 2.07x 2.27x 3.48x
</TABLE>
- --------
(a) Adjusted to give effect to the net decrease in interest expense resulting
form the portion of the convertible debt portion of the Proposed Offerings
used to retire existing indebtedness of Signature, as if such transactions
had occurred at the beginning of the period presented.
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF SIGNATURE RESORTS, INC.
<TABLE>
<CAPTION>
NAME JURISDICTION OF ORGANIZATION
---- ----------------------------
<S> <C>
Premier Resort Management,
Inc. ..................... Georgia
KGI Port Royal, Inc. ...... California
Argosy Hilton Head, Inc. .. Georgia
Argosy/KGI Port Royal
Partners.................. South Carolina (general partnership)
Port Royal Resort, L.P. ... South Carolina
KGI Grand Beach
Investments, Inc. ........ California
Argosy Grand Beach, Inc. .. Georgia
Argosy Partners, Inc. ..... Georgia
Argosy/KGI Grand Beach
Investment Partnership.... California (general partnership)
Grand Beach Partners,
L.P. ..................... California
Grand Beach Resort, Limited
Partnership............... Georgia
AKGI Lake Tahoe
Investments, Inc. ........ California
KGK Lake Tahoe Development,
Inc. ..................... California
Lake Tahoe Resort Partners,
LLC....................... California
Resort Marketing
International, Inc. ...... California
AKGI--St. Maarten NV....... Delaware/Netherlands Antilles (dually incorporated)
Resort Management
International, Inc. ...... Georgia
Resort Management
International, Inc. ...... California
AKGI Poipu Investments,
Inc. ..................... California
Argosy/KGI Poipu Investment
Partners, L.P. ........... Hawaii
</TABLE>
<PAGE>
EXHIBIT 23.2
CONSENT OF EXPERT
We hereby consent to the use of our name whenever appearing in this
Registration Statement on Form S-4 (Registration No. 333-16339), including the
Prospectus/Proxy Statement of AVCOM International, Inc. and Signature Resorts,
Inc., for the registration of shares of the common stock of Signature Resorts,
Inc. We also consent to the reference to our firm under the caption "LEGAL
MATTERS" in the Registration Statement.
GALLAGHER & KENNEDY, P.A.
/s/ Gallagher & Kennedy, P.A.
December 19, 1996
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated May 31, 1996, except for Note 12, as to which the
date is July 1, 1996, with respect to the consolidated financial statements of
AVCOM International, Inc. included in the Proxy Statement/Prospectus and
Registration Statement of AVCOM International, Inc. and Signature Resorts,
Inc. (Form S-4 No. 333-16339) for the registration of up to 1,494,957 shares
of common stock of Signature Resorts, Inc.
ERNST & YOUNG LLP
Phoenix, Arizona
December 18, 1996
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use of
our report (and to all references to our firm) included in or made a part of
this Registration Statement (No. 333-16339).
ARTHUR ANDERSEN LLP
Orlando, Florida
December 20, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS AMENDED FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM DECEMBER 31, 1995 AND SEPTEMBER 30, 1996 FINANCIAL STATEMENTS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 SEP-30-1996
<CASH> 6,287,447 11,339,003
<SECURITIES> 0 0
<RECEIVABLES> 70,689,139 93,648,745
<ALLOWANCES> 2,433,361 5,693,022
<INVENTORY> 46,757,151 85,030,279
<CURRENT-ASSETS> 0 0
<PP&E> 1,863,579 2,732,399
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 141,241,310 214,528,552
<CURRENT-LIABILITIES> 0 0
<BONDS> 0 0
0 0
0 0
<COMMON> 0 173,922
<OTHER-SE> 38,470,052 99,940,743
<TOTAL-LIABILITY-AND-EQUITY> 141,241,310 214,528,552
<SALES> 59,070,917 49,458,553
<TOTAL-REVENUES> 72,607,778 63,731,680
<CGS> 15,649,805 11,254,793
<TOTAL-COSTS> 16,838,307 12,303,290
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 1,786,811 1,371,926
<INTEREST-EXPENSE> 4,061,620 5,889,713
<INCOME-PRETAX> 11,554,333 10,600,133
<INCOME-TAX> 641,545 539,204
<INCOME-CONTINUING> 10,912,788 10,060,929
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 10,912,788 10,060,929
<EPS-PRIMARY> .63 .82
<EPS-DILUTED> .63 .82
</TABLE>
<PAGE>
EXHIBIT 99
LOGO
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY 10, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
AVCOM INTERNATIONAL, INC.
P.O. BOX 1243
SEDONA, ARIZONA 86339
The undersigned hereby appoints Gary L. Hughes and John R. Stevens as
Proxies, each with the power to appoint his substitute, and hereby authorizes
either one or both of them to represent and to vote, as designated below, all
the shares of common stock of AVCOM International, Inc. ("AVCOM") held of
record by the undersigned on December 12, 1996, at the Special Meeting of
Shareholders to be held at 8:00 a.m., local time, on January 10, 1997, at Poco
Diablo Resort, 1736 Highway 179, Sedona, Arizona.
The Board of Directors recommends a vote FOR Proposal 1.
1. PROPOSAL TO: approve the Agreement and Plan of Merger, dated September 22,
1996, as amended (the "MERGER AGREEMENT"), by and between Signature Resorts,
Inc. ("SIGNATURE"), and AVCOM, pursuant to which, among other matters, (a) ASP
Acquisition Corp., a wholly-owned subsidiary of Signature will merge with and
into AVCOM and (b) the shares of AVCOM Stock will be converted into the right
to receive shares of Signature Stock, as described in the Proxy
Statement/Prospectus dated December 20, 1996.
FOR [_] AGAINST [_] ABSTAIN [_]
LOGO
2. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSAL 1 ABOVE.
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such.
If a corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
DATED: ________________ , 199
-----------------------------------
Signature
-----------------------------------
Signature if held jointly
